Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November 7, 2019,~~May 8, 2020, the registrant had ~~29,667,622~~32,210,142 shares of common stock, $0.0001 par value per share, outstanding.

September 30,

December 31,

2019

2018

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$
8,915

$
16,122

Accounts receivable, net of allowance of $2,542 and $1,772 as of September 30, 2019 and
   December 31, 2018, respectively

3,663

6,569

Inventory

5,623

5,522

Prepaid expenses and other current assets

1,042

1,278

Total current assets

19,243

29,491

Property and equipment, net

1,323

1,299

Restricted cash

83

83

Other assets

100

100

TOTAL ASSETS

$
20,749

$
30,973

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES:

Accounts payable

$
5,226

$
3,815

Accrued compensation

1,315

1,771

Other accrued liabilities

2,629

2,337

Deferred revenue

1,346

1,407

Related party convertible promissory notes (Note 8)

7,000

—

Subordinated promissory notes (Note 8)

4,500

—

Current portion of long-term debt, net of discount of $789 and $617 as of September 30, 2019
   and December 31, 2018, respectively

5,878

49

Total current liabilities

27,894

9,379

Other long-term liabilities

497

594

Long-term debt, net of discount of $485 and $746 as of September 30, 2019 and
   December 31, 2018

14,158

19,418

TOTAL LIABILITIES

42,549

29,391

Commitments and Contingencies (Note 6)

STOCKHOLDERS’ EQUITY (DEFICIT)

Convertible preferred stock, $0.0001 par value; 10,000,000 shares authorized, and no shares issued
   and outstanding as of September 30, 2019 and December 31, 2018

—

—

Common stock, $0.0001 par value; 300,000,000 shares authorized as of September 30, 2019 and
   December 31, 2018; 2,729,801 and 2,711,801 shares issued and outstanding as of
   September 30, 2019 and December 31, 2018, respectively

4

4

Additional paid-in capital

195,914

194,841

Accumulated other comprehensive income (loss)

43

(50
)
Accumulated deficit

(217,761
)

(193,213
)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

(21,800
)

1,582

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

$
20,749

$
30,973


	March 31, 2020			December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	20,628		$	15,666
Restricted cash		83			83
Accounts receivable, net of allowance of $10,889 and $10,494 as of March 31, 2020, and December 31, 2019		55,020			58,977
Inventories		18,923			18,844
Deferred expenses		30			59
Prepaid expenses		2,552			2,523
Advances to suppliers		243			450
Other current assets		2,986			3,101
Total current assets		100,465			99,703
LONG-TERM ASSETS:
Long-term receivables		27,867			35,656
Deferred tax assets		409			622
Severance pay funds		658			710
Property and equipment, net		4,389			4,648
Intangible assets		21,470			22,338
Goodwill		—			27,450
Total long-term assets		54,793			91,424
TOTAL ASSETS	$	155,258		$	191,127
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Line of credit	$	8,212		$	7,789
Trade payables		9,208			9,401
Accrued expenses and other current liabilities		15,220			21,120
Taxes payable		1,960			2,172
Unearned interest income		3,672			3,942
Warranty accrual		1,084			1,254
Deferred revenues		1,916			2,495
Total current liabilities		41,272			48,173
LONG-TERM LIABILITIES:
Long-term debt		63,261			61,229
Accrued severance pay		848			827
Deferred tax liabilities		1,085			1,017
Unearned interest income		977			1,681
Warranty accrual		550			723
Other long-term liabilities		691			799
Total long-term liabilities		67,412			66,276
TOTAL LIABILITIES		108,684			114,449
Commitments and Contingencies (Note 8)
STOCKHOLDERS’ EQUITY (Note 1):
Series A convertible preferred stock, $0.0001 par value: 660,000 shares authorized, 660,000 shares and none issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		—			—
Common Stock, $0.0001 par value: 300,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 32,194,285 and 28,686,116 issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		24			24
Additional paid-in capital (Note 2)		170,657			149,840
Accumulated deficit		(125,876	)		(75,686	)
TOTAL STOCKHOLDERS’ EQUITY		44,805			74,178
Non-controlling interests		1,769			2,500
		46,574			76,678
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	155,258		$	191,127

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

	Three Months Ended March 31
	2020			2019
Revenue
Leases	$	6,813		$	15,742
Products and services		7,695			8,838
		14,508			24,580
Cost of goods sold
Leases		1,452			3,479
Products and services		3,776			3,036
		5,228			6,515
Gross profit		9,280			18,065
Operating expenses:
Selling and marketing		8,611			9,532
General and administrative		14,176			8,340
Research and development		2,624			2,061
Goodwill impairment		27,450			—
Total operating expenses		52,861			19,933
Loss from operations		(43,581	)		(1,868	)
Other expenses:
Foreign exchange loss		4,279			697
Finance expenses		2,254			1,654
Loss before income taxes		(50,114	)		(4,219	)
Income tax expense		589			886
Net loss		(50,703	)		(5,105	)
Loss attributable to stockholders of the Company		(50,190	)		(5,273	)
(Loss) income attributable to non-controlling interest		(513	)		168
		(50,703	)		(5,105	)

Net loss per share:
Basic	$	(1.68	)	$	(1.10	)
Diluted	$	(1.68	)	$	(1.10	)
Weighted-average number of shares used in per share calculation:
Basic		29,812			4,776
Diluted		29,812			4,776

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Revenue

$
3,307

$
4,818

$
11,632

$
15,298

Cost of revenue

2,297

2,663

6,465

8,362

Gross profit

1,010

2,155

5,167

6,936

Operating expenses:

Sales and marketing

3,952

4,398

12,688

13,147

Research and development

1,604

2,008

4,573

6,286

General and administrative

2,155

2,191

5,721

6,159

Merger related expenses

1,521

—

4,079

—

Total operating expenses

9,232

8,597

27,061

25,592

Loss from operations

(8,222
)

(6,442
)

(21,894
)

(18,656
)
Other expense, net:

Interest expense

(930
)

(631
)

(2,512
)

(1,489
)
Other income (expense), net

(55
)

12

(109
)

(567
)
Total other expense, net

(985
)

(619
)

(2,621
)

(2,056
)
Net loss before provision for income taxes

(9,207
)

(7,061
)

(24,515
)

(20,712
)
Provision for income taxes

9

8

33

32

Net loss attributable to common stockholders

$
(9,216
)

$
(7,069
)

$
(24,548
)

$
(20,744
)
Net loss per share attributable to common stockholders, basic and diluted

$
(3.38
)

$
(3.03
)

$
(9.02
)

$
(10.02
)
Weighted-average shares used in computing net loss per share attributable
to common stockholders, basic and diluted

2,728,888

2,333,820

2,722,922

2,070,322

	Three Months Ended March 31
	2020			2019
Net loss and comprehensive loss	$	(50,703	)	$	(5,105	)
Loss attributable to stockholders of the Company		(50,190	)		(5,273	)
Comprehensive (loss) income attributable to non-controlling interest		(513	)		168
Comprehensive loss	$	(50,703	)	$	(5,105	)

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

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

Common Stock

Additional
Paid-in

Accumulated
Other
Comprehensive

Accumulated

Total
Stockholders’
Equity

Shares

Amount

Capital

Income (Loss)

Deficit

(Deficit)

Balance — June 30, 2019

2,723,801

$
4

$
195,559

$
—

$
(208,545
)

$
(12,982
)
Release of restricted stock awards

6,000

—

—

—

—

—

Stock-based compensation

—

—

355

—

—

355

Other comprehensive gain

—

—

—

43

—

43

Net loss

—

—

—

—

(9,216
)

(9,216
)
Balance — September 30, 2019

2,729,801

$
4

$
195,914

$
43

$
(217,761
)

$
(21,800
)

Common Stock

Additional
Paid-in

Accumulated
Other
Comprehensive

Accumulated

Total
Stockholders’
Equity

Shares

Amount

Capital

Income (Loss)

Deficit

(Deficit)

Balance — December 31, 2018

2,711,801

$
4

$
194,841

$
(50
)

$
(193,213
)

$
1,582

Release of restricted stock awards

18,000

—

—

—

—

—

Stock-based compensation

—

—

1,073

—

—

1,073

Other comprehensive gain

—

—

—

93

—

93

Net loss

—

—

—

—

(24,548
)

(24,548
)
Balance — September 30, 2019

2,729,801

$
4

$
195,914

$
43

$
(217,761
)

$
(21,800
)

Common Stock

Additional
Paid-in

Accumulated
Other
Comprehensive

Accumulated

Total
Stockholders’
Equity

Shares

Amount

Capital

Income (Loss)

Deficit

(Deficit)

Balance — June 30, 2018

1,942,513

$
3

$
178,799

$
(37
)

$
(178,162
)

$
603

Issuance of common stock pursuant to stock
   options exercises of vested options

2,554

—

6

—

—

6

Stock-based compensation

—

—

167

—

—

167

Issuance of common stock in connection with
   our follow-on offering, net of underwriters'
   commission and offering costs of $1,635

766,667

1

15,614

—

—

15,615

Other comprehensive loss

—

—

—

(9
)

—

(9
)
Net loss

—

—

—

—

(7,069
)

(7,069
)
Balance — September 30, 2018

2,711,734

$
4

$
194,586

$
(46
)

$
(185,231
)

$
9,313

Common Stock

Additional
Paid-in

Accumulated
Other
Comprehensive

Accumulated

Total
Stockholders’
Equity

Shares

Amount

Capital

Income (Loss)

Deficit

(Deficit)

Balance — December 31, 2017

1,929,352

$
3

$
177,757

$
(79
)

$
(164,487
)

$
13,194

Issuance of common stock pursuant to stock
   options exercises of vested options

15,715

—

392

—

—

392

Stock-based compensation

—

—

419

—

—

419

Issuance of common stock warrants pursuant to
   debt financing

—

—

404

—

—

404

Issuance of common stock in connection with
   our follow-on offering, net of underwriters'
   commission and offering costs of $1,635

766,667

1

15,614

—

—

15,615

Other comprehensive gain

—

—

—

33

—

33

Net loss

—

—

—

—

(20,744
)

(20,744
)
Balance — September 30, 2018

2,711,734

$
4

$
194,586

$
(46
)

$
(185,231
)

$
9,313

	Preferred Stock Series A				Common Stock				Additional 'Paid-		Accumulated			Non- controlling			Total Stockholders’
	Shares		Amount		Shares		Amount		in-Capital		Deficit			Interest			Equity
Balance — January 1, 2020		—	$	-		28,686,116	$	24	$	149,840	$	(75,686	)	$	2,500		$	76,678
Issuance of common stock		—		—		1,208,169		—		—		—			—			—
2020 Private Placement shares, net of costs		660,000		—		2,300,000		—		12,115		—			—			12,115
2020 Private Placement Warrants, net of costs		—		—		—		—		4,621		—			—			4,621
Beneficial conversion feature		—		—		—		—		3,564		—			—			3,564
Dividends from subsidiaries		—		—		—		—		—		—			(218	)		(218	)
Net loss - the Company		—		—		—		—		—		(50,190	)		—			(50,190	)
Net loss - non-controlling interest		—		—		—		—		—		—			(513	)		(513	)
Stock-based compensation		—		—		—		—		517		—			—			517
Balance — March 31, 2020		660,000	$	-		32,194,285	$	24	$	170,657	$	(125,876	)	$	1,769		$	46,574

	Series A		Series B		Series C		Series C- 1		Series D		Common Stock				Additional 'Paid-		Accumulated			Non- controlling		Total Stockholders’
	Preferred Shares		Preferred Shares		Preferred Shares		Preferred Shares		Preferred Shares		Shares		Amount		in-Capital		Deficit			Interest		Equity
Balance — January 1, 2019 (as restated, Note 2)		1,264,565		2,632,109		4,615,567		56,983		647,189		4,772,956	$	5	$	67,495	$	(35,067	)	$	4,022	$	36,455
Equity issuance		—		—		—		—		—		—		—		—		—			—		—
Net loss - the Company		—		—		—		—		—		—		—		—		(5,273	)		—		(5,273	)
Net income - non-controlling interest		—		—		—		—		—		—		—		—		—			168		168
Acquisition of non-controlling interest		—		—		—		—		—		—		—		—		—			—		—
Options exercised		—		—		—		—		—		3,506		—		7		—			—		7
Stock-based compensation		—		—		—		—		—		—		—		375		—			—		375
Balance — March 31, 2019 (as restated, Note 2)		1,264,565		2,632,109		4,615,567		56,983		647,189		4,776,462	$	5	$	67,877	$	(40,340	)	$	4,190	$	31,732

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

Nine Months Ended

September 30,

2019

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$
(24,548
)

$
(20,744
)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

524

539

Amortization of debt discounts and issuance costs

586

318

Non-cash loss on extinguishment of debt

—

178

Stock-based compensation

1,073

419

Provision for bad debt

812

839

Loss on disposal of property and equipment

—

41

Changes in operating assets and liabilities:

Accounts receivable

2,094

(3,417
)
Inventory

(321
)

(1,686
)
Prepaid expenses and other assets

234

(40
)
Accounts payable

1,437

1,956

Accrued and other liabilities

(262
)

253

Deferred revenue

(59
)

118

Net cash used in operating activities

(18,430
)

(21,226
)
CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(353
)

(1,051
)
Net cash used in investing activities

(353
)

(1,051
)
CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from related party convertible promissory notes, net

6,983

—

Proceeds from subordinated promissory notes

4,500

Proceeds from exercised stock options

—

392

Proceeds from follow-on offering, net

—

15,615

Proceeds from long-term debt, net

—

19,584

Principal payments on long-term debt

—

(13,300
)
Net cash provided by financing activities

11,483

22,291

Effect of exchange rate changes on cash, cash equivalents and restricted cash

93

33

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

(7,207
)

47

CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period

16,205

23,645

CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period

$
8,998

$
23,692

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Interest paid during the period

$
1,653

$
1,240

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:

Purchase of property and equipment included in accounts payable

$
—

$
4

Discounts and issuance costs in connection with long-term debt

$
—

$
1,246

Issuance of warrants in connection with long-term debt

$
—

$
404

Transfer of equipment from inventory to property and equipment

$
220

$
—

Discounts in connection with amendment of long-term debt

$
480

$
—

	Three Months Ended March 31
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(50,703	)	$	(5,105	)
Adjustments to reconcile net loss to net cash used in operating activities:
Goodwill impairment		27,450			—
Depreciation and amortization		1,245			325
Stock-based compensation		517			375
Provision for bad debt		1,547			561
Provision for inventory obsolescence		324			223
Finance expenses		2,032			218
Deferred tax expense		281			414
Change in fair value of earn-out liability		179			411
Loss on disposal of property and equipment		29			—
Changes in operating assets and liabilities:
Accounts receivable short- and long-term		10,194			(5,961	)
Inventories		(522	)		165
Prepaid expenses		(29	)		32
Other current assets		381			114
Other long-term assets		5			(49	)
Trade payables		(193	)		(1,105	)
Accrued expenses and other current liabilities		(6,960	)		1,389
Severance pay funds		52			(24	)
Unearned interest income		(973	)		(108	)
Other long-term liabilities		(261	)		(410	)
Net cash used in operating activities		(15,405	)		(8,535	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment		—			148
Purchases of property and equipment		(61	)		(393	)
Net cash used in investing activities		(61	)		(245	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt, net of financing fees		—			9,636
Drawdown of line-of-credit		423			1,023
Proceeds from 2020 Private Placement, net of costs of $1,950		20,300			—
Dividends from subsidiaries paid to non-controlling interest		(218	)		—
Payment of earn-out liability		(77	)		(90	)
Installment payments		—			(250	)
Proceeds from exercise of options		—			7
Net cash provided by financing activities		20,428			10,326
NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		4,962			1,546
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period		15,749			6,758
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	20,711		$	8,304
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	329		$	1,087
Cash paid for interest	$	104		$	6,166

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

(in thousands, ~~except~~ ~~for~~ ~~shares, per share data and percentages)~~unless otherwise noted)

Venus Concept Inc. ~~formerly “Restoration~~(formerly Restoration Robotics, Inc.”) is a global medical ~~device~~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 a cost-effective, proprietary and flexible platform that enables 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) and implantation functionality for use in the field of hair transplantation and markets the ARTAS^® ~~Robotic System in the United States and certain other countries.~~2002. In these notes to the ~~unaudited~~ condensed consolidated financial statements, the “Company” ~~and “Restoration Robotics”~~, “Venus Concept,” refers to ~~Restoration Robotics,~~Venus Concept Inc. and its subsidiaries on a consolidated ~~basis prior to the consummation of the Merger (as defined below).~~basis.

~~On March 15, 2019, the Company entered into the Merger Agreement (the Merger Agreement) with~~ ~~Radiant Merger Sub Ltd., a company organized under the laws of Israel and a directly, wholly-owned subsidiary of the Company (Merger Sub),~~ and Venus Concept Ltd., a company organized under the laws of Israel (Venus) to combine the companies in an all-stock transaction (the Merger). The Merger Agreement and the Merger have been approved by the Company’s board of directors and the board of directors of Venus.Going Concern

The Merger Agreement provides that, upon the terms and subject to the satisfaction or waiver of the conditions set forth therein, Merger Sub will be merged with and into Venus, with Venus continuing as the surviving corporation and a direct wholly-owned subsidiary of the Company.

At the effective time of the Merger, each outstanding ordinary and preferred share of Venus, nominal value of New Israeli Shekels 0.001, other than shares held by Venus as treasury stock or held by the Company or Merger Sub, will be converted into the right to receive 8.6506 (“Exchange Ratio”) validly issued, fully paid and non-assessable shares of Common Stock (“Company Share”), and (ii) each outstanding Venus stock option and warrant will be assumed by the Company and converted into and become an option or warrant (as applicable) exercisable for Company Shares with the number and exercise price adjusted by the Exchange Ratio.

On August 14, 2019, the Company, Radiant Merger Sub Ltd. and Venus entered into the First Amendment to the Merger Agreement (the “Merger Agreement Amendment”). The Merger Agreement Amendment, among other things, adds as a condition to closing the Merger the satisfaction of the following: (i) Venus must have raised cash proceeds in one or more issuances of common equity interests or convertible bond indebtedness of Venus or the Company, in an aggregate amount of at least $20,000 (exclusive of any investment by Madryn Health Partners, LP (Venus’ lender) not later than the close of business on the closing date of the Merger and (ii) Venus and the other loan parties to the credit agreement by and among Venus, such parties and the Madryn entities, must have unrestricted cash of at least $20,000 immediately after giving effect to the transactions contemplated by the Merger Agreement.

Under the terms of the transaction, the Company and Venus shareholders will own approximately 15% and 85% of the combined company, respectively, on a fully diluted basis, without giving effect to the shares issued in the proposed equity commitment letter dated March 15, 2019, that is expected to close immediately after the merger (the Equity Commitment Letter). EW Healthcare Partners has committed to lead a $21,000 equity investment, priced at $0.4664 per share (subject to adjustment for stock splits), in the combined company’s common stock contingent on the closing of the Merger. Additional investors committed to participating in the proposed equity financing include HealthQuest Capital, Madryn Asset Management, Longitude Capital Management, Fred Moll and Aperture Venture Partners. On August 14, 2019, the Company, Venus and the investors party to the Equity Commitment Letter entered into the first amendment to the Equity Commitment Letter (the “Equity Commitment Letter Amendment”). Pursuant to the Equity Commitment Letter Amendment, the investors agreed to amend the Equity Commitment Letter to “pull forward” their maximum committed amounts such that the $21,000 committed under the Equity Commitment Letter would be invested on or prior to August 30, 2019 in Venus convertible promissory notes which will be convertible into shares of the Company’s common stock immediately following the consummation of the Merger. On August 14, 2019, the equity commitment letter investors purchased an aggregate of $6,950 in Convertible Notes and on August 21, 2019, certain of the remaining Equity Commitment Letter investors purchased an additional $14,050 of Convertible Notes.

In addition to the Equity Commitment Letter, Fred Moll and InterWest Partners previously funded a $5,000 convertible note to the Company, which will convert into the combined company’s common stock upon consummation of the merger at a price of $0.4664 ~~per share (subject to adjustment for stock splits).~~On August 20, 2019, the Company entered into a note purchase agreement pursuant to which the Company raised $2,000 through the issuance of an unsecured subordinated convertible promissory note to Frederic Moll, M.D. as discussed in ~~Note 8~~ ~~to the condensed consolidated financial statements.~~

~~Issuance of Convertible Promissory Notes by Venus and Issuance of Subordinated Promissory Note by Restoration Robotics~~

On June 25, 2019, the Company entered into a Note Purchase Agreement (the Note Purchase Agreement) with Venus and certain investors named therein pursuant to which Venus sold $7,800 aggregate principal amount of unsecured senior subordinated convertible promissory notes (the Convertible Notes) to such investors (the Convertible Note Financing). The Convertible Notes bear interest on the unpaid principal amount at a rate of eight percent (8.0%) per annum from the date of issuance. Effective upon the closing of the Merger, all of the outstanding principal and unpaid accrued interest on the Convertible Notes will automatically be converted, in whole, into the number of shares of common stock, par value $0.0001 per share, of the Company at a conversion price of $0.4664 per share.

On August 14, 2019, pursuant to that certain Note Purchase Agreement, dated as of June 25, 2019, with Venus and certain investors named therein pursuant to which Venus sold an additional $7,200 aggregate principal amount of Convertible Notes to such investors. The Convertible Notes contain the same terms as the $7,800 aggregate principal amount of Convertible Notes that were sold pursuant to the Note Purchase Agreement on June 25, 2019 and bear interest on the unpaid principal amount at a rate of eight percent (8.0%) per annum from the date of issuance. The Company’s stockholders approved a proposal that effective upon the closing of the Merger, all of the outstanding principal and unpaid accrued interest on the Convertible Notes will automatically be converted, in whole, into the number of shares of common stock, par value $0.0001 per share, of the Company at a conversion price of $0.4664 per share, subject to adjustment as provided in the Convertible Notes.

In connection with the Convertible Note Financing, on June 25, 2019, the Company entered into a $2,500 Unsecured Subordinated Promissory Note, which funded on July 5, 2019, with Venus Concept USA Inc., a wholly owned subsidiary of Venus. On August 14, 2019, the Company entered into another $2,500 Unsecured Subordinated Promissory Note funded in three tranches A and B of $1,000 each and tranche C of $500 with Venus Concept USA Inc., a wholly owned subsidiary of Venus, collectively (the Subordinated Notes). Tranches A and B were funded on August 27, 2019 and September 25, 2019, respectively, for a total of $2,000. The maturity date of the Subordinated Notes is November 30, 2019. The Subordinated Notes bear interest on the unpaid principal amount at a rate of eight percent (8%) per annum from the date of issuance, provided that upon any event of default pursuant to the Subordinated Notes, the Subordinated Notes shall bear interest payable on demand at a rate that is 4% per annum in excess of the rate of interest otherwise payable thereunder. The Subordinated Notes are unsecured and subordinate in priority to the Company’s existing obligations to Solar Capital, Ltd. under its amended loan and security agreement.

~~The Company (formerly named Restoration Robotics, Inc.), completed its business combination with Venus, in accordance with the terms of the Merger Agreement.~~

Immediately following the effective time of the Merger, the Company effected a 15-for-1 reverse stock split of the common stock (“Reverse Stock Split”) and the Company changed its corporate name from “Restoration Robotics, Inc.” to “Venus Concept Inc.”, (“Name Change”) and the business conducted by Venus became the primary business conducted by the Company. Venus is an innovative global medical technology company that develops, commercializes and delivers minimally invasive and non-invasive medical aesthetic technologies and related practice enhancement services. The Merger, the Reverse Stock Split and the Name Change were approved by the Company’s stockholders at an annual meeting of its stockholders held on October 4, 2019. A Form 8-K disclosing the full voting results was filed with the Securities and Exchange Commission (SEC) on October 7, 2019. The transaction closed on November 7, 2019.

~~This Quarterly Report on Form 10-Q includes only the accounts of Restoration Robotics, Inc. prior to the Merger with Venus Concept Inc. on November 7, 2019.~~

~~These~~accompanying 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 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 30, 2019,~~March 31, 2020 and December 31, ~~2018,~~2019, the Company ~~has~~had an accumulated deficit of ~~$217,761~~$125,876 and ~~$193,213~~$75,686, respectively. Further, the Company was not in compliance with certain financial covenants contained in its credit agreements with City National Bank of Florida and Madryn Health Partners, L.P. in the nine months ended September 30, 2019. The Company was in compliance with all required covenants as of March 31, 2020 and as of ~~such dates, and through the date of this filing, does not have sufficient capital to fund its planned operations. Because of the~~December 31, 2019. 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, 2018 that such factors raise substantial doubt about the Company’s ability to continue as a going ~~concern. To~~concern within 12 months from the date that the condensed consolidated financial statements are issued. In addition, the coronavirus pandemic (“COVID-19” or “pandemic”) has had a significant negative impact on the Company’s condensed consolidated financial statements as of March 31, 2020 and for the three months then ended, and management expects it to have future negative impact the extent of which is uncertain and largely subject to whether the severity worsens, or duration lengthens. In the event that the COVID-19 pandemic and the economic disruptions it has caused continue for an extended period of time, the Company cannot assure that it will remain in compliance with the financial covenants in 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. In March 2020 the Company completed the 2020 Private Placement which raised net proceeds of $20,300, as described below. 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~~outflows from operating activities.

Given the COVID-19 pandemic, 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 ~~never become profitable and even if it does attain profitable operations, it may not be able~~need additional capital to ~~sustain profitability or positive cash flows on a recurring basis.~~

~~The Company will need to raise further 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.

The accompanying 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, and, as such, the These condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded ~~asset~~assets amounts or amounts and classification of liabilities that might result from the uncertainty. Such adjustments could be ~~necessary should~~material.

On November 7, 2019, the Company (formerly Restoration Robotics, Inc.), completed its business combination with Venus Concept Ltd., in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of March 15, 2019, as amended from time to ~~continue~~time (the “Merger Agreement”), by and among the Company, Venus Concept Ltd. and Radiant Merger Sub Ltd., a company organized under the laws of Israel and a direct, wholly-owned subsidiary of the Company (“Merger Sub”). Under the Merger Agreement, Merger Sub merged with and into Venus Concept Ltd., with Venus Concept Ltd. surviving as a wholly owned subsidiary of the Company (the “Merger”). Following the completion of the Merger, the Company changed its corporate name to Venus Concept Inc., and the business conducted by Venus Concept Ltd. became the primary business conducted by the Company.

At the effective time of the Merger, each outstanding ordinary and preferred share of Venus Concept Ltd., other than shares held by Venus Concept Ltd. as treasury stock or held by the Company or Merger Sub, were converted into the right to receive 8.6506, or Exchange Ratio, validly issued, fully paid and non-assessable shares of common stock, and each outstanding stock option and warrant issued and outstanding by Venus Concept Ltd. was assumed by Restoration Robotics, Inc. and converted into and became an option or warrant (as applicable) exercisable for shares of common stock with the number and exercise price adjusted by the Exchange Ratio.

The Merger was accounted for as a reverse acquisition with Venus Concept Ltd. as the acquiring company for accounting purposes, and Restoration Robotics, Inc. as the legal acquirer. As a result, upon consummation of the Merger, the historical financial statements of Venus Concept Ltd. became the historical financial statements of Venus Concept Inc.

On March 18, 2020, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain investors (collectively, the “Investors”) pursuant to which the Company issued and sold to the Investors an aggregate of 2,300,000 shares of common stock, par value $0.0001 per share, 660,000 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), which are convertible into 6,600,000 shares of common stock, and warrants (“the “2020 Private Placement Warrants”) to purchase up to 6,675,000 shares of common stock with an exercise price of $3.50 per share (the “2020 Private Placement”). The 2020 Private Placement Warrants have a five-year term and are exercisable beginning 181 days after their issue date. The Series A Preferred Stock will automatically convert into shares of common stock upon receipt of stockholder approval. The Series A Preferred Stock has no voting rights other than as required by law. The 2020 Private Placement was completed on March 19, 2020. The gross proceeds from the securities sold in ~~existence.~~the 2020 Private Placement was $22,250. The costs incurred with respect to the 2020 Private Placement totaled $1,950 and were recorded in the condensed consolidated statements of stockholders’ equity. The accounting effects of the 2020 Private Placement transaction are discussed in Note 12.

The condensed consolidated balance sheets as of September 30, 2019, the condensed consolidated statements of operations and condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2019 and 2018, the condensed consolidated statements of cash flows for the nine months ended September 30, 2019 and 2018 and the condensed consolidated statements of stockholders’ equity (deficit) for the three and nine months ended September 30, 2019 and 2018 are unaudited.

The accompanying unaudited condensed consolidated financial statements of Venus Concept Inc. have been prepared in accordance with accounting principles generally accepted ~~accounting principles~~ in the United States ~~(U.S. GAAP)~~(“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. When used in this report, the term "the Company" means Venus Concept Inc. and its subsidiaries. In the opinion of management, ~~reflect~~ all adjustments (consisting only of a normal ~~and~~ recurring ~~nature that are~~adjustments) considered necessary for ~~the~~ fair presentation of the Company’s condensed consolidated 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-month periods are also unaudited. The condensed consolidatedhave been included. Operating results ~~of operations~~ for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 are not necessarily indicative of the results tothat may be expected for the year ending December 31, ~~2019, or for any other future annual or interim period. The consolidated balance sheet as of December 31, 2018 included herein was derived from~~2020. For further information, refer to the ~~audited~~ consolidated financial statements asand footnotes thereto included in Item 8 of ~~that date. These condensed consolidated financial statements should be read in conjunction with~~ the Company’s ~~audited consolidated financial statements included in its~~most recent Annual Report ~~filed~~ on Form ~~10-K for the year ended December 31, 2018, with the SEC on March 20, 2019, as amended.~~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 organized in the United States, United Kingdom, Spain, Hong Kong and South Korea prior to the merger with Venus Concept Inc.~~ 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~~these unaudited condensed consolidated financial statements in ~~conformity~~accordance with U.S. 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 ~~revenue~~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 and ~~assumptions made in~~ the ~~accompanying condensed consolidated financial~~unknown future impacts of ~~statements~~COVID-19 ~~include,~~as of March 31, 2020 and through the date of this report filing. The accounting matters assessed included, but ~~are~~were not limited to, ~~revenue recognition,~~the allowance for doubtful accounts ~~inventory valuation, stock-based compensation, warranty accrual~~ and the ~~recoverability~~carrying value of goodwill, intangible and long-lived assets. Based on the assessment performed, the Company recorded an additional allowance for doubtful accounts of $550 (Note 5) and goodwill impairment of $27,450 (Note 7) as of March 31, 2020 and for the three months then ended.

Amounts reported in thousands within this report are computed based on the amounts in dollars. As a result, the sum of the ~~Company’s net deferred tax assets~~components reported in thousands may not equal the total amount reported in thousands due to rounding. Certain columns and related valuation allowance. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differrows within tables may not add due to the use of rounded numbers. Percentages presented are calculated from ~~those estimates.~~the underlying numbers in dollars.

Venus Concept Ltd. previously classified the issuance of common stock and ~~Restricted Cash~~

~~The Company considers all highly liquid investments~~preferred stock as a credit to common stock. In accordance with ~~an original maturity~~U.S. GAAP, amounts issued in excess of ~~three months or less from the date of purchase~~par value are required to be accounted for in additional paid in capital (APIC). The error is a reclassification from common stock into APIC and has an overall immaterial impact on the consolidated statement of stockholders’ equity and consolidated balance sheet. Items previously reported have been reclassified to conform to U.S. GAAP and the reclassification did not have any impact on the Company’s consolidated statements of operations, consolidated statements of comprehensive loss, consolidated statements of cash ~~equivalents. Cash~~flows and cash equivalents consist primarily of funds invested in readily available checking and savings accounts, investments in money market funds and short-term time deposits. The Company’s restricted cash is held in a separate money market account as collateral for credit cards.net loss per share calculations.

The following table ~~provides a reconciliation~~summarizes the impact of ~~cash, cash equivalents, and restricted cash~~the restatement adjustments on Venus Concept Ltd.’s previously reported ~~within~~condensed consolidated financial statements:

The accounting policies the ~~balance sheets that sum~~Company follows are set forth in the Company’s audited consolidated financial statements for fiscal year 2019. For further information, refer to the ~~total of the same amounts shown~~consolidated financial statements and footnotes thereto included in ~~the condensed consolidated statements of cash flows.~~

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) 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 for purposes of making operating decisions, allocating resources, and evaluating financial performance. The Company does not assess the performance of individual product line on measures of profit or loss, or asset-based metrics.

~~For the three and nine months ended September 30, 2019, one and no customers accounted for more than 10%~~Item 8 of the Company’s ~~revenue, respectively. For the three and nine months ended September 30, 2018,~~most recent Annual Report on Form 10-K. There have been no customers accounted for more than 10% of the Company’s revenue. As of September 30, 2019, one customer accounted for 14% of the Company’s total accounts receivable. As of December 31, 2018, no customers accounted for more than 10% of the Company’s total accounts receivable.material changes to these accounting policies.

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, ~~(the~~or the JOBS ~~Act).~~Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued ~~after~~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.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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,Risks and ASU No. 2016-20, (collectively, ASU 2014-09). ASU 2014-09 establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers in an amount that reflects the expected consideration received in exchange for those goods or services and provides guidance on the recognition of costs related to obtaining and fulfilling customer contracts. ASU 2014-09 is required to be adopted, using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures. Uncertainties

The Company ~~adopted~~has considered the ~~new revenue standard~~impact of the novel coronavirus (COVID-19) on ~~January 1, 2019, using the modified retrospective transition method applied to those contracts which were not completed as of that date.~~ ~~See Note 3.~~ ~~Revenue, to the unaudited~~its condensed consolidated financial ~~statements included in this Quarterly Report on Form 10-Q for additional details.~~

~~In June 2018, the FASB issued ASU No. 2018-7,~~ ~~Compensation – Stock Compensation (Topic 718)— Improvements to Nonemployee Share-Based Payment Accounting~~. This guidance supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. The amendments should be applied onstatements. COVID-19 has had a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company adopted this standard on January 1, 2019 using the modified retrospective adoption method. The adoption of this standard did not have a materialsignificant negative impact on the Company’s condensed consolidated financial statements as of March 31, 2020 and for the three months then ended, and management expects it to have a future negative impact to the extent of which is uncertain and largely subject to whether the severity worsens, or duration lengthens. These impacts could include but may not be limited to risks and uncertainty related ~~disclosures~~to ability of the Company’s sales and ~~no cumulative-effect adjustment was recorded~~marketing personnel and distributors to ~~accumulated deficit at January 1, 2019.~~access the Company’s customer base, disruptions to its global supply chain, reduced demand and/or suspension of operations by the Company’s subscription customers which could impact their ability to make monthly payments, or deferral of aesthetic or hair restoration procedures which would impact the Company’s revenues. Consequently, these may negatively impact the Company’s results of operations, cash flows and its overall financial condition. In addition, the impact of COVID-19 may subject the Company to future risk of material intangible and long-lived assets impairments, increased reserves for uncollectible accounts, and adjustments for inventory and market volatility for items subject to fair value measurements.

