Table of Contents

		Page
Part I.	Financial Information	2
Item 1.	Condensed Consolidated Financial Statements (unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Loss	~~Condensed ConsolidatedStatementsof ComprehensiveLoss~~4	4
	Condensed Consolidated ~~Statement~~Statements of ~~Convertible Preferred Stock and~~ Stockholders’ ~~Deficit~~Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to the Condensed Consolidated Financial Statements	7
Item 2.	~~Management’s~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	2625
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3345
Item 4.	Controls and Procedures	3345
PART II.	~~OTHER INFORMATION~~Other Information	3546
Item 1.	Legal Proceedings	3546
Item 1A.	Risk Factors	3546
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6547
Item 3.	Defaults Upon Senior Securities	6548
Item 4.	Mine Safety Disclosures	6548
Item 5.	Other Information	6548
Item 6.	Exhibits	6648
Signatures		6749
~~Exhibit Index~~

PART I

~~PART~~ I

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~RESTORATION ROBOTICS,~~

VENUS CONCEPT INC.

Condensed Consolidated Balance Sheets

(Unaudited)

_{(in thousands, except share and per share data)}

September 30,

December 31,

2017

2016

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$
5,769

$
11,906

Accounts receivable

3,222

2,481

Inventory

2,677

2,742

Prepaid expenses and other current assets

858

810

Total current assets

12,526

17,939

Property and equipment, net

1,189

1,459

Other assets

2,323

100

TOTAL ASSETS

$
16,038

$
19,498

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES:

Accounts payable

$
2,934

$
1,740

Accrued and other liabilities

2,997

2,438

Deferred revenue

1,437

1,423

Current portion of long-term debt, net of discount of $340 and $551 as of September 30, 2017
   and December 31, 2016

7,659

7,449

Convertible promissory notes

5,018

—

Total current liabilities

20,045

13,050

Other long-term liabilities

488

563

Preferred stock warrant liabilities

2,311

693

Long-term debt, net of discount of $70 and $299 as of September 30, 2017 and December 31,
   2016

7,230

13,001

TOTAL LIABILITIES

30,074

27,307

Commitments and Contingencies (Note 6)

Convertible preferred stock, $0.0001 par value; 236,154,444 shares authorized as of
   September 30, 2017 and December 31, 2016; 22,671,601 and 21,142,295 shares issued and
   outstanding as of September 30, 2017 and December 31, 2016; aggregate liquidation preference
   of $153,166 as of September 30, 2017 and $142,231 as of December 31, 2016

145,944

135,735

STOCKHOLDERS’ DEFICIT:

Common stock, $0.0001 par value: 350,490,000 shares authorized as of September 30, 2017 and
   December 31, 2016; 1,624,464 and 1,615,495 shares issued and outstanding as of September 30,
   2017 and December 31, 2016

—

—

Additional paid-in capital

3,452

3,087

Accumulated other comprehensive income (loss)

(8
)

14

Accumulated deficit

(163,424
)

(146,645
)
TOTAL STOCKHOLDERS’ DEFICIT

(159,980
)

(143,544
)
TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’
   DEFICIT

$
16,038

$
19,498

	*June 30,*			*December 31,*
	*2023*			*2022*
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	6,122		$	11,569
Accounts receivable, net of allowance of $13,233 and $13,619 as of June 30, 2023, and December 31, 2022, respectively		37,520			37,262
Inventories		22,936			23,906
Prepaid expenses		1,481			1,688
Advances to suppliers		5,749			5,881
Other current assets		1,984			3,702
Total current assets		75,792			84,008
LONG-TERM ASSETS:
Long-term receivables, net		12,082			20,044
Deferred tax assets		876			947
Severance pay funds		586			741
Property and equipment, net		1,640			1,857
Operating right-of-use assets, net		4,983			5,862
Intangible assets		10,197			11,919
Total long-term assets		30,364			41,370
TOTAL ASSETS	$	106,156		$	125,378
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payables	$	8,293		$	8,033
Accrued expenses and other current liabilities		13,063			16,667
Current portion of long-term debt		7,735			7,735
Income taxes payable		434			117
Unearned interest income		1,915			2,397
Warranty accrual		880			1,074
Deferred revenues		1,050			1,765
Operating lease liabilities		1,571			1,807
Total current liabilities		34,941			39,595
LONG-TERM LIABILITIES:
Long-term debt		70,683			70,003
Income tax payable		385			374
Deferred tax liabilities		6			—
Accrued severance pay		696			867
Unearned interest revenue		552			957
Warranty accrual		377			408
Operating lease liabilities		3,666			4,221
Other long-term liabilities		392			215
Total long-term liabilities		76,757			77,045
TOTAL LIABILITIES		111,698			116,640
Commitments and Contingencies (Note 9)
STOCKHOLDERS’ EQUITY (Note 14):
Common Stock, $0.0001 par value: 300,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 5,526,481 and 5,161,374 issued and outstanding as of June 30, 2023, and December 31, 2022, respectively		30			29
Additional paid-in capital		235,467			232,169
Accumulated deficit		(241,719	)		(224,105	)
TOTAL STOCKHOLDERS’ EQUITY		(6,222	)		8,093
Non-controlling interests		680			645
		(5,542	)		8,738
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	106,156		$	125,378

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~RESTORATIONROBOTICS,~~

Table of Contents

VENUS CONCEPT INC.

Condensed Consolidated Statements of Operations

(Unaudited)

_{(in thousands, except share and per share data)}

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Revenue, net

$
4,177

$
3,676

$
15,441

$
10,422

Cost of revenue

2,474

2,404

9,053

7,267

Gross profit

1,703

1,272

6,388

3,155

Operating expenses:

Research and development

1,737

1,909

5,579

5,463

Sales and marketing

3,433

3,257

10,736

9,453

General and administrative

1,139

1,432

3,549

3,285

Total operating expenses

6,309

6,598

19,864

18,201

Loss from operations

(4,606
)

(5,326
)

(13,476
)

(15,046
)
Other income (expense), net:

Interest expense

(492
)

(613
)

(1,607
)

(1,863
)
Other income (expense), net

(1,473
)

11

(1,646
)

(4
)
Total other expense, net

(1,965
)

(602
)

(3,253
)

(1,867
)
Net loss before provision for income taxes

(6,571
)

(5,928
)

(16,729
)

(16,913
)
Provision for income taxes

25

—

50

—

Net loss attributable to common stockholders

$
(6,596
)

$
(5,928
)

$
(16,779
)

$
(16,913
)
Net loss per share attributable to common stockholders, basic and diluted

$
(4.07
)

$
(3.67
)

$
(10.36
)

$
(10.49
)
Weighted-average shares used in computing net loss per share attributable
to common stockholders, basic and diluted

1,620,691

1,614,023

1,620,016

1,612,492

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
	*2023*			*2022*			*2023*			*2022*
Revenue
Leases	$	4,311		$	11,874		$	10,072		$	22,297
Products and services		15,764			15,392			30,534			31,375
		20,075			27,266			40,606			53,672
Cost of goods sold:
Leases		721			2,761			2,450			5,461
Products and services		5,134			5,459			10,237			11,402
		5,855			8,220			12,687			16,863
Gross profit		14,220			19,046			27,919			36,809
Operating expenses:
Selling and marketing		8,380			10,523			16,412			21,607
General and administrative		9,633			12,937			20,818			24,409
Research and development		1,965			2,712			4,602			5,355
Total operating expenses		19,978			26,172			41,832			51,371
Loss from operations		(5,758	)		(7,126	)		(13,913	)		(14,562	)
Other expenses:
Foreign exchange loss (gain)		(178	)		2,370			(530	)		2,375
Finance expenses		1,553			1,034			3,061			1,957
(Gain) loss on disposal of subsidiaries		(1	)		-			76			-
Loss before income taxes		(7,132	)		(10,530	)		(16,520	)		(18,894	)
Income tax (benefit) expense		189			(18	)		424			254
Net loss		(7,321	)		(10,512	)		(16,944	)		(19,148	)
Net loss attributable to stockholders of the Company		(7,409	)		(10,559	)		(17,066	)		(19,178	)
Net income attributable to non-controlling interest		88			47			122			30

Net loss per share:
Basic	$	(1.35	)	$	(2.47	)	$	(3.19	)	$	(4.49	)
Diluted	$	(1.35	)	$	(2.47	)	$	(3.19	)	$	(4.49	)
Weighted-average number of shares used in per share calculation:
Basic		5,471			4,276			5,355			4,271
Diluted		5,471			4,276			5,355			4,271

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

~~RESTORATIONROBOTICS,~~VENUS CONCEPT INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

_{(in thousands, except share and per share data)thousands)}

	Three Months Ended						Nine Months Ended
	September 30,						September 30,						*Three Months Ended June 30,*						*Six Months Ended June 30,*
	2017			2016			2017			2016			*2023*			*2022*			*2023*			*2022*
Net loss	$	(6,596	)	$	(5,928	)	$	(16,779	)	$	(16,913	)	$	(7,321	)	$	(10,512	)	$	(16,944	)	$	(19,148	)
Other comprehensive income (loss):
Cumulative translation adjustment		26			(37	)		(22	)		(34	)
Loss attributable to stockholders of the Company														(7,409	)		(10,559	)		(17,066	)		(19,178	)
Income attributable to non-controlling interest														88			47			122			30
Comprehensive loss	$	(6,570	)	$	(5,965	)	$	(16,801	)	$	(16,947	)	$	(7,321	)	$	(10,512	)	$	(16,944	)	$	(19,148	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Condensed Consolidated ~~Statement~~Statements of ~~Convertible Preferred Stock and Stockholders’ Deficit~~Stockholders’ Equity

~~The accompanying notes are an integral part~~Note: Share amounts have been retroactively adjusted to reflect the impact of ~~these~~ ~~condensed~~ ~~consolidated financial statements.~~

~~RESTORATIONROBOTICS,INC.~~a 1-for-15 reverse stock split effected in May 2023, as discussed in Note 2.

~~(in thousands, except share~~*: Amounts associated with Private Placement and ~~per share data)~~Preferred shares round to $nil.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Venus Concept Inc. is a global medical technology company that develops, commercializes, and sells minimally invasive and non-invasive medical aesthetic and hair restoration technologies and related services. The Company's systems have been designed on cost-effective, proprietary and flexible platforms that enable it to expand beyond the aesthetic industry’s traditional markets of dermatology and plastic surgery, and into non-traditional markets, including family and general practitioners and aesthetic medical spas. The Company was incorporated in the state of Delaware on November 22, 2002 and headquartered in San Jose, California. The Company develops an image-guided robotic system that enables follicular unit extraction (FUE) for use in the field of hair transplantation and markets the ARTAS® Robotic System in the United States and other countries. 2002. In these notes to the unaudited condensed consolidated financial statements, the ~~“Company,” “Restoration Robotics,” “we,” “us,”~~“Company” and ~~“our” refers~~“Venus Concept”, refer to ~~Restoration Robotics,~~Venus Concept Inc. and its subsidiaries on a consolidated basis.

On October 11, 2017, the Company’s Registration Statement on Form S-1 (File No. 333-220303) relating to the initial public offering (IPO) of its common stock was declared effective by the Securities and Exchange Commission (SEC). Pursuant to such Registration Statement, the Company completed its initial public offering (the IPO) of 3,897,910 shares of its common stock (inclusive of 322,910 shares of common stock from the subsequent exercise of the over-allotment option granted to the underwriters) at a price of $7.00 per share for aggregate cash proceeds of approximately $22,674, after deducting underwriting discounts and commissions of approximately $1,910 and estimated offering expenses of approximately $2,701.Going Concern

Immediately prior to the closing of the IPO, all outstanding shares of convertible preferred stock converted into 22,671,601 shares of common stock and all the outstanding convertible preferred stock warrants converted into common stock warrants resulting in the reclassification of our preferred stock warrant liabilities to additional paid-in capital. In addition, the principal and accrued interest on the outstanding Convertible Notes converted into 718,184 shares of common stock.

On September 15, 2017, the Company effected a 1-for-10 reverse stock split of its common stock. Upon the effectiveness of the reverse stock split, (i) every 10 shares of outstanding common stock were combined into one share of common stock, (ii) the number of shares of common stock for which each outstanding option to purchase common stock is exercisable was proportionately decreased on a 1-for-10 basis, (iii) the exercise price of each outstanding option to purchase common stock was proportionally decreased on a l-for-10 basis, and (iv) the conversion ratio for each share of outstanding preferred stock which is convertible into our common stock was proportionately reduced on a 1-for-10 basis. All of the outstanding common stock share numbers (including shares of common stock into which our outstanding convertible preferred stock shares are convertible), share prices, exercise prices and per share amounts have been adjusted in these consolidated statements, on a retroactive basis, to reflect this l-for-10 reverse stock split for all periods presented. The par value per share and the authorized number of shares of common stock and convertible preferred stock were not adjusted as a result of the reverse stock split.

~~These~~accompanying unaudited condensed consolidated financial statements ~~are~~have been prepared on a going concern basis, ~~that~~which contemplates the realization of assets and ~~extinguishment~~the satisfaction of liabilities in the normal course of ~~business.~~ business for the foreseeable future, and, as such, the unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

The Company has ~~incurred~~had recurring net operating losses and negative cash flows from ~~operations since inception.~~operations. As of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, the Company ~~has~~had an accumulated deficit of ~~$163,424 and $146,645 and,~~$241,719 and $224,105, respectively, though, the Company was in compliance with all required covenants as of ~~such dates, did not have sufficient capital to fund its planned operations. As a result of the~~June 30, 2023, and December 31, 2022. The Company’s recurring losses from operations and negative cash flows the Company’s independent registered public accounting firm included an explanatory paragraph in its report on the Company’s consolidated financial statements as of, and for the year ended, December 31, 2016 that such factors raise substantial doubt about the Company’s ability to continue as a going ~~concern.~~ concern within 12 months from the date that the unaudited condensed consolidated financial statements are issued. The global economy, including the financial and credit markets, has recently experienced extreme volatility and disruptions, including increasing inflation rates, rising interest rates, foreign currency impacts, declines in consumer confidence, and declines in economic growth. All these factors point to uncertainty about economic stability, and the severity and duration of these conditions on our business cannot be predicted, and the Company cannot assure that it will remain in compliance with the financial covenants contained within its credit facilities.

In order to continue its operations, the Company must achieve profitable operations and/or obtain additional equity or debt financing. Until the Company achieves profitability, management plans to fund its operations and capital expenditures with cash on hand, borrowings, and issuance of capital stock. On June 16, 2020, we entered into a purchase agreement (the "Equity Purchase Agreement") with Lincoln Park Capital Fund LLC ("Lincoln Park"), which provided that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park up to $31.0 million of shares of our common stock pursuant to our shelf registration statement. During the year ended December 31, 2022 and until its expiry in July 2022, we sold to Lincoln Park 0.02 million shares of our common stock and raised net cash proceeds of $0.3 million under the Equity Purchase Agreement. On July 12, 2022, we entered into a subsequent purchase agreement (the "2022 LPC Purchase Agreement") with Lincoln Park, which will enhance our balance sheet and financial condition to support our future growth initiatives. As part of the 2022 LPC Purchase Agreement, we issued and sold to Lincoln Park 0.05 million shares of our common stock as a commitment fee for entering into the 2022 LPC Purchase Agreement with the total value of $0.3 million. Since commencement of the 2022 LPC Purchase Agreement through June 30, 2023, the Company issued an additional 0.78 million shares of common stock to Lincoln Park at an average price of $3.97 per share, for a total value of $3.1 million. Additionally, the Company completed private placement offerings in 2022 and 2023 which generated gross proceeds of $8.7 million. Refer to Note 14 “Stockholders Equity” for additional details. Until the Company generates revenue at a level to support its cost structure, the Company expects to continue to incur substantial operating losses and net cash ~~outflows. The Company may never become profitable and even if it does attain profitable operations, it may not be able to sustain profitability or positive cash flows on a recurring basis.~~

~~(in thousands, except share and per share data)~~outflows from operating activities.

~~The~~Given the economic uncertainty in U.S. and international markets, the Company cannot anticipate the extent to which the current economic turmoil and financial market conditions will continue to adversely impact the Company’s business and the Company may need ~~to raise further~~additional capital ~~in the future~~ to ~~service its debt or~~ fund its future operations ~~until~~and to access the ~~time it can sustain positive cash flows.~~capital markets sooner than planned. There can be no assurance that the Company will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to the Company. If the Company is unable to raise sufficient additional capital, it may be compelled to reduce the scope of its operations and planned capital expenditures or sell certain assets, including intellectual property assets. These unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from the uncertainty. Such adjustments could be material.

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future, and, as such, the unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

The condensed consolidated balance sheet as of September 30, 2017, the condensed consolidated statements of operations and condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2017 and 2016 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2017 and 2016 and the condensed consolidated statement of convertible preferred stock and stockholders’ deficit for the nine months ended September 30, 2017 are unaudited. Theaccompanying unaudited condensed consolidated financial statements have been prepared ~~on the same basis as the annual consolidated financial statements and reflect,~~in accordance with accounting principles generally accepted in the ~~opinion~~United States (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of ~~management,~~Regulation S-X. Accordingly, they do not include all ~~adjustments of a normal and recurring nature that are necessary for the fair presentation~~ of the ~~Company’s condensed consolidated~~information and footnotes required by U.S. GAAP for complete financial statements included in this report. The condensed consolidated financial data disclosed in these notes to the condensed consolidated financial statements related to the three and nine-month periods are also unaudited. The condensed consolidated results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017, or for any other future annual or interim period. The consolidated balance sheet as of December 31, 2016 included herein was derived from the audited consolidated financial statements as of that date.statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the ~~prospectus dated October 11, 2017,~~year ended December 31, 2022, filed with the ~~SEC pursuant~~Securities and Exchange Commission (the “SEC”) on March 27, 2023. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, refer to ~~Rule 424 promulgated under~~ the ~~Securities Act~~consolidated financial statements and footnotes thereto included in Item 8 of ~~1933, as amended.~~the Company’s most recent Annual Report on Form 10-K.

~~The~~ ~~accompanying condensed~~ consolidated financial statements include t~~he acco~~u~~nts of~~ ~~Restoration Robotics, Inc.~~ ~~and its wholly owned subsidiaries, which are located in the United States, United Kingdom, Spain, Hong Kong and South Korea.~~ Al~~l significant~~ intercompan~~y a~~ccou~~nts a~~nd transactio~~ns h~~ave bee~~n e~~limina~~ted~~ i~~n c~~onsolidation.

The preparation of ~~the condensed~~these consolidated financial statements in ~~conformity~~accordance with U.S. ~~general accepted accounting principles (GAAP)~~GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities ~~and disclosure of contingent assets and liabilities as of~~at the date of the ~~condensed consolidated~~ financial statements, and the reported amounts of revenues and expenses during the reporting ~~period. Significant estimates~~ periods. Actual results could differ materially from those estimates. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company as of June 30, 2023 and ~~assumptions made~~through the date of this report filing. The accounting matters assessed included, but were not limited to, the allowance for expected credit losses and the carrying value of intangible and long-lived assets.

At the annual and special meeting of the Company’s shareholders held on May 10, 2023, the Company’s shareholders granted the Company’s Board of Directors discretionary authority to implement a consolidation of the issued and outstanding common shares of the Company (a "Reverse Stock Split") and to fix the specific ratio within a range of one-for-five (1-for-5) to a maximum of a one-for-fifteen (1-for-15) consolidation. On May 11, 2023, the Company filed an amendment to the Company’s Certificate of Incorporation to implement the Reverse Stock Split based on a one-for-fifteen (1-for-15) consolidation ratio. The Company’s common shares began trading on the Nasdaq Capital Market on a split-adjusted basis under the Company’s existing trade symbol “VERO” at the opening of the market on May 12, 2023. In accordance with U.S. GAAP, the change has been applied retroactively.

Amounts reported in thousands within this report are computed based on the amounts in U.S. dollars. As a result, the sum of the components reported in thousands may not equal the total amount reported in thousands due to rounding. Certain columns and rows within tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in dollars.

The accounting policies the Company follows are set forth in the ~~accompanying condensed~~Company’s audited consolidated financial statements ~~include, but~~for fiscal year 2022. For further information, refer to the consolidated financial statements and footnotes thereto included in Item 8 of the Company’s most recent Annual Report on Form 10-K. There have been no material changes to these accounting policies.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Board Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, and ASU 2020-02, which replace the existing incurred loss impairment model with an expected credit loss model and require a financial asset measured at amortized cost to be presented at the net amount expected to be collected. This guidance was adopted as of January 1, 2023. The Company recognized a charge of $0.5 million to opening retained earnings as a result of the adoption.

In August 2020, the FASB issued ASU No.2020-06 (“ASU 2020-06”): Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. The diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method. For contracts in an entity’s own equity, the type of contracts primarily affected by this update are ~~not limited~~freestanding and embedded features that are accounted for as derivatives under the current guidance due to ~~revenue recognition,~~a failure to meet the settlement conditions of the derivative scope exception. This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for the Company on January 1, 2024, with early adoption permitted. ASU No.2020-06 can be adopted on either a fully retrospective or modified retrospective basis. The Company is currently assessing the impact of applying this guidance as well as when to adopt this guidance.

Basic net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock warrants and stock options are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

The following table sets forth the computation of basic and diluted net loss and the weighted average number of shares used in computing basic and diluted net loss per share (in thousands, except per share data):

Due to the net loss, all the outstanding shares of common stock equivalents were excluded from the calculation of diluted net loss per share attributable to common stockholders for the quarters ended June 30, 2023 and 2022 because including them would have been antidilutive:

Financial assets and financial liabilities are initially recognized at fair value when the Company becomes a party to the contractual provisions of the financial instrument. Subsequently, all financial instruments are measured at amortized cost using the effective interest method.

The financial instruments of the Company consist of cash and cash equivalents, restricted cash, accounts receivable, long-term receivables, lines of credit, trade payables, government assistance loans, accrued expenses and other current liabilities, other long-term liabilities and long-term debt. In view of their nature, the fair value of ~~common stock,~~these financial instruments approximates their carrying amounts.

The Company measures the fair value of ~~preferred stock warrant~~its financial assets and financial liabilities using the fair value hierarchy. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1– Quoted prices in active markets for identical assets or liabilities.

Level 2– Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3– Unobservable inputs that are supported by little or no market activity and that are significant to the ~~recoverability~~fair value of the assets or liabilities.

Guaranteed investment certificates are classified within Level 2 as the Company uses alternative pricing sources and models utilizing market observable inputs for valuation. The following tables set forth the fair value of the Company’s ~~net deferred tax~~Level 1, Level 2 and Level 3 financial assets and ~~related valuation allowance.~~liabilities within the fair value hierarchy:

The Company’s products may be sold under subscription agreements with unencumbered title passing to the customer at the end of the lease term, which is generally 36 months. These arrangements are considered to be sales-type leases, where the present value of all cash flows to be received under the agreement is recognized upon shipment to the customer as lease revenue.

A financing receivable is a contractual right to receive money, on demand or on fixed or determinable dates, that is recognized as an asset on the Company's unaudited condensed consolidated balance sheets. The Company's financing receivables, consisting of sales-type leases, totaled $28,259 and $40,377 as of June 30, 2023 and December 31, 2022, respectively, and are included in accounts receivable and long-term receivables on the unaudited condensed consolidated balance sheets. The Company evaluates the credit quality of an obligor at lease inception and monitors credit quality over the term of the underlying transactions.

The Company performed an assessment of the allowance for expected credit losses as of June 30, 2023 and December 31, 2022. Based upon such assessment, the Company recorded an allowance for expected credit losses totaling $13,233 and $13,619 as of June 30, 2023, and December 31, 2022, respectively. The balance as of June 30, 2023 includes $0.5 million due to the adoption of revised guidance of Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments.

Current subscription agreements are reported as part of accounts receivable. The following are the contractual commitments, net of allowance for expected credit losses, to be received by the Company over the next 5 years:

Accounts receivable do not bear interest and are typically not collateralized. The Company performs ongoing credit evaluations of its customers’ financial condition and maintains an allowance for expected credit losses. Uncollectible accounts are charged to expense when deemed uncollectible, and accounts receivable are presented net of an allowance for expected credit losses. Accounts receivable are deemed past due in accordance with the contractual terms of the agreement. Actual losses may differ from the Company’s estimates and ~~assumptions~~could be material to its unaudited condensed consolidated financial position, results of operations and cash flows.

Additions to inventory are primarily comprised of newly produced units and applicators, refurbishment cost from demonstration units and used equipment which were reacquired during the period from upgraded sales. The Company expensed $5,124 and $11,956 in cost of goods sold in the three and six months ended June 30, 2023, respectively. The Company expensed $7,731 and $15,231 in cost of goods sold in the three and six months ended June 30, 2022, respectively. The balance of cost of goods sold represents the sale of applicators, parts and warranties.

The Company provides for excess and obsolete inventories when conditions indicate that the inventory cost is not recoverable due to physical deterioration, usage, obsolescence, reductions in estimated future demand and reductions in selling prices. Inventory provisions are measured as the difference between the cost of inventory and net realizable value to establish a lower cost basis for the inventories. As of June 30, 2023 and December 31, 2022, a provision for obsolescence of $2,897 and $3,258 was taken against inventory, respectively.

Depreciation expense amounted to $144 and $246 for the three months ended June 30, 2023 and 2022, respectively. Depreciation expense was $309 and $490 for the six months ended June 30, 2023 and 2022, respectively.

(1) Government remittances are receivables from the local tax authorities for refunds of sales taxes and income taxes.

The following table provides the details of the change in the Company’s warranty accrual:

The following table presents supplemental information relating to the cash flows arising from lease transactions. Cash payments related to short-term leases are not included in the measurement of operating lease liabilities, and as such, are excluded from the amounts below.

The following table presents the weighted-average lease term and discount rate for operating leases.

The following table presents a maturity analysis of expected undiscounted cash flows for operating leases on an ~~ongoing~~annual basis ~~using historical experience~~for the next five years and thereafter.

⁽¹⁾ Imputed interest represents the difference between undiscounted cash flows and cash flows.

For the three months ended June 30, 2023 and 2022, amortization expense was $866 and $865, respectively. For the six months ended June 30, 2023 and 2022, amortization expense was $1,722 and $1,722, respectively.

Estimated amortization expense for the next five fiscal years and all years thereafter are as follows:

As of June 30, 2023, the Company has non-cancellable purchase orders placed with its contract manufacturers in the amount of $15.1 million. In addition, as of June 30, 2023, the Company had $0.7 million of open purchase orders that can be cancelled with 270 days’ notice, except for a portion equal to 25% of the total amount representing the purchase of “long lead items.”

Aggregate future service and purchase commitments with manufacturers as of June 30, 2023 are as follows:

On July 11, 2019, a verified shareholder derivative complaint was filed in the United States District Court for the Northern District of California, captioned Mason v. Rhodes, No.5:19-cv-03997-NC. The complaint alleges that certain of Restoration Robotics’ former officers and directors breached their fiduciary duties, have been unjustly enriched and violated Section 14(a) of the Exchange Act in connection with the IPO and Restoration Robotics’ 2018 proxy statement. The complaint seeks unspecified damages, declaratory relief, other equitable relief and attorneys’ fees and costs. On August 21, 2019, the District Court granted the parties’ joint stipulation to stay the Mason action. On June 21, 2021, the District Court granted the parties’ further stipulation to stay the Mason action. On March 2, 2023, Plaintiff filed a stipulation voluntarily dismissing the action. The District Court has not yet entered the stipulation.

On December 8,2020, the Company executed a loan and security agreement (the "MSLP Loan Agreement"), a promissory note (the "MSLP Note"), and related documents for a loan in the aggregate amount of $50,000 for which City National Bank of Florida (“CNB”) will serve as a lender pursuant to the Main Street Priority Loan Facility as established by the Board of Governors of the Federal Reserve System Section 13(3) of the Federal Reserve Act (the “MSLP Loan”). On December 9,2020, the MSLP Loan had been funded and the transaction was closed. The MSLP Note has a term of five years and bears interest at a rate per annum equal to 30-day LIBOR plus 3%. On December 8, 2023 and December 8, 2024, the Company must make an annual payment of principal plus accrued but unpaid interest in an amount equal to fifteen percent (15%) of the outstanding principal balance of the MSLP Note (inclusive of accrued but unpaid interest). The entire outstanding principal balance of the MSLP Note together with all accrued and unpaid interest is due and payable in full on December 8, 2025. The Company may prepay the MSLP Loan at any time without incurring any prepayment penalties. The MSLP Note provides for customary events of default, including, among others, those relating to a failure to make payment, bankruptcy, breaches of representations and covenants, and the occurrence of certain events. In addition, the MSLP Loan Agreement and MSLP Note contain various covenants that limit the Company’s ability to engage in specified types of transactions. Subject to limited exceptions, these covenants limit the Company’s ability, without CNB’s consent, to, among other things, sell, lease, transfer, exclusively license or dispose of the Company’s assets, incur, create, or permit to exist additional indebtedness, or liens, to make dividends and other ~~factors~~restricted payments, and ~~adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.~~

~~(in thousands, except share and per share data)~~make certain changes to its ownership structure.

~~Segments~~As of June 30, 2023 and December 31, 2022, the Company was in compliance with all required covenants.

The scheduled payments on the outstanding borrowings as of June 30, 2023 are as follows:

On October 11, 2016, Venus Concept Ltd., a wholly owned subsidiary of the Company ("Venus Ltd."), entered into a credit agreement as a guarantor with Madryn Health Partners, LP, as administrative agent, and certain of its affiliates as lenders (collectively, “Madryn”), as amended (the “Madryn Credit Agreement”), pursuant to which Madryn agreed to make certain loans to certain of Venus Concept’s subsidiaries.

On December 9, 2020, contemporaneously with the MSLP Loan Agreement (Note 10), the Company and its subsidiaries, Venus Concept USA, Inc. ("Venus USA"), Venus Ltd., Venus Concept Canada Corp. ("Venus Canada"), and the Madryn Noteholders (as defined below), entered into a Securities Exchange Agreement (the "Exchange Agreement") dated as of December 8, 2020, pursuant to which the Company (i) repaid on December 9, 2020, $42.5 million aggregate principal amount owed under the Madryn Credit Agreement, and (ii) issued, on December 9, 2020, to Madryn Health Partners (Cayman Master), LP and Madryn Health Partners, LP (the "Madryn Noteholders") secured subordinated convertible notes in the aggregate principal amount of $26.7 million (the "Notes"). The Madryn Credit Agreement was terminated effective December 9, 2020 upon the funding and closing of the MSLP Loan and the issuance of the Notes.

As of June 30, 2023, the Company had approximately $27.2 million principal and interest of convertible notes outstanding that were issued pursuant to the Exchange Agreement (as defined below).

The Notes will accrue interest at a rate of 8.0% per annum from the date of original issuance of the Notes to the third anniversary date of the original issuance and thereafter interest will accrue at a rate of 6.0% per annum. Under certain circumstances, in the case of an event of default under the Notes, the then-applicable interest rate will increase by 4.0% per annum. Interest is payable quarterly in arrears on the last business day of each calendar quarter of each year after the original issuance date, beginning on December 31, 2020. The Notes will mature on December 9, 2025, unless earlier redeemed or converted. In connection with the Exchange Agreement, the Company also entered into, by and among the Company, Venus USA, Venus Canada, Venus Ltd., and the Madryn Noteholders, (i) a Guaranty and Security Agreement dated as of December 9, 2020 (the "Madryn Security Agreement"), pursuant to which the Company agreed to grant Madryn a security interest in substantially all of its assets to secure the obligations under the Notes and (ii) a Subordination of Debt Agreement dated as of December 9, 2020 (the "CNB Subordination Agreement"). The security interests and liens granted to the Madryn Noteholders under the Madryn Security Agreement will terminate upon the earlier of (i) an assignment of the Notes (other than to an affiliate of the Madryn Noteholders) pursuant to the terms of the Exchange Agreement and (ii) the first date on which the outstanding principal amount of the Notes is less than $10,000. Obligations under the Notes are secured by substantially all of the assets of Venus Concept Inc. and its subsidiaries party to the Madryn Security Agreement. The Company’s obligations under the Notes and the security interests and liens created by the Madryn Security Agreement are subordinated to the Company’s indebtedness owing to CNB (including, but not limited, pursuant to the MSLP Loan Agreement (Note 10) and the CNB Loan Agreement, (Note 12)) and any security interests and liens which secure such indebtedness owing to CNB. The Notes are convertible at any time into shares of the Company’s common stock, par value $0.0001 per share, calculated by dividing the outstanding principal amount of the Notes (and any accrued and unpaid interest under the Notes) by the initial conversion price of $48.75 per share. In connection with the Notes, the Company recognized interest expense of $540 and $540 during the three months ended June 30, 2023 and 2022, respectively. In connection with the Notes, the Company recognized interest expense of $1,074 and $1,074 during the six months ended June 30, 2023 and 2022, respectively. The conversion feature, providing the Madryn Noteholders with a right to receive the Company’s shares upon conversion of the Notes, was qualified for a scope exception in ASC 815-10-15 and did not require bifurcation. The Notes also contained embedded redemption features that provided multiple redemption alternatives. Certain redemption features provided the Madryn Noteholders with a right to receive cash and a variable number of shares upon change of control and an event of default (as defined in the Notes). The Company evaluated redemption upon change of control and an event of default under ASC 815, Derivatives and Hedging, and determined that these two redemption features required bifurcation. These embedded derivatives were accounted for as liabilities at their estimated fair value as of the date of issuance, and then subsequently remeasured to fair value as of each balance sheet date, with the related remeasurement adjustment being recognized as a component of change in fair value of derivative liabilities in the unaudited condensed consolidated statements of operations. The Company determined the likelihood of an event of default and change of control as remote as of June 30, 2023, and December 31, 2022, therefore a nominal value was allocated to the underlying embedded derivative liabilities as of June 30, 2023, and December 31, 2022.

