Full Press Release Details
Our operations and financial results are subject to various risk and uncertainties, including those described below, any of which could adversely affect
our business, results of operations, financial condition and prospects. In such an event, the market price of our Common Stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also adversely affect our business operations. You should carefully consider the risks described below. On November 7, 2019, we completed the Merger. For additional information related to the Merger,
see the Current Report on Form 8-K that we filed with the SEC on November 7, 2019 and the Current Report on Form 8-K/A that we filed with the SEC on
Risks Related to Our Business
Following the Merger, we may be unable to integrate successfully the businesses of Restoration Robotics and Venus Concept Ltd. and realize the
anticipated benefits of the Merger.
The Merger, which closed on November 7, 2019, involved the combination of two companies which operated as
independent companies. Following the Merger, we have been required to devote significant management attention and resources to integrating our business practices and operations. We may fail to realize some or all of the anticipated benefits of the
Merger if the integration process takes longer than expected or is more costly than expected. Potential difficulties we may encounter in the integration process include the following:
Restoration Robotics and Venus Concept Ltd.
have operated independently prior to the Merger. The integration process may also result in the diversion of management s attention, the disruption or interruption of, or the loss of momentum in, each company s ongoing businesses or
inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, suppliers and employees or the ability to achieve the anticipated benefits of the Merger, or
could reduce the earnings or otherwise adversely affect the business and financial results of the combined company.
The unaudited pro forma
condensed combined financial data for Restoration Robotics and Venus Concept Ltd. is preliminary, and our actual financial position and operations after the Merger may differ materially from the unaudited pro forma combined financial data.
The unaudited pro forma combined financial data for Restoration Robotics and Venus Concept Ltd. is presented for illustrative purposes only and is
not necessarily indicative of the
combined company s actual financial condition or results of operations of future periods, or the financial condition or results of operations that would have been realized had the entities
been combined during the periods presented. The combined company s actual results and financial position after the Merger may differ materially and adversely from the unaudited pro forma financial data. The purchase price allocation reflected
herein is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of Restoration Robotics as of the date of the completion of the Merger. Further, the
combined company expects to recognize a significant amount of additional goodwill in the Merger. The goodwill will be subject to annual impairment assessments and a material change may be necessary if the results of operations and cash flows are
unable to support the goodwill subsequent to the Merger.
Our product sale strategy is focused primarily on a subscription-based business model, and
the success of this sales strategy depends on the continued adoption and use of our subscription-based products and services.
financial barriers faced by physicians and aesthetic service providers globally, in our direct operations, we focus our product sale strategy on a subscription-based business model. Our subscription-based model includes an up-front fee and a monthly payment schedule, typically over a period of 36 months, with approximately 40% of total contract payments collected in the first year. If economic circumstances are appropriate, we
provide customers in good standing with the opportunity to upgrade to new agreements for the newest available or alternative technology we provide throughout the subscription period. Our success depends on growing market adoption by
traditional and non-traditional providers and use of our subscription-based business model. Our subscription-based model may not be adopted by customers and potential customers at the rate we anticipate. Our
ability to increase the number of customers who purchase our products and services or participate in our subscription-based programs and make our products a significant part of their practices, depends in part on the success of our direct sales and
marketing programs. Before potential customers make a subscription-based purchase, they may need to recoup the cost of products that they have already purchased from competitors, and therefore they may decide to delay participating in our
subscription-based programs, or decide not to participate at all. If we are unable to increase market adoption and use of our products and services through our subscription-based model, the number of systems we sell may be lower than anticipated.
Our subscription-based model exposes us to the credit risk of our customers over the life of the subscription agreement. In the event that our
customers fail to make the monthly payments under their subscription agreements, our financial results may be adversely affected.