In ~~February 2016,~~March 2020, the FASB issued ~~ASU No. 2016‑02,~~ Accounting Standards Update (“ASU”) 2020-04 - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASC Topic 848). This authoritative guidance provides optional relief for companies preparing for the discontinuation of interest rates such as LIBOR, which is expected to be phased out at the end of calendar 2021, and applies to lease contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that have LIBOR as the benchmark rate. This guidance can be applied for a limited time, as of the beginning of the interim period that includes March 12, 2020 or any date thereafter, through December 31, 2022. The guidance will no longer be available to apply after December 31, 2022. The Company is currently assessing the impact of applying this guidance as well as when to adopt this guidance.

In February 2020, the FASB issued authoritative guidance (ASU 2020-02 – Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842)~~, or ASU 2016‑02, as amended by ASU 2019-01 issued~~) that amends and clarifies Topic 326 and Topic 842. For Topic 326, the codification was updated to include the Securities and Exchange Commission staff interpretations associated with registrants engaged in March 2019, (collectively, 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 standardlending activities. ASC Topic 326 is effective for annual ~~reporting~~ periods beginning after ~~December 15, 2018,~~January 1, 2023, including interim periods within that reporting period. As an Emerging Growth Company, this standard is effective for the Company in annual reporting periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. Early adoption is permitted.those fiscal years. The Company is currently evaluating the ~~standard and~~impact of applying this guidance on its ~~impact on the condensed consolidated~~ financial ~~statements. However, the Company does expect a material change in its consolidated assets and liabilities upon adoption of this standard.~~instruments, such as accounts receivable.

In ~~May 2014,~~December 2019, the FASB issued ASU ~~2014-09,~~ ~~Revenue~~2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, an authoritative guidance that simplifies the accounting for income taxes by removing certain exceptions and making simplifications in other areas. It is effective from ~~Contracts~~the first quarter of fiscal year 2022, with ~~Customers~~ (~~Topic 606).~~ ~~Topic 606 supersedes~~early adoption permitted in any interim period. If adopted early, the ~~revenue recognition requirements~~Company must adopt all the amendments in ~~Topic 605~~ ~~Revenue Recognition~~ ~~(Topic 605) and requires entities~~the same period. The amendments have differing adoption methods including retrospectively, prospectively and/or modified retrospective basis through a cumulative-effect adjustment to ~~recognize revenue when control~~retained earnings as of the ~~promised goods or services is transferred to customers at an amount that reflects~~beginning of the ~~consideration to which~~fiscal year of adoption, depending on the entity expects to be entitled in exchange for those goods or services. The FASB has issued several amendments to the standard, including clarifications on disclosure of prior-period performance obligations and remaining performance obligations.

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method).specific change. The Company adopted the standard effective January 1, 2019 using the modified retrospective method. This approach was applied to all contracts that were not completed as of January 1, 2019. The adoption of Topic 606 did not have a material impact on the Company’s historical net losses and, therefore, no adjustment was made to the opening balance of accumulated deficit at January 1, 2019. Therefore, the comparative 2018 period has not been adjusted and continues to be reported under Topic 605.

~~Topic 606’s core principle~~ is that a reporting entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying this new guidance to contracts within its scope, an entity will:

~~In accordance with Topic 606, the disclosure of~~currently evaluating the impact of applying this guidance and believes that it has transactions that may fall under the ~~change in accounting principle to the unaudited condensed consolidated statements of operations and balance sheet was as follows:~~scope.

The Company generates revenue primarily through the sale and delivery of promised goods and services, which consists of the sale of ARTAS® and ARTAS® iX Systems, training on the systems, extended service contracts, consumables and marketing services. Revenue is recognized when control is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the goods or services. Sales prices are documented in the executed sales contract or purchase order prior to the transfer of control to the customer. Customers may enter into a separate extended service agreement (referred to as ARTAS Care) to purchase an extended warranty for products from the Company whereby the payment is due at the inception of the agreement or in monthly installment payments. Revenue for ARTAS Care is recognized ratably over the term of the agreement.

~~The Company also utilizes distributors to sell ARTAS~~^® ~~and ARTAS~~^® ~~iX Systems and related consumables in certain markets outside of the United~~ ~~States~~. The Company recognizes revenue when control of the goods or services is transferred to the distributors. Standard terms for all agreements with either end customers or distributors do not allow for right of return, refunds, payment contingent on obtaining financing or other terms that could impact the customer’s payment obligation. Payment terms for U.S. customers are generally at shipment, delivery, or within 30 days of shipment, while payment terms for customers outside of the U.S. vary between 30 and 180 days after shipment.

~~Performance Obligations, Determination and Allocation of Transaction Price and Method of Recognition~~

The Company's system sale arrangements generally contain multiple products and services. For these bundled sale arrangements, the Company accounts for individual products and services as separate performance obligations. These performance obligations include: ARTAS® or ARTAS® iX System, including related accessories and software license (considered as one performance obligation), product training, consumables (consisting of harvest or site making/implantation kits), extended service contracts and marketing services. All ARTAS® and ARTAS® iX Systems include an assurance-type standard warranty, generally for a 12-month period. ARTAS Care (extended warranty service contract) will commence at the expiration of the standard warranty period. For multiple performance obligations arrangements, the Company allocates revenue to each performance obligation based on its relative stand-alone selling price for each performance obligation, which is based on observable prices.

ARTAS® and ARTAS® iX Systems and consumables are performance obligations that are satisfied at a point in time (upon shipment), whereas ARTAS Care, product training, and marketing services are performance obligations that are satisfied over time (e.g. straight line over the performance period or as training and marketing services are performed).

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period as follows (in thousands):

Shipping and freight costs are treated as fulfillment costs. For shipments to end-customers, the customer bears the shipping and freight costs and has control of the product upon shipment. For shipments to distributors, the distributor bears the shipping and freight costs, including insurance, tariffs and other import/export costs. Additionally, sale taxes are excluded from revenue.

In connection with the Company’s adoption of Topic 606, the Company elected to use the following practical expedients (i) not to adjust the promised amount of consideration for the effects of a significant financing component when the Company expects, at contract inception, that the period between the Company's transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less; (ii) to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less; and (iii) not to recast revenue for contracts that begin and end in the same fiscal year.

Sales commissions and related expenses are considered incremental and recoverable costs of acquiring customer contracts. Except for sales commissions that would have been amortized in one year or less, which we have elected the practical expedient discussed above, certain sales commissions related to ARTAS Care and consumables that are sold bundled with the ARTAS^® ~~and ARTAS~~^® iX Systems, are capitalized and amortized on a straight-line basis over the anticipated period of benefit, which we have estimated to be three years for ARTAS Care extended warranty service contracts and five years for consumables. We determined the period of benefit by taking into consideration the length of the customer contracts, the Company’s technology lifecycle, and other factors. Amortization expense is recorded in sales and marketing expense within the condensed consolidated statement of operations. As of September 30, 2019, short-term and long-term unamortized deferred compensation were $3 and $8, which are included in “Prepaid and other current assets” and “Other Assets,” respectively, on the condensed consolidated balance sheets.

The aggregate balance of remaining performance obligations represents contracted revenue that has not yet been recognized primarily from ARTAS Care extended warranty service contracts, product training and marketing services not yet rendered to customers.

The Company disaggregates revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred. The Company determined that disaggregating revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors.

~~The following tables provide information about disaggregated revenue from contracts with customers into geographic regions, and the nature of the products and services:~~

Basic net loss per share is calculated by dividing net loss by the weighted-average number of shares of common ~~shares~~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 ~~share~~stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, ~~convertible preferred stock, preferred~~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 ~~15-for-1 was retrospectively applied~~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 ~~common stock equivalents in~~net loss, all the ~~table below. 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~~three months ended March 31, 2020 and 2019, respectively, because including them would have been ~~antidilutive:~~antidilutive:

~~5. FAIR VALUE MEASUREMENTS~~Financial assets and financial liabilities are initially recognized at fair value when the Company becomes a party to the contractual provision 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, ~~accounts payable,~~long-term receivables, line of credit, trade payables, accrued expenses and ~~accrued~~other current liabilities, ~~approximate~~earn-out liability, other long-term liabilities and long-term debt. In view of their nature, the fair ~~market~~ value ~~because~~of most of the ~~short-term nature of those instruments.~~ ~~The Company’s Term Loan with Solar and Convertible Promissory Notes (both discussed further in Note 8) have fair values that approximate~~financial instruments approximates their carrying ~~value.~~amounts.

The Company measures the fair value of its financial assets and aliabilities using the 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 condensed consolidated financial statements and items disclosed at fair value in the notes to the condensed consolidated 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 thesesecuritiesincludesinvestmentsforwhich 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.~~

hierarchy. A financial instrument’s ~~level~~classification within the fair value hierarchy is based onupon the lowest level of ~~any~~ input that is significant to the fair value measurement. ~~However,~~The accounting guidance establishes a three-tiered hierarchy, which prioritizes the ~~determination~~inputs used in the valuation methodologies in measuring fair value:

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 ~~what constitutes “observable” requires~~the assets or liabilities.

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

The categorization of a financial instrument within the valuation hierarchy is based ~~upon~~on the lowest level of input that is significant to the fair value measurement.

The Company classifies its restricted cash and guaranteed investment certificates within Level 2 as it uses alternative pricing ~~transparency~~sources and models utilizing market observable inputs. Contingent earn-out consideration is classified within Level 3. The following tables set forth the fair value of the ~~instrument~~Company’s Level 2 and ~~does~~Level 3 financial assets and liabilities within the fair value hierarchy:

The earn-out liability is measured using discounted cash flow techniques, with the expected cash outflows estimated based on the probability of assessment of the acquired business achieving the revenue metrics required for payment. Expected future revenues of the acquired business and the associated estimate of probability are not ~~necessarily correspond to~~observable inputs. The payments due are based on point in time measurements of the ~~Company’s perceived risk~~metrics quarterly for two years from the acquisition date. Changes in the fair value of ~~that instrument.~~the earn-out liability were recognized in finance expenses in the condensed consolidated statements of operations.

The following ~~tables summarize~~table provides a roll forward of the ~~levels~~aggregate fair values of the earn-out liability as of March 31, 2020, for which fair value ~~measurements~~is determined using Level 3 inputs:

The Company’s products may be sold under subscription contracts with control passing to the customer at the end of the ~~Company’s~~lease term, which is generally 36 months. These arrangements are considered to be sales-type leases, where the present value of all cash ~~equivalents:~~flows to be received within the arrangement 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 consolidated balance sheets. The Company's financing receivables, consisting of sales-type leases, totaled $60,895 and $72,602 as of March 31, 2020 and December 31, 2019, respectively, and are included in accounts receivable and long-term receivables on the 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 doubtful accounts as of March 31, 2020 and December 31, 2019. Based upon such assessment, the Company recorded an allowance for doubtful accounts totaling $10,889 and $10,494 as of March 31, 2020 and December 31, 2019, respectively.

Current subscription contracts are reported as part of accounts receivable. The following are the contractual commitments, net of allowance for doubtful accounts, 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 doubtful accounts. Uncollectible accounts are charged to expense when deemed uncollectible, and accounts receivable are presented net of an allowance for doubtful accounts. Accounts receivable are deemed past due in accordance with the contractual terms of the agreement. Actual losses may differ from our estimates and could be material to our consolidated financial position, results of operations and cash flows. The allowance for doubtful accounts was $10,889 and $10,494 as of March 31, 2020 and December 31, 2019, respectively.

The allowance for doubtful accounts consisted of the following activity for the three months ended March 31, 2020 and 2019, respectively:

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 quarter from upgraded sales. The Company expensed $3,600 ($5,255 in the three months ended March 31, 2019) in cost of goods sold during the quarter. 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 March 31, 2020, a provision for obsolescence of $1,531 ($1,439 as of December 31, 2019) was taken against inventory.

Depreciation ~~and amortization~~ expense were ~~$220~~$377 and ~~$524 for three and nine months ended September 30, 2019, respectively. Depreciation and amortization expense were $268 and $539~~$192 for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2020 and 2019, 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:

As described in Note 1, in November 2019, the Company completed its business combination with Venus Concept Ltd., which included the addition of goodwill of $24,847 and amortizable intangible assets, represented by the technology ($16,900) and the brand name ($1,200). Goodwill associated with the Merger was primarily attributable to the future revenue growth opportunities associated with additional share in the hair restoration market, as well as the value associated with assembled workforce.

The carrying values of goodwill and indefinite-life intangible assets are subject to annual impairment assessment as of the last day of each fiscal year. Between annual assessments, impairment review may also be triggered by any significant events or changes in circumstances affecting the Company’s business. The global pandemic caused by the novel coronavirus (COVID-19) has significantly impacted the Company’s business during the first three months of 2020, including its sales, supply chain, manufacturing and accounts receivable collections. As a result, the Company considered the COVID-19 pandemic as a triggering event and conducted quantitative impairment assessment of its goodwill as of March 31, 2020.

The Company has one reporting unit and it’s carrying value was compared to its estimated fair value. As at March 31, 2020, the Company estimated its fair value using a combination of income approach and market approach. The income approach is based on the present value of future cash flows, which are derived from long term financial forecasts, and requires significant assumptions including among others, a discount rate and a terminal value. The market approach is based on the observed ratios of enterprise value to revenue multiples of the Company and other comparable publicly traded companies. Based upon the results of the goodwill impairment assessment, the Company recorded an impairment charge of $27,450 as of March 31, 2020, which represented the full balance of goodwill for the reporting unit.

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

The Company and its subsidiaries have various operating ~~leases including 23,000 square feet of office space and 2,500 square feet of manufacturing space in San Jose, California.~~ lease agreements, which expire on various dates.

The ~~office space lease expires in April 2022. The Company’s manufacturing space lease expired in April 2019 and is now~~Company recognizes rent expense on a ~~month-to-month~~straight-line basis over the non-cancellable lease ~~arrangement.~~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~~and purchase commitments with manufacturers as of ~~September 30, 2019~~March 31, 2020 are as follows:

~~Total~~The total rent expense ~~was $161 and $481~~ for ~~three and nine months ended September 30, 2019, respectively. Total rent expense was $163 and $401~~all operating leases for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2020 and 2019 was $570 and $390, respectively.

~~The Company has two master agreements and a component pricing agreement with Evolve Manufacturing Technologies, Inc. (Evolve) for the supply~~Commitments

As of ~~the ARTAS~~^® ~~System and consumable products. The terms of these master agreements are substantially similar. The master agreement for the sale of ARTAS~~^® ~~Systems was effective beginning on April 1, 2016 and the master agreement for the sale of kits used with the ARTAS System was effective beginning on~~ March 1, 2016. Both agreements are effective for an initial term of two years and will continue to automatically renew for additional twelve-month periods, subject to either party’s right to terminate the agreement upon 180 days advance notice during the initial term, if our quarterly forecasted demand falls below 75% of our historical forecasted demand for the same period in the previous year or upon 120 days’ advance notice after the initial term. Under the agreements,31, 2020, the Company has ~~future~~non-cancellable purchase ~~commitments up to $285~~orders placed with its contract manufacturers in the amount of $7,607. In addition, as of ~~September 30, 2019.~~

In March ~~2018,~~31, 2020, the Company ~~received U.S. FDA 510(k) clearance~~had $3,476 of open purchase orders that can be cancelled with 90 days’ notice, except for a portion equal to ~~expand the ARTAS~~^® ~~System technology to include an implantation functionality, referred to as ARTAS~~^® ~~iX. Based on manufacturing changes associated with the ARTAS~~^® iX System, the Company determined that certain components procured or expected to be procured by Evolve, will be in excess of expected demand or usage based on the advance notice the Company provided to Evolve under the term15% of the ~~agreement mentioned above. Additionally, in~~total amount representing the ~~fourth quarter~~purchase of 2018, the Company recorded a $188 charge related to other excess purchase commitments from another vendor based on cost reduction changes in 2019. Although the Company will be taking steps to minimize the adverse impact on the Company’s business, based on information available as of September 30, 2019, the Company’s management recorded a loss contingency accrual of $473 which is included in “Other accrued liabilities” on the condensed consolidated balance sheets as of September 30, 2019.“long lead items”.

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 perpetual license to a patent subject to this license agreement.

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. The agreement terminates on July 27, 2024.

From time to time the Company is involved in litigation arising out of claims in the normal course of business. Based on the information presently available, management believes that there are no claims or actions pending or threatened against the Company, the ultimate resolution of which will have a material effect on the Company’s financial position, liquidity or results of operations, although the results of litigation are inherently uncertain.

Between May 23, 2018 aand June 11, 2019, four putative shareholder class ~~action complaint was~~actions complaints were filed against Restoration Robotics, Inc., certain of its former officers and directors, certain of its venture capital investors, and the underwriters of the IPO. Two of these complaints, Wong v. Restoration Robotics, Inc., et al., No. 18CIV02609, and Li v. Restoration Robotics, Inc., et al., No. 19CIV08173 (together, the “State Actions”), were filed in the Superior Court of the State of California, County of San Mateo, ~~(the Superior Court), captioned Wong v. Restoration Robotics, Inc., et al., No. 18CIV02609. On June 21, 2018~~ and ~~June 28, 2018,~~assert claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, or the Securities Act. The other two ~~putative class action~~ complaints, ~~were filed in the United States District Court for the Northern District of California, captioned~~ Guerrini v. Restoration Robotics, Inc., et al., No. 5:18-cv-03712-EJD and Yzeiraj v. Restoration Robotics, Inc., et al., No. 5:18-cv-03883-BLF ~~respectively. On July 24, 2018,~~(together, the ~~U.S.~~“Federal Actions”), were filed in the United States District Court for the Northern District ~~Court related the Guerrini~~of California, and Yzeiraj actions and reassigned the Yzeiraj action to Judge Edward J. Davila. The Wong and Guerrini complaints name the Company as defendants, and certain of its current and former executive officers and directors, certain of its venture capital investors and the underwriters in the Company’s IPO. The Yzeiraj complaint names the Company as defendants and certain of its current and former executive officers and directors. The Wong complaint asserts claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, or the Securities Act. The Guerrini and Yzeiraj complaints assert claims under Sections 11 and 15 of the Securities Act. The complaints all allege, among other things, that the ~~Company’s~~Restoration Robotics’ Registration Statement filed with the SEC on September 1, 2017 and the Prospectus filed with the SEC on October 13, 2017 in connection with ~~the Company’s~~Restoration Robotics’ IPO were inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading and omitted to state material facts required to be stated therein. The complaints seek unspecified monetary damages, other equitable relief and attorneys’ fees and costs.

In ~~addition, on June 11, 2019, a putative shareholder class action complaint was filed in Superior Court of~~ the State ~~of California, County of San Mateo, captioned Li v.~~Actions Restoration Robotics, Inc., ~~et al., No. 19CIV08173. The Li~~along with the other defendants, successfully demurred to the initial Wong complaint ~~asserts claims under Sections 11, 12(a)(2)~~for failure to state a claim, and 15secured a stay of ~~the Securities Act of 1933, or the Securities Act and is~~both cases based on the ~~same set~~forum selection clause contained in its Amended and Restated Certificate of ~~facts~~Incorporation, which designates the federal district courts as the ~~Wong complaint.~~exclusive forums for claims arising under the Securities Act. However, on December 19, 2018, the Delaware Court of Chancery in Sciabacucchi v. Salzberg held that exclusive federal forum provisions are invalid under Delaware law. Based on this ruling, the San Mateo Superior Court lifted its stay of State Actions on December 10, 2019. On January 17, 2020, Plaintiffs in the State Actions filed a consolidated amended complaint for violations of federal securities laws, alleging again that, among other things, the Registration Statement filed with the SEC on September 1, 2017 and the Prospectus filed with the SEC on October 13, 2017 in connection with Restoration Robotics’ IPO were inaccurate and misleading, contained untrue statements of material fact, omitted to state other facts necessary to make the statements made not misleading and omitted to state material facts required to be stated therein. The Li complaint seeks unspecified monetary damages, other equitable relief and attorneys’ fees and costs.

On ~~August 8, 2018,~~February 24, 2020, the Company demurred to the consolidated amended complaint for failure to state a claim. On March 18, 2020, the Delaware Supreme Court reversed the Chancery Court’s decision in Sciabacucchi v. Salzberg and held that exclusive federal forum provisions are valid under Delaware law. On March 30, 2020, the Company filed a renewed motion to dismiss based on its federal forum selection clause. Hearings on the Company’s demurrer and renewed motion to dismiss, originally scheduled for May 8, 2020, have been postponed to a later date, yet to be determined, due to COVID-19.

In the Federal Actions, which have been consolidated under the caption in re Restoration Robotics, Inc. Securities Litigation, Case No. 5:18-cv-03712-EJD, Lead Plaintiff Eduardo Guerrini filed his consolidated amended complaint for violations of federal securities laws on November 30, 2018. The consolidated amended complaint alleges again that, among other things, Restoration Robotics’ Registration Statement filed with the SEC on September 1, 2017 and the Prospectus filed with the SEC on October 13, 2017 in connection with the IPO were inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading and omitted to state material facts required to be stated therein. On January 29, 2019, Restoration Robotics, Inc., along with certain of its ~~current and~~ former ~~executive~~ officers and directors, filed a motion to dismiss the ~~Wong~~consolidated amended complaint based on the forum selection clause designating the federal district courts as the exclusive forum for claims arising under the Securities Act contained in the Company’s Amended and Restated Certificate of Incorporation, and which asked the court in the alternative to stay the Wong action. Also, on August 8, 2018, the venture capital investor and underwriters’ defendants in the Wong action filed demurrers to the Wong complaint, and the Company, along with certain of its current and former executive officers and directors, joined in the venture capital investor defendants’ demurrer. A hearing on the Company’s motion to dismiss and the demurrers to the Wong complaint was held on October 24, 2018. On October 25, 2018, the Court ordered the defendants’ demurrers to the complaint sustained with leave to amend and granted an extension of time for plaintiff to serve a First Amended Complaint until further order of the Court. On January 31, 2019, the Court stayed the case and stayed any decision on the Company’s motion to dismiss on forum selection grounds pending resolution of an appeal of Sciabacucchi v. Salzberg, a case addressing similar issues in Delaware. On August 12, 2019, the Court consolidated the Wong and Li actions, and lifted the stay imposed on January 31, 2019 to allow further briefing on the Company’s motion to dismiss. A further hearing on the motion to dismiss was held on September 17, 2019.

On October 2, 2018, the U.S. Northern District Court granted a Motion for Consolidation of Related Actions, Appointment as Lead Plaintiff and Approval of Lead Counsel filed by Plaintiff Edgardo Guerrini, which consolidated the Guerrini and Yzeiraj actions under the caption In re Restoration Robotics, Inc. Securities Litigation, Case No. 5:18-cv-03712-EJD. On November 30, 2018, Lead Plaintiff Edgardo Guerrini filed a Consolidated Amended Complaint for violations of federal securities laws asserting the same claims, against the same defendants, as his original complaint but adding certain allegations in support of those claims. On January 29, 2019, the Company, along with certain of its current and former executive officers and directors, filed a motion to dismiss the Consolidated Amended Complaint for failure to state a ~~claim under Federal Rule of Civil Procedure 12(b)(6). The venture capital defendants and underwriter defendants filed joinders to the Company’s motion to dismiss on the same day.~~claim. On October 18, 2019, the District Court granted Restoration Robotics, Inc. motion to dismiss as to all but two allegedly false or misleading statements contained in ~~part and denied in part~~ the Company’s ~~motion~~Prospectus. On December 9, 2019, the Company filed its answer to ~~dismiss.~~the consolidated amended complaint denying the falsity of these statements, and discovery is underway.

In addition to the State and Federal Actions, 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 ~~our current and~~Restoration Robotics’ former ~~executive~~ officers and directors breached their fiduciary duties, have been unjustly enriched and violated Section 14(a) of the Securities Exchange Act of 1934, or the Exchange Act, in connection with ~~our~~the IPO and ~~our~~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 related the Mason action with the federal class action, In re Restoration Robotics, Inc. Sec. Litig., and reassigned the Mason action to Judge Edward J. Davila. Also, on August 21, 2019, the District Court granted the parties’ joint stipulation to stay the Mason action during the pendency of the ~~federal class action,~~ Federal Actions, and the case remains stayed.

~~On September 24, 2019, a complaint was filed~~addition to the actions described above relating to the IPO, two lawsuits purporting to challenge disclosures made in ~~the United States District Court for the Northern District of California,~~connection with our merger have also been filed. The first, captioned Bushansky v. Restoration Robotics, Inc., et al., No. 5:~~19-cv-06004-MMC. The complaint alleges,~~19-cv-06004-MMC, alleged, among other things, that defendants violated Sections 14(a) and 20(a) of the ~~Securities~~ Exchange Act ~~of 1934~~ and ~~Securities and Exchange Commission~~SEC Rule ~~14d-9.~~14a-9. The complaint ~~alleges~~alleged that the proxy statement, filed with the ~~United States Securities and Exchange Commission~~SEC by Restoration Robotics, Inc. on September 10, 2019 in connection with the ~~proposed transaction whereby Restoration Robotics would merge with Venus Concept Ltd.~~Merger, omitted or misrepresented material information. The complaint ~~seeks,~~sought, among other things, injunctive relief, unspecified damages, and attorneys’ fees and costs. On November 6, 2019, the plaintiff voluntarily dismissed the Bushansky action with prejudice as to his individual claims and without prejudice as to the claims of the putative class.

The second, a putative shareholder class action complaint captioned Pak v. Restoration Robotics, Inc., et al., No. 1:19-cv-02237, was filed in the United States District Court for the District of Delaware on December 6, 2019. The complaint alleges, among other things, that defendants violated Sections 14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9. The complaint alleges that the proxy statement, filed with the SEC by Restoration Robotics, Inc. on September 10, 2019 in connection with the Merger, contained false or misleading information. The complaint seeks, among other things, compensatory and/or rescissory damages, and attorneys’ fees and costs. On February 26, 2020, the District Court appointed Joon Pak as Lead Plaintiff in the Pak action, and approved his selection of Lead Counsel. The Company believes that these lawsuits are without merit and management intends to vigorously defend against these claims. The Company’s motion to dismiss the Pak complaint is due on May 26, 2020.

The Company’s Chinese subsidiary, Venus Concept China, imports and sells registered medical devices and unregistered non-medical devices in the People’s Republic of China (“PRC”). One of its unregistered products has been the subject of inquiries from two district level branches of the SAMR, Xuhui MSA and Huangpu MSA, as to whether the product was properly sold as a non-medical device. In January 2019, Venus Concept China applied to register a version of this non-medical device as a medical device with the National Medical Products Administration of PRC, or NMPA. On June 12, 2019, Venus Concept China was informed that Xuhui MSA had opened an administrative investigation case related to whether the device is an unregistered medical device, as a result of a complaint that Xuhui MSA received from a former distributor of Venus Concept China. Huangpu MSA notified Venus Concept China that it would be suspending its separate investigation against Venus Concept China, pending the results of the Xuhui MSA investigation. The Company and Venus Concept China have voluntarily stopped sales in China of this product. On December 11, 2019, Xuhui MSA informed Venus Concept China that a determination had been made by the Shanghai Medical Products Administration that Versa’s IPL function should be administered as a Class II medical device. Xuhui MSA also suggested that Venus Concept China consider a voluntary recall of all Versa units sold in China. In late January 2020, Venus Concept China received a copy of the Shanghai Medical Products Administration’s determination that because of the intended uses for Versa’s IPL function comprise medical treatment functions such as “treatment of benign pigmented epidermis and skin lesions,” Versa’s IPL function should be administered as a Class II medical device. Although the revenue generated from the product that is the subject of the investigation did not represent a material amount of the Company’s total revenues for the years ended December 31, 2018 and 2019, monetary penalties nonetheless could be material.

In April 2020, Venus Concept China received a determination from NMPA on its application for registering Versa’s IPL function as a medical device. NMPA has approved the registration of one applicator HR 650 for hair removal as a Class II medical device out of the four IPL applicators for which Venus Concept China had originally applied. The date of registration is April 15, 2020. Venus Concept China also submitted an explanation letter and a draft Corrective & Preventive Action Report plan to Xuhui MSA during a meeting with the local authority on April 23, 2020. However, on April 29, 2020, Xuhui MSA informed Venus Concept China that its administrative investigation case has been transferred to Xuhui Branch of Shanghai Municipal Public Security Bureau (“Xuhui PSB”) for further handling. On May 6, 2020, the economic crime investigation department of Xuhui PSB confirmed to Venus Concept China’s local PRC counsel that they will review and decide whether or not to file formally a criminal investigation case against Venus Concept China and any relevant individuals allegedly responsible for any alleged criminal offense(s). Should such criminal investigation case be formally filed, then Xuhui PSA will conduct a formal investigation and at the end of which, determine whether or not the case should then be submitted to the relevant Procuratorate office (equivalent of the local prosecutors’ office) for criminal prosecution proceedings against Venus Concept China and any accused individuals. Based on facts and information currently available to the Company, it is currently uncertain as to whether or not the Xuhui PSB will actually file a formal criminal investigation case against Venus Concept China and if so, whether or not it will transfer the case for criminal prosecution at the end of such investigation, or whether or not any criminal offense(s) will be established against Venus Concept China and any relevant individuals in any subsequent criminal prosecution proceedings.

The Company and Venus Concept China are cooperating with the relevant authorities in these matters; however, the Company cannot predict the outcome of these matters.

Further, the Company may from time to time continue to be involved in various legal proceedings of a character normally incident to the ordinary course of its business, which does not deem to be material to the Company’s business and results of operations.

~~In connection with the Convertible Note Financing, on June 25, 2019, the Company~~Madryn Credit Agreement

On October 11, 2016, Venus Concept Ltd. entered into a ~~$2,500 Unsecured Subordinated Promissory Note, which funded on July 5, 2019,~~credit agreement as a guarantor with ~~Venus Concept USA Inc.~~Madryn Health Partners, LP, as administrative agent, and certain of its affiliates as lenders (collectively, “Madryn”), a wholly owned subsidiary of Venus. On August 14, 2019, the Company entered into another $2,500 Unsecured Subordinated Promissory Note funded in three tranches A and B of $1,000 each and tranche C of $500 with Venus Concept USA Inc., a wholly owned subsidiary of Venus, collectivelyas amended (the Subordinated Notes). Tranches A and B were funded on August 27, 2019 and September 25, 2019, respectively for a total of $2,000. The maturity date of the Subordinated Notes is November 30, 2019. The Subordinated Notes bear interest on the unpaid principal amount at a rate of eight percent (8%“Madryn Credit Agreement”) per annum from the date of issuance, provided that upon any event of default pursuant to the Subordinated Notes, the Subordinated Notes shall bear interest payable on demand at a rate that is 4% per annum in excess of the rate of interest otherwise payable under thereunder. The Subordinated Notes are unsecured and subordinate in priority to the Company’s existing obligations to Solar Capital, Ltd. under its amended loan and security agreement.

~~On February 28, 2019, the Company entered into a Note Purchase Agreement~~, pursuant to which Madryn agreed to make certain loans to certain of Venus Concept Ltd.’s subsidiaries (the “Subsidiary Obligors”). The Madryn Credit Agreement is comprised of four tranches of debt aggregating $70,000. As at March 31, 2020, and as at December 31, 2019, the ~~Company raised $5,000 through~~Subsidiary Obligors had borrowed $60,000 under the ~~issuance~~term A-1 and A-2 and B tranches of ~~two unsecured subordinated convertible promissory notes (the Notes) to Frederic Moll, M.D., one~~the Madryn Credit Agreement. Term C borrowings of $10,000 were undrawn and are no longer available. Borrowings under the Madryn Credit Agreement are secured by substantially all of the Company’s ~~directors,~~assets and ~~Interwest Partners IX, LP, one~~the assets of the ~~Company’s stockholders affiliated with Gil Kliman, M.D., one of~~Subsidiary Obligors. On the ~~Company’s directors (together,~~24th payment date, which is September 30, 2022, the Investors). The Note Purchase Agreement was amended on August 20, 2019 to adjust the post-merger conversion price for per share from $0.825 to $0.4664 and to convert the Notes upon consummation of the Merger.

In addition, on August 20, 2019, the Company entered into a Note Purchase Agreement pursuant to which the Company raised $2,000 through the issuance of one unsecured subordinated convertible promissory note to Frederic Moll, M.D. The maturity date of the Notes is August 28, 2020 (the Maturity Date). The Notes bear interest on the unpaid principal amount at a rate of eight percent (8.0%) per annum from the date of issuance. The Notes are unsecured and subordinate in priority to the Company’s existing obligations under the Solar Agreement.

All of the outstanding principal and unpaid accrued interest on the Notes will automatically be converted into shares of the same class and series of capital stock of the Company issued to other investors upon consummation of the Merger, into the number of fully paid and non-assessable shares of the Company’s common stock, par value $0.0001 per share, of Restoration Robotics (the “Common Stock”), calculated by dividing theaggregate outstanding principal amount of ~~this Note (and~~the loans, together with any accrued and unpaid interest thereon and all other amounts due and owing under ~~this Note) by~~ the ~~Post-Merger Conversion Price then~~loan agreement will become due and payable in ~~effect.~~full.