The scheduled payments on the outstanding borrowings as of June 30, 2023 are as follows:

For the three and six months ended June 30, 2023, the Company did not make any principal repayments. Pursuant to consent agreements entered into by and between the Company and certain of its subsidiaries as guarantors, Madryn and CNB as of June 30, 2023 and July 28, 2023, the Company paid the Q22023 interest payable under the Notes on June 30, 2023 by adding such Q22023 interest to the outstanding principal of the applicable Notes. Cash payment of the Q22023 interest under the Notes and all accrued and unpaid interest, was deferred until August 15, 2023 or such later date as the Madryn Noteholders may confirm from time to time in writing in their sole discretion.

On August 29, 2018, Venus Ltd. entered into an Amended and Restated Loan Agreement as a guarantor with CNB, as amended on March 20, 2020, December 9, 2020 and August 26, 2021 (the “CNB Loan Agreement”), pursuant to which CNB agreed to make certain loans and other financial accommodations to certain of Venus Ltd.’s subsidiaries to be used to finance working capital requirements. In connection with the CNB Loan Agreement, Venus Ltd. also entered into a guaranty agreement with CNB dated as of August 29, 2018, as amended on March 20, 2020, December 9, 2020 and August 26, 2021 (the “CNB Guaranty”), pursuant to which Venus Ltd. agreed to guaranty the obligations of its subsidiaries under the CNB Loan Agreement. On March 20, 2020, the Company also entered into a Security Agreement with CNB (the “CNB Security Agreement”), as amended on December 9, 2020 and August 26, 2021, pursuant to which it agreed to grant CNB a security interest in substantially all of our assets to secure the obligations under the CNB Loan Agreement.

The CNB Loan Agreement contains various covenants that limit the Company’s ability to engage in specified types of transactions. Subject to limited exceptions, these covenants limit the Company’s ability, without CNB’s consent, to, among other things, sell, lease, transfer, exclusively license or dispose of the Company’s assets, incur, create, or permit to exist additional indebtedness, or liens, to make dividends and certain other restricted payments, and to make certain changes to its management and/or ownership structure. The Company is required to maintain $3,000 in cash in a deposit account maintained with CNB at all times during the term of the CNB Loan Agreement. In addition, the CNB Loan Agreement contains certain covenants that require the Company to achieve certain minimum account balances, or a minimum debt service coverage ratio and a maximum total liability to tangible net worth ratio. If the Company fails to comply with these covenants, it will result in a default and require the Company to repay all outstanding principal amounts and any accrued interest. In connection with the CNB Loan Agreement, a loan fee of $1,000 was paid in equal installments on January 25, February 25, and March 25, 2021.

On August 26, 2021, the Company, Venus USA and Venus Canada entered into a Fourth Amended and Restated Loan Agreement (the “Amended CNB Loan Agreement”) with CNB, pursuant to which, among other things, (i) the maximum principal amount the revolving credit facility was reduced from $10,000 to $5,000 at the LIBOR 30-Day rate plus 3.25%, subject to a minimum LIBOR rate floor of 0.50%, and (ii) beginning December 10, 2021, the cash deposit requirement was reduced from $3,000 to $1,500, to be maintained with CNB at all times during the term of the Amended CNB Loan Agreement. The Amended CNB Loan Agreement is secured by substantially all of the Company’s assets and the assets of certain of its subsidiaries. On February 22, 2023, CNB notified the Company that it would be temporarily restricting advances under the Fourth Amended and Restated CNB Loan Agreement pursuant to its rights under Section 2 of the agreement. CNB and the Company continue to discuss lifting the restrictions on advances under the credit facility. However, CNB and the Company have not yet agreed to the criteria the Company must satisfy in order to lift the restrictions on advances under the credit facility.

As of June 30, 2023, and December 31, 2022, the Company was in compliance with all required covenants. An event of default under this agreement would cause a default under the MSLP Loan (see Note 10).

In connection with the Amended CNB Loan Agreement, the Company, Venus USA and Venus Canada issued a promissory note dated August 26, 2021, in favor of CNB (the “CNB Note”) in the amount of $5,000 with a maturity date of July 24, 2023and the obligations of the Company pursuant to certain of the Company’s outstanding promissory notes were reaffirmed as subordinated to the indebtedness of the Company owing to CNB pursuant to a Supplement to Subordination of Debt Agreements dated as of August 26, 2021 by and among Madryn Health Partners, LP, Madryn Health Partners (Cayman Master), LP, the Company and CNB.

The Company is required to reserve and keep available out of its authorized but unissued shares of common stock a number of shares sufficient to affect the exercise of all options granted and available for grant under the incentive plans and warrants to purchase common stock.

At the annual and special meeting of the Company’s shareholders held on May 10, 2023, the Company’s shareholders granted the Company’s Board of Directors discretionary authority to implement the Reverse Stock Split and to fix the specific consolidation ratio within a range of one-for-five (1-for-5) to one-for-fifteen (1-for-15). On May 11, 2023, the Company filed an amendment to the Company’s Certificate of Incorporation to implement the Reverse Stock Split based on a one-for-fifteen (1-for-15) consolidation ratio. The Company’s common shares began trading on the Nasdaq Capital Market on a reverse split-adjusted basis under the Company’s existing trade symbol “VERO” at the opening of the market on May 12, 2023. In accordance with U.S. GAAP, the change has been applied retroactively.

On June 16, 2020, the Company entered into the Equity Purchase Agreement with Lincoln Park, which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park up to $31,000 worth of shares of its common stock, par value $0.0001 per share, pursuant to its shelf registration statement. The purchase price of shares of common stock related to a future sale will be based on the then prevailing market prices of such shares at the time of sales as described in the Equity Purchase Agreement. The aggregate number of shares that the Company can sell to Lincoln Park under the Equity Purchase Agreement may in no case exceed 517,560 shares (subject to adjustment) of common stock (which is equal to approximately 19.99% of the shares of the common stock outstanding immediately prior to the execution of the Equity Purchase Agreement) (the “Exchange Cap”), unless (i) stockholder approval is obtained to issue shares above the Exchange Cap, in which case the Exchange Cap will no longer apply, or (ii) with Equity Purchase Agreement equals or exceeds $59.6325 per share (subject to adjustment) (which represents the minimum price, as defined under Nasdaq Listing Rule 5635(d), on the Nasdaq Global Market immediately preceding the signing of the Equity Purchase Agreement, such that the transactions contemplated by the Equity Purchase Agreement are exempt from the Exchange Cap limitation under applicable Nasdaq rules. Also, at no time may Lincoln Park (together with its affiliates) beneficially own more than 9.99% of the Company’s issued and outstanding common stock. Concurrently with entering into the Equity Purchase Agreement, the Company also entered into a registration rights agreement with Lincoln Park, pursuant to which it agreed to provide Lincoln Park with certain registration rights related to the shares of common stock issued under the Equity Purchase Agreement (the “Registration Rights Agreement”).

From commencement to expiry on July 1, 2022, the Company issued and sold to Lincoln Park 229,139 shares of its common stock at an average price of $40.50 per share, and 13,971 of these shares were issued to Lincoln Park as a commitment fee in connection with entering into the Equity Purchase Agreement (the “Commitment Shares”). The total value of the Commitment Shares of $620 together with the issuance costs of $123 were recorded as deferred issuance costs in the consolidated balance sheet at inception and were amortized into consolidated statements of stockholders’ equity proportionally based on proceeds received during the term of the Equity Purchase Agreement. In 2022, the Company issued 26,666 shares of its common stock and the proceeds from common stock issuances as of December 31,2022 were $272, with no issuance costs. The proceeds in the amount of $272 were recorded in the condensed consolidated statements of cash flows as net cash proceeds from issuance of common stock. The Equity Purchase Agreement expired on July 1, 2022, and was replaced with the 2022 LPC Purchase Agreement discussed below.

On July 12, 2022, the Company entered into the 2022 LPC Purchase Agreement with Lincoln Park, as the Equity Purchase Agreement expired on July 1, 2022. The 2022 LPC Purchase Agreement provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park up to $11,000 of shares (the “Purchase Shares”) of its common stock, par value $0.0001 per share. Concurrently with entering into the 2022 LPC Purchase Agreement, the Company also entered into a registration rights agreement (the “2022 LPC Registration Rights Agreement”) with Lincoln Park, pursuant to which it agreed to provide Lincoln Park with certain registration rights related to the shares issued under the 2022 LPC Purchase Agreement. The aggregate number of shares that the Company can issue to Lincoln Park under the 2022 LPC Purchase Agreement may not exceed 858,224 shares of common stock, which is equal to 19.99% of the shares of common stock outstanding immediately prior to the execution of the 2022 LPC Purchase Agreement (the “2022 Exchange Cap”), unless (i) stockholder approval is obtained to issue shares of common stock in excess of the 2022 Exchange Cap, in which case the 2022 Exchange Cap will no longer apply, or (ii) the average price of all applicable sales of common stock to Lincoln Park under the 2022 LPC Purchase Agreement equals or exceeds the lower of (i) the Nasdaq official closing price immediately preceding the execution of the 2022 LPC Purchase Agreement or (ii) the arithmetic average of the five Nasdaq official closing prices for the common stock immediately preceding the execution of the 2022 LPC Purchase Agreement, plus an incremental amount to take into account the issuance of the commitment shares to Lincoln Park under the 2022 LPC Purchase Agreement, such that the transactions contemplated by the 2022 LPC Purchase Agreement are exempt from the 2022 Exchange Cap limitation under applicable Nasdaq rules. In all instances, the Company may not sell shares of its common stock to Lincoln Park under the 2022 LPC Purchase Agreement if it would result in Lincoln Park beneficially owning more than 9.99% of the outstanding shares of common stock. Upon execution of the 2022 LPC Purchase Agreement, the Company issued 45,701 shares of common stock to Lincoln Park as a commitment fee in connection with entering into the 2022 LPC Purchase Agreement at the total amount of $330. Through December 31, 2022, the Company issued an additional 433,336 shares of common stock to Lincoln Park at an average price of $4.54 per share for a total value of $1,970. During the six months ended June 30, 2023, the Company issued an additional 343,116 shares of common stock to Lincoln Park at an average price of $3.23 per share, for a total value of $1,109. Further information regarding the 2022 LPC Purchase Agreement is contained in the Company’s Form 8-K filed with the SEC on July 12, 2022.

On December 15, 2021, we entered into a securities purchase agreement pursuant to which we issued and sold to certain investors (collectively the "2021 Investors") an aggregate of 653,894 shares of our common stock and 252,717 shares of our non-voting convertible preferred stock (the “Non-Voting Preferred Stock”), par value $0.0001 per share, which are convertible upon receipt of a valid conversion notice by the Company from a 2021 Investor ("2021 Private Placement"). The gross proceeds from the securities sold in the 2021 Private Placement was $17.0 million. The costs incurred with respect to the 2021 Private Placement totaled $0.3 million and were recorded as a reduction of the 2021 Private Placement proceeds in the consolidated statements of stockholders’ equity. These Non-Voting Preferred Stock shares were subsequently converted to common stock upon issuance of the 2022 Private Placement described below.

As noted above, in December 2021, the Company issued and sold to the 2021 Investors an aggregate of 252,717 shares of the Non-Voting Preferred Stock. The terms of the Non-Voting Preferred Stock were governed by a Certificate of Designation filed by the Company with the Secretary of State of the State of Delaware on December 14, 2021. On May 15, 2023, the Company filed with the Delaware Secretary of State a Certificate of Elimination with respect to the Company’s Non-Voting Preferred Stock, thereby returning the unused share balance to the status of authorized but unissued shares of “blank check” preferred stock of the Company. Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC for a summary of the material terms and information regarding the issuance of the Non-Voting Preferred Stock.

In November 2022, we entered into a securities purchase agreement with certain investors (collectively, the “2022 Investors”) pursuant to which the Company issued and sold to the 2022 Investors an aggregate of 116,668 shares of common stock, par value $0.0001 per share, and 3,185,000 shares of voting convertible preferred stock, par value $0.0001 per share (the "Voting Preferred Stock"), which are convertible into 2,123,443 shares of common stock upon receipt of a valid conversion notice from a 2022 Investor or at the option of the Company within 30 days following the occurrence of certain events (the "2022 Private Placement"). The 2022 Private Placement was completed on November 18, 2022. The gross proceeds from the securities sold in the 2022 Private Placement was $6,720. The costs incurred with respect to the 2022 Private Placement totaled $202 and were recorded as a reduction of the 2022 Private Placement proceeds in the consolidated statements of stockholders’ equity. Further information regarding the 2022 Private Placement is contained in the Company’s Form 8-K filed with the SEC on November 18, 2022.

As noted above, in November 2022, the Company issued and sold to certain 2022 Investors an aggregate of 3,185,000 shares of Voting Preferred Stock. The terms of the Voting Preferred Stock are governed by a Certificate of Designation filed by the Company with the Secretary of State of the State of Delaware on November 17, 2022. The following is a summary of the material terms of the Voting Preferred Stock:

In May 2023, we entered into a securities purchase agreement (the "2023 Multi-Tranche Private Placement Stock Purchase Agreement") with certain investors (collectively, the "2023 Investors") pursuant to which the Company may issue and sell to the 2023 Investors up to $9,000,000 in shares (the "2023 Multi-Tranche Private Placement") of newly-created senior convertible preferred stock, par value $0.0001 per share (the “Senior Preferred Stock”), in multiple tranches from time to time until December 31, 2025, subject to a minimum aggregate purchase amount of $500,000 in each tranche. The initial sale in the 2023 Multi-Tranche Private Placement occurred on May 15, 2023, under which the Company sold the 2023 Investors 280,899 shares of Senior Preferred Stock for an aggregate purchase price of $2,000,000 (the "Initial Placement"). The Company expects to use the proceeds of the Initial Placement, after the payment of transaction expenses, for general working capital purposes. The following is a summary of the material terms of the Senior Preferred Stock:

In November 2010, the Board adopted a share option plan (the “2010 Share Option Plan”) pursuant to which shares of the Company’s common stock are reserved for issuance upon the exercise of options to be granted to directors, officers, employees and consultants of the Company. The 2010 Share Option Plan is administered by the Board, which designates the options and dates of grant. Options granted vest over a period determined by the Board, originally had a contractual life of seven years, which was extended to ten years in November 2017 and are non-assignable except by the laws of descent. The Board has the authority to prescribe, amend and rescind rules and regulations relating to the 2010 Share Option Plan, provided that any such amendment or rescindment that would adversely affect the rights of an optionee that has received or been granted an option shall not be made without the optionee’s written consent. As of June 30, 2023, the number of shares of the Company’s common stock reserved for issuance and available for grant under the 2010 Share Option Plan was 2,738 (6,284 as of December 31, 2022).

The 2019 Incentive Award Plan (the “2019 Plan”) was originally established under the name Restoration Robotics, Inc., as the 2017 Incentive Award Plan. It was adopted by the Board on September 12,2017 and approved by the Company’s stockholders on September 14,2017. The 2017 Incentive Award Plan was amended, restated, and renamed as set forth above, and was approved by the Company’s stockholders on October 4, 2019.

Under the 2019 Plan, 30,000 shares of common stock were initially reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights, performance stock awards, performance stock unit awards, restricted stock awards, restricted stock unit awards and other stock-based awards, plus the number of shares remaining available for future awards under the 2019 Plan as of the date we completed our business combination with Venus Ltd. and the business of Venus Ltd. became the primary business of the Company (the “Merger”). As of June 30, 2023, there were 61,554 shares of common stock available under the 2019 Plan (18,715 as of December 31, 2022). The 2019 Plan contains an “evergreen” provision, pursuant to which the number of shares of common stock reserved for issuance pursuant to awards under such plan shall be increased on the first day of each year from 2020 and ending in 2029 equal to the lesser of (A) four percent (4.00%) of the shares of stock outstanding on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of stock as determined by the Board.

The Company recognized stock-based compensation for its employees and non-employees in the accompanying unaudited condensed consolidated statements of operations as follows:

The fair value of each option is estimated at the date of grant using the Black-Scholes option pricing formula with the following assumptions_:

Expected Term—The expected term represents management’s best estimate for the options to be exercised by option holders.

Volatility—Since the Company does not have a trading history for its common stock, the expected volatility was derived from the historical stock volatilities of comparable peer public companies within its industry that are considered to be comparable to the Company’s business over a period equivalent to the expected term of the stock-based awards.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the stock-based awards’ expected term.

Dividend Rate—The expected dividend is zero as the Company has not paid nor does it anticipate paying any dividends on its common stock in the foreseeable future.

Fair Value of Common Stock— Prior to the Merger, Venus Ltd. used the price per share in its latest sale of securities as an estimate of the fair value of its ordinary shares. After the closing of the Merger, the fair value of the Company’s common stock is used to estimate the fair value of the stock-based awards at grant date.

The following table summarizes stock option activity under the Company’s stock option plans:

The following tables summarize information about stock options outstanding and exercisable at June 30, 2023:

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. The total intrinsic value of options exercised were$niland $nil for the three months ended June 30, 2023 and 2022, respectively. The total intrinsic value of options exercised were $nil and $nil for the six months ended June 30, 2023 and 2022, respectively.

The weighted-average grant date fair value of options granted was $3.38and $10.05 per share for the three months ended June 30, 2023 and 2022, respectively. The weighted-average grant date fair value of options granted was $2.89 and $20.10 per share for the six months ended June 30, 2023 and 2022, respectively. The fair value of options vested during the three months ended June 30, 2023 and 2022 was $322 and $411, respectively. The fair value of options vested during the six months ended June 30, 2023 and 2022 was $681 and $775, respectively.

The following table summarizes information about RSUs outstanding at June 30, 2023:

The Company generated a loss and recognized $189 of tax expense for the three months ended June 30, 2023, and $18 of tax benefit for the three months ended June 30, 2022, respectively. The Company generated a loss and recognized $424 of tax expense for the six months ended June 30, 2023, and $254 of tax expense for the six months ended June 30, 2022, respectively. A reconciliation of income tax (benefit) expense is as follows:

Income tax expense or benefit is recognized based on the actual loss incurred during the three and six months ended June 30, 2023 and 2022, respectively.

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker ~~(CODM)~~(“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company's CODM is its Chief Executive Officer. The Company has determined it operates in a single operating segment and has one reportable segment, as the CODM reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geography and type for purposes of making operating decisions, allocating resources, and evaluating financial performance. The Company does not assess the performance of individual product lines on measures of profit or loss, or asset-based metrics. Therefore, the information below is presented only for revenues by geography and type.

~~The functional currency~~Revenue by geographic location, which is based on the product shipped to location, is summarized as follows:

As of June 30, 2023, long-lived assets in the amount of $10,562 were located in the United States and $1,275 were located in foreign locations. As of December 31, 2022, long-lived assets in the amount of $12,346 were located in the United States and $1,431 were located in foreign locations.

Revenue by type is a key indicator for providing management with an understanding of the Company’s ~~non-U.S. subsidiaries~~financial performance, which is ~~the local currency. Asset~~organized into four different categories:

1. Lease revenue – includes all system sales with typical lease terms of 36 months.

2. System revenue – includes all systems sales with payment terms within 12 months.

3. Product revenue – includes skincare, hair and ~~liability balances denominated in non-U.S. dollar currencies are translated into U.S. dollars using period-end exchange rates, while~~other consumables payable upon receipt.

4. Service revenue – includes NeoGraft technician services, ad agency services and expenses are based upon the exchange rate at the time of the transaction, if known, or at the average rate for the period. Differences are included in stockholders’ deficit as a component of accumulated other comprehensive loss. Financial assets and liabilities denominated in currencies other than the functional currency areextended warranty sales.

All amounts were recorded at the exchange ~~rate at~~amount, which is the ~~time~~amount established and agreed to by the related parties. The following are transactions between the Company and parties related through employment.

On January 1,2018, the Company entered into a Distribution Agreement with Technicalbiomed Co., Ltd. (“TBC”), pursuant to which TBC will continue to distribute the Company’s products in Thailand. A former senior officer of the ~~transaction~~ Company is a 30.0% shareholder of TBC. For the three months ended June 30, 2023 and ~~subsequent gains and losses related to changes~~2022, TBC purchased products in the ~~foreign currency~~amount of $114 and $329, respectively, under this distribution agreement. These sales are included in ~~other income (expense), net~~products and services revenue. For the six months ended June 30, 2023 and 2022, TBC purchased products in the ~~accompanying consolidated statements~~amount of ~~operations.~~ $322 and $736, respectively, under this distribution agreement. These sales are included in products and services revenue.

In 2020, the Company made several strategic decisions to divest itself of underperforming direct sales offices and sold its share in several subsidiaries, including its 55.0% shareholding in Venus Concept Singapore Pte. Ltd. ("Venus Singapore"). On January 1, 2021, the Company entered into a distribution agreement with Aexel Biomed Pte Ltd. (“Aexel Biomed”), formerly Venus Singapore, pursuant to which Aexel Biomed will continue to distribute the Company’s products in Singapore. A former senior officer of the Company is a 45.0% shareholder of Aexel Biomed. During the three months ended June 30, 2023 and 2022, Aexel Biomed purchased products in the amount of $62 and $141, respectively, under the distribution agreement. During the six months ended June 30, 2023 and 2022, Aexel Biomed purchased products in the amount of $122 and $319, respectively, under the distributions agreement. These sales are included in products and services revenue.

On July 6, 2023, the Company and the 2023 Investors entered into an amendment to the 2023 Multi-Tranche Private Placement Stock Purchase Agreement (the “Amendment”). The ~~net foreigntransactiongain or losseswere insignificant~~Amendment (a) clarifies the appropriate date pursuant to which the purchase price for ~~allperiodspresented.~~

~~The Company considers all highly liquid investments with an original maturity~~each share of ~~three months or less from the date of purchase~~Senior Preferred Stock to be ~~cash equivalents. Cash and cash equivalents consists primarily of funds invested in readily available checking and savings accounts and investments in money market funds and short-term time deposits.~~

~~As of September 30, 2017 and December 31, 2016, the Company was required to hold $100 in a separate money market account as collateral for credit cards. These amounts are recorded in other assets~~sold in the ~~accompanying condensed consolidated balance sheets.~~

~~Financial instruments~~Private Placement is determined (such that ~~potentially subject~~the purchase price shall be equal to the “Minimum Price” as set forth in Nasdaq Listing Rule 5635(d)) and (b) permits the Company to specify a ~~concentration of credit risk consist of cash and cash equivalents, restricted cash and accounts receivable. Substantially all of~~desired closing date (subject to approval by the ~~Company’s cash and cash equivalents and restricted cash are held with two financial institutions,~~2023 Investors) for each sale in the 2023 Multi-Tranche Private Placement.

On July 12, 2023, the Company and the ~~account balances exceed~~2023 Investors consummated the Federal Deposit Insurance Corporation (FDIC) insurance limit. Accounts are insured by the FDIC up to $250 per financial institution. The Company has not experienced any losses in such accounts with these financial institutions.

For the three months ended September 30, 2017, two customers each accounted for 11% and 12% of the Company’s revenues. As of the nine months ended September 30, 2017 and three and nine months ended September 30, 2016, there were no customers accounting for more than 10% of the Company’s revenue. As of September 30, 2017, two customers each accounted for 11% and 15% of the Company’s accounts receivable. As of December 31, 2016, six customers accounted for 10%, 11%, 11%, 11%, 12%, and 13% of the Company’s accounts receivable.

Accounts receivable do not bear interest and are typically not collateralized. The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses. Accounts receivable are deemed past due in accordance with the contractual terms of the agreement. Accounts are charged against the allowance for doubtful accounts once collection efforts are unsuccessful. Historically, such losses have been within management's expectations. The allowance for doubtful accounts is zero at September 30, 2017 and December 31, 2016.

Inventory is stated at the lower of cost or market and cost is principally determined using the first-in, first-out method. Costs include material, labor and overhead. Inventory that is obsolete or in excess of forecasted usage is written down to its estimated net realizable value based on assumptions about future demand and market conditions. Inventory write-downs are charged to cost of goods sold and a new cost basis for the inventory is established.

The Company has a single source supplier manufacturing its system. If the supplier is not able to supply the requested orders, the Company would be unable to continue to derive revenues from the sale of systems until an alternative source is found, which could take a considerable length of time.

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which is between three and five years. Leasehold improvements are amortized over the lesser of the life of the lease or the useful life of the improvements. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the condensed consolidated balance sheet, and any resulting gain or loss is reflected in operations.

Long-lived assets are reviewed annually for impairment or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future net undiscounted cash flows that the assets are expected to generate. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognizedsecond tranche in the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset. There has been no impairment of long-lived assets for any of the periods presented.

Deferred offering costs, consisting of legal, accounting and filing fees relating to an IPO, are capitalized. Upon the completion of the IPO (as discussed in Note 1), the deferred offering costs were offset against offering proceeds. As of September 30, 2017, $2,223 of deferred offering costs have been capitalized, which is included in other long-term assets in the condensed consolidated balance sheets. There were no deferred offering costs capitalized as of December 31, 2016.

The Company accounts for freestanding warrants to purchase shares of convertible preferred stock that are contingently redeemable as liabilities in the condensed consolidated balance sheets at their estimated fair value because these warrants may obligate the Company to redeem them at some point in the future. At the end of each reporting period, changes in the estimated fair value of the warrants to purchase shares of convertible preferred stock are recorded as other income (expense), net in the consolidated statements of operations. Upon the completion of the IPO (as discussed in Note 1), the liability on the preferred stock warrants was reclassified to additional paid-in capital in stockholders’ deficit.

Costs related to the issuance of debt are presented as a direct deduction to the carrying value of the debt and are amortized to interest expense using the effective interest rate method over the term of the related debt.

The Company generates revenue from sales of robotic systems and related procedures, and related support and maintenance. The Company derives revenue primarily from two sources: (i) Product revenue, which includes robotic systems sales, installation, software, procedure key and disposable kits; and (ii) Support and maintenance revenue, which includes support, training, and service contracts.

Revenue is recognized when all of the following criteria are met: (l) persuasive evidence of an arrangement exists; (2) the product or service has been delivered; (3) the sales price is fixed or determinable; and (4) collection is reasonably assured.

The Company records its revenues net of sales tax and shipping and handling costs. Incremental direct costs incurred related to the acquisition or origination of a customer contract are expensed as incurred.

The Company’s offering includes robotic systems containing software components that function together to provide the essential functionality of the product. Therefore, the Company’s hardware products (inclusive of the core software) are considered non-software deliverables and are not subject to industry-specific software revenue recognition guidance.

The Company’s typical multiple element arrangement includes robotic systems (including the essential software), procedure key, installation (for direct sales to end-users), product training and service contracts. The Company considers each of these deliverables to be separate units of accounting based on whether the delivered items have stand-alone value. The Company has determined that each unit of accounting has stand-alone value because they are sold separately by the Company or, for hardware products, because the customers can resell them to others on a stand-alone basis.

For the arrangements with multiple deliverables, the Company allocates the arrangement fee to each element based upon the relative selling price of such element. When applying the relative selling price method, the Company determines the selling price for each element using vendor-specific objective evidence (VSOE) of selling price, if it exists, or if not, third-party evidence (TPE) of selling price, if it exists. If neither VSOE nor TPE of selling price exist for an element, the Company uses its best estimated selling price (BESP) for that element. The revenue allocated to each element is then recognized when the basic revenue recognition criteria are met for that element.

The Company is not able to establish a selling price of its deliverables using VSOE or to determine TPE for its products and services. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, the Company’s go-to-market strategy differs from that of its peers and its offerings contain a significant level of differentiation such that the comparable pricing of products with similar functionality cannot be obtained.

When the Company is unable to establish the selling price of its deliverables using VSOE or TPE, the Company uses BESP in its allocation of arrangement consideration. The objective of BESP is to determine the price at2023 Multi-Tranche Private Placement, under which the Company ~~would transact a sale if~~sold the ~~product or service were sold on a stand-alone basis.~~2023 Investors 500,000 shares of Senior Preferred Stock for an aggregate purchase price of $2,000,000 (the “Second Placement”). The Company ~~determines BESP~~expects to use the proceeds of the Second Placement, after the payment of transaction expenses, for ~~a product or service by considering multiple factors~~general working capital purposes.

This report contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to industry and market conditions, competitive landscape, standard pricing practices and internal cost models. Additionally, the Company considers historical transactions, including transactions whereby the deliverable was soldthose described in in Part I, Item IA “Risk Factors” of our Annual Report on ~~a stand-alone basis.~~

~~Deferred revenue primarily relates to support and maintenance and pertains to billings or payments received~~Form 10-K. Any statements contained in ~~advance where all of the revenue recognition criteria have not been met. The current portion of deferred revenue represents the amounts~~this Quarterly Report on Form 10-Q that are ~~expected~~not historical facts may be deemed to be ~~recognized~~forward-looking statements. In some cases, you can identify these statements by words such as ~~revenue within one year~~such as “anticipates,” “believes,” “plans,” “expects,” “projects,” “future,” “intends,” “may,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “guidance,” and other similar expressions that are predictions of or indicate future events and future trends.

The factors which we currently believe could have a material adverse effect on our business operations and financial performance and condition include, but are not limited to, the ~~condensed consolidated balance sheet date.~~following risks and uncertainties:

• our dependency on the subscription-based model, which exposes us to the credit risk of ~~Revenue~~our customers over the life of each subscription agreement;

• our customers’ failure to make payments under their subscription agreements;

• our need to obtain, maintain and ~~fulfillment costs. Product costs include~~enforce our intellectual property rights;

• the ~~cost of systems~~extensive governmental regulation and ~~disposable kits manufacture, related labor and personnel costs and allocated shared costs. Fulfillment costs consist of costs incurred~~oversight in the shipping and handling of inventory including the shipping costs to the Company's customers, labor and related personnel costs related to receiving, inspecting, warehousing, and preparing systems and reusable kits for shipment.

Cost of revenue for customer service is expensed as incurred and primarily consists of personnel costs such as salaries, bonuses and benefits and stock‑based compensation for employees associated with service contracts, travel costs and allocated shared costs (including rent and information technology).

The Company provides a one-year warranty on the ARTAS System and accrues for the estimated future costs of repair or replacement upon customer acceptance or shipment. The warranty expense is accrued as a liability and recorded to cost of goods sold and is based upon historical information for the cost to repair or replace the system.

Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities with the collected taxes recorded as current liabilities in accrued and other liabilities in the accompanying condensed consolidated balance sheets until remitted to the relevant government authority.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the tax and financial reporting bases of the Company’s assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in future yearscountries in which ~~those temporary differences are expected~~we operate and our ability to be recovered or settled. Deferred tax assets are reduced through the establishment of a valuation allowance, if, based upon available evidence, it is determined that it is more likely than not that the deferred tax assets will not be realized. All deferred tax assets and liabilities are classified as non-current in the condensed consolidated financial statements.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained on examination based on the technical merit of the position. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement.

The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments. The Company recognizes interest charges and penalties related to unrecognized tax benefits as a component of the tax provision.

U.S. GAAP requires the measurement and recognition of compensation expense for all share-based payment awards, including stock options, using a fair-value based method. The Company estimates the fair value of share-based payment awards on the date of grant using a Black-Scholes-Merton option-pricing model. Stock-based compensation is recognized on a straight-line basis over the requisite service period based on awards ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Stock-based awards granted to non-employees are accounted for at fair value. The associated expense is recognized by the Company over the period the services are performed by non-employees. The fair value of stock-based awards granted to non-employees was nominal for the three and nine months ended September 30, 2017 and 2016.

The Company follows the two‑class method when computing net loss per common share as we issue shares that meet the definition of participating securities. The two‑class method determines net income (loss) per common share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two‑class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. Our convertible preferred stock contractually entitles the holders of such shares to participate in dividends, but does not contractually require the holders of such shares to participate in our losses. For periods in which the Company has reported net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti‑dilutive.

In 2006, the Company adopted a defined contribution retirement savings plan under Section 401(k) of the Internal Revenue Code (IRC). This plan covers employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Company contributions to the plan may be made at the discretion of the Board of Directors.

~~There were no contributions by the Company during the three and nine months ended September 30, 2017 and 2016.~~

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the ~~new or revised accounting pronouncements as of public company effective dates.~~

~~Recently Issued Accounting Standards~~• the possibility that our systems may cause or contribute to adverse medical events that could harm our reputation, business, financial condition and results of operations;

• a significant portion of our operations are located in Israel and therefore our business, financial condition and results of operations may be adversely affected by political, economic and military conditions there;

• our ability to come into, and remain in, compliance with the ~~FASB issued ASU No. 2014‑09,~~ ~~Revenue from Contracts with Customers~~ ~~(Topic 606), as amended by ASU No. 2015-14, ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-12,~~listing requirements of the Nasdaq Capital Market;

• our dependency on one major contract manufacturer in Israel exposes us to supply disruptions should that facility be subject to a strike, shutdown, fire flood or other natural disaster;

• our reliance on the expertise and ~~ASU No. 2016-20, collectively, ASU 2014-09. ASU 2014-09 establishes a principle for recognizing revenue upon~~retention of management;

• our ability to access the ~~transfer of promised goods~~ capital markets and/or ~~services~~obtain credit on favorable terms;

• global economic and political conditions and uncertainties, including but not limited to ~~customers in an amount that reflects~~the Russia-Ukraine conflict; and

• the expected ~~consideration received~~timing, proceeds and other details with respect to future sales of senior preferred stock, if any, in ~~exchange for those goods or services~~the 2023 Multi-Tranche Private Placement.