ended December 31, 2018 and 2017, approximately 75% and 77%, respectively, of our system revenues were derived from our subscription-based model. For the nine months ended September 30, 2019 and 2018, approximately 70% and 77%,
respectively, of system revenues were derived from our subscription-based model. Although the ARTAS System will not be available under our subscription-based model, we expect that our
subscription-based business model to continue to represent the majority of our revenue for the foreseeable future. We collect an up-front fee, combined with a monthly payment schedule typically over a period
of 36 months, with approximately 40% of total contract payments collected in the first year. For accounting purposes, these arrangements are considered to be sales-type finance leases, where the present value of all cash flows to be received under
the subscription agreement is recognized as revenue upon shipment of the system to the customer. As part of our sales and marketing effort, we do not require our customers to undergo a credit check or register a lien or security interest under the
Uniform Commercial Code or similar legislation, as is typically required with a third-party equipment leasing financing. Instead, to ensure that each monthly product payment is made on time and that the customer s systems are serviced in
accordance with the terms of the warranty, every product requires a monthly activation code, which we provide to the customer upon receiving each monthly payment. If a customer does not timely pay a monthly installment, the customer will not receive
an activation code and will be unable to use the system for any procedures. This process does not protect us from the economic impact of a customer s failure to make its monthly payments and as an unsecured creditor, we are subject to a greater
risk in the event of a customer default. We cannot provide any assurance that the financial position of customers
purchasing its products and services under a subscription agreement will not change adversely before we receive all of the monthly installment payments due under the contract. In the event that
there is a default by any of the customers to whom we have sold systems under the subscription-based model, we may recognize bad debt expenses in our general and administrative expenses. If this bad debt expense is material, it could negatively
affect our results of operations and cash flows.
One of our large customers filed for bankruptcy protection in February 2019 and we recorded a
provision for bad debts of $8.3 million against the receivable for this customer for the year ended December 31, 2018, and if we experience other customer defaults under our subscription agreements, our financial results may be adversely
In February 2019, one of our large customers filed for bankruptcy protection. Prior to the bankruptcy filing, we had entered into
numerous subscription agreements between 2015 and 2017 with this customer. We recorded a provision for bad debts of $8.3 million against the receivable for this customer for the year ended December 31, 2018. In connection with the
bankruptcy, the debtors filed an adversary action against Venus Concept Ltd. (and several others) seeking to avoid any security interest of Venus Concept Ltd., to recover 89 units that had been transferred back to Venus Concept Ltd., the return of
approximately $150,000 paid to Venus Concept Ltd. within the 90 days before the bankruptcy filing and to disallow Venus Concept Ltd. s asserted claim of approximately $5.9 million. Venus Concept Ltd. and the debtors entered into a
settlement agreement, which was approved by the bankruptcy court on May 24, 2019, pursuant to which, among other things, a third-party purchaser would buy and assume certain units from the debtors and pay a total of approximately
$2.7 million to Venus Concept Ltd. over 25 months, debtors would release and waive any and all claims against us, including the preference claim, we would retain and have all rights to previously terminated units, and any units in possession of
the debtors or that were subsequently discovered to be property of the debtor would be returned to us without further cost to us. Pursuant to the settlement agreement, Venus Concept Ltd. agreed to waive and release the debtors from all claims (other
than those specifically carved out). We do not anticipate receiving any further distribution from this customer s bankruptcy due to the releases provided for in the settlement agreement. Although we are currently receiving monthly payments
under the new agreement with the purchaser of this customer s assets, we cannot assure you that we will receive the full amount. Furthermore, we cannot assure you that we will not experience further customer defaults under our subscription
agreements that could have a material adverse effect on our financial position.
We offer credit terms to some qualified customers. In the
event that any of these customers default on the amounts payable to us, our financial results may be adversely affected.
subscription-based model, we generally offer credit terms of 30 to 60 days to qualified customers and distributors. In the event that there is a default by any of the customers to whom we have provided credit terms, we may recognize bad debt
expenses in our general and administrative expenses. If this bad debt expense is material, it could negatively affect our future results of operations and cash flows. Additionally, in the event of deterioration of general business conditions, we may
be subject to increased risk of non-payment of our accounts receivables. We may also be adversely affected by bankruptcies or other business failures of our customers, distributors, and potential customers. A
significant delay in the collection of accounts receivables or a reduction of accounts receivables collected may impact our liquidity or result in bad debt expenses.
Our competitors may emulate our subscription-based model and erode our competitive advantage.
Our subscription-based model allows us to penetrate new markets and access a broader customer base because it offers an alternative to traditional equipment
lease financing. For the nine months ended September 30, 2019 and the year ended December 31, 2018, approximately 70% and 75%, respectively, of systems revenues were derived from the subscription-based model. However, to the extent we
continue to be successful in growing the market adoption of our products through our subscription-based model, competitors may seek to emulate this model. Although, we believe that our products compete effectively with the products offered by our
customers may be more willing to purchase the products of our competitors if they were offered through a subscription-based model. If customers decide to use the products of its competitors
instead of our systems, our financial performance will be adversely affected.