Effective August 14, 2018, interest on the Madryn loan is 9%, payable quarterly. Previously, interest was payable quarterly, at the Company’s option, as follows: cash interest 9% during the interest only period, which was 3 years or 12 principal payments after closing, plus an additional 4% rate, paid in kind (“PIK”). The ~~initial Post-Merger Conversion Price is $0.4664 per share, subject~~Company has the option of settling the PIK interest in cash or adding the owed interest to ~~adjustment for any stock split. Upon the occurrence of certain events of default or the Maturity Date, the Notes require the Company to repay~~ the principal amount of the Notes and any unpaid accrued interest. Issuance costs associated with the Notes were not significant and accrued interest of $259 through September 30, 2019 is reported in “Other Accrued Liabilities” on the condensed consolidated balance sheets.loan.

In May 2018, the Company entered into a Loan and Security Agreement and as subsequently amended (the Solar Agreement) with Solar Capital Ltd. (Solar) and certain other lenders thereunder (together with Solar, the Lenders), and Solar, as the Collateral Agent. The Solar Agreement consists of a four-year term loan for an aggregate principal amount of $20,000 (the Borrowings), for working capital, to fund the Company’s general business requirements and to repay indebtedness of the Company to Oxford Finance LLC (the Oxford Agreement). The Company used $10,085 of the loan proceeds to repay the outstanding principal of $8,667, a final payment fee of $1,300 plus accrued interest and prepayment fees of $118 under the Oxford Agreement. The Borrowings under the Solar Agreement bear interest through maturity at a rate equal to the U.S. Dollar LIBOR rate plus 7.95% per annum (the Interest Rate). ~~The outstanding balance on the loan was $20,000 and accrued interest totaled $167 as of September 30, 2019. The Interest Rate was 10.1% at September 30, 2019.~~

Pursuant to the terms of the Solar Agreement, the Company shall make interest only payments until December 1, 2019 (the Interest Only Period). The Interest Only Period may be extended up to three additional months, if the Company achieves certain revenue and capital fundraising thresholds. Following cessation of the Interest Only Period, the Company shall make equal monthly payments on the outstanding principal balance of the Borrowings and any unpaid and accrued interest such that the Borrowings shall be fully repaid on May 1, 2022.

In addition, pursuant to the Solar Agreement, the Company issued the Lenders warrants (the Warrants) to purchase an aggregate of 161,725 shares of the Company’s common stock, $0.0001 par value per share, at an exercise price of $3.71 per share. The Warrants were immediately exercisable upon issuance, and excluding certain mergers or acquisitions, will expire on the ten-year anniversary of the date of issuance. The fair value of the Warrants issued was determined to be $404 using a Black-Scholes valuation model with the following assumptions: common stock price at issuance of $3.71 per share; exercise price of $3.71; risk-free interest rate of 2.97% based upon observed risk-free interest rates; expected volatility of 55.50% based on the Company’s implied volatility; expected term of ten years, which is the contractual life of the Warrants; and a dividend yield of 0%. The fair value of the Warrants was recorded as a debt discount within notes payable and an increase to additional paid-in capital on the Company’s condensed consolidated balance sheets. The debt discount is being amortized as interest expense over the term of the Solar Agreement, using the effective interest method.

The ~~third-party transaction costs (not paid directly to the lenders) related to the debt of $404~~loans are accounted for as a debt discount and classified within notes payable on the Company’s condensed consolidated balance sheets and amortized as interest expense over the term of the loan using the effective interest method. Unamortized debt discounts related to the Oxford Agreement and all fees paid directly to Solar and Oxford totaling $505 in connection with the debt financing in May 2018 were written off to “Other income (expense), net” in the condensed consolidated statements of operations.

~~The obligations under the Solar Agreement are secured~~collateralized by ~~a lien on~~ substantially all the ~~Company’s property. The Solar~~assets of Venus Concept Ltd. and certain of its subsidiaries. In addition, the Madryn Credit Agreement contains certain ~~affirmative~~ covenants ~~negative~~that require the Company together with its subsidiaries to achieve certain minimum revenue and liquidity thresholds. The minimum revenue and liquidity covenants ~~and events of default, including, covenants and restrictions~~require that ~~among other things, require~~ the Company and its ~~subsidiary~~subsidiaries, on a consolidated basis, achieve (i) minimum reported revenue targets for any four consecutive fiscal quarter period of an amount equal to ~~satisfy certain financial~~the greater of (A) $100.0 million and (B) one hundred and fifty percent (150%) of the aggregate outstanding amount of the loans as of the last day of such four consecutive fiscal quarter period, (ii) minimum levels of cash held in deposit accounts controlled by Madryn to be no less than $2.0 million and (iii) minimum levels of cash held in all deposit accounts, plus availability under the CNB Credit Facility (as defined below), to be no less than $5.0 million.

The Madryn Credit Agreement also contains various covenants ~~including covenants requiring~~that limit the ~~Company to satisfy certain revenue~~Company’s ability and ~~liquidity thresholds, and restricts~~ the ability of ~~the Company and~~ its ~~subsidiary’s ability~~subsidiaries to ~~incur liens, incur additional indebtedness, make loans and investments,~~ engage in ~~mergers and acquisitions, engage in asset sales or sale and leaseback transactions, and declare dividends or redeem or repurchase capital stock. A failure~~specified types of transactions. Subject to ~~comply with~~limited exceptions, these covenants ~~could permit~~limit the ~~Lenders under the Solar Agreement~~Company’s ability, without Madryn’s consent, to, declare the Borrowings, together with accrued but unpaid interest and certain Prepayment Fees, to be immediately due and payable. On November 2, 2018, the Solar Agreement was amended to modify the compliance requirement for certain revenue and liquidity thresholds. As part of this amendment, the Company paid a fee of $50 to the Lenders and cancelled 161,725 Warrants (originally issued in May 2018, as mentioned above) and issued 161,725 new warrantsamong other things:

As of ~~September 30,~~March 31, 2020 and as of December 31, 2019 the Company was in compliance with all ~~covenants under~~required covenants.

The Company is also required to make mandatory prepayments of the Borrowings, subject to specified exceptions, upon defaulting on any payments of principal or interest on the Borrowings, the occurrence of certain specified defaults of the covenants in the Solar Agreement, the occurrence of a material adverse change in the business, operations or conditions of the Company and specified other events (each, an Event of Default). Upon the occurrence and continuation of an Event of Default, the Borrowings shall accrue at the Interest Rate plus 4.0%.

Ifif all or any portion of the ~~Borrowings~~loans are prepaid, ~~or required to be prepaid under the Solar Agreement,~~ then ~~the Company shall pay, in addition to such prepayment,~~ a prepayment premium ~~(the Prepayment Premium)~~must be paid equal toto: (i) ~~with respect to any such prepayment paid~~8.00% of the loans prepaid if prepaid on or prior to ~~May 1,~~August 31, 2019, ~~3.0% of the principal amount of the Borrowings being~~(ii) 6.50% if prepaid ~~(ii) with respect to any prepayments paid~~ after ~~May 1,~~August 31, 2019 but on or prior to ~~May 1,~~August 31, 2020, ~~2.0% of the principal amount of the Borrowings being~~(iii) 5.00% if prepaid ~~and (iii) with respect to any prepayments paid~~ after ~~May 1,~~August 31, 2020 but on or prior to ~~May 1,~~February 28, 2021, ~~1.0%~~(iv) 4.00% if prepaid after February 28, 2021 but on or prior to August 31, 2021, (v) 3.00% if prepaid after August 31, 2021 but on or prior to February 28, 2022, and (vi) 2.00% if prepaid after February 28, 2022.

In connection with the Merger, the Company entered into an amendment to the Madryn Credit Agreement, dated as of November 7, 2019, (the “Amendment”), pursuant to which the Company joined as (i) a guarantor to the Madryn Credit Agreement and (ii) a grantor to the certain security agreement, dated October 11, 2016, (as amended, restated, supplemented or otherwise modified from time to time), by and among the grantors from time to time party thereto and the administrative agent (the “U.S. Security Agreement”).

As a guarantor under the Madryn Credit Agreement, the Company is jointly and severally liable for the obligations (as defined in the Madryn Credit Agreement) thereunder and to secure its obligations, the Company has granted the administrative agent a lien on all of its assets pursuant to the terms of the ~~principal amount~~U.S. Security Agreement. In the event of default under the ~~Borrowings being prepaid. Notwithstanding~~Madryn Credit Agreement, Madryn may accelerate the ~~foregoing, if~~obligations and foreclose on the ~~Lenders each participate in a refinancing of~~collateral granted by the ~~Borrowings, then~~Company and Venus Concept Ltd. under the ~~Prepayment Premium shall be 0%.~~U.S. Security Agreement to satisfy the obligations.

The scheduled principal payments on the outstanding borrowings as of ~~September 30, 2019~~March 31, 2020 are as follows:

The Company has an agreement with City National Bank of Florida (“CNB”) pursuant to which CNB agreed to provide a revolving credit facility to certain of the Company’s subsidiaries in the maximum principal amount of $10,000 ($10,000 in 2019, starting from April 2019), to be used to finance working capital requirements (the “Credit Facility”). As of March 31, 2020, the Company had $8,212 outstanding ($7,789 as of December 31, 2019) under the Credit Facility, which bears interest at LIBOR rate plus 3.25%, which amounted to a weighted average of 4.64% (5.90% for the three months ended March 31, 2019).

On March 20, 2020, the Company entered into a Second Amended and Restated Loan Agreement as a borrower with CNB, as amended, pursuant to which CNB agreed to make certain loans and other financial accommodations to the Company, and certain of its subsidiaries. In connection with the CNB Credit Facility, the Company also entered into (i) a Second Amended and Restated Guaranty of Payment and Performance with CNB dated as of March 20, 2020, (the “CNB Guaranty”), pursuant to which the Company agreed to guaranty the obligations under the CNB Credit Facility and (ii) a Security Agreement with CNB dated as of March 20, 2020, (the “CNB Security Agreement”), pursuant to which the Company agreed to grant CNB a security interest, in substantially all of its assets, to secure the obligations under the CNB Credit Facility. Borrowings under the CNB Credit Facility are secured by substantially all of the assets of the Company and its subsidiaries and the CNB Guaranty.

The CNB Credit Facility requires the Company to maintain either a minimum cash balance in deposit accounts or a maximum total liability to tangible net worth ratio and a minimum debt service coverage ratio. As of March 31, 2020 and December 31, 2019, the Company was in compliance with all required covenants. An event of default under this agreement would cause a default under the Madryn Credit Agreement (see Note 9).

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 conversion of all outstanding ~~common~~ shares of convertible preferred stock, ~~warrants,~~ plus options granted and available for grant under the incentive plans. ~~Effective November 7, 2019,~~

As noted in Note 1 above, in March 2020, the Company issued and sold to certain of the Investors an aggregate 660,000 shares of Series A Preferred Stock. The terms of the Series A Preferred Stock are governed by a Certificate of Designation filed by the Company with the Secretary of State of the State of Delaware on March 18, 2020. The following is a summary of the material terms of the Series A Preferred Stock:

Upon issuance, each share of Series A Preferred Stock included an embedded beneficial conversion feature because the market price of the Company’s common stock ~~equivalents in~~on the ~~table below.~~date of issuance of the Series A Preferred Stock of $2.47 per share as compared to an effective conversion price of the Series A Preferred Stock of $1.93 per share. As a result, the Company recorded the intrinsic value of the beneficial conversion feature of $3,564. Because the Series A Preferred Stock is perpetual, it will be carried at the amount recorded at inception.

The Company ~~granted incentive~~evaluated the Series A Preferred Stock for liability or equity classification in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity, and determined that equity treatment was appropriate because the Series A Preferred Stock did not meet the definition of the liability instruments defined thereunder for convertible instruments. Specifically, the Series A Preferred Stock is not mandatorily redeemable and does not embody an obligation to buy back the shares outside of the Company’s control in a manner that could require the transfer of assets. Additionally, the Company determined that the Series A Preferred Stock would be recorded as permanent equity, not temporary equity, based on the guidance of ASC 480 given that the holders of equally and more subordinated equity would be entitled to also receive the same form of consideration upon the occurrence of the event that gives rise to the redemption or events of redemption that are within the control of the Company.

Since Series A Preferred Stock was sold as a unit with warrants, the proceeds received were allocated to each instrument on a relative fair value basis as it is described below.

As noted in Note 1 above, in March 2020, the Company issued and sold to the Investors warrants to purchase up to 6,675,000 shares of common stock ~~options (ISOs)~~with an exercise price of $3.50 per share, along with the shares of common stock and ~~non-statutory~~preferred stock ~~options (NSOs) pursuant~~the Investors purchased. The 2020 Private Placement Warrants have a five-year term and are exercisable beginning 181 days after their issue date. The Company evaluated the 2020 Private Placement Warrants for liability or equity classification in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity, and determined that equity treatment was appropriate because the warrants only require settlement through the issuance of the Company’s common stock which is not redeemable, and do not represent an obligation to ~~its 2005~~issue a variable number of shares. Based on this guidance, the Company determined, for each issuance, that the 2020 Private Placement Warrants did not need to be accounted for as a liability. Accordingly, the 2020 Private Placement Warrants were classified as equity and are not subject to remeasurement at each balance sheet date. The proceeds received in the 2020 Private Placement were allocated to each instrument on a relative fair value basis.

Total net proceeds of $20,300 reduced by $3,564 of the beneficial conversion feature were allocated as follows: $8,063 to Series A Preferred Stock, ~~Option~~$4,052 to shares of common stock and $4,621 to the 2020 Private Placement Warrants issued. Series A Preferred Stock and common stock issued in the 2020 Private Placement were recorded at par value of $0.0001 with the excess of par value recorded in APIC.

In November 2010, the Company’s Board of Directors ~~approved~~(the “Board”) adopted a share option plan (the “2010 Share Option Plan”) pursuant to which some of the ~~2015 Stock~~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 ~~(the 2015 Plan),~~is administered by the Company’s Board, which designates the options and ~~all remaining~~dates of grant. Options granted vest over a period determined by the Board, originally had a contractual life of seven years, which was extended by 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 March 31, 2020, the number of shares of the Company’s common stock reserved for issuance and available for ~~future award~~grant under the ~~2005 Plan were transferred to the 2015 Plan and the 2005~~2010 Share Option Plan was ~~terminated.~~ 44,450 (44,450 as at December 31, 2019).

The ~~Company granted ISOs and NSOs pursuant to its 2015~~2019 Incentive Award Plan ~~until~~was originally established under the name Restoration Robotics, Inc., as the 2017 ~~Equity~~ Incentive Award Plan. It was adopted by the Company’s Board of Directors on September 12, 2017 and approved by the Company’s stockholders on September 14, 2017. The 2017 Incentive Award Plan ~~(the 2017 Plan)~~was amended, restated, and renamed as set forth above, and was approved by the ~~Board of Directors and became effective~~Company’s stockholders on October ~~11, 2017. As~~4, 2019.

Under the 2019 Plan, 450,000 shares of common stock were initially reserved for issuance pursuant to a ~~result~~variety of the 2017 Plan becoming effective, all remaining shares available for future award under the 2015 Plan were transferred to the 2017 Plan, the 2015 Plan was terminated, and no further grants will be made under the Company’s 2005 Plan and the 2015 Plan. Any outstandingstock-based compensation awards, including stock options, stock appreciation rights, or SARs, performance stock awards, ~~granted under the 2005 Plan and the 2015 Plan will remain outstanding, subject to the terms of the Company’s 2005 Plan and 2015 Plan and the applicable~~performance stock ~~award agreements, until such outstanding stock~~unit 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.~~

~~The Company’s 2017 Plan provides for the grant of ISOs, NSOs, stock appreciation rights,~~ restricted stock awards, restricted stock unit awards and other ~~forms~~stock-based awards, plus the number of ~~equity compensation to employees, directors and consultants. In addition,~~shares remaining available for future awards under the ~~Company’s 2017~~2019 Plan ~~provides for~~as of the ~~grant~~date of ~~performance cash awards to employees, directors and consultants.~~the Merger. As of March 31, 2020, there were 314,038 of shares of common stock available under the 2019 Plan (698,378 as at December 31, 2019).

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

The fair value of each option is estimated at the date of grant using the ~~Black-Scholes-Merton~~Black-Scholes option pricing ~~model, based on~~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 ~~did~~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 ~~options~~dividends on its common stock in the ~~three months ended September 30, 2019.~~foreseeable future.

~~Effective November 7, 2019, a reverse stock split~~Fair Value of ~~15-for-1 was retrospectively applied~~Common Stock— Prior to the ~~outstanding~~Merger, Venus Concept 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 ~~options in~~is used to estimate the ~~table below.~~ fair value of the stock-based awards at grant date.

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

Weighted-

Weighted-

Average

Average

Remaining

Aggregate

Number of

Exercise Price

Contractual

Intrinsic

Shares

per Share

Term

Value

Outstanding — December 31, 2018

265,962

$
1.95

8.7

$
—

Options granted

2,200

0.96

Options cancelled

(46,221
)

1.68

Outstanding — September 30, 2019

221,941

$
1.99

7.4

$
—

Vested and expected to vest —
September 30, 2019

207,893

$
2.00

7.3

$
—

Exercisable — September 30, 2019

117,524

$
2.02

7.0

$
—

	Number of Shares			Weighted- Average Exercise Price per Share, $		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding – January 1, 2020		3,278,439			5.29		5.08	$	4,885
Options granted		1,615,000			4.36
Options exercised		—			—
Options forfeited/cancelled		(109,956	)		25.77
Outstanding – March 31, 2020		4,783,483			4.50		6.54	$	2,750
Exercisable – March 31, 2020		2,730,791			3.98		4.20	$	2,750
Expected to vest – after March 31, 2020		2,052,692			5.21		9.64	$	-

The following tables summarize information about share options outstanding and exercisable at March 31, 2020:

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 $nil and $31 for the three months ended March 31, 2020 and 2019, respectively.

The weighted-average grant date fair value of options granted was ~~$0.44~~$7.515 and $5.52 per share for ~~nine~~the three months ended ~~September 30, 2019.~~

~~No options were exercised for the three~~March 31, 2020 and ~~nine months ended September 30, 2019. The total intrinsic value of options exercised was $92 and $413 for the three and nine months ended September 30, 2018,~~2019, respectively.

~~Unamortized stock-based compensation was $1,607 as of September 30, 2019, which is expected to be recognized over a weighted-average period of approximately 2.48 years.~~

The Company’s Board of Directors appointed Keith Sullivan, a current Board member of the Company, as interim Chief Commercial Officer, effective November 1, 2018, and for a period up to one year. Under the terms of the arrangement, Mr. Sullivan was granted 360,000 restricted stock awards, which shall vest in quarterly installments equal to 25% of the shares starting with the first vest date on January 15, 2019 so long as Mr. Sullivan is providing services. As of September 30, 2019, the Company had no unrecognized compensation expense. The aggregate intrinsic value of the RSAs outstanding was $58.

On February 27, 2019, the Company’s Board of Directors granted our Chief Financial Officer and interim Chief Commercial Officer each 500,000 restricted stock units that will vest contingent on the closing of the merger of the Company with Venus (as discussed in Note 1). During the three and nine months ended September 30, 2019, no stock-based compensation expense was recorded.

The Company generated a loss ~~for the three and nine months ended September 30, 2019~~ and incurred ~~$9 and $33~~$589 of tax expense for the three ~~and nine~~ months ended ~~September 30, 2019, respectively. The Company’s~~March 31, 2020. A reconciliation of income tax expense is as follows:

Income tax expense is recognized based on the actual income or loss incurred during the three months ended March 31, 2020. Due to the uncertainties as a result of COVID-19, management was unable to determine an annualized effective tax rate ~~is (0.10)%~~ and ~~(0.14)% for~~calculate the income tax ~~for the three and nine months ended September 30, 2019, respectively and the Company expects that its~~expense in accordance with such method. The effective tax rate differs from the statutory tax rate due to the recognition of previously unrecognized carried forward tax losses.

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the ~~full year 2019 will be (0.17)%. Based on available evidence, including cumulative losses since inception~~Chief Operating Decision Maker (CODM) in deciding how to allocate resources to an individual segment and ~~expected future losses, the~~in assessing performance. The Company's CODM is its Chief Executive Officer. The Company has determined ~~that~~ it ~~is more likely than not that~~operates in a single operating segment and has one reportable segment, as the ~~Company’s U.S. federal, U.S. state~~CODM reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geography and ~~Korea deferred tax assets will not be realized~~type for purposes of making operating decisions, allocating resources, and ~~therefore a valuation allowance has been provided on these net deferred tax assets.~~

The Company has substantial net operating loss carry forwards available to offset future taxable income for U.S. federal and state income tax purposes. The Company’s ability to utilize its net operating losses may be limited due to changes in its ownership as defined by Section 382 of the Internal Revenue Code (the Code). Under the provisions of Sections 382 and 383 of the Code, a change of control, as defined in the Code, may impose an annual limitation on the amount of the Company’s net operating loss and tax credit carryforwards, and other tax attributes that can be used to reduce future tax liabilities.

The Company files tax returns for U.S. federal and state tax returns along with tax returns in the United Kingdom, Hong Kong, Spain and South Korea. The Company is not currently subject to any income tax examinations. Since the Company’s inception, the Company had incurred losses from its U.S. operations, which generally allows all tax years to remain open.

Beginning in first quarter of 2018, the Company is subject to new provisions of the tax law, including provisions related to Global Low Taxed Intangible Income (GILTI), Foreign Derived Intangible Income deductions (FDII), and other changes. However, due to the Company’s losses and full valuation allowance in the U.S., these were determined to have no material impact to the Estimated Annual Effective Tax Rate due to the full Valuation Allowance in the U.S.

~~Accounting Standards Codification 740-10 requires that the Company recognize the~~evaluating financial statement effects of a tax position when it becomes more likely than not, based upon the technical merits, that the position will be sustained upon examination. The gross amount of unrecognized tax benefits as of September 30, 2019 is approximately $1,540 and related to the reserve on R&D credits, none of which will affect the effective tax rate if recognized due to the valuation allowance.performance. The Company does not ~~expect any material changes~~assess the performance of individual product line on measures of profit or loss, or asset-based metrics. Therefore, the information below is presented only for revenues by geography and type.

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

As of March 31, 2020, long-lived assets in the ~~next~~amount of $22,923 were located in the United States and $2,935 were located in foreign locations.

Revenue by type is a key indicator for providing management with an understanding of the Company’s financial performance, which is 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 other consumables payable upon receipt.

4.Service revenue - includes NeoGraft® technician services, ad agency services and extended warranty sales.

All amounts were recorded at the exchange amount, which is the amount established and agreed to by the related parties. The following are transactions between the Company and its related parties:

On July 1, 2016, a senior manager of the Company transferred 100.0% of his shares in Inphronics Limited to the Company, making it a wholly-owned subsidiary. At such time, an unsecured non-interest-bearing working capital loan to PT Neoasia Medical, a subsidiary of Inphronics Limited, that was previously provided by the senior manager of the Company was outstanding. As of March 31, 2020 and December 31, 2019, the outstanding amount of the loan was Indonesian rupiah (“IDR”) 6.9 billion, which is equivalent to $457 and $498, respectively. This loan is reported as part of accrued expenses and other current liabilities.

On January 1, 2018, the Company entered into a new Distribution Agreement with Technicalbiomed Co., Ltd. (“TBC”), pursuant to which TBC will continue to distribute the Company’s products in Thailand. A senior manager of the Company is a 30.0% shareholder of TBC. For the three months ended March 31, 2020 and 2019, TBC purchased products in ~~unrecognized tax benefits.~~the amount of $49 and $100, respectively, under this distribution agreement. These sales are included in products and services revenue.

In August 2013, the Company entered into a license agreement for the rights to an invention for fractional radio frequency treatment of the skin with the developers of the technology. Pursuant to the license agreement, the developers, amongst which one is a senior executive of the Company, granted to the Company an exclusive worldwide, perpetual, irrevocable license to develop and commercialize their inventions and any product into which it is integrated. As consideration for such license, the Company agreed to pay the developers 7.0% of the gross income received by the Company from sales of the Venus Viva system and the related consumables and $1.50 per Venus Versa system, up to an aggregate amount of $3,000. No royalties were paid in the three months ended March 31, 2020 and 2019, respectively. The Company reported the amounts under research and development expenses in the condensed consolidated financial statements. No amounts were outstanding as at March 31, 2020 and December 31, 2019.

The Company ~~recognizes interest and/or penalties related to uncertain tax positions. To the extent accrued interest~~ and ~~penalties do not ultimately become payable, amounts accrued will be reduced and reflected~~one of its subsidiaries, Venus Concept USA Inc. (“Venus USA”), received funding in the period that such determination is made. The interest and penalties are recognized as other expense and not tax expense. The Company currently has no interest and penalties related to uncertain tax positions.

~~The Company (formerly named Restoration Robotics, Inc.), completed its business combination with Venus,~~two “Small Business Loans” under the federal Paycheck Protection Program provided in ~~accordance with the terms~~Section 7(a) of the ~~Agreement~~Small Business Act of 1953, as amended by the Coronavirus Aid, Relief, and ~~Plan of Merger and Reorganization, dated as of March 15, 2019,~~Economic Security Act, as amended from time to time (“Merger Agreement”), by and among the Company, Venus and Radiant Merger Sub Ltd., a company organized under the laws of Israel and a direct, wholly-owned subsidiary of the Company (“Merger Sub”(the “PPP”). ~~Under the Merger Agreement, Merger Sub merged with and into Venus, with Venus surviving as a wholly owned subsidiary of the Company (“Merger”). The Merger became effective on November 7, 2019.~~

At the effective time of the Merger, each outstanding ordinary and preferred share of Venus, nominal value of New Israeli Shekels 0.001 each (a “Venus Share”), other than shares held by Venus as treasury stock or held by the Company or Merger Sub, were converted into the right to receive 8.6506 (the “Exchange Ratio”) validly issued, fully paid and non-assessable shares of Common Stock (a “Company Share”), and (ii) each outstanding Venus stock option and warrant was assumed by the Company and converted into and become an option or warrant (as applicable) exercisable for Company Shares with the number and exercise price adjusted by the Exchange Ratio. An aggregate of approximately 212.5 million shares of Common Stock was issued to the Venus shareholders in the Merger on a pre-split basis, which does not include approximately 49.6 million shares underlying outstanding options and warrants. Immediately after the effective time of the Merger, and after giving effect to the conversion of all Venus convertible notes and Restoration Robotics convertible notes and the issuance of Common Stock and Warrants in the Concurrent Financing (defined below), there were approximately 29,667,622 million shares of Common Stock outstanding.

~~Immediately following~~The Company entered the effective time of the Merger, the Company effected a 15-for-1 reverse stock split of the common stock (“Reverse Stock Split”) and the Company changed its corporate name from “Restoration Robotics, Inc.” to “Venus Concept Inc.” (“Name Change”), and the business conducted by Venus became the primary business conducted by the Company. The Merger, the Reverse Stock Split and the Name Change were approved by the Company’s stockholders at an annual meeting of its stockholders held on October 4, 2019.

The issuance of the shares of Common Stock to the former shareholders of Venus was registered with the SEC on a registration statement on Form S-4 (Reg. No. 333-232000), which was declared effective on September 10, 2019. The Merger and additional related proposals were submitted to a vote of the Company’s stockholders pursuant to a proxy statement/prospectus statementU.S. Small Business Administration Note dated ~~September 10, 2019.~~

The shares of Common Stock listed on the Nasdaq Global Market traded through the close of business on November 7, 2019 under the ticker symbol “HAIR” and commenced trading on the Nasdaq Global Market under the ticker symbol “VERO” on a post-Reverse Stock Split basis on November 8, 2019. This acquisition will be accounted for as a business combination, and the assets and liabilities will be recorded as of ~~the acquisition date at their respective fair values.~~

~~On November 3, 2019, Venus Concept Inc., a Delaware corporation, (formerly known as Restoration Robotics, Inc.) and Venus Concept Ltd., a company organized under the laws~~April 21, 2020 in favor of ~~Israel, entered into a securities purchase agreement with certain investors named therein (collectively, the “Investors”)~~CNB pursuant to which the Company ~~agreed to issue~~borrowed $1,665 original principal amount, which was funded on April 29, 2020 (the “Venus Concept PPP Loan”). The Venus Concept PPP Loan bears interest at 1% per annum and ~~sell~~matures in two years from the date of disbursement of funds under the loan. Interest and principal payments under the Venus Concept PPP Loan will be deferred for a period of six months.

The Venus Concept PPP Loan contain certain covenants which, among other things, restrict the Company’s use of the proceeds of the PPP Loan to the ~~Investors in a private placement an aggregate~~payment of ~~approximately 112,000 shares~~payroll costs, interest on mortgage obligations, rent obligations and utility expenses, require compliance with all other loans or other agreements with any creditor of the ~~Company’s common stock, par value $0.0001 per share and warrants~~Company, to ~~purchase up to an aggregate of approximately 56,000 shares of~~the extent that a default under any loan or other agreement would materially affect the Company’s ~~common stock at an exercise price of $6.00 per share immediately following the closing of the Merger (the Concurrent Financing).~~

~~The impact of the business combination is not reflected in our unaudited condensed consolidated financial statements as of~~ability to repay its PPP Loan and ~~for the period ended September 30, 2019, or in these corresponding notes, except for recapitalization of~~limit the Company’s ~~common stock. Through September 30, 2019, merger-related expenses associated with this transaction were $4.1 million. We are in the process of completing the allocation of fair value~~ability to ~~the assets and liabilities and pro-forma results of operations for this business combination.~~make certain changes to its ownership structure.

~~On November 5, 2019, the Company~~Venus USA entered into a ~~Sixth Amendment to the Loan and Security Agreement (the “Sixth Amendment”), which amended its Loan and Security Agreement entered into~~U.S. Small Business Administration Note dated as of ~~May 10, 2018~~April 15, 2020 in favor of CNB. Venus USA borrowed $2,383 original principal amount, which was funded on April 20, 2020 (the ~~“Loan Agreement”)~~“Venus USA PPP Loan” and together with ~~Solar Capital Ltd. (Solar)~~the Venus Concept PPP Loan, individually each a “PPP Loan” and ~~certain other lenders (together,~~collectively, the ~~“Lenders”~~“PPP Loans”) ~~under~~. The terms of the Venus USA PPP Loan ~~Agreement.~~

~~Pursuant~~are substantially similar to the terms of the ~~Sixth Amendment,~~Venus Concept PPP Loan.

Under certain circumstances, all or a portion of the ~~Loan Agreement was amended to modify~~PPP Loans may be forgiven, however, there can be no assurance that any portion of the ~~date by when~~PPP Loans will be forgiven and that the Company ~~shall provide evidence of aggregate unrestricted net cash proceeds from a sale of stock or pursuant~~would not be required to ~~equity financings or issuance of debt, and~~repay the ~~date upon which~~PPP Loans in full.

Under the ~~Company should maintain a certain level of liquidity,~~Madryn Credit Agreement each PPP Loan is permitted to ~~the earlier of (i) November 15, 2019 or (ii) the termination of the Agreement and Plan of Merger,~~be incurred by ~~and between~~ the Company and Venus Concept ~~Ltd., dated March 15, 2019,~~USA as ~~amended, prior~~long as certain conditions remain satisfied, including that all PPP Loans must be forgiven other than any amount which can fit under existing permitted debt baskets in the Madryn Credit Agreement. If the Company and/or Venus Concept USA defaults on the respective PPP Loan or if any of the conditions to the ~~consummation~~incurrence thereof under the Madryn Credit Agreement are not satisfied (i) events of default will occur under the Madryn Credit Agreement and the CNB Credit Facility and (ii) the Company and Venus Concept USA may be required to immediately repay their respective PPP Loan.

Also, the U.S. Small Business Administration (the “SBA”) has decided, in consultation with the Department of the ~~merger described therein.~~Treasury, that it will review all loans in excess of $2,000 following the lender’s submission of the borrower’s loan forgiveness application. To the extent that the SBA’s audit determines that Venus Concept USA was not entitled to the loan under the PPP, the loan may not be forgiven, an event of default would occur under the Madryn Credit Agreement and Venus Concept USA could be subject to civil and criminal penalties.

On ~~November 7, 2019, in connection with the Merger,~~April 29, 2020, the Company ~~paid off and terminated its obligations under its Loan Agreement with Solar and the Lenders. The payoff to Solar and the Lenders pursuant~~entered into an amendment to the ~~Loan~~Madryn Credit Agreement ~~consisted of cash~~that (i) require that interest payments for the period beginning January 1, 2020 and ~~warrants~~ending on, and including, April 29, 2020 (the “PIK Period”), be paid-in-kind, (ii) increase the interest rate from 9.00% per annum to ~~purchase up to 50,000 shares of Common Stock, post Reverse Stock Split, at an exercise price of $6.00~~12.00% per ~~share.~~

~~Immediately following~~annum during the ~~Merger,~~PIK Period and (iii) require the Company ~~effected a reverse stock split of 15-for-1 of its common stock. The reverse stock split was retrospectively applied~~to provide certain additional financial and other reporting information to the number of shares outstanding and used to calculate loss per share in the condensed consolidated balance sheets, statements of operations, statements of stockholders’ equity (deficit) and accompanying notes.lenders.

ITEM ~~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 with our audited consolidated financial statements and notes thereto in ~~the Company’s~~our Annual Report filed on Form 10-K for the year ended December 31, ~~2018,~~2019 (“Form 10-K”), filed with the Securities and Exchange Commission (the ~~SEC)~~“SEC”) and other filings we have made with the SEC.

This ~~Quarterly Report on Form 10-Q~~discussion contains ~~“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended,~~forward-looking statements that reflect our plans, estimates and Section 21E of 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 based on the beliefs and ~~assumptions of our management based on information currently available to management. Such forward-looking statements are subject to~~involve numerous risks and uncertainties, and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include,including but ~~are~~ not limited to those ~~identified herein, and those discussed in the section titled “Risk Factors,” set forth~~described in Part II, Item 1A of this Form 10-Q and in our other SEC filings, including the Prospectus. You should review 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“Risk Factors” of this Quarterly Report on Form ~~10-Q. Our fiscal year end is December 31,~~10-Q and ~~references throughout this Quarterly Report on~~Part I, Item IA “Risk Factors” of our Form ~~10-Q to a given fiscal year are to the twelve months ended on that date.~~10-K. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read Part II, Item 1A, “Risk Factors”herein and Part I, Item IA, “Risk Factors” of our Form 10-K.