You are urged to consider these factors carefully in evaluating the forward-looking statements and ~~also provides guidance~~are cautioned not to place undue reliance on ~~the recognition of costs related~~these statements. The forward-looking statements are based on information available to obtaining and fulfilling customer contracts. For public entities, this standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. For all other entities, this standard is effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted. ASU 2014‑09 may be adopted either retrospectively to each prior period presented or with the cumulative effect recognizedus as of the filing date of initial application. The Company’s final determination will depend on a number of factors, such as the significance of the impact of the new standard on the financial results, system readiness, and the ability to accumulate and analyze the information necessary to assess the impact on prior period financial statements, as necessary. The Company is in the initial stages of evaluating this standard and have not yet selected an adoption method, nor has it determined the effect of the standard on the Company’s consolidated financial statements and related disclosures. The Company currently expects to adopt this standard effective January 1, 2019.

~~In March 2016, the FASB issued ASU No. 2016‑09,~~ ~~Compensation – Stock Compensation~~ (Topic 718): Improvements to Employee Share‑Based Payment Accounting, or ASU 2016‑09. ASU 2016-09 simplifies the accounting and reporting of share‑based payment transactions, including adjustments to how excess tax benefits and payments for tax withholdings should be classified and provides the election to eliminate the estimate for forfeitures. For public entities, this standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. For all other entities, this standard is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period for which financial statements have not been issued or made available for issuance. The Company does not expect the adoption of this standard to have a material impact on the condensed consolidated financial statements.

~~In August 2016, the FASB issued ASU No. 2016‑15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~, or ASU 2016‑15. ASU 2016-15 identifies how certain cash receipts and cash payments are presented and classified in the Statement of Cash Flows. For public entities, this standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. For all other entities, this standard is effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. This standard should be applied retrospectively and early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact that this standard will have on its condensed consolidated financial statements.

~~In February 2016, the FASB issued ASU No. 2016‑02,~~ ~~Leases (Topic 842)~~, or ASU 2016‑02, which requires lessees to record most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. Under ASU 2016‑02, a lessee would recognize a lease liability for the obligation to make lease payments and a right‑to‑use asset for the right to use the underlying asset for the lease term. For public entities, this standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. For all other entities, this standard is effective for annual reporting periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact and materiality that this standard will have on its condensed consolidated financial statements. However, the Company does expect an increase in its consolidated assets and liabilities upon adoption of this standard.

~~In July 2015, the FASB issued ASU No. 2015-11,~~ ~~Inventory, Simplifying the Measurement of Inventory~~ (Topic 330), or ASU 2015-11. Under ASU 2015-11, the measurement principle for inventory will change from lower of cost or market value to lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. For public entities, this standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. For all other entities, this standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2017. This standard should be applied prospectively and early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its condensed consolidated financial statements.

Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, convertible preferred stock, preferred stock warrants and stock options are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

The following outstanding shares of common stock equivalents were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive:

In future periods, if the Company were to generate net income, it would allocate participating securities a proportional share of the net income, determined by dividing total weighted-average participating securities by the sum of the total weighted-average common shares and participating securities (the two-class method). The Company’s Series A convertible preferred stock, Series B convertible preferred stock, Series C convertible preferred stock and the Series AA convertible preferred stock participate in any dividends declared by the Company and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income.

To date, the Company has only incurred net losses and has not allocated any losses to participating securities because the preferred stockholders have no contractual obligation to share in the losses of the Company. The Company computes diluted loss per common share after giving consideration to the dilutive effect of stock options, warrants and non-vested stock that are outstanding during the period, except where such non-participating securities would be anti-dilutive.

~~Cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximate fair market value because of the short-term nature of those instruments.~~ ~~The Company’s lease obligation, term loan and Convertible Notes have fair values that approximate their carrying value.~~ ~~The Company’s preferred stock warrants are remeasured to fair value at each reporting date (see Note 9 for further information).~~

U.S. GAAP established a framework for measuring fair value and a fair value hierarchy based on the inputs used to measure fair value. This framework maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It applies to both items recognized and reported at fair value in the financial statements and items disclosed at fair value in the notes to the financial statements.

Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the transparency of inputs as follows:

~~Level 1~~ ~~- Quoted pricesareavailablein activemarketsforidenticalassetsor liabilitiesas of thereport date.A quotedpriceforan identicalassetor liabilityin an activemarketprovidesthemostreliablefair valuemeasurementbecause~~itis~~directlyobservableto themarket.~~

~~Level~~2 ~~- Pricinginputsareotherthanquotedpricesin activemarkets,which areeitherdirectlyor indirectlyobservableas of thereportdate.The natureof thesesecuritiesincludeinvestmentsforwhich quotedpricesareavailablebut tradedlessfrequentlyand investmentsthatarefairvaluedusingother securities,theparametersof which can be directlyobserved.~~

~~Level 3~~ ~~- Securitiesthathave littleto no pricingobservabilityas of thereportdate.These securitiesare measuredusingmanagement’sbestestimateof fairvalue,where theinputsintothedeterminationof fair valuearenot observableand requiresignificantmanagementjudgmentor estimation.~~

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Company. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Company’s perceived risk of that instrument.

~~The following tables summarize the levels of fair value measurements of the Company’s cash equivalents, investments and preferred stock warrants liabilities:~~

~~The following table summarizes the preferred stock warrant liabilities activity subject to Level 3 inputs which are measured on a recurring basis:~~

~~Depreciation and amortization expense was $139 and $452 for three and nine months ended September 31, 2017 and $148 and $498 for three and nine months ended September 30, 2016.~~

~~The Company has various operating leases including 23,000 square feet of office space in San Jose, California, which expires in April 2022.~~

The Company recognizes rent expense on a straight-line basis over the non-cancelable lease period and records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. When leases contain escalation clauses, rent abatements and/or concessions, such as rent holidays and landlord or tenant incentives or allowances, the Company applies them in the determination of straight-line rent expense over the lease period.

~~Aggregate future minimum lease payments required under the Company’s operating leases as of September 30, 2017 are as follows:~~

~~Total rent expense was $103 and $310 for three and nine months ended September 30, 2017 and $82 and $260 for three and nine months ended September 30, 2016.~~

In July 2006, the Company entered into a license agreement with Rassman Licensing, LLC (Rassman) for non-exclusive, royalty bearing, non-transferable, perpetual, world-wide rights for use on approved fields relating to robotically controlled hair removal and implantation procedures. In consideration for this license, the Company paid Rassman a one-time payment of $1,000. The agreement terminates on May 9, 2020. In February 2012, the Company amended its license agreement with Rassman. In exchange for a one-time $400 payment to Rassman, the Company now has a fully paid royalty-free license to a patent subject to this license agreement. Royalties for the three and nine months ended September 30, 2017 and 2016 were $0.

In July 2006, the Company entered into a license agreement with HSC Development, LLC for exclusive non-transferable, royalty-free worldwide rights for use in approved fields relating to a computer-controlled system in which a device is carried on a mechanized arm for extraction or implantation of a follicular unit without manual manipulation. In consideration for this license, the Company paid HSC Development, LLC a one-time payment of $25 and issued 2,500 shares of the Company’s common stock valued. The agreement terminates on July 27, 2024.

In May 2015, the Company entered into a loan and security agreement with Oxford Finance, LLC, or Oxford, (the Agreement). Under the terms of the loan and security agreement, the Company borrowed $20,000 with an interest rate at prime plus 8.5% per annum, which is collateralized by all personal property of the Company, excluding intellectual property, and issued 10-year warrants to purchase 110,486 shares of Series C Preferred Stock at $7.15 per share. The estimated fair value of the warrants at issuance was recorded as a discount on the loan and amortized into interest expense over the expected life of the loan. In connection with the loan agreement, the Company recorded $246 of credit facility fees and $153 of debt issuance cost as of January 31, 2015. The credit facility fees and debt issuance costs are a discount on the debt and are being amortized to interest expense over the term of the loan using the effective-interest method. The loan will mature in July 2019, at which time the Company must repay the outstanding principal balance which includes a final payment of $1,300. The outstanding balance on the loan was $15,300 and accrued interest totaled $99 as of September 30, 2017. The interest rate was 12.8% at September 30, 2017.

Borrowings under the Agreement are collateralized by all the assets of the Company, excluding intellectual property. The Agreement includes customary restrictive covenants that impose operating and financial restrictions on the Company, including restrictions on our ability to take actions that could be in the Company’s best interests. These restrictive covenants include operating covenants restricting, among other things, the Company’s ability to incur additional indebtedness, effect certain acquisitions or make other fundamental changes. The Company was in compliance with all of the covenants as of September 30, 2017 and December 31, 2016.

~~The scheduled principal payments on the outstanding borrowings as of September 30, 2017 are as follows:~~

~~During the nine months ended September 30, 2017, the Company made principal repayments of $6,000.~~

On September 6, 2017, the Company issued $5,000 in subordinated convertible notes (Convertible Notes) that accrued interest at 5.0% per annum, in a private placement transaction with certain of the Company’s existing stockholders and their affiliated entities, including investors affiliated with certain of the Company’s directors. As of September 30, 2017, the outstanding principal balance on the Convertible Notes was $5,000 and the accrued but unpaid interest was $18.

Pursuant to the terms of the Convertible Notes, the aggregate outstanding principal and unpaid but accrued interest automatically converted into 718,184 shares of the Company’s common stock, upon the consummation of the IPO (as discussed in Note 1).

~~On issuance, the Company’s convertible preferred stock is recorded at fair value or the amount of allocated proceeds, net of issuance costs.~~

The Company classifies the convertible preferred stock outside of stockholders’ deficit because, in the event of certain liquidation events that are not solely within the control of the Company (including merger, acquisition, or sale of all or substantially all of the assets), the shares would become redeemable at the option of the holders. The Company did not adjust the carrying values of the convertible preferred stock to the deemed liquidation values of such shares since a liquidation event was not probable at any of the reporting dates. Subsequent adjustments to increase or decrease the carrying values to the ultimate liquidation values will be made only if and when it becomes probable that such a liquidation event will occur.

~~Immediately prior to the closing of the IPO (as discussed in Note 1), all shares of our outstanding convertible preferred stock automatically converted into~~ ~~22,671,601~~ ~~shares of common stock.~~

The Company classifies its convertible preferred stock warrants as liabilities on the accompanying condensed consolidated balance sheets. As of September 30, 2017 and December 31, 2016, the preferred stock warrant liabilities were $2,311 and $693.

~~The key terms of the preferred stock warrants are summarized in the following table:~~

The exercise price is not fixed and may be adjusted to the price per share paid by investors in a qualified financing in the event the price per share is less than the $7.15 per share. During the nine months ended September 30, 2017 and 2016, no warrants were exercised.

Prior to its IPO, at each reporting date, the Company remeasures the convertible preferred stock warrants to fair value using a probability weighed expected return method (PWERM) that uses an option pricing method (OPM), together with a Monte Carlo simulation to incorporate the anti-dilution provisions on the convertible preferred stock, to allocate the estimated value of the Company. The OPM treats classes of stock as call options on a company's enterprise value which takes into consideration differences in the right of various securities including rights to dividends, liquidation preferences, and conversion rights. The OPM prices the call option using the Black-Scholes model. The PWERM relies on a forward-looking analysis to predict the possible future value of a company by weighing discrete future outcomes. The fair value of preferred stock warrants was determined using the following assumptions:

The assumptions used in calculating the estimated fair market value at each reporting period represent the Company’s best estimate, however inherent uncertainties are involved. As a result, if factors or assumptions change the warrant liability, the estimated fair value could be materially different.

The estimated expected volatility was derived from historical volatilities of several unrelated publicly listed peer companies over a period approximately equal to the remaining term of the warrants. When making the selections of the Company’s industry peer companies to be used in the volatility calculation, the Company considered the size and operational and economic similarities to the Company’s principle business operations. The estimated expected term represents either the lesser of (i) the remaining contractual term of the warrants or (ii) the remaining term under probable scenarios used to determine the fair value of the underlying stock. The risk-free interest rate was based on the U.S. Treasury yield for a term consistent with the estimated expected term. The significant unobservable inputs used in the fair value measurement of the convertible preferred stock warrant liability are the fair value of the underlying stock at the valuation date, the expected volatility, and the estimated term of the warrants. Generally, increases (decreases) in the fair value of the underlying stock, expected volatility and expected term would result in a directionally similar impact to the fair value measurement.

~~The~~ warrants are immediately exercisable in whole or in part over the term of the warrants. Certain of the Company’s outstanding preferred stock warrants will expire twelve months after the IPO if not exercised prior to such date, while the remaining warrants expire according to the original term. On the completion of the IPO (as discussed in Note 1), the liability on the preferred stock warrants was reclassified to additional paid-in capital in stockholders’ deficit and the preferred stock warrants automatically converted into common stock warrants and, as such, no further remeasurements to fair value will occur.

The Company is required to reserve and keep available out of its authorized but unissued shares of common stock a number of shares sufficient to effect the conversion of all outstanding shares of convertible preferred stock (and preferred stock warrants), plus options granted and available for grant under the incentive plans.

In 2005, the Company established its 2005 Stock Option Plan (the 2005 Plan), which provides for the granting of stock options to employees, directors, and consultants of the Company. Options granted under the Plan may be either incentive stock options (ISOs) or non-statutory stock options (NSOs), as determined by the Administrator at the time of grant. The term and vesting period of each option shall be stated in the option agreements. However, the term shall be no more than ten years from the date of the grant and the vesting period shall be generally four years. In the case of an ISO granted to an optionee who, at the time the option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company, the term of the option shall be five years from the date of grant or such shorter term as may be provided in the option agreement.

In 2015, the Company established its 2015 Equity Incentive Plan (the 2015 Plan), which superseded and replaced the 2005 Plan. A total of 2,221,655 shares have been reserved for issuance under the 2005 Plan and 2015 Plan.

In September 2017, the Company adopted the 2017 Equity Incentive Plan (the 2017 Plan). The Company’s 2017 Plan provides for the grant of incentive stock options (ISOs), nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and other forms of equity compensation to employees, directors and consultants. In addition, the Company’s 2017 Plan provides for the grant of performance cash awards to employees, directors and consultants. The 2017 Plan became effective upon the closing date of the IPO.

As discussed in Note 15, the 2017 Plan became effective on October 11, 2017. As a result, no further grants will be made under the Company’s 2005 Plan and the 2015 Plan; however, any outstanding stock awards granted under those Plans will remain outstanding, subject to the terms of the Company’s 2005 Plan and 2015 Plan and the applicable stock award agreements, until such outstanding stock awards that are stock options are exercised or until they terminate or expire by their terms, or until such stock awards are fully settled, terminated or forfeited. On the effective date of the 2017 Plan, the Company reserved 1,913,831 shares of common stock for issuance under the 2017 Plan, plus the remaining reserved and unissued shares under the 2015 plan. The number of shares reserved for issuance under the 2017 Equity Plan will increase automatically on the first day of each fiscal year beginning in 2018 and ending in 2027, equal to the lesser of (i) 4% of the shares of stock outstanding on the last day of the immediately preceding fiscal year or (ii) number of shares of stock as determined by the Company’s board of directors.

~~The Company recognized stock-based compensation expense for its employees and non-employees in the accompanying consolidated statements of operations as follows:~~

~~The estimated grant-date fair value of all of the Company’s stock-based awards was calculated using the Black-Scholes-Merton option pricing model, based on the following assumptions:~~

The fair value of each stock option grant was determined by the Company using the methods and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment and estimation by management.

~~Expected Term—The expectedtermrepresentstheperiodthatstock-basedawardsareexpectedto be outstanding.The expectedtermforoptiongrants~~is~~determinedusingthesimplifiedmethod.The simplified methoddeemsthetermto be theaverageof thetime-to-vestingand thecontractuallifeof thestock-based awards.The expectedtermforoptionsissuedto non-employees~~is~~thecontractualterm.~~

~~Expected Volatilit~~y~~—SincetheCompany does not have a tradinghistoryforitscommonstock,theexpected volatilitywas derivedfromthehistoricalstockvolatilitiesof comparablepeerpubliccompanieswithinits industrythatareconsideredto be comparableto theCompany’sbusinessovera periodequivalentto the expectedtermof thestock-basedawards.~~

~~Risk-Free Interest Rate—The risk-freeinterestrate~~is~~basedon theU.S.Treasuryyieldcurvein effect~~at~~the dateof grantforzero-couponU.S.Treasurynoteswith maturitiesapproximatelyequalto thestock-based awards’expectedterm.~~

~~Expected Dividend Rate—The expected dividend is zero as the Company has not paid nor does it anticipate paying any dividends on its common stock in the foreseeable future.~~

~~Forfeiture Rate—The forfeiturerate~~is~~estimatedbasedon an analysisof actualforfeitures.Management willcontinueto evaluatetheadequacyof theforfeitureratebasedon actualforfeitureexperience,analysis of employeeturnoverbehaviorand otherfactors.The impactfromany forfeiturerateadjustmentwould be recognizedin fullin theperiodof adjustmentand iftheactualnumberof futureforfeituresdiffersfrom management’sestimates,theCompany mightbe requiredto recordadjustmentsto stock-based compensationin futureperiods.~~

~~Fair Value of CommonStoc~~k~~—Because the Company as of September 30, 2017 was a private company,there wasno publicmarketfortheCompany’scommonstockas of September 30, 2017 and December 31, 2016, theCompany’sboardof directors determinedthefairvalueof the commonstockby consideringa numberof objectiveand subjectivefactors,includinghavingvaluationsof itscommonstockperformedby an unrelatedvaluationspecialist,valuationsof comparablepeerpublic companies,salesof theCompany’sconvertiblepreferredstockto unrelatedthirdparties,operatingand financialperformance,thelackof liquidityof theCompany’scapitalstock,and generaland industry-specificeconomicoutlook. After the closing of the Company’s IPO, the fair value of the Company’s common stock will be used to estimate the fair value of the stock-based awards at grant date.~~

~~The following table summarizes stock option activity under the Company’s stock option plan:~~

The weighted-average grant date fair value of options granted was $0 and $1.02 per share for three and nine months ended September 30, 2017, and $0.86 per share for three and nine months ended September 30, 2016.

~~The total intrinsic value of options exercised were $0 for three and nine months ended September 30, 2017 and 2016.~~

~~Unamortized stock-based compensation was $654 as of September 30, 2017, which is expected to be recognized over a weighted-average period of approximately 2.52 years.~~

The Company did not record a provision for federal income taxes for the three and nine months ended September 30, 2017 because it expects to generate a loss for the year ended December 31, 2017. The income tax expense of $25 and $50 for the three and nine months ended September 30, 2017 represents foreign taxes. The Company’s deferred tax assets continue to be offset by a valuation allowance.

~~The following table reflects revenue by geographic area by customer location:~~

~~As of September 30, 2017 and December 31, 2016, all long-term assets were located within the United States.~~

During the year ended December 31, 2016, the Company has engaged in a commercial transaction with a then-member of the Company’s board of directors. The aggregate revenue for this transaction was $240 for the year ended December 31, 2016. There were no accounts receivable due from this then-member of the board of directors as of December 31, 2016. In January 2017, that member of the Company’s board of directors resigned.

~~As discussed in Note 1, in connection with the Company’s IPO that closed on October 16, 2017, the following events occurred:~~

~~Following completion of the Company’s IPO and in connection with the preparation~~ of this Quarterly Report on Form ~~10-Q, management reassessed its current operating plans~~10-Q. Unless required by law, we do not intend to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and ~~capital resources. As a result~~risks we describe in the reports we will file from time to time with the SEC after the date of this ~~reassessment, the Company believes that, as of the filing date of the~~ Quarterly Report its existing cash and cash equivalents (inclusive of the net proceeds from its IPO and the issuance of the Convertible Notes) and cash expected to be generated from the sale of its products, will be sufficient to fund its planned operations for the next 12 months. However, the Company will need additional capital to fund its future operations and intends to obtain such capital through the sale of additional share of capital stock or related securities.

~~As discussed in Note 11, the Company adopted its 2017 Equity Incentive Plan (the 2017 Plan) in September 2017, which became effective~~ on the closing date of the IPO. The 2017 Plan became effective on October 11, 2017. The Company’s 2017 Plan provides for the grant of incentive stock options (“ISOs”), nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and other forms of equity compensation to employees, directors and consultants. In addition, the Company’s 2017 Plan provides for the grant of performance cash awards to employees, directors and consultants. On the effective date of the 2017 Plan, the Company reserved 1,913,831 shares of common stock for issuance under the 2017 Plan, plus the remaining reserved and unissued shares under the 2015 plan. The number of shares reserved for issuance under the 2017 Equity Plan will increase automatically on the first day of each fiscal year beginning in 2018 and ending in 2027, equal to the lesser of (i) 4% of the shares of stock outstanding on the last day of the immediately preceding fiscal year or (ii) number of shares of stock as determined by the Company’s board of directors. No further grants will be made under the Company’s 2005 Plan and the 2015 Plan.Form 10-Q.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read ~~in conjunction~~together with ~~our~~the unaudited condensed consolidated financial statements and the ~~related~~ notes thereto included elsewhere in this Quarterly Report on Form 10-Q ~~and~~for the quarter ended June 30, 2023 (“Form 10-Q”), with our audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2022 (“Form 10-K”) and other filings we have made with the SEC.

We are an innovative global medical technology company that develops, commercializes and delivers minimally invasive and non-invasive medical aesthetic and hair restoration technologies and related services. Our systems have been designed on cost-effective, proprietary and flexible platforms that enable us to expand beyond the aesthetic industry’s traditional markets of dermatology and plastic surgery, and into non-traditional markets, including family and general practitioners and aesthetic medical spas. In the three and six months ended June 30, 2023 and 2022, respectively, a substantial majority of our systems delivered in North America were in non-traditional markets. As we grow our ARTAS hair restoration business and expand robotics offerings through the AI.ME™ platform we expect our penetration into the core practices of dermatology and plastic surgery to increase.

We have had recurring net operating losses and negative cash flows from operations. As of June 30, 2023 and December 31, 2022, we had an accumulated deficit of $241.7 million and $224.1 million, respectively. Until we generate revenue at a level to support our cost structure, we expect to continue to incur substantial operating losses and negative cash flows from operations. In order to continue our operations, we must achieve profitability and/or obtain additional equity investment or debt financing. Until we achieve profitability, we plan to fund our operations and capital expenditures with cash on hand, borrowings and issuances of capital stock. As of June 30, 2023 and December 31, 2022, we had cash and cash equivalents of $6.1 million and $11.6 million, respectively.

The global economy, including the financial and credit markets, has recently experienced extreme volatility and disruptions, including increases to inflation rates, rising interest rates, foreign currency impacts and declines in consumer confidence, and declines in economic growth. All these factors point to uncertainty about economic stability, and the severity and duration of these conditions on our business cannot be predicted.

Venus Viva®, Venus Viva® MD, Venus Legacy®, Venus Concept®, Venus Versa®, Venus Fiore®, Venus Freedom™, Venus Bliss™, Venus Bliss Max™, NeoGraft®, Venus Glow™, ARTAS®, ARTAS iX®, and AIME™, are trademarks of the Company and its subsidiaries. Our logo and our other trade names, trademarks and service marks appearing in this document are our property. Other trade names, trademarks and service marks appearing in this document are the property of their respective owners. Solely for convenience, our trademarks and trade names referred to in this document appear without the TM or the ® symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the rights of the applicable licensor to these trademarks and trade names.

On June 16, 2020, we entered into the Equity Purchase Agreement with Lincoln Park, which provided that, upon the terms and subject to the conditions and limitations set forth therein, we may sell to Lincoln Park up to $31.0 million of shares of our common stock pursuant to our shelf registration statement. The purchase price of shares of common stock related to a future sale was based on the then prevailing market prices of such shares at the time of sales as described in the Equity Purchase Agreement. Concurrently with entering into the Equity Purchase Agreement, we also entered into the Registration Rights Agreement. The Equity Purchase Agreement expired on July 1, 2022 and was replaced by the 2022 LPC Purchase Agreement.

On July 12, 2022, we entered into the 2022 LPC Purchase Agreement with Lincoln Park, which will enhance our balance sheet and financial condition to support our future growth initiatives. As part of the 2022 LPC Purchase Agreement, we issued and sold to Lincoln Park 0.05 million shares of our common stock as a commitment fee in connection with entering into the 2022 LPC Purchase Agreement with the total value of $0.3 million. Subsequent to execution of the 2022 LPC Purchase Agreement the Company issued 0.43 million shares of common stock to Lincoln Park at an average price of $4.54 per share, for a total value of $1.97 million through December 31, 2022. During the six months ended June 30, 2023, the Company issued an additional 0.34 million shares of common stock to Lincoln Park at an average price of $3.23 per share, for a total value of $1.11 million. For additional information regarding the 2022 LPC Purchase Agreement, see Note 14 “Stockholders Equity” in the notes to our unaudited condensed consolidated financial statements included elsewhere in this report.

On December 15, 2021, the Company consummated the 2021 Private Placement whereby we entered into a securities purchase agreement pursuant to which we issued and sold to the 2021 Investors an aggregate of 653,894 shares of our common stock and 252,717 shares of our Non-Voting Preferred Stock. The gross proceeds from the securities sold in the 2021 Private Placement was $17.0 million. The costs incurred with respect to the 2021 Private Placement totaled $0.3 million and were recorded as a reduction of the 2021 Private Placement proceeds in the consolidated statements of stockholders’ equity. The accounting effects of the 2021 Private Placement transaction are discussed in Note 14 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report. These Non-Voting Preferred Stock shares were subsequently converted to common stock upon issuance of the 2022 Private Placement described below.

On November 18, 2022, we entered into a securities purchase agreement pursuant to which we issued and sold to the 2022 Investors an aggregate of 116,668 shares of our common stock and 3,185,000 shares of our Voting Preferred Stock. The gross proceeds from the securities sold in the 2022 Private Placement totaled $6.7 million before offering expenses. The costs incurred with respect to the 2022 Private Placement totaled $0.2 million and were recorded as a reduction of the 2022 Private Placement proceeds in the consolidated statements of stockholders’ equity. The accounting effects of the 2022 Private Placement transaction are discussed in Note 14 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report.

In May 2023, we entered into the 2023 Multi-Tranche Private Placement Stock Purchase Agreement with the 2023 Investors pursuant to which the Company may issue and sell to the 2023 Investors up to $9,000,000 in shares of the Senior Preferred Stock in multiple tranches from time to time until December 31, 2025, subject to a minimum aggregate purchase amount of $500,000 in each tranche. The Initial Placement occurred on May 15, 2023, under which the Company sold the 2023 Investors 280,899 shares of Senior Preferred Stock for an aggregate purchase price of $2,000,000. The Company expects to use the proceeds of the Initial Placement, after the payment of transaction expenses, for general working capital purposes. The accounting effects of the 2023 Multi-Tranche Private Placement transaction are discussed in Note 14 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report.

We derive revenue from the sale of products and services. Product revenue includes revenue from the following:

Service revenue includes revenue derived from our extended warranty service contracts provided to our existing customers.

Systems are sold through traditional sales contracts directly, through our subscription model, and through distributors. In the third quarter of 2022 we commenced an initiative to reduce our reliance on system sales sold under subscription agreements in the United States. This strategic shift is designed to improve cash generation and reduce our exposure to defaults and increased bad debt expense given the increasingly challenging economic environment caused by the coexistence of high inflation and high interest rates.

We generate revenue from traditional system sales and from sales under our subscription-based business model, which is available to customers in North America and select international markets. Approximately 30% and 49% of our total system revenues were derived from our subscription model in the six months ended June 30, 2023 and 2022, respectively. We currently do not offer the ARTAS iX system under the subscription model. For additional details related to our subscription model, see Item 1. Business – Subscription-Based Business Model as filed in our Form 10-K for the year ended December 31, ~~2016, included in~~2022.

We have developed and received regulatory clearance for twelve novel aesthetic technology platforms, including our ~~final prospectus dated October 11, 2017~~ARTAS and ~~filed with the SEC pursuant to Rule 424(b) under the Securities Act on October 13, 2017 (the Prospectus).~~

~~This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A~~NeoGraft systems. We believe our ARTAS and NeoGraft systems are complementary and give us a hair restoration product offering that can serve a broad segment of the ~~Securities Act~~market. Our medical aesthetic technology platforms have received regulatory clearance for a variety of ~~1933, as amended,~~indications, including treatment of facial wrinkles in certain skin types, temporary reduction of appearance of cellulite, non-invasive fat reduction (lipolysis) in the abdomen and ~~Section 21E~~flanks for certain body types and relief of minor muscle aches and pains in jurisdictions around the Securities Exchange Act of 1934, as amended. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. These statements are basedworld. In addition, our technology pipeline is focused on the ~~beliefs and assumptions~~development of ~~our management based on information currently available to management. Such forward-looking statements~~robotically assisted minimally invasive solutions for aesthetic procedures that are ~~subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied~~primarily treated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors,” set forth in Part II, Item 1A of this Form 10-Q and in our other SEC filings,surgical intervention, including the ~~Prospectus. You should review~~AI.ME platform for which we received FDA 510(k) clearance for fractional skin resurfacing in December 2022.

In the risk factors for a more complete understanding of the risks associated with an investment in our securities. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q. Our fiscal year end is December 31, and references throughout this Quarterly Report on Form 10-Q to a given fiscal year are to the twelve months ended on that date.

We are a medical technology company developing and commercializing a robotic device, the ARTAS System, which assists physicians in performing many of the repetitive tasks that are a part of a follicular unit extraction, or FUE surgery, a type of hair restoration procedure. We believe the ARTAS System is the first and only physician assisted robotic system that can identify and dissect hair follicular units directly from the scalp and create recipient implant sites. In addition to the ARTAS System,United States, we also offer the ARTAS Hair Studio application, an interactive three-dimensional patient consultation tool that enables a physician to create a simulated hair transplant model for use in patient consultations. We receivedhave obtained 510(k) clearance from the ~~U.S. Food~~FDA for our Venus Viva, Venus Viva MD, Venus Legacy, Venus Versa, Venus Velocity, Venus Bliss, Venus Bliss Max, Venus Epileve, Venus Fiore, ARTAS, ARTAS iX and ~~Drug Administration,~~AI.ME systems. Outside the United States, we market our technologies in over 60 countries across Europe, the Middle East, Africa, Asia-Pacific and Latin America. Because each country has its own regulatory scheme and clearance process, not every device is cleared or ~~FDA,~~authorized for the same indications in ~~April 2011 to~~each market ~~the ARTAS System~~in which a particular system is marketed.

As of June 30, 2023, we operated directly in 14 international markets through our 11 direct offices in the ~~U.S.,~~United States, Canada, United Kingdom, Japan, Mexico, Spain, Germany, Australia, China, Hong Kong, and we have sold the ARTAS System into 29 other countries. As of September 30, 2017, we have sold 90 ARTAS Systems in the U.S. and 151 internationally. As of September 30, 2017, the ARTAS System and ARTAS Hair Studio application are protected by over 70 patents in the U.S. and over 100 international patents.

On October 11, 2017, the Company’s Registration Statement on Form S-1 (File No. 333-220303) relating to the initial public offering (IPO) of its common stock was declared effective by the Securities and Exchange Commission (SEC). Pursuant to such Registration Statement, the Company sold an aggregate of 3,897,910 shares of its common stock (inclusive of 322,910 shares of common stock from the subsequent exercise by the underwriters of the over-allotment option) at a price of $7.00 per share for aggregate cash proceeds of approximately $22.7 million, net of underwriting discounts and commissions and estimated offering costs.

We generate revenues from the sale and service of ARTAS Systems and procedure based fees. For procedure based fees, our physician customers in the U.S. generally pay in advance on a per follicle-basis for the follicles to be harvested, and on a per procedure basis for Site Making. Outside of the U.S., physician customers pay in advance, generally on a per procedure basis for both follicle extraction and Site Making. Our revenue has historically been net of discounts. In the three and nine-month period ended September 30, 2017 there were de minimis discounts.

Cost of revenue primarily consists of product, fulfillment, and customer service costs. Product costs include the cost of systems, upgrades, disposable and reusable kits, and personnel-related costs, including salaries and benefits, bonuses, and stock-based compensation related to management of our contract manufacturer, and allocated shared costs (including rent and information technology). Fulfillment costs primarily consist of costs incurred in the shipping and handling of inventory, including shipping costs to our customers, and personnel-related costs, including salaries and benefits, bonuses, and stock-based compensation related to receiving, inspecting, warehousing, and preparing systems and kits for shipment. Customer service costs primarily consists of personnel-related costs, including salaries and benefits, bonuses, and stock-based compensation associated with service contracts, travel costs, and allocated shared costs (including rent and information technology). Cost of revenue also includes depreciation of property and equipment associated with cost of revenue activities.

Research and development expenses primarily consist of personnel-related costs, including salaries and benefits, bonuses, and stock-based compensation for our research and development employees, consulting services, clinical studies, supplies, allocated shared costs (including rent and information technology), and depreciation of equipment associated with research and development activities.

