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What changed in Venus Concept Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Venus Concept Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+383 added−373 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-27)

Top changes in Venus Concept Inc.'s 2023 10-K

383 paragraphs added · 373 removed · 164 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

123 edited+46 added−39 removed453 unchanged
Biggest changeOther Developments Our research and development efforts also currently include research to expand indications, broaden our offering of system applicators, advance our proprietary (MP)2 technology, add new technologies and indications, develop design improvements and new products, as well as continue to support our harvesting, site making and implantation functions for the ARTAS iX System, including the enhancements released this year which help promote faster procedures, achieve more acute angles for a more natural looking hairline, and includes a new training and demo mode for a more expedited training process and more life-like consultations. 22 Table of Contents Clinical Developments We continue to invest in research and development to support our technology, marketing and post-marketing surveillance.
Biggest changeOther Developments Our research and development efforts also currently include research to expand indications, broaden our offering of system applicators, advance our proprietary (MP)2 technology, add new technologies and indications, develop design improvements and new products, as well as continue to support our harvesting, site making and implantation functions for the ARTAS iX System.
Outside of the United States, likely due to less stringent regulatory requirements, there are more aesthetic products and procedures available in international markets than are cleared for use in the United States.
Outside of the United States, likely due to less stringent regulatory requirements, there are more aesthetic products and procedures available in international markets than are cleared for use in the United States.
Sometimes, there are also fewer limitations on the claims our competitors in international markets can make about the effectiveness of their products and the manner in which they can market them. As a result, we may face a greater number of competitors in markets outside of the United States.
Sometimes, there are also fewer limitations on the claims our competitors in international markets can make about the effectiveness of their products and the manner in which they can market them. As a result, we may face a greater number of competitors in markets outside of the United States.
These provisions will include the following: • a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of the Board; • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • the exclusive right of the Board to elect a director to fill a vacancy created by the expansion of the Board or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on the Board; • the ability of the Board to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the ability of the Board to alter its bylaws without obtaining stockholder approval; • the required approval of at least 66 2 ⁄ 3 % of the shares entitled to vote at an election of directors to adopt, amend or repeal its bylaws or repeal the provisions of the amended and restated certificate of incorporation regarding the election and removal of directors; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of the stockholders; • the requirement that a special meeting of stockholders may be called only by the chairman of the Board, the chief executive officer, the president or the Board, which may delay the ability of the stockholders to force consideration of a proposal or to act, including the removal of directors; and • advance notice procedures that stockholders must comply with in order to nominate candidates to the Board or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
These provisions will include the following: • a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of the Board; • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • the exclusive right of the Board to elect a director to fill a vacancy created by the expansion of the Board or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on the Board; • the ability of the Board to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the ability of the Board to alter its bylaws without obtaining stockholder approval; • the required approval of at least 66 2 ⁄ 3 % of the shares entitled to vote at an election of directors to adopt, amend or repeal its bylaws or repeal the provisions of the amended and restated certificate of incorporation regarding the election and removal of directors; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of the stockholders; • the requirement that a special meeting of stockholders may be called only by the chairman of the Board, the chief executive officer, the president or the Board, which may delay the ability of the stockholders to force consideration of a proposal or to act, including the removal of directors; and 60 Table of Contents • advance notice procedures that stockholders must comply with in order to nominate candidates to the Board or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
Our filings with the SEC are available free of charge on the SEC’s website at www.sec.gov and on our website under the “Investor Relations” tab as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. 32 Table of Contents Item 1A. Risk Factors.
Our filings with the SEC are available free of charge on the SEC’s website at www.sec.gov.edgar and on our website under the “Investor Relations” tab as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. 32 Table of Contents Item 1A. Risk Factors.
Regardless of the merits or eventual outcome, product liability claims may result in: • decreased demand for our systems, or any future systems or services; • damage to our reputation; • withdrawal of clinical trial participants; • costs to defend the related litigation; • a diversion of management’s time and our resources; • substantial monetary awards to customers, patients or clinical trial participants; • regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions; • loss of revenue; and • the inability to commercialize future products. 44 Table of Contents We currently have product liability insurance, but 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.
Regardless of the merits or eventual outcome, product liability claims may result in: • decreased demand for our systems, or any future systems or services; • damage to our reputation; • withdrawal of clinical trial participants; • costs to defend the related litigation; • a diversion of management’s time and our resources; • substantial monetary awards to customers, patients or clinical trial participants; • regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions; • loss of revenue; and • the inability to commercialize future products. 45 Table of Contents We currently have product liability insurance, but 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.
Having over 85% of the production of our systems in close proximity to our research and development and operations facilities enables us to control the entire process from product development through manufacturing and final testing, allowing us to provide advanced, high-quality systems as well as the flexibility to create customized solutions for our customers.
Having over 85% of the production of our systems in close proximity to our research and development and operations facilities enables us to control the entire process from product development through manufacturing and final testing, and to provide advanced, high-quality systems as well as the flexibility to create customized solutions for our customers.
As a result of our international business, we are subject to a number of risks, including: • difficulties in staffing and managing our international operations; • increased competition as a result of more products and procedures receiving regulatory approval or otherwise free to market in international markets; • longer accounts receivable payment cycles and difficulties in collecting accounts receivable; • reduced or varied protection for intellectual property rights in some countries; • import and export restrictions, trade regulations, and non-U.S. tax laws; • fluctuations in currency exchange rates; • foreign certification and regulatory clearance or approval requirements; • customs clearance and shipping delays; • political, social, and economic instability abroad, terrorist attacks, and security concerns in general and uncertainties related to the coronavirus; • preference for locally manufactured products; • potentially adverse tax consequences, including the complexities of foreign value-added tax systems, tax inefficiencies related to our corporate structure, and restrictions on the repatriation of earnings; • the burdens of complying with a wide variety of foreign laws and different legal standards; and • increased financial accounting and reporting burdens and complexities.
As a result of our international business, we are subject to a number of risks, including: • difficulties in staffing and managing our international operations; • increased competition as a result of more products and procedures receiving regulatory approval or otherwise free to market in international markets; • longer accounts receivable payment cycles and difficulties in collecting accounts receivable; • reduced or varied protection for intellectual property rights in some countries; • import and export restrictions, trade regulations, and non-U.S. tax laws; • fluctuations in currency exchange rates; • foreign certification and regulatory clearance or approval requirements; 41 Table of Contents • customs clearance and shipping delays; • political, social, and economic instability abroad, terrorist attacks, and security concerns in general and uncertainties related to the coronavirus; • preference for locally manufactured products; • potentially adverse tax consequences, including the complexities of foreign value-added tax systems, tax inefficiencies related to our corporate structure, and restrictions on the repatriation of earnings; • the burdens of complying with a wide variety of foreign laws and different legal standards; and • increased financial accounting and reporting burdens and complexities.
Under our subscription model, we collect an up-front fee, combined with a monthly payment schedule typically over a period of 36 months, with approximately 40% to 45% of total contract payments collected in the first year.
Under our legacy subscription model, we collect an up-front fee, combined with a monthly payment schedule typically over a period of 36 months, with approximately 40% to 45% of total contract payments collected in the first year.
In addition, our current patents will eventually expire, or they may otherwise cease to provide meaningful competitive advantage, and we may be unable to adequately develop new technologies and obtain future patent protection to preserve our competitive advantage or avoid other adverse effects on our business. 48 Table of Contents We have a number of foreign patent applications, and while we generally try to pursue patent protection in the jurisdictions in which we do or intend to do significant business, the filing, prosecuting, maintaining and defending patents relating to our current or future products in all countries throughout the world would be prohibitively expensive.
In addition, our current patents will eventually expire, or they may otherwise cease to provide meaningful competitive advantage, and we may be unable to adequately develop new technologies and obtain future patent protection to preserve our competitive advantage or avoid other adverse effects on our business. 49 Table of Contents We have a number of foreign patent applications, and while we generally try to pursue patent protection in the jurisdictions in which we do or intend to do significant business, the filing, prosecuting, maintaining and defending patents relating to our current or future products in all countries throughout the world would be prohibitively expensive.
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. 49 Table of Contents The legal determinations relating to patent rights afforded to companies in the medical technology and aesthetic product fields can be uncertain and involve complex legal, factual, and scientific questions, sometimes involving important legal principles which remain uncertain or unresolved, and such uncertainty could affect the outcome or intellectual property related legal determinations in which we are involved.
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. 50 Table of Contents The legal determinations relating to patent rights afforded to companies in the medical technology and aesthetic product fields can be uncertain and involve complex legal, factual, and scientific questions, sometimes involving important legal principles which remain uncertain or unresolved, and such uncertainty could affect the outcome or intellectual property related legal determinations in which we are involved.