We are aan innovative global medical technology company ~~developing~~that develops, commercializes, 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~~delivers minimally invasive and non-invasive medical aesthetic and hair restoration ~~procedure. We believe the ARTAS~~^® ~~System is the first~~technologies and ~~only physician assisted robotic system that can identify~~related services. Our systems have been designed on a cost-effective, proprietary and ~~dissect hair follicular units directly from the scalp, create recipient implant sites and robotically implant the hair follicles into the implant sites. In addition to the ARTAS~~^® ~~System, we also offer the ARTAS Hair Studio application, an interactive three-dimensional patient consultation tool~~flexible platform that enables ~~a physician to create a simulated hair transplant model for use in patient consultations. We received clearance from the U.S. Food and Drug Administration, or FDA, in April 2011 to market the ARTAS~~^® ~~System in the U.S., and we have sold the ARTAS~~^® ~~System into 37 other countries. In March 2018, we received 510(k) clearance from the FDA~~us to expand beyond the ~~ARTAS~~^® ~~technology to include implantation.~~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 ~~third quarter~~three months ended March 31, 2020 and 2019, respectively, a substantial majority of ~~2018, we commercially launched the next generation ARTAS~~^® ~~System, called ARTAS~~^®~~iX System, which incorporates the implantation functionality as well as other functionalities. As of September 30, 2019, the ARTAS~~^® ~~System and ARTAS Hair Studio application are protected by over 80 patents~~our systems delivered in ~~the U.S. and over 110 international patents.~~North America were in non-traditional markets.

~~On March 15,~~In November 2019, we ~~entered into the Merger Agreement (the Merger Agreement)~~completed our business combination with Venus Concept Ltd. ~~(Venus) to combine the companies in an all-stock transaction (the Merger). The Merger Agreement~~ and the ~~Merger have been approved by our board of directors and the board of directors of Venus. The transaction was approved by our stockholders and the stockholders~~business of Venus ~~and is expected to close on or before November 15, 2019, subject to all necessary regulatory approvals.~~

~~On August 14, 2019,~~Concept Ltd. became the Company, Radiant Merger Sub Ltd. and Venus entered into the First Amendment to the Merger Agreement (the “Merger Agreement Amendment”). The Merger Agreement Amendment, among other things, adds as a condition to closing the Merger the satisfactionprimary business of the following: (i) Venus must have raised cash proceeds in one or more issuances of common equity interests or convertible bond indebtedness of Venus or the Company, in an aggregate amount of at least $20.0 million (exclusive of any investment by Madryn Health Partners, LP (Venus’ lender) not later than the close of business on the closing date of the Merger and (ii) Venus and the other loan parties to the credit agreement by and among Venus, such parties and the Madryn entities, must have unrestricted cash of at least $20.0 million immediately after giving effect to the transactions contemplated by the Merger Agreement.company.

as of March 15, 2019 entered into the first amendment to the Equity Commitment Letter (the “Equity Commitment Letter Amendment”). Pursuant to the Equity Commitment Letter Amendment, the investors agreed to amend the Equity Commitment Letter to “pull forward” their maximum committed amounts such that the $21.0 million committed under the Equity Commitment Letter would be invested on or prior to August 30, 2019 in Venus Concept convertible promissory notes which will be convertible into shares of the Company’s common stock immediately following the consummation of the Merger. On August 14, 2019, the equity commitment letter investors purchased an aggregate of $6.9 million in Convertible Notes and on August 21, 2019, certain of the remaining Equity Commitment Letter investors purchased an additional $14.1 million of Convertible Notes.

In addition to the equity financing, Fred Moll and InterWest Partners previously funded a $5.0 million convertible note (the Notes), which will convert into the combined company’s common stock upon the closing of the Merger at a price of $0.4664 per share (subject to adjustment for stock splits). In August 2019, Fred Moll M.D. funded an additional $2.0 million convertible note that will convert into the combined company’s common stock at the closing of the Merger at a price of $0.4664 per share (subject to adjustment for stock splits).

Immediately following the closing of the Merger, we effected a reverse stock split. We had approximately29.7 million shares outstanding after giving effect to the 1-for-15 reverse stock split and after giving effect to the conversion of all Venus convertible notes and Restoration Robotics convertible notes and the issuance of common stock and warrants in the Concurrent Financing.

On November 7, 2019, we completed our merger transaction with Venus and Merger Sub. Upon completion of the Merger, Restoration Robotics was renamed “Venus Concept, Inc.” Concurrent with closing of the Merger, the Company effected a 1-for-15 reverse stock split of the issued and outstanding shares of the Company. The shares of the combined company will trade on the Nasdaq Global Market under the trading symbol “VERO.” ~~See the Current Report on Form 8-K we filed with the SEC on November 7, 2019 for additional information.~~

~~Issuance of Convertible Promissory Notes by Venus and Issuance of Subordinated Promissory Note by Restoration Robotics~~

On June 25, 2019, we entered into a Note Purchase Agreement (the Note Purchase Agreement) with Venus and certain investors named therein pursuant to which Venus sold $7.8 million aggregate principal amount of unsecured senior subordinated convertible promissory notes (the Convertible Notes) to such investors (the Convertible Note Financing). Pursuant to the Note Purchase Agreement, Venus may sell up to $10.0 million of Convertible Notes without further approval of the board of directors of Venus (the Venus Board), and up to an additional $5.0 million of Convertible Notes subject to the approval of the Venus Board. The Convertible Notes bear interest on the unpaid principal amount at a rate of eight percent (8.0%) per annum from the date of issuance. Subject to receipt of the approval of the our stockholders to the extent required under the rules of the Nasdaq Stock Market LLC, effective upon the closing of the Merger, all of the outstanding principal and unpaid accrued interest on the Convertible Notes will automatically be converted, in whole, into the number of shares of our common stock at a conversion price of $0.4664 per share.

On August 14, 2019, pursuant to that certain Note Purchase Agreement, dated as of June 25, 2019, with Venus and certain investors named therein pursuant to which Venus sold an additional $7.2 million aggregate principal amount of Convertible Notes to such investors. The Convertible Notes contain the same terms as the $7.8 million aggregate principal amount of Convertible Notes that were sold pursuant to the Note Purchase Agreement on June 25, 2019 and bear interest on the unpaid principal amount at a rate of eight percent (8.0%) per annum from the date of issuance. The Company’s stockholders approved a proposal that effective upon the closing of the Merger, all of the outstanding principal and unpaid accrued interest on the Convertible Notes will automatically be converted, in whole, into the number of shares of common stock, par value $0.0001 per share, of the Company at a conversion price of $0.4664 per share, subject to adjustment as provided in the Convertible Notes.

In connection with the Convertible Note Financing, on June 25, 2019 we also entered into a $2.5 million Unsecured Subordinated Promissory Note, which funded on July 5, 2019, with Venus Concept USA Inc., a wholly owned subsidiary of Venus. In addition, on August 14, 2019, we entered into a $2.5 million Unsecured Subordinated Promissory Note funded in three tranches A and B of $1.0 million each and tranche C of $0.5 million with Venus Concept USA Inc., a wholly owned subsidiary of Venus, collectively (the Subordinated Notes). Tranche A and B were funded on August 27, 2019 and September 25, 2019, respectively, for a total of $2.0 million with tranche C unfunded as of September 30, 2019. The maturity date of the Subordinated Notes is November 30, 2019. The Subordinated Notes bear interest on the unpaid principal amount at a rate of eight percent (8%) per annum from the date of issuance, provided that upon any event of default pursuant to the Subordinated Notes, the Subordinated Notes shall bear interest payable on demand at a rate that is 4% per annum in excess of the rate of interest otherwise payable under thereunder. The Subordinated Notes are unsecured and subordinate in priority to our existing obligations to Solar Capital, Ltd. under its amended loan and security agreement. On November 7, 2019, the outstanding principal amount of the Convertible Notes and any accrued and unpaid interest was converted into shares of common stock.

We have ~~funded~~had recurring net operating losses and negative cash flows from operations. As of March 31, 2020 and December 31, 2019, we had an accumulated deficit of $125.9 million and $75.7 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 profitable operations and/or obtain additional equity investment or debt financing. Until we achieve profitability, we plan to ~~date primarily from the~~fund our operations and capital expenditures with cash on hand, borrowings and issuance ~~and sale~~ of ~~our common stock in our IPO and subsequent public follow-on offering, private placements of our equity securities and, to a lesser extent, through debt financings, exercises of our~~

~~common stock warrants and payments from our customers.~~capital stock. As of ~~September 30,~~March 31, 2020 and December 31, 2019, we had cash and cash equivalents of ~~$8.9~~$20.6 million, and $15.7 million, respectively. On March 19, 2020 we issued and sold securities in a private placement for gross proceeds of approximately $22.3 million. See “—2020 Private Placement” below. The COVID-19 pandemic has had a significant negative impact on our business, and we cannot anticipate the extent to which ~~does not include~~ the ~~proceeds from~~current economic turmoil will continue to adversely impact our business which is largely subject to whether the ~~Subordinated Notes~~severity worsens, or duration lengthens. Given the COVID-19 pandemic, we may need additional capital to fund our future operations and to access the capital markets sooner than we planned. We cannot assure you that we will be successful in raising additional capital or that such capital, 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 ~~$0.5 million~~our operations and planned capital or research and development expenditures or sell certain assets, including intellectual property assets. See ‘‘—Liquidity and Capital Resources’’.

On ~~November 7, 2019, the Convertible Notes were converted into shares of our common stock immediately following the completion of the Merger.~~

~~On November 3, 2019, Venus Concept Inc., a Delaware corporation, (formerly known as Restoration Robotics, Inc.) and Venus Concept Ltd., a company organized under the laws of Israel,~~March 18, 2020, we entered into a securities purchase agreement with certain investors ~~named therein (collectively, the “Investors”)~~ pursuant to which ~~the Company~~we agreed to ~~issue~~sell and ~~sell~~they agreed to ~~the Investors in a private placement~~purchase an aggregate of approximately ~~112.0~~2.3 million shares of ~~the Company’s~~our common stock, ~~par value $0.0001 per share~~0.7 million shares of Series A Preferred Stock, which is convertible into 6.6 million shares of our common stock and ~~warrants~~the 2020 Private Placement Warrants to purchase up to an aggregate of approximately ~~56.0~~6.7 million shares of ~~the Company’s~~our common stock at an exercise price of ~~$6.00~~$3.50 per share, ~~immediately following~~which we refer to as the ~~closing~~2020 Private Placement. The 2020 Private Placement Warrants have a five-year term and are exercisable beginning 181 days after their issue date. The Series A Preferred Stock will automatically convert into shares of common stock upon receipt of stockholders’ approval. The Series A Preferred Stock has no voting rights other than as required by law. The aggregate net purchase price for the securities sold in the 2020 Private Placement was approximately $20.3 million. The transaction was completed on March 19, 2020.

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

Service revenue includes revenue derived from our VeroGrafters™ technician services, our 2two5 internal advertising agency, and our extended warranty service contracts provided to our existing customers.

Systems are sold through our subscription model, or through traditional sales contracts directly and through distributors.

We generate recurring monthly revenue under our subscription-based business model and from traditional system sales. Venus Concept Ltd. commenced a subscription-based model in North America in 2011 and, for the three months ended March 31, 2020, and 2019, approximately 66% and 72% of system revenues were derived from our subscription model, respectively. We have launched our subscription model in targeted international markets in which we operate directly. We currently do not offer the ARTAS® iX System for hair restoration under the subscription model.

Our subscription model includes an up-front fee and a monthly payment schedule, typically over a period of 36 months, with approximately 40% of total contract payments collected in the first year. To ensure that each monthly product payment is made on time and that the customer’s system is serviced in accordance with the terms of the ~~Merger (the Concurrent Financing).~~

~~On November 7, 2019,~~warranty, every product purchased under a subscription agreement requires a monthly activation code, which we ~~paid off and terminated our obligations under our Loan Agreement with Solar and the Lenders under the Loan Agreement. The payoff to Solar and the Lenders pursuant~~provide to the ~~Loan Agreement consisted~~customer upon receipt of the monthly payment. These recurring monthly payments provide our customers with enhanced financial transparency and predictability. If economic circumstances are appropriate, we provide customers in good standing with the opportunity to “upgrade” to new agreements for the newest available or alternative Venus Concept’s technology throughout the subscription period. This structure can provide greater flexibility than traditional equipment leases secured through financing companies. We work closely with our customers and physicians to provide business recommendations that improve the quality of service outcomes, build patient traffic and improve financial returns for the customer’s business.

We have developed and commercialized twelve technology platforms, including our ARTAS® and NeoGraft® systems. Our medical aesthetic technology platforms have received regulatory clearance for indications such as treatment of facial wrinkles in certain skin types, temporary reduction of appearance of cellulite, non-invasive fat reduction (lipolysis) in the abdomen and flanks for certain body types and relief of minor muscle aches and pains, as well as other indications, that are cleared for marketing in overseas markets but not in the United States, including treatment of certain soft tissue injuries, temporary increase of skin tightening, temporary body contouring, and vaginal treatments in the Israeli market only. 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 market.

In the United States, we have obtained 510(k) clearance from FDA for our Venus Freeze and Freeze Plus systems, Venus Viva, Venus Legacy, Venus Versa, Venus Velocity, Venus Heal, Venus Bliss and ARTAS® systems. The Venus Glow and NeoGraft® systems are listed as class I devices under FDA classification system. Outside the United States, we market our technologies in over 60 countries across Europe, Asia-Pacific and Latin America. Because each country has its own regulatory scheme and clearance process, not every device is cleared or authorized for the same indications in each market in which a particular system is marketed.

As of March 31, 2020, we operated directly in 29 international markets through our 24 direct offices in the United States, Canada, United Kingdom, Japan, South Korea, Mexico, Argentina, Colombia, Spain, France, Germany, Australia, China, Hong Kong, Singapore, Indonesia, Vietnam, India, Israel, Italy, Bulgaria, Russia, Kazakhstan and South Africa.

Our revenues for the three months ended March 31, 2020 and March 31, 2019 were $14.5 million and $24.6 million, respectively. We had a net loss attributable to Venus Concept of $50.2 million and $5.3 million in the three months ended March 31, 2020 and March 31, 2019, respectively. We had Adjusted EBITDA loss of $13.7 million and $1.2 million for the three months ended March 31, 2020 and March 31, 2019, respectively.

Adjusted EBITDA is a non-GAAP measure defined as net loss income before foreign exchange loss, financial expenses, income tax expense, 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 ~~warrants~~although depreciation and amortization are a non-cash charges, the assets being depreciated will often have to ~~purchase up~~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 ~~50,000 shares~~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 ~~Common Stock, post Reverse Stock Split, at an exercise price~~changes in effective tax rates), the age and book depreciation of ~~$6.00 per share.~~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 reconciliation of net loss to Adjusted EBITDA for the periods presented:

⁽¹⁾For the three months ended March 31, 2020, the other adjustments are mainly severance and retention payments.

~~We believe there are several important factors that have impacted, and that we expect will impact, our~~

Our results of ~~operations.~~operations are impacted by several factors, but we consider the following to be particularly significant to our business:

Number of systems delivered. The majority of our revenue is generated from the delivery of systems, both under traditional sale contracts and under subscription agreements. The following table set forth the number of systems we have delivered in the geographic regions indicated:

Mix between traditional sales, subscription model sales and distributor sales. We deliver systems through (1) traditional direct system sales contracts to customers, (2) our subscription model, and (3) system sales through distributor agreements. Unit deliveries under direct system sales contracts and subscription agreements have the higher per unit revenues and gross margins, while revenues and gross margins on systems sold through distributors are lower. However, distributor sales do not require significant sales and marketing support as these expenses are borne by the distributors. In addition, while traditional system sales contracts and subscription contracts have similar gross margins, cash collections on subscription contracts generally occur over a three-year period, with approximately 40% collected in the first year and the balance collected evenly over the remaining two years of the ~~ARTAS~~^® ~~System~~subscription agreement.

Investment in Sales, Marketing and Operations. In recent years we made a strategic decision to penetrate the global market by investing in sales and marketing expenses across all geographic segments. This includes reducing our reliance on distributor arrangements, opening more direct offices and hiring experienced sales, marketing and operational staff. While we will generate incremental product sales in these new markets, these revenues and the related margins may not fully offset the startup investments in the initial years. In the three months ended March 31, 2020 and 2019, respectively, we did not open any direct sales offices, and are currently reevaluating our profitability and overall business model in select countries.

Bad Debt Expense. We maintain an allowance for doubtful accounts for estimated losses that may primarily arise from subscription customers that are unable to make the remaining required payments under their subscription contracts. Due to COVID-19 we have experienced significant reductions in collection of the accounts receivable from our subscription customers across the markets we operate in in the first quarter of 2020. As a result, we recorded an additional provision for bad debt of $0.6 million for the three months ended March 31, 2020.

The ~~growth~~global pandemic caused by the novel coronavirus (COVID-19) has significantly negatively impacted all aspects of our business ~~depends on~~during the first three months of 2020, including our ~~ability to gain broader acceptance~~sales, supply chain, manufacturing and accounts receivable collections.

Supply chain. A number of the ~~ARTAS~~^® ~~System and, in particular, the latest iteration~~components we use to manufacture our systems are sourced from China. We have experienced difficulty with sourcing certain component parts from China for some of our ~~ARTAS System, ARTAS~~^® ~~iX, as well as~~systems and, consequently, we were not able to manufacture the ~~ARTAS procedure by successfully marketing and distributing~~number of systems forecasted for the ~~ARTAS~~^® ~~System and the ARTAS procedure. If~~first quarter of fiscal 2020. Since March 16, 2020, we are unable to ~~successfully commercialize~~access our ~~ARTAS~~^® ~~System~~facility in San Jose or NPI Solutions, Inc., or NPI’s facility and ~~the~~therefore we are currently unable to manufacture ARTAS procedure kits and ARTAS® iX Systems and have been limited to shipping procedure kits from existing inventory. We cannot predict when the Order of the Health Officer of the County of Santa Clara, directing all individuals to shelter-in-place, will be lifted, and we ~~may not be able to generate sufficient revenue to achieve~~can resume normal operations.

Sales markets. We are a global business, having established a commercial presence in more than 60 countries over the course of our ten-year history. Approximately 30% of our 2019 sales came from the APAC and European regions which were impacted by the pandemic throughout the first quarter of fiscal 2020. We also saw a pronounced decline in system sales, product sales and service revenues in North America and Latin America beginning in March 2020, primarily as a result of mandated government lockdowns or ~~sustain profitability. In the near term, we~~“shelter-in-place” requirements in these regions. We expect weCOVID-19 will continue to operate at a loss, and we anticipate we will finance our operations principally through offerings of our capital stock and by incurring debt. If we are unable to raise adequate additional capital, we will be unable to maintain our commercialization efforts and our revenue could decline.

We have made certain strategic changes to and investments in our U.S. sales and global marketing organizations, which included terminating certain personnel and hiring new personnel and realigning our reporting and leadership structuresignificantly negatively affect customer demand in the ~~sales organization. For example, throughout 2018~~second quarter of fiscal 2020 and into the second half of the year. While we ~~were increasing the size of our U.S. sales force by hiring sales professionals with experience selling capital equipment and equipment to physicians~~expect some recovery in some markets in the ~~aesthetic market. In addition, we were investing significantly in~~second half of the year, the impact of COVID-19 on our sales ~~and marketing efforts related to the launch of the ARTAS~~^® ~~iX System. Strategically, we have been focused on our branding and have consolidated our regional marketing teams to standardize our messaging and focus of our marketing spending with an aim to~~could nonetheless be ~~more efficient and cost-effective.~~ significant.

Accounts receivable collections. As a result of the global economic turmoil that has resulted from COVID-19, many of our customers are experiencing difficulty in making timely payments or payments at all during this pandemic under their subscription agreements which could result in higher than anticipated bad debt expense over the course of the 2020 fiscal year. In our largest subscription markets we collected approximately 60% of our billings in March 2020 and 30% of our billings in April 2020. We proactively manage collection of outstanding amounts and have made arrangements with many of our subscription customers to either defer collection or to collect a reduced amount, with the expectation of full collection as business activities resume. Based on our interactions and arrangements secured thus far with our subscription customers, we expect the majority to recommence payments once lockdown or shelter-in-place orders are lifted and their businesses can reopen. Our systems are equipped with monthly activation codes, and non-paying customers will not be provided with codes unless overdue balances are cleared, or a repayment arrangement is made with our finance department. However, at this point we are not able to estimate with a high degree of certainty the ultimate negative collection experience tracing to COVID-19, but as a preliminary assessment we have ~~seen a reduction in and improved efficiency of~~increased our ~~marketing spending.~~

~~We anticipate as we continue~~regular allowance for doubtful accounts by $0.6 million specifically to ~~advance the commercialization of the ARTAS~~^® ~~iX System, our sales and marketing expenses~~cover such potential write-offs. We will continue ~~to increase.~~

~~Revenue Composition~~our pro-active management of collections and ~~Trends~~will revisit our estimates during the second quarter of fiscal 2020.

Mitigation efforts. We are focused on mitigating the impacts of the COVID-19 pandemic on our business to the extent possible. Our mitigation efforts include the following:

~~Historically,~~hair restoration procedures. The harvesting procedure is an act of activating the ~~majority~~needle mechanism of ~~our revenue~~the ARTAS® System and ~~our revenue growth has been generated through~~it consists of multiple harvests (each harvested hair follicle is one harvest), which direct customers can purchase at fixed price per harvest (with a minimum of 750 harvests) or a set price per procedure, as agreed upon at the time of system ~~sales. While we would expect our procedure-based fees to increase as our installed base~~purchase. We also provide one sterile and one non-sterile disposable clinical kit per procedure. On average, each procedure consists of ~~ARTAS~~^® ~~and ARTAS~~^® ~~iX Systems grow worldwide,~~approximately 1,500 harvests. The customer must place an online order with us for the ~~total~~ number of procedures ~~has not followed~~desired and make a payment. Upon receipt of the order and the related payment, we release an electronic key that enables the ARTAS® System to perform the number of procedures purchased. Once the procedures are exhausted (or “consumed”), the customer must purchase additional procedures. Harvesting procedures can also be purchased in bulk orders. The site making procedure uses ARTAS® System to create a recipient site (i.e. site making) in the patient’s scalp affected by androgenic alopecia or AGA (or male pattern baldness). The site making procedures generally include one disposable site making kit. The site making procedures are sold to customers in the same manner as the harvesting procedures.

We also generate revenue from our customer base by selling Glide (a cooling/conductive gel which is required for use with many of our systems), marketing supplies and kits, consumables and disposables, replacement applicators and handpieces, our skincare products (Venus Skin) and hair products, and ARTAS® System training.

We generate ancillary revenue from our existing customers by selling additional services including VeroGrafters™ technician services for hair restoration using our NeoGraft® system, extended warranty service contracts, and services provided by our 2two5 internal advertising agency.

Cost of goods sold consists primarily of costs associated with manufacturing our different systems, including direct product costs from third-party manufacturers, warehousing and storage costs and fulfillment and supply chain costs inclusive of personnel-related costs (primarily salaries, benefits, incentive compensation and stock-based compensation). Cost of goods sold also includes the cost of upgrades, technology amortization, royalty fees, parts, supplies, and cost of product warranties.

Selling and Marketing. We currently sell our products and services using direct sales representatives in North America and in select international markets. Our sales costs primarily consist of salaries, commissions, benefits, incentive compensation and stock-based compensation. Costs also include expenses for travel and other promotional and sales-related activities. We expect that selling expenses as a percentage of revenue will decline over time.

Our marketing costs primarily consist of salaries, benefits, incentive compensation and stock-based compensation. They also include expenses for travel, trade shows, and other promotional and marketing activities, including direct and online marketing. Our marketing expenses have increased as we continue to scale up our direct operations across all geographic segments. However, given the fixed cost nature of many of these expenses, we expect that marketing expenses as a percentage of revenue will decline over time.

General and Administrative. Our general and administrative costs primarily consist of expenses associated with our executive, accounting and finance, legal, intellectual property and human resource departments. These expenses consist of personnel-related expenses (primarily salaries, benefits, incentive compensation and stock-based compensation) and allocated facilities costs, audit fees, legal fees, consultants, travel, insurance and bad debt expense. During the normal course of operations, we may incur bad debt expense on accounts receivable balances that are deemed to be uncollectible.

Research and Development. Our research and development costs primarily consist of personnel-related costs (primarily salaries, benefits, incentive compensation, and stock-based compensation), material costs, amortization of intangible assets, regulatory affairs, and clinical costs, and facilities costs in our Yokneam, Israel research center. Our ongoing research and development activities are primarily focused on improving and enhancing our current technologies, products, and services, and on expanding our current product offering with the introduction of new products and expanded indications.

We expense all research and development costs in the periods in which they are incurred. We expect our research and development expenses to increase in absolute dollars as we continue to invest in research, clinical studies, regulatory affairs, and development activities, but to decline as a percentage of revenue as our ~~installed base~~revenue increases over time.

Finance expenses consists of ~~systems sold. For example,~~interest income, interest expense and other banking charges. Interest income consists of interest earned on our ~~procedure-based revenue decreased~~cash, cash equivalents and short-term bank deposits. We expect interest income to vary depending on our average investment balances and market interest rates during each reporting period. Interest expense consists of interest on long-term debt and other borrowings. The interest rate on our long-term debt is fixed at 12% as of March 31, 2020 and 9% as of December 31, 2019.

Foreign currency exchange loss (income) changes reflect foreign exchange gains or losses related to the change in value of assets and liabilities denominated in currencies other than the U.S. dollar.

We estimate our current and deferred tax liabilities based on current tax laws in the statutory jurisdictions in which we operate. These estimates include judgments about liabilities resulting from temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. Our most significant temporary difference results from our subscription business. In certain jurisdictions, only the payments invoiced in the current period are subject to tax, but for accounting purposes, the discounted value of the total subscription contract is reported and tax affected. This results in a deferred tax credit which is settled in the future period when the monthly installment payment is issued and settled with the customer. Since our inception, we have not recorded any tax benefits for the ~~three~~net operating losses we have incurred in each year or for the research and ~~nine~~development tax credits we generated in the United States. We believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized.

Income tax expense is recognized based on the actual income or loss incurred during the three months ended ~~September 30, 2019, as compared~~March 31, 2020. Due to the ~~same~~uncertainties as a result of COVID-19, we were unable to determine an annualized effective tax rate and calculate the income tax expense in accordance with such method. The effective tax rate differs from the statutory tax rate due to the recognition of previously unrecognized carried forward tax losses.

In many countries where we have direct operations, we have minority shareholders. For accounting purposes, these minority partners are referred to as non-controlling interests, and we record the non-controlling interests’ share of earnings in our subsidiaries as a separate balance within stockholders’ equity in the consolidated balance sheet and consolidated statement of stockholders’ equity.

For the three months ended March 31, 2019, we previously classified the issuance of common stock and preferred stock as a credit to common stock. In accordance with U.S. GAAP, amounts issued in excess of par value are required to be accounted for in additional paid in capital (APIC). The error is a reclassification from common stock into APIC and has an immaterial impact on the consolidated statement of stockholders’ equity and consolidated balance sheet. Items previously reported have been reclassified to conform to U.S. GAAP and the reclassification did not have any impact on the Company’s consolidated statements of operations, consolidated statements of comprehensive loss, consolidated statements of cash flows and net loss per share calculations.

The following tables set forth our consolidated results of operations in U.S. dollars and as a percentage of revenues for the periods ~~in 2018, whereas our installed base has grown from 2018 to 2019. While procedure-based revenue has decreased, from a year-to-date perspective, more than~~indicated:

	Three Months Ended March 31
	2020			2019
Consolidated Statements of Loss:	(dollars in thousands)
Revenues:
Leases	$	6,813		$	15,742
Products and services		7,695			8,838
Total revenue		14,508			24,580
Cost of goods sold		5,228			6,515
Gross profit		9,280			18,065
Operating expenses:
Sales and marketing		8,611			9,532
General and administrative		14,176			8,340
Research and development		2,624			2,061
Goodwill impairment		27,450			—
Total operating expenses		52,861			19,933
Loss from operations		(43,581	)		(1,868	)
Other expenses:
Foreign exchange loss		4,279			697
Finance expenses		2,254			1,654
Loss before income taxes		(50,114	)		(4,219	)
Provision for income taxes		589			886
Net loss	$	(50,703	)	$	(5,105	)
Net loss attributable to the Company		(50,190	)		(5,273	)
Net (loss) income attributable to noncontrolling interest		(513	)		168
Net loss	$	(50,703	)	$	(5,105	)
As a % of revenue:
Revenues		100	%		100	%
Cost of goods sold		36.0			26.5
Gross profit		64.0			73.5
Operating expenses:
Selling and marketing		59.4			38.8
General and administrative		97.7			33.9
Research and development		18.1			8.4
Goodwill impairment		189.2			—
Total operating expenses		364.4			81.1
Loss from operations		(300.4	)		(7.6	)
Foreign exchange loss		29.5			2.8
Finance expenses		15.5			6.7
Loss before income taxes		(345.4	)		(17.2	)

The following tables set forth our revenue ~~from system sales on a combined basis, during~~by region and by product type for the ~~aforementioned~~ periods we believe that revenue from procedure-based fees may not grow proportionally as compared to the increase in our installed base and that it could vary from quarter-to-quarter due to a number of factors, including:indicated:

~~In order to increase the number of procedures performed per ARTAS~~^® ~~or ARTAS~~^® iX System, and in turn increase revenue from procedure-based fees, we have, in connection with the leadership and sales and marketing changes, initiated programs to assist certain physicians in marketing efforts, patient education and practice optimization to increase utilization

Comparison of the ~~ARTAS~~^® ~~and ARTAS~~^® iX Systems. If these efforts are successful, we anticipate that the growth in procedure-based fees will increase and that quarterly fluctuations in the number of total procedures performed will be reduced.

~~Since launching the ARTAS~~^® System in 2011, we have obtained clearance to sell our products in over 60 countries. In June 2012, we obtained our CE mark to sell our product into the European Economic Area, or EEA. We have sold into 37 countries and sell directly into the U.S., Korea, Hong Kong, Singapore, Spain, Poland, Benelux, Scandinavia, ~~Portugal, the Netherlands~~ and through distributors in the other countries. We obtained clearance to sell in China in September 2016. However, we have not obtained any regulatory approvals or clearances outside of the U.S. and Europe for our implantation functionality.

Revenue from markets outside of the U.S accounted for 43% of our total revenue in the first nine months of 2019, compared to 43% from the same period in 2018. Although we will continue to invest resources outside of the U.S., we anticipate that the strategic shift in our sales strategy towards the U.S. market will impact the revenue mix between the U.S. and non-U.S. markets. In particular, in connection with our newly launched ARTAS^® ~~iX System, which is only cleared for sale in the U.S., our marketing efforts are highly focused on the U.S.~~

~~Internationally, both the ARTAS~~^® ~~and ARTAS~~^® ~~iX System unit sales and procedure-based fees decreased in the first nine months of 2019 relative to the first nine months of 2018~~. ~~We believe the decline in system sales in the Asia Pacific region was due in part to potential customers delaying their purchase until the ARTAS~~^® ~~iX System is approved or cleared for use in their region.~~

~~While we believe our ARTAS~~^® iX System, which incorporates a robotic implantation functionality, could have a positive effect on system sales in the U.S. and Europe, as the robotic implantation functionality is approved in the U.S. and the Company received the CE Mark approval for Europe in August 2019. We believe that potential non-U.S. customers of the ARTAS^® ~~iX System may increase purchases of ARTAS~~^® ~~systems since the implantation functionality is available in their market.~~

~~We expect our operating expenses to increase because of increased sales and marketing activity to promote penetration in markets outside the U.S. where we already sell the ARTAS~~^® ~~System and geographic expansion into new markets.~~

We anticipate that our quarterly results of operations may fluctuate for the foreseeable future due to several factors, including the performance of our direct sales force and international distributors, the launch of our implantation functionality and the ARTAS^® ~~iX System, and unanticipated interruptions and expenses related to our operations and the proposed merger with Venus. In addition, due to the long lead time to finalize ARTAS~~^® ~~and ARTAS~~^® iX-Systems unit sales with our physician customers, and the significant impact each unit sale has on a period’s revenue due to the price of each unit, our quarterly revenue may not be comparable from one period to another.

Furthermore, our industry is characterized by seasonally lower demand during the third calendar quarter of the year, when both physicians and prospective patients take summer vacations. A detailed discussion of these and other factors that impact our business is provided in the “Risk Factors” section in this Quarterly Report on Form 10-Q.

Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018:~~

Three Months Ended

Nine Months Ended

September 30,

Change

September 30,

Change

2019

2018

$

%

2019

2018

$

%

(dollars in thousands)

Revenue

$
3,307

$
4,818

$
(1,511
)

(31
)%

$
11,632

$
15,298

$
(3,666
)

(24
)%
Cost of revenue

2,297

2,663

(366
)

(14
)

6,465

8,362

(1,897
)

(23
)
Gross profit

1,010

2,155

(1,145
)

(53
)

5,167

6,936

(1,769
)

(26
)
Gross margin

31
%

45
%

44
%

45
%

Operating expenses:

Sales and marketing

3,952

4,398

(446
)

(10
)

12,688

13,147

(459
)

(3
)
Research and development

1,604

2,008

(404
)

(20
)

4,573

6,286

(1,713
)

(27
)
General and administrative

2,155

2,191

(36
)

(2
)

5,721

6,159

(438
)

(7
)
Merger related expenses

1,521

—

1,521

100

4,079

—

4,079

100

Total operating expenses

9,232

8,597

635

7

27,061

25,592

1,469

6

Loss from operations

(8,222
)

(6,442
)

(1,780
)

28

(21,894
)

(18,656
)

(3,238
)

17

Other expense, net:

Interest expense

(930
)

(631
)

(299
)

47

(2,512
)

(1,489
)

(1,023
)

69

Other income (expense), net

(55
)

12

(67
)

(558
)

(109
)

(567
)

458

(81
)
Total other expense, net

(985
)

(619
)

(366
)

59

(2,621
)

(2,056
)

(565
)

27

Net loss before provision for
income taxes

(9,207
)

(7,061
)

(2,146
)

30

(24,515
)

(20,712
)

(3,803
)

18

Provision for income taxes

9

8

1

13

33

32

1

3

Net loss

$
(9,216
)

$
(7,069
)

$
(2,147
)

30
%

$
(24,548
)

$
(20,744
)

$
(3,804
)

18
%

	Three Months March 31,
	2020				2019				Change
(in thousands, except percentages)	$		% of Total		$		% of Total		$			%
Revenues:
Subscription—Systems	$	6,813		47.0	$	15,742		64.0	$	(8,929	)		(56.7	)
Products—Systems		3,498		24.1		6,315		25.7		(2,817	)		(44.6	)
Products other		1,510		10.4		1,328		5.4		182			13.7
Services		2,687		18.5		1,195		4.9		1,492			124.9
Total	$	14,508		100.0	$	24,580		100.0	$	(10,072	)		(41.0	)

~~Revenue.~~ ~~Revenue~~Total revenue decreased ~~31% and 24%~~by $10.1 million, or 41.0%, to $14.5 million for the three ~~and nine~~ months ended ~~September 30, 2019, respectively, compared to~~March 31, 2020 from $24.6 million for the ~~same periods in 2018.~~three months ended March 31, 2019. The ~~change~~decrease in revenue was ~~primarily~~a result of decreased revenue in the United States of $3.9 million and decreased revenue in international markets of $6.2 million. The decrease in revenue in the United States was driven by COVID-19 related lockdown restrictions and shelter-in-place orders imposed by federal and state governments. The decrease in revenue in international markets is largely due to ~~lower sales volume of our system and procedure sales for~~disruptions in supply chain caused by restrictions imposed by the ~~three and nine months ended September 30, 2019, as compared~~Chinese government due to the ~~same period~~COVID-19 pandemic in ~~2018.~~ January and February of 2020 followed by lockdown restrictions and shelter-in-place orders imposed subsequently by federal and local governments in other countries and markets in which we operate. In both the United States and international markets, the business closures and the resultant uncertainty negatively impacted our ability to access and sell into our customary channels. Where accessibility was possible, selling efforts were hampered by target customer concerns over economic uncertainty.

We sold ~~seven~~an aggregate of 237 systems in the three months ended ~~September 30, 2019, as~~March 31, 2020 compared to 11 systems in the same period in 2018. We believe that lower system sales were the result of headcount transition and or customers holding off purchases due to the merger. Procedures-based fees also declined542 in the three months ended ~~September 30, 2019, as compared to the same period~~March 31, 2019. The percentage of systems revenue derived from our subscription model was approximately 66% in ~~2018 due to the timing of ARTAS procedures being purchased~~

~~in prior periods by customers (and consumed them in the current period) which resulted in fewer procedures purchased in the third quarter of 2019.~~ ~~Additionally, the trend of the procedure utilization in the second quarter of 2019 was significantly lower than past periods which may have attributed to the fewer procedures purchased by customers.~~

~~Gross Margin. Gross margin typically fluctuates with product mix, selling prices, material costs and revenue level. Gross margin for~~ the three months ended ~~September 30, 2019~~March 31, 2020 compared to 72% in the three months ended March 31, 2019.

Other product revenue increased by $0.2 million, or 13.7%, to $1.5 million in the three months ended March 31, 2020 from $1.3 million in the three months ended March 31, 2019. The increase was driven by sales of ARTAS procedure kits, while other product revenue remained flat year-over-year.

Services revenue increased by $1.5 million, or 124.9%, to $2.7 million in the three months ended March 31, 2020 from $1.2 million in the three months ended March 31, 2019. This increase was driven by an expansion of the VeroGrafters™ technician services and additional warranty revenue on ARTAS® systems.

Cost of goods sold decreased by ~~fourteen percentage points~~$1.3 million, or 20.2%, to $5.2 million in the three months ended March 31, 2020, from $6.5 million in the three months ended March 31, 2019. Gross profit decreased by $8.8 million, or 48.5%, to $9.3 million in the three months ended March 31, 2020, as compared to $18.1 million in the ~~same period in 2018, while gross margin for the nine~~three months ended ~~September 30, 2019 decreased~~March 31, 2019. The decrease in gross profit is primarily due to disruptions in supply chain due to COVID-19 followed by ~~one percentage point~~lockdown restrictions and shelter-in-place orders imposed by federal and local governments in countries and markets we operate. Gross margin was 64.0% of revenue in the three months ended March 31, 2020, compared to 73.5% of revenue in the ~~same period~~three months ended March 31, 2019. The decrease in ~~2018. Lower~~ gross ~~margin for the first nine months of 2019 was~~profit percentage is primarily ~~driven by inventory reserve associated with certain excess materials, while gross margin was significantly down in third quarter of 2019~~ due to excess manufacturing costs related to the ARTAS® system, as a result of lower ~~average selling price, higher overhead absorption~~than expected production, and inventory ~~reserve associated~~fair value adjustments recognized on the business combination with ~~certain excess materials.~~Venus Concept Ltd. expensed through cost of goods sold during the three months ended March 31, 2020.

Selling and Marketing. ~~Sales~~Selling and marketing expenses decreased ~~10% and 3%, for~~by 9.7% in the three ~~and nine~~ months ended ~~September 30, 2019, respectively,~~March 31, 2020 compared to the ~~same periods in 2018. The decrease was~~ ~~primarily~~ ~~due to lower variable compensation in connection with fewer system sales in the third quarter of 2019.~~

~~Research and Development. Research and development expense decreased 20% and 27%, for each of the~~ three ~~and nine~~ months ended ~~September 30, 2019, respectively, compared to the same periods in 2018. The~~March 31, 2019. This decrease was primarily due to reduced selling commissions as a result of lower ~~outside services~~sales in the first quarter of 2020. As a percentage of total revenues, our selling and ~~consulting costs associated with~~marketing expenses increased by 20.6%, from 38.8% in the ~~development~~three months ended March 31, 2019 to 59.4% in the three months ended March 31, 2020. We expect selling and marketing expenses to decrease as a percentage of sales in the ~~ARTAS~~^® ~~iX System, which was commercially launched in July 2018.~~future.

General and Administrative. General and administrative expenses ~~decreased 2% and 7%, for~~increased by 70.0% in the three ~~and nine~~ months ended ~~September 30, 2019, respectively,~~March 31, 2020 compared to the ~~same periods~~three months ended March 31, 2019, reflecting costs related to increased legal, audit and regulatory expenses primarily related to public company reporting obligations, an increase in ~~2018. The decrease was primarily the~~bad debt expense as a result of ~~reduced professional service costs, consisting~~COVID-19 related lockdown restrictions and shelter-in-place orders, and additional amortization of ~~accounting, consulting, legal~~intangible assets recognized on the business combination with Venus Concept Ltd. As a percentage of total revenues, our general and ~~other professional fees incurred~~administrative expenses increased by 63.8%, from 33.9% in ~~connection with our first year as a~~the three months ended March 31, 2019, to 97.7% in the three months ended March 31, 2020, primarily due to expenses related to public company reporting obligations and due to lower revenues in ~~2018.~~the first quarter of 2020.

Research and Development~~Merger~~. Research and development expenses increased ~~100%, for each of~~by 27.3% in the three ~~and nine~~ months ended ~~September 30, 2019, due to the merger transaction between us and Venus as further described in the overview section of Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”~~

~~Interest expense. Interest expense increased 47% and 69% for the three and nine months ended September 30, 2019, respectively,~~March 31, 2020 compared to the ~~same periods~~three months ended March 31, 2019. As a percentage of total revenues, our research and development expenses increased by 9.7%, from 8.4% in ~~2018.~~the three months ended March 31, 2019, to 18.1% in the three months ended March 31, 2020. The increase in ~~interest~~the research and development expense ~~between~~is attributable to the ~~three-month periods was related~~ARTAS iX™ System research and development program we acquired through the Merger in November of 2019.

Goodwill impairment. We considered a substantial decline in our equity value and worsening macroeconomic factors due to ~~a higher average principal balance~~COVID-19 as triggering events that caused analysis of potential impairment of our ~~outstanding long-term-debt obligations~~goodwill and other intangible assets as ~~we refinanced our debt obligations with Solar~~of March 31, 2020. The quantitative impairment analysis resulted in ~~May 2018, which had a higher outstanding balance~~goodwill impairment of $27.5 million driven primarily by lower than ~~the loan with our previous lender~~expected actual sales, as well as ~~additional lending from our related party convertible notes~~lower projected sales and ~~unsecured subordinated promissory notes.~~decreased profitability because of COVID-19.

Foreign exchange loss.~~. Other expense, net decrease was primarily due to (i) unamortized debt issuance~~ We had a foreign exchange loss of $4.3 million in the three months ended March 31, 2020 and ~~debt discounts written off~~foreign exchange loss of $0.7 million in the three months ended March 31, 2019. Changes in foreign exchange in the three months ended March 31, 2020 are driven mainly by ~~us and (ii) fees paid directly to Oxford and Solar~~foreign exchange effect on accounts receivable balances denominated in ~~connection~~currencies other than the US dollar with the ~~extinguishment~~larger impact for Mexico, Canada and Australia which currencies declined as a result of the ~~Oxford loan and the entry into the new Solar loan~~collapse in ~~May 2018 as mentioned above.~~

~~Provision for income tax.~~ Our effective tax rate is (0.10%) and (0.14%) for income tax for the three and nine months ended September 30, 2019, and we expect that our effective tax rate for the full year 2019 will be (0.17%). Based on available evidence, including cumulative losses since inception and expected future losses, we have determined that it is more likely than not that our U.S. federal, U.S. state and Korea deferred tax assets will not be realized and therefore a valuation allowance has been provided on the U.S. federal, U.S. state and Korea net deferred tax assets.

~~In general, if we experience a greater than 50% aggregate change~~world oil prices in ownership over a three-year period, utilization of our pre-change net operating loss, or NOL, and credit carryforwards are subject to an annual limitation under Sections 382 and 383 of the U.S. Internal Revenue Code, or the Code. Generally, U.S. states maintain similar laws or regulations as Sections 382 and 383 of the Code. The annual limitation generally is determined by multiplying the value of our stock at the time of such ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the NOL or tax credit carryforwards before utilization.

We file tax returns for U.S. federal and state taxes along with tax returns in the United Kingdom, Hong Kong, Spain and South Korea. We are not currently subject to any income tax examinations. Since our inception, we have incurred losses from our U.S. operations, which generally allows all tax years to remain open.

~~We recognize the financial statement effects of a tax position when it becomes more likely than not, based upon the technical merits, that the position will be sustained upon examination.~~March 2020. We do not ~~expect any material changes~~currently hedge against foreign currency risk.

Finance Expenses. Finance expenses increased by $0.6 million, from $1.7 million in the ~~next 12~~three months ended March 31, 2019, to $2.3 million in ~~unrecognized tax benefits.~~the three month ended March 31, 2020, mostly due to increase in the annual interest rate from 9.00% to 12.00% during the PIK Period under the Madryn Credit Agreement. See “—Liquidity and Capital Resources” below.

Income Taxes Expense.~~We recognize interest and/or penalties related~~ Income taxes expense decreased to ~~uncertain tax positions. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected~~$0.6 million in the ~~period that such determination~~three months ended March 31, 2020 from a $0.9 million income tax expense in the three months ended March 31, 2019. The tax provision is ~~made. The interest~~driven by profitable sales and ~~penalties are recognized as other expense~~the actual effective tax rates where the sale took place. In the first quarter of 2020, we had a combination of less profitable sales and ~~not~~an increase in sales in lower rate tax ~~expense. We currently have no interest and penalties related to uncertain tax positions.~~jurisdictions.

~~To date, we have incurred significant net losses and negative cash flows from operations. Our net loss was $9.2~~

We had $20.6 million and ~~$7.1~~$15.7 million ~~for each~~ of cash and cash equivalents as of March 31, 2020, and December 31, 2019, respectively. We have funded our operations with cash generated from operating activities, through the sale of equity securities to investors in private placements and through debt financing. During the three months ended ~~September 30,~~March 31, 2020, we drew $0.4 million on our credit facility with City National Bank of Florida and completed an equity financing that generated $22.3 million of gross proceeds . See “—The 2020 Private Placement” above. We had total debt obligations of approximately $71.5 million as of March 31, 2020, including line of credit borrowings of $8.2 million, compared to total debt obligations of approximately $69.0 million at December 31, 2019, including line of credit borrowings of $7.8 million.

Our working capital requirements reflect the growth of our business over the last few years, in particular, the shift from a traditional sales model to a subscription model. Working capital is primarily impacted by growth in our subscription sales which also impacts accounts receivable. Our overall growth also requires higher inventory levels to meet demand and ~~2018, respectively, and $24.5 million and $20.7 million for each~~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 66:34 in the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020, compared to 75:25 in the three months ended March 31, 2019. We are directing more effort to securing traditional sales in order to improve cash flow. We expect inventory to continue to increase in the short term, but at a lower rate than the rate of revenue growth.

We also require modest funding for capital expenditures. Our capital expenditures relate primarily to our research and ~~2018, respectively. As~~development facilities in Yokneam, Israel. In addition, our capital investments have included improvements and expansion of ~~September 30, 2019, we had an accumulated deficit~~our subsidiaries’ operations to support our growth.

On October 11, 2016, Venus Concept Ltd. entered into a credit agreement as a guarantor with Madryn Health Partners, LP, as administrative agent, and certain of ~~$217.7~~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 Ltd.’s subsidiaries (the “Subsidiary Obligors”). The Madryn Credit Agreement is comprised of four tranches of debt aggregating $70.0 million. As of ~~September 30, 2019,~~March 31, 2020, and December 31, ~~2018, we~~2019, the Subsidiary Obligors had ~~cash~~borrowed $60.0 million under the term A-1 and ~~cash equivalents of $8.9 million~~A-2 and ~~$16.1 million, respectively. As~~B tranches of the ~~filing~~Madryn Credit Agreement. Term C borrowings of $10.0 million were undrawn and are no longer available. On the 24th payment date, which is September 30, 2022, the aggregate outstanding principal amount of ~~this Quarterly Report, we believe~~the loans, together with any accrued and unpaid interest thereon and all other amounts due and owing under the loan agreement will become due and payable in full. Borrowings under the Madryn Credit Agreement are secured by substantially all of our ~~current cash~~assets and ~~cash equivalents will not be sufficient to fund our operations for~~ the ~~next twelve months. These factors raise substantial doubt about our ability to continue as a going concern.~~assets of the Subsidiary Obligors.

~~On May 10, 2018,~~In connection with the Merger, we entered into an amendment to the Madryn Credit Agreement, dated as of November 7, 2019, (the “Amendment”), pursuant to which we joined as (i) a ~~Loan~~guarantor to the Madryn Credit Agreement and (ii) a grantor to the certain security agreement, dated October 11, 2016, (as amended, restated, supplemented or otherwise modified from time to time), by and among the grantors from time to time party thereto and the administrative agent (the “U.S. Security Agreement”). As a guarantor under the Madryn Credit Agreement, we are jointly and severally liable for the obligations (as defined in the Madryn Credit Agreement) thereunder and to secure our obligations thereunder, we have granted the administrative agent a lien on all of our assets pursuant to the terms of the U.S. Security Agreement. In the event of default under the Madryn Credit Agreement, Madryn may accelerate the obligations and foreclose on the collateral granted by us and Venus Concept Ltd. under the U.S. Security Agreement to satisfy the obligations.

Effective August 14, 2018, interest on the Madryn loan is 9%, payable quarterly. Previously, interest was payable quarterly, at Venus Concept Ltd.’s option, as ~~amended~~follows: cash interest 9% during the interest only period, which was 3 years or 12 principal payments after closing, plus an additional 4% rate, paid in kind (“PIK”). We have the option of settling the PIK interest in cash or adding the owed interest to the principal amount of the loan.

On April 29, 2020, we entered into an amendment to the Madryn Credit Agreement that (i) require that interest payments for the period beginning January 1, 2020 and ending on, and including, April 29, 2020 (the ~~Solar Agreement) with Solar Capital Ltd. (Solar)~~“PIK Period”), be paid-in-kind, (ii) increase the interest rate from 9.00% per annum to 12.00% per annum during the PIK Period and (iii) require us to provide certain additional financial and other ~~lenders thereunder (together with Solar,~~reporting information to the ~~Lenders).~~ lenders.

Pursuant to the terms of the ~~Solar~~Madryn Credit Agreement, ~~we borrowed $20.0 million with an interest rate at U.S. Dollar LIBOR plus 7.95% per annum (the Borrowings). All amounts borrowed under the Solar Agreement are secured by liens over~~if all ~~personal property~~or any portion of the ~~Company. Monthly payments on any amounts drawn shall consist~~loans are prepaid, then a prepayment premium must be paid equal to: (i) 8.00% of the ~~interest only payments for the first 18 months, followed by payments of principal~~loans prepaid if prepaid on or prior to August 31, 2019, (ii) 6.50% if prepaid after August 31, 2019 but on or prior to August 31, 2020, (iii) 5.00% if prepaid after August 31, 2020 but on or prior to February 28, 2021, (iv) 4.00% if prepaid after February 28, 2021, but on or prior to August 31, 2021, (v) 3.00% if prepaid after August 31, 2021, but on or prior to February 28, 2022, and ~~accrued interest monthly thereafter until the four-year anniversary of the date of the Solar Agreement. In connection~~(vi) 2.00% if prepaid after February 28, 2022.

The Madryn Credit Agreement contains certain covenants that require us together with ~~the Solar Agreement, we granted the Lenders warrants~~our subsidiaries to ~~purchase an aggregate of 161,725 shares of our common stock exercisable at a price of $3.71 per share. On November 2, 2018, the Solar Agreement was amended to modify the compliance requirement for~~achieve certain minimum revenue and liquidity ~~threshold. As part~~thresholds. The minimum revenue and liquidity covenants require that we and our subsidiaries, on a consolidated basis, achieve (i) minimum reported revenue targets for any four consecutive fiscal quarter period of ~~this amendment, we paid a fee of $50,000~~an amount equal to the ~~Lenders~~greater of (A) $100.0 million and ~~cancelled 161,725 Warrants (originally issued in May 2018, as mentioned above)~~(B) one hundred and ~~issued 161,725 new warrants~~fifty percent (150%) of the ~~Company’s common stock, $0.0001 par value per share, at an exercise price of $1.76 per share. All other terms~~aggregate outstanding amount of the ~~Warrants were unchanged. On February 13, 2019,~~loans as of the ~~Solar Agreement was amended~~last day of such four consecutive fiscal quarter period, (ii) minimum levels of cash held in deposit accounts controlled by Madryn to ~~modify~~be no less than $2.0 million and (iii) minimum levels of cash held in all deposit accounts, plus availability under the ~~compliance requirement for certain liquidity thresholds. As part of this amendment, the Final Fee~~CNB Credit Facility (as defined ~~in the Solar Agreement)~~below), to be no less than $5.0 million.

The Madryn Credit Agreement also contains various covenants that is payable to the Lenders upon prepayment, default and maturity of the Solar Agreement, was amended and increased $130,000 to $960,000. In addition, the Solar Agreement was amended to include new covenants covering certain operational milestones. On June 14, 2019, the Solar Agreement was further amended to modify the compliance requirement for certain liquidity thresholds. As part of this amendment, the Final Fee that is payable to the Lenders upon prepayment, default and maturity of the Solar Agreement, was amended and increased by $150,000 to $1,110,000,limit our ability and the ~~Solar Agreement was amended~~ability of our subsidiaries to ~~include a new covenant covering~~engage in specified types of transactions. Subject to limited exceptions, these covenants limit our ability, without Madryn’s consent, to, among other things:

As of ~~September 30,~~March 31, 2020, and December 31, 2019, we were in compliance with all required ~~covenants~~covenants.

In connection with the Madryn Credit Agreement, Venus Concept Ltd. issued three types of 10-year warrants (“Madryn Warrants”). As of March 31, 2020, Madryn Warrants exercisable for 179,932 shares of common stock were outstanding.

We have a revolving credit facility with CNB pursuant to which CNB agreed to provide a revolving credit facility to us and certain of our subsidiaries in the maximum principal amount of $10.0 million ($7.5 million as of March 31, 2019), to be used to finance working capital requirements (the “Credit Facility”). In April 2019, maximum principal amount under the ~~Solar~~Credit Facility was increased from $7.5 million to $10.0 million. As of March 31, 2020, there was $8.2 million outstanding ($7.8 million as of December 31, 2019) under the Credit Facility, which bears interest at LIBOR rate plus 3.25%, which amounted to a weighted average of 4.64% (5.9% in the three months ended March 31, 2019).

The Credit Facility contains various covenants that limit our ability to engage in specified types of transactions. Subject to limited exceptions, these covenants limit our ability, without CNB’s consent, to, among other things, sell, lease, transfer, exclusively license or dispose of our 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. In addition, the Credit Facility contains certain covenants that require our subsidiary obligors to achieve certain minimum account balances, or a minimum debt service coverage ratio and a maximum total liability to tangible net worth ratio. If our subsidiary obligors fail to comply with these covenants, it will result in a default and require us and our subsidiary obligors to repay all outstanding principal amounts and accrued interest.

The Credit Facility is secured by substantially all of our assets and the assets of certain of our subsidiaries requires us to maintain either a minimum cash balance in deposit accounts or a maximum total liability to tangible net worth ratio and a minimum debt service coverage ratio. An event of default under the Credit Facility would cause a default under the Madryn Credit Agreement as ~~amended.~~described above.

On ~~February 28, 2019,~~March 20, 2020, we ~~raised $5.0 million through~~entered into a Second Amended and Restated Loan Agreement as a borrower with CNB, as amended, pursuant to which CNB agreed to make certain loans and other financial accommodations to us. In connection with the ~~issuance~~CNB Credit Facility, we also entered into (i) a Second Amended and Restated Guaranty of ~~Notes~~Payment and Performance with CNB dated as of March 20, 2020, (the “CNB Guaranty”), pursuant to ~~Frederic Moll, M.D., one of our directors, and Interwest Partners IX, LP, one of our stockholders affiliated with Gil Kliman, M.D., one of our directors. The maturity date of~~which we agreed to guaranty the Notes is August 28, 2020. The Notes bear interest on the unpaid principal amount at a rate of eight percent (8.0%) per annum from the date of issuance. The Notes are unsecured and subordinate in priority to our existing obligations under the ~~Solar Agreement.~~CNB Credit Facility and (ii) a Security Agreement with CNB dated as of March 20, 2020, (the “CNB Security Agreement”), pursuant to which we agreed to grant CNB a security interest, in substantially all of its assets, to secure the obligations under the CNB Credit Facility. Borrowings under the CNB Credit Facility are secured by substantially all our assets and the CNB Guaranty.

In the event of a default, if we and our subsidiary obligors are unable to repay all outstanding amounts, CNB may foreclose on the collateral granted to it to collateralize the indebtedness, which includes the enforcement of the CNB Guaranty, which will significantly affect our ability to operate its business.

As of March 31, 2020, and December 31, 2019, we ~~raised $2.5 million through the issuance of the Subordinated Note to~~were in compliance with all required covenants.

In April 2020, we and our wholly-owned subsidiary, Venus Concept USA Inc., a ~~wholly owned subsidiary~~Delaware corporation (“Venus USA”), received funding in the total amount of ~~Venus,~~$4.1 million, in connection with two “Small Business Loans” under the federal Paycheck Protection Program provided in Section 7(a) of the Small Business Act of 1953, as amended by the Coronavirus Aid, Relief, and Economic Security Act, as amended from time to time (the “PPP”).

Pursuant to the terms of the U.S. Small Business Administration Note dated as of April 21, 2020, by us and in favor of CNB, we borrowed $1.7 million of original principal amount, which was ~~executed~~funded on ~~June 25, 2019.~~April 29, 2020 (the “Venus Concept PPP Loan”). The ~~Subordinated Note~~Venus Concept PPP Loan bears interest ~~on the unpaid principal amount~~ at ~~a rate of eight percent (8%)~~1% per annum and matures in two years from the date of ~~issuance, provided~~disbursement of funds under the loan. Interest and principal payments under the Venus Concept PPP Loan will be deferred for a period of six months. Under certain circumstances, all or a portion of the Venus Concept PPP Loan may be forgiven, however, there can be no assurance that ~~upon~~ any portion of the Venus Concept PPP Loan will be forgiven and that we would not be required to repay the Venus Concept PPP Loan in full.

The Venus Concept PPP Loan contain certain covenants which, among other things, restrict our use of the proceeds of the PPP Loan to the payment of payroll costs, interest on mortgage obligations, rent obligations and utility expenses, require compliance with all other loans or other agreements with any our creditor, to the extent that a default under any loan or other agreement would materially affect our ability to repay its PPP Loan and limit our ability to make certain changes to our ownership structure.

Venus USA also entered into a U.S. Small Business Administration Note dated as of April 15, 2020 in favor of CNB pursuant to which Venus USA borrowed $2.4 million of original principal amount, which was funded on April 20, 2020 (the “Venus USA PPP Loan” and together with the Venus Concept PPP Loan, individually each a “PPP Loan” and collectively, the “PPP Loans”). The terms of the Venus USA PPP Loan are substantially similar to the terms of the Venus Concept PPP Loan.

Under the Madryn Credit Agreement each PPP Loan is permitted to be incurred by us and Venus Concept USA as long as certain conditions remain satisfied, including that all PPP Loans must be forgiven other than any amount which can fit under existing permitted debt baskets in the Madryn Credit Agreement. If we and/or Venus Concept USA defaults on the respective PPP Loan or if any of the conditions to the incurrence thereof under the Madryn Credit Agreement are not satisfied (i) events of default will occur under the Madryn Credit Agreement and the CNB Credit Facility and (ii) we and Venus Concept USA may be required to immediately repay their respective PPP Loan.

~~On August 14, 2019, we raised $2.5 million through the issuance of the Subordinated Note to~~ Venus Concept USA ~~Inc., a wholly owned subsidiary~~could be subject to civil and criminal penalties.

As of ~~Venus, which was funded in three tranches A, B and C of $1.0 million, $1.0 million and $0.5 million,~~

respectively. Tranches A and B were funded on August 27, 2019 and September 25, 2019, respectively, for a total of $2.0 million. Tranche C for $0.5 million was unfunded as of September 30, 2019. The Subordinated Note bears interest on the unpaid principal amount at a rate of eight percent (8%) per annum from the date of issuance, provided that upon any event of default pursuant to the Subordinated Note, the Subordinated Note shall bear interest payable on demand at a rate that is 4% per annum in excess of the rate of interest otherwise payable under thereunder. The Subordinated Note is unsecured and subordinate in priority to our existing obligations to Solar Capital, Ltd. under its amended loan and security agreement.

On August 20, 2019, the Company entered into a Note Purchase Agreement pursuant to which the Company raised $2.0 million through the issuance of one unsecured subordinated convertible promissory note to Frederic Moll, M.D., one of our directors. The maturity date of the Note is August 28, 2020. The Note bears interest on the unpaid principal amount at a rate of eight percent (8.0%) per annum from the date of issuance. The Note is unsecured and subordinate in priority to our existing obligations under the Solar Agreement.

On November 7, 2019, the outstanding principal amount of the Notes and any accrued and unpaid interest was converted into shares of common stock immediately following the closing of the Merger. On November 7, 2019,March 31, 2020, we ~~paid off and terminated our obligations under our Loan Agreement with Solar and the Lenders under the Loan Agreement. The payoff to Solar and the Lenders pursuant to the Loan Agreement consisted~~had capital resources consisting of cash and ~~warrants to purchase up to 50,000 shares~~cash equivalents of ~~Common Stock, post Reverse Stock Split, at an exercise price of $6.00 per share.~~

approximately $20.6 million. We have financed our operations principally through the issuance and sale of our common stock ~~in our IPO, private placements of our capital~~and preferred stock, ~~and to a lesser extent, secured and unsecured~~ debt financing, ~~convertible note issuances~~ and payments from customers. We

While we believe that the net proceeds from the 2020 Private Placement, the proceeds from the PPP Loans, together with our existing cash and cash equivalents, and ~~cash expected to be generated~~the anticipated savings from ~~sales of~~ our ~~products~~Merger-related cost savings initiatives and our new restructuring program, will ~~not be sufficient~~enable us to fund our ~~planned operations through~~operating expenses and capital expenditure requirements for at least the next 12 ~~months. However,~~months, the impact of COVID-19 on our business has been significant and we cannot anticipate the extent to which the current economic turmoil will continue to adversely impact our business which is largely subject to whether the severity worsens, or duration lengthens. Given the COVID-19 pandemic, we may need additional capital to fund our future operations and to access the capital markets sooner than we intend to obtain such capital through the sale of additional shares of capital stock or related securities. To the extent that we raise additional capital through future equity financings, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. Further, there can be no assuranceplanned. We cannot assure you that we will be ~~able~~successful in raising additional capital or that such capital, 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 Madryn Credit Agreement, the CNB Credit Facility and the PPP Loans. These covenants restrict, among other things, our ability to incur additional indebtedness, which may limit our ability to obtain additional debt financing. In addition, the Madryn Credit Agreement contains certain minimum liquidity and minimum revenue covenants, which, if we fail to maintain or achieve, will result in a default under the agreement and the requirement for us to repay all outstanding principal amounts and accrued interest repay all amounts outstanding. In the event that the COVID-19 pandemic and the economic disruptions it has caused continue for an extended period of time, we cannot assure that we will remain in compliance with the financial covenants 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 will depend on many factors, including, but not limited to:

In order to grow our business and increase revenues, we will ~~ever~~need to introduce and commercialize new products, grow our sales and marketing force, implement new software systems, as well as identify and 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. We will have to continue to increase our revenues while effectively managing our expenses in order to achieve profitability and to sustain it. Our failure to control expenses could make it difficult to achieve profitability or to sustain profitability in the future. Moreover, we cannot be ~~profitable~~sure that our expenditures will result in the successful development and introduction of new products in a cost-effective and timely manner or that any such new products will achieve market acceptance and generate ~~positive cash flow from operating activities.~~revenues for our business.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2020, cash used in operating activities consisted of a net loss of $50.7 million partially offset by an investment in net operating assets of $1.7 million and non-cash operating expenses of $33.6 million. The investment in net operating assets was primary attributable to a decrease in inventories of $0.5 million, decrease in accrued expenses and other current liabilities of $7.0 million, decrease in unearned interest income of $1.0 million, decrease in accounts payable of $0.2 million and decrease in other non-current liabilities of $0.3 million. This was partially offset by a decrease in accounts receivable of $10.2 million, primarily due to the decrease in subscription sales, and decrease in other current assets of $0.4 million. The non-cash operating expenses consisted mainly of goodwill impairment charge of $27.5 million, a provision for bad debts of $1.5 million, depreciation and amortization of $1.2 million, stock-based compensation expense of $0.5 million, provision for inventory obsolescence of $0.3 million, deferred tax expense of $0.3 million, a change in the fair value of the earn-out liability for the purchase of NeoGraft of $0.2 million and finance expenses of $2.0 million.

In the three months ended March 31, 2019, cash used in operating activities consisted of ~~$18.4 million was attributable to~~ a net loss of ~~$24.5~~$5.1 million and an investment in net operating assets of $5.9 million, partially offset by ~~$3.0 million in~~ non-cash ~~charges and an increase from~~ operating ~~assets and liabilities~~expenses of ~~$3.1~~$2.5 million. The non-cash charges consisted primarily of stock-based compensation of $1.1 million, depreciation and amortization of $0.5 million, amortization of debt discounts and issuance costs of $0.6 million and provision for bad debt of $0.8 million. Theinvestment in net ~~change in~~ operating assets ~~and liabilities~~ was primarily attributable to an increase in accounts receivable of $6.0 million due to the increase in subscription sales, a decrease in accounts payable ~~and accrued other liabilities~~ of ~~$1.2~~$1.1 million and a decrease in ~~accounts receivable~~other non-current liabilities of ~~$2.1 million due to the timing of collections from customers in the third quarter of 2019, which~~$0.4 million. This was partially offset by an increase in ~~inventory~~inventories of ~~$0.3~~$0.2 million ~~primarily due~~ to meet higher demand and to accommodate the increased number of technology platforms offered and an increase in ~~raw materials for ARTAS~~^® ~~iX System.~~

~~For the nine months ended September 30, 2018, cash used in operating activities of $21.2 million was attributable to a net loss of $20.7 million~~accrued expenses and ~~a decrease from operating assets and~~other current liabilities of ~~$2.8 million, which was partially offset by $2.3 million in non-cash charges.~~$1.4 million. The non-cash ~~charges~~operating expenses consisted ~~primarily~~mainly of ~~provision for bad debt~~stock-based compensation of ~~$0.8~~$0.4 million, depreciation and amortization of ~~$0.5 million, amortization of debt issuance costs of~~ $0.3 million, ~~stock-based compensation~~change in fair value of earn-out liability of $0.4 million, ~~and loss on extinguishment~~deferred tax expense of ~~debt~~$0.4 million, provision for inventory obsolescence of $0.2 ~~million. The net change in operating assets~~million and ~~liabilities was primarily attributable to an increase in accounts payable and accrued other liabilities~~a provision for bad debts of ~~$2.2~~$0.6 million which was offset by an increase in accounts receivable of $3.4 million due to the timing of collections from customers in the third quarter of 2018 as well as an increase in inventory of $1.7 million due to inventory build of ARTAS^® ~~systems in 2018.~~.

In the ~~nine~~three months ended ~~September 30, 2019 and 2018,~~March 31, 2020, cash used in investing activities ~~related to purchases~~consisted of $0.1 million for the purchase of property and equipment.

In the three months ended March 31, 2019, cash used in investing activities consisted of $0.4 million for the purchase of property and equipment partially offset by $0.2 million of proceeds from sale of property and equipment.

In the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, cash ~~provided by~~from financing activities ~~was $11.5 million, consisting~~consisted primarily of net proceeds from ~~our Related Party Convertible Promissory Notes~~the drawdown on the Madryn Credit Agreement of ~~$7.0~~$0.4 million, net proceeds from 2020 Private Placement of $20.3 million, partially offset by payment of dividends from subsidiary to non-controlling interest of $0.2 million and ~~Unsecured Subordinated Promissory Notes~~payment of ~~$4.5~~the NeoGraft earn-out liability of $0.1 million.