Sales and marketing expenses primarily consist of personnel-related costs, including salaries and benefits, bonuses, sales commissions, travel expenses, and stock-based compensation for our sales and marketing employees, consulting services, advertising, direct marketing, tradeshow, and promotional expenses, allocated shared costs (including rent and information technology), and depreciation of property and equipment associated with sales and marketing activities.

General and administrative expenses primarily consist of personnel-related costs, including salaries and benefits, bonuses, travel expenses, and stock-based compensation for our executive, finance, legal, human resources, information technology and other administrative employees. In addition, general and administrative expenses include fees for third party professional services, including consulting, legal and accounting services and other corporate expenses, allocated shared costs (including rent and information technology), and depreciation of property and equipment associated with general and administrative activities.

~~Interest expense consists of interest related to borrowings under our debt obligations.~~

Other income (expense), net primarily consists of income and expense related to the change in fair value of convertible preferred stock warrant liabilities. Upon the completion of the IPO, the liability on the preferred stock warrants was reclassified to additional paid-in capital in stockholders’ deficit.

Provision for income taxes primarily consists of state and foreign income taxes. Due to cumulative losses, we maintain a valuation allowance against our deferred tax assets. We consider all available evidence, both positive and negative, in assessing the extent to which a valuation allowance should be applied against our deferred tax assets.

~~Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016~~Israel.

~~Revenue, Net.~~ ~~Revenue increased$0.5 million,or 14%, to $4.2 millionfor the threemonthsended September30, 2017, comparedto $3.7 million~~Our revenues for the three monthsended ~~September~~June 30, ~~2016. The overall increase~~2023, and 2022 were $20.1 million and $27.3 million, respectively. Our revenues for the six months ended June 30, 2023, and 2022 were $40.6 million and $53.7 million, respectively. We had a net loss attributable to Venus Concept of $7.4 million and $10.6 million in ~~revenue was primarily due to an increase in system revenue of$0.4 million,or 25%, to $2.0 millionfor~~ the three monthsended ~~September~~June 30, ~~2017, compared~~2023, and 2022, respectively. We had a net loss attributable to ~~$1.6~~ Venus Concept of $17.0 million~~for~~ and $19.2 million in the ~~three~~six monthsended ~~September~~June 30, ~~2016. The increase in system revenuewas due to increasedunit sales,as wesold eight systemsduring the three monthsended September 30, 2017, comparedto sixsystemsduring the three monthsended September 30, 2016 as a result~~2023, and 2022, respectively. We had an Adjusted EBITDA loss of ~~increasedsales~~$3.9 million and ~~marketingactivities.~~ ~~The remaining $0.1 million increase was from procedures based fees and service-related fees, which totaled $2.2~~$5.5 million for the three months ended ~~September~~June 30, ~~2017,~~2023, and 2022, respectively. We had an Adjusted EBITDA loss of $9.7 million and $11.3 million for the six months ended June 30, 2023, and 2022, respectively.

Adjusted EBITDA is a non-GAAP measure defined as net income (loss) before foreign exchange loss (gain), financial expenses, income tax expense (benefit), depreciation and amortization, stock-based compensation and non-recurring items for a given period. Adjusted EBITDA is not a measure of our financial performance under U.S. GAAP and should not be considered an alternative to net income or any other performance measures derived in accordance with U.S. GAAP. Accordingly, you should consider Adjusted EBITDA along with other financial performance measures, including net income, and our financial results presented in accordance with U.S. GAAP. Other companies, including companies in our industry, may calculate Adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure. We understand that although Adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are: Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and although depreciation and amortization are non-cash charges, the assets being depreciated will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

We believe that Adjusted EBITDA is a useful measure for analyzing the performance of our core business because it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by changes in foreign exchange rates that impact financial assets and liabilities denominated in currencies other than the U.S. dollar, tax positions (such as the impact on periods or companies of changes in effective tax rates), the age and book depreciation of fixed assets (affecting relative depreciation expense), amortization of intangible assets, stock-based compensation expense (because it is a non-cash expense) and non-recurring items as explained below.

The following is a reconciliation of net loss to Adjusted EBITDA for the periods presented:

We sold an aggregate of ~~an increased number~~332 systems in the three months ended June 30, 2023 compared to 430 systems in the three months ended June 30, 2022. The percentage of ~~ARTAS~~ ~~procedures~~ ~~performed~~ systems revenue derived from our subscription model was approximately 26% and ~~post-warranty maintenance contracts~~51% during the ~~period.~~three months ended June 30, 2023 and 2022, respectively. The relative decrease in subscription revenues is in line with our strategy to prioritize cash deals over subscription deals in the U.S. market in order to improve cash generation and preserve liquidity. Specific to the U.S. market, systems revenue derived from our subscription model was approximately 18% and 64% during the three months ended June 30, 2023 and 2022, respectively.

Other product revenue decreased by $0.5 million, or 16%, to $2.6 million in the three months ended June 30, 2023 compared to $3.1 million in the three months ended June 30, 2022.

Services revenue increased by $0.1 million, or 13%, to $0.9 million in the three months ended June 30, 2023, compared to $0.8 million in the three months ended June 30, 2022.

Cost of ~~Revenue. Cost of revenue was consistent for~~goods sold decreased by $2.3 million, or 29%, to $5.9 million in the three months ended ~~September~~June 30, ~~2017~~2023, compared to $8.2 million in the three months ended June 30, 2022. Gross profit decreased by $4.8 million, or 25%, to $14.2 million in the three months ended June 30, 2023, compared to $19.0 million in the three months ended June 30, 2022. The decrease in gross profit is primarily due to a decrease in revenue in the United States and international markets driven by the strategic decision to deemphasize subscription sales and the exit from unprofitable direct markets as discussed above. Gross margin was 70.8% of revenue in the three months ended June 30, 2023, compared to 69.9% of revenue in the three months ended June 30, 2022. The marginal increase was primarily due to lower ARTAS system sales when compared to the three months ended ~~September~~June 30, ~~2016. There was~~2022. ARTAS systems have a ~~minimal increase of $0.1~~slightly lower gross margin than our energy based devices.

We had $0.2 million of foreign exchange gain in the three months ended June 30, 2023 and foreign exchange loss of $2.4 million in the three months ended ~~September~~June 30, ~~2016 to $2.5~~2022. It increased by $2.6 million in ~~three months ended September 30, 2017. Gross margin increased to 41% for~~ the three months ended ~~September~~June 30, ~~2017,~~2023 compared to ~~35% for the comparable period in 2016. The increase in gross margin was the result of reduced procedures kit costs and decrease in customer support spending as we improved our service cost efficiency.~~

~~Research and Development. Research and development expense decreased $0.2 million, or 9%, to $1.7 for~~ the three months ended ~~September~~June 30, ~~2017, compared~~2022. Changes in foreign exchange are driven mainly by the effect of foreign exchange on accounts receivable balances denominated in currencies other than the US dollar. We do not currently hedge against foreign currency risk.

Finance expenses increased by $0.5 million or 50.2%, to ~~$1.9~~$1.6 million ~~for~~in the three months ended ~~September~~June 30, ~~2016.~~2023, compared to $1.0 million in the three months ended June 30, 2022, mostly due to an increase in LIBOR rates on our MSLP loan. See “—Liquidity and Capital Resources” below.

We had an income tax expense of $0.2 million in the three months ended June 30, 2023 compared to a $0.02 million income tax benefit in the three months ended June 30, 2022. The tax provision is driven by profitable sales and the actual effective tax rates where the sale took place or losses were incurred. In 2023, we had changes in timing of deductible expenses and recognized tax losses in specific judications, which resulted in $0.2 million of income tax expense.

Selling and marketing expenses decreased by $5.2 million or 24% in the ~~comparable period in 2016.~~

~~Sales~~six months ended June 30, 2023 compared to the six months ended June 30, 2022. This decrease is largely due to lower revenues and ~~Marketing. Sales~~reduced marketing expenditures as we consolidate some of these activities. As a percentage of total revenues, our selling and marketing expenses increased ~~$0.2 million to $3.4 million for~~by 0.1%, from 40.3% in the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2022 to 40.4% in the six months ended June 30, 2023. As the business environment improves, we expect selling and marketing expenses to increase in absolute terms, but at a rate slightly below our rate of revenue growth.

General and administrative expenses decreased by $3.6 million or 15% in the six months ended June 30, 2023 compared to ~~$3.2 million for~~ the ~~three~~six months ended ~~September~~June 30, ~~2016. The increase was~~ 2022, primarily due to exiting certain unprofitable direct markets, partially offset by inflationary pressures associated with salaries and other cost elements. As a percentage of total revenues, our general and administrative expenses increased by 5.8%, from 45.5% in the six months ended June 30, 2022, to 51.3% in the six months ended June 30, 2023, primarily due to the increases in costs noted above.

Research and development expenses decreased by $0.8 million or 14% in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. We experienced some cost savings through the consolidation of activities between our Israel and San Jose sites, partially offset by a reinvestment in research and development efforts directed at scaling our robotic technology across other aesthetic platforms. As a percentage of total revenues, our research and development expenses increased by 1.3%, from 10.0% in the six months ended June 30, 2022, to 11.3% in the six months ended June 30, 2023.

We had $0.6 million of foreign exchange gain in the six months ended June 30, 2023 and foreign exchange loss of $2.4 million in the six months ended June 30, 2022. Changes in foreign exchange are driven mainly by the effect of foreign exchange on accounts receivable balances denominated in currencies other than the US dollar. In the six months ended June 30, 2023, most currencies appreciated relative to the U.S. dollar. We do not currently hedge against foreign currency risk.

Finance expenses increased by $1.1 million or 56.4%, from $2.0 million in the six months ended June 30, 2022, compared to $3.1 million in the six months ended June 30, 2023, mostly due to an increase in ~~spending for employee-related costs~~LIBOR rates on our MSLP loan. See “—Liquidity and Capital Resources” below.

We had an income tax expense of $0.4 million in ~~sales, associated with~~ the ~~growth in employee headcount~~six months ended June 30, 2023 compared to ~~support our overall sales activities and ongoing commercialization of the ARTAS System.~~

~~General and Administrative. General and administrative expenses decreased~~ $0.3 million ~~to $1.1 million for~~of income tax expense in the ~~three~~six months ended ~~September~~June 30, ~~2017, compared to $1.4 million for~~2022. The tax provision is driven by profitable sales and the ~~three months ended September 30, 2016. The decrease was mainly due to severance~~actual effective tax rates where the sale took place or losses were incurred. In 2023, we had changes in timing of deductible expenses ~~related to the departure of our former CEO~~and taxable income in ~~the third quarter of 2016.~~

~~Interest expense~~. Interest expense was $0.5 million for the three months ended September 30, 2017 and $0.6 million for the three months ended September 30, 2016. Interest expense relates to our outstanding long-term debt obligations. Interest expense was consistent between the periods as there were no significant fluctuationsspecific judications, which resulted in ~~our outstanding long-term debt obligations and related interest rates.~~

~~Other income (expense), Net. Other income (expense), net increased by $1.5 million to $1.5~~$0.4 million of expense for the three months ended September 30, 2017. The increase was attributable to the change in the fair value of our convertible preferred stock warrant liability of $1.5 million for the three months ended September 30, 2017, compared to no change in fair value for the nine months ended September 30, 2016. The change in the fair value of our convertible preferred stock warrant liability was primarily due to an increase in the fair value of the common stock.

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~income tax expense.

~~Sales and Marketing~~. Sales and marketing expenses increased $1.3 million to $10.7 million for the nine months ended September 30, 2017, compared to $9.4 million for the nine months ended September 30, 2016. The increase was ~~primarily~~ ~~due to an increase in spending on advertising and other marketing activities in connection with our ongoing commercialization efforts for the ARTAS System.~~

~~General and Administrative~~. General and administrative expenses increased $0.3 million to $3.6 million for the nine months ended September 30, 2017, compared to $3.3 million for the nine months ended September 30, 2016. The increase was primarily the result of an increase in professional service costs, consisting of accounting, consulting, legal and other professional fees incurred in connection with our preparation to become a public company.

~~Interest expense~~. Interest expense was $1.6 million for the nine months ended September 30, 2017 and $1.9 million for the nine months ended September 30, 2016. The decrease in interest expense relates to a reduction in the principal balance of our outstanding long-term debt obligations.

~~Other income (expense), Net~~. Other income (expense), net increased to $1.6 million of expense for the nine months ended September 30, 2017. The increase was attributable to the change in the fair value of our convertible preferred stock warrant liability of $1.6 million for the nine months ended September 30, 2017, compared to no change in fair value for the nine months ended September 30, 2016. The change in the fair value of our convertible preferred stock warrant liability was primarily due to an increase in the fair value of the common stock.

We had $6.1 million and ~~negative cash flows from operations. Our net loss was $6.6~~$11.6 million and $16.8 million for the three and nine months ended September 30, 2017, respectively. Our net loss was $5.9 million and $16.9 million for the three and nine months ended September 30, 2016, respectively. As of September 30, 2017, we had an accumulated deficit of $163.4 million. These factors raise substantial doubt about our ability to continue as a going concern. At September 30, 2017 and December 31, 2016, we had cash and cash equivalents as of ~~$5.8~~June 30, 2023, and December 31, 2022, respectively. We have funded our operations with cash generated from operating activities, through the sale of equity securities and through debt financing. We had total debt obligations of approximately $78.4 million as of June 30, 2023, including the MSLP Loan of $51.2 million, and ~~$11.9~~convertible notes of $27.2 million, ~~respectively.~~compared to total debt obligations of approximately $77.7 million as of December 31, 2022.

Working capital is primarily impacted by growth in our subscription sales which also impacts accounts receivable. Our recent shift to prioritize traditional cash sales over subscription sales is designed to improve liquidity and reduce working capital requirements over time. Our expanding product portfolio also requires higher inventory levels to meet demand and to accommodate the increased number of technology platforms offered. We had a split of subscription sales revenue to traditional sales revenue at a ratio of approximately 30:70 in the six months ended June 30, 2023, compared to 55:45 in the six months ended June 30, 2022. We expect a slight increase in the ratio of traditional sales to subscription sales in 2023 and beyond. We expect inventory to remain relatively flat in the short term but increase at a lower rate than the rate of revenue growth over the longer term.

We also require modest funding for capital expenditures. Our capital expenditures relate primarily to our research and development facilities in Yokneam, Israel and San Jose, California. In addition, our past capital investments have included improvements and expansion of our subsidiaries’ operations to support our growth, but do not expect to incur such costs over the next twelve months.

Contemporaneously with the MSLP Loan Agreement, on December 9, 2020, we issued $26.7 million aggregate principal amount of the Notes to the Madryn Noteholders pursuant to the terms of the Exchange Agreement. The Notes will accrue interest at a rate of 8.0% per annum from the date of original issuance of the Notes to the third anniversary date of the original issuance and thereafter interest will accrue at a rate of 6.0% per annum. In connection with ~~our IPO,~~the Exchange Agreement, we sold an aggregate of 3,897,910 shares of its common stock (inclusive of 322,910 shares of common stock from the exercise of the over-allotment option granted to the underwriters) at a price of $7.00 per share aggregate cash proceeds of approximately $22.7 million, ~~net of underwriting discounts and commissions and estimated offering costs.~~

~~In May 2015, we~~also entered into ~~a loan and security agreement with Oxford~~(i) the Madryn Security Agreement, pursuant to which we ~~borrowed $20 million.~~agreed to grant Madryn a security interest, in substantially all of our assets, to secure the obligations under the Notes and (ii) the CNB Subordination Agreement. The Notes are convertible at any time into shares of our common stock at an initial conversion price of $48.75 per share, subject to adjustment. For additional information regarding the Notes, Exchange Agreement, Madryn Security Agreement and CNB Subordination Agreement, see Note 11 “Madryn Long-Term Debt and Convertible Notes” to our unaudited condensed consolidated financial statements included elsewhere in this report.

On December 8, 2020, we executed the MSLP Loan Agreement, MSLP Note, and related documents for a loan in the aggregate amount of $50.0 million for which CNB will ~~mature in July 2019. The loan with Oxford accrues interest at prime plus 8.5% per annum. Prior to January 1, 2017, only accrued interest on the borrowed amounts was due and payable on~~serve as a ~~monthly basis, with any outstanding accrued but unpaid interest being payable on the date we borrowed any additional amounts~~lender pursuant to the Main Street Priority Loan Facility as established by the Board of Governors of the Federal Reserve System Section 13(3) of the Federal Reserve Act. For additional information regarding this loan, ~~agreement if such funding date was not~~see Note 10 “Main Street Term Loan” to our unaudited condensed consolidated financial statements included elsewhere in this report.

We have a ~~regular interest payment date. Following January 1, 2017, the outstanding principal amounts on the borrowed amounts, plus accrued and unpaid interest, was due and payable in equal monthly amounts~~revolving credit facility with CNB pursuant to which CNB agreed to provide a ~~repayment schedule~~revolving credit facility to us and certain of our subsidiaries to be used to finance working capital requirements. There was $nil outstanding balance as of June 30, ~~equal monthly payments such~~2023 and December 31, 2022. On February 22, 2023, CNB notified the Company that ~~all amounts outstanding are repaid on or by July 1, 2019. Our obligations~~it would be temporarily restricting advances under the ~~loan~~Fourth Amended and Restated CNB Loan Agreement pursuant to its rights under Section 2 of the agreement. CNB and the Company continue to actively discuss lifting the restrictions on advances under the credit facility.

On August 26, 2021 we entered into the Fourth Amended and Restated CNB Loan Agreement with ~~Oxford are secured by~~CNB, pursuant to which, among other things, (i) the maximum principal amount the revolving credit facility was reduced from $10.0 million to $5.0 million at the LIBOR 30-Day rate plus 3.25%, subject to a minimum LIBOR rate floor of 0.50%, and (ii) beginning December 10, 2021, the cash deposit requirement was reduced from $3.0 million to $1.5 million, to be maintained with CNB at all times during the term of ~~our current and future assets, excluding any of our intellectual property. The outstanding principal balance on~~ the ~~Oxford loan was $15.3 million as of September 30, 2017. The loan agreement with Oxford contains various covenants.~~Amended CNB Loan Agreement. As of ~~September~~June 30, ~~2017,~~2023, and December 31, 2022, we were in compliance with all required covenants. For additional information on the CNB Loan Agreement and the related agreements, see Note 12 “Credit Facility” to our unaudited condensed consolidated financial statements included elsewhere in this report.

On June 16, 2020, we entered into the Equity Purchase Agreement with Lincoln Park, which provides that, upon the terms and subject to the conditions and limitations set forth therein, we may sell to Lincoln Park up to $31.0 million of shares of our common stock pursuant to our shelf registration statement. The purchase price of shares of common stock related to a future sale will be based on the then prevailing market prices of such shares at the time of sales as described in the Equity Purchase Agreement. The aggregate number of shares that we can sell to Lincoln Park under the Equity Purchase Agreement may in no case exceed the Exchange Cap, unless (i) stockholder approval is obtained to issue shares above the Exchange Cap, in which case the Exchange Cap will no longer apply, or (ii) the average price of all applicable sales of common stock to Lincoln Park under the Equity Purchase Agreement equals or exceeds $59.6325 per share (subject to adjustment) (which represents the minimum price, as defined under Nasdaq Listing Rule 5635(d), on the Nasdaq Global Market immediately preceding the signing of the Equity Purchase Agreement, such that the transactions contemplated by the Equity Purchase Agreement are exempt from the Exchange Cap limitation under applicable Nasdaq rules). Also, at no time may Lincoln Park (together with its affiliates) beneficially own more than 9.99% of our issued and outstanding common stock. Concurrently with entering into the Equity Purchase Agreement, we also entered into a Registration Rights Agreement with Lincoln Park (as defined above).

On December 15, 2021, the Company consummated the 2021 Private Placement whereby entered into a securities purchase agreement pursuant to which we issued and sold to the 2021 Investors an aggregate of 653,894 shares of our ~~directors. As~~common stock and 252,717 shares of ~~September 30, 2017,~~our Non-Voting Preferred Stock. The gross proceeds from the ~~outstanding principal balance on~~securities sold in the ~~Convertible Notes~~2021 Private Placement was ~~$5.0~~$17.0 million. The costs incurred with respect to the 2021 Private Placement totaled $0.3 million and ~~the accrued but unpaid interest was $18,000. Pursuant to the terms~~were recorded as a reduction of the ~~Convertible Notes,~~2021 Private Placement proceeds in the ~~aggregate outstanding principal and unpaid but accrued interest automatically converted into 718,184 shares~~consolidated statements of stockholders’ equity. The accounting effects of the ~~Company’s~~2021 Private Placement transaction are discussed in Note 14 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report. These Non-Voting Preferred Stock shares were subsequently converted to common stock upon issuance of the ~~consummation~~2022 Private Placement described below.

On July 12, 2022, we entered into the 2022 LPC Purchase Agreement with Lincoln Park, and we issued and sold to Lincoln Park 0.05 million shares of our ~~IPO.~~common stock as a commitment fee in connection with entering into the 2022 LPC Purchase Agreement, with the total value of $0.3 million. Through June 30, 2023 we issued an additional 0.78 million shares of common stock to Lincoln Park at an average price of $3.97 per share, for a total proceeds value of $3.1 million since entering into the Purchase Agreement. For additional information regarding the 2022 LPC Purchase Agreement, see Note 14 “Stockholders Equity” in the notes to our unaudited condensed consolidated financial statements included elsewhere in this report.

On November 18, 2022, we consummated the 2022 Private Placement whereby we entered into a securities purchase agreement pursuant to which we issued and sold to the 2022 Investors an aggregate of 116,668 shares of our common stock and 3,185,000 shares of our Voting Preferred Stock. The gross proceeds from the securities sold in the 2022 Private Placement totaled $6.7 million before offering expenses. The costs incurred with respect to the 2022 Private Placement totaled $0.2 million and were recorded as a reduction of the 2022 Private Placement proceeds in the consolidated statements of stockholders’ equity. The accounting effects of the 2022 Private Placement transaction are discussed in Note 14 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report.

In May 2023, we entered into the 2023 Multi-Tranche Private Placement Stock Purchase Agreement, with the 2023 Investors pursuant to which the Company may issue and sell to the 2023 Investors up to $9,000,000 in shares of Senior Preferred Stock, in multiple tranches from time to time until December 31, 2025, subject to a minimum aggregate purchase amount of $500,000 in each tranche. The Initial Placement occurred on May 15, 2023, under which the Company sold the 2023 Investors 280,899 shares of Senior Preferred Stock for an aggregate purchase price of $2,000,000. The Company expects to use the proceeds of the Initial Placement, after the payment of transaction expenses, for general working capital purposes. The accounting effects of the 2023 Multi-Tranche Private Placement transaction are discussed in Note 14 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report.

As of June 30, 2023, we had capital resources consisting of cash and cash equivalents of approximately $6.1 million. We have financed our operations principally through ~~private placements~~the issuance and sale of our ~~capital~~common stock ~~secured~~and preferred stock, debt financing, and payments from customers.

We believe that the net proceeds from the 2023 Multi-Tranche Private Placement, the 2022 Private Placement, the 2021 Private Placement, the proceeds from issuance of our common stock to Lincoln Park, the proceeds from the MSLP Loan, our continued availability under the 2022 LPC Purchase Agreement, our strategic cash flow enhancement initiatives, together with our existing cash and cash equivalents, ~~(inclusive of the net proceeds from our IPO and the issuance of the Convertible Notes) and cash expected to be generated from sales of our products,~~ will ~~be sufficient~~enable us to fund our ~~planned operations through~~operating expenses and capital expenditure requirements for at least the next 12 months. ~~However,~~We can provide no assurances that we will ~~need~~be successful in raising additional capital ~~to fund our future operations and we intend to obtain~~or that such capital, ~~through the sale of additional shares of capital stock or related securities. We may~~if available at all, 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.

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to:

We are restricted by covenants in the MSLP Loan, the Amended CNB Loan Agreement, and the Madryn Security Agreement. These covenants restrict, among other things, our ability to incur additional indebtedness, which may limit our ability to obtain additional debt financing. In the event that the pandemic and the economic disruptions it has caused continue for an extended period of time, we cannot assure you that we will remain in compliance with the financial covenants contained in our credit facilities. We also cannot assure you that our lenders would provide relief or that we could secure alternative financing on favorable terms, orif at all. Our failure to ~~raise additional capital would have a negative impact on~~comply with the covenants contained in our credit facilities, including financial ~~condition~~covenants, could result in an event of default, which could materially and adversely affect our ~~ability to execute our business plan.~~results of operations and financial condition.

We have based our projections on the amount of ~~operating capital requirements~~time through which our financial resources will be adequate to support our operations on assumptions that may prove to be incorrect, and we may use all our available capital resources sooner than we expect. ~~Because of the numerous risks and uncertainties associated with the ongoing commercialization of the ARTAS System, we are unable to estimate the exact amount of our operating capital requirements.~~ Our future funding requirements, including long-term funding requirements, will depend on many factors, including, but not limited to:

penetrate new markets. Such endeavors have in the past increased, and may continue in the future, to increase our expenses, including sales and marketing, and research and ~~development activities we intend~~development. We will have to ~~undertake~~continue to increase our revenues while effectively managing our expenses in order to ~~expand~~achieve profitability and to sustain it. Our failure to control expenses could make it difficult to achieve profitability or to sustain profitability in the ~~approved indications~~future. Moreover, we cannot be sure that our expenditures will result in the successful development and introduction of ~~use~~new products in a cost-effective and timely manner or that any such new products will achieve market acceptance and generate revenues for ~~the ARTAS System;~~our business.

~~the emergence~~

Table of ~~competing technologies or other adverse market developments;~~

Contents

~~any product liability or other lawsuits related to our products;~~

~~the expenses needed to attract and retain skilled personnel;~~

~~the costs associated with being a public company; and~~

~~the costs associated with maintaining subsidiaries in foreign jurisdictions.~~

Cash flows

The following table summarizes our cash flows for the periods indicated:

	Nine Months Ended
	September 30,						Six Months Ended June 30,
	2017			2016			2023			2022
	(dollars in thousands)						(in thousands)
Cash used in operating activities	$	(14,376	)	$	(13,518	)	$	(8,010	)	$	(19,713	)
Cash used in investing activities		(215	)		(326	)	(92		)		(251	)
Cash provided by financing activities		8,476			9,977
Cash (used in) provided by financing activities							2,655				(372	)
Net decrease in cash and cash equivalents							$	(5,447	)	$	(20,336	)

Cash Flows from Operating Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, cash used in operating activities of $14.4 million was attributable to a net loss of $16.8 million, partially offset by $2.8 million in non-cash charges and a decrease from operating assets and liabilities of $0.5 million. The non-cash charges consisted ~~primarily~~ of $1.6 million related to a change in fair value of preferred stock warrants, depreciation and amortization of $0.5 million, amortization of debt issuance costs of $0.4 million, and stock-based compensation of $0.3 million. The net change in operating assets and liabilities was primarily attributable to an increase in accounts receivable of $0.7 million, in prepaid expenses and other assets of $2.3 million, and an increase in accounts payable and accrued and other liabilities of $2.5 million due to the timing of receipt and payment of vendor invoices.

~~For the nine months ended September 30, 2016, cash used in operating activities of $13.5 million was attributable to~~ a net loss of $16.9 million, partially offset by ~~$1.4 million~~a decrease in ~~non-cash charges and a~~ net ~~change in~~ operating assets of $3.8 million and ~~liabilities~~non-cash operating expenses of ~~$2.0~~$5.1 million. The ~~non-cash charges consisted primarily~~use of ~~$0.5 million related to depreciation and amortization, amortization of debt issuance costs of $0.5 million, and stock-based compensation of $0.4 million. The~~cash in net ~~change in~~ operating assets ~~and liabilities~~ was ~~primarily~~ attributable to a decrease in ~~inventory~~accounts receivable of ~~$1.9~~$6.1 million, ~~due to the sale of inventory in excess of purchases and~~a decrease in ~~prepaid~~inventories of $0.6 million, a decrease in other current assets of $1.6 million, a decrease in operating right-of-use assets, net of $0.6 million, and an increase in trade payables of $0.3. These were offset by a decrease in accrued expenses and other ~~assets~~current liabilities of ~~$0.3~~$4.2 million. The non-cash operating expenses consisted of provision for expected credit losses of $1 million, depreciation and amortization of $2.0 million, finance expenses and accretion of $0.7 million, stock-based compensation expense of $0.9 million, provision for inventory obsolescence of $0.7 million, partially offset by a deferred tax recovery of $0.1 million.

For the six months ended June 30, 2022, cash used in operating activities consisted of a net loss of $19.1 million and an ~~overall~~investment in net operating assets of $8.1 million, partially offset by non-cash operating expenses of $7.5 million. The investment in net operating assets was attributable to an increase in accounts receivable of $2.5 million, a decrease in inventories of $2.7 million, an increase in advances to suppliers of $3.8 million, an increase in other current assets of $0.1 million, an increase in other long-term assets of $0.1 million, an increase in trade payables of $2.4 million, an increase in other current assets of $0.1 million, an increase in other long-term assets of $0.1 million, a decrease in trade payables of $0.7 million, a decrease in accrued expenses and other current liabilities of $2.0 million, and a decrease in other long-term liabilities of $0.2 million. This was partially offset by a decrease in prepaid expenses of $0.6 million and an increase in unearned interest income of $0.3 million. The non-cash operating expenses consisted of provision for bad debts of $3.5 million, depreciation and amortization of $2.2 million, finance expenses and accretion of $0.2 million, ~~in accounts payable and accrued and other liabilities due to the timing~~stock-based compensation expense of ~~receipt and payment~~$1.0 million, provision for inventory obsolescence of ~~vendor invoices.~~$0.9 million, partially offset by a deferred tax recovery of $0.3 million.

Cash Flows from Investing Activities

~~For~~

In the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016,~~2023, cash used in investing activities ~~related to purchases~~consisted of $0.1 million for the purchase of property and equipment.

In the six months ended June 30, 2022, cash used in investing activities consisted of $0.3 million for the purchase of property and equipment.

Cash Flows from Financing Activities

~~For~~

In the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, cash ~~provided by~~used in financing activities ~~was $8.5 million, consisting~~primarily consisted of ~~$10.2 million in~~ net proceeds ~~received~~ from the issuance of ~~our Series C convertible preferred~~shares of common stock to Lincoln Park of $1.1 million and ~~$5.0 million~~net proceeds from ~~issuance~~the 2023 Multi-Tranche Private Placement of ~~Convertible Notes. Cash provided by~~$1.6 million.

In the six months ended June 30, 2022, cash used in financing activities ~~was partially offset by $6.0 million~~primarily consisted of ~~principal payments on our outstanding debt obligation with Oxford and $0.7 million of payments for financing costs related to our IPO.~~

~~For the nine months ended September 30, 2016, cash provided by financing activities was $10.0 million, primarily from the~~ net proceeds ~~of $9.9 million received~~ from the issuance of ~~our Series C convertible preferred~~shares of common stock to Lincoln Park of $0.3 million, proceeds from exercise of options of $23 thousand, offset by a $0.6 million repayment of government assistance loans and ~~exercises~~$0.1 million of ~~stock options.~~dividends from subsidiaries paid to non-controlling interest.

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Contractual Obligations and Other Commitments

Our premises are leased under various operating lease agreements, which expire on various dates.

As of June 30, 2023, we had non-cancellable purchase orders placed with our contract manufacturers in the amount of $15.1 million. In addition, as of June 30, 2023, we had $0.7 million of open purchase orders that can be cancelled with 270 days’ notice, except for a portion equal to 25% of the total amount representing the purchase of “long lead items."

The following table summarizes our contractual obligations as of ~~September~~June 30, ~~2017,~~2023, which represent material expected or contractually committed future obligations.

	Payments Due by Period
	Less than 1 Year		2 to 3 Years		4 to 5 Years		More than 5 Years		Total
	*(in thousands)*
Debt obligations, including interest	$	14,139	$	77,807	$	—	$	—	$	91,946
Operating leases		1,679		2,158		1,038		544		5,419
Purchase commitments		15,086		—		—		—		15,086
Total contractual obligations	$	30,904	$	79,965	$	1,038	$	544	$	112,451

Payments Due by Period

Less than

More than

1 Year

1 to 3 Years

3 to 5 Years

5 Years

Total

(dollars in thousands)

Debt obligations, including interest ⁽¹⁾

$
8,878

$
7,513

$
—

$
—

$
16,391

Convertible Notes, including interest ⁽²⁾

5,267

—

—

—

5,267

Operating leases

500

1,044

873

—

2,417

Total contractual obligations

$
14,645

$
8,557

$
873

$
—

$
24,075

For an additional description of our commitments see Note 9, “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

~~(1)~~

Represents our loan with Oxford and our anticipated repayment schedule for the loan. Pursuant to our loan agreement with Oxford, the loan will mature in July 2019. The loan with Oxford accrues interest at prime plus 8.5% per annum. The outstanding principal balance on the Oxford loan was $21.3 million at December 31, 2016 and $15.3 million as of September 30, 2017, which includes a final payment of $1.3 million to Oxford on the maturity of the loan.

~~(2)~~

On September 6, 2017, we issued $5.0 million in aggregate principal amount of the Convertible Notes, which accrued interest at 5.0% per annum and had a maturity date of September 6, 2018. Pursuant to the terms of the Convertible Notes, the outstanding aggregate principal and unpaid but accrued interest automatically converted into 718,184 shares of our common stock upon the consummation of our IPO with no amount remaining outstanding on the Convertible Notes following the IPO.

Off-Balance Sheet Arrangements

We do not currently engage in off-balance sheet financing arrangements. In addition, we do not have any interest in entities referred to as variable interest entities, which includes special purpose entities and other ~~structure~~structured finance entities.