In the United States, we have obtained 510(k) clearance from the United States Food and Drug Administration ("FDA") for our Venus Viva, Venus Viva MD, Venus Legacy, Venus Versa, Venus Velocity, Venus Bliss, Venus Bliss Max, Venus Epileve, Venus Fiore, AI.ME, ARTAS and ARTAS iX systems.
In the United States, we have obtained 510(k) clearance from the United States Food and Drug Administration ("FDA") for our Venus Viva, Venus Viva MD, Venus Legacy, Venus Versa, Venus Versa Pro, Venus Velocity, Venus Bliss, Venus Bliss Max, Venus Epileve, Venus Fiore, ARTAS, ARTAS iX and AI.ME systems.
Our Aesthetic Technology Solutions We have designed a suite of medical aesthetic systems that use our proprietary multipolar pulsed technology ("(MP) 2" ) technology to address the limitations of existing medical aesthetic technologies and procedures. Our systems have the following characteristics: • Non-invasive. Our systems use technologies that are primarily non-invasive.
Our Aesthetic Technology Solutions We have designed a suite of medical aesthetic systems that use our proprietary multipolar pulsed technology (“(MP) 2 ” ) technology to address the limitations of existing medical aesthetic technologies and procedures. Our systems have the following characteristics: • Non-invasive. Our systems use technologies that are primarily non-invasive.
For products requiring PMA approval, the regulatory process generally takes from one to three years or more, from the time the application is filed with the FDA and involves substantially greater risks and commitment of resources than either the 510(k) clearance or de novo processes. 27 Table of Contents 510(k) Clearance To obtain 510(k) clearance for a medical device, an applicant must submit a premarket notification to the FDA demonstrating that the device is “substantially equivalent” to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for PMA approval, commonly known as the “predicate device.” A device is substantially equivalent if, with respect to the predicate device, it has the same intended use and has either (i) the same technological characteristics or (ii) different technological characteristics and the information submitted demonstrates that the device is as safe and effective as a legally marketed device and does not raise different questions of safety or effectiveness.
For products requiring PMA approval, the regulatory process generally takes from one to three years or more, from the time the application is filed with the FDA and involves substantially greater risks and commitment of resources than either the 510(k) clearance or de novo processes. 510(k) Clearance To obtain 510(k) clearance for a medical device, an applicant must submit a premarket notification to the FDA demonstrating that the device is “substantially equivalent” to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for PMA approval, commonly known as the “predicate device.” A device is substantially equivalent if, with respect to the predicate device, it has the same intended use and has either (i) the same technological characteristics or (ii) different technological characteristics and the information submitted demonstrates that the device is as safe and effective as a legally marketed device and does not raise different questions of safety or effectiveness.
Alternate sources may not be available or may result in delays in shipments to us from our supply chain and subsequently to our customers, each of which would affect our results of operations. 47 Table of Contents Risks Related to Intellectual Property If we are unable to obtain, maintain, retain and enforce adequate intellectual property rights covering our products and any future products we develop, others may be able to make, use, or sell products that are substantially the same as ours, which could adversely affect our ability to compete in the market.
Alternate sources may not be available or may result in delays in shipments to us from our supply chain and subsequently to our customers, each of which would affect our results of operations. 48 Table of Contents Risks Related to Intellectual Property If we are unable to obtain, maintain, retain and enforce adequate intellectual property rights covering our products and any future products we develop, others may be able to make, use, or sell products that are substantially the same as ours, which could adversely affect our ability to compete in the market.
As a result, we could incur increased production costs, experience delays in deliveries of our systems, suffer damage to our reputation, and experience an adverse effect on our business and financial results. 42 Table of Contents Both our manufacturing of certain of our systems and NPI’s manufacturing of the ARTAS 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.
As a result, we could incur increased production costs, experience delays in deliveries of our systems, suffer damage to our reputation, and experience an adverse effect on our business and financial results. 43 Table of Contents Both our manufacturing of certain of our systems and NPI’s manufacturing of the ARTAS 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.
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. 46 Table of Contents 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.
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. 47 Table of Contents 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.
In addition, the global economy, including the financial and credit markets, has recently experienced extreme volatility and disruptions, including increasing inflation rates, rising interest rates, foreign currency impacts, declines in consumer confidence, and declines in economic growth.
The global economy, including the financial and credit markets, has recently experienced extreme volatility and disruptions, including increasing inflation rates, rising interest rates, foreign currency impacts, declines in consumer confidence, and declines in economic growth.
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. 50 Table of Contents 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.
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. 51 Table of Contents 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.
To provide more comprehensive customer support, these agreements require our distributors to provide after sales service to customers, such as training and technical support, and various marketing activities, such as preparing and executing marketing plans and working with key market leaders in the designated territory to promote the product. 23 Table of Contents Marketing and Branding Programs We are focused on, and invest heavily in, direct-to-consumer marketing initiatives to increase awareness of our products and services.
To provide more comprehensive customer support, these agreements require our distributors to provide after sales service to customers, such as training and technical support, and various marketing activities, such as preparing and executing marketing plans and working with key market leaders in the designated territory to promote the product. 22 Table of Contents Marketing and Branding Programs We are focused on, and invest heavily in, direct-to-consumer marketing initiatives to increase awareness of our products and services.
If one or more of these risks were realized, it could require us to dedicate significant financial and managerial resources, and our results of operations and financial condition could be adversely affected. 41 Table of Contents We rely on a limited number of third-party contract manufacturers for the production of our systems and only have contracts with certain suppliers for the components used in our systems.
If one or more of these risks were realized, it could require us to dedicate significant financial and managerial resources, and our results of operations and financial condition could be adversely affected. 42 Table of Contents We rely on a limited number of third-party contract manufacturers for the production of our systems and only have contracts with certain suppliers for the components used in our systems.
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. 45 Table of Contents The data we collect from our pre-clinical studies and clinical trials may not be sufficient to support the 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.
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. 46 Table of Contents The data we collect from our pre-clinical studies and clinical trials may not be sufficient to support the 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, our enforcement against third-party infringers or violators may be expensive and time-consuming, and the outcome is unpredictable and may not provide an adequate remedy. 51 Table of Contents Risks Related to Government Regulation Our devices and our operations are subject to extensive government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements could harm our business.
In addition, our enforcement against third-party infringers or violators may be expensive and time-consuming, and the outcome is unpredictable and may not provide an adequate remedy. 52 Table of Contents Risks Related to Government Regulation Our devices and our operations are subject to extensive government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements could harm our business.
By spreading payments over a 36-month period, our subscription-based model is designed to help our customers achieve positive cash-flow from their investment in our systems, thus reducing a portion of implementation risk and concerns associated with large initial capital outlays. • Expansion of services. Our aesthetic systems allow customers to expand the services offered within their practices.
By spreading payments over a 36-month period, our subscription-based model is designed to help our customers achieve positive cash-flow from their investment in our systems, thus reducing a portion of implementation risk and concerns associated with large initial capital outlays. • Expansion of services. Our aesthetic systems allows customers to expand the services offered within their practices.
Once the warranty expires, our customers have the option of purchasing an extended warranty service contract, which is typically for a term of one to three years. 24 Table of Contents We maintain a technical and clinical support team to field inquiries, troubleshoot product issues, facilitate sales activities and support the commercial activities of our direct offices and its international distributors.
Once the warranty expires, our customers have the option of purchasing an extended warranty service contract, which is typically for a term of one to three years. 23 Table of Contents We maintain a technical and clinical support team to field inquiries, troubleshoot product issues, facilitate sales activities and support the commercial activities of our direct offices and its international distributors.
Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements, which could result in the failure to produce our devices on a timely basis and in the required quantities, if at all. 55 Table of Contents We may be affected by healthcare policy changes and evolving regulations.
Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements, which could result in the failure to produce our devices on a timely basis and in the required quantities, if at all. 56 Table of Contents We may be affected by healthcare policy changes and evolving regulations.
Recently, there has been consolidation in the aesthetic industry leading to companies combining their resources, which increases competition and could result in increased downward pressure on our system prices. 26 Table of Contents In the surgical hair restoration market, we consider our direct competition to be FUT Strip Surgeries and Manual FUE procedures.
Recently, there has been consolidation in the aesthetic industry leading to companies combining their resources, which increases competition and could result in increased downward pressure on our system prices. 25 Table of Contents In the surgical hair restoration market, we consider our direct competition to be FUT Strip Surgeries and Manual FUE procedures.