Our recurring losses from operations and negative cash flows raise
substantial doubt about our ability to continue as a going concern.
We have had recurring net operating losses and negative cash flows from
operations, and until we generate revenue at a level to support our cost structure, we expect to continue to incur substantial operating losses and net cash outflows. As of September 30, 2019 and December 31, 2018, we had an accumulated
deficit of $54.9 million and $35.1 million, respectively. Our recurring losses from operations and negative cash flows raise substantial doubt about our ability to continue as a going concern, meaning that we may be unable to continue
operations for the foreseeable future or realize assets and discharge liabilities in the ordinary course of operations. In order to continue our operations, we must achieve profitable operations and/or obtain additional equity or debt financing.
There can be no assurance that we will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to us. If we are unable to raise sufficient additional capital, we may be compelled to reduce
the scope of our operations and planned capital or research and development expenditures or sell certain assets, including intellectual property assets. The report of Venus Concept Ltd. s independent registered public accounting firm on its
consolidated financial statements as of and for the years ended December 31, 2018 and 2017, which are incorporated herein by reference, includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue
as a going concern. The perception of our ability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the loss of confidence by investors, suppliers and
employees. Our consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Concept s loan and security agreements contain restrictions that limit its flexibility in operating its business.
On October 11, 2016,
Venus Concept Ltd. entered into a credit agreement as a guarantor with Madryn Health Partners, LP, as administrative agent, and certain of its affiliates as lenders, or collectively, Madryn, as amended, or the Madryn Credit Agreement, pursuant to
which Madryn agreed to make certain loans to certain of Venus Concept s subsidiaries, or the Subsidiary Obligors. On November 7, 2019, in connection with the Merger, we joined the Madryn Credit Agreement as a guarantor pursuant to that
certain Tenth Amendment to Credit Agreement, Consent and Joinder Agreement. The Madryn Credit Agreement is comprised of four tranches of debt aggregating $70.0 million. As at September 30, 2019, the Subsidiary Obligors had borrowed
$60.0 million under the term A-1 and A-2 and B tranches of the Madryn Credit Agreement. Term C borrowings of $10.0 million were undrawn and are no longer
available. Borrowings under the Madryn Credit Agreement are secured by substantially all of our assets and the assets of the Subsidiary Obligors. The outstanding principal amount of the loans and all accrued and unpaid interest are due and payable
in full on September 30, 2022.
The Madryn Credit Agreement also contains various covenants that limit our ability and the ability of our
subsidiaries to engage in specified types of transactions. Subject to limited exceptions, these covenants limit our ability, without Madryn s consent, to, among other things:
In addition, the Madryn Credit Agreement contains certain covenants that require us together with our subsidiaries to achieve certain minimum revenue and
liquidity thresholds. The minimum revenue and liquidity covenants require that we and our subsidiaries, on a consolidated basis, achieve (i) minimum reported revenue targets for any four consecutive fiscal quarter period of an amount equal to
the greater of (A) $100,000,000 and (B) one hundred and fifty percent (150%) of the aggregate outstanding amount of the loans as of the last day of such four consecutive fiscal quarter period, (ii) minimum levels of cash held in
deposit accounts controlled by Madryn to be no less than $2,000,000 and (iii) minimum levels of cash held in all deposit accounts, plus availability under the CNB Loan Agreement (as defined below), to be no less than $5,000,000.
Prior to the Merger, Venus Concept Ltd. had failed to satisfy minimum liquidity covenant and failed to timely pay an interest payment, which non-compliance and default was waived. If we together with our subsidiaries fail to comply with these covenants in the future, such failure will result in a default and enable Madryn to require us and the Subsidiary
Obligors to repay all outstanding principal amounts and accrued interest. In the event of a default, if we and the Subsidiary Obligors are unable to repay all outstanding amounts, Madryn may foreclose on the collateral granted to it to collateralize
the indebtedness, which will significantly affect our ability to operate our business.
If all or any portion of the loans under the Madryn Credit
Agreement are prepaid then a prepayment premium must be paid equal to: (i) 6.50% if prepaid after August 31, 2019 but on or prior to August 31, 2020; (ii) 5.00% if prepaid after August 31, 2020 but on or prior to
February 28, 2021; (iii) 4.00% if prepaid after February 28, 2021 but on or prior to August 31, 2021; (iv) 3.00% percent if prepaid after August 31, 2021 but on or prior to February 28, 2022; and (v) 2.00% if