Critical Accounting Policies and Estimates

Our unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are more fully described in Note 2 to the audited consolidated financial statements included in our Annual Report filed on Form 10-K for the year ended December 31, 2022. We believe that the assumptions and estimates associated with revenue recognition, long-term receivables, allowance for expected credit losses, warranty accrual, and stock-based compensation ~~preferred stock warrant liabilities and income taxes~~ have the most significant impact on our ~~condensed~~ consolidated financial ~~statements. Therefore,~~statements, and therefore, we consider these to be our critical accounting policies and estimates.

~~There~~

Revenue Recognition

We generate revenue from (1) sales of systems through our subscription model, traditional system sales to customers and distributors, (2) other product revenues from the sale of ARTAS procedure kits, marketing supplies and kits, consumables and (3) and our extended warranty service contracts provided to existing customers.

We recognize revenues on other products and services in accordance with ASC 606. Revenue is recognized based on the following five steps: (1) identification of the contract(s) with the customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the separate performance obligations in the contract; and (5) recognition of revenue when (or as) the entity satisfies a performance obligation.

We record our revenue net of sales tax and shipping and handling costs.

Long-term receivables

Long-term receivables relate to our subscription revenue or other contracts which stipulate payment terms which exceed one year. They are comprised of the unpaid principal balance, net of the allowance for expected credit losses. These receivables have been ~~no significant changes~~discounted based on the implicit interest rate in the subscription lease which range between 8% and 10% for the six months ended June 30, 2023 and June 30, 2022, respectively. Unearned interest revenue represents the interest only portion of the respective subscription payments and will be recognized in income over the respective payment term as it is earned.

Allowance for expected credit losses

The allowance for expected credit losses is based on our assessment of the collectability of customer accounts and the aging of the related invoices and represents our best estimate of probable credit losses in our ~~critical accounting policies~~existing trade accounts receivable. We regularly review the allowance by considering factors such as historical experience, credit quality, the age of the account receivable balances, and current economic conditions that may affect a customer’s ability to pay.

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Warranty accrual

We generally offer warranties for all our systems against defects for up to three years. The warranty period begins upon shipment and we record a liability for accrued warranty costs at the time of sale of a system, which consists of the remaining warranty on systems sold based on historical warranty costs and management’s estimates. We periodically assess the adequacy of our recorded warranty liabilities and adjust the amounts thereof as necessary. We exercise judgment in estimating expected system warranty costs. If actual system failure rates, freight, material, technical support and labor costs differ from our estimates, ~~as compared~~we will be required to ~~the critical accounting policies and estimates disclosed~~revise our estimated warranty liability. To date, our warranty reserve has been sufficient to satisfy warranty claims paid.

Stock-Based Compensation

We account for stock-based compensation costs in ~~Management’s Discussion and Analysis of Financial Condition and Operations included in our prospectus filed on October 13, 2017~~accordance with the ~~SEC, except~~accounting standards for stock-based compensation, which require that all stock based payments to employees be recognized in the ~~determination~~unaudited condensed consolidated statements of operations based on their fair values.

The fair value of stock options on the grant date is estimated using the Black-Scholes option-pricing model using the single-option approach. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, including the option's expected term and the price volatility of the underlying stock, to determine the fair value of the award. We recognize the expense associated with options using a single-award approach over the requisite service period.

Financial statements in U.S. dollars

We believe that the U.S. dollar is the currency in the primary economic environment in which we operate. The U.S. dollar is the most significant currency in which our ~~common stock, which was used~~revenues are generated, and our costs are incurred. In addition, our debt and equity financings are generally based in ~~estimating the fair value of stock-based awards at grant date. Prior to IPO,~~U.S. dollars. Therefore, our ~~stock was not publicly traded, therefore we estimated the fair value~~functional currency, and that of our ~~common stock~~subsidiaries, is the U.S. dollar.

Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Non-dollar transactions and balances are remeasured into U.S. dollars in accordance with the principles set forth in ASC 830-10 “Foreign Currency Translation”. All exchange gains and losses from re-measurement of monetary balance sheet items resulting from transactions in non-U.S. dollar currencies are recorded as ~~discussed~~foreign exchange loss (income) in the ~~prospectus. Following our IPO, we established a policy, using the closing sale price per share~~unaudited condensed consolidated statement of ~~our common stock~~operations as ~~quoted on the NASDAQ Global Market on the date of grant for purposes of determining the exercise price per share of our share-based awards to purchase common stock.~~

~~JOBS Act Accounting Election~~they arise.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Recent Accounting Pronouncements

See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for ~~recently adopted accounting pronouncements and~~ recently issued accounting pronouncements not yet adopted as of the date of this Quarterly Report on Form 10-Q.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET ~~RISK.~~RISK

As a smaller reporting company, we are ~~exposed~~not required to ~~market risks in the ordinary course of our business. These risks primarily relate to interest rate and currency exchange rate fluctuations.~~provide disclosure for this Item.

~~Interest Rate Risk~~

Our cash and cash equivalents are held in cash deposits and money market funds. Due to the short-term nature of these instruments, we do not believe that we have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce our future interest income.

We are exposed to interest rate risk related to our debt obligations which are subject to variable interest rates. As of September 30, 2017, a 100 basis point increase in interest rates on our debt subject to variable interest rate fluctuations would increase our interest expense $0.1 million annually.

~~Foreign Currency Risk~~

Our sales contracts are primarily denominated in U.S. dollars and, therefore, substantially all of our revenue is not subject to foreign currency risk. However, a strengthening of the U.S. Dollar could increase the real cost of our products to our customers outside of the U.S., which could adversely affect our financial condition and operating results. In addition, a portion of our operating expenses are incurred outside the U.S. and are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British Pound Sterling, Euro, Hong Kong Dollar, and South Korean Won. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. A 10% increase or decrease in current exchange rates would not have a material effect on our financial results. To date, foreign currency transaction gains and losses have not been material to our consolidated financial statements, and we have not engaged in any foreign currency hedging transactions.

ITEM 4. CONTROLS AND ~~PROCEDURES.~~PROCEDURES

Evaluation of disclosure controls and ~~procedures.~~procedures

~~Our~~

As of June 30, 2023, our management, ~~with~~under the ~~participation and~~ supervision of our Chief Executive Officer and ~~our~~ Chief Financial Officer, ~~have evaluated~~performed an evaluation of the effectiveness of our disclosure controls and procedures ~~(as~~as defined in Rules 13a-15(e) and 15d-15(e) under the ~~Securities~~ Exchange Act, of 1934, as amended, or the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to ~~provide reasonable assurance~~ensure that information ~~we are~~ required to ~~disclose~~be disclosed by the Company in the reports that ~~we file~~it files or ~~submit~~submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

~~Changes in internal control over financial reporting.~~

~~Our~~ Based on this evaluation, our Chief Executive Officer and Chief Financial Officer ~~did not identify any changes in~~concluded that our disclosure controls and procedures were effective as of June 30, 2023.

We have performed an evaluation of the effectiveness of our internal control over financial reporting, ~~in connection with~~based on criteria established by the ~~evaluation required by Rule 13a-15(d) and 15d-15(d)~~Committee of Sponsoring Organizations of the ~~Exchange Act during the quarter ended September 30, 2017~~Treadway Commission (COSO) in its 2013 Internal Control-Integrated Framework. Based on that ~~have materially affected, or are reasonably likely to materially affect,~~evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our internal ~~control over financial reporting.~~

~~Inherent limitation on the effectiveness of internal control.~~

~~The effectiveness of any system of internal control~~controls over financial reporting ~~including ours, is subject to inherent limitations, including the exercise~~were effective as of ~~judgment in designing, implementing, operating,~~June 30, 2023.

Limitationson Effectiveness of Controls and ~~evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in~~Procedures

In designing and evaluating ~~the~~our disclosure controls and procedures, management recognizes that any ~~system of internal control over financial reporting, including ours,~~controls and procedures, no matter how well designed and operated, can provide only ~~provide~~ reasonable ~~not absolute~~ assurance of achieving the desired control objectives. ~~In addition,~~Further, the design of ~~disclosure controls and procedures~~a control system must reflect the fact that there are resource constraints, and ~~that management is required to apply its judgment in evaluating~~ the benefits of ~~possible~~ controls ~~and procedures~~must be considered relative to their costs. ~~Moreover,~~Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of these limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become ~~inadequate~~ineffective because of changes in conditions or that the degree of compliance with ~~the~~established policies or procedures may deteriorate. ~~We intend to continue to monitor and upgrade~~

Changes in Internal Control over Financial Reporting

There were no material changes in our ~~internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective~~ internal control over financial reporting during the three and six months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

This Quarterly Report on Form 10-Q does not include an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for “emerging growth companies.”

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~We are involved in disputes and legal actions arising in~~

In the ~~normal~~ordinary course of our ~~business. There have been no material developments~~operations, we become involved in ~~legal~~routine litigation incidental to the business. Material proceedings are described under Note 9, “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included elsewhere in ~~which we are involved during the nine months ended September 30, 2017.~~this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

Our operations and financial results are subject to various risk and uncertainties, including those described below and the risk factors described under Part I, Item 1A. “Risk Factors” in our latest Form 10-K for the year ended December 31, 2022, any of which could adversely ~~effect on~~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 impair our business operations. You should carefully consider the ~~risk~~risks described below and the other information in this Quarterly Report on Form 10-Q, ~~including~~ our unaudited condensed consolidated financial statements, and the related notes thereto, and ~~“Management’s~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations”, included herein, and the risk factors previously disclosed in Part I, Item 1A. “Risk Factors” in our Form 10-K for the year ended December 31, 2022 filed with the SEC and incorporated by reference herein.

~~Risks Related~~

We offer credit terms to ~~Our Limited Commercial History, Financial Condition~~some qualified customers and ~~Capital Requirements~~distributors. In the event that a customer or distributor defaults on the amounts payable to us, our financial results may be adversely affected.

For the six months ended June 30, 2023 and 2022, approximately 30% and 49% of our total system revenues were derived from our subscription-based model. Under our subscription model, we collect an up-front fee, combined with a monthly payment schedule typically over a period of 36 months, with approximately 40% to 45% 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. We cannot provide any assurance that the financial position of customers purchasing products and services under a subscription agreement will not change adversely before we receive all 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 the extent of such defaults is material, it could negatively affect our results of operations and operating cash flows.

In addition to our subscription-based model, we generally offer credit terms of 30 to 90 days to qualified customers and distributors. In the event that there is a default by any of the customers or distributors to whom we have provided credit terms, we may recognize bad debt expenses in our general and administrative expenses. If the extent of such defaults is material, it could negatively affect our future results of operations and cash flows.

We have limited commercial history and we have incurred significant losses since our inception. We anticipate that we will continue to incur losses for the foreseeable future, which, together with our limited operating history, makes it difficult to assess our future viability.

We have a limited commercial history and have focused primarily on research and development, product design and engineering, establishing supply and manufacturing relationships, seeking regulatory clearances and approvals to market the ARTAS Robotic Hair Restoration System,may also be adversely affected by bankruptcies or the ARTAS System, and selling and marketing. We have incurred losses in each year since our inception in 2002. Our net losses were approximately $6.6 million and $16.8 million for the three and nine months ended September 30, 2017, and $5.9 million and $16.9 million for the three and nine months ended September 30, 2016, respectively. As of September 30, 2017, we had an accumulated deficit of $163.4 million. We will continue to incur significant expenses for the foreseeable future as we expand our sales and marketing, research and development, and clinical and regulatory activities. We may never generate sufficient revenues to achieve or sustain profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability. Furthermore, becauseother business failures of our ~~limited operating history~~customers, distributors, and ~~because~~potential customers. A significant delay in the ~~market for aesthetic products is rapidly evolving, we have limited insight into the trends~~collection of accounts receivable or ~~competitive products that~~a reduction of accounts receivables collected may ~~emerge and affect~~impact our ~~business. Before investing, you should consider an investment~~liquidity or result in ~~our common stock in light of the risks, uncertainties, and difficulties frequently encountered by early-stage medical technology companies in rapidly evolving markets such as ours.~~ bad debt expenses.

We may not be able to ~~successfully address any or all of these risks,~~maintain our listing on The Nasdaq Capital Market and ~~the failure~~it may become more difficult to ~~adequately do so could cause~~sell our ~~business, results of operations, and financial condition to suffer.~~

~~We may not be able to correctly estimate or control our future operating expenses, which could lead to cash shortfalls.~~

~~Our operating expenses may fluctuate significantly~~stock in the ~~future~~public market.

On May 31, 2023, we received a notice (the “Notice”) from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) stating that our stockholders’ equity as ~~a result of a variety of factors, many of which are outside~~reported in our Quarterly Report on Form 10-Q for the period ended March 31, 2023 was below the minimum $2,500,000 required for continued listing under Listing Rule 5550(b)(1) (“Minimum Equity Requirement”).

The Notice had no immediate effect on the listing of our ~~control. These factors include:~~common stock.

~~thetime,resourcesand expenserequired~~

On July 17, 2023, we submitted to ~~developand conductclinicaltrialsand seekadditional regulatoryclearancesand approvalsfortheroboticimplantationfunctionalitywhich isin clinical developmen~~t~~, and forany otherproductsor indicationswe maydevelop;~~

~~thecostsof preparing,filing,prosecuting,defending,and enforcingpatentclaimsand otherpatent relatedcosts,includinglitigationcostsand theresultsof such litigation;~~

~~thecostsof manufacturingand maintainingsufficientinventoriesof our products~~Nasdaq a plan to ~~meetanticipated demand;~~

~~thecostsof enhancingtheexistingfunctionalityand developmentof new functionalitiesforthe ARTASSystem;~~

~~any productliabilityor otherlawsuitsrelatedto our productsand thecostsassociatedwith defending themor theresultsof such lawsuits;~~

~~thecostof growing our ongoing commercializationand salesand marketingactivities;~~

~~thecostsassociatedwith conductingbusinessand maintainingsubsidiariesin foreignjurisdictions;~~

~~thecoststo attractand retainpersonnel~~regain compliance with the~~skillsrequiredforeffectiveoperations;and~~

~~thecostsassociated~~ Minimum Equity Requirement (the "Plan"). On July 28, 2023, Nasdaq granted us an extension until November 27, 2023 (the "Extension") to evidence compliance with ~~beinga publiccompany.~~

~~Our budgetedexpenselevelsarebased~~the Minimum Equity Requirement, conditioned upon our achievement of certain milestones as set forth in ~~parton our expectationsconcerningfuturerevenuesfromARTAS Systemsales,servicingand procedurebasedfees.We maybe unableto reduceour expendituresin a timely mannerto compensateforany unexpectedshortfallsin revenue.Accordingly,a significantshortfallin market acceptanceor demandfor~~the~~ARTASSystemand procedurescouldhave an immediateand materialadverse impacton our businessand financialcondition.~~ Plan.

~~It is difficult to forecast our future performance and our financial results may fluctuate unpredictably.~~

~~Our limited commercial history and the rapid evolution~~Despite Nasdaq's grant of the markets for medical technologies and aesthetic products make it difficult for us to predict our future performance. A number of factors, many of which are outside of our control, may contribute to fluctuations in our financial results, such as:

~~physiciandemandfortheARTASSystemand procedureusagemayvaryfromquarterto quarter;~~

~~theinabilityof physiciansto obtainthenecessaryfinancingto purchasetheARTASSystem;~~

~~changesin thelengthof our salesprocessfortheARTASSystem;~~

~~performanceof our internationaldistributors;~~

~~positiveor negativemediacoverageof theARTASSystem,theproceduresor productsof our competitors,or our industrygenerally;~~

~~our abilityto maintainour current,or obtainfurther,regulatoryclearancesor approvals;~~

~~delaysin, or failureof, productand componentdeliveriesby our third-partymanufacturersor suppliers;~~

~~seasonalor othervariationsin patientdemandforaestheticprocedures;~~

~~introductionof new aestheticproceduresor productsthatcompetewith theARTASSystem;~~

~~changesin accountingrulesthatmaycauserestatementof our consolidatedfinancialstatementsor have otheradverseeffects;and~~

~~adversechangesin theeconomythatreducepatientdemandforelectiveaestheticprocedures.~~

~~The long sales cycl~~e, low unit volume for sales of the ARTAS System and the historic seasonality of our industry, each may contribute to substantial fluctuations in our operating results and stock price and make it difficult to compare our results of operations to prior periods and predict future financial results.

We sell a relatively small number of ARTAS Systems at a relatively high price, with each sale of an ARTAS System typically involving a significant amount of time. Because of the relatively small number of ARTAS Systems we expect to sell in any period, each sale of the ARTAS System could represent a significant percentage of our revenue for a particular period. Furthermore, due to the significant amount of time itExtension, there can ~~take to finalize the sale of an ARTAS System, it is likely that a sale could~~ be recognized in a subsequent period which could have a material effect on our results from quarter to quarter and increase the volatility of quarterly results. In addition, our industry is characterized by seasonally lower demand during the third quarter of the calendar year, generally when both physicians and prospective patients take summer vacation. As a result of these factors, future fluctuations in quarterly results could cause our revenue and cash flows to be below analyst and investor expectations, which could cause decline in market price. Due to future fluctuations in revenue and costs, as well as other potential fluctuations, you should not rely upon our operating results in any particular period as an indication of future performance. If we do not sell ARTAS Systems as anticipated, our operating results will vary significantly from our expectations. In addition, selling the ARTAS System requires significant marketing effort and expenditure in advance of the receipt of revenue and our efforts may not result in a sale.

~~Our recurring losses from operations and negative cash flows have raised substantial doubt regarding our ability to continue as a going concern.~~

Our independent registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements as of, and for the year ended, December 31, 2016 that our recurring losses from operations and negative cash flows raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern will require us to obtain additional financing to fund our operations. 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.

~~We willrequiresubstantialadditionalfinancingto achieveour goals,and a failureto obtainthisnecessary capitalwhenneeded on acceptableterms,or at all,could forceus to delay,limit,reduceor terminateour productdevelopment,commercializationand otheroperationsor efforts.~~

Since our inception, we have invested a significant portion of our efforts and financial resources in research and development and sales and marketing activities. Research and development, clinical trials, product engineering, ongoing product upgrades and other enhancements such as software-updates for the ARTAS System, and seeking regulatory clearances and approvals to market future products, including the robotic implantation functionality which is in clinical development~~, will require substantial funds to complete. As of September 30, 2017, we had capital resources consisting of cash and cash equivalents of $5.8 million.~~ ~~In connection with our IPO, we raised an additional $22.7 million of proceeds, net of underwriting discounts and commissions and estimated offering expenses.~~ We believe that we will continue to expend substantial resources for the foreseeable future in connection with the ongoing commercializing of the ARTAS System, increasing our sales and marketing efforts, and continuing research and development and product enhancements activities.

We believe our existing cash and cash equivalents (inclusive of the net proceeds from our IPO and the issuance of the Convertible Notes) and cash expected to be generated from the sale of our products, will allow us to fund our planned operations for the next twelve months. However, we will need additional capital to fund our future operations. In addition, our operating plans may change as a result of many factors ~~some of which may be~~ unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of burdensome debt covenants and repayment obligations, the licensing of rights to our technology or other restrictions that may affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

~~Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to:~~

~~delayor curtailour effortsto developenhancementsto theARTASSystem,includingany clinicaltrials thatmaybe requiredto marketsuch enhancements;~~

~~delayor curtailour plansto increaseand expand our salesand marketingefforts;~~or

~~delayor curtailour plansto enhanceour customersupportand marketingactivities.~~

We are restricted by covenants in our term loan agreement with Oxford Finance LLC, or Oxford. These covenants restrict, among other things, our ability to incur additional debt without Oxford’s consent, which may limit our ability to obtain additional funds.

~~Risks Related to Our Business~~

We are dependent upon the success of the ARTAS System, which has a limited commercial history. If we are unsuccessful in developing the market for robotic hair restoration or the market acceptance for the ARTAS System fails to grow significantly, our business and future prospects will be harmed.

We commenced commercial sales of the ARTAS System for hair follicle dissection in the U.S. in 2011, and expect that the revenues we generate from both system sales and servicing as well as recurring procedure based fees will account for all of our revenues for the foreseeable future. Accordingly, our success depends on the acceptance among physicians and patients of the ARTAS System as the preferred system for performing hair restoration surgery. Acceptance of the ARTAS System by physicians is significantly dependent on our ability to convince physicians of the benefits of the ARTAS System to their practices and, accordingly, develop the market for robotic-assisted hair restoration surgery. Acceptance of the ARTAS procedure by patients is equally important as patient demand will influence physicians to offer the ARTAS procedure. Although we have received FDA clearance to market the ARTAS System for the harvesting of hair follicles for transplant in the U.S. and the ARTAS System is otherwise authorized for marketing in 61 international countries, the degree of market acceptance of the ARTAS System by physicians and patients is unproven. We believe that market acceptance of the ARTAS System will depend on many factors, including:

~~theperceivedadvantagesor disadvantagesof theARTASSystemcomparedto otherhairrestoration productsand treatments;~~

~~thesafetyand efficacyof theARTASSystemrelativeto otherhairrestorationproductsand treatments;~~

~~thepriceof theARTASSystemrelativeto otherhairrestorationproductsand treatments;~~

~~our successin expandingour salesand marketingorganization;~~

~~theeffectivenessof our marketing,advertising,and commercializationinitiatives;~~

~~our successin addingnew functionalitiesto theARTASSystemand enhancingexistingfunctions;and~~

~~our abilityto obtainregulatoryclearanceto markettheARTASSystemforadditionaltreatment indicationsin theU.S.~~

We cannot assure you that the ARTAS System will achieve broad market acceptance among physicians and patients. Because we expect to derive substantially all of our revenue for the foreseeable future from ARTAS System sales, servicing and procedure based fees, any failure of this product to satisfy physician or patient demand or to achieve meaningful market acceptance will harm our business and future prospects.

~~If there is not sufficient patient demand for ARTAS procedures, our financial results and future prospects will be harmed.~~

The ARTAS procedure is an elective aesthetic procedure, the cost of which must be borne by the patient, and is not covered by or reimbursable through government or private health insurance. The decision to undergo the ARTAS procedure is thus driven by patient demand, which may be influenced by a number of factors, such as:

~~thesuccessof our salesand marketingprograms;~~

~~theextentto which our physiciancustomersrecommendtheARTASSystemto theirpatients;~~

~~our successin attractingconsumerswho have not previouslyundergonehairrestorationtreatment;~~

~~theextentto which theARTASproceduresatisfiespatientexpectations;~~

~~our abilityto properlytrainour physiciancustomersin theuse of theARTASSystemso thattheir patientsdo not experienceexcessivediscomfortduringtreatmentor adversesideeffects;~~

~~thecost,safety,and effectivenessof theARTASSystemversusotheraesthetictreatments;~~

~~consumersentimentaboutthebenefitsand risksof aestheticproceduresgenerallyand theARTAS Systemin particular;~~

~~thesuccessof any direct-to-consumermarketingeffortswe mayinitiate;and~~

~~generalconsumerconfidence,which maybe impactedby economicand politicalconditionsoutsideof our control.~~

~~Our financial performance will be materially harmed in the event we cannot generate significant patient demand for procedures performed with the ARTAS System.~~

~~Our success depends in part upon patient satisfaction with the effectiveness of the ARTAS System.~~

In order to generate repeat and referral business, patients must be satisfied with the effectiveness of the ARTAS System. If the ARTAS System procedure is not done correctly, and or the patient suffers from complications and other adverse effects, the patient may not be satisfied with the benefits of the ARTAS System. Furthermore, if the transplanted hair follicles do not grow or survive the transplant, the patient will likely not view the procedure as having a satisfactory outcome. If patients are not satisfied with the aesthetic benefits of the ARTAS System, or feel that it is too expensive for the results obtained, our reputation and future sales will suffer.

~~Our success depends on growing physician adoption and use of the ARTAS System.~~

Our ability to increase the number of physicians willing to make a significant capital expenditure to purchase the ARTAS System, and make it a significant part of their practices, depends on the success of our sales and marketing programs. We must be able to demonstrate that the cost of the ARTAS System and the revenue that a physician can derive from performing ARTAS procedures are compelling when compared to the costs and revenues associated with alternative aesthetic treatments the physician can offer. In addition, we believe our marketing programs, including clinical and practice development support, will be critical to increasing utilization and awareness of the ARTAS System, but these programs require physician commitment and involvement to succeed. If we are unable to increase physician adoption and use of the ARTAS System, our financial performance will be adversely affected.

~~Our inabilityto effectivelycompetewith competitivehair restorationtreatmentsor proceduresmaypreventus fromachievingsignificantmarketpenetrationor improvingour operatingresults.~~

The medical technology and aesthetic product markets are highly competitive and dynamic, and are characterized by rapid and substantial technological development and product innovations. We designed the ARTAS System to assist physicians in performing follicular unit extraction surgery. Demand for the ARTAS System and ARTAS procedures could be limited by other products and technologies. Competition to address hair loss comes from various sources, including:

~~therapeuticoptionsincludingRogaine, which isappliedtopically,and Propecia,which isingested,both of which have been approvedby theFDA;~~

~~non-surgicaloptions,such as wigs, hair-lossconcealerspraysand similarproducts;and~~

~~othersurgicalalternatives,includinghairtransplantationsurgeryusingthestripsurgerymethodor usinghand-helddevices.~~

Surgical alternatives to the ARTAS System may be able to compete more effectively than the ARTAS procedure in established practices with trained staff and workflows built around performing these surgical alternatives. Practices experienced in offering strip surgery or follicular unit extractions using hand-held devices may be reluctant to incorporate, or convert their practices to offer ARTAS procedures due the effort involved to make such changes.

Many options may be able to provide satisfactory results for male hair loss, generally at a lower cost to the patient than the ARTAS System. As a result, if patients choose these competitive alternatives, our results of operation could be adversely affected.

We also face competition from other aesthetic devices that physicians may consider adding to their practice in lieu of building a hair restoration practice, for instance CoolSculpting, which is utilized for cosmetic fat reduction. As a result, if physicians choose these competitive products over building a hair restoration practice with the ARTAS System, our results of operation could be adversely affected.

Some of our competitors have a broad range of product offerings, large direct sales forces, and long-term customer relationships with our target physicians, which could inhibit our market penetration efforts. Our potential physician customers also may need to recoup the cost of expensive products that they have already purchased from our competitors, and thus they may decide to delay purchasing, or not to purchase, the ARTAS System.

Many of our competitors are large, experienced companies that have substantially greater resources and brand recognition than we do. Competition could result in price-cutting, reduced profit margins, and limited market share, any of which would harm our business, financial condition, and results of operations.

~~We may not be able to establish or strengthen our brand.~~

We believe that establishing and strengthening the Restoration Robotics and ARTAS brand is critical to achieving widespread acceptance of the ARTAS System, particularly because of the highly competitive nature of the market for aesthetic treatments and procedures to address male hair loss. Promoting and positioning our brand will depend largely on the success of our marketing efforts and our ability to provide physicians with a reliable product to assist them in performing hair restoration surgery. Given the established nature of our competitors, and our limited commercialization in the U.S., it is likely that our future marketing efforts will require us to incur significant additional expenses. These brand promotion activities may not yield increased sales and, even if they do, any sales increases may not offset the expenses we incur to promote our brand. If we fail to successfully promote and maintain our brand, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, the ARTAS System may not be accepted by physicians, which would adversely affect our business, results of operations and financial condition.

We have limited experience with our direct sales and marketing force and any failure to build and manage our direct sales and marketing force effectively could have a material adverse effect on our business.

We rely on a direct sales force to sell the ARTAS System in the U.S. and certain markets outside the U.S. In order to meet our anticipated sales objectives, we expect to grow our direct sales and marketing organization significantly over the next several years and intend to opportunistically build a direct sales and marketing force in certain international markets where we do not have a direct sales force. There are significant risks involved in building and managing our sales and marketing organization, including risks related to our ability to:

~~hirequalifiedindividualsas needed;~~

~~generatesufficientleadswithinour targetphysiciangroup forour salesforce;~~

~~provideadequatetrainingfortheeffectivesaleand marketingof theARTASSystem;~~

~~retainand motivateour directsalesand marketingprofessionals;and~~

~~effectivelyoverseegeographicallydispersedsalesand marketingteams.~~

Our failure to adequately address these risks could have a material adverse effect on our ability to increase sales and use of the ARTAS System, which would cause our revenues to be lower than expected and harm our results of operations.

~~To market and sell the ARTAS System in certain markets outside of the U.S., we depend on third-party distributors.~~

We depend on third-party distributors to sell, market, and service the ARTAS Systems in certain markets outside of the U.S. and to train our physician customers in such markets. Furthermore, we may need to engage additional third-party distributors to expand into new markets outside of the U.S. where we do not have a direct sales force. We are subject to a number of risks associated with our dependence on these third-parties, including:

~~thelackof day-to-daycontrolovertheactivitiesof third-partydistributors;~~

~~third-partydistributorsmaynot committhenecessaryresourcesto market,sell,train,supportand serviceour systemsto thelevelof our expectations;~~

~~third-partydistributorsmayemphasizethesaleof third-partyproductsoverour products;~~

~~third-partydistributorsmaynot be as selectiveas we would be in choosingphysiciansto purchasethe ARTASSystemor as effectivein trainingphysiciansin marketingand patientselection;~~

~~third-partydistributorsmayviolateapplicablelaws and regulationswhich mayexposeus to potential liabilityor limitour abilityto sellproductsin certainmarkets~~

~~third-partydistributorsmayterminatetheirarrangementswith us on limited,~~or no ~~noticeor may changethetermsof thesearrangementsin a mannerunfavorableto us;and~~

~~disagreementswith our distributorsthatcouldrequireor resultin costlyand time-consuminglitigation or arbitrationwhich we couldbe requiredto conductin jurisdictionswith which we arenot familiar.~~

If we fail to establish and maintain satisfactory relationships with our third-party distributors, our revenues and market share may not grow as anticipated, and we could be subject to unexpected costs which would harm our results of operations and financial condition.

~~To successfully market and sell the ARTAS System in markets outside of the U.S., we must address many international business risks with which we have limited experience.~~

Sales in markets outside of the U.S. accounted for approximately 57% of our revenue for the year ended December 31, 2016 and 66% and 60% of our revenue for the three and nine months ended September 30, 2017, respectively. We believe that a significant percentage of our business will continue to come from sales in markets outside of the U.S. through increased penetration in countries where we market and sell the ARTAS System, and with expansion into new international markets. However, international sales are subject to a number of risks, including:

~~difficultiesin staffingand managingour internationaloperations;~~

~~increasedcompetitionas a resultof moreproductsand proceduresreceivingregulatoryapprovalor otherwisefreeto marketin internationalmarkets;~~

~~longeraccountsreceivablepaymentcyclesand difficultiesin collectingaccountsreceivable;~~

~~reducedor variedprotectionforintellectualpropertyrightsin somecountries;~~

~~exportrestrictions,traderegulations,and foreigntaxlaws;~~

~~fluctuationsin currencyexchangerates;~~

~~foreigncertificationand regulatoryclearanceor approvalrequirements;~~

~~difficultiesin developingeffectivemarketingcampaignsin unfamiliarforeigncountries;~~

~~customsclearanceand shippingdelays;~~

~~political,social,and economicinstabilityabroad,terroristattacks,and securityconcernsin general;~~

~~preferenceforlocallyproducedproducts;~~

~~potentiallyadversetaxconsequences,includingthecomplexitiesof foreignvalue-addedtaxsystems, taxinefficienciesrelatedto our corporatestructure,and restrictionson therepatriationof earnings;~~

~~theburdensof complyingwith a wide varietyof foreignlaws and differentlegalstandards;and~~

~~increasedfinancialaccountingand reportingburdensand complexities.~~

~~If one or more of these risks were realized, our results of operations and financial condition could be adversely affected.~~

While traditional hair transplantation surgery has been available for many years, the ARTAS System has only been commercially available since 2011. As a result, we have a limited track record compared to traditional hair transplantation surgery and the safety and efficacy of the ARTAS System is not yet supported by long-term clinical data, which could limit sales, and the ARTAS System could prove to be less safe or effective than initially thought.

The ARTAS System that we market in the U.S. is regulated as a medical device by the U.S. Food and Drug Administration, or the FDA, and has received premarket clearance under Section 510(k) of the U.S. Federal Food, Drug and Cosmetic Act, or FDCA. In the 510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (preamendments device), a device that was originally on the U.S. market pursuant to an approved premarket approval, or PMA, application and later downclassified, or a 510(k)-exempt device. This process is typically shorter and generally requires the submission of less supporting documentation than the FDA’s PMA process and does not always require long-term clinical studies.

Hair transplantation surgery has been a treatment option for hair restoration for many years, while we only began commercializing the ARTAS System in 2011. Consequently, we lack the breadth of published long-term clinical data supporting the safety and efficacy of the ARTAS System and the benefits it offers that might have been generated in connection with other hair restoration techniques. As a result, physicians may be slow to adopt the ARTAS System, we may not have comparative data that our competitors have or are generating, and we may be subject to greater regulatory and product liability risks. Furthermore, future patient studies or clinical experience may indicate that treatment with the ARTAS System does not improve patient outcomes compared to other hair restoration techniques. Such results would slow the adoption of the ARTAS System by physicians, would significantly reduce our ability to achieve expected sales and could prevent us from achieving and maintaining profitability.