The punches utilized for coring are designed not to leave scars on tissue. The skin will be contracted and smoothed after coring by applying a flexible patch to the area which will allow healing of the skin with predefined directional effect. Venus Astera We are working on the next generation of the well-established Venus Legacy product line.
The punches utilized for coring are designed not to leave scars on tissue. The skin will be contracted and smoothed after coring by applying a flexible patch to the area which will allow healing of the skin with predefined directional effect. Venus LegacyMax We are working on the next generation of the well-established Venus Legacy product line.
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 and seeking regulatory clearances and approvals to market future products will require substantial funds to complete.
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, as well as seeking regulatory clearances and approvals to market future products will require substantial funds to complete.
While we believe that the net proceeds from our recent and announced financing activities, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months, we may need to raise additional capital through public or private equity or debt financings or other sources, such as strategic collaborations sooner than expected or otherwise implement additional cost-saving initiatives.
While we believe that the net proceeds from our recent and announced financing activities, our recent initiatives in pursuing strategic alternatives, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months, we may need to raise additional capital through public or private equity or debt financings or other sources, such as strategic collaborations sooner than expected or otherwise implement additional cost-saving initiatives.
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. 54 Table of Contents Our ability to continue manufacturing and supplying our products depends on our continued adherence to ongoing FDA and other foreign regulatory authority manufacturing requirements.
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. 55 Table of Contents Our ability to continue manufacturing and supplying our products depends on our continued adherence to ongoing FDA and other foreign regulatory authority manufacturing requirements.
The failure of these third parties to perform could adversely affect our ability to meet demand for our systems in a timely and cost-effective manner. We rely on third-party contract manufacturers in Karmiel, Israel, Mazet, France, Weston, Florida and San Jose, California for the manufacture of the majority of our systems.
The failure of these third parties to perform could adversely affect our ability to meet demand for our systems in a timely and cost-effective manner. We rely on third-party contract manufacturers in Karmiel, Israel, Mazet, France, and San Jose, California for the manufacture of the majority of our systems.
We have built a direct sales force through wholly owned subsidiaries in the United States, Canada, United Kingdom, Japan, South Korea, Mexico, Spain, Germany, Israel, Australia and China, with a majority-owned subsidiary in Hong Kong and a strong and growing network of international distributors and strategic partners.
We have built a direct sales force through wholly owned subsidiaries in the United States, Canada, United Kingdom, Japan, Mexico, Spain, Germany, Israel, Australia and China, with a majority-owned subsidiary in Hong Kong and a strong and growing network of international distributors and strategic partners.
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. 52 Table of Contents We must maintain regulatory approval in foreign jurisdictions in which we plan to market and sell our systems.
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. 53 Table of Contents We must maintain regulatory approval in foreign jurisdictions in which we plan to market and sell our systems.
We have incorporated EMS technology into Bliss Max and our upcoming Astera device to create comprehensive multi-treatment body solutions. Micro-Coring Micro-coring employs a mechanical rotating needle assembly for fractional removal of portions of epidermal and dermal layers of the skin.
We have incorporated EMS technology into Bliss Max and our upcoming LegacyMax device to create comprehensive multi-treatment body solutions. Micro-Coring Micro-coring employs a mechanical rotating needle assembly for fractional removal of portions of epidermal and dermal layers of the skin.
Designed as an open platform, the Venus Versa can be configured to best suit a practice’s needs with the ability to add additional applications as the practice grows or changes. Depending on the applicator, or the applicator’s sequence of use, the platform can provide multiple aesthetic solutions.
Designed as an open platform, the Venus Versa and Versa Pro can be configured to best suit a practice’s needs with the ability to add additional applications as the practice grows or changes. Depending on the applicator, or the applicator’s sequence of use, the platform can provide multiple aesthetic solutions.
We continue to file new trademark applications in many countries to protect our current and future products and related slogans. License Agreement with HSC Development LLC and James A. Harris, MD In July 2006, we entered into a license agreement (the “HSC License Agreement”) with HSC Development LLC, or HSC, and James A.
We continue to file new trademark applications in many countries to protect our current and future products and related slogans. License Agreement with HSC Development LLC and James A. Harris, MD In July 2006, we entered into a license agreement (the “HSC License Agreement”) HSC Development LLC ("HSC”) , and James A.
We believe our marketing activities are both cost effective and critical in supporting the continued growth and development of our business. As of December 31, 2022, we had a Vice President of Global Marketing and Product Management, with regional marketing support in select countries.
We believe our marketing activities are both cost effective and critical in supporting the continued growth and development of our business. As of December 31, 2023, we had a Vice President of Global Marketing and Product Management, with regional marketing support in select countries.
We believe that our current facilities are adequate to support our operations. 25 Table of Contents Intellectual Property Portfolio We rely on a combination of patent, copyright, trademark and trade secret laws, and confidentiality and invention assignment agreements to protect our intellectual property rights.
We believe that our current facilities are adequate to support our operations. 24 Table of Contents Intellectual Property Portfolio We rely on a combination of patent, copyright, trademark and trade secret laws, and confidentiality and invention assignment agreements to protect our intellectual property rights.
In the event that there is a default by any of the customers to whom we have sold systems under the subscription-based model, we may recognize bad debt expenses in our general and administrative expenses. If the extent of such defaults is material, it could negatively affect our results of operations and operating cash flows.
In the event that there is a default by any of the customers to whom we have sold systems under the Venus Prime or subscription-based model, we may recognize bad debt expenses in our general and administrative expenses. If the extent of such defaults is material, it could negatively affect our results of operations and operating cash flows.
Under the HSC License Agreement, we developed the ARTAS System to be utilized as a robotic system to assist a physician in performing hair restoration procedures. In consideration for the license, we issued to HSC 25,000 shares of our common stock, prior to the Company’s 1-for-10 reverse stock split, and paid HSC a one-time payment of $25,000.
Under the HSC License Agreement, we developed the ARTAS System to be utilized as a robotic system to assist a physician in performing hair restoration procedures. In consideration for the license, we issued to HSC 25,000 shares of our common stock, prior to the Company’s 1-for-10 and 1-for-15 reverse stock splits, and paid HSC a one-time payment of $25,000.
In addition to our subscription-based model, we generally offer credit terms of 30 to 90 days to qualified customers and distributors. In the event that there is a default by any of the customers or distributors to whom we have provided credit terms, we may recognize bad debt expenses in our general and administrative expenses.
In addition to Venus Prime and our legacy subscription-based model, we generally offer credit terms of 30 to 90 days to qualified customers and distributors. In the event that there is a default by any of the customers or distributors to whom we have provided credit terms, we may recognize bad debt expenses in our general and administrative expenses.
Our research and development teams in Israel and the United States continue to collaborate on the development of new and innovative technology solutions to the non-invasive and minimally invasive categories of aesthetic medicine.
Our research and development teams in Israel and the United States continue to collaborate on the development of new and innovative technology solutions in the non-invasive and minimally invasive aspects of aesthetic medicine.
Some of the factors that may cause the market price of the Company’s common stock to fluctuate include: • introduction of new products, services or technologies, significant contracts, commercial relationships or capital commitments by competitors; • failure to meet or exceed financial and development projections the Company may provide to the public; • failure to meet or exceed the financial and development projections of the investment community; • announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by the Company or its competitors; • disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies; • additions or departures of key personnel; • significant lawsuits or government investigations, including patent or stockholder litigation; • if securities or industry analysts do not publish research or reports about the Company’s business, or if they issue adverse or misleading opinions regarding our business and stock; • changes in the market valuations of similar companies; • general market or macroeconomic conditions; • sales of common stock by us or our stockholders in the future; • trading volume of our common stock; • adverse publicity relating to hair restoration or other minimally invasive or non-invasive medical aesthetic procedures generally, including with respect to other products in such markets; • the introduction of technological innovations that compete with the products and services of the Company; and • period-to-period fluctuations in the Company’s financial results.
Some of the factors that may cause the market price of the Company’s common stock to fluctuate include: • uncertainties relating to potential strategic alternatives or any strategic transaction, including actual or perceived adverse developments in this process or the announcement or pendency of any such transaction; • introduction of new products, services or technologies, significant contracts, commercial relationships or capital commitments by competitors; • failure to meet or exceed financial and development projections the Company may provide to the public; • failure to meet or exceed the financial and development projections of the investment community; • announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by the Company or its competitors; • disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies; • additions or departures of key personnel; • significant lawsuits or government investigations, including patent or stockholder litigation; • if securities or industry analysts do not publish research or reports about the Company’s business, or if they issue adverse or misleading opinions regarding our business and stock; • changes in the market valuations of similar companies; • general market or macroeconomic conditions; • sales of common stock by us or our stockholders in the future; • trading volume of our common stock; • adverse publicity relating to hair restoration or other minimally invasive or non-invasive medical aesthetic procedures generally, including with respect to other products in such markets; • the introduction of technological innovations that compete with the products and services of the Company; and • period-to-period fluctuations in the Company’s financial results.
