SCHEDULE 13D/A: Madryn Asset Management Boosts Stake in Venus Concept Amidst Debt Restructuring and Reverse Stock Split

Madryn Asset Management, a significant lender and investor, has increased its beneficial ownership in Venus Concept Inc. to 20% following a series of debt-to-equity exchanges and a recent 11:1 reverse stock split.

Summary

• Madryn Asset Management, LP and its affiliated funds (Madryn Health Partners, LP and Madryn Health Partners (Cayman Master), LP) collectively beneficially own 174,735 shares of Venus Concept Inc. Common Stock, representing approximately 20.0% of the outstanding shares.
• Venus Concept Inc. effected an 11:1 reverse stock split on March 3, 2025, impacting all share and per-share amounts reported.
• The Reporting Persons have engaged in multiple debt-to-equity exchange agreements with Venus Concept, converting various debt instruments into preferred stock and convertible notes.
• On October 4, 2023, $26,695,110.54 of 2020 Convertible Notes were exchanged for $22,791,748.32 in 2023 Convertible Notes and 248,755 shares of Series X Convertible Preferred Stock.
• On May 24, 2024, $35,000,000 of senior indebtedness under the MSLP Loan Agreement was exchanged for 576,986 shares of Series Y Convertible Preferred Stock at an issuance price of $60.66 per share.
• On September 26, 2024, an additional $15,000,000 of senior indebtedness under the MSLP Loan Agreement was exchanged for 203,583 shares of Series Y Preferred Stock at an issuance price of $73.68 per share.
• On March 31, 2025, the 2023 Convertible Notes were exchanged for $17,015,808.33 in 2025 Convertible Notes and 379,311 shares of Series Y Preferred Stock at an issuance price of $29.00 per share.
• The Series X Preferred Stock accrues a 12.5% annual dividend, payable quarterly in cash or additional Series X shares, until December 31, 2026.
• The Series Y Preferred Stock carries a liquidation preference equal to 2.0 times its issuance price, senior to all other capital stock.
• A significant number of shares (over 10 million potential Common Stock shares from Series X, Series Y, and 2025 Convertible Notes) are currently not convertible due to limitations imposed by Nasdaq Capital Market rules.
• The 2025 Exchange Agreement requires Venus Concept to hold a shareholder meeting by June 30, 2025, to approve the issuance of Common Stock underlying the 2025 Convertible Notes, Series X Preferred Stock, and Series Y Preferred Stock.
• Madryn has proposed a non-binding restructuring of the Company's debt and equity capital structure, aiming to become the majority owner on a fully diluted basis, which would involve exchanging debt for Common Stock and entering a new senior secured credit facility.

Sentiment

Score: 4

Explanation: The sentiment is cautiously negative. While Madryn's active involvement and willingness to restructure debt are positive signs of commitment, the underlying need for a reverse stock split and continuous debt-to-equity conversions points to significant financial distress and ongoing challenges for Venus Concept. The uncertainty of the proposed restructuring and Nasdaq limitations add to the negative outlook.

Positives

• Madryn Asset Management is taking an active role in working with Venus Concept's management and board on operational, financial, and strategic initiatives, including evaluating strategic alternatives.
• The proposed restructuring by Madryn aims to stabilize the company's capital structure, potentially providing a path forward for the financially distressed company.
• Madryn's continued investment and conversion of debt to equity demonstrates a commitment to the company's long-term viability.

Negatives

• The company has undergone a significant 11:1 reverse stock split, often indicative of a low share price and potential delisting risk.
• The continuous need for debt-to-equity exchanges and a comprehensive capital restructuring suggests ongoing financial distress and liquidity challenges for Venus Concept.
• A substantial number of shares underlying the preferred stock and convertible notes cannot currently be issued due to Nasdaq Capital Market rules, creating uncertainty and limiting full conversion for investors.
• The proposed restructuring is non-binding and subject to various conditions, including definitive documentation, successful equity financing, and requisite stockholder consents, meaning there is no assurance it will be consummated.