We have limited complication or patient success rate data with respect to treatment using the ARTAS System. If future patient studies or clinical testing do not support our belief that our system offers a more advantageous treatment for hair restoration, market acceptance of the ARTAS System could fail to increase or could decrease and our business could be harmed. Moreover, if future results and experience indicate that our implant products cause unexpected or serious complications or other unforeseen negative effects, we could be subject to mandatory product recalls, suspension or withdrawal of FDA or other governmental clearance or approval or, CE Certificates of Conformity, significant legal liability or harm to our business reputation. Furthermore, if patients that receive traditional hair transplantation surgery, such as strip surgery, were to experience unexpected or serious complications or other unforeseen effects, the market for the ARTAS System may be adversely affected, even if such effects are not applicable to the ARTAS System.

If we choose to, or are required to, conduct additional studies, such studies or experience could, slow the market adoption of the ARTAS System by physicians, significantly reduce our ability to achieve expected revenues and prevent us from becoming profitable.

~~We rely on a single third-party manufacturer for the manufacturing of the ARTAS System.~~

Evolve Manufacturing Technologies, Inc., or Evolve, assembles the ARTAS System, and produces reusable procedure kits, disposable procedure kits, upgrade kits and spare kits used with the ARTAS System. If the operations of Evolve are interrupted or if it is unable or unwilling to meet our delivery requirements due to capacity limitations or other constraints, we may be limited in our ability to fulfill new customer orders, to provide kits required for use with existing ARTAS Systems and to repair equipment at current customer sites. Any change to another contract manufacturer would likely entail significant delay, require us to devote substantial time and resources, and could involve a period in which our products could not be produced in a timely or consistently high-quality manner, any of which could harm our reputation and results of operations.

~~We have two masteragreementswith Evolve forthesupplyof theARTASSystemand consumableproducts, includingreusableprocedurekits,disposableprocedurekits,upgradekitsand sparekitsused with theARTAS System,pursuantto both of which we makepurchaseson a purchaseorderbasis.The termsof thesemaster agreementsaresubstantiallysimilar.The masteragreementforthesaleof ARTASSystemswas effective beginningon April1, 2016 and themasteragreementforthesaleof kitsused with theARTASSystemwas effectivebeginningon March1, 2016. Both agreementsareeffectiveforan initialtermof two yearsand will continueto automaticallyrenew foradditionaltwelvemonthperiods,subjectto eitherparty’srightto terminate theagreementupon 180 days advancenoticeduringtheinitialterm~~if~~our quarterlyforecasteddemandfalls below 75% of our historicalforecasteddemandforthesameperiodin thepreviousyearor upon 120 days’ advancenoticeaftertheinitialterm.We have an agreementwith Evolve forthepricingof certaincomponentsat certainquantities,which requiresa minimumpurchasefromus. Otherwise,withoutthisagreement,Evolve isnot requiredand maynot be ableor willing,to meetour futurerequirements~~at~~currentprices,or atall.We recently amendedthisagreementto extendthematuritydateuntilAugust 2018.~~

Additionally, while we do have agreements with some of our component suppliers, many of our component suppliers contract directly with Evolve and we have limited control over the components they supply or the timeliness by which they supply them. Evolve may be unable to acquire components at the quantities and prices at which we need them.

~~In addition, our reliance on Evolve involves a number of other risks, including, among other things, that:~~

~~our productsmaynot be manufacturedin accordancewith agreedupon specificationsor in compliance with regulatoryrequirements,or itsmanufacturingfacilitiesmaynot be ableto maintaincompliance with regulatoryrequirements,which couldnegativelyaffectthesafetyor efficacyof our products, causedelaysin shipmentsof our products,or requireus to recallproductspreviouslydeliveredto customers;~~

~~we maynot be ableto timelyrespondto unanticipatedchangesin customerorders,and ifordersdo not matchforecasts,we mayhave excessor inadequateinventoryof materialsand components;~~

~~we maybe subjectto pricefluctuationswhen a supplycontract~~is~~renegotiatedor ifour existing contract~~is~~not renewed;~~

~~Evolve maywish to discontinuemanufacturingand supplyingproductsto us forriskmanagement reasons;and~~

~~Evolve mayencounterfinancialor otherhardshipsunrelatedto our demandforproducts,which could inhibititsabilityto fulfillour ordersand meetour requirements.~~

If any of these risks materialize, it could significantly increase our costs, our ability to generate net sales would be impaired, market acceptance of our products could be adversely affected and customers may instead purchase or use our competitors’ products, which could have a materially adverse effect on our business, financial condition and results of operations.

Furthermore, if we are required to change the manufacturer of a critical component of the ARTAS System, we will be required to verify that the new manufacturer maintains facilities, procedures and operations that comply with our quality and applicable regulatory requirements, which could further impede our ability to manufacture the ARTAS System in a timely manner. Transitioning to a new supplier could be time-consuming and expensive, may result in interruptions in our operations and product delivery, could affect the performance specifications of the ARTAS System or could require that we modify the design of those systems. If the change in manufacturer results in a significant change to any product, a new 510(k) clearance from the FDA or similar international regulatory authorization may be necessary before we implement the change, which could cause substantial delays. The occurrence of any of these events could harm our ability to meet the demand for our products in a timely or cost-effective manner.

~~We cannot assure you~~assurance that we will be able to secure alternative equipment and materials and utilize such equipment and materials without experiencing interruptions in our workflow. If we should encounter delays or difficulties in securing, reconfiguring or revalidatingachieve the ~~equipment and components we require for the ARTAS System, our reputation, business, financial condition and results of operations could be negatively impacted.~~

~~If Evolve is unable to manufacture the ARTAS System in high-quality commercial quantities successfully and consistently to meet demand, our growth will be limited.~~

~~To manufacture our ARTAS System~~required milestones in the ~~quantities that we believe will be required to meet anticipated market demand, Evolve will need to increase manufacturing capacity, which will involve significant challenges. In addition,~~Plan or evidence compliance with the ~~development of commercial-scale manufacturing capabilities will require us and Evolve to invest substantial additional funds and hire and retain~~Minimum Equity Requirement within the technical personnel who have the necessary manufacturing experience. Neither we nor our third-party manufacturer may successfully complete any required increase to existing manufacturing processes in a timely manner, or at all.

If~~Evolve isunableto producetheARTASSystem,reusableprocedurekits,disposableprocedurekits,upgrade kitsand sparekitsin sufficientquantitiesto meetanticipatedcustomerdemand,our revenues,business,and financialprospectswould be harmed.The limitedexperienceEvolve has in producinglargerquantitiesof the ARTASSystemand kitsmayalsoresultin qualityissues,and possiblyresultin productrecalls.Manufacturing delaysrelatedto qualitycontrolcouldharmour reputation,and decreaseour revenues.Any recallcouldbe expensiveand generatenegativepublicity,which couldimpairour abilityto markettheARTASSystemand proceduresand furtheraffectour resultsof operations.~~

Evolve’s manufacturing operations are dependent upon third-party suppliers and, in some cases, sole suppliers, for the majority of our components, subassemblies and materials, making us vulnerable to supply shortages and price fluctuations, which could harm our business.

Evolve relies on several sole source suppliers, including Stäubli Corporation, FLIR Integrated Imaging Solutions Inc. and Preproduction Plastics Inc., for certain components of the ARTAS System, reusable procedure kits, disposable procedure kits, upgrade kits, and spare kits. These sole suppliers, and any of our other suppliers, may be unwilling or unable to supply components of these systems to Evolve reliably and at the levels we anticipate or aretimeframe required by the market. For us to be successful, our third-party manufacturer and its suppliers must be able to provide products and components in substantial quantities, in compliance with regulatory requirements, in accordance with agreed upon specifications, at acceptable costs and on a timely basis. An interruption in our commercial operations could occur if weNasdaq, or Evolve encounter delays or difficulties in securing these components, and if we cannot then obtain an acceptable substitute. If we are required to transition to new third-party suppliers for certain components of the ARTAS System, we believe that there are only a few such suppliers that are capable of supplying the necessary components. A supply interruption, price fluctuation or an increase in demand beyond our current suppliers’ capabilities could harm Evolve’s ability to manufacture the ARTAS System until new sources of supply are identified and qualified. In addition, the use of components or materials furnished by these alternative suppliers could require us to alter our operations.

~~Our reliance on these suppliers subjects us to a number of risks that could harm our reputation, business, and financial condition, including, among other things:~~

~~interruptionof supplyresultingfrommodificationsto or discontinuationof a supplier’soperations;~~

~~delaysin productshipmentsresultingfromuncorrecteddefects,reliabilityissues,or a supplier’s variationin a component;~~

~~a lackof long-termsupplyarrangementsforkey componentswith our suppliers;~~

~~inabilityto obtainadequatesupplyin a timelymanner,or to obtainadequatesupplyon commercially reasonableterms;~~

~~difficultyand costassociatedwith locatingand qualifyingalternativesuppliersforour componentsin a timelymanner;~~

~~productiondelaysrelatedto theevaluationand testingof productsfromalternativesuppliers,and correspondingregulatoryqualifications;~~

~~delayin deliverydue to our suppliersprioritizingothercustomerordersoverours;~~

~~damageto our reputationcausedby defectivecomponentsproducedby our suppliers;~~

~~increasedcostof our warrantyprogramdue to productrepairor replacementbasedupon defectsin componentsproducedby our suppliers;and~~

~~fluctuationin deliveryby our suppliersdue to changesin demandfromus or theirothercustomers.~~

Where practicable, we are seeking, or intending to seek, second-source manufacturers for certain of our components. However, we cannot provide assurance that we will be successful in establishing second-source manufacturers or that the second-source manufacturers will be able to satisfy commercial demand for the ARTAS System.

If any of these risks materialize, costs could significantly increase and our ability to meet demand for our products could be impacted. If we are unable to satisfy commercial demand for the ARTAS System in a timely manner, our ability to generate revenue would be impaired and market acceptance of our products could be adversely affected.

~~We forecastsalesto determinerequirementsforcomponentsand materialsused in the ARTASSystem, reusableprocedurekits,disposableprocedurekits,upgrade kitsand sparekitsand ifour forecastsare incorrect,we mayexperiencedelaysin shipmentsor increasedinventorycosts.~~

We keep limited finished products on hand. To manage our operations, we forecast anticipated product orders and material requirements to predict our inventory needs and enter into purchase orders on the basis of these requirements. Several components of the ARTAS System require significant order lead time. Our limited historical commercial experience and anticipated growth may not provide us with enough data to consistently and accurately predict future demand. If our business expands and our demand for components and materials increases beyond our estimates, our manufacturers and suppliers may be unable to meet our demand. In addition, if we underestimate our component and material requirements, we may have inadequate inventory, which could interrupt, delay, or prevent delivery of the ARTAS System and related products to our customers. In contrast, if we overestimate our requirements, we may have excess inventory, which would increase use of our working capital. Any of these occurrences would negatively affect our financial condition and the level of satisfaction our physician customers have with our business.

Even though the ARTAS System is marketed to physicians, there exists a potential for misuse by the operator of the ARTAS System by physicians, non-physicians or individuals who are not sufficiently trained, which could harm our reputation and our business.

We and our independent distributors market and sell the ARTAS System to physicians. Under state law in the U.S., our physician customers can generally allow nurse practitioners, technicians, and other non-physicians to perform the ARTAS procedures under their direct supervision. Similarly, in markets outside of the U.S., physicians can allow non-physicians to perform the ARTAS procedures under their supervision. Although we and our distributors provide training on the use of the ARTAS System, we do not supervise the procedures performed with the ARTAS System, nor can we be assured that direct physician supervision of procedures occurs according to our recommendations. The potential misuse of the ARTAS System by physicians and non- physicians may result in adverse treatment outcomes, which could harm our reputation and expose us to costly product liability litigation.

We and our distributors offer product training sessions, but neither we nor our distributors require purchasers or operators of our products to attend training sessions. The lack of required training for operators of our product and the use of our products by non-physicians may result in product misuse and adverse treatment outcomes, which could harm our reputation and expose us to costly product liability litigation.

Product liability suits could be brought against us for defective design, labeling, material, or workmanship, or misuse of the ARTAS System, and could result in expensive and time-consuming litigation, payment of substantial damages, an increase in our insurance rates and substantial harm to our reputation.

If the ARTAS System is defectively designed, manufactured, or labeled, contains defective components, or is misused, we may become subject to substantial and costly litigation by our physician customers or their patients. Misuse of the ARTAS System or failure to adhere to operating guidelines can cause skin damage and underlying tissue damage and, if our operating guidelines are found to be inadequate, we may be subject to liability. Furthermore, if a patient is injured in an unexpected manner or suffers unanticipated adverse events after undergoing the ARTAS procedure, even if the procedure was performed in accordance with our operating guidelines, we may be subject to product liability claims. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

~~decreaseddemandfortheARTASSystemor any futureproducts;~~

~~damageto our reputation;~~

~~withdrawalof clinicaltrialparticipants;~~

~~coststo defendtherelatedlitigation;~~

~~a diversionof management’stimeand our resources;~~

~~substantialmonetaryawardsto physiciancustomers,patientsor clinicaltrialparticipants;~~

~~regulatoryinvestigations,productrecalls,withdrawalsor labeling,marketingor promotional restrictions;~~

~~lossof revenue;and~~

~~theinabilityto commercializeany futureproducts.~~

~~Our inabilityto obtainand maintainsufficientproductliabilityinsurance~~at~~an acceptablecostand scopeof coverageto protectagainstpotentialproductliabilityclaimscouldinhibitcommercializationof theARTAS System.As of September 30, 2017, we carryproductliabilityinsurancein theamountof $2.0 millionin theaggregate.Although we maintainsuch insurance,any claimthatmaybe broughtagainstus couldresultin a courtjudgmentor settlementin an amountthat~~is~~not covered,in whole or in part,by our insuranceor that~~is~~in excessof thelimitsof our insurancecoverage.Our insurancepoliciesalsohave variousexclusionsand deductibles,and we maybe subject to a productliabilityclaimforwhich we have no coverage.We willhave to pay any amountsawardedby a court or negotiatedin a settlementthatexceedour coveragelimitationsor thatarenot coveredby our insurance,andwe maynot have, or be ableto obtain,sufficientfundsto pay such amounts.Moreover,in thefuture,we maynot be ableto maintaininsurancecoverage~~at~~a reasonablecostor in sufficientamountsto protectus againstlosses.~~

Our ability to market the ARTAS System in the U.S. is limited to hair follicle dissection in males that have black or brown straight hair, and if we want to expand our marketing claims, we will need to obtain additional FDA clearances or approvals, which may not be granted.

We have FDA clearance to market the ARTAS System in the U.S. for dissecting hair follicles only from the scalp in men diagnosed with androgenic alopecia, or AGA, also referred to as male pattern baldness, who have black or brown straight hair. This clearance restricts our ability to market or advertise the ARTAS System treatment for women or men who do not have black or brown straight hair, which could limit physician and patient adoption of the ARTAS System. Furthermore, we have not received FDA clearance for the robotic implantation functionality which is in clinical development. Developing and promoting new treatment indications and protocols for the ARTAS System, as well as receiving regulatory approval for the commercialization of the robotic implantation functionality which is in clinical development, are elements of our growth strategy, but we cannot predict when or if we will receive the clearances required to so implement those elements. In addition, we may be required to conduct additional clinical trials or studies to support our applications, which may be time-consuming and expensive, and may produce results that do not result in FDA clearances. In the event that we do not obtain additional FDA clearances, our ability to promote the ARTAS System in the U.S. may be limited. Because we anticipate that sales in the U.S. will continue to be a significant portion of our business for the foreseeable future, ongoing restrictions on our ability to market the ARTAS System in the U.S. could harm our business and limit our revenue growth.

~~The clinical trial process required to obtain regulatory clearances or approvals is lengthy and expensive with uncertain outcomes, and could result in delays in new product introductions.~~

In order to obtain 510(k) clearance for the ARTAS System, we were required to conduct a clinical trial, and we expect to conduct clinical trials in support of marketing authorization for future products and product enhancements. Conducting clinical trials is a complex and expensive process, can take many years, and outcomes are inherently uncertain. We may suffer significant setbacks in clinical trials, even after earlier clinical trials showed promising results, and failure can occur at any time during the clinical trial process. Any of our products may malfunction or may produce undesirable adverse effects that could cause us or regulatory authorities to interrupt, delay or halt clinical trials. We, the FDA, or another regulatory authority may suspend or terminate clinical trials at any time to avoid exposing trial participants to unacceptable health risks.

Successful results of pre-clinical studies are not necessarily indicative of future clinical trial results, and predecessor clinical trial results may not be replicated in subsequent clinical trials. Additionally, the FDA may disagree with our interpretation of the data from our pre-clinical studies and clinical trials, or may find the clinical trial design, conduct or results inadequate to prove safety or efficacy, and may require us to pursue additional pre-clinical studies or clinical trials, which could further delay the clearance or approval of our products. The data we collect from our pre-clinical studies and clinical trials may not be sufficient to support FDA clearance or approval, and if we are unable to demonstrate the safety and efficacy of our future products in our clinical trials, we will be unable to obtain regulatory clearance or approval to market our products.

In addition, we may estimate and publicly announce the anticipated timing of the accomplishment of various clinical, regulatory and other product development goals, which are often referred to as milestones. These milestones could include the obtainment of the right to affix the CE Mark in the European Union; the submission to the FDA of an investigational device exemption, or IDE, application to commence a pivotal clinical trial for a new product; the enrollment of patients in clinical trials; the release of data from clinical trials; and other clinical and regulatory events. The actual timing of these milestones could vary dramatically compared to our estimates, in some cases for reasons beyond our control. We cannot assure you that we will meet our projected milestones and if we do not meet these milestones as publicly announced, the commercialization of our products may be delayed and, as a result, our stock price may decline.

~~Delaysin thecommencementor completionof clinicaltestingcouldsignificantlyaffectour productdevelopment costs.We do not know whetherplannedclinicaltrialswillbeginon time,need to be redesigned,enrollan adequatenumberof patientsin a timelymanneror be completedon schedule,~~ifat~~all.The commencementand completionof clinicaltrialscan be delayedor terminatedfora numberof reasons,includingdelaysor failures relatedto:~~

~~theFDAor comparableforeignregulatoryauthoritiesdisagreeingas to thedesignor implementationof our clinicalstudies;~~

~~obtainingregulatoryapprovalto commencea clinicaltrial;~~

~~reachingagreementon acceptabletermswith prospectiveclinicalresearchorganizations,or CROs,and trialsites,thetermsof which can be subjectto extensivenegotiationand mayvarysignificantlyamong differentCROsand trialsites;~~

~~manufacturingsufficientquantitiesof a productforuse in clinicaltrials;~~

~~obtaininginstitutionalreviewboard,or IRB, or ethicscommitteesapprovalto conducta clinicaltrialat eachprospectivesite;~~

~~recruitingand enrollingpatientsand maintainingtheirparticipationin clinicaltrials;~~

~~havingclinicalsitesobservetrialprotocolor continueto participatein a trial;~~

~~addressingany patientsafetyconcernsthatariseduringthecourseof a clinicaltrial;~~

~~addressingany conflictswith new or existinglaws or regulations;and~~

~~addinga sufficientnumberof clinicaltrialsites.~~

Patient enrollment in clinical trials and completion of patient follow-up depend on many factors, including the size of the patient population, the nature of the trial protocol, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial, patient compliance, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the product being studied in relation to other available therapies, including any new treatments that may be cleared or approved for the indications we are investigating. For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the safety and efficacy of a product, or they may be persuaded to participate in contemporaneous clinical trials of a competitor’s product. In addition, patients participating in our clinical trials may drop out before completion of the trial or suffer adverse medical events unrelated to our products. Delays in patient enrollment or failure of patients to continue to participate in a clinical trial may delay commencement or completion of the clinical trial, cause an increase in the costs of the clinical trial and delays, or result in the failure of the clinical trial.

We could also encounter delays if the FDA concluded that our financial relationships with our principal investigators resulted in a perceived or actual conflict of interest that may have affected the interpretation of a study, the integrity of the data generated at the applicable clinical trial site or the utility of the clinical trial itself. Principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive cash compensation and/or stock options in connection with such services. If these relationships and any related compensation to or ownership interest by the clinical investigator carrying out the study result in perceived or actual conflicts of interest, or the FDA concludes that the financial relationship may have affected interpretation of the study, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of our marketing application by the FDA. Any such delay or rejection could prevent us from commercializing any of our products in development.

Furthermore, clinical trials may also be delayed as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRB overseeing the clinical trial at issue, the Data Safety Monitoring Board for such trial, any of our clinical trial sites with respect to that site, or other regulatory authorities due to a number of factors, including:

~~failureto conducttheclinicaltrialin accordancewith applicableregulatoryrequirementsor our clinical protocols;~~

~~inspectionof theclinicaltrialoperationsor trialsitesby theFDAor otherregulatoryauthorities resultingin theimpositionof a clinicalhold;~~

~~inabilityof a clinicalinvestigatoror clinicaltrialsiteto continueto participatein theclinicaltrial;~~

~~unforeseensafetyissuesor adversesideeffects;~~

~~failureto demonstratea benefitfromusingtheproduct;and~~

~~lackof adequatefundingto continuetheclinicaltrial.~~

~~Additionally,changesin regulatoryrequirementsand guidancemayoccurand we mayneed to amendclinical trialprotocolsto reflectthesechanges.Amendmentsmayrequireus to resubmitour clinicaltrialprotocolsto IRBs forreexamination,which mayimpactthecosts,timingor successfulcompletionof a clinicaltrial.~~If~~we experiencedelaysin completionof, or ifwe terminate,any of our clinicaltrials,thecommercialprospectsforour productsmaybe harmedand our abilityto generateproductrevenuesfromtheseproductswillbe delayedor not realized~~at~~all.In addition,any delaysin completingour clinicaltrialswillincreaseour costs,slow down our productdevelopmentand approvalprocessand jeopardizeour abilityto commenceproductsalesand generate revenues.Any of theseoccurrencesmaysignificantlyharmour business,financialconditionand prospects significantly.In addition,manyof thefactorsthatcause,or leadto, a delayin thecommencementor completion of a clinicaltrialmayalsoultimatelyleadto thedenialof regulatoryapprovalof thesubjectproduct.~~

Our business could be adversely affected if we are unable to extend the cleared uses of the ARTAS System or successfully pursue the development, regulatory clearance or approval and commercialization of future products.

~~Our only product is the ARTAS System for hair follicle dissectio~~n, which has been cleared for use in the U.S. only for dissecting hair follicles from the scalp in men diagnosed with AGA who have black or brown straight hair and recipient site making in which hair follicles are transplanted. The robotic implantation functionality which is in clinical development has not been cleared or approved for commercial marketing in the U.S. Our business could be adversely affected if we are unable to extend the cleared uses of the ARTAS System or successfully pursue the development, regulatory clearance or approval and commercialization of future products. In the future, we may also become dependent on other products that we may develop or acquire. The clinical and commercial success of our products will depend on a number of factors, including the following:

~~theabilityto raiseany additionalrequiredcapitalon acceptableterms,or atall;~~

~~timelycompletionof our nonclinicalstudiesand clinicaltrials,which maybe significantlysloweror costmorethanwe anticipateand willdepend substantiallyupon theperformanceof third-party contractors;~~

~~whetherwe arerequiredby theFDAor similarforeignregulatoryagenciesto conductadditional clinicaltrialsor otherstudiesbeyond thoseplannedto supporttheclearanceor approvaland commercializationof any futureindicationsor products;~~

~~our abilityto demonstrateto thesatisfactionof theFDAand similarforeignregulatoryauthoritiesthe safety,efficacyand acceptableriskto benefitprofileof any futureindicationsor products;~~

~~theprevalence,durationand severityof potentialsideeffectsor othersafetyissuesexperiencedwith our futureapprovedproducts,~~if~~any;~~

~~thetimelyreceiptof necessarymarketingapprovalsor clearancesfromtheFDAand foreignregulatory authorities;~~

~~achievingand maintaining,and, where applicable,ensuringthatour third-partycontractorsachieveand maintain,compliancewith our contractualobligationsand with allregulatoryrequirementsapplicable to any futureproductsor additionalapprovedindication~~s~~, ifany;~~

~~acceptanceby physiciansand patientsof thebenefits,safetyand efficacyof any futureproducts,if approvedor cleared,includingrelativeto alternativeand competingtreatments;~~

~~our abilityto establishand enforceintellectualpropertyrightsin and to our productsor any future indicationsor products;and~~

~~our abilityto avoidthird-partypatentinterference,intellectualpropertychallengesor intellectual propertyinfringementclaims.~~

~~Even if regulatory approvals or clearances are obtained, we may never be able to successfully commercialize any future indications or products. Accordingly, we cannot provide assurances~~ that we will be able to ~~generate sufficient revenue through~~maintain compliance with the ~~sale~~other Nasdaq Listing Rules. If we are unable to timely regain compliance with the Minimum Equity Requirement, or if we fall out of ~~any future products to continue our business.~~

~~Our loan agreement contains restrictions that limit our flexibility in operating our business.~~

~~In May 2015, we entered into a term loan agreement~~compliance with Oxford. We borrowed $20 million under the loan agreement with Oxford. Our loan agreement with Oxford also contains various covenants that limit our ability to engage in specified types of transactions. Subject to limited exceptions, these covenants limit our ability~~, without Oxford’s consent, to, among other things:~~

~~sell,lease,transfer,exclusivelylicenseor disposeof our assets;~~

~~create,incur,assumeor permitto existadditionalindebtednessor liens;~~

~~makerestrictedpayments,includingpayingdividendson, repurchasingor makingdistributionswith respectto our capitalstock;~~

~~pay any cashdividendor makeany othercashdistributionor paymentin respectof our capitalstockin excessof $250,000 in aggregatepercalendaryear;~~

~~makespecifiedinvestments(includingloansand advances);~~

~~makechangesto certainkey personnelincludingour Presidentand ChiefExecutiveOfficer;~~

~~merge,consolidateor liquidate;and~~

~~enterintocertaintransactionswith our affiliates.~~

~~The covenants in our loan agreement with Oxford may limit our ability to take certain actions and, in the event that we breach~~ one or more covenants, our lender may choose to declare an event of default and require that we immediately repay all amounts outstanding, terminate the commitment to extend further credit and foreclose on the collateral granted to it to collateralize such indebtedness.

~~We will need to increase the size of our organization, and we may experience difficulties in managing growth.~~

As of September 30, 2017, we had 96 employees, with 38 employees in sales and marketing, 17 employees in customer support, 24 employees in research and development, including clinical, regulatory and certain quality control functions, five employees in manufacturing operations and 12 employees in general management and administration. We will need to continue to expand our sales, marketing, managerial, operational, finance and administrative resources for the ongoing commercialization of the ~~ARTAS System, and continue~~other Nasdaq Listing Rules, Nasdaq could seek to delist our ~~development activities~~common stock, in which case we would have the right to appeal such determination. If our common stock ultimately is delisted, our shareholders could face significant adverse consequences, including:

•

Limited availability or market quotations for our common stock;

•

Reduced liquidity of our common stock;

•

Determination that shares of our common stock are “penny stock”, which would require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our common stock;

•

Limited amount of news an analysts’ coverage of us; and

•

Decreased ability for us to issue additional equity securities or obtain additional equity or debt financing in the future.

Table of ~~any future products.~~

~~Our existing management, personnel, systems and facilities may not be adequate to support our future growth. Our need to effectively execute our growth strategy requires that we:~~

~~identify,recruit,retain,incentivizeand integrateadditionalemployees,includingsalespersonnel;~~

Contents

~~manageour internaldevelopmentand operationaleffortseffectivelywhilecarryingout our contractual obligationsto thirdparties;and~~

~~continueto improveour operational,financialand managementcontrols,reportssystemsand procedures.~~

~~If we fail to attract and retain senior management and key personnel, we may be unable to successfully grow our business.~~

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and other personnel. We are highly dependent upon our senior management, particularly our President and Chief Executive Officer, our management team and other key personnel. The loss

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of services of any of these individuals could delay or prevent enhancement of the ARTAS System, the expansion of the ARTAS System to new indications, or the development of any future products. Although we have entered into employment agreements with our senior management team, these agreements do not provide for a fixed term of service.Equity Securities

~~Competition for qualified personnel~~

Except as otherwise disclosed in the ~~medical device field~~Company’s Current Report on Form 8-K filed with the SEC on May 15, 2023, there were no unregistered securities issued and sold during the three and six months ended June 30, 2023.

Use of Proceeds

None

Issuer Purchases of Equity Securities

None.

Table of Contents

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit Number	Description	Form	Date	Number	Filed Herewith

3.1	Amended and Restated Certificate of Incorporation of Restoration Robotics, Inc.	8-K	10-17-17	3.1

3.2	Certificate of Amendment of Certificate of Incorporation of Restoration Robotics, Inc.	8-K	11-7-19	3.1

3.3	Certificate of Amendment of Certificate of Incorporation of Venus Concept Inc.	8-K	5-11-23	3.1

3.4	Certificate of Amendment of Certificate of Incorporation of Venus Concept Inc.	8-K	6-26-23	3.1

3.5	Second Amended and Restated Bylaws of Venus Concept Inc.	8-K	11-7-19	3.2

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X

32.1*	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X

32.2*	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X

101.INS	Inline XBRL Instance Document				X

101.SCH	Inline XBRL Taxonomy Extension Schema Document				X

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document				X

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document				X

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document				X

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document				X

104	Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)				X

* The certification attached as Exhibit 32.1 and Exhibit 32.2 that accompanies this Quarterly Report on Form 10-Q is ~~intense due~~not deemed filed with the United States Securities and Exchange Commission and is not to be incorporated by reference into any filing of Venus Concept Inc. under the limited number of individuals who possess the skills and experience required by our industry. We will need to hire additional personnel and we may not be able to attract and retain quality personnel on acceptable terms, or at all. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output.

Because we have opted to take advantage of the JOBS Act provision which allows us to delay implementing new accounting standards, our consolidated financial statements may not be directly comparable to other public companies.

~~Pursuant to the Jumpstart Our Business Startups~~Securities Act of ~~2012,~~1933, as amended, or the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. Because we have elected to take advantage of this provision of the JOBS Act, our consolidated financial statements and the reported results of operations contained therein may not be directly comparable to other public companies.

~~We incur significantcostsas a resultof operatingas a publiccompany,and our managementdevotes substantialtimeto new complianceinitiatives.We mayfailto complywith the rulesthatapplyto public companies,includingSection404 of the Sarbanes-OxleyAct of 2002, which could resultin sanctionsor other penaltiesthatwould harm our business.~~

~~We incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligations under~~ the Securities Exchange Act of 1934, as amended, ~~and regulations regarding corporate governance practices. The listing requirements of The NASDAQ Global Market and the rules of the Securities and Exchange Commission,~~whether made before or SEC, require that we satisfy certain corporate governance requirements relating to director independence, filing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnel devote a substantial amount of time to ensure that we comply with all of these requirements. Moreover, the reporting requirements, rules and regulations will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or to serve as executive officers, or to obtain certain types of insurance, including directors’ and officers’ insurance, on acceptable terms.

We are subject to Section 404 of The Sarbanes-Oxley Act of 2002, or Section 404, and the related rules of the SEC, which generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. Beginning with the second annual report that we will be required to file with the SEC, Section 404 requires an annual management assessment of the effectiveness of our internal control over financial reporting. However, for so long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, our independent registered public accounting firm will be engaged to provide an attestation report on the effectiveness of our internal control over financial reporting. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior September 30th, and (2)after the date ~~on which we have issued more than $1.0 billion in non-convertible debt during the prior three- year period.~~

~~To date, we have never conducted a review~~ of our internal control for the purpose of providing the reports required by these rules. During the course of our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our consolidated financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the market price of our stock to decline. In addition, as a public company we are required to file accurate and timely quarterly and annual reports with the SEC under the Securities Exchange Act of 1934, as amended. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The NASDAQ Global Market or other adverse consequences that would materially harm to our business and cause the market price of our common stock to decline.

~~Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.~~

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. Furthermore, the market for aesthetic medical procedures may be particularly vulnerable to unfavorable economic conditions. In particular, the ARTAS procedures will not receive coverage and reimbursement and, as a result, demand for this product will be tied to discretionary spending levels of our targeted patient population. The recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, such as the recent global financial crisis, could result in a variety of risks to our business, including weakened demand for the ARTAS System, ARTAS procedures or any future products, if approved, and our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our manufacturers or suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the economic climate and financial market conditions could adversely impact our business.

~~We or the thirdpartiesupon whom we depend maybe adverselyaffectedby earthquakesor othernatural disastersand our businesscontinuityand disasterrecoveryplans maynot adequatelyprotectus froma serious disaster.~~

Our corporate headquarters and other facilities are located in San Jose, California, which in the past has experienced both severe earthquakes and floods. We do not carry earthquake or flood insurance. Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects.

If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our ARTAS enterprise system, enterprise financial systems and records, manufacturing resource planning and enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake or flood insurance, could have a material adverse effect on our business.

Furthermore, integral parties in our supply chain are similarly vulnerable to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our business.