These changes may require us to find alternative bases for the compliant transfer of personal data from the EEA to the United States to change vendors, or to arrange for local storage of personal data and we are monitoring developments in this area. Employees As of December 31, 2022, we had a total of 384 full-time employees.
These changes may require us to find alternative bases for the compliant transfer of personal data from the EEA to the United States to change vendors, or to arrange for local storage of personal data and we are monitoring developments in this area. Employees As of December 31, 2023, we had a total of 304 full-time employees.
For the years ended December 31, 2022 and 2021, we generated 10% and 9%, respectively, of our systems revenues from sales made through third-party distributors. Our agreements with third-party distributors set forth minimum quarterly purchase commitments required for each distributor and provide the distributor the right to distribute our systems within a designated territory.
For the years ended December 31, 2023 and 2022, we generated 8% and 10%, respectively, of our systems revenues from sales made through third-party distributors. Our agreements with third-party distributors set forth minimum quarterly purchase commitments required for each distributor and provide the distributor the right to distribute our systems within a designated territory.
Advantages of the ARTAS Procedure Patient Value We believe the ARTAS System significantly improves the patient experience and outcome in hair transplantation procedures in the following ways: • The ARTAS procedure provides patients with a minimally invasive, less painful alternative to FUT Strip Surgery.
We believe the ARTAS System significantly improves the patient experience and outcome in hair transplantation procedures in the following ways: • The ARTAS procedure provides patients with a minimally invasive, less painful alternative to FUT Strip Surgery.
We cannot provide any assurance that the financial position of customers purchasing products and services under a subscription agreement will not change adversely before we receive all the monthly installment payments due under the contract.
We cannot provide any assurance that the financial position of customers purchasing products and services under a Venus Prime or subscription agreement will not change adversely before we receive all the monthly installment payments due under the contract.
Our subscription-based model enables us to sell to both traditional and non-traditional customers without the involvement of third-party lenders, which allows us to reach many customers who choose not to purchase competitors’ aesthetic products because of the barriers associated with equipment financing. • Maintains strong customer relationships.
Venus Prime, along with our legacy subscription-based model enables us to sell to both traditional and non-traditional customers without the involvement of third-party lenders, which allows us to reach many customers who choose not to purchase competitors’ aesthetic products because of the barriers associated with equipment financing. • Maintains strong customer relationships.
The disruptions to the global economy in 2021 and 2022 impeded global supply chains and resulted in longer lead times and increased component costs and freight expenses.
The disruptions to the global economy in 2022 and 2023 impeded global supply chains and resulted in longer lead times and increased component costs and freight expenses.
In the event that a customer or distributor defaults on the amounts payable to us, our financial results may be adversely affected. For the year ended December 31, 2022 and 2021, approximately 42% and 51% of our system revenues were derived from our subscription-based model.
In the event that a customer or distributor defaults on the amounts payable to us, our financial results may be adversely affected. For the year ended December 31, 2023 and 2022, approximately 33% and 42% of our system revenues were derived from our subscription-based model.
In the years ended December 31, 2022 and 2021, 62% and 58%, respectively, of our global revenues were denominated in U.S. dollars and our reporting currency was the U.S. dollar. We pay a meaningful portion of our expenses in New Israeli Shekels (“NIS”), Canadian Dollars (“CAD”), and other foreign currencies.
In the years ended December 31, 2023 and 2022, 65% and 62%, respectively, of our global revenues were denominated in U.S. dollars and our reporting currency was the U.S. dollar. We pay a meaningful portion of our expenses in New Israeli Shekels (“NIS”), Canadian Dollars (“CAD”), and other foreign currencies.
As of December 31, 2022, we had distribution agreements in over 40 c ountries. We enter into both exclusive and non-exclusive distribution agreements, which generally provide the distributor with a right to distribute certain of our products within a designated territory.
As of December 31, 2023, we had distribution agreements in over 60 c ountries. We enter into both exclusive and non-exclusive distribution agreements, which generally provide the distributor with a right to distribute certain of our products within a designated territory.
We believe several factors are contributing to the growth in the aesthetic and hair restoration markets, including: • Continuing focus on body image and appearance . Both women and men continue to be concerned with their body image and appearance.
We believe several factors are contributing to the growth in the aesthetic and hair restoration markets, including: • Continuing focus on body image and appearance . Both women and men continue to be concerned with their body image and appearance. • Wide acceptance of aesthetic procedures.
As of December 31, 2022, we had capital resources consisting of cash and cash equivalents of approximately $11.6 million. Further, in order to grow our business and increase revenues, we will need to introduce and commercialize new products, maintain an effective sales and marketing force, and implement new software systems.
As of December 31, 2023, we had capital resources consisting of cash and cash equivalents of approximately $5.4 million. Further, in order to grow our business and increase revenues, we will need to introduce and commercialize new products, maintain an effective sales and marketing force, and implement new software systems.
As of December 31, 2022, our executive officers, directors and certain of our shareholders who are affiliated with our directors, in the aggregate, beneficially own approximately 46% of our outstanding shares of common stock.
As of December 31, 2023, our executive officers, directors and certain of our shareholders who are affiliated with our directors, in the aggregate, beneficially own approximately 45% of our outstanding shares of common stock.
Risks related to our ability to manufacture and/or sell our products may be impaired by disruption to our manufacturing, warehousing or distribution capabilities, or to the capabilities of our suppliers, contract manufacturers, logistics service providers or independent distributors. The Company maintains manufacturing operations at its facilities in San Jose, California and Yokneam, Israel.
Our ability to manufacture and/or sell our products may be impaired by disruption to our manufacturing, warehousing or distribution capabilities, or to the capabilities of our suppliers, contract manufacturers, logistics service providers or independent distributors. We maintain manufacturing operations at its facilities in San Jose, California and Yokneam, Israel.
The combination of technologies allows ablation/coagulation heated zone density control and pattern generation via a proprietary tip. The energy is delivered through 160 (Viva) or 80 (Viva MD) pins per tip into the treated skin and maintains the surrounding tissue intact and healthy to support the healing process.
Venus Viva uses (Nano)Fractional RF and Smart Scan technologies. The combination of technologies allows ablation/coagulation heated zone density control and pattern generation via a proprietary tip. The energy is delivered through 160 (Viva) or 80 (Viva MD) pins per tip into the treated skin and maintains the surrounding tissue intact and healthy to support the healing process.
Item 1. Business – Subscription-Based Business Model. Our subscription model includes an up-front fee and a monthly payment schedule, typically over a period of 36 months, with approximately 40% to 45% of total contract payments collected in the first year.
Item 1. Business – Subscription-Based Business Model. As of December 31, 2023, our subscription model included an up-front fee and a monthly payment schedule, typically over a period of 36 months, with approximately 40% to 45% of total contract payments collected in the first year.
We had an Adjusted EBITDA loss of $25.4 million and $10.6 million for the year ended December 31, 2022, and 2021, respectively. 4 Table of Contents Market Overview Aesthetic Procedures The market for aesthetic procedures is large, growing, global in scale, and comprised of both surgical and non-surgical procedures.
We had an Adjusted EBITDA loss of $20.3 million and $25.4 million for the year ended December 31, 2023, and 2022, respectively. 4 Table of Contents Market Overview Aesthetic Procedures The market for aesthetic procedures is large, growing, global in scale, and comprised of both surgical and non-surgical procedures.
United States (listed as a Class I device by the FDA) Surgical instrument motors and accessories that are intended for use during surgical procedures to provide power to operate various accessories or attachments to cut hard tissue or bone and soft tissue.
United States (listed as a Class I device by the FDA) Surgical instrument motors and accessories that are intended for use during surgical procedures to provide power to operate various accessories or attachments to cut hard tissue or bone and soft tissue. Canada (listed as Class I without indication) EU Hair Transplant device.
Manufacturing and Quality Assurance We have our own research and development centers in Yokneam, Israel, and San Jose, California and use three ISO-certified contract manufacturers in Karmiel, Israel, Mazet, France and Weston, Florida. We assemble the ARTAS System in San Jose, California, while reusable and disposable kits are assembled exclusively for us by NPI Solutions, Inc.