In the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the cash ~~provided by~~from financing activities ~~was $22.3 million, consisting~~consisted of net proceeds from ~~our Solar loan~~the issuance of ~~$19.6 million, net proceeds from our follow-on offering~~long-term debt of ~~$15.6~~$9.7 million and ~~$0.4~~$1.0 million in drawings on the credit facility, offset by the $0.3 million of ~~stock option exercises, which was offset by $13.3~~cash for installment payments and $0.1 million ~~for the retirement~~ of ~~our Oxford loan.~~earn-out liability payments related to NeoGraft acquisition occurred in 2018.

Our premises and those of our subsidiaries are leased under various operating lease agreements, which expire on various dates.

As of March 31, 2020, we had non-cancellable purchase orders placed with our contract manufacturers in the amount of $7.6 million. In addition, as of March 31, 2020, we had $3.5 million of open purchase orders that can be cancelled with 90 days’ notice, except for a portion equal to 15% of the total amount representing the purchase of “long lead items”.

The following table summarizes our contractual obligations as of ~~September 30, 2019,~~March 31, 2020, which represent material expected or contractually committed future obligations.

~~In addition to the contractual obligations listed in the table above, in March 2018, we received U.S. FDA 510(k) clearance to expand the ARTAS~~^® ~~System technology to include an implantation functionality. Based on manufacturing changes associated with the ARTAS~~^® ~~System, we determined that certain components procured or expected to be procured by Evolve Manufacturing Technologies, Inc., our single third-party manufacturer, who assemble the ARTAS~~^® Systems, will be in excess of expected demand or usage. Additionally, in the fourth quarter of 2018, the Company recorded a charge related to other excess purchase commitments from another vendor based on cost reduction changes in 2019. As a result, we recorded a loss contingency accrual of $0.5 million and included in “Other accrued liabilities” on the condensed consolidated balance sheets as of September 30, 2019.

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 finance entities.

Our ~~unaudited~~ condensed consolidated financial statements ~~have been~~are prepared in accordance with ~~U.S.~~U.S GAAP. ~~Preparation~~The preparation of these condensed consolidated financial statements requires ~~management~~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 ~~estimates. Some accounting policies have a significant impact~~liabilities, which are not readily apparent from other sources. We base our estimates and judgments on ~~amounts reported in~~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 ~~financial statements. A summary of~~estimates under different assumptions or conditions.

While our significant accounting policies ~~and a description of accounting policies that~~ are ~~considered critical may be found~~more fully described in Note 2 to our ~~2018~~ Annual Report filed on Form 10-K for the year ended December 31, ~~2018,~~2019, we believe that the assumptions and estimates associated with stock-based compensation, goodwill impairment, allowance for doubtful accounts, revenue recognition, accrual for severance and income taxes have the most significant impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

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 Venus Concept’s skincare and hair products and (3) service revenue from the sale of our VeroGrafters™ technician services, our 2two5 internal advertising agency and our extended warranty service contracts provided to existing customers.

The Company recognizes 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 ~~Notes~~contract; (3) determine the transaction price; and (4) allocate the transaction price to the ~~Consolidated Financial Statements (Note 1)~~separate performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

Long-term receivables relate to our subscription contract revenue or contracts which stipulate payment terms which exceed one year. They are comprised of the unpaid principal balance, net of the allowance for doubtful accounts. These receivables have been discounted based on the implicit interest rate in the subscription lease which ranged between 8% to 9% for the three months ended March 31, 2020 and March 31, 2019, 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.

The allowance for doubtful accounts is based on our assessment of the collectability of customer accounts and the ~~Critical Accounting Policies~~aging of the related invoices and ~~Estimates section~~represents our best estimate of probable credit losses in ~~Management’s Discussion~~its 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 ~~Analysis~~current economic conditions that may affect a customer’s ability to pay.

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, we will be required to revise our estimated warranty liability. To date, our warranty reserve has been sufficient to satisfy warranty claims paid.

We account for stock-based compensation costs in accordance with the accounting standards for stock-based compensation, which require that all stock-based payments to employees be recognized in the 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 award. We recognize the expense associated with options using a single-award approach over the requisite service period.

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 revenues are generated, and ~~Results~~our costs are incurred. In addition, our debt and equity financings are generally based in U.S. dollars. Therefore, our functional currency, and that of ~~Operations. Except for~~our subsidiaries, is the ~~change~~U.S. dollar.

Transactions and balances originally denominated in ~~our revenue accounting policy,~~U.S. dollars are presented at their original amounts. Non-dollar transactions and balances are re-measured 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 ~~Note 2, there have been no changes in these significant accounting policies during~~ the ~~nine months ended September 30, 2019.~~consolidated statement of operations as 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 ~~after~~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 condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

See Note 2 to our 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.

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.

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 because 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, 2019, a 100-basis point increase in interest rates on our debt subject to variable interest rate fluctuations would increase our interest expense $0.2 million annually.

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.

As of March 31, 2020, 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(the “Exchange Act”), 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 ~~SEC~~the Securities and Exchange Commission’s (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.

~~Our~~ Based on this evaluation, our Chief Executive Officer and Chief Financial Officer ~~did~~concluded that our disclosure controls and procedures were not ~~identify~~effective as of March 31, 2020, because of the material weakness in internal control over financial reporting described below.

We have performed an evaluation of the effectiveness of our internal control over financial reporting, based on criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 2013 Internal Control-Integrated Framework. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our internal controls over financial reporting were not effective as of March 31, 2020, because of a material weakness in internal controls over financial reporting, associated with the lease accounting process automation which was identified during the audit of our fiscal year ended December 31, 2018, as described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. 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 ineffective because of changes in conditions or that the degree of compliance with established policies or procedures may deteriorate.

In connection with our preparation and the audit of our consolidated financial statements as of and for the years ended December 31, 2018 and 2017, we identified a material weakness related to lack of centralized procedures or a technology solution that would ensure appropriate lessor accounting processes and enable the accurate and timely preparation of financial statements. As of March 31, 2020, we have not yet implemented centralized procedures or a technology solution that would ensure appropriate lessor accounting processes and enable the accurate and timely preparation of consolidated financial statements. We plan to establish adequate centralized procedures related to lease accounting processes later in 2020, which could involve either hiring additional personnel or implementing a technology solution. As a result, we concluded that the material weakness associated with lease accounting process existed as of March 31, 2020, as noted above.

Our plans for remediating the material weakness related to lease accounting process automation would constitute a change in our internal control over financial reporting prospectively, when such controls are effectively implemented. Other than the continuation of the implementation of measures described above, there were no material changes in our internal control over financial reporting ~~in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act~~ during the ~~quarter~~three months ended ~~September 30, 2019,~~March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures 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 relative to their costs. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade 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.

Between May 23, 2018 aand June 11, 2019, four putative shareholder class ~~action complaint was~~actions complaints were filed against us, certain of our former officers and directors, certain of our venture capital investors, and the underwriters of our IPO. Two of these complaints, Wong v. Restoration Robotics, Inc., et al., No. 18CIV02609, and Li v. Restoration Robotics, Inc., et al., No. 19CIV08173 (together, the “State Actions”), were filed in the Superior Court of the State of California, County of San Mateo, ~~(the “Superior Court”), captioned Wong v. Restoration Robotics, Inc., et al., No. 18CIV02609. On June 21, 2018~~ and ~~June 28, 2018,~~assert claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, or the Securities Act. The other two ~~putative class action~~ complaints, ~~were filed in the United States District Court for the Northern District of California, captioned~~ Guerrini v. Restoration Robotics, Inc., et al., No. 5:18-cv-03712-EJD and Yzeiraj v. Restoration Robotics, Inc., et al., No. 5:18-cv-03883-BLF ~~respectively. On July 24, 2018,~~(together, the ~~U.S.~~“Federal Actions”), were filed in the United States District Court for the Northern District ~~Court related the Guerrini~~of California, and Yzeiraj actions and reassigned the Yzeiraj action to Judge Edward J. Davila. The Wong and Guerrini complaints name us as defendants, and certain of our current and former executive officers and directors, certain of our venture capital investors and the underwriters in our IPO. The Yzeiraj complaint names us as defendants and certain of our current and former executive officers and directors. The Wong complaint asserts claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, or the Securities Act. The Guerrini and Yzeiraj complaints assert claims under Sections 11 and 15 of the Securities Act. The complaints all allege, among other things, that our Registration Statement filed with the SEC on September 1, 2017 and the Prospectus filed with the SEC on October 13, 2017 in connection with our IPO were inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading and omitted to state material facts required to be stated therein. The complaints seek unspecified monetary damages, other equitable relief and attorneys’ fees and costs.

In ~~addition, on June 11, 2019, a putative shareholder class action complaint was filed in Superior Court of~~ the State Actions, we, along with the other defendants, successfully demurred to the initial Wong complaint for failure to state a claim, and secured a stay of California, County of San Mateo, captioned Li v. Restoration Robotics, Inc., et al., No. 19CIV08173. The Li complaint asserts claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, or the Securities Act and isboth cases based on the ~~same set~~forum selection clause contained in our Amended and Restated Certificate of ~~facts~~Incorporation, which designates the federal district courts as the ~~Wong complaint.~~exclusive forums for claims arising under the Securities Act. However, on December 19, 2018, the Delaware Court of Chancery in Sciabacucchi v. Salzberg held that exclusive federal forum provisions are invalid under Delaware law. Under this ruling, the San Mateo Superior Court lifted its stay of State Actions on December 10, 2019. On January 17, 2020, Plaintiffs in the State Actions filed a consolidated amended complaint for violations of federal securities laws, alleging again that, among other things, our Registration Statement filed with the SEC on September 1, 2017 and the Prospectus filed with the SEC on October 13, 2017 in connection with our IPO were inaccurate and misleading, contained untrue statements of material fact, omitted to state other facts necessary to make the statements made not misleading and omitted to state material facts required to be stated therein. The Li complaint seeks unspecified monetary damages, other equitable relief and attorneys’ fees and costs.

On ~~August 8, 2018,~~February 24, 2020, we ~~along with certain of our current~~demurred to the consolidated amended complaint for failure to state a claim. On March 18, 2020, the Delaware Supreme Court reversed the Chancery Court’s decision in Sciabacucchi v. Salzberg and ~~former executive officers and directors,~~held that exclusive federal forum provisions are valid under Delaware law. On March 30, 2020, the Company filed a renewed motion to dismiss ~~the Wong complaint~~ based on ~~the~~its federal forum selection ~~clause designating the federal district courts as the exclusive forum for claims arising under the Securities Act contained in~~clause. Hearings on our ~~Amended~~demurrer and Restated Certificate of Incorporation, and which asked the court in the alternative to stay the Wong action. Also, on August 8, 2018, the venture capital investor and underwriters’ defendants in the Wong action filed demurrers to the Wong complaint, and we, along with certain of our current and former executive officers and directors, joined in the venture capital investor defendants’ demurrer. A hearing on ourrenewed motion to dismiss, ~~and~~originally scheduled for May 8, 2020, have been postponed to a later date, yet to be determined, due to COVID-19.

In the ~~demurrers to the Wong complaint was held on October 24, 2018.~~ On October 25, 2018, the Court ordered the defendants’ demurrers to the complaint sustained with leave to amend and granted an extension of time for plaintiff to serve a First Amended Complaint until further order of the Court. On January 31, 2019, the Court stayed the case and stayed any decision on the Company’s motion to dismiss on forum selection grounds pending resolution of an appeal of Sciabacucchi v. Salzberg, a case addressing similar issues in Delaware. On August 12, 2019, the CourtFederal Actions, which have been consolidated the Wong and Li actions, and lifted the stay imposed on January 31, 2019 to allow further briefing on the Company’s motion to dismiss. A further hearing on the motion to dismiss was held on September 17, 2019.

On October 2, 2018, the U.S. Northern District Court granted a Motion for Consolidation of Related Actions, Appointment as Lead Plaintiff and Approval of Lead Counsel filed by Plaintiff Edgardo Guerrini, which consolidated the Guerrini and Yzeiraj actions under the caption In re Restoration Robotics, Inc. Securities Litigation, Case No. 5:~~18-cv-03712-EJD.~~ ~~On November 30, 2018,~~18-cv-03712-EJD, Lead Plaintiff ~~Edgardo~~Eduardo Guerrini filed ~~a Consolidated Amended Complaint~~his consolidated amended complaint for violations of federal securities laws ~~asserting~~on November 30, 2018. The consolidated amended complaint alleges again that, among other things, our Registration Statement filed with the ~~same claims, against~~SEC on September 1, 2017 and the ~~same defendants, as his original complaint but adding certain allegations~~Prospectus filed with the SEC on October 13, 2017 in ~~support~~connection with our IPO were inaccurate and misleading, contained untrue statements of ~~those claims.~~material facts, omitted to state other facts necessary to make the statements made not misleading and omitted to state material facts required to be stated therein. On January 29, 2019, ~~the Company,~~we, along with certain of ~~its current and~~our former ~~executive~~ officers and directors, filed a motion to dismiss the ~~Consolidated Amended Complaint~~consolidated amended complaint for failure to state a ~~claim under Federal Rule of Civil Procedure 12(b)(6). The venture capital defendants and underwriter defendants filed joinders to the Company’s motion to dismiss on the same day.~~claim. On October 18, 2019, the District Court granted ~~in part and denied in part~~ our motion to ~~dismiss.~~dismiss as to all but two allegedly false or misleading statements contained in our Prospectus. On December 9, 2019, we filed our answer to the consolidated amended complaint denying the falsity of these statements, and discovery is underway.

In addition to the State and Federal Actions, 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 our ~~current and~~ former ~~executive~~ officers and directors breached their fiduciary duties, have been unjustly enriched and violated Section 14(a) of the Securities Exchange Act of 1934, or the Exchange Act, in connection with our IPO and our 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 related the Mason action with the federal class action, In re Restoration Robotics, Inc. Sec. Litig., and reassigned the Mason action to Judge Edward J. Davila. Also, on August 21, 2019, the District Court granted the parties’ joint stipulation to stay the Mason action during the pendency of the ~~federal class action,~~ Federal Actions, and the case remains stayed.

~~On September 24, 2019, a complaint was filed~~addition to the actions described above relating to our IPO, two lawsuits purporting to challenge disclosures made in ~~the United States District Court for the Northern District of California,~~connection with our merger have also been filed. The first, captioned Bushansky v. Restoration Robotics, Inc., et al., No. 5:~~19-cv-06004-MMC. The complaint alleges,~~19-cv-06004-MMC, alleged, among other things, that defendants violated Sections 14(a) and 20(a) of the ~~Securities~~ Exchange Act ~~of 1934~~ and ~~Securities and Exchange Commission~~SEC Rule ~~14d-9.~~14a-9. The complaint ~~alleges~~alleged that the proxy statement filed with the ~~United States Securities and Exchange Commission~~SEC by Restoration Robotics on September 10, 2019 in connection with the ~~proposed transaction whereby Restoration Robotics would merge with Venus Concept Ltd.~~Merger omitted or misrepresented material information. The complaint ~~seeks,~~sought, among other things, injunctive relief, unspecified damages, and attorneys’ fees and costs. On November 6, 2019, the plaintiff voluntarily dismissed the Bushansky action with prejudice as to his individual claims and without prejudice as to the claims of the putative class.

The second, a putative shareholder class action complaint captioned Pak v. Restoration Robotics, Inc., et al., No. 1:19-cv-02237, was filed in the United States District Court for the District of Delaware on December 6, 2019. The complaint alleges, among other things, that defendants violated Sections 14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9. The complaint alleges that the proxy statement filed with the SEC by Restoration Robotics on September 10, 2019 in connection with the Merger contained false or misleading information. The complaint seeks, among other things, compensatory and/or rescissory damages, and attorneys’ fees and costs. On February 26, 2020, the District Court appointed Joon Pak as Lead Plaintiff in the Pak action, and approved his selection of Lead Counsel. The Company’s motion to dismiss the Pak complaint is due on May 26, 2020. We believe that these lawsuits are without merit and we intend to vigorously defend against these claims.

Our Chinese subsidiary, or Venus Concept China, imports and sells registered medical devices and unregistered non-medical devices in the PRC. One of its unregistered products has been the subject of inquiries from two district level branches of the SAMR, Xuhui MSA and Huangpu MSA, as to whether the product was properly sold as a non-medical device. In January 2019, Venus Concept China had applied to register a version of this non-medical device as a medical device with the National Medical Products Administration of PRC, or NMPA. On June 12, 2019, Venus Concept China was informed that Xuhui MSA had opened an administrative investigation case related to whether the device is an unregistered medical device, as a result of a complaint that Xuhui MSA received from a former distributor of Venus Concept China. Huangpu MSA notified Venus Concept China that it would be suspending its separate investigation against Venus Concept China, pending the results of the Xuhui MSA investigation. We and Venus Concept China have voluntarily stopped sales in China of this product. On December 11, 2019, Xuhui MSA informed Venus Concept China that a determination had been made by the Shanghai Medical Products Administration that Versa’s IPL function should be administered as a Class II medical device. Xuhui MSA also suggested that Venus Concept China consider a voluntary recall of all Versa units sold in China. In late January 2020, Venus Concept China received a copy of the Shanghai Medical Products Administration’s determination that because of the intended uses for Versa’s IPL function comprise medical treatment functions such as “treatment of benign pigmented epidermis and skin lesions,” Versa’s IPL function should be administered as a Class II medical device. Although the revenue generated from the product that is the subject of the investigation did not represent a material amount of our total revenues for the years ended December 31, 2018 and 2019, monetary penalties nonetheless could be material.

In April 2020, Venus Concept China received a determination from NMPA on its application for registering Versa’s IPL function as a medical device. NMPA has approved the registration of one applicator HR 650 for hair removal as a Class II medical device out of the four IPL applicators for which Venus Concept China had originally applied. The date of registration is April 15, 2020. Venus Concept China also submitted an explanation letter and a draft Corrective & Preventive Action Report plan to Xuhui MSA during a meeting with the local authority on April 23, 2020. However, on April 29, 2020, Xuhui MSA informed Venus Concept China that its administrative investigation case has been transferred to Xuhui Branch of Shanghai Municipal Public Security Bureau (“Xuhui PSB”) for further handling. On May 6, 2020, the economic crime investigation department of Xuhui PSB confirmed to Venus Concept China’s local PRC counsel that they will review and decide whether or not to file formally a criminal investigation case against Venus Concept China and any relevant individuals allegedly responsible for any alleged criminal offense(s). Should such criminal investigation case be formally filed, then Xuhui PSA will conduct a formal investigation and at the end of which, determine whether or not the case should then be submitted to the relevant Procuratorate office (equivalent of the local prosecutors’ office) for criminal prosecution proceedings against Venus Concept China and any accused individuals. Based on facts and information currently available to us, it is currently uncertain as to whether or not the Xuhui PSB will actually file a formal criminal investigation case against Venus Concept China and if so, whether or not it will transfer the case for criminal prosecution at the end of such investigation, or whether or not any criminal offense(s) will be established against Venus Concept China and any relevant individuals in any subsequent criminal prosecution proceedings.

We and Venus Concept China are cooperating with the relevant authorities in these matters; however, we cannot predict the outcome of these matters.

Further, we may from time to time continue to be involved in various legal proceedings of a character normally incident to the ordinary course of our business, which we do not deem to be material to our business and results of operations.

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, any of which could adversely affect our business, results of operations, financial condition and prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. You should carefully consider the risk 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 Discussion and Analysis of Financial Condition and Results of ~~Operations.”~~Operations”, include herewith, and the risk factors previously disclosed in “Part I, Item 1A. Risk Factors” in our Form 10-K.

Our subscription-based model exposes us to the ~~Merger~~credit risk of our customers over the life of the subscription agreement. In the event that our customers fail to make the monthly payments under their subscription agreements, our financial results may be adversely affected.

~~On November 7,~~ 2019, approximately 66% and 72%, respectively, and for the years ended December 31, 2019 and 2018, approximately 67% and 75%, respectively, of our system revenues were derived from our subscription-based model. Although the ARTAS® System will not be available under our subscription-based model, we ~~completed~~expect that our ~~merger transaction~~subscription-based business model to continue to represent the majority of our revenue for the foreseeable future. We collect an up-front fee, combined with ~~Venus~~a monthly payment schedule typically over a period of 36 months, with approximately 40% of total contract payments collected in the first year. For accounting purposes, these arrangements are considered to be sales-type finance leases, where the present value of all cash flows to be received under the subscription agreement is recognized as revenue upon shipment of the system to the customer. As part of our sales and ~~Merger Sub. See~~marketing effort, we do not require our customers to undergo a credit check or register a lien or security interest under the ~~Current Report~~Uniform Commercial Code or similar legislation, as is typically required with a third-party equipment leasing financing. Instead, to ensure that each monthly product payment is made on ~~Form 8-K~~time and that ~~we filed~~the customer’s systems are serviced in accordance with the ~~SEC on November 7, 2019 for additional information. The risk factors set forth below relate to our business immediately following the consummation~~terms of the ~~Merger.~~

~~For additional information~~warranty, every product requires a monthly activation code, which we provide to the customer upon receiving each monthly payment. If a customer does not timely pay a monthly installment, the customer will not receive an activation code and will be unable to use the system for any procedures. This process does not protect us from the economic impact of a ~~summary~~customer’s failure to make its monthly payments and as an unsecured creditor, we are subject to a greater risk in the event of a customer default. We cannot provide any assurance that the financial position of customers purchasing products and services under a subscription agreement will not change adversely before we receive all of the ~~material risk associated with~~monthly installment payments due under the ~~Merger,~~contract. As a result of the ~~combined companies~~global economic turmoil that has resulted from COVID-19, many of our customers are experiencing difficulty in making timely payments or payments at all during this pandemic under their subscription agreements which could result in higher than anticipated bad debt expense over the course of the 2020 fiscal year. In our largest subscription markets we collected approximately 60% of our billings in March 2020 and ~~Venus Concepts’ business, please see the “Risk Factors” section contained~~30% of our billings in April 2020. We cannot assure you that our ~~Registration Statement on Form S-4, as amended, filed with the SEC on September 9, 2019.~~

~~We have limited commercial history and we have incurred significant losses since our inception. We anticipate~~customers will resume payments under their agreements or that we will ~~continue~~not experience customer defaults even after shelter-in-place orders are lifted. In the event that there is a default by any of the customers to ~~incur losses~~whom we have sold systems under the subscription-based model, we may recognize bad debt expenses in our general and administrative expenses. If this bad debt expense is material, it could negatively affect our results of operations and operating cash flows.

One of our large customers filed for bankruptcy protection in February 2019 and we recorded a provision for bad debts of $8.3 million against the receivable for this customer for the ~~foreseeable future, which, together~~year ended December 31, 2018, and if we experience other customer defaults under our subscription agreements, our financial results may be adversely affected.

In February 2019, one of our large customers filed for bankruptcy protection. Prior to the bankruptcy filing, we had entered into numerous subscription agreements between 2015 and 2017 with ~~our limited operating history, makes it difficult to assess our future viabilit~~y.

this customer. We ~~have~~recorded 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 marketprovision for bad debts of $8.3 million against the ~~ARTAS® and ARTAS® iX System, and selling and marketing. We have incurred losses in each year since our inception in 2002. Our net losses were approximately $24.5 million~~receivable for ~~the nine months ended September 30, 2019 and $28.7 million~~this customer for the year ended December 31, 2018. AsIn connection with the bankruptcy, the debtors filed an adversary action against Venus Concept Ltd. (and several others) seeking to avoid any security interest of ~~September 30, 2019, we~~Venus Concept Ltd., to recover 89 units that had ~~an accumulated deficit~~been transferred back to Venus Concept Ltd., the return of ~~$217.7~~approximately $150,000 paid to Venus Concept Ltd. within the 90 days before the bankruptcy filing and to disallow Venus Concept Ltd.’s asserted claim of approximately $5.9 million. 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 enough revenue to achieve or sustain profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability. Furthermore, because of our limited operating history and because the market for aesthetic products is rapidly evolving, we have limited insight into the trends or competitive products that may emerge and affect our business. Before investing, you should consider an investment in our common stock considering the risks, uncertainties, and difficulties frequently encountered by early-stage medical technology companies in rapidly evolving markets such as ours. We may not be able to successfully address any or all of these risks,Venus Concept Ltd. and the ~~failure~~debtors entered into a settlement agreement, which was approved by the bankruptcy court on May 24, 2019, pursuant to ~~adequately~~which, among other things, a third-party purchaser would buy and assume certain units from the debtors and pay a total of approximately $2.7 million to Venus Concept Ltd. over 25 months, debtors would release and waive any and all claims against us, including the preference claim, we would retain and have all rights to previously terminated units, and any units in possession of the debtors or that were subsequently discovered to be property of the debtor would be returned to us without further cost to us. Pursuant to the settlement agreement, Venus Concept Ltd. agreed to waive and release the debtors from all claims (other than those specifically carved out). We do ~~so could cause our business, results of operations, and financial condition~~not anticipate receiving any further distribution from this customer’s bankruptcy due 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~~the releases provided for in the ~~future because~~settlement agreement. Although we are currently receiving monthly payments under the new agreement with the purchaser of this customer’s assets, we cannot assure you that we will receive the full amount. Furthermore, we cannot assure you that we will not experience further customer defaults under our subscription agreements that could have a ~~variety of factors, many of which are outside of~~material adverse effect on our ~~control. These factors include:~~

~~Our budgeted expense levels~~shelter-in-place orders are ~~based in part on our expectations concerning future revenue from ARTAS~~^® ~~Systems sales, servicing and procedure-based~~ fees. We may be unable to reduce our expenditures in a timely manner to compensate for any unexpected shortfalls in revenue. Accordingly, a significant shortfall in market acceptance or demand for the ARTAS^® ~~Systems and procedures could have an immediate and material adverse impact on our business and financial condition.~~

lifted. It is ~~difficult to forecast~~possible that some of our ~~future performance~~customers will file for bankruptcy and ~~our financial results may fluctuate unpredictably.~~

~~Our limited commercial history and the rapid evolution~~we will not recover all or even a portion of the markets for medical technologies and aesthetic products make it difficult for us to predict our future performance. Several factors, many of which are outside of our control, may contribute to fluctuations in our financial results, such as:subscription payments from these customers.

~~The long salescycl~~e~~, low unit volumeforsalesof the ARTAS~~^®~~System and ARTAS~~^® ~~iX Systemand the historicseasonalityof our industry,each maycontributeto substantialfluctuationsin our operatingresultsand stockpriceand makeit difficultto compareour resultsof operationsto priorperiodsand predictfuturefinancialresults.~~

~~We sell a relatively small number of ARTAS~~^® ~~and ARTAS~~^® ~~iX Systems at a relatively high price, with each sale of an ARTAS~~^® ~~System or ARTAS~~^® ~~iX System typically involving a significant amount of time. Because of the relatively small number of ARTAS~~^® ~~and ARTAS~~^® iX Systems we expect to sell in any period, each sale of a system could represent a significant percentage of our revenue for a period. Furthermore, due to the significant amount of time it can take to finalize the sale of a 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 our stock 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 period as an indication of future performance. If we do not sell ARTAS^® ~~and~~ ~~ARTAS~~^® ~~iX Systems as anticipated, our operating results will vary significantly from our expectations. In addition, selling the ARTAS~~^® ~~and ARTAS~~^® ~~iX Systems 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, 2018 that our recurring losses from operations and negativeoperating cash flows raise substantial doubt about our ability to continue as a going concern.

We have had recurring net operating losses and negative cash flows from operations, and until we generate revenue at a level to support our cost structure, we expect to continue to incur substantial operating losses and net cash outflows. As of ~~the filing date~~March 31, 2020 and December 31, 2019, we had an accumulated deficit of ~~this Quarterly Report, we believe~~$125.9 million and $75.7 million, respectively. Our recurring losses from operations and negative operating cash flows raise substantial doubt about our ~~current cash and cash equivalents will not be sufficient to fund our operations for the next twelve months.~~ ~~Our~~ ability to continue as a going concern, ~~will require us~~meaning that we may be unable to continue operations for the foreseeable future or realize assets and discharge liabilities in the ordinary course of operations. In order to continue our operations, we must achieve profitable operations and/or obtain additional ~~financing~~equity or debt financing. However, given the COVID-19 pandemic, we cannot anticipate the extent to which the current economic turmoil and financial market conditions, will continue to adversely impact our business and our ability to raise additional capital to fund our ~~operations.~~future operations and to access the capital markets sooner than we planned. There can be no assurance that we will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to us. If we are unable to raise sufficient additional capital, we may be compelled to reduce the scope of our operations and planned capital or research and development expenditures or sell certain assets, including intellectual property assets. The perception of our ability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the loss of confidence by investors, suppliers and employees. Our condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Business or economic disruptions or global health concerns have had an adverse effect our business, operating results or financial condition.

Global business or economic disruptions could adversely affect our business. In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China, and has since spread globally. To date, this global pandemic has already resulted in extended shutdowns of businesses in North and South America, Europe and Asia Pacific. Global health concerns, such as the coronavirus pandemic, could also result in social, economic, and labor instability in the countries in which we or the third parties with whom we engage operate. We cannot presently predict the scope and ultimate severity or duration of the coronavirus pandemic and related business shutdowns or disruptions to our business, but the coronavirus pandemic and the resulting economic and commercial shutdowns to date have materially and negatively impacted our ability to conduct business in the manner planned. Disruptions to our business include restrictions on the ability of our sales and marketing personnel and distributors to travel and sell our systems, disruptions of our global supply chain, disruptions in manufacturing, reduced demand and/or suspension of operations by our customers which has impacted their ability to make monthly subscription payments, and the deferral of aesthetic or hair restoration procedures. Our customers’ patients are also affected by the economic impact of the COVID-19 pandemic. Elective aesthetic procedures are less of a priority than other items for those patients that have lost their jobs, are furloughed, have reduced work hours or have to allocate their cash to other priorities. We expect COVID-19 will continue to negatively affect customer demand in the second quarter of fiscal 2020 and into the second half of the year. While we expect some recovery in some markets in the second half of the year, the impact of COVID-19 on our sales could still be significant. We do not yet know the full extent of the impact of COVID-19 on our business, financial condition and results of operations. The extent to which the COVID-19 pandemic may impact our business, operating results, financial condition, or liquidity in the future will depend on future developments which are evolving and highly uncertain including the duration of the outbreak, travel restrictions, business and workforce disruptions, the timing of reopening the economic regions in which we do business and the effectiveness of actions taken to contain and treat the disease. In addition, a resurgence in the number of cases of COVID-19 in the geographies in which we operate could further negatively impact our business. The outbreak of contagious diseases or the fear of such an outbreak could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect the demand for our systems. Any of these events could negatively impact our business, operating results or financial condition.

We will require ~~substantial~~ additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, commercialization and other operations or 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~~^® ~~and ARTAS~~^® ~~iX Systems~~ and seeking regulatory clearances and approvals to market future products will require substantial funds to complete. As of ~~September 30, 2019,~~March 31, 2020, we had capital resources consisting of cash and cash equivalents of ~~$8.9~~approximately $20.6 million. We believe that we will continue to expend substantial resources for the foreseeable future in connection with the ongoing commercializing of ~~the ARTAS~~^® ~~and ARTAS~~^® ~~iX System, increasing~~our systems, our sales and marketing efforts, and continuing research and development and product enhancements activities.