~~Significant disruptions of information technology systems or breaches of data security could materially adversely affect our business, results of operations and financial condition.~~

We collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly dependent on information technology systems and infrastructure to operate our business. In the ordinary course of our business, we collect, store and transmit large amounts of confidential information, including intellectual property, proprietary business information and personal information. It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We have established physical, electronic, and organizational measures to safeguard and secure our systems to prevent a data compromise, and rely on commercially available systems, software, tools, and monitoring to provide security for our information technology systems and the processing, transmission and storage of digital information. We have also outsourced elements of our information technology infrastructure, and as a result a number of third-party vendors may or could have access to our confidential information. Our internal information technology systems and infrastructure, and those of our current and any future collaborators, contractors and consultants and other third parties on which we rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. In addition, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information or other intellectual property. The costs to us to mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and while we have implemented security measures to protect our data security and information technology systems, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays, cessation of service and other harm to our business and our competitive position. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs. Moreover, if a computer security breach affects our systems or results in the unauthorized release of personally identifiable information, our reputation could be materially damaged. In addition, such a breach may require notification to governmental agencies, the media or individuals pursuant to various federal and state privacy and security laws, if applicable, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Clinical Health Act of 2009, or HITECH, and its implementing rules and regulations, as well as regulations promulgated by the Federal Trade Commission and state breach notification laws. We would also be exposed to a risk of loss or litigation and potential liability, which could materially adversely affect our business, results of operations and financial condition.

Our employees and independent contractors, including consultants, manufacturers, distributors, commercial collaborators, service providers and other vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse effect on our results of operations.

We are exposed to the risk that our employees and independent contractors, including consultants, manufacturers, distributors, commercial collaborators, service providers and other vendors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate the laws and regulations of the FDA and other similar regulatory bodies, including those laws that require the reporting of true, complete and accurate information to such regulatory bodies; manufacturing standards; U.S. federal and state healthcare fraud and abuse, data

~~privacylaws and othersimilarnon-U.S. laws;or laws thatrequirethetrue,completeand accurate reportingof financialinformationor data.Activitiessubjectto theselaws alsoinvolvetheimproperuse or misrepresentationof informationobtainedin thecourseof clinicaltrials,thecreationof fraudulentdatain our nonclinicalstudiesor clinicaltrials,or illegalmisappropriationof product,which couldresultin regulatory sanctionsand causeseriousharmto our reputation.~~Itis~~not alwayspossibleto identifyand determisconductby employeesand otherthird-parties,and theprecautionswe taketo detectand preventthisactivitymaynot be effectivein controllingunknown or unmanagedrisksor lossesor in protectingus fromgovernmental investigationsor otheractionsor lawsuitsstemmingfroma failureto be in compliancewith such laws or regulations.In addition,we aresubjectto theriskthata personor governmentcouldallegesuch fraudor other misconduct,even ifnone occurred.~~If~~any such actionsareinstitutedagainstus, and we arenot successfulin defendingourselvesor assertingour rights,thoseactionscouldhave a significantimpacton our businessand financialresults,including,withoutlimitation,theimpositionof significantcivil,criminaland administrative penalties,damages,monetaryfines,disgorgements,individualimprisonment,othersanctions,contractual damages,reputationalharm,diminishedprofitsand futureearningsand curtailmentof our operations,any of which couldadverselyaffectour abilityto operateour businessand our resultsof operations.~~

~~Risks Related to Intellectual Property~~

We may in the future become involved in lawsuits to defend ourselves against intellectual property disputes, which could be expensive and time consuming, and ultimately unsuccessful, and could result in the diversion of significant resources, and hinder our ability to commercialize our existing or future products.

Our success depends in part on not infringing the patents or violating the other proprietary rights of others. Intellectual property disputes can be costly to defend and may cause our business, operating results and financial condition to suffer. Significant litigation regarding patent rights occurs in the medical industry. Whether merited or not, it is possible that U.S. and foreign patents and pending patent applications controlled by third parties may be alleged to cover our products. We may also face allegations that our employees have misappropriated the intellectual property rights of their former employers or other third parties. Our competitors in both the U.S. and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit, or otherwise interfere with our ability to make, use, sell, and/or export our products. Our competitors may have one or more patents for which they can threaten and/or initiate patent infringement actions against us and/or any of our third-party suppliers. Our ability to defend ourselves and/or our third-party suppliers may be limited by our financial and human resources, the availability of reasonable defenses, and the ultimate acceptance of our defenses by the courts or juries. Furthermore, if such patents are successfully asserted against us, this may result in an adverse impact on our business, including injunctions, damages, and/or attorneys’ fees. From time to time and in the ordinary course of business, we may develop noninfringement and/or invalidity positions with respect to third-party patents, which may or not be ultimately adjudicated as successful by a judge or jury if such patents were asserted against us.

We may receive in the future, particularly as a public company, communications from patent holders, including non-practicing entities, alleging infringement of patents or other intellectual property rights or misappropriation of trade secrets, or offering licenses to such intellectual property. Any claims that we assert against perceived infringers could also provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property rights. At any given time, we may be involved as either a plaintiff or a defendant in a number of patent infringement actions, the outcomes of which may not be known for prolonged periods of time.

The large number of patents, the rapid rate of new patent applications and issuances, the complexities of the technologies involved and the uncertainty of litigation significantly increase the risks related to any patent litigation. Any potential intellectual property litigation also could force us to do one or more of the following:

~~stopselling,making,using,or exportingproductsthatuse thedisputedintellectualproperty;~~

~~obtaina licensefromtheintellectualpropertyowner to continueselling,making,exporting,or using products,which licensemayrequiresubstantialroyaltypaymentsand maynot be availableon reasonableterms,or atall;~~

~~incursignificantlegalexpenses;~~

~~pay substantialdamagesor royaltiesto thepartywhose intellectualpropertyrightswe maybe found to be infringing,potentiallyincludingtrebledamages~~if~~thecourtfindsthattheinfringementwas willful;~~

if~~a license~~is~~availablefroma third-party,we mayhave to pay substantialroyalties,upfrontfeesor grantcross-licensesto intellectualpropertyrightsforour productsand services;~~

~~pay theattorneyfeesand costsof litigationto thepartywhose intellectualpropertyrightswe maybe found to be infringing;~~

~~findnon-infringingsubstituteproducts,which couldbe costlyand createsignificantdelaydue to the need forFDAregulatoryclearance;~~

~~findalternativesuppliesforinfringingproductsor processes,which couldbe costlyand create significantdelaydue to theneed forFDAregulatoryclearance;and/or~~

~~redesignthoseproductsor processesthatinfringeany third-partyintellectualproperty,which couldbe costly,disruptive,and/orinfeasible.~~

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business with respect to intellectual property. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. Finally, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.

If any of the foregoing occurs, we may have to withdraw existing products from the market or may be unable to commercialize one or more of our products, all of which could have a material adverse effect on our business, results of operations and financial condition. Any litigation or claim against us, even those without merit, may cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from our core business and harm our reputation. Furthermore, as the number of participants in the robotic hair restoration surgery market grows, the possibility of intellectual property infringement claims against us increases.

In addition, we may indemnify our customers, suppliers and international distributors against claims relating to the infringement of the intellectual property rights of third parties relating to our products, methods, and/or manufacturing processes. Third parties may assert infringement claims against our customers, suppliers, or distributors. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers, suppliers or distributors, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages on behalf of our customers, suppliers, or distributors or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using our products, or our suppliers may be forced to stop providing us with products.

Similarly, interference or derivation proceedings provoked by third parties or brought by the United Stated Patent and Trademark Office, or USPTO, or any foreign patent authority may be necessary to determine the priority of inventions or other matters of inventorship with respect to our patents or patent applications. We may also become involved in other proceedings, such as re-examination or opposition proceedings, before the USPTO or its foreign counterparts relating to our intellectual property or the intellectual property rights of others. An unfavorable outcome in any such proceedings could require us to cease using the related technology or to attempt to license rights to it from the prevailing party, or could cause us to lose valuable intellectual property rights. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms, if any license is offered at all. Litigation or other proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may also become involved in disputes with others regarding the ownership of intellectual property rights. For example, we jointly develop intellectual property with certain parties, and disagreements may therefore arise as to the ownership of the intellectual property developed pursuant to these relationships. If we are unable to resolve these disputes, we could lose valuable intellectual property rights.

~~Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our existing and future products.~~

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy- Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art, may affect patent litigation, and switched the U.S. patent system from a “first- to-invent” system to a “first-to-file” system. Under a “first-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether another inventor had made the invention earlier. The USPTO recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, in particular, the first-to-file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. The Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

In~~addition~~,~~paten~~t~~refor~~m~~legislatio~~nmay~~pas~~sinthe~~futur~~e~~tha~~t~~coul~~d~~lea~~dto~~additiona~~l~~uncertaintie~~sand~~increased cost~~s~~surroundin~~gthe~~prosecution~~,~~enforcemen~~tand~~defens~~eofour~~patent~~sand~~applications~~.~~Furthermore~~,the~~U.S. Suprem~~e~~Cour~~tandthe~~U.S~~.~~Cour~~tof~~Appeal~~sforthe~~Federa~~l~~Circui~~t~~hav~~e~~made~~,and~~wil~~l~~likel~~y~~continu~~eto~~make, change~~sinhowthe~~paten~~t~~law~~softhe~~U.S~~.are~~interpreted~~.For~~example~~,the~~U.S~~.~~Suprem~~e~~Cour~~thas~~rule~~don ~~severa~~l~~paten~~t~~case~~sin~~recen~~t~~years~~,~~suc~~has~~AssociationforMolecularPathology~~v.~~MyriadGenetics,Inc.(Myriad I)~~,~~MayoCollaborativeServices~~v.~~PrometheusLaboratories,Inc.,~~and~~AliceCorporationPty.Ltd.~~v.~~CLSBank International,eithe~~r~~narrowin~~gthe~~scop~~eof~~paten~~t~~protectio~~n~~availabl~~ein~~certai~~n~~circumstance~~sor~~weakenin~~g~~the right~~sof~~paten~~t~~owner~~sin~~certai~~n~~situations~~.~~Similarly~~,~~foreig~~n~~court~~s~~hav~~e~~made~~,and~~wil~~l~~likel~~y~~continu~~eto~~make, change~~sinhowthe~~paten~~t~~law~~sin~~thei~~r~~respectiv~~e~~jurisdiction~~sare~~interpreted~~.We~~canno~~t~~predic~~t~~futur~~e~~change~~sin the~~interpretatio~~nof~~paten~~t~~law~~sor~~change~~sto~~paten~~t~~law~~s~~tha~~t~~migh~~tbe~~enacte~~d~~int~~olawby~~U.S~~.and~~foreign legislativ~~e~~bodies~~.~~Thos~~e~~change~~smay~~materiall~~y~~affec~~tour~~patent~~sor~~paten~~t~~application~~sandour~~abilit~~yto~~obtain additiona~~l~~paten~~t~~protectio~~ninthe~~future.~~

Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents often must be paid to the USPTO and foreign patent agencies over the lifetime of the patent. While an unintentional lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non- payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our products or procedures, we may not be able to stop a competitor from marketing products that are the same as or similar to our own, which would have a material adverse effect on our business.

~~We may not be able to adequately protect our intellectual property rights throughout the world.~~

Filing, prosecuting and defending patents on our products in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly developing countries, and the breadth of patent claims allowed can be inconsistent. In addition, the laws of some foreign countries may not protect our intellectual property rights to the same extent as laws in the U.S. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the U.S. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, furthermore, may export otherwise infringing products to territories in which we have patent protection that may not be sufficient to terminate infringing activities.

We do not have patent rights in certain foreign countries in which a market may exist. Moreover, in foreign jurisdictions where we do have patent rights, proceedings to enforce such rights could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, and our patent applications at risk of not issuing. Additionally, such proceedings could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Thus, we may not be able to stop a competitor from marketing and selling in foreign countries products that are the same as or similar to our products, and our competitive position in the international market would be harmed.

~~We depend on certain technologies that are licensed to us. We do not control these technologies and any loss of our rights to them could prevent us from selling our products.~~

We are dependent on licenses from HSC Development LLC and James A. Harris, M.D. for some of our key technologies. We do not own the patents that underlie these licenses. Our rights to use the technology we license are subject to the negotiation of, continuation of and compliance with the terms of those licenses. In some cases, we do not control the prosecution, maintenance, or filing of the patents to which we hold licenses, or the enforcement of these patents against third parties. These patents and patent applications are not written by us or our attorneys, and we did not have control over the drafting and prosecution. Our licensors might not have given the same attention to the drafting and prosecution of these patents and applications as we would have if we had been the owners of the patents and applications and had control over the drafting and prosecution. We cannot be certain that drafting and/or prosecution of the licensed patents and patent applications by the licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights.

~~Our intellectualpropertyagreementswith thirdpartiesmaybe subjectto disagreementsovercontract interpretation,which could narrow the scopeof our rightsto the relevantintellectualpropertyor technology or increaseour financialor otherobligationsto our licensors.~~

Certain provisions in our intellectual property agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could affect the scope of our rights to the relevant intellectual property or technology, or affect financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact conceives or develops intellectual property that we regard as our own. Our assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.

We could in the future be subject to claims that we or our employees have inadvertently or otherwise used or disclosed alleged trade secrets or other proprietary information of former employers or competitors. Although we have procedures in place that seek to prevent our employees and consultants from using the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may in the future be subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement, or that we or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a former employer or competitor. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management. If our defense to those claims fails, in addition to paying monetary damages, a court could prohibit us from using technologies or functionalities that are essential to our products, if such technologies or functionalities are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. An inability to incorporate technologies or functionalities that are important or essential to our products would have a material adverse effect on our business, and may prevent us from selling our products or from practicing our processes. In addition, we may lose valuable intellectual property rights or personnel. Moreover, any such litigation or the threat thereof may adversely affect our ability to hire employees or contract with independent sales representatives. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our products, which could have an adverse effect on our business, results of operations and financial condition.

~~If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.~~

We hold various trademarks for our products and services. Many of these trademarks are registered with the USPTO and corresponding government agencies in numerous other countries, and we hold trademark applications for these marks in a number of foreign countries, although the laws of many countries may not protect our trademark rights to the same extent as the laws of the U.S. Actions taken by us to establish and protect our trademarks might not prevent imitation of our products or services, infringement of our trademark rights by unauthorized parties or other challenges to our ownership or validity of our trademarks. If any of these events occur, we may not be able to protect and enforce our rights in these trademarks, which we need in order to build name recognition with potential partners or customers in our markets of interest. In addition, unauthorized third-parties may have registered trademarks similar and identical to our trademarks in foreign jurisdictions or may in the future file for registration of such trademarks. If they succeed in registering or developing common law rights in such trademarks, and if we were not successful in challenging such third-party rights, we may not be able to use such trademarks to market our products and services in those countries. If we are unable to register our trademarks, enforce our trademarks, or bar a third-party from registering or using a trademark, our ability to establish name recognition based on our trademarks and compete effectively in our markets of interest may be adversely affected.

~~If we are unable to protect the confidentiality of our trade secrets, our business and competitive position may be harmed.~~

In addition to patent and trademark protection, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect our trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our consultants and vendors, or our former or current employees. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, however, any of these parties may breach the agreements and disclose our trade secrets and other unpatented or unregistered proprietary information, and once disclosed, we are likely to lose trade secret protection. Monitoring unauthorized uses and disclosures of our intellectual property is difficult, and we do not know whether the steps we have taken to

~~protectour intellectualpropertywillbe effective.In addition,we maynot be ableto obtain adequateremediesforany such breaches.Enforcinga claimthata partyillegallydisclosedor misappropriateda tradesecret~~is~~difficult,expensiveand time-consuming,and theoutcome~~is~~unpredictable.In addition,some courtsinsideand outsidetheU.S.arelesswillingor unwillingto enforcetradesecretprotection.~~

Furthermore, our competitors may independently develop knowledge, methods and know-how similar, equivalent, or superior to our proprietary technology. Competitors could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology, or develop their own competitive technologies that fall outside of our intellectual property rights. In addition, our key employees, consultants, suppliers or other individuals with access to our proprietary technology and know-how may incorporate that technology and know-how into projects and inventions developed independently or with third parties. As a result, disputes may arise regarding the ownership of the proprietary rights to such technology or know-how, and any such dispute may not be resolved in our favor. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us and our competitive position could be adversely affected. If our intellectual property is not adequately protected so as to protect our market against competitors’ products and methods, our competitive position could be adversely affected, as could our business.

~~Risks Related to Government Regulation~~

The ARTAS System and our operations are subject to extensive government regulation and oversight both in the U.S. and abroad, and our failure to comply with applicable requirements could harm our business.

The ARTAS System and related products and services are regulated as medical devices subject to extensive regulation in the U.S. and elsewhere, including by the FDA and its foreign counterparts. The FDA and foreign regulatory agencies regulate, among other things, with respect to medical devices:

~~design,developmentand manufacturing;~~

~~testing,labeling,contentand languageof instructionsforuse and storage;~~

~~clinicaltrials;~~

~~productsafety;~~

~~marketing,salesand distribution;~~

~~premarketclearanceand approval;~~

~~recordkeepingprocedures;~~

~~advertisingand promotion;~~

~~recallsand fieldsafetycorrectiveactions;~~

~~post-marketsurveillance,includingreportingof deathsor seriousinjuriesand malfunctionsthat,~~if~~they were to recur,couldleadto deathor seriousinjury;~~

~~post-marketapprovalstudies;and~~

~~productimportand export.~~

The regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales.

In the U.S., before we can market a new medical device, or a new use of, new claim for or significant modification to an existing product, we must first receive either clearance under Section 510(k) of the FDCA or approval of a PMA application from the FDA, unless an exemption applies. In the 510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (preamendments device), a device that was originally on the U.S. market pursuant to an approved premarket approval, or PMA, application and later downclassified, or a 510(k)-exempt device. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data are sometimes required to support substantial equivalence. In the PMA process, the FDA must determine that a proposed device is safe and effective

~~foritsintendeduse based,in part, on extensivedata,including,but not limitedto, technical,pre-clinical,clinicaltrial,manufacturingand labeling data.The PMA process~~is~~typicallyrequiredfordevicesthataredeemedto pose thegreatestrisk,such as life- sustaining,life-supportingor implantabledevices.~~

Modifications to products that are approved through a PMA application generally require FDA approval. Similarly, certain modifications made to products cleared through a 510(k) may require a new 510(k) clearance.

Both the PMA approval and the 510(k) clearance process can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12 months, but can last longer. The process of obtaining a PMA is much more costly and uncertain than the 510(k) clearance process and generally takes from one to three years, or even longer, from the time the application is filed with the FDA. In addition, a PMA generally requires, and the 510(k) clearance process sometimes requires, the performance of one or more clinical trials. Despite the time, effort and cost, we cannot assure you that any particular device will be approved or cleared by the FDA. Any delay or failure to obtain necessary regulatory approvals could harm our business.

In the U.S., we have obtained 510(k) premarket clearance from the FDA to market the ARTAS System for harvesting hair follicles from the scalp in men diagnosed with AGA who have black or brown straight hair. An element of our strategy is to continue to add new functionalities and enhance existing functionalities to the ARTAS System. We expect that certain modifications we may make to the ARTAS System may require new 510(k) clearance; however, future modifications may be subject to the substantially more costly, time-consuming and uncertain PMA process. If the FDA requires us to go through a lengthier, more rigorous examination for future products or modifications to existing products than we had expected, product introductions or modifications could be delayed or canceled, which could cause our sales to decline.

~~The FDA can delay, limit or deny clearance or approval of a device for many reasons, including:~~

~~we maynot be ableto demonstrateto theFDA’s satisfactionthattheproductor modificationis substantiallyequivalentto theproposedpredicatedeviceor safeand effectiveforitsintendeduse;~~

~~thedatafromour pre-clinicalstudiesand clinicaltrialsmaybe insufficientto supportclearanceor approval,where required;and~~

~~themanufacturingprocessor facilitieswe use maynot meetapplicablerequirements.~~

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our products. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of medical devices and spur innovation, but its ultimate implementation remains unclear. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may fail to obtain any marketing clearances or approvals, lose any marketing clearance or approval that we may have obtained and we may not achieve or sustain profitability.

We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the U.S. or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. Notably, on January 30, 2017, President Trump issued an Executive Order, applicable to all executive agencies including the FDA, requiring that for each notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the agency must identify at least two existing regulations to be repealed, unless prohibited by law. These requirements are referred to as the “two-for-one” provisions. This Executive Order includes a budget neutrality provision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years 2018 and beyond, the Executive Order requires agencies to identify regulations to offset any incremental cost of a new regulation and approximate the total costs or savings associated with each new regulation or repealed regulation. In interim guidance issued by the Office of Information and Regulatory Affairs within OMB on February 2, 2017, the administration indicates that the “two-for-one” provisions may apply not only to agency regulations, but also to significant agency guidance documents. In addition, on February 24, 2017, President Trump issued an executive order directing each affected agency to designate an agency official as a “Regulatory Reform Officer” and establish a “Regulatory Reform Task Force” to implement the two-for-one provisions and other previously issued executive orders relating to the review of federal regulations, however it is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.

~~Even afterwe have obtainedtheproperregulatoryclearanceor approvalto marketa product,we have ongoing responsibilitiesunderFDAregulations.The failureto complywith applicableregulationscouldjeopardizeour abilityto selltheARTASSystemand resultin enforcementactionssuch as:~~

~~warningletters;~~

~~fines;~~

~~injunctions;~~

~~civilpenalties;~~

~~terminationof distribution;~~

~~recallsor seizuresof products;~~

~~delaysin theintroductionof productsintothemarket;~~

~~totalor partialsuspensionof production;~~

~~refusalto grantfutureclearancesor approvals;~~

~~withdrawalsor suspensionsof currentclearancesor approvals,resultingin prohibitionson salesof our productor products;and~~

~~in themostseriouscases,criminalpenalties.~~

~~Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and harm our reputation, business, financial condition and results of operations.~~

~~We are subject to extensive governmental regulation in foreign jurisdictions, such as Europe, and our failure to comply with applicable requirements could cause our business to suffer.~~

~~We must maintain regulatory approval in foreign jurisdictions in which we plan to market and sell the ARTAS System.~~

In the European Economic Area or EEA, manufacturers of medical devices need to comply with the Essential Requirements laid down in Annex II to the EU Medical Devices Directive (Council Directive 93/42/EEC). Compliance with these requirements is a prerequisite to be able to affix the CE mark to medical devices, without which they cannot be marketed or sold in the EEA. To demonstrate compliance with the Essential Requirements and obtain the right to affix the CE Mark, manufacturers of medical devices must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. Except for low risk medical devices (Class I with no measuring function and which are not sterile), where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the Essential Requirements, a conformity assessment procedure requires the intervention of a Notified Body, which is an organization designated by a competent authority of an EEA country to conduct conformity assessments. Depending on the relevant conformity assessment procedure, the Notified Body would audit and examine the Technical File and the quality system for the manufacture, design and final inspection of our devices. The Notified Body issues a CE Certificate of Conformity following successful completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the

~~Essential Requirements. This Certificate entitles the manufacturer to affix the CE mark to its medical devices after having prepared and signed a related EC Declaration of Conformity.~~

As a general rule, demonstration of conformity of medical devices and their manufacturers with the Essential Requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use and that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and safety of the device (e.g., product labeling and instructions for use) are supported by suitable evidence. This assessment must be based on clinical data, which can be obtained from (1) clinical studies conducted on the devices being assessed, (2) scientific literature from similar devices whose equivalence with the assessed device can be demonstrated or (3) both clinical studies and scientific literature. With respect to active implantable medical devices or Class III devices, the manufacturer must conduct clinical studies to obtain the required clinical data, unless reliance on existing clinical data from equivalent devices can be justified. The conduct of clinical studies in the EEA is governed by detailed regulatory obligations. These may include the requirement of prior authorization by the competent authorities of the country in which the study takes place and the requirement to obtain a positive opinion from a competent Ethics Committee. This process can be expensive and time-consuming.

~~On April5, 2017, theEuropeanParliamentpassedtheMedicalDevicesRegulation,which repealsand replaces the~~EU~~MedicalDevicesDirective.Unlikedirectives,which mustbe implementedintothenationallaws of the EEAmemberStates,theregulationswould be directlyapplicable,i.e.,withouttheneed foradoptionof EEA memberStatelaws implementingthem,in allEEAmemberStatesand areintendedto eliminatecurrent differencesin theregulationof medicaldevicesamongEEAmemberStates.The MedicalDevicesRegulation, amongotherthings,~~is~~intendedto establisha uniform,transparent,predictableand sustainableregulatory frameworkacrosstheEEAformedicaldevicesand in vitrodiagnosticdevicesand ensurea high levelof safety and healthwhilesupportinginnovation.~~

~~The Medical Devices Regulation will however only become applicable three years after publication. Once applicable, the new regulations will among other things:~~

~~strengthentheruleson placingdeviceson themarketand reinforcesurveillanceonce theyare available;~~

~~establishexplicitprovisionson manufacturers’responsibilitiesforthefollow-upof thequality, performanceand safetyof devicesplacedon themarket;~~

~~improvethetraceabilityof medicaldevicesthroughoutthesupplychainto theend-useror patient througha uniqueidentificationnumber;~~

~~setup a centraldatabaseto providepatients,healthcareprofessionalsand thepublicwith comprehensiveinformationon productsavailablein theEU; and~~

~~strengthenrulesfortheassessmentof certainhigh-riskdevices,such as implants,which mayhave to undergoan additionalcheckby expertsbeforetheyareplacedon themarket.~~

~~These modifications may have an impact on the way we conduct our business in the EEA.~~

Modifications to the ARTAS System and any future products that receive 510(k) clearance may require new 510(k) clearances or PMA approvals, and if we make such modifications without seeking new clearances or approvals, the FDA may require us to cease marketing or recall the modified products until clearances or approvals are obtained.

The ARTAS System has received 510(k) clearance from the FDA. Any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, approval of a PMA. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary. We have made modifications to the ARTAS System in the past and have determined based on our review of the applicable FDA regulations and guidance that in certain instances new 510(k) clearances or PMA approvals were not required. We may make similar modifications or add additional functionalities in the future that we believe do not require a new 510(k) clearance or approval of a PMA. The FDA has issued a guidance document intended to assist manufacturers in determining whether modifications to cleared devices require the submission of a new 510(k), and such guidance has come under scrutiny in recent years, the practical impact of which is unclear. If the FDA disagrees with our determination and requires us to submit new 510(k) notifications or PMA applications for modifications to our previously cleared products for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, which could require us to redesign our products, conduct clinical trials to support any modifications, and pay significant regulatory fines or penalties. In addition, the FDA may not approve or clear our products for the indications that are necessary or desirable for successful commercialization or could require clinical trials to support any modifications. Any delay or failure in obtaining required clearances or approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth. Any of these actions would harm our operating results.

We are subject to restrictions on the indications for which we are permitted to market our products, and any violation of those restrictions, or marketing of the ARTAS System for off-label uses, could subject us to regulatory enforcement action.

~~The FDA’s 510(k) clearance for the ARTAS System specifies the cleared indication for use of the product is disse~~cting hair follicles from the scalp in men diagnosed with AGA who have black or brown straight hair. The ARTAS System is intended to assist physicians in identifying and extracting hair follicular units from the scalp during hair transplantation.

~~We trainour marketingand directsalesforceto not promotetheARTASSystemforusesoutsideof theFDA- clearedindicationsforuse, known as “off-labeluses.”We cannot,however, preventa physicianfromusingthe ARTASSystemoff-labelwhen, in thephysician’sindependentprofessionalmedicaljudgment,he or she deems itappropriate.Theremaybe increasedriskof injuryto patients~~if~~physiciansattemptto use theARTASSystem off-label.Furthermore,theuse of theARTASSystemforindicationsotherthanthoseclearedby theFDAor approvedby any foreignregulatorybody maynot effectivelytreatsuch conditions,which couldharmour reputationin themarketplaceamongphysiciansand patients.~~

If the FDA or any foreign regulatory body determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including, among other things, the issuance or imposition of an untitled letter, a warning letter, injunction, seizure, refusal to issue new 510(k)s or PMAs, withdrawal of existing 510(k)s or PMAs, refusal to grant export approvals, and civil fines or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations.

The ARTAS System may cause or contribute to adverse medical events that we are required to report to the FDA, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, financial condition and results of operations. The discovery of serious safety issues with the ARTAS System, or a recall of the ARTAS System either voluntarily or at the direction of the FDA or another governmental authority, could have a negative impact on us.

We are subject to the FDA’s medical device reporting regulations and similar foreign regulations. The FDA’s medical device reporting regulations require us to report to the FDA when we receive or become aware of information that reasonably suggests that the ARTAS System may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to recur, it could cause or contribute to a death or serious injury. The timing of our obligation to report is triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events of which we become aware within the prescribed timeframe. We may also fail to recognize that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of the ARTAS System. If we fail to comply with our reporting obligations, the FDA could take action, including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearance, seizure of our products or delay in clearance of future products.

The FDA and foreign regulatory bodies have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health. The FDA’s authority to require a recall must be based on a finding that there is reasonable probability that the device could cause serious injury or death. We may also choose to voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations. We cannot assure you that product defects or other errors will not occur in the future. Recalls involving the ARTAS System could be particularly harmful to our business, financial condition and results of operations because it is our only product.

Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA. We may initiate voluntary withdrawals or corrections for the ARTAS System in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, it could require us to report those actions as recalls and we may be subject to enforcement action. A future recall announcement could harm our reputation with customers, potentially lead to product liability claims against us and negatively affect our sales.

If we or our distributors do not obtain and maintain international regulatory registrations or approvals for the ARTAS System, our ability to market and sell the ARTAS System outside of the U.S. will be diminished.

Sale of the ARTAS System outside the U.S. are subject to foreign regulatory requirements that vary widely from country to country. In addition, the FDA regulates exports of medical devices from the U.S. While the regulations of some countries may not impose barriers to marketing and selling the ARTAS System or only require notification, others require that we or our distributors obtain the approval of a specified regulatory body. Complying with foreign regulatory requirements, including obtaining registrations or approvals, can be expensive and time-consuming, and we cannot be certain that we or our distributors will receive regulatory approvals in each country in which we plan to market the ARTAS System or that we will be able to do so on a timely basis. The time required to obtain registrations or approvals, if required by other countries, may be longer than that required for FDA clearance, and requirements for such registrations, clearances, or approvals may significantly differ from FDA requirements. If we modify the ARTAS System, we or our distributors may need to apply for additional regulatory approvals or other authorizations before we are

~~permittedto sellthemodified product.In addition,we maynot continueto meetthequalityand safetystandardsrequiredto maintainthe authorizationsthatwe or our distributorshave received.~~If~~we or our distributorsareunableto maintainour authorizationsin a particularcountry,we willno longerbe ableto selltheapplicableproductin thatcountry, which couldharmour business.~~

Regulatory clearance or approval by the FDA does not ensure clearance or approval by regulatory authorities in other countries, and clearance or approval by one or more foreign regulatory authorities does not ensure clearance or approval by regulatory authorities in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory clearance or approval in one country may have a negative effect on the regulatory process in others.

We must manufacture our products in accordance with federal and state regulations, and we could be forced to recall our installed systems or terminate production if we fail to comply with these regulations.

The methods used in, and the facilities used for, the manufacture of the ARTAS System and related products must comply with the FDA’s Quality System Regulation, or QSR, which is a complex regulatory scheme that covers the procedures and documentation of the design, testing, production, process controls, quality assurance, labeling, packaging, handling, storage, distribution, installation, servicing and shipping of medical devices. Furthermore, we are required to verify that our suppliers maintain facilities, procedures and operations that comply with our quality and applicable regulatory requirements. The FDA enforces the QSR through periodic announced or unannounced inspections of medical device manufacturing facilities, which may include the facilities of subcontractors. The ARTAS System is also subject to similar state regulations and various laws and regulations of foreign countries governing manufacturing.

We cannot guarantee that we or any subcontractors will take the necessary steps to comply with applicable regulations, which could cause delays in the delivery of the ARTAS System. In addition, failure to comply with applicable FDA requirements or later discovery of previously unknown problems with the ARTAS System or manufacturing processes could result in, among other things:

~~warninglettersor untitledletters;~~

~~fines,injunctionsor civilpenalties;~~

~~suspensionor withdrawalof approvalsor clearances;~~

~~seizuresor recallsof our products;~~

~~totalor partialsuspensionof productionor distribution;~~

~~administrativeor judiciallyimposedsanctions;~~

~~theFDA’s refusalto grantpendingor futureclearancesor approvalsforour products;~~

~~clinicalholds;~~

~~refusalto permittheimportor exportof our products;and~~

~~criminalprosecutionto us or our employees.~~

Any of these actions could significantly and negatively impact supply of our products. If any of these events occurs, our reputation could be harmed, we could be exposed to product liability claims and we could lose customers and suffer reduced revenue and increased costs.

~~We may be subject to various federal and state laws pertaining to healthcare fraud and abuse, and any violations by us of such laws could result in fines or other penalties.~~

While procedures utilizing the ARTAS System are not currently covered or reimbursed by any third-party payor, our commercial, research and other financial relationships with healthcare providers and others may be subject to various federal and state laws intended to prevent healthcare fraud and abuse. Such laws include the U.S. federal Anti-Kickback Statute and similar laws that apply to state healthcare programs, private payors and self-pay patients; the U.S. federal civil and criminal false claims laws, such as the civil False Claims Act, and civil monetary penalties laws; state and federal data privacy and security laws and regulations; state and federal physician payment transparency laws; and state and federal consumer protection and unfair competition laws. Further, these laws may impact any sales, marketing and education programs we currently have or may develop in the future and the manner in which we implement any of those programs. Penalties for violations of these laws can include exclusion from federal healthcare programs and substantial civil and criminal penalties.