Manufacturing and Quality Assurance We have our own research and development centers in Yokneam, Israel, and San Jose, California and use two ISO-certified contract manufacturers in Karmiel, Israel, and Mazet, France. We assemble the ARTAS System in San Jose, California, while reusable and disposable kits are assembled exclusively for us by NPI Solutions, Inc. (“NPI”) based in Morgan Hill, California.
Expenses in NIS and CAD accounted for 27% and 15%, respectively, of our expenses for the year ended December 31, 2022, and 28% and 17%, respectively, of our expenses for the year ended December 31, 2021. Salaries paid to our employees, general and administrative expenses and general sales and related expenses are paid in many different currencies.
Expenses in NIS and CAD accounted for 26% and 16%, respectively, of our expenses for the year ended December 31, 2023, and 27% and 15%, respectively, of our expenses for the year ended December 31, 2022. Salaries paid to our employees, general and administrative expenses and general sales and related expenses are paid in many different currencies.
(“NPI”) based in Morgan Hill, California. We work closely with our manufacturers and perform final quality control testing using our own employees stationed in the manufacturing facilities around the world.
We work closely with our manufacturers and perform final quality control testing using our own employees stationed in the manufacturing facilities around the world.
Canada Temporary increase of skin tightening, temporary circumferential reduction, temporary cellulite reduction, temporary and wrinkle reduction. EU Increase of skin tightening, temporary circumferential reduction, cellulite reduction and wrinkle reduction. 15 Table of Contents Product Name Technology Regulatory Clearance Venus Versa Venus Versa is a versatile system based on a multi-application approach.
Canada Temporary increase of skin tightening, temporary circumferential reduction, temporary cellulite reduction, temporary and wrinkle reduction. EU Increase of skin tightening, temporary circumferential reduction, cellulite reduction and wrinkle reduction. 15 Table of Contents Product Name Technology Regulatory Clearance Venus Versa Venu s Versa Pro Venus Versa and Versa Pro are versatile systems based on a multi-application approach.
As of December 31, 2022, our patent portfolio is comprise d of: • 14 issued U.S. patents which cover ou r (MP) 2 , fractional RF and Directional Skin Tightening technology (including cellulite treatments) that are associated with six different patent families (the earliest of which will expire in 2028), 9 pending U.S. patent applications, 27 issued foreign counterpart patents, and 7 pending foreign counterpart patent applications; • 5 issued foreign patents covering the NeoGraft system and its methods of use (the earliest of which expired in 2022); and • 90 issued U.S. patents primarily covering the ARTAS System and methods of use (the earliest of which expire in 2025, 1 pending U.S. patent applications, 152 issued foreign counterpart patents, and 8 pending foreign counterpart patent applications.
As of December 31, 2023, our patent portfolio is comprise d of: • 16 issued U.S. patents which cover ou r (MP) 2 , fractional RF and Ai.ME, Directional Skin Tightening technology (including cellulite treatments) that are associated with six different patent families (the earliest of which will expire in 2028), 4 pending U.S. patent applications, 27 issued foreign counterpart patents, and 15 pending foreign counterpart patent applications (including PCT pending applications); • 5 issued foreign patents covering the NeoGraft system and its methods of use (the earliest of which expired in 2022); and • 91 issued U.S. patents primarily covering the ARTAS System and methods of use (the earliest of which expire in 2025, 1 pending U.S. patent applications, 159 issued foreign counterpart patents, and 5 pending foreign counterpart patent applications.
We intend to continue to market our systems to providers of aesthetic services in the large and under-penetrated non-traditional aesthetic market. We believe the ease of use of our technologies makes our systems suitable for adoption by physicians and other providers in non-traditional markets, including general and family practitioners and aesthetic medical spas. • Enhance our international operations.
We believe the ease of use of our technologies makes our systems suitable for adoption by physicians and other providers in non-traditional markets, including general and family practitioners and aesthetic medical spas. • Enhance our international operations.
The Octipolar applicator (EU and Canada only), is designed for use in temporary body contouring via skin tightening, circumferential reduction, and cellulite reduction. Venus Viva and Venus Viva MD Venus Viva is an advanced, portable, fractional RF system for dermatological procedures requiring ablation and resurfacing of the skin. Venus Viva uses (Nano)Fractional RF and Smart Scan technologies.
The Octipolar applicator (EU and Canada only), is designed for use in temporary body contouring via skin tightening, circumferential reduction, and cellulite reduction. *Venus Versa Pro is cleared in the US only. Venus Viva and Venus Viva MD Venus Viva is an advanced, portable, fractional RF system for dermatological procedures requiring ablation and resurfacing of the skin.
As of December 31, 2022, we had a direct sales and marketing team of approximat ely 136 employees, managed by one President of Global Sales, four Vice Presidents of Sales for various international markets and one Vice President of Global Marketing and Product Management.
As of December 31, 2023, we had a direct sales and marketing team of approximat ely 92 employees, managed by one Executive Vice President, Global Sales and Marketing, three Vice Presidents of Sales for various international markets and one Vice President of Global Marketing and Product Management.
Canada (listed as Class I without indication) EU Hair Transplant device Venus Epileve The Venus Epileve system uses pulsed laser energy of 800 mm that is absorbed by a chromophore or pigmented target (e.g., melanin in hair follicles) while skin surface is being chilled, for different indications of hair removal and permanent hair reduction.
Venus Epileve The Venus Epileve system uses pulsed laser energy of 800 mm that is absorbed by a chromophore or pigmented target (e.g., melanin in hair follicles) while skin surface is being chilled, for different indications of hair removal and permanent hair reduction.
The accompanying audited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future, and, as such, the audited 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. 33 Table of Contents The Company has had recurring net operating losses and negative cash flows from operations.
The accompanying audited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future, and, as such, the audited 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.
Several factors, many of which are outside of our control, may contribute to fluctuations in our financial results, such as: • variations in market demand for our systems and services from quarter to quarter; • the inability of our customers to obtain the necessary financing or access capital; • performance of new functionalities and system updates; • performance of third-party distributors, manufacturers or suppliers; • positive or negative media coverage of our systems, positive or negative patient experiences, the procedures or products of our competitors, or our industry generally; • our ability to maintain our current, or obtain further, regulatory clearances, approvals or CE Certificates of Conformity; • seasonal or other variations in patient demand for aesthetic procedures; and • introduction of new medical aesthetic procedures or products and services that compete with our products and services. 38 Table of Contents Our success depends upon patient satisfaction with our procedures.
Several factors, many of which are outside of our control, may contribute to fluctuations in our financial results, such as: • variations in market demand for our systems and services from quarter to quarter; • the inability of our customers to obtain the necessary financing or access capital; • performance of new functionalities and system updates; • performance of third-party distributors, manufacturers or suppliers; • positive or negative media coverage of our systems, positive or negative patient experiences, the procedures or products of our competitors, or our industry generally; • our ability to maintain our current, or obtain further, regulatory clearances, approvals or CE Certificates of Conformity; • seasonal or other variations in patient demand for aesthetic procedures; and • introduction of new medical aesthetic procedures or products and services that compete with our products and services. 38 Table of Contents We compete against companies that offer alternative solutions to our systems, or have greater resources, a larger installed base of customers and broader product offerings than we have.
We had a net loss attributable to Venus Concept of $43.7 million and $23.0 million for the year ended December 31, 2022, and 2021, respectively.
We had a net loss attributable to Venus Concept of $37.2 million and $43.7 million for the year ended December 31, 2023, and 2022, respectively.
Direct Sales We currently provide our subscription model and traditional sales model, as well as the associated marketing support programs through our wholly owned subsidiaries in the United States, Canada, United Kingdom, Japan, South Korea, Mexico, Spain, Germany, Israel, Australia, and China as well as through Venus Concept’s majority-owned subsidiary in Hong Kong.
We provide our legacy subscription model and traditional sales model, as well as the associated marketing support programs through our wholly owned subsidiaries in Japan, Mexico, Spain, Germany, Israel, Australia, and China as well as through Venus Concept’s majority-owned subsidiary in Hong Kong.
Total non-surgical procedures worldwide in 2021 included approximately 12.9 million injectable procedures – primarily neurotoxin and hyaluronic acid fillers – with the remaining 4.7 million non-surgical, non-injectable procedures worldwide in 2021 representing annual addressable procedure opportunity for our minimally invasive and non-invasive medical aesthetic technologies.
Total non-surgical procedures worldwide in 2022 included approximately 13.3 million injectable procedures – primarily neurotoxin and hyaluronic acid fillers – with the remaining 5.5 million non-surgical, non-injectable procedures worldwide in 2022 representing annual addressable procedure opportunity for our minimally invasive and non-invasive medical aesthetic technologies.