Risks

• Uncertainty regarding the consummation of the proposed debt and equity restructuring, which is non-binding and subject to multiple conditions.
• Risk of non-approval by shareholders for the issuance of Common Stock underlying the convertible notes and preferred stock, which could impact Madryn's ability to fully convert its holdings and the company's capital structure.
• Potential for further dilution for existing shareholders if the proposed restructuring leads to Madryn and its affiliates becoming majority owners on a fully diluted basis.
• Ongoing compliance with Nasdaq listing standards, especially given the reverse stock split and limitations on share convertibility.

Future Outlook

The Reporting Persons intend to continue reviewing their investments and may acquire or dispose of additional securities. They plan to remain actively engaged with Venus Concept's management and board on strategic initiatives, including the evaluation of potential strategic alternatives. Discussions are ongoing regarding the implementation of a proposed non-binding restructuring that could lead to the Reporting Persons becoming majority owners of the Company's common stock on a fully diluted basis. A shareholder meeting is required by June 30, 2025, to approve the issuance of shares underlying various convertible securities due to Nasdaq limitations.

Management Comments

• "The Reporting Persons have taken and intend to continue to take an active role in working with the Company's management and the board of directors on operational, financial and strategic initiatives, including in connection with the evaluation by the Company's board of directors of potential strategic alternatives."
• "The Reporting Persons may, from time to time, acquire or cause affiliates to acquire additional shares of Common Stock or other securities of the Company (including any combination or derivative thereof), dispose, or cause affiliates to dispose, of some or all of their Common Stock or other securities of the Company or continue to hold, or cause affiliates to hold, Common Stock or other securities of the Company."
• "The Company and the Reporting Persons have engaged and intend to continue to engage in discussions relating to the implementation of the transactions contemplated by the Proposal and alternatives to such transactions."

Industry Context

NA

Corporate Governance

Related Party Transactions

• The Credit Agreement between Venus Concept Ltd. (predecessor) and the Funds, and Venus Concept Inc. joining as guarantor.
• The acquisition of 2020 Convertible Notes by the Funds from the Company.
• The 2023 Exchange Agreement, where the Funds exchanged 2020 Convertible Notes for 2023 Convertible Notes and Series X Preferred Stock.
• The May 2024 Exchange Agreement, where the Funds exchanged senior indebtedness under the MSLP Loan Agreement for Series Y Preferred Stock.
• The September 2024 Exchange Agreement, where the Funds exchanged senior indebtedness under the MSLP Loan Agreement for Series Y Preferred Stock.
• The 2025 Exchange Agreement, where the Funds exchanged 2023 Convertible Notes for 2025 Convertible Notes and Series Y Preferred Stock.
• The purchase of the entire outstanding principal amount of the MSLP Loan by the Funds from City National Bank of Florida.

Stakeholder Impact

• **Shareholders**: Potential for significant dilution if the proposed restructuring leads to Madryn becoming a majority owner on a fully diluted basis. The reverse stock split also impacts share count and price per share. Shareholder approval is required for future share issuances.
• **Creditors (Madryn as a lender)**: Madryn is actively converting its debt holdings into equity, indicating a shift in its role from primarily a creditor to a significant equity holder, potentially reducing the company's debt burden but increasing equity risk.
• **Employees**: The document does not directly mention employee impact, but significant financial restructuring can often lead to operational changes that may affect employees.
• **Customers/Suppliers**: The document does not directly mention customer or supplier impact, but a stabilized financial position could ensure continued operations and product availability.

Next Steps

• Venus Concept Inc. is required to hold a meeting of shareholders no later than June 30, 2025, to approve the issuance of Common Stock underlying the 2025 Convertible Notes, Series X Preferred Stock, and Series Y Preferred Stock.
• Ongoing discussions between the Company and the Reporting Persons regarding the implementation of the proposed debt and equity restructuring and alternatives to such transactions.
• The Reporting Persons will continue to review their investment in the Company and may acquire or dispose of additional securities.

Key Dates

Keywords

SEC filing, Schedule 13D, Venus Concept Inc., Madryn Asset Management, Debt restructuring, Equity financing, Convertible notes, Preferred stock, Reverse stock split, Beneficial ownership, Nasdaq Capital Market, Corporate governance, Investment fund, Strategic alternatives