~~Recentlyenactedand futurelegislationmayincreasethe difficultyand costforus to sellour products.~~

In the U.S. and some non-U.S. jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, restrict or regulate post-approval activities and affect our ability to profitably sell our products. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively the Affordable Care Act, was enacted. The Affordable Care Act, imposed, among other things, an annual excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the U.S., which, due to subsequent legislative amendments, has been suspended from January 1, 2016 to December 31, 2017, and, absent further legislative action, will be reinstated starting January 1, 2018. It is uncertain the extent to which any challenges, amendments and attempts to repeal and replace the Affordable Care Act in the future may impact our business or financial condition. We expect that the Affordable Care Act, as well as other healthcare reform measures that may be adopted in the future, may potentially increase our costs to sell our product and decrease our profitability.

~~Risks Related to Our Common Stock~~

~~Our stock price may be volatile and you may not be able to resell shares of our common stock at or above the price you paid.~~

The market price of our common stock could be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include those discussed in this “Risk Factors” section and others such as:

~~thecontinuedgrowth in demandfortheARTASSystemand ARTASprocedures;~~

~~our commercialization,marketingand manufacturingprospects;~~

~~thecontinuingproductivityand effectivenessof our commercialinfrastructureand salesforce;~~

~~our financialperformance;~~

~~our intentionsand our abilityto establishcollaborationsand/orpartnerships;~~

~~the timing or likelihood of regulatory filings and approvals for the ARTAS System for expanded indications and functionality;~~

~~our commercialization,marketingand manufacturingcapabilities;~~

~~our expectationsregardingthepotentialmarketsizeand thesizeof thepatientpopulationsforthe ARTASSystem;~~

~~theeffectivepricingof theARTASSystem,servicesand procedures;~~

~~theimplementationof our businessmodeland strategicplansforour businessand technology;~~

~~thescopeof protectionwe areableto establishand maintainforintellectualpropertyrightscovering theARTASSystem,alongwith any productenhancements;~~

~~estimatesof our expenses,futurerevenue,capitalrequirements,our needsforadditionalfinancingand our abilityto obtainadditionalcapital;~~

~~our financialperformance;and~~

~~developmentsand projectionsrelatingto our competitorsand our industry,includingcompeting therapiesand procedures.~~

In addition, the stock markets in general, and the markets for medical device and aesthetic stocks in particular, have experienced extreme volatility that may have been unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the market price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business.

~~An active market for our common stock may not be obtained.~~

~~Prior to our initial public offering, there had been no public market for shares of our common stock~~. Our stock only recently began trading on The NASDAQ Global Market, but we can provide no assurance that we will be able to maintain an active trading market on The NASDAQ Global Market or any other exchange in the future. If an active market for our common stock does not develop or is not maintained, it may be difficult for our stockholders to sell shares without depressing the market price for the shares or at all. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other businesses, applications, or technologies using our shares as consideration.

If~~securitiesor industryanalystsdo not publishresearchor reportsabout our business,or iftheyissuean adverseor misleadingopinion regardingour stock,our stockpriceand tradingvolumecould decline.~~

The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business. We currently have very limited research coverage by securities and industry analysts. If no additional securities or industry analysts commence coverage of us, the market price or trading volume of our stock could be negatively impacted. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

We are an “emerging growth company” and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation, stockholder approval of any golden parachute payments not previously approved and delayed adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior September 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

~~If we sell shares of our common stock in future financings, stockholders may experience immediate dilution and, as a result, our stock price may decline.~~

We may from time to time issue additional shares of common stock at a discount from the current market price of our common stock. As a result, our stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible into common stock, our common stockholders would experience additional dilution and, as a result, our stock price may decline.

~~Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.~~

Based on the number of shares outstanding as of September 30, 2017, as adjusted for the consummation of our initial public offering in October 2017, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 40.9% of our voting stock. These stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

~~Sales of a substantial number of shares of our common stock in the public market could cause our stock price to decline.~~

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions lapse, the market price of our common stock could decline. Based upon the number of shares outstanding as of September 30, 2017, and after giving effect to the consummation of our initial public offering, we will have outstanding a total of approximately 28.9 million. Of these shares, approximately ~~3.9~~ ~~million shares of our common stock offered in the initial public offering are freely tradable, without restriction, in the public market.~~

The lock-up agreements pertaining to the initial public offering will expire April 9, 2018, after which an additional approximately 25.0 million shares of common stock will be eligible for sale in the public market, of which approximately 15.2 million of which shares are held by directors, executive officers and other affiliates and will be subject to Rule 144 under the Securities Act. The underwriters from our initial public offering may, however, in their sole discretion, permit our officers, directors and other stockholders who are subject to these lock- up agreements to sell or otherwise transfer shares prior to the expiration of the lock-up agreements, subject to certain requirements.

~~In addition,approximately 4.7 million sharesof our commonstockthatareeithersubjectto outstandingoptions, reservedforfutureissuanceunderour equityincentiveplansor subjectto outstandingwarrantsare eligibleforsalein thepublicmarketto theextentpermittedby theprovisionsof variousvestingschedulesand Rule 144 and Rule 701 undertheSecuritiesAct. Iftheseadditionalsharesof common stockaresold,or if~~itis~~perceivedthattheywillbe sold,in thepublicmarket,themarketpriceof our common stockcoulddecline.~~

The holders of approximately 23.3 million shares of our common stock, or approximately 80.6 % of our total outstanding common stock as of September 30, 2017, after giving effect to the issuance of shares in our initial public offering, will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to vesting schedules and to the lock-up agreements described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the market price of our common stock.

~~Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.~~

We have incurred substantial losses during our history and do not expect to become profitable in the near future, and we may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research and development tax credits) to offset its post-change income or taxes may be limited. We may have experienced ownership changes in the past and may experience ownership changes in the future and/or subsequent shifts in our stock ownership (some of which shifts are outside our control). As a result, if we earn net taxable income, our ability to use our pre-change NOLs to offset such taxable income could be subject to limitations. Similar provisions of state tax law may also apply. As a result, even if we attain profitability, we may be unable to use a material portion of our NOLs and other tax attributes.

~~Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.~~

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent changes in control or changes in our management without the consent of our board of directors. These provisions will include the following:

~~a classifiedboardof directorswith three-yearstaggeredterms,which maydelaytheabilityof stockholdersto changethemembershipof a majorityof our boardof directors;~~

~~no cumulativevotingin theelectionof directors,which limitstheabilityof minoritystockholdersto electdirectorcandidates;~~

~~theexclusiverightof our boardof directorsto electa directorto filla vacancycreatedby theexpansion of theboardof directorsor theresignation,deathor removalof a director,which preventsstockholders frombeingableto fillvacancieson our boardof directors;~~

~~theabilityof our boardof directorsto authorizetheissuanceof sharesof preferredstockand to determinethepriceand othertermsof thoseshares,includingpreferencesand votingrights,without stockholderapproval,which couldbe used to significantlydilutetheownershipof a hostileacquirer;~~

~~theabilityof our boardof directorsto alterour bylaws withoutobtainingstockholderapproval;~~

~~therequiredapprovalof atleast66 2/3%of thesharesentitledto vote~~at~~an electionof directorsto adopt,amendor repealour bylaws or repealtheprovisionsof our amendedand restatedcertificateof incorporationregardingtheelectionand removalof directors;~~

~~a prohibitionon stockholderactionby writtenconsent,which forcesstockholderactionto be takenat an annualor specialmeetingof our stockholders;~~

~~therequirementthata specialmeetingof stockholdersmaybe calledonly by thechairmanof theboard of directors,thechiefexecutiveofficer,thepresidentor theboardof directors,which maydelaythe abilityof our stockholdersto forceconsiderationof a proposalor to takeaction,includingtheremoval of directors;and~~

advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

~~In addition,theseprovisionswould applyeven ifwe were to receivean offerthatsomestockholdersmay considerbeneficial.~~

We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction.

~~Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.~~

Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws and our indemnification agreements that we have entered into with our directors and officers provide that:

~~we willindemnifyour directorsand officersforservingus in thosecapacitiesor forservingother businessenterprises~~at~~our request,to thefullestextentpermittedby Delawarelaw. Delawarelaw providesthata corporationmayindemnifysuch person~~if~~such personactedin good faithand in a mannersuch personreasonablybelievedto be in or not opposed to thebestinterestsof theregistrant and, with respectto any criminalproceeding,had no reasonablecauseto believesuch person’sconduct was unlawful;~~

~~we may,in our discretion,indemnifyemployeesand agentsin thosecircumstanceswhere indemnification~~is~~permittedby applicablelaw;~~

~~we arerequiredto advanceexpenses,as incurred,to our directorsand officersin connectionwith defendinga proceeding,exceptthatsuch directorsor officersshallundertaketo repaysuch advancesif it~~is~~ultimatelydeterminedthatsuch person~~is~~not entitledto indemnification;~~

~~we willnot be obligatedpursuantto our amendedand restatedbylaws to indemnifya personwith respectto proceedingsinitiatedby thatpersonagainstus or our otherindemnitees,exceptwith respect to proceedingsauthorizedby our boardof directorsor broughtto enforcea rightto indemnification;~~

~~therightsconferredin our amendedand restatedbylaws arenot exclusive,and we areauthorizedto enterintoindemnificationagreementswith our directors,officers,employeesand agentsand to obtain insuranceto indemnifysuch persons;and~~

~~we maynot retroactivelyamendour amendedand restatedbylaw provisionsto reduceour indemnificationobligationsto directors,officers,employeesand agents.~~

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws, any action to interpret, apply, enforce, or determine the validity of our certificate of incorporation or bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

We do not intend to pay dividends on our common stock, and, consequently, our stockholders’ ability to achieve a return on their investment will depend on appreciation in the price of our common stock.

We do not intend to pay any cash dividends on our common stock for the foreseeable future. We intend to invest our future earnings, if any, to fund our growth. Furthermore, pursuant to the loan and the security agreement between us and Oxford, we are not permitted to pay cash dividends in excess of $250,000 in aggregate per fiscal year without its prior written consent. Therefore, our stockholders are not likely to receive any dividends on their common stock for the foreseeable future. Since we do not intend to pay dividends, our stockholders’ ability to receive a return on their investment will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our stockholders have purchased it.

~~ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

~~Unregistered Sales of Equity Securities~~

~~During the quarter ended September 30, 2017, we issued and sold the following unregistered securities:~~

On September 6, 2017, we issued $5.0 million in aggregate principal amount of subordinated convertible notes to certain of our existing stockholders that converted into 718,184 shares of our common stock upon the consummation of our initial public offering on October 16, 2017.

~~Use of Proceeds~~

On October 11, 2017, the U.S. Securities and Exchange Commission declared effective our registration statement on Form S-1 (File No. 333-220303), as amended, filed in connection with our initial public offering. The initial public offering closed on October 16, 2017 and we issued and sold 3,575,000 shares of our common stock at a price to the public of $7.00 per share, which did not include the exercise of the underwriters’ option to purchase an additional 536,250 shares of our common stock. We received gross proceeds from the initial public offering of approximately $25.0 million, before deducting underwriting discounts and commissions of approximately $1.7 million, and estimated offering expenses of approximately $2.7 million. On October 26, 2017, the underwriters partially exercised their option to purchase an additional 322,910 shares or our common stock pursuant to their option to purchase additional shares. We received gross proceeds from this offering of approximately $2.3 million, before deducting underwriting discounts and commissions of approximately $0.2 million. The managing underwriter of the offering was National Securities Corporation. No offering expenses were paid or are payable, directly or indirectly, to our directors or officers, to persons owning 10% or more of any class of our equity securities or to any of our affiliates.

There has been no material change in the expected use of the net proceeds from our initial public offering as described in our final prospectus filed with the SEC on October 13, 2017 pursuant to Rule 424(b).

~~Issuer Purchases of Equity Securities~~

~~None.~~

~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~

~~None.~~

~~ITEM 4. MINE SAFETY DISCLOSURES~~

~~Not Applicable.~~

~~ITEM 5. OTHER INFORMATION~~

~~None.~~

~~ITEM 6.~~ ~~EXHIBITS~~

~~See the Exhibit Index following the signature page to~~ this Quarterly Report on Form 10-Q, ~~for a list~~irrespective of ~~exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.~~any general incorporation language contained in such filing.

Exhibit
Number

Description

Form

Date

Number

Filed
Herewith

    3.1

Amended and Restated Certificate of Incorporation

8-K

10-17-17

3.1

    3.2

Amended and Restated Bylaws

8-K

10-17-17

3.2

    4.1

-Reference is made to exhibits 3.1 through 3.2.

    4.2

-Form of Common Stock Certificate

S-1/A

9-18-17

4.2

  10.1#

2017 Incentive Award Plan

S-8

10-17-17

99.7

  10.2#

2017 Employee Stock Purchase Plan

S-8

10-17-17

99.11

  10.3#

Form of Stock Option Grant Notice and Stock Option Agreement under the 2017 Incentive Award Plan

S-1/A

9-18-17

10.26

  10.4#

Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement under the 2017 Incentive Award Plan

S-1/A

9-18-17

10.27

  10.5#

Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement under the 2017 Incentive Award Plan

S-1/A

9-18-17

10.28

  31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X
  31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X
  32.1*

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X
  32.2*

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X
101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

Table of Contents

SIGNATURES

~~Indicates management contract or compensatory plan.~~

The certification attached as Exhibit 32.1 and Exhibit 32.2 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the SEC and is not to be incorporated by reference into any filing of Restoration Robotics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	~~Company Name~~Venus Concept Inc.

Date: ~~November 21, 2017~~August 14, 2023	By:	/s/ ~~RYAN RHODES~~Rajiv De Silva
		~~Ryan Rhodes~~
		~~President, Chief Executive Officer~~

~~Date: November 21, 2017~~	~~By:~~	~~/s/ CHARLOTTE HOLLAND~~
		~~Charlotte Holland~~Rajiv De Silva
		Chief ~~Financial~~Executive Officer

Date: August 14, 2023	By:	/s/ Domenic Della Penna
		Domenic Della Penna
		Chief Financial Officer

Title of each class		~~95134~~Trading Symbol		Name of each exchange on which registered
~~(Address of principal executive offices)~~Common Stock, $0.0001 par value per share		~~(Zip Code)~~VERO		The Nasdaq Capital Market

Large accelerated filer	☐		Accelerated filer	☐

Non-accelerated filer	☒ ~~(Do not check if a smaller reporting company)~~		Smaller reporting company	☐☒

	Emerging growth company	☐	☒

	Nine Months Ended
	September 30,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(16,779	)	$	(16,913	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		452			498
Loss on disposal of property and equipment		34			19
Amortization of debt issuance costs		440			562
Stock-based compensation		349			359
Changes in fair value of preferred stock warrant liabilities		1,618		—
Changes in operating assets and liabilities:
Accounts receivable		(741	)	86
Inventory		65			1,942
Prepaid expenses and other assets		(2,272	)		256
Accounts payable		1,194			91
Accrued and other liabilities		1,264			(418	)
Net cash used in operating activities		(14,376	)		(13,518	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment	—				2
Purchases of property and equipment		(215	)		(328	)
Net cash used in investing activities		(215	)		(326	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes, net		5,000			—
Proceeds from issuance of Series C convertible preferred stock, net		10,209			9,938
Proceeds from exercised stock options		16			39
Payment of deferred offering costs		(749	)		—
Principal payments on long-term debt		(6,000	)	—
Net cash provided by financing activities		8,476			9,977
NET DECREASE IN CASH AND CASH EQUIVALENTS		(6,115	)		(3,867	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(22	)		(64	)
CASH AND CASH EQUIVALENTS — Beginning of period		11,906			17,127
CASH AND CASH EQUIVALENTS — End of period	$	5,769		$	13,196
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	4		$	—
Interest paid during the period	$	1,185		$	1,295
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
Deferred offering costs included in accounts payable and other accrued liabilities	$	1,474		$	—

	*Six Months Ended June 30,*
	*2023*			*2022*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(16,944	)	$	(19,148	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,032			2,212
Stock-based compensation		850			1,001
Provision for expected credit losses		977			3,521
Provision for inventory obsolescence		674			862
Finance expenses and accretion		680			182
Deferred tax expense (recovery)		78			(283	)
Loss on sale of subsidiary		76			-
Loss on disposal of property and equipment		-			31
Changes in operating assets and liabilities:
Accounts receivable short-term and long-term		6,153			(2,492	)
Inventories		297			(2,682	)
Prepaid expenses		207			568
Advances to suppliers		132			(3,797	)
Other current assets		1,642			(115	)
Operating right-of-use assets, net		879			6,057
Other long-term assets		(268	)		(79	)
Trade payables		259			2,361
Accrued expenses and other current liabilities		(4,185	)		(1,969	)
Current operating lease liabilities		(236	)		(1,764	)
Severance pay funds		154			2
Unearned interest income		(887	)		284
Long-term operating lease liabilities		(555	)		(4,293	)
Other long-term liabilities		(25	)		(172	)
Net cash used in operating activities		(8,010	)		(19,713	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(92	)		(251	)
Net cash used in investing activities		(92	)		(251	)
CASH FLOWS FROM FINANCING ACTIVITIES:
2023 Multi-Tranche Private Placement, net of costs of $367		1,633			—
Proceeds from exercise of options		—			23
Proceeds from issuance of common stock		1,109			272
Repayment of government assistance loans		—			(543	)
Dividends from subsidiaries paid to non-controlling interest		(87	)		(124	)
Net cash (used in) provided by financing activities		2,655			(372	)
NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		(5,447	)		(20,336	)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period		11,569			30,876
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	6,122		$	10,540
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	18		$	224
Cash paid for interest	$	2,381		$	1,775

	*June 30, 2023*		*June 30, 2022*
Options to purchase common stock and restricted stock units ("RSUs")		1,019,837		488,255
Preferred stock		2,872,518		252,717
Shares reserved for convertible notes		558,666		547,593
Warrants for common stock		1,061,930		1,061,930
Total potential dilutive shares		5,512,951		2,350,495

	September 30,			December 31,
	2017			2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	5,769		$	11,906
Accounts receivable		3,222			2,481
Inventory		2,677			2,742
Prepaid expenses and other current assets		858			810
Total current assets		12,526			17,939
Property and equipment, net		1,189			1,459
Other assets		2,323			100
TOTAL ASSETS	$	16,038		$	19,498
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable	$	2,934		$	1,740
Accrued and other liabilities		2,997			2,438
Deferred revenue		1,437			1,423
Current portion of long-term debt, net of discount of $340 and $551 as of September 30, 2017 and December 31, 2016		7,659			7,449
Convertible promissory notes		5,018		—
Total current liabilities		20,045			13,050
Other long-term liabilities		488			563
Preferred stock warrant liabilities		2,311			693
Long-term debt, net of discount of $70 and $299 as of September 30, 2017 and December 31, 2016		7,230			13,001
TOTAL LIABILITIES		30,074			27,307
Commitments and Contingencies (Note 6)
Convertible preferred stock, $0.0001 par value; 236,154,444 shares authorized as of September 30, 2017 and December 31, 2016; 22,671,601 and 21,142,295 shares issued and outstanding as of September 30, 2017 and December 31, 2016; aggregate liquidation preference of $153,166 as of September 30, 2017 and $142,231 as of December 31, 2016		145,944			135,735
STOCKHOLDERS’ DEFICIT:
Common stock, $0.0001 par value: 350,490,000 shares authorized as of September 30, 2017 and December 31, 2016; 1,624,464 and 1,615,495 shares issued and outstanding as of September 30, 2017 and December 31, 2016	—			—
Additional paid-in capital		3,452			3,087
Accumulated other comprehensive income (loss)		(8	)		14
Accumulated deficit		(163,424	)		(146,645	)
TOTAL STOCKHOLDERS’ DEFICIT		(159,980	)		(143,544	)
TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT	$	16,038		$	19,498

	Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Income (Loss)			Deficit			Deficit
Balance — December 31, 2016		21,142,295		135,735		1,615,495		—		3,087		14			(146,645	)		(143,544	)
Issuance of common stock pursuant to stock option exercises of vested options		—		—		8,969		—		16		—			—			16
Issuance of preferred stock for cash net of issuance costs of $726		1,529,306		10,209		—		—		—		—			—			—
Stock-based compensation		—		—		—		—		349		—			—			349
Other comprehensive loss		—		—		—		—		—		(22	)		—			(22	)
Net loss		—		—		—		—		—		—			(16,779	)		(16,779	)
Balance — September 30, 2017		22,671,601	$	145,944		1,624,464	$	—	$	3,452	$	(8	)	$	(163,424	)	$	(159,980	)

	*2022 Private Placement*		*2023 Multi-Tranche Private Placement*		*Common Stock*				*Additional Paid-*		*Accumulated*			*Non- controlling*			*Total Stockholders’*
	Shares*		Shares*		*Shares*		*Amount*		*in-Capital*		*Deficit*			*Interest*			*Equity*
Balance — January 1, 2023		3,185,000		—		5,161,374	$	29	$	232,169	$	(224,105	)	$	645		$	8,738
Restricted share units vested		—		—		22,000		—		—		—			—			-
Issuance of common stock		—		—		224,378		1		744		—			—			745
Adoption of ASC 326		—		—		—		—		—		(548	)		—			(548	)
Net loss — the Company		—		—		—		—		—		(9,657	)		—			(9,657	)
Net income — non-controlling interest		—		—		—		—		—		—			34			34
Stock-based compensation		—		—		—		—		481		—			—			481
Balance — March 31, 2023		3,185,000		—		5,407,752	$	30	$	233,394	$	(234,310	)	$	679		$	(207	)
2023 Private Placement shares, net of costs		—		280,899		—		—		1,206		—			—			1,206
Beneficial conversion feature		—		—		—		—		427		—			—			427
Issuance of common stock		—		—		118,729		—		71		—			—			71
Net loss — the Company		—		—		—		—		—		(7,409	)		—			(7,409	)
Net income — non-controlling interest		—		—		—		—		—		—			88			88
Dividends from subsidiaries		—		—		—		—		—		—			(87	)		(87	)
Stock-based compensation		—		—		—		—		369		—			—			369
Balance — June 30, 2023		3,185,000		280,899		5,526,481	$	30	$	235,467	$	(241,719	)	$	680		$	(5,542	)

	*Series A Preferred*		*Common Stock*				*Additional Paid-*		*Accumulated*			*Non- controlling*			*Total Stockholders’*
	Shares*		*Shares*		*Amount*		*in-Capital*		*Deficit*			*Interest*			*Equity*
Balance — January 1, 2022		252,717		4,265,506	$	27	$	221,321	$	(180,405	)	$	653		$	41,596
Options exercised		—		1,098		—		23		—			—			23
Net loss — the Company		—		—		—		—		(8,619	)		—			(8,619	)
Net loss — non-controlling interest		—		—		—		—		—			(17	)		(17	)
Stock-based compensation		—		—		—		443		—			—			443
Balance — March 31, 2022		252,717		4,266,604	$	27	$	221,787	$	(189,024	)	$	636		$	33,426
Net loss — the Company		—		—		—		—		(10,559	)		—			(10,559	)
Net loss — non-controlling interest		—		—		—		—		—			47			47
Issuance of common stock		—		26,667		—		48		—			—			48
Stock-based compensation		—		—		—		558		—			—			558
Dividends from subsidiaries		—		—		—		—		—			(124	)		(124	)
Balance — June 30, 2022		252,717		4,293,271	$	27	$	222,393	$	(199,583	)	$	559		$	23,396

	*Fair Value Measurements as of June 30, 2023*
	*Quoted Prices in Active Markets using Identical Assets (Level 1)*		*Significant Other Observable Inputs (Level 2)*		*Significant Unobservable Inputs (Level 3)*		*Total*
Assets
Guaranteed Investment Certificates	$	—	$	62	$	—	$	62
Total assets	$	—	$	62	$	—	$	62

	*Fair Value Measurements as of December 31, 2022*
	*Quoted Prices in Active Markets using Identical Assets (Level 1)*		*Significant Other Observable Inputs (Level 2)*		*Significant Unobservable Inputs (Level 3)*		*Total*
Assets
Guaranteed Investment Certificates	$	—	$	59	$	—	$	59
Total assets	$	—	$	59	$	—	$	59

Balance at January 1, 2022	$	11,997
Write-offs		(5,715	)
Provision		7,337
Balance at December 31, 2022	$	13,619
Write-offs		(30	)
Provision		618
Balance at March 31, 2023	$	14,207
Write-offs		(1,332	)
Provision		358
Balance at June 30, 2023	$	13,233

	*Useful Lives*		*June 30,*			*December 31,*
	*(in years)*		*2023*			*2022*
Lab equipment tooling and molds		4 – 10	$	3,576		$	4,356
Office furniture and equipment		6 – 10		1,249			1,240
Leasehold improvements		up to 10		621			794
Computers and software		3		934			906
Vehicles		5 – 7		37			37
Demo units		5		214			214
Total property and equipment				6,631			7,547
Less: Accumulated depreciation				(4,991	)		(5,690	)
Total property and equipment, net			$	1,640		$	1,857

	At June 30,
	2023			2022
Operating leases
Weighted-average remaining lease term (in years)		3.44			4.29
Weighted-average discount rate		4.00	%		4.00	%

Years ending December 31,	*Operating leases*
2023	$	780
2024		1,407
2025		1,228
2026		1,039
2027		594
Thereafter		544
Imputed Interest (1)		(355	)
Total	$	5,237

	*At June 30, 2023*
	*Gross Amount*		*Accumulated Amortization*			*Net Amount*
Customer relationships	$	1,400	$	(475	)	$	925
Brand		2,500		(1,197	)		1,303
Technology		16,900		(10,317	)		6,583
Supplier agreement		3,000		(1,614	)		1,386
Total intangible assets	$	23,800	$	(13,603	)	$	10,197

	*At December 31, 2022*
	*Gross Amount*		*Accumulated Amortization*			*Net Amount*
Customer relationships	$	1,400	$	(429	)	$	971
Brand		2,500		(1,066	)		1,434
Technology		16,900		(8,919	)		7,981
Supplier agreement		3,000		(1,467	)		1,533
Total intangible assets	$	23,800	$	(11,881	)	$	11,919

Years ending December 31,
2023	$	1,751
2024		3,473
2025		3,004
2026		656
2027		657
Thereafter		656
Total	$	10,197

Years ending December 31,	*Purchase and Service Commitments*
2023	$	15,086
2024 and Thereafter		—
Total	$	15,086

		*As of June 30, 2023*
2023	$	9,889
2024		10,239
2025		40,365
Total	$	60,493

		*As of June 30, 2023*
2023	$	1,608
2024		1,628
2025		28,217
Total	$	31,453

	*June 30, 2023*		*December 31, 2022*
Outstanding common stock warrants		1,061,930		1,061,930
Outstanding stock options and RSUs		1,019,837		875,524
Preferred shares		2,872,518		2,123,443
Shares reserved for conversion of future non-voting preferred share issuance		—		80,617
Shares reserved for conversion of future voting preferred share issuance		7,860,916		609,891
Shares reserved for future option grants and RSUs		64,292		24,999
Shares reserved for Lincoln Park		711,180		1,054,299
Shares reserved for Madryn Noteholders		558,666		547,714
Total common stock reserved for issuance		14,149,339		6,378,417

	*Number of Shares*			*Weighted- Average Exercise Price per Share, $*		*Weighted- Average Remaining Contractual Term*		*Aggregate Intrinsic Value*
Outstanding – January 1, 2023		849,600		$	25.05		8.23	$	209
Options granted		211,031			2.89		-		—
Options exercised		-			-		-		—
Options forfeited/cancelled		(43,462	)		35.07		-		—
Outstanding – June 30, 2023		1,017,169			20.05		7.92	$	—
Exercisable – June 30, 2023		276,841			48.22		5.26	$	—
Expected to vest – after June 30, 2023		740,328		$	9.51		8.91	$	—

	Options Outstanding						Options Exercisable
Exercise Price Range	Number		Weighted average remaining contractual term (years)		Weighted average Exercise Price		Options exercisable		Weighted average remaining contractual term (years)		Weighted average Exercise Price
$2.82 - $54.60		967,750		8.12	$	15.19		228,587		5.55	$	33.94
$63.90 - $119.25		46,638		3.92		99.45		45,473		3.85		99.76
$186.75 - $382.50		1,630		5.24		271.36		1,630		5.24		271.36
$405.00 - $438.75		644		1.79		405.21		644		1.79		405.21
$540.00 - $958.50		507		4.44		691.99		507		4.44		691.99
		1,017,169		7.92	$	20.05		276,841		5.26	$	48.22

	*Number of Shares*			*Weighted- Average Grant Date Fair Value per Share, $*
Outstanding – January 1, 2023		25,918		$	19.50
RSUs granted		—			—
RSUs forfeited/cancelled		(1,250	)		20.70
RSUs exercised		(22,000	)		20.70
Outstanding - June 30, 2023		2,668		$	8.70

	As of September 30,
	2017		2016
Options to purchase common stock		1,912,644		2,178,280
Convertible preferred stock		22,671,601		20,528,306
Warrants for preferred stock		385,126		385,126
Total potential dilutive shares		24,969,371		23,091,712

	Fair Value Measurements as of September 30, 2017
	Quoted Prices in Active Markets using Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets
Cash Equivalents:
Money market accounts	$	5,769	$	—	$	—	$	5,769
Restricted cash		100		—		—		100
Total assets	$	5,869	$	—	$	—	$	5,869
Liabilities
Preferred stock warrant liabilities	$	—	$	—	$	2,311	$	2,311

	Fair Value Measurements as of December 31, 2016
	Quoted Prices in Active Markets using Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets
Cash Equivalents:
Money market accounts	$	11,906	$	—	$	—	$	11,906
Restricted cash		100		—		—		100
Total assets	$	12,006	$	—	$	—	$	12,006
Liabilities
Preferred stock warrant liabilities	$	—	$	—	$	693	$	693

	Fair value measurements of warrants using significant unobservable inputs (Level 3)
Balance as of December 31, 2016	$	693
Change in fair value of preferred stock warrants		1,618
Balance as of September 30, 2017	$	2,311

Years Ending December 31,
2017 (remainder)	$	124
2018		503
2019		518
2020		534
2021		550
Thereafter		188
Total future minimum lease payments	$	2,417

	For the year ended
	December 31,
2017 (remainder)	$	2,000
2018		8,000
2019		5,299
Total		15,299
Less debt discount		(410	)
Less current portion		(7,659	)
Non-current portion	$	7,230

	September 30, 2017
	Shares		Shares		Net Carrying		Liquidation
Convertible Preferred Stock:	Authorized		Outstanding		Value		Preference
Series A		25,092,906		2,509,232	$	11,140	$	11,292
Series B		38,461,538		3,846,132		24,926		25,000
Series C		170,100,000		16,066,237		107,902		114,874
Series AA		2,500,000		250,000		1,976		2,000
Total convertible preferred stock		236,154,444		22,671,601	$	145,944	$	153,166

	December 31, 2016
	Shares		Shares		Net Carrying		Liquidation
Convertible Preferred Stock:	Authorized		Outstanding		Value		Preference
Series A		25,092,906		2,509,232	$	11,140	$	11,292
Series B		38,461,538		3,846,132		24,926		25,000
Series C		170,100,000		14,536,931		97,693		103,939
Series AA		2,500,000		250,000		1,976		2,000
Total convertible preferred stock		236,154,444		21,142,295	$	135,735	$	142,231

	Warrants Outstanding
	Warrants		Warrants
	Outstanding		Outstanding
	September 30,		December 31,		Exercise
	2017		2016		Price		Expiration
Series C preferred stock warrants		274,640		274,640	$	7.15	Various dates in 2023-2024
Series C preferred stock warrants		110,486		110,486		7.15	May 19, 2025
Total preferred stock warrants		385,126		385,126

	Nine Months Ended			Year Ended
	September 30,			December 31,
	2017			2016
Expected term (years)		1.25			2.00
Risk-free interest rate		1.35	%		1.20	%
Expected volatility		72.2	%		70.9	%

						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
	Number of			Exercise Price		Contractual		Intrinsic
	Shares			per Share		Term		Value
Outstanding — December 31, 2016		1,831,757			1.80		8.7	$	14
Options granted		133,870			1.72
Options exercised		(8,969	)		1.83
Options cancelled		(44,014	)		1.82
Outstanding — September 30, 2017		1,912,644		$	1.76		8.1	$	10,029
Vested and expected to vest — September 30, 2017		1,610,419		$	1.77		8.0	$	8,421
Exercisable — September 30, 2017		872,687		$	1.81		7.5	$	5,803

	Three Months Ended
	September 30,						Change
	2017			2016			$			%
	(dollars in thousands)
Revenue, net	$	4,177		$	3,676		$	501			14	%
Cost of revenue		2,474			2,404			70			3
Gross profit		1,703			1,272			431			34
Gross margin		41	%		35	%
Operating expenses:
Research and development		1,737			1,909			(172	)		(9	)
Sales and marketing		3,433			3,257			176			5
General and administrative		1,139			1,432			(293	)		(20	)
Total operating expenses		6,309			6,598			(289	)		(4	)
Loss from operations		(4,606	)		(5,326	)		720			(14	)
Other income (expense), net:
Interest expense		(492	)		(613	)		121			(20	)
Other income (expense), net		(1,473	)		11			(1,484	)		(13491	)
Total other income (expense)		(1,965	)		(602	)		(1,363	)		226
Net loss before provision for income taxes		(6,571	)		(5,928	)		(643	)		11
Provision for income taxes		25			—			25			—
Net loss	$	(6,596	)	$	(5,928	)	$	(668	)		11	%