As of December 31, 2022, we operated directly in 15 international markets through our 12 direct offices in the United States, Canada, United Kingdom, Japan, South Korea, Mexico, Spain, Germany, Australia, China, Hong Kong, and Israel. Our revenues for the year ended December 31, 2022, and 2021 were $99.5 million and $105.6 million, respectively.
As of December 31, 2023, we operated directly in 14 international markets through our 11 direct offices in the United States, Canada, United Kingdom, Japan, Mexico, Spain, Germany, Australia, China, Hong Kong, and Israel. Our revenues for the year ended December 31, 2023, and 2022 were $76.4 million and $99.5 million, respectively.
In addition, the FDA regulates exports of medical devices from the United States. While the regulations of some countries may not impose barriers to marketing and selling certain of our systems or only require notification, others require that we or our distributors obtain the approval of a specified regulatory body.
While the regulations of some countries may not impose barriers to marketing and selling certain of our systems or only require notification, others require that we or our distributors obtain the approval of a specified regulatory body.
One differentiating technology is our proprietary (MP) 2 technology. Our (MP) 2 technology is applicable to a wide range of non-invasive skin tightening, wrinkle reduction, body contouring, cellulite, and fat reduction, which have been cleared in the United States, Canada, and Europe, and we have commenced our entrance into the rapidly growing feminine wellness market both domestically and internationally.
One differentiating technology is our proprietary (MP) 2 technology. Our (MP) 2 technology is applicable to a wide range of non-invasive skin tightening, wrinkle reduction, body contouring, cellulite, and fat reduction, which have been cleared in the United States, Canada, and Europe.
A PMA application must also include, among other things: a complete description of the device and its components; a detailed description of the methods, facilities and controls used to manufacture the device; and proposed labeling. Approval of FDA review of an initial PMA application may require several years to complete.
A PMA application must also include, among other things: a complete description of the device and its components; a detailed description of the methods, facilities and controls used to manufacture the device; and proposed labeling.
These alternative options may be able to provide satisfactory results for male hair loss, generally at a lower cost to the patient than the ARTAS System. As a result, if patients choose these competitive alternatives, our results of operation could be adversely affected. 39 Table of Contents We may not be able to establish or strengthen our brand.
These alternative options may be able to provide satisfactory results for male hair loss, generally at a lower cost to the patient than the ARTAS System. As a result, if patients choose these competitive alternatives, our results of operation could be adversely affected. 39 Table of Contents The aesthetic equipment market is characterized by rapid innovation.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Item 1A. Risk Factors 33 Item 1B. Unresolved Staff Comments 60 Item 2. Properties 60 Item 3. Legal Proceedings 60 Item 4. Mine Safety Disclosures 60 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 61 Item 6. [Reserved] 61 Item 7.
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Item 1A. Risk Factors – Our operations may be disrupted because of the obligation of Israeli citizens to perform military service of this Annual Report.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations 62 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 81 Item 8. Financial Statements and Supplementary Data 82 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 130 Item 9A. Controls and Procedures 130
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These efforts include but are not limited to, working with our contract manufacturers to accelerate inventory build, contingency planning with respect to alternative manufacturing sites within their network, and relocating larger amounts of finished goods to warehouses in North America to protect our ability to distribute products.
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Alongside the Company's continuity plan, we maintain daily contact with our employees in Israel and have instituted a wellness program designed to provide access to healthcare practitioners/consultants for short term counselling for colleagues and family members in order to provide assistance during the conflict. Supply chain.
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We did not experience significant supply issues during the year ended December 31, 2023 as we continue to actively work with our suppliers and third-party manufacturers to mitigate supply issues and build inventory of key component parts.
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We anticipate some supply challenges in 2024, due to geopolitical disruption in the middle east impacting shipping lanes, deliveries of materials and component parts, impacting production lead times that may impact our ability to manufacture the number of systems required to meet customer demand.
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In addition, since the second quarter of 2021 we have experienced significant inflationary pressures throughout our supply chain, which we expect to continue into 2024. We expect to mitigate such pressures, where possible, through price increases and margin management. Global Economic conditions .
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General global economic downturns and macroeconomic trends, including heightened inflation, capital markets volatility, interest rate and currency rate fluctuations, and economic slowdowns, have resulted and may continue to result in unfavorable conditions that negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of operations.
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Both domestic and international markets experienced significant inflationary pressures in fiscal year 2023. While inflation rates in the U.S., as well as in other countries in which we operate, are showing signs of moderation, they are expected to continue at elevated levels for the near-term, impacting our cost of sales as well as selling, general and administrative expenses.
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In addition, the Federal Reserve in the U.S. and other central banks in various countries have yet to decrease interest rates in response to concerns about inflation.
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Higher interest and inflation rates have resulted in recessionary pressures in many parts of the world and have had and may continue to have the effect of further increasing economic uncertainty and heightening these risks. Sales markets. We are a global business, having established a commercial presence in more than 60 countries during our history.
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While the continued post-pandemic recovery remains challenging due to the coexistence of high inflation and high interest rates, we continue to evaluate our direct operations, particularly those outside of North America. Accounts receivable collections. We remain fully focused on our revised credit screening practices and thereby reducing bad debt expenses.
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As of December 31, 2023, our allowance for expected credit losses stands at $7.4 million, which represents 15.5% of the gross outstanding accounts receivable as of that date. This represents a decrease of $6.2 million from our December 31, 2022 allowance for expected credit losses balance of $13.6 million. Foreign Exchange fluctuations .
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We are primarily exposed to foreign exchange risk with respect to revenues generated outside of the United States denominated in NIS, Euro, CAD, British pound, Australian dollar, Chinese renminbi, Hong Kong dollar, Japanese yen, Argentina peso, Colombian peso, and Mexican peso.
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We manage our foreign currency exposures on a consolidated basis, which allows us to net exposures and take advantage of any natural offsets. We do not hedge our entire foreign exchange exposure and are still subject to earnings and stockholders' equity volatility relating to foreign exchange risk.
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Financial market and currency volatility may limit our ability to cost-effectively hedge these exposures. 71 Table of Contents Basis of Presentation Revenues 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 kits, Viva tips, other consumables, marketing supplies, and (3) service revenue from our extended warranty service contracts provided to existing customers.
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System Revenue For the years ended December 31, 2023 and 2022, approximately 33% and 42%, respectively, of our total system revenues were derived from our subscription model. The relative decrease in subscription revenues in 2023 is in line with our strategy to prioritize cash deals over subscription deals in order to improve cash generation and preserve liquidity.
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Our subscription model is designed to provide a low barrier to ownership of our systems and includes an up-front fee followed by monthly payments, typically over a 36-month period. The up-front fee serves as a down payment.
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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 to the customer and achievement of the required revenue recognition criteria.
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For the years ended December 31, 2023 and 2022, approximately 59% and 47%, respectively, of our total system revenues were derived from traditional sales. The increased focus on traditional sales is in line with our strategy to prioritize cash deals over subscription deals in order to improve cash generation and preserve liquidity.
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Customers generally demand higher discounts in connection with traditional sales.
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We recognize revenues from products sold to customers based on the following five steps: (1) identification of the contract(s) with the customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the separate performance obligations in the contract; and (5) recognition of revenue when (or as) the entity satisfies a performance obligation.
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We do not grant rights of return or early termination rights to our customers under either our traditional sales or subscription models. These traditional sales are generally made through our sales team in the countries in which the team operates.
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For the years ended December 31, 2023 and 2022, approximately 8% and 10% of our total system revenues were derived from distributor sales. Under the traditional distributor relationship, we do not sell directly to the end customer and, accordingly, achieve a lower overall margin on each system sold compared to our direct sales.
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These sales are non-refundable, non-returnable and without any rights of price protection or stock rotation. Accordingly, we consider distributors as end customers, and are accounted for using the sell-in method. 72 Table of Contents Procedure Based Revenue We generate revenue from the harvesting, site making, and implantation procedures performed with our ARTAS system.
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The harvesting procedure, as the name suggests, is the act of harvesting hair follicles from the patient’s scalp for implantation in the prescribed areas. To perform these procedures, a disposable clinical kit is required. These kits can be large (with an unlimited number of harvests) or small (with a maximum of 1,100 harvests).
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The customer must place an online order with us for the number and type of kits desired and make a payment. Upon receipt of the order and the related payment, we ship the kit(s), and the customer must scan the barcode on the kit label in order to perform the procedure.
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Once the kits are exhausted, the customer must purchase additional kits. The site making procedure uses the ARTAS system to create a recipient site (i.e., site making) in the patient’s scalp affected by androgenic alopecia (or male pattern baldness). The site making procedure also requires a disposable site making kit.