While we believe that the net proceeds from the 2020 Private Placement, the proceeds from the PPP Loans, together with our existing cash and cash equivalents, and ~~cash expected to be generated~~the anticipated savings from ~~the sale of~~ our ~~products~~Merger-related cost savings initiatives and our new restructuring program, will ~~not be enough for~~enable us to fund our ~~planned operations~~operating expenses and capital expenditure requirements for at least the next ~~twelve months. Therefore,~~12 months, the impact of COVID-19 on our business has been significant and we cannot predict the extent to which COVID-19 will ~~need additional capital~~continue to ~~fund~~adversely impact our ~~future operations. In addition, our operating plans may change as~~business. As a result, ~~of many factors~~ ~~some of which may be~~ ~~unknown to us, and~~ we may need to ~~seek~~raise additional ~~funds sooner than planned,~~capital through public or private equity or debt financings or other sources, such as strategic ~~collaborations. Such~~collaborations sooner than expected or otherwise implement additional cost-saving initiatives. The COVID-19 pandemic and the economic turmoil it has caused has negatively affected the global financial markets which may make it difficult to access the public markets. Any such financing may result in dilution to stockholders, the issuance of securities may have rights, preferences, or privileges senior to those of holders of our common stock, the imposition of more 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~~if favorable market conditions or given other strategic considerations even if we believe we have ~~enough funds for~~sufficient capital to fund 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:

We arerestrictedby covenantsin the ~~Solar Agreement.~~Madryn Credit Agreement, the CNB Credit Facility and the PPP Loans. These covenantsrestrict,amongotherthings,our abilityto incuradditional~~debtwithout~~ ~~Solar’s~~ ~~consent,~~ indebtedness, which may limitour abilityto obtainadditional~~funds.~~ debt financing. In addition, the ~~Solar~~Madryn Credit Agreement contains certain minimum liquidity and minimum revenue covenants, which, if we fail to maintain or achieve, will result in a default under the agreement and the requirement for us to repay all outstanding principal amounts and accrued interest repay all amounts ~~outstanding~~

~~We are dependent upon~~outstanding. In the ~~success of the ARTAS~~^® ~~System~~ ~~and ARTAS® iX 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 and ARTAS® iX 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~~event that the ~~revenue~~COVID-19 pandemic and the economic disruptions it has caused continue for an extended period of time, we ~~generate from both system sales and servicing as well as recurring procedure-based fees~~cannot assure that we will ~~account for all~~remain in compliance with the financial covenants in our ~~revenue for the foreseeable future. Accordingly, our success depends on the acceptance among physicians and patients of the ARTAS~~^® ~~and ARTAS~~^® ~~iX Systems as the preferred system for performing hair restoration surger~~y~~. Acceptance of the ARTAS~~^® ~~and ARTAS~~^® ~~iX Systems by physicians is significantly dependent on our ability to convince physicians of the benefits of the ARTAS~~^® ~~and ARTAS~~^® iX Systems 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, ~~and~~ ~~the degree of market acceptance of the ARTAS~~^® ~~and ARTAS~~^® ~~iX Systems by physicians and patients is unproven.~~credit facilities. We ~~believe that market acceptance of the ARTAS~~^® ~~and ARTAS~~^® ~~iX Systems will depend on many factors, including:~~

~~Further, the ARTAS~~^® iX System, which was launched in June 2018, includes our recently approved robotic implantation functionality. As this functionality is new, it is possible that it could include defaults, “bugs” or present other technical issues which could prompt potential physician customers to delay their purchase of the ARTAS^® ~~iX System or could prompt physicians that have purchased the ARTAS~~^® ~~iX System to either return or not utilize the system.~~

Wealso cannot assure you that ~~the ARTAS~~^® ~~System~~our lenders would provide relief or ~~ARTAS~~^® ~~iX System will achieve broad market acceptance among physicians and patients. Because~~that we ~~expect~~could secure alternative financing on favorable terms if at all. Our failure to ~~derive substantially all our revenue for the foreseeable future from ARTAS~~^® ~~and ARTAS~~^® ~~iX Systems 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:

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

~~Our success depends~~covenants contained in ~~part upon patient satisfaction with the effectiveness of the ARTAS~~^® ~~and ARTAS® iX Systems.~~

~~In order to generate repeat and referral business, patients must be satisfied with the effectiveness of the ARTAS~~^® ~~Systems. If the ARTAS~~^® ~~System or ARTAS~~^® ~~iX 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 or ARTAS~~^® iX 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, ARTAS~~^® ~~iX 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 and ARTAS® iX System.~~

~~Our ability to increase the number of physicians willing to make a significant capital expenditure to purchase the ARTAS~~^® ~~System, or ARTAS~~^® ~~iX 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~~^® ~~and ARTAS~~^® iX Systems and the revenue that a physician can derive from performing ARTAS procedures are compelling when compared to the costs and revenue associated with alternative aesthetic treatments the physician can offer. In addition, we believe our marketing programs,credit facilities, including ~~clinical and practice development support, will be critical to increasing utilization and awareness of the ARTAS~~^® ~~and ARTAS~~^® ~~iX Systems, but these programs require physician commitment and involvement to succeed. If we are unable to increase physician adoption and use of the ARTAS~~^® ~~System, or ARTAS~~^® ~~iX System our~~ financial ~~performance will be adversely affected.~~

~~Our inability to effectively compete with competitive hair restoration treatments or procedures may prevent us from achieving significant market penetration or improving our operating results.~~

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~~^® ~~Systems and ARTAS procedures could be limited by other products and technologies. Competition to address hair loss comes from various sources, including:~~

~~Surgical alternatives to the ARTAS~~^® ~~and ARTAS~~^® iX Systems 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 to 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~~^® ~~and ARTAS~~^® ~~iX Systems. 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 body contouring or cosmetic fat reduction. As a result, if physicians choose these competitive products over building a hair restoration practice with the ARTAS^® ~~System or ARTAS~~^® ~~iX System, our results of operation could be adversely affected.~~

~~Some of our competitorshave a broadrangeof productofferings,largedirectsalesforces,and long-term customerrelationshipswith our targetphysicians,which couldinhibitour marketpenetrationefforts.Our potentialphysiciancustomersalsomayneed to recoupthecostof expensiveproductsthattheyhave already purchasedfromour competitors,and thustheymaydecideto delaypurchasing,or not to purchase,theARTAS~~^® ~~System or ARTAS~~^® ~~iX System.~~

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

~~We believe that establishing and strengthening the Restoration Robotics and ARTAS brand is critical to achieving widespread acceptance of the ARTAS~~^® Systems, 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, our ARTAS^® ~~Systems 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~~^® ~~and ARTAS~~^® iX Systems 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:

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

~~To market and sell the ARTAS~~^® ~~and/or ARTAS~~^® iX ~~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:

If we fail to establish and maintain satisfactory relationships with our third-party distributors, our revenue 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.

We have received funding under the Coronavirus Aid, Relief and ~~sell the ARTAS~~^®Economic Security (CARES) Act.

We and ~~ARTAS~~^® iX ~~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 40%~~one of our ~~revenue for the year ended December 31, 2018 and 43%~~subsidiaries received an aggregate of ~~our revenue for the nine months ended September 30, 2019 and 2018, respectively. We believe that a significant percentage of our business will continue to come from sales~~$4.1 million in ~~markets outside of the U.S. through increased penetration in countries where we market and sell the ARTAS~~^® ~~or ARTAS~~^® iX ~~System. However, international sales are subject to a number of risks, including:~~

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

We expect that our revenue from international markets may decrease in the near term as we have received regulatory approval or clearance for the implantation function outside of the U.S., which may result in purchasing delays in international markets as customers await the availability of that function. In addition, the number of ARTAS^® ~~Systems previously sold to distributors that have not yet been placed with an end user has increased in recent periods, which, in combination with the launch of ARTAS~~^® ~~iX, System may further exaggerate delays in international system sales.~~

~~Whiletraditionalhair transplantationsurgeryhas been availableformany years,the ARTAS~~^®~~Systemhas only been commerciallyavailablesince2011. As a result,we have a limitedtrackrecordcomparedto traditional hair transplantationsurgeryand the safetyand efficacyof the ARTAS~~^®~~System~~is~~not yetsupportedby long-termclinicaldata, which could limitsales,and the ARTAS~~^®~~Systemcould proveto be lesssafeor effectivethan initiallythought.~~

~~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 (pre-amendments device), a device that was originally on the U.S. market pursuant to an approved premarket approval, or PMA, application and later down-classified, 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~~funding in connection with ~~other hair restoration techniques. As~~two “Small Business Loans” under the federal Paycheck Protection Program provided in Section 7(a) of the Small Business Act of 1953, as amended by the Coronavirus Aid, Relief, and Economic Security Act, as amended from time to time. We and our subsidiary, Venus Concept USA, entered into U.S. Small Business Administration Notes pursuant to which we borrowed $1.7 million original principal amount (the “Venus Concept PPP Loan”) and Venus Concept USA borrowed $2.4 million original principal amount (the “Venus USA PPP Loan” and together with the Venus Concept PPP Loan, individually each a ~~result, physicians~~“PPP Loan” and collectively, the “PPP Loans”). The PPP Loans bear interest at 1% per annum and mature in two years from the date of disbursement of funds under each loan. Under certain circumstances, all or a portion of the PPP Loans may be ~~slow to adopt the ARTAS~~^® ~~System, we may not have comparative data~~forgiven, however, there can be no assurance 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~~any portion of the ~~ARTAS~~^® ~~System by physicians,~~PPP Loans will be forgiven and that we and Venus Concept USA would ~~significantly reduce~~not be required to repay the PPP Loans in full, or that if required to repay the loans in full, that we or Venus Concept USA would have sufficient funds to make the repayment.

The PPP Loans contain certain covenants which, among other things, restrict our use of the proceeds of the respective PPP Loan to the payment of payroll costs, interest on mortgage obligations, rent obligations and utility expenses, require compliance with all other loans or other agreements with any our creditor or creditor of us or Venus Concept USA, to the extent that a default under any loan or other agreement would materially affect our or Venus Concept USA’s ability to repay its respective PPP Loan and limit our ability to ~~achieve expected sales~~make certain changes to our ownership structure.

If we and/or Venus Concept USA defaults on respective PPP Loan (i) events of default will occur under the Madryn Credit Agreement and ~~could prevent~~the CNB Credit Facility and (ii) we and/or Venus Concept USA may be required to immediately repay their respective PPP Loan.

Under the Madryn Credit Agreement each PPP Loan is permitted to be incurred by us ~~from achieving~~ and ~~maintaining profitability.~~

~~We have limited complication~~ Venus Concept USA as long as certain conditions remain satisfied, including that all PPP Loans must be forgiven other than any amount which can fit under existing permitted debt baskets in the Madryn Credit Agreement. If we and/or ~~patient success rate data with respect to treatment using~~Venus Concept USA defaults on the ~~ARTAS~~^® ~~System. If future patient studies~~respective PPP Loan or ~~clinical testing do not support our belief that our system offers a more advantageous treatment for hair restoration, market acceptance~~if any of the ~~ARTAS~~^® ~~System could fail~~conditions to ~~increase or could decrease~~the incurrence thereof under the Madryn Credit Agreement are not satisfied (i) events of default will occur under the Madryn Credit Agreement and ~~our business could~~the CNB Credit Facility and (ii) we and Venus Concept USA may be ~~harmed. Moreover, if future results~~required to immediately repay their respective PPP Loan.

Also, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2.0 million following the lender’s submission of the borrower’s loan forgiveness application. To the extent that the SBA’s audit determines that Venus Concept USA was not entitled to the loan under the PPP, the loan may not be forgiven, an event of default would occur under the Madryn Credit Agreement and ~~experience indicate that our implant products cause unexpected or serious complications or other unforeseen negative effects, we~~Venus Concept USA 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.~~civil and criminal penalties.

~~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 revenue and prevent us from becoming profitable.~~

We ~~were~~are the subject of purported class action lawsuits, and additional litigation may be brought against us in the future.

Between May 23, 2018 and June ~~2018, a number of purported stockholder~~11, 2019, four putative shareholder class ~~action~~actions complaints were filed against us, ~~the members of our board of directors (and affiliated venture funds), as well as~~ certain of our ~~current and~~ former officers and directors, certain of our venture capital investors, and the underwriters inof our IPO. Two of these complaints, Wong v. Restoration Robotics, Inc., et al., No. 18CIV02609, and Li v. Restoration Robotics, Inc., et al., No. 19CIV08173 (together, the “State Actions”), were filed in the Superior Court of the State of California, County of San Mateo, and assert claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, or the Securities Act. The other two complaints, Guerrini v. Restoration Robotics, Inc., et al., No. 5:18-cv-03712-EJD and Yzeiraj v. Restoration Robotics, Inc., et al., No. 5:18-cv-03883-BLF (together, the “Federal Actions”), were filed in the United States District Court for the Northern District of California, and assert claims under Sections 11 and 15 of the Securities Act. The complaints all allege, among other things, that our Registration Statement filed with the SEC on September 1, 2017 and the Prospectus filed with the SEC on October 13, 2017 in connection with our IPO were inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading and omitted to state material facts required to be stated therein. The complaints seek unspecified monetary damages, other equitable relief and attorneys’ fees and costs.

In the State Actions, we, along with the other defendants, successfully demurred to the initial Wong complaint for failure to state a claim, and secured a stay of both cases based on the forum selection clause contained in our Amended and Restated Certificate of Incorporation, which designates the federal district courts as the exclusive forums for claims arising under the Securities Act. However, on December 19, 2018, the Delaware Court of Chancery in Sciabacucchi v. Salzberg held that exclusive federal forum provisions are invalid under Delaware law. Based on this ruling, the San Mateo Superior Court lifted its stay of State Actions on December 10, 2019. On January 17, 2020, Plaintiffs in the State Actions filed a consolidated amended complaint for violations of federal securities laws, alleging again that, among other things, our Registration Statement filed with the SEC on September 1, 2017 and the Prospectus filed with the SEC on October 13, 2017 in connection with our IPO were inaccurate and misleading, contained untrue statements of material fact, omitted to state other facts necessary to make the statements made not misleading and omitted to state material facts required to be stated therein. The complaint seeks unspecified monetary damages, other equitable relief and attorneys’ fees and costs. On February 24, 2020, we demurred to the consolidated amended complaint for failure to state a claim. On March 18, 2020, the Delaware Supreme Court reversed the Chancery Court’s decision in Sciabacucchi v. Salzberg and held that exclusive federal forum provisions are valid under Delaware law. On March 30, 2020, the Company filed a renewed motion to dismiss based on its federal forum selection clause. Hearings on our demurrer and renewed motion to dismiss, originally scheduled for May 8, 2020, have been postponed to a later date, yet to be determined, due to COVID-19.

In the Federal Actions, which have been consolidated under the caption In re Restoration Robotics, Inc. Securities Litigation, Case No. 5:18-cv-03712-EJD, Lead Plaintiff Eduardo Guerrini filed his consolidated amended complaint for violations of federal securities laws on November 30, 2018. The consolidated amended complaint alleges again that, among other things, our Registration Statement filed with the SEC on September 1, 2017 and the Prospectus filed with the SEC on October 13, 2017 in connection with our IPO were inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading and omitted to state material facts required to be stated therein. On January 29, 2019, we, along with certain of our former officers and directors, filed a motion to dismiss the consolidated amended complaint for failure to state a claim. On October 18, 2019, the District Court granted our motion to dismiss as to all but two allegedly false or misleading statements contained in our Prospectus. On December 9, 2019, we filed our answer to the consolidated amended complaint denying the falsity of these statements, and discovery is underway.

In addition into the State and Federal Actions, on July 11, 2019, a verified shareholder derivative complaint was filed ~~which~~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 our ~~current and~~ former ~~executive~~ officers and directors breached their fiduciary duties, have been unjustly enriched and violated Section 14(a) of the Securities Exchange Act of 1934, or the Exchange Act, in connection with our IPO and our 2018 proxy statement. The ~~complaints seek~~complaint seeks unspecified ~~money~~ 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 during the pendency of the Federal Actions, and the case remains stayed.

In addition to the actions described above relating to our IPO, two lawsuits purporting to challenge disclosures made in connection with our merger have also been filed. The first, captioned Bushansky v. Restoration Robotics, Inc., et al., No. 5:19-cv-06004-MMC, alleged, among other things, that defendants violated Sections 14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9. The complaint alleged that the proxy statement filed with the SEC by Restoration Robotics, Inc. on September 10, 2019 in connection with the Merger omitted or misrepresented material information. The complaint sought, among other things, injunctive relief, unspecified damages, and attorneys’ fees and costs. On November 6, 2019, the plaintiff voluntarily dismissed the Bushansky action with prejudice as to his individual claims and without prejudice as to the claims of the putative class.

The second, a putative shareholder class action complaint captioned Pak v. Restoration Robotics, Inc., et al., No. 1:19-cv-02237, was filed in the United States District Court for the District of Delaware on December 6, 2019. The complaint alleges, among other things, that defendants violated Sections 14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9. The complaint alleges that the proxy statement filed with the SEC by Restoration Robotics, Inc. on September 10, 2019 in connection with the Merger contained false or misleading information. The complaint seeks, among other things, compensatory and/or rescissory damages, and attorneys’ fees and costs. On February 26, 2020, the District Court appointed Joon Pak as Lead Plaintiff in the Pak action, and approved his selection of Lead Counsel. The Company’s motion to dismiss the Pak complaint is due on May 26, 2020.

While we believe these claims to be without merit, we cannot assure you that additional claims alleging the same or similar facts will not be filed. Any litigation could result in substantial costs and a diversion of management’s attention and resources.

One of our subsidiaries is the subject of an administrative law investigation by the People’s Republic of China, or the PRC, State Administration for Market Regulation, or SAMR, regarding the potential misclassification of one product as a non-medical device. If this subsidiary is determined to have sold the Versa platform under an improper classification, the subsidiary could face material administrative penalties, including loss of future sales, corrective actions, disgorgement of profits and fines.

Our Chinese subsidiary, Venus Concept China, imports and sells registered medical devices and unregistered non-medical devices in the PRC. One of its unregistered products has been the subject of inquiries from two district level branches of the SAMR, Xuhui MSA and Huangpu MSA, as to whether the product was properly sold as a non-medical device. In January 2019, Venus Concept China had applied to register a version of this non-medical device as a medical device with the National Medical Products Administration of PRC, or NMPA. On June 12, 2019, Venus Concept China was informed that Xuhui MSA had opened an administrative investigation case related to whether the device is an unregistered medical device, as a result of a complaint that Xuhui MSA received from a former distributor of Venus Concept China. Huangpu MSA notified Venus Concept China that it would be suspending its separate investigation against Venus Concept China, pending the results of the Xuhui MSA investigation. We and Venus Concept China have voluntarily stopped sales in China of this product. On December 11, 2019, Xuhui MSA informed Venus Concept China that a determination had been made by the Shanghai Medical Products Administration that Versa’s IPL function should be administered as a Class II medical device. Xuhui MSA also suggested that Venus Concept China consider a voluntary recall of all Versa units sold in China. In late January 2020, Venus Concept China received a copy of the Shanghai Medical Products Administration’s determination that because of the intended uses for Versa’s IPL function comprise medical treatment functions such as “treatment of benign pigmented epidermis and skin lesions,” Versa’s IPL function should be administered as a Class II medical device. Although the revenue generated from the product that is the subject of the investigation did not represent a material amount of our total revenues for the years ended December 31, 2018 and 2019, monetary penalties nonetheless could be material.

In addition to the product that is the subject of an administrative investigation, Venus Concept China also sells two other products in the PRC, which are not registered as medical devices with the NMPA. Venus Concept China may not be able to convince the relevant SAMR authorities that the product that is the subject of an administrative investigation was properly classified, or that any of its other products that might be the subject of future government investigations, is properly classified. If any of the products sold by us as unregistered products is ultimately determined to be a medical device, the registration process with the NMPA could be extensive and time-consuming, potentially resulting in Venus Concept China’s inability to sell such products in the PRC for several years. Venus Concept China’s prior sales of those products could also subject it to material administrative penalties if it is determined that the products were sold in the absence of necessary registrations with NMPA. These administrative penalties could include limitations on future sales, corrective actions, including product recalls, disgorgement of profits and fines, the future imposition of which could materially adversely affect our business, operations, financial condition and reputation in the market.

Our subsidiary in the PRC, Venus Concept China may in the future be subject of a criminal law investigation by the local Public Security Bureau or PSB regarding the sale of Versa without obtaining medical device registration in the PRC.

On May 6, 2020, the economic crime investigation department of Xuhui PSB confirmed to Venus Concept China’s local PRC counsel that they will review and decide whether or not to file formally a criminal investigation case against Venus Concept China and any relevant individuals responsible for any alleged criminal offense(s) involving the sale of Versa without being registered as a medical device in the PRC. The formal filing of a criminal investigation case will be followed by a formal investigation by local PRC authorities to determine whether or not the case should then be submitted to for criminal court proceedings against Venus Concept China and any individual defendants. Based on facts and information currently available to the Company, it is currently uncertain as to whether or not the Xuhui PSB will actually file a formal criminal investigation case against Venus Concept China and if so, whether or not it will transfer the case for criminal prosecution at the end of such investigation, or whether or not any criminal offense(s) will be established against Venus Concept China and any relevant individuals in any subsequent criminal prosecution proceedings.

We rely on a single third-party manufacturer for the manufacturing of the reusable procedure kits, disposable procedure kits and spare procedures kits used with the ~~ARTAS~~^®ARTAS® System and the ~~ARTAS~~^®ARTAS® iX System.

NPI Solutions, Inc., or NPI, produces reusable procedure kits, disposable procedure kits and spare kits used with the ~~ARTAS~~^®ARTAS® System and ~~ARTAS~~^®ARTAS® iX System. If the operations of NPI 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 kit orders required for use with the existing ~~ARTAS~~^®ARTAS® System and ~~ARTAS~~^®ARTAS® iX System. 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 a manufacturing agreement for consumables with NPI for the supply of consumable products, including reusable procedure kits, disposable procedure kits and spare procedure kits used with the ~~ARTAS~~^®ARTAS® System and ~~ARTAS~~^®ARTAS® iX System, pursuant to both of which we make purchases on a purchase order basis. The agreement is effective for an initial term of two years and will continue to automatically renew for additional twelve-month periods, subject to either party’s right to terminate the agreement upon 180 days advance notice during the initial term if our quarterly forecasted demand falls below 75% of our historical forecasted demand for the same period in the previous year or upon 120 days’ advance notice after the initial term.

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

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 manufacturing of our various procedure kits, 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 procedure kits 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. The occurrence 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 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 revalidating the equipment and components we require for the ~~ARTAS~~^®ARTAS® System and ~~ARTAS~~^®ARTAS® iX System, including the related consumables, our reputation, business, financial condition and results of operations could be negatively ~~impacted.~~affected.

Pursuant to the Order of the Health Officer of the County of Santa Clara directing all individuals to shelter-in-place, which was issued on March 16, 2020 and updated on March 31, 2020 and April 29, 2020, in response to impact of COVID-19 pandemic (the “Order”), we are unable to access our facility in San Jose or NPI’s facility and therefore we are currently unable to manufacture ~~the reusable~~ procedure kits, ~~disposable~~ARTAS® Systems and ARTAS® iX Systems, and have been limited to shipping procedure kits ~~and spare procedures kits used with~~from existing inventory. We cannot predict when the ~~ARTAS~~^® ~~System and the ARTAS~~^® ~~iX System in high-quality commercial quantities successfully and consistently to meet demand, our growth~~Order will be ~~limited.~~

lifted, and we can resume normal operations. To ~~manufacture~~the extent that the Order remains in place for the foreseeable future, we may deplete our reusable procedure kits, disposable procedure kits and spare procedure kits in the quantities that we believe will be required to meet anticipated market demand, NPI will need to increase manufacturing capacity,existing inventory, which will involve significant challenges. In addition, the development of commercial-scale manufacturing capabilities will require us and NPI to invest substantial additional funds and hire and retain the technical personnel who have the necessary manufacturing experience. Neither we nor NPI may successfully complete any required increase to existing manufacturing processes in a timely manner, or at all.

If NPI is unable to produce the reusable procedure kits, disposable procedure kits and spare kits in sufficient quantities to meet anticipated customer demand, our revenue, business, and financial prospects would be harmed. The limited experience NPI has in producing larger quantities of the procedure kits may also result in quality issues, and possibly result in product recalls. Manufacturing delays related to quality control could ~~harm our reputation and decrease~~negatively impact our revenue. ~~Any recall could be expensive and generate negative publicity, which could impair our ability to market the ARTAS~~^® ~~System and the ARTAS~~^® ~~iX System and procedures and further affect our results of operations.~~

In response to the COVID-19 outbreak, the Company has recently taken action to reduce the expense associated with its workforce which could negatively affect the Company’s operations and the morale of its employees.

In response to the COVID-19 pandemic, we have taken measures to reduce costs and as a result we have initiated a headcount reduction plan, phase one of which commenced on March 31, 2020, and phase two in April 2020. In addition to these headcount reductions, we have temporarily furloughed and/or placed certain employees on unpaid leave for an undetermined timeframe. The actions we have taken may negatively impact the morale of our workforce, leading to a decrease in the quality of work or the voluntary departure of additional employees. In the event furloughed employees find employment elsewhere, we may be left with vacancies to fill once coronavirus-related economic disruptions subside. Although we expect the roles of our furloughed and former employees will be performed by others temporarily, their skills sets may not allow them to perform the work as proficiently or efficiently as others. As a result of the actions we have taken to preserve cash, our workforce may become strained, morale may decline and the quality of work may suffer, all of which could negatively affect our business operations and adversely impact its revenue as a result. Our ability to retain skilled employees and our success in attracting and hiring new skilled employees will be a critical factor in determining whether we will be successful in the future. If we are unable to ~~manufacture our next generation ARTAS~~^® ~~System, called the ARTAS~~^® ~~iX System in high-quality commercial quantities successfully~~attract, incentivize and ~~consistently to meet demand, our growth will be limited, and our reputation could be harmed.~~

~~To manufacture our ARTAS~~^® iX System in the quantities that we believe will be required to meet anticipated market demand, we will need to develop and maintain sufficient manufacturing capacity, which will involve significant challenges. Historically, we have not manufactured any of our other products (e.g. ARTAS^® ~~System) in-house or without the contract manufacturer involvement. Over the next 12 months, we will manufacture the ARTAS~~^® ~~iX System without a third-party contract manufacturer’s involvement. The development of commercial-scale manufacturing capabilities will require us (or our contract manufacturer for ARTAS~~^® ~~iX System, if we decide to utilize one on a long-term basis) to invest substantial~~integrate additional funds and hire and retain the technical personnel who have the necessary manufacturing experience. Neither we nor a third-party manufacturer, if one is utilized, may successfully complete any required increase to existing manufacturing processes in a timely manner, or at all.

~~If we or a contract manufacturer, if one is utilized, are unable to produce the ARTAS~~^® iX System in sufficient quantities to meet anticipated customer demand, our revenue, business, financial prospects, and reputation would be harmed. The limited experience we or a third-party manufacturer, if one is utilized, in producing the ARTAS^® iX System may also result in quality issues, and possibly result in product recalls. Manufacturing delays related to quality control could harm our reputation and decrease our revenue. Any recall could be expensive and generate negative publicity, which could impair our ability to market the ARTAS^® ~~iX System and procedures and further affect our results of operations.~~

~~Both our manufacturing of the ARTAX~~ ^® iX System and NPI’s manufacturing of the procedure kits 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.

We and NPI, as the case may be, rely on several sole source suppliers, including Kuka Robotics, Inc., FLIR Integrated Imaging Solutions Inc. and 3D-CAM International Corporation, for certain components of the ARTAS^® iX System, reusable procedure kits, disposable procedure kits and spare procedure kits. These sole suppliers, and any of our other suppliers, may be unwilling or unable to supply components of these systems to us or NPI reliably and at the levels we anticipate or are required by the market. For us to be successful, our 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 we 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^® iX System or our procedure kits, we believe that there are only a few such suppliers that can supply the necessary components. A supply interruption, price fluctuation or an increase in demand beyond our current suppliers’ capabilities could harm our ability to manufacture the ARTAS^® iX System and NPI’s ability to manufacture our procedure kits 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:~~

~~Wherepracticable,we areseeking,or intendingto seek, second-sourcemanufacturersforcertainof our components.However, we cannotprovideassurancethatwe willbe successfulin establishingsecond-source manufacturersor thatthesecond-sourcemanufacturerswillbe ableto satisfycommercialdemandforthe ARTAS~~^® ~~System and ARTAS~~^® iX ~~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 and ARTAS~~^® iX~~System in a timely manner, our ability to generate revenue would be impaired and market acceptance of our products could be adversely affected.~~

~~We forecast sales to determine requirements for components and materials used in the ARTAS~~^® ~~System~~ and ARTAS® iX System, reusable procedure kits, disposable procedure kits, upgrade kits and spare kits and if our forecasts are incorrect, we may experience delays in shipments or increased inventory costs.

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^® ~~and ARTAS~~^® iX Systems 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 or the ARTAS~~^® iX 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~~ and ARTAS® iX System are marketed to physicians, there exists a potential for misuse by the operator of the systems 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 and ARTAS~~^® iX 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 and ARTAS~~^® ~~iX System, we do not supervise the procedures performed with the ARTAS~~^® ~~System and ARTAS~~^® ~~iX System, nor can we be assured that direct physician supervision of procedures occurs according to our recommendations. The potential misuse of the ARTAS~~^® ~~System or ARTAS~~^® ~~iX 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~~ ~~or ARTAS® iX 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 or ARTAS® iX System are 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 ARTAS~~^® iX 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:

Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could inhibit commercialization of the ARTAS^® ~~and ARTAS~~^® iX Systems. As of September 30, 2019, we carry product liability insurance in the amount of $4.0 million in the aggregate. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient funds to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses.

~~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.

Delays in the commencement or completion of clinical testing could significantly affect our product development costs. We do not know whether planned clinical trials will begin on time, need to be redesigned, enroll an adequate number of patients in a timely manner or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed or terminated for a number of reasons, including delays or failures related to:

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 because 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 several factors, including:

Additionally, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for our products may be harmed and our ability to generate product revenue from these products will be delayed or not realized at all. In addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may significantly harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of a clinical trial may also ultimately lead to the denial of regulatory approval of the subject product.

~~Our businesscould be adverselyaffected~~if~~we are unable to extendthe cleareduses of the ARTAS~~^® ~~System~~ ~~and ARTAS® iX Systemor successfullypursue the development,regulatoryclearanceor approvaland commercializationof future products.~~

~~The ARTAS~~^® ~~System and ARTAS~~^® ~~iX 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, recipient site making for the follicle transplantation sites and, in our ARTAS^® iX System, robotic implantation in which hair follicles are robotically transplanted, which recently has been approved for commercial marketing in the U.S., are our only products. Our business could be adversely affected if we are unable to extend the cleared uses of the ARTAS^® ~~System~~ ~~and ARTAS~~^® iX 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 several factors, including the following:

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 the sale of any future products to continue our business.

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

As of September 30, 2019, we had 90 employees, with 35 employees in sales and marketing, 24 employees in customer support, 18 employees in research and development, including clinical, regulatory and certain quality control functions, ~~five~~ employees in manufacturing operations and eight 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 ARTAS~~^® ~~iX System and continue our development activities 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:~~

If~~we failto attractand retainseniormanagementand key personnel,we maybe unable to successfullygrow 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 of services of any of these individuals could delay or prevent enhancement of the ARTAS^® ~~System~~ ~~and ARTAS~~^® ~~iX System, the expansion of the ARTAS~~^® ~~System~~ ~~and ARTAS~~^® ~~iX System~~personnel 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.

Competition for qualified personnel in the medical device field is intense due to 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 Act of 2012, or the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued after 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 significant costs because of operating as a public company, and our management devotes substantial time to new compliance initiatives. We may fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002, which could result in sanctions or other penalties that would 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, 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 costlier. 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. 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.

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.

Further, 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 IPO, (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 June 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.

~~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^® ~~and ARTAS~~^® iX Systems, 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 third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a 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 plan 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 because 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 few 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

~~intrusionsfromaroundtheworld have increased.In addition,theprevalentuse of mobiledevicesthataccessconfidentialinformationincreasestheriskof data securitybreaches,which couldleadto thelossof confidentialinformationor otherintellectualproperty.The coststo us to mitigatenetworksecurityproblems,bugs, viruses,worms,malicioussoftwareprogramsand securityvulnerabilitiescouldbe significant,and whilewe have implementedsecuritymeasuresto protectour datasecurityand informationtechnologysystems,our effortsto addresstheseproblemsmaynot be successful, and theseproblemscouldresultin unexpectedinterruptions,delays,cessationof serviceand otherharmto our businessand our competitiveposition.~~If~~such an eventwere to occurand causeinterruptionsin our operations,it couldresultin a materialdisruptionof our productdevelopmentprograms.Moreover,~~if~~a computersecurity breachaffectsour systemsor resultsin theunauthorizedreleaseof personallyidentifiableinformation,our reputationcouldbe materiallydamaged.In addition,such a breachmayrequirenotificationto governmental agencies,themediaor individualspursuantto variousfederaland stateprivacyand securitylaws, ifapplicable, includingtheHealthInsurancePortabilityand AccountabilityAct of 1996, or HIPAA,as amendedby theHealth InformationTechnologyforClinicalHealthAct of 2009, or HITECH,and itsimplementingrulesand regulations,as wellas regulationspromulgatedby theFederalTradeCommission and statebreachnotification laws. We would alsobe exposedto a riskof lossor litigationand potentialliability,which couldmaterially adverselyaffectour business,resultsof operationsand financialcondition.~~

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 privacy laws and other similar non-U.S. laws; or laws that require the true, complete and accurate reporting of financial information or data. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, the creation of fraudulent data in our nonclinical studies or clinical trials, or illegal misappropriation of product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third-parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and financial results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, individual imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

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~~fill open positions, 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 mayreceivein thefuture,particularlyas a publiccompany,communicationsfrompatentholders,including non-practicingentities,alleginginfringementof patentsor otherintellectualpropertyrightsor misappropriation of tradesecrets,or offeringlicensesto such intellectualproperty.Any claimsthatwe assertagainstperceived infringerscouldalsoprovokethesepartiesto assertcounterclaimsagainstus allegingthatwe infringetheir intellectualpropertyrights.At any giventime,we maybe involvedas eithera plaintiffor a defendantin a numberof patentinfringementactions,theoutcomesof which maynot be known forprolongedperiodsof 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:

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,interferenceor derivationproceedingsprovokedby thirdpartiesor broughtby theUnitedStatedPatent and TrademarkOffice,or USPTO,or any foreignpatentauthoritymaybe necessaryto determinethepriorityof inventionsor othermattersof inventorshipwith respectto our patentsor patentapplications.We mayalso becomeinvolvedin otherproceedings,such as re-examinationor oppositionproceedings,beforetheUSPTOor itsforeigncounterpartsrelatingto our intellectualpropertyor theintellectualpropertyrightsof others.An unfavorableoutcomein any such proceedingscouldrequireus to ceaseusingtherelatedtechnologyor to attempt to licenserightsto itfromtheprevailingparty or couldcauseus to losevaluableintellectualpropertyrights.Our businesscouldbe harmed~~if~~theprevailingpartydoes not offerus a licenseon commerciallyreasonableterms,if any license~~is~~offered~~at~~all.Litigationor otherproceedingsmayfailand, even ifsuccessful,mayresultin substantialcostsand distractour managementand otheremployees.We mayalsobecomeinvolvedin disputes with othersregardingtheownershipof intellectualpropertyrights.For example,we jointlydevelopintellectual propertywith certainparties,and disagreementsmaythereforeariseas to theownershipof theintellectual propertydevelopedpursuantto theserelationships.~~If~~we areunableto resolvethesedisputes,we couldlose valuableintellectualpropertyrights.~~

~~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, patent reform legislation may pass in the future that could lead to additional uncertainties and increased costs surrounding the prosecution, enforcement and defense of our patents and applications. Furthermore, the U.S. Supreme Court and the U.S. Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how the patent laws of the U.S. are interpreted. For example, the U.S. Supreme Court has ruled on several patent cases in recent years, such as ~~AssociationforMolecularPathology~~v.~~MyriadGenetics,Inc.~~ ~~(Myriad I),~~ ~~MayoCollaborativeServices~~v.~~PrometheusLaboratories,Inc.,~~ ~~and~~ ~~AliceCorporationPty.Ltd.~~v.~~CLSBank International,~~ either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Similarly, foreign courts have made, and will likely continue to make, changes in how the patent laws in their respective jurisdictions are interpreted. We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by U.S. and foreign legislative bodies. Those changes may materially affect our patents or patent applications and our ability to obtain additional patent protection in the 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 maynot be ableto adequatelyprotectour intellectualpropertyrightsthroughout 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 intellectual property agreements with third parties may be subject to disagreements over contract interpretation, which could narrow the scope of our rights to the relevant intellectual property or technology or increase our financial or other obligations to 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 trademarksand tradenamesare not adequatelyprotected,then we maynot be ableto buildname recognitionin our marketsof interestand our businessmaybe adverselyaffected.~~

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 protect our intellectual property will be effective. In addition, we may not be able to obtain adequate remedies for any such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the U.S. are less willing or unwilling to enforce trade secret protection.