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The site making kits are sold to customers in the same manner as the kits for harvesting procedures. The implantation procedure utilizes the same disposal kit that is used for site making and involves immediately implanting follicles into the created recipient site. The implantation kits are sold to customers in the same manner as the harvesting and site making kits.
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Other Product Revenue We also generate revenue from our customer base by selling Viva tips, Glide (a cooling/conductive gel which is required for use with many of our systems), marketing supplies and kits, various consumables and disposables, replacement applicators and handpieces, and ARTAS system training.
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Service Revenue We generate ancillary revenue from our existing customers by selling additional services including extended warranty service contracts.
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Cost of Goods Sold and Gross Profit 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).
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Cost of goods sold also includes the cost of upgrades, technology amortization, royalty fees, parts, supplies, and cost of product warranties. Operating Expenses 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.
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Costs also include expenses for travel and other promotional and sales-related activities as well as clinical training costs. 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.
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As the business environment improves, we expect sales and marketing expenses to continue to increase, but at a rate slightly below our rate of revenue growth.
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General and Administrative Our general and administrative costs primarily consist of expenses associated with our executive, accounting and finance, information technology, legal, regulatory affairs, quality assurance and human resource departments, direct office rent/facilities costs, and intellectual property portfolio management.
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These expenses consist of personnel-related expenses (primarily salaries, benefits, incentive compensation and stock-based compensation), audit fees, legal fees, consultants, travel, insurance, and expected credit losses. During the normal course of operations, we may incur expected credit losses on accounts receivable balances that are deemed to be uncollectible.
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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, clinical costs, and facilities costs in our Yokneam, Israel and San Jose, California research centers.
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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.
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We expect our research and development expenses to increase in absolute dollars as we continue to invest in research, clinical studies, and development activities, but to decline as a percentage of revenue as our revenue increases over time. Finance Expenses Finance expenses consists of interest income, interest expense and other banking charges.
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Interest income consists of interest earned on our 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.
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The interest rates on our long-term debt were 8.71 % for the MSLP Loan and 14.03% for the Notes as of December 31, 2023 and 7.39% for the MSLP Loan and 8.0% for the Notes as of December 31, 2022.
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Foreign Exchange (Gain) Loss Foreign currency exchange (gain) loss 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. 73 Table of Contents Income Tax Benefit We estimate our current and deferred tax liabilities based on current tax laws in the statutory jurisdictions in which we operate.
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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. 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.
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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.
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Since our inception, we have not recorded any tax benefits for the net operating losses we have incurred in each year or for the research and development tax credits we generated in the United States.
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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 benefit is recognized based on the actual taxable income or loss incurred during the year ended December 31, 2023.
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Non-Controlling Interests We have minority shareholders in one jurisdiction in which we have direct operations.
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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 sheets and consolidated statements of stockholders’ equity. 74 Table of Contents Results of Operations The following tables set forth our consolidated results of operations in U.S. dollars and as a percentage of revenues for the years indicated: Year Ended December 31, 2023 2022 Consolidated Statements of Loss: (dollars in thousands) Revenues: Leases $ 20,504 $ 35,267 Products and services 55,850 64,230 Total revenue 76,354 99,497 Cost of goods sold 24,187 33,526 Gross profit 52,167 65,971 Operating expenses: Sales and marketing 31,231 40,276 General and administrative 41,048 49,618 Research and development 8,197 10,953 Total operating expenses 80,476 100,847 Loss from operations (28,309 ) (34,876 ) Other expenses: Foreign exchange (gain) loss (295 ) 3,387 Finance expenses 6,893 4,561 Loss on disposal of subsidiaries 174 1,482 Loss on debt extinguishment 2,040 — Loss before income taxes (37,121 ) (44,306 ) Income tax benefit (71 ) (722 ) Net loss $ (37,050 ) $ (43,584 ) Net loss attributable to the Company (37,250 ) (43,700 ) Net income attributable to noncontrolling interest 200 116 As a % of revenue: Revenues 100 % 100 % Cost of goods sold 31.7 33.7 Gross profit 68.3 66.3 Operating expenses: Selling and marketing 40.9 40.5 General and administrative 53.8 49.9 Research and development 10.7 11.0 Total operating expenses 105.4 101.4 Loss from operations (37.1 ) (35.1 ) Foreign exchange (gain) loss (0.4 ) 3.4 Finance expenses 8.9 4.6 Loss on disposal of subsidiaries 0.1 1.5 Loss on debt extinguishment 2.7 — Loss before income taxes (48.6 ) (44.5 ) 75 Table of Contents The following tables set forth our revenue by region and by product type for the years indicated: Year Ended December 31, Revenues by region: 2023 2022 United States $ 43,454 $ 52,101 International 32,900 47,396 Total revenue $ 76,354 $ 99,497 Year Ended December 31, 2023 2022 Revenues by product: (in thousands) Subscription—Systems $ 20,504 $ 35,267 Products—Systems 41,874 47,906 Products—Other(1) 10,563 13,316 Services (2) 3,413 3,008 Total revenue $ 76,354 $ 99,497 (1) Products-Other include ARTAS procedure kits, Viva tips, Glide and other consumables.
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(2) Services incl ude exte nded warranty sales.
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Comparison of the Years Ended December 31, 2023 and 2022 Revenues Year Ended December 31, 2023 2022 Change (in thousands, except percentages) $ % of Total $ % of Total $ % Revenues: Subscription—Systems $ 20,504 26.9 $ 35,267 35.5 $ (14,763 ) (41.9 ) Products—Systems 41,874 54.8 47,906 48.1 (6,032 ) (12.6 ) Products—Other 10,563 13.8 13,316 13.4 (2,753 ) (20.7 ) Services 3,413 4.5 3,008 3.0 405 13.5 Total $ 76,354 100.0 $ 99,497 100.0 $ (23,143 ) (23.3 ) Total revenue decreased by $23.1 million, or 23.3%, to $76.4 million for the year ended December 31, 2023 from $99.5 million for the year ended December 31, 2022 .
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The decrease in revenue is primarily attributed to an acceleration in exiting unprofitable direct markets, and an initiative to reduce our reliance on system sales sold under subscription agreements, and the effects of tighter third party lending practices which negatively impacted capital equipment sales.
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These initiatives are designed to improve cash generation and reduce our exposure to defaults and increased bad debt expense given the increasingly challenging economic environment caused by the coexistence of high inflation and high interest rates. Our international business was also affected by general macroeconomic headwinds that impacted customer access to capital.
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Despite the reduction in systems sales sold under subscription agreements, our cash generation in the second half of 2023 improved due to a higher percentage of system sales sold on a cash basis. We sold an aggregate of 1,170 systems in the year ended December 31, 2023 compared to 1,572 in the year ended December 31, 2022 .
Added
The percentage of systems revenue derived from our subscription model was approximately 33% in the year ended December 31, 2023 compared to 42% in the year ended December 31, 2022 . The relative decrease in subscription revenues is in line with our strategy to prioritize cash deals over subscription deals in order to improve cash generation and preserve liquidity.
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Other product revenue decreased by $2.8 million, or 20.7%, to $10.6 million in the year ended December 31, 2023 from $13.3 million in the year ended December 31, 2022 .
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The decrease was driven by weaker performance on ARTAS kits attributable to a challenging economic environment. 76 Table of Contents Services revenue increased b y $0.4 million, or 13.5%, to $3.4 million in the year ended December 31, 2023 from $3.0 million in the year ended December 31, 2022 .
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The increase was driven by an increase in systems that had their standard manufacturer warranty expire coupled with a concerted effort on the part of the company to sell new warranty packages for the same systems.
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Cost of Goods Sold and Gross Profit Cost of goods sold decreased by $9.3 million, or 28%, to $24.2 million in the year ended December 31, 2023 from $33.5 million in the year ended December 31, 2022 .
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Gross profit decreased by $13.8 million, or 21%, to $52.2 million in the year ended December 31, 2023 , as compared to $66.0 million in the year ended December 31, 2022.
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The decrease in gross profit is primarily attributed to an acceleration in exiting unprofitable direct markets, and an initiative to reduce our reliance on system sales sold under subscription agreements. Gross margin was 68.3% of revenue in the year ended December 31, 2023 compared to 66.3% of revenue in the year ended December 31, 2022 .
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The increase was due to improved margin management, and reduced inventory write-offs when compared to the previous period.
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Operating Expenses Year Ended December 31, 2023 2022 Change (in thousands, except percentages) $ % of Revenues $ % of Revenues $ % Operating expenses: Selling and marketing $ 31,231 40.9 $ 40,276 40.5 $ (9,045 ) (22.5 ) General and administrative 41,048 53.8 49,618 49.9 (8,570 ) (17.3 ) Research and development 8,197 10.7 10,953 11.0 (2,756 ) (25.2 ) Total operating expenses $ 80,476 105.4 $ 100,847 101.4 $ (20,371 ) (20.2 ) Selling and Marketing Selling and marketing expenses decreased by $9.0 million or 22.5% in the year ended December 31, 2023 compared to the year ended December 31, 2022 .
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This decrease is largely due to lower revenues and reduced marketing expenditures as we consolidate some of these activities. As a percentage of total revenues, our selling and marketing expenses increased by 0.4%, from 40.5% in the year ended December 31, 2022 to 40.9% in the year ended December 31, 2022 .
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As the business environment improves we expect sales and marketing expenses to increase in absolute terms, but at a rate slightly below our rate of revenue growth.
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General and Administrative General and administrative expenses decreased by $8.6 million or 17.3% in the year ended December 31, 2023 compared to the year ended December 31, 2022 , primarily due to lower bad debt expenses and the exit of certain unprofitable direct markets.
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As a percentage of total revenues, our general and administrative expenses increased by 3.9%, from 49.9% in the year ended December 31, 2022 , to 53.8% in the year ended December 31, 2023 , primarily due to lower revenues when compared to the prior year period.
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Research and Development Research and development expenses decreased by $2.8 million or 25.2% in the year ended December 31, 2023 compared to the year ended December 31, 2022 .
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We experienced some cost savings through the consolidation of activities between our Israel and San Jose sites, partially offset by a reinvestment of research and development efforts directed at scaling our robotic technology across other aesthetic platforms.
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As a percentage of total revenues, our research and development expenses decreased by 0.3%, from 11.0% in the year ended December 31, 2022 , to 10.7% in the year ended December 31, 2023. 77 Table of Contents Foreign Exchange (Gain) Loss We had a foreign exchange gain of $0.3 million in the year ended December 31, 2023 and a foreign exchange loss of $3.4 million in the year ended December 31, 2022.
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Changes in foreign are driven mainly by the effect of foreign exchange on accounts receivable and accounts payable balances denominated in currencies other than the US dollar. For the year ended December 31, 2023, most currencies were relatively flat relative to the U.S. dollar. We do not currently hedge against foreign currency risk.
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Finance Expenses Finance expenses increased by $2.3 million, to $6.9 million in the year ended December 31, 2023 from $4.6 million in the year ended December 31, 2022 , primarily due to an increase in LIBOR rates on the variable portion of our MSLP loan. See “— Liquidity and Capital Resources ” below.
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Loss on Disposal of Subsidiaries During the year ended December 31, 2022, the Company commenced dissolution activities with respect to Venus Concept Argentina SA (“Venus Argentina”). These actions resulted in losses of approximately $0.2 million for the year ended December 31, 2023.
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Income Tax Benefit We had an income tax benefit of $0.07 million in the year ended December 31, 2023, compared to $0.7 million income tax benefit in the year ended December 31, 2022. In 2023, geographic sales mix, true up to tax return, and changes in timing of deductible expenses, resulted in a $0.07 million income tax benefit.
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Liquidity and Capital Resources We had $5.4 million and $11.6 million of cash and cash equivalents as of December 31, 2023 and December 31, 2022 , respectively. We have funded our operations with cash generated from operating activities, through the sale of equity securities and through debt financing.
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We had total debt obligations of approximately $74.9 million as of December 31, 2023 , including the MSLP Loan of $51.3 million, and convertible notes of $23.6 million, compared to total debt obligations of approximately $77.7 million as of December 31, 2022 . Working capital is primarily impacted by the ratio of subscription sales to traditional cash sales.
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Our recent shift to prioritize traditional cash sales over subscription sales is designed to improve liquidity and reduce working capital requirements over time. Our expanding product portfolio also requires higher inventory levels to meet demand and to accommodate the increased number of technology platforms offered.
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We had a split of subscription sales revenue to traditional sales revenue at a ratio of approximately 64:36 in the year ended December 31, 2023, compared to 47:53 in 2022. We expect a slight increase in the ratio of traditional sales to subscription sales in 2024 and beyond.
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We expect inventory to remain relatively flat in the short term but increase at a lower rate than the rate of revenue growth over the longer term. 78 Table of Contents We also require modest funding for capital expenditures. Our capital expenditures relate primarily to our research and development facilities in Yokneam, Israel and San Jose, California.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also have offices and a research and development center located at 6 Hayozma Street, Yokne’am Illit 2069203, Israel. We lease these facilities pursuant to a lease agreement that expires on September 30, 2023, with an option to extend the term for an additional 60 months. These facilities consist of approximately 12,580 square feet of total space.
Biggest changeWe also have offices and a research and development center located at 1 Hamelacha Street, Yokne’am Illit 2069200, Israel. We lease these facilities pursuant to a lease agreement that expires on September 30, 2024, with an option to extend the term for an additional 24 months. These facilities consist of approximately 530 square meters of total space.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFurther, 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.
Biggest changeItem 3. Legal Proceedings. As of December 31, 2023, the Company was not party to any material active or pending legal proceedings. 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.
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Item 3. Legal Proceedings. For a description of the legal proceedings currently affecting the Company, please see Note 9 “ Commitments and Contingencies ” to our consolidated financial statements included elsewhere in this report.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant ’ s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed for trading on the Nasdaq Capital Market under the symbol “VERO”. Holders As of March 22, 2023, there were 99 holders of record of our common stock.
Biggest changeItem 5. Market for Registrant ’ s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed for trading on the Nasdaq Capital Market under the symbol “VERO”. Holders As of March 27, 2024, there were 88 holders of record of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSolely for convenience, our trademarks and trade names referred to in this document appear without the TM or the ® symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the rights of the applicable licensor to these trademarks and trade names. 62 Table of Contents Equity Purchase Agreement with Lincoln Park On June 16, 2020, we entered into a purchase agreement (the "Equity Purchase Agreement") with Lincoln Park Capital Fund LLC ("Lincoln Park") which provided that, upon the terms and subject to the conditions and limitations set forth therein, we may sell to Lincoln Park up to $31.0 million of shares of our common stock pursuant to our shelf registration statement.
Biggest changeThere is no set timetable for the strategic review process and there can be no assurance that such review will result in any transaction or other alternative or the terms and conditions of any transaction or other alternative. 65 Table of Contents Equity Purchase Agreement with Lincoln Park On June 16, 2020, we entered into a purchase agreement (the "Equity Purchase Agreement") with Lincoln Park Capital Fund LLC ("Lincoln Park") which provided that, upon the terms and subject to the conditions and limitations set forth therein, we may sell to Lincoln Park up to $31.0 million of shares of our common stock pursuant to our shelf registration statement.
In the United States, we have obtained 510(k) clearance from the FDA for our Venus Viva, Venus Viva MD, Venus Legacy, Venus Versa, Venus Velocity, Venus Bliss, Venus Bliss Max, Venus Epileve, Venus Fiore, AI.ME, ARTAS and ARTAS iX systems.
In the United States, we have obtained 510(k) clearance from the FDA for our Venus Viva, Venus Viva MD, Venus Legacy, Venus Versa, Venus Versa Pro, Venus Velocity, Venus Bliss, Venus Bliss Max, Venus Epileve, Venus Fiore, ARTAS, ARTAS iX and AI.ME systems.
(2) For the year ended December 31, 2022, the other adjustments are represented by severance payments associated with a workforce reduction in Venus Spain and Venus Canada of $0.8 million and restructuring plan payments of $0.7 million. 65 Table of Contents Key Factors Impacting Our Results of Operations Our results of operations are impacted by several factors, but we consider the following to be particularly significant to our business: Number of systems delivered.
For the year ended December 31, 2022, the other adjustments are represented by severance payments associated with a workforce reduction in Venus Spain and Venus Canada of $0.8 million and restructuring plan payments of $0.7 million. 69 Table of Contents Key Factors Impacting Our Results of Operations Our results of operations are impacted by several factors, but we consider the following to be particularly significant to our business: Number of systems delivered.
The 2022 LPC Purchase Agreement On July 12, 2022, we entered into the 2022 LPC Purchase Agreement with Lincoln Park, and we issued and sold to Lincoln Park 0.7 million shares of our common stock as a commitment fee in connection with entering into the 2022 LPC Purchase Agreement, with the total value of $0.3 million.
On July 12, 2022, we entered into the 2022 LPC Purchase Agreement with Lincoln Park, and we issued and sold