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.

~~The ARTAS~~^® and ARTAS® iX Systems 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~~^® ~~and ARTAS~~^® iX Systems 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:

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 (pre-amendments device), a device that was originally on the U.S. market pursuant to an approved premarket approval, or PMA, application and later down-classified, 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 for its intended use based, in part, on extensive data, including, but not limited to, technical, pre-clinical, clinical trial, manufacturing and labeling data. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life- sustaining, life-supporting or implantable devices.

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 costlier and more 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~~^® ~~and ARTAS~~^® iX 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^® ~~and ARTAS~~^® ~~iX Systems. We expect that certain modifications we may make to the ARTAS~~^® ~~and ARTAS~~^® ~~iX Systems may require new 510(k) clearanc~~e; 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:~~

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~~als~~o~~canno~~t~~predic~~tthe~~likelihood~~,~~natur~~eor~~exten~~tof~~governmen~~t~~regulatio~~n~~tha~~tmay~~aris~~e~~fro~~m~~future legislatio~~nor~~administrativ~~e~~action~~,~~eithe~~rinthe~~U.S~~.or~~abroad~~.For~~example~~,~~certai~~n~~policie~~softhe~~Trump administratio~~nmay~~impac~~tour~~busines~~sand~~industry~~.~~Namely~~,the~~Trum~~p~~administratio~~nhas~~take~~n~~several executiv~~e~~actions~~,~~includin~~gthe~~issuanc~~eof~~severalExecutiv~~e~~Orders~~,~~tha~~t~~coul~~d~~impos~~e~~significan~~t~~burdens on~~,or~~otherwis~~e~~materiall~~y~~delay~~,the~~FDA’~~s~~abilit~~yto~~engag~~ein~~routin~~e~~regulator~~yand~~oversigh~~t~~activitie~~s~~suc~~has ~~implementin~~g~~statute~~s~~throug~~h~~rulemaking~~,~~issuanc~~eof~~guidance~~,and~~revie~~wand~~approva~~lof~~marketing applications~~.~~Notably~~,on~~Januar~~y30,~~2017~~,~~Presiden~~t~~Trum~~p~~issue~~dan~~Executiv~~e~~Order~~,~~applicabl~~etoall~~executive agencie~~s~~includin~~gthe~~FDA~~,~~requirin~~g~~tha~~tfor~~eac~~h~~notic~~eof~~propose~~d~~rulemakin~~gor~~fina~~l~~regulatio~~ntobe~~issue~~d~~in fisca~~l~~yea~~r~~2017~~,the~~agenc~~y~~mus~~t~~identif~~yat~~leas~~ttwo~~existin~~g~~regulation~~stobe~~repealed~~,~~unles~~s~~prohibite~~dby~~law. Thes~~e~~requirement~~sare~~referre~~dtoasthe~~“two-for-one~~”~~provisions~~.~~Thi~~s~~Executiv~~e~~Orde~~r~~include~~sa~~budget neutralit~~y~~provisio~~n~~tha~~t~~require~~sthe~~tota~~l~~incrementa~~l~~cos~~tofallnew~~regulation~~sinthe~~201~~7~~fisca~~l~~year~~,~~including repeale~~d~~regulations~~,tobeno~~greate~~r~~tha~~n~~zero~~,~~excep~~tin~~limite~~d~~circumstances~~.For~~fisca~~l~~year~~s~~201~~8and~~beyond, th~~e~~Executiv~~e~~Orde~~r~~require~~s~~agencie~~sto~~identif~~y~~regulation~~sto~~offse~~tany~~incrementa~~l~~cos~~tofanew~~regulatio~~n~~and approximat~~ethe~~tota~~l~~cost~~sor~~saving~~s~~associate~~d~~wit~~h~~eac~~hnew~~regulatio~~nor~~repeale~~d~~regulation~~.In~~interim guidanc~~e~~issue~~dbythe~~Offic~~eof~~Informatio~~nand~~Regulator~~y~~Affair~~s~~withi~~nOMBon~~Februar~~y2,~~2017~~,~~the administratio~~n~~indicate~~s~~tha~~tthe~~“two-for-one~~”~~provision~~smay~~appl~~ynot~~onl~~yto~~agenc~~y~~regulations~~,but~~als~~o~~to significan~~t~~agenc~~y~~guidanc~~e~~documents~~.In~~addition~~,on~~Februar~~y24,~~2017~~,~~Presiden~~t~~Trum~~p~~issue~~dan~~executive orde~~r~~directin~~g~~eac~~h~~affecte~~d~~agenc~~yto~~designat~~ean~~agenc~~y~~officia~~lasa~~“Regulator~~y~~Refor~~m~~Officer~~”and~~establish~~ a~~“Regulator~~y~~Refor~~m~~Tas~~k~~Force~~”to~~implemen~~tthe~~two-for-on~~e~~provision~~sand~~othe~~r~~previousl~~y~~issue~~d~~executive order~~s~~relatin~~gtothe~~revie~~wof~~federa~~l~~regulations~~,~~howeve~~ritis~~difficul~~tto~~predic~~thow~~thes~~e~~requirement~~s~~wil~~l~~be implemented~~,andthe~~exten~~tto~~whic~~h~~the~~y~~wil~~l~~impac~~tthe~~FDA’~~s~~abilit~~yto~~exercis~~eits~~regulator~~y~~authority~~.If~~these executiv~~e~~action~~s~~impos~~e~~constraint~~son~~FDA’~~s~~abilit~~yto~~engag~~ein~~oversigh~~tand~~implementatio~~n~~activitie~~sin~~the norma~~l~~course~~,our~~busines~~smaybe~~negativel~~y~~impacted.~~

Even after we have obtained the proper regulatory clearance or approval to market a product, we have ongoing responsibilities under FDA regulations. The failure to comply with applicable regulations could jeopardize our ability to sell the ARTAS^® ~~and ARTAS~~^® ~~iX Systems and result in enforcement actions such as:~~

~~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 therelevantconformityassessmentprocedure,theNotifiedBody would auditand examinethe TechnicalFileand thequalitysystemforthemanufacture,designand finalinspectionof our devices.The NotifiedBody issuesa CECertificateof Conformityfollowingsuccessfulcompletionof a conformityassessment procedureconductedin relationto themedicaldeviceand itsmanufacturerand theirconformitywith the EssentialRequirements.This Certificateentitlesthemanufacturerto affixthe~~CE~~markto itsmedicaldevices afterhavingpreparedand signeda related~~EC~~Declarationof Conformity.~~

As a 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 April 5, 2017, the European Parliament passed the Medical Devices Regulation, which repeals and replaces the EU Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the EEA member States, the regulations would be directly applicable, i.e., without the need for adoption of EEA member State laws implementing them, in all EEA member States and are intended to eliminate current differences in the regulation of medical devices among EEA member States. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and in vitro diagnostic devices and ensure a high level of safety and health while supporting innovation.

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

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

We are subject to governmental regulation and other legal obligations, particularly related to privacy, data protection and information security. Our actual or perceived failure to comply with such obligations could harm our business.

We are subject to diverse laws and regulations relating to data privacy and security, including, in the United States, the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, and, in the European Union (EU) and shortly in the European Economic Area (EEA), Regulation 2016/679, known as the General Data Protection Regulation, or GDPR. New global privacy rules are being enacted and existing ones are being updated and strengthened. Complying with these numerous, complex and often changing regulations is expensive and difficult, and failure to comply with any privacy laws or data security laws or any security incident or breach involving the misappropriation, loss or other unauthorized use or disclosure of sensitive or confidential patient or consumer information, whether by us, one of our business associates or another third-party, could have a material adverse effect on our business, reputation, financial condition and results of operations, including but not limited to: material fines and penalties; damages; litigation; consent orders; and injunctive relief.

~~Furthermore, these rules are constantly changing; for example, the GDPR came into effect in May this year reforming the European regime.~~ The GDPR implements more stringent operational requirements than its predecessor legislation. For example, the GDPR requires us to make more detailed disclosures to data subjects, requires disclosure of the legal basis on which we can process personal data, makes it harder for us to obtain valid consent for processing, provides more robust rights for data subjects, introduces mandatory ~~data breach notification through the EU, imposes additional obligations~~ on us ~~when contracting~~ ~~with service providers and~~ ~~requires us to adopt appropriate privacy governance including policies, procedures, training~~ ~~and data~~ ~~audit. If we do not comply with our obligations under the~~ ~~GDPR, we could be exposed to fines of up to~~ ~~the higher of~~ ~~20,000,000 Euros or up to 4% of~~ ~~our total worldwide annual turnover~~ ~~in the event of a significant breach. In addition, we may be the subject of litigation and/or adverse publicity, which could have material adverse effect on our reputation and business.~~

We are also subject to evolving European laws on data export and electronic marketing. The rules on data export will apply when we transfer personal data to group companies or third parties outside of the EEA. For example, in 2015, the Court of Justice of the EU ~~ruled that the U.S.-EU Safe Harbor framework, one compliance method by which companies could transfer personal data regarding citizens of the EU~~ to the United States, was invalid and could no longer be relied upon. The U.S.-EU Safe Harbor framework was replaced with the U.S.-EU Privacy Shield framework, which is now under review and there is currently litigation challenging another EU mechanism for adequate data transfers, the standard contractual clauses. It is uncertain whether the Privacy Shield framework and/or the standard contractual clauses will be similarly invalidated by the European courts ~~. These changes may require us to find alternative bases for the compliant transfer of personal data from the EEA~~ to the U.S and we are monitoring developments in this area. The EU is also in the process of replacing the e-Privacy Directive with a new set of rules taking the form of a regulation, which will be directly implemented in the laws of each European member state, without the need for further enactment. The current draft of the e-Privacy Regulation retains strict op-in for electronic marketing and the penalties for contravention have significantly increased with fining powers to the same levels as GDPR (i.e. the greater of 20,000,000 Euros or 4% of total global annual revenue).

~~Modifications to the ARTAS~~^® System or ARTAS® iX System and any future products that receive 510(k) clearances 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~~^® and ARTAS® iX Systems have received 510(k) clearances 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 or ARTAS® iX System for off-label uses, could subject us to regulatory enforcement action.~~

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

~~We trainour marketingand directsalesforceto not promotetheARTAS~~^®~~Systemor ARTAS® iX System forusesoutsideof theFDA-clearedindicationsforuse, known as “off-labeluses.”We cannot,however, preventa physicianfromusingthe ARTAS~~^®~~Systemor ARTAS~~^® ~~iX System off-labelwhen, in thephysician’sindependentprofessionalmedicaljudgment,he or she deems itappropriate.Theremaybe increasedriskof injuryto patients~~if~~physiciansattemptto use theARTAS~~^®~~System or ARTAS~~^® ~~iX System off-label.Furthermore,theuse of theARTAS~~^®~~System or ARTAS~~^® ~~iX Systemforindicationsotherthanthoseclearedby 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 or ARTAS® iX 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 ARTAS® iX System, or a recall of the ARTAS~~^® ~~System or ARTAS® iX 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 or ARTAS~~^® iX 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 ARTAS~~^® iX System, as the case may be. If we fail to comply with our reporting obligations, the FDA could act, 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 if 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 because 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 or ARTAS~~^® ~~iX 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 or ARTAS~~^® iX 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 distributorsdo not obtainand maintaininternationalregulatoryregistrationsor approvalsforthe ARTAS~~^®~~System,our abilityto marketand sellthe ARTAS~~^®~~Systemoutsideof the U.S.willbe 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 permitted to sell the modified product. In addition, we may not continue to meet the quality and safety standards required to maintain the authorizations that we or our distributors have received. If we or our distributors are unable to maintain our authorizations in a particular country, we will no longer be able to sell the applicable product in that country, which could harm our 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~~^® ~~and ARTAS~~^® iX Systems 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^® ~~and ARTAS~~^® ~~iX Systems are 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 or ARTAS~~^® ~~iX System. In addition, failure to comply with applicable FDA requirements or later discovery of previously unknown problems with the ARTAS~~^® ~~System or ARTAS~~^® ~~iX System manufacturing processes could result in, among other things:~~

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 maybe subjectto variousfederaland statelaws pertainingto healthcarefraud and abuse, and any violationsby us of such laws could resultin finesor otherpenalties.~~

~~While procedures utilizing the ARTAS~~^® ~~and ARTAS~~^® iX Systems 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 way 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.

~~Recently enacted and future legislation may increase the difficulty and cost for us to sell our 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, 2019, and, absent further legislative action, will be reinstated starting January 1, 2020. 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.

~~Recent U.S. tax legislation and future changes to applicable U.S. or foreign tax laws and regulations may have a material adverse effect on our business, financial condition and results of operations.~~

We are subject to income and other taxes in the U.S. and foreign jurisdictions. Changes in laws and policy relating to taxes or trade may have an adverse effect on our business, financial condition and results of operations. For example, the U.S. government recently enacted significant tax reform, and certain provisions of the new law may adversely affect us. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a more generally territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections and will be subject to interpretations and implementing regulations by the Treasury and Internal Revenue Service, any of which could mitigate or increase certain adverse effects of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation. Generally, future changes in applicable U.S. or foreign tax laws and regulations, or their interpretation and application could have an adverse effect on our business, financial conditions and results of operations.

~~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:

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. Recently, several securities class action complaints have been filed against us, certain of our current and former executive officers and directors, certain of our investors and certain underwriters in our IPO. These complaints allege violations of Sections 11, 12(a)(2) and 15 of the Securities Act due to allegedly false and misleading statements made in connection with our IPO. While we believe that these lawsuits are without merit and we intend to vigorously defend against these claims, we could incur substantial costs in defending these lawsuits and the attention of our management could be diverted from the operation of our business. Further, if more of our stockholders were to bring additional lawsuits on similar or unrelated grounds, we could incur substantial costs defending these additional lawsuits and the attention of our management would be further diverted from the operation of our business.

~~Prior to our IPO, 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 securities or industry analysts issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could 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 IPO, (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 June 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 sellsharesof our commonstockin futurefinancings,stockholdersmayexperienceimmediatedilution and, as a result,our stockpricemaydecline.~~

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 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:

~~In addition, these provisions would apply even if we were to receive an offer that some stockholders may consider beneficial.~~

~~We arealsosubjectto theanti-takeoverprovisionscontainedin Section203 of theDelawareGeneral CorporationLaw. Under Section203, a corporationmaynot, in general,engagein a businesscombinationwith any holderof 15% or moreof itscapitalstockunlesstheholderhas heldthestockforthreeyearsor, amongother exceptions,theboardof directorshas approvedthetransaction.~~

~~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:

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. 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.

There were no unregistered securities issued and sold during the quarter ended ~~September 30, 2019.~~March 31, 2020.

*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 Securities and Exchange Commission and is not to be incorporated by reference into any filing of Venus Concept 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 Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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.

Title of each class		Trading Symbol		Name of each exchange on which registered
Common Stock, $0.0001 par value per share		VERO		The Nasdaq Global Market

		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	4
	Condensed Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to the Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2527
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3544
Item 4.	Controls and Procedures	3544
PART II.	~~OTHER INFORMATION~~Other Information	3645
Item 1.	Legal Proceedings	3645
Item 1A.	Risk Factors	3747
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6854
Item 3.	Defaults Upon Senior Securities	6854
Item 4.	Mine Safety Disclosures	6854
Item 5.	Other Information	6854
Item 6.	Exhibits	6955
Signatures		7057

	As previously reported		Adjustment			As restated
	$		$			$
Consolidated balance sheet and consolidated statement of stockholders' equity
January 1, 2019
Common Stock		57,101		(57,096	)		5
Additional paid in capital		10,399		57,096			67,495

March 31, 2019
Common Stock		57,101		(57,096	)		5
Additional paid in capital		10,774		57,096			67,870

	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Balance at the beginning of the period	$	1,535		$	1,661
Additions		652			1,658
Recognition of deferred revenue		(585	)		(1,717	)
Balance at the end of the period	$	1,602		$	1,602
Less: Deferred revenue - current	$	1,346		$	1,346
Deferred revenue - non-current (A)	$	256		$	256

	As of September 30,
	2019		2018		March 31, 2020		March 31, 2019
Options to purchase common stock		221,941		135,126		2,730,791		3,269,926
Restricted stock awards		6,000		—
Preferred stock						660,000		9,216,413
Warrants for common stock		18,147		31,212		10,665,067		179,932
Total potential dilutive shares		246,088		166,338		14,055,858		12,666,271

	September 30,			December 31,
	2019			2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	8,915		$	16,122
Accounts receivable, net of allowance of $2,542 and $1,772 as of September 30, 2019 and December 31, 2018, respectively		3,663			6,569
Inventory		5,623			5,522
Prepaid expenses and other current assets		1,042			1,278
Total current assets		19,243			29,491
Property and equipment, net		1,323			1,299
Restricted cash		83			83
Other assets		100			100
TOTAL ASSETS	$	20,749		$	30,973
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable	$	5,226		$	3,815
Accrued compensation		1,315			1,771
Other accrued liabilities		2,629			2,337
Deferred revenue		1,346			1,407
Related party convertible promissory notes (Note 8)		7,000			—
Subordinated promissory notes (Note 8)		4,500			—
Current portion of long-term debt, net of discount of $789 and $617 as of September 30, 2019 and December 31, 2018, respectively		5,878			49
Total current liabilities		27,894			9,379
Other long-term liabilities		497			594
Long-term debt, net of discount of $485 and $746 as of September 30, 2019 and December 31, 2018		14,158			19,418
TOTAL LIABILITIES		42,549			29,391
Commitments and Contingencies (Note 6)
STOCKHOLDERS’ EQUITY (DEFICIT)
Convertible preferred stock, $0.0001 par value; 10,000,000 shares authorized, and no shares issued and outstanding as of September 30, 2019 and December 31, 2018	—			—
Common stock, $0.0001 par value; 300,000,000 shares authorized as of September 30, 2019 and December 31, 2018; 2,729,801 and 2,711,801 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		4			4
Additional paid-in capital		195,914			194,841
Accumulated other comprehensive income (loss)		43			(50	)
Accumulated deficit		(217,761	)		(193,213	)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		(21,800	)		1,582
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	20,749		$	30,973

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenue	$	3,307		$	4,818		$	11,632		$	15,298
Cost of revenue		2,297			2,663			6,465			8,362
Gross profit		1,010			2,155			5,167			6,936
Operating expenses:
Sales and marketing		3,952			4,398			12,688			13,147
Research and development		1,604			2,008			4,573			6,286
General and administrative		2,155			2,191			5,721			6,159
Merger related expenses		1,521			—			4,079			—
Total operating expenses		9,232			8,597			27,061			25,592
Loss from operations		(8,222	)		(6,442	)		(21,894	)		(18,656	)
Other expense, net:
Interest expense		(930	)		(631	)		(2,512	)		(1,489	)
Other income (expense), net		(55	)		12			(109	)		(567	)
Total other expense, net		(985	)		(619	)		(2,621	)		(2,056	)
Net loss before provision for income taxes		(9,207	)		(7,061	)		(24,515	)		(20,712	)
Provision for income taxes		9			8		33				32
Net loss attributable to common stockholders	$	(9,216	)	$	(7,069	)	$	(24,548	)	$	(20,744	)
Net loss per share attributable to common stockholders, basic and diluted	$	(3.38	)	$	(3.03	)	$	(9.02	)	$	(10.02	)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted		2,728,888			2,333,820			2,722,922			2,070,322

	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’ Equity
	Shares		Amount		Capital		Income (Loss)			Deficit			(Deficit)
Balance — June 30, 2019		2,723,801	$	4	$	195,559	$	—		$	(208,545	)	$	(12,982	)
Release of restricted stock awards		6,000		—		—		—			—			—
Stock-based compensation		—		—		355		—			—			355
Other comprehensive gain		—		—		—		43			—			43
Net loss		—		—		—		—			(9,216	)		(9,216	)
Balance — September 30, 2019		2,729,801	$	4	$	195,914	$	43		$	(217,761	)	$	(21,800	)

	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’ Equity
	Shares		Amount		Capital		Income (Loss)			Deficit			(Deficit)
Balance — December 31, 2018		2,711,801	$	4	$	194,841	$	(50	)	$	(193,213	)	$	1,582
Release of restricted stock awards		18,000		—		—		—			—			—
Stock-based compensation		—		—		1,073		—			—			1,073
Other comprehensive gain		—		—		—		93			—			93
Net loss		—		—		—		—			(24,548	)		(24,548	)
Balance — September 30, 2019		2,729,801	$	4	$	195,914	$	43		$	(217,761	)	$	(21,800	)

	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’ Equity
	Shares		Amount		Capital		Income (Loss)			Deficit			(Deficit)
Balance — June 30, 2018		1,942,513	$	3	$	178,799	$	(37	)	$	(178,162	)	$	603
Issuance of common stock pursuant to stock options exercises of vested options		2,554		—		6		—			—			6
Stock-based compensation		—		—		167		—			—			167
Issuance of common stock in connection with our follow-on offering, net of underwriters' commission and offering costs of $1,635		766,667		1		15,614		—			—			15,615
Other comprehensive loss		—		—		—		(9	)		—			(9	)
Net loss		—		—		—		—			(7,069	)		(7,069	)
Balance — September 30, 2018		2,711,734	$	4	$	194,586	$	(46	)	$	(185,231	)	$	9,313

	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’ Equity
	Shares		Amount		Capital		Income (Loss)			Deficit			(Deficit)
Balance — December 31, 2017		1,929,352	$	3	$	177,757	$	(79	)	$	(164,487	)	$	13,194
Issuance of common stock pursuant to stock options exercises of vested options		15,715		—		392		—			—			392
Stock-based compensation		—		—		419		—			—			419
Issuance of common stock warrants pursuant to debt financing		—		—		404		—			—			404
Issuance of common stock in connection with our follow-on offering, net of underwriters' commission and offering costs of $1,635		766,667		1		15,614		—			—			15,615
Other comprehensive gain		—		—		—		33			—			33
Net loss		—		—		—		—			(20,744	)		(20,744	)
Balance — September 30, 2018		2,711,734	$	4	$	194,586	$	(46	)	$	(185,231	)	$	9,313

	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	8,915	$	16,122
Restricted cash		83		83
Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows	$	8,998	$	16,205

	September 30, 2019
Condensed Consolidated Balance Sheets Data	As Reported			Change			Balance Without ASC 606 Adoption
Assets
Prepaid expenses and other current assets	$	1,042		$	(121	)	$	921
Other assets	$	100		$	(9	)	$	91
Stockholders' deficit
Accumulated deficit	$	(217,761	)	$	(130	)	$	(217,891	)

Revenue	2019 (A)		2020		2021		2022 and Thereafter		Total
System related	$	497	$	—	$	—	$	—	$	497
Procedure-based		20		—		—		—		20
Service-related fees		439		467		172		7		1,085
Total	$	956	$	467	$	172	$	7	$	1,602

	Fair Value Measurements as of March 31, 2020
	Quoted Prices in Active Markets using Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets
Restricted cash	$	—	$	83	$	—	$	83
Total assets	$	—	$	83	$	—	$	83
Liabilities
Contingent earn-out consideration		—		—		757		757
Total liabilities	$	—	$	—	$	757	$	757

	Fair Value Measurements as of December 31, 2019
	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 ("GIC")	$	—	$	63	$	—	$	63
Restricted cash		—		83		—		83
Total assets	$	—	$	146	$	—	$	146
Liabilities
Contingent earn-out consideration		—		—		655		655
Total liabilities	$	—	$	—	$	655	$	655

Beginning balance	$	950
Payments		(828	)
Change in value		533
December 31, 2019		655
Payments		(77	)
Change in value		179
March 31, 2020	$	757

	Fair Value Measurements as of September 30, 2019
	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 account	$	8,048	$	—	$	—	$	8,048
Restricted cash:
Money market account		83		—		—		83
Total assets	$	8,131	$	—	$	—	$	8,131


	March 31, 2020			December 31, 2019
Gross accounts receivable	$	93,776		$	105,127
Unearned income		(4,649	)		(5,623	)
Allowance for doubtful accounts		(10,889	)		(10,494	)
	$	78,238		$	89,010
Reported as:
Current trade receivables	$	55,020		$	58,977
Current unearned interest income		(3,672	)		(3,942	)
Long-term trade receivables		27,867			35,656
Long-term unearned interest income		(977	)		(1,681	)
	$	78,238		$	89,010

			March 31,
	Total		2021		2022		2023		2024		2025
Current financing receivables, net of allowance of $4,352	$	33,028	$	33,028	$	—	$	—	$	—	$	—
Long-term financing receivables, net of allowance of $3,639		27,867		—		21,315		6,534		18		—
	$	60,895	$	33,028	$	21,315	$	6,534	$	18	$	—

	Useful Lives (in years)	March 31, 2020			December 31, 2019
Lab equipment tooling and molds	4 - 10	$	7,973		$	7,872
Office furniture and equipment	6 - 10		1,692			1,710
Leasehold improvements	up to 10		1,961			1,950
Computers and software	3		1,814			1,811
Vehicles	5 - 7		16			16
Total property and equipment			13,456			13,359
Less: Accumulated depreciation			(9,067	)		(8,711	)
Total property and equipment, net		$	4,389		$	4,648

	March 31, 2020		December 31, 2019
Government remittances⁽¹⁾	$	1,435	$	1,704
Sundry assets and miscellaneous		1,551		1,397
Total other current assets	$	2,986	$	3,101


	March 31, 2020		December 31, 2019
Payroll and related expense	$	2,335	$	3,117
Accrued expenses		8,309		10,645
Commission accrual		2,445		4,215
Sales and consumption taxes		2,131		3,143
Total accrued expenses and other current liabilities	$	15,220	$	21,120


	March 31, 2020			December 31, 2019
Balance as of the beginning of the year	$	1,977		$	1,336
Warranties assumed through business combination		-			273
Warranties issued during the year		115			1,038
Warranty costs incurred during the year		(458	)		(670	)
Balance at the end of the year	$	1,634		$	1,977
Current		1,084			1,254
Long-term		550			723
Total	$	1,634		$	1,977

	At March 31, 2020
	Gross Amount		Accumulated Amortization			Net Amount
Customer relationships	$	1,400	$	(172	)	$	1,228
Brand		2,500		(342	)		2,158
Technology		16,900		(1,174	)		15,726
Supplier agreement		3,000		(642	)		2,358
Total intangible assets and goodwill	$	23,800	$	(2,330	)	$	21,470

	At December 31, 2019
	Gross Amount		Accumulated Amortization			Net Amount
Goodwill	$	27,450	$	—		$	27,450
Customer relationships		1,400		(149	)		1,251
Brand		2,500		(276	)		2,224
Technology		16,900		(469	)		16,431
Supplier agreement		3,000		(568	)		2,432
Total intangible assets and goodwill	$	51,250	$	(1,462	)	$	49,788


April 1, 2020 to December 31, 2020	$	2,605
2021		3,473
2022		3,473
2023		3,473
2024		3,473
Thereafter		4,973
Total	$	21,470

Years Ending December 31,
2019 (remaining 3 months)	$	131
2020		534
2021		550
2022		188
Total future minimum lease payments	$	1,403

	Office Lease		Purchase Commitments		Total
April 1, 2020 to December 31, 2020	$	1,637	$	7,607	$	9,244
2021		1,881		—		1,881
2022		953		—		953
2023		515		—		515
Thereafter		1,410		—		1,410
Total	$	6,396	$	7,607	$	14,003

	As of September 30, 2019												As of March 31, 2020
	Solar Debt			Related Party Convertible Promissory Notes			Unsecured Subordinated Promissory Notes			Total
2019 (remaining 3 months)	$	667		$	—		$	4,500		$	5,167
2020		8,000			7,000			—			15,000		$	-
2021		8,000			—			—			8,000			-
2022		4,643			—			—			4,643			64,602
2023		—			—			—			—
Total		21,310			7,000			4,500			32,810			64,602
Less: debt discount		(1,274	)		—			—			(1,274	)
Less: debt discounts and issuance costs														(1,341	)
Less: current portion		(5,878	)		(7,000	)		(4,500	)		(17,378	)		-
Non-current portion	$	14,158		$	—		$	—		$	14,158		$	63,261

	March 31, 2020		December 31, 2019
Outstanding common stock warrants		10,665,067		3,990,067
Outstanding stock options		4,783,483		3,278,439
Common stock to be issued upon conversion of the Series A Preferred Stock		6,600,000		—
Shares reserved for future option grants		358,488		742,828
Total common stock reserved for issuance		22,407,038		8,011,334

						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
	Number of			Exercise Price		Contractual		Intrinsic
	Shares			per Share		Term		Value
Outstanding — December 31, 2018		265,962		$	1.95		8.7	$	—
Options granted		2,200			0.96
Options cancelled		(46,221	)		1.68
Outstanding — September 30, 2019		221,941		$	1.99		7.4	$	—
Vested and expected to vest — September 30, 2019		207,893		$	2.00		7.3	$	—
Exercisable — September 30, 2019		117,524		$	2.02		7.0	$	—

	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
$0.15 - $3.64		3,205,312		5.89	$	2.74		1,890,312		3.03	$	2.12
$5.25 - $12.00		1,493,525		7.99		6.90		780,687		7.05		6.28
$12.45 - $26.10		37,576		8.46		18.45		14,246		8.20		19.19
$26.70 - $33.00		31,912		2.21		27.30		31,796		2.19		27.30
$36.00 - $94.65		15,158		4.46		58.80		13,750		4.08		59.15
		4,783,483		6.54	$	4.50		2,730,791		4.20	$	3.98

	Three Months Ended March 31,
	2020				2019				Change
(in thousands, except percentages)	$		% of Revenues		$		% of Revenues		$			%
Operating expenses:
Selling and marketing	$	8,611		59.4	$	9,532		38.8	$	(921	)		(9.7	)
General and administrative		14,176		97.7		8,340		33.9		5,836			70.0
Research and development		2,624		18.1		2,061		8.4		563			27.3
Goodwill impairment		27,450		189.2		-		—		27,450			100.0
Total operating expenses	$	52,861		364.4	$	19,933		81.1	$	32,928			165.2

	Payments Due by Period										Payments Due by Period
	Less than						More than				Less than 1 Year		1 to 3 Years		3 to 5 Years		More than 5 Years		Total
	1 Year		1 to 3 Years		3 to 5 Years		5 Years		Total		(dollars in thousands)
	(dollars in thousands)
Debt obligations, including interest ⁽¹⁾	$	16,866	$	13,739	$	—	$	—	$	30,605
Debt obligations, including interest											$	5,352	$	73,331	$	—	$	—	$	78,683
Operating leases		131		1,084		188		—		1,403		2,107		2,493		648		1,148		6,396
Purchase commitments												7,607		—		—		—		7,607
Total contractual obligations	$	16,997	$	14,823	$	188	$	—	$	32,008	$	15,066	$	75,824	$	648	$	1,148	$	92,686

Exhibit Number	Description	Form	Date	Number	Filed Herewith

2.1	Second Amendment to the Agreement and Plan of Merger and Reorganization, dated October 31, 2019, by and among Restoration Robotics, Inc., Radiant Merger Sub Ltd. and Venus Concept, Ltd.	8-K	10-31-19	2.1
3.1	Amended and Restated Certificate of Incorporation	8-K	10-17-17	3.1
3.2	Amended and Restated Bylaws	8-K	11-7-19	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	Fourth Amendment to Loan and Security Agreement dated June 14, 2019, by and between the Company and Solar Capital Ltd.	S-4/A	7-29-19	10.37
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


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	Second Amended and Restated Bylaws of Venus Concept Inc.	8-K	11-7-19	3.2
4.1	Description of Securities.				X
4.2	Form of Common Stock Certificate.	S-1/A	9-18-17	4.2
4.3	Form of 2020 Warrant.	10-K	3-30-20	4.3
4.4	Securities Purchase Agreement, dated as of March 18, 2020, by and between Venus Concept Inc. and the investors listed therein.	10-K	3-30-20	4.12
4.5	Registration Rights Agreement, dated as of March 18, 2020, by and between Venus Concept Inc. and the investors listed therein.	10-K	3-30-20	4.13
10.1	Eleventh Amendment to Credit Agreement and Consent Agreement, dated March 20, 2020, by and among Venus Concept Canada Corp., Venus Concept USA Inc., Venus Concept Ltd., Venus Concept Inc. and Madryn Health Partners, LP, as administrative agent, and certain of its affiliates, as lenders.				X
10.2	Twelfth Amendment to Credit Agreement, dated April 29, 2020, by and among Venus Concept Canada Corp., Venus Concept USA Inc., Venus Concept Ltd., Venus Concept Inc. and Madryn Health Partners, LP, as administrative agent, and certain of its affiliates, as lenders.	8-K	4-30-20	10.1
10.3	Second Amended and Restated Loan Agreement, dated March 20, 2020, by and among Venus Concept USA Inc., Venus Concept Canada Corp., Venus Concept Inc. and City National Bank of Florida.	8-K	3- 24-20	10.1
10.4	Second Amended and Restated Guaranty of Payment and Performance, dated as of March 20, 2020, by and between Venus Concept USA Inc., Venus Concept Canada Corp., Venus Concept Inc., and City National Bank of Florida.	8-K	3- 24-20	10.2
10.5	Third Amended and Restated Revolving Promissory Note, dated as of March 20, 2020, by and between Venus Concept USA Inc., Venus Concept Canada Corp., Venus Concept Inc., and City National Bank of Florida.	8-K	3- 24-20	10.3
10.6	Security Agreement, dated as of March 20, 2020, by and between Venus Concept Inc. and City National Bank of Florida.	8-K	3- 24-20	10.4
10.7	Third Amended and Restated Intercreditor Agreement, dated March 20, 2020, by and between Madryn Health Partners, L.P. and City National Bank of Florida.	8-K	3- 24-20	10.5
10.8	SBA Payroll Protection Program Note dated April 21, 2020, by Venus Concept Inc. and in favor of City National Bank of Florida.	8-K	4-30-20	10.2
10.9#	Employment Agreement, dated January 24, 2020, by and between Chad A. Zaring and Venus Concept Inc.	8-K	1-30-20	10.1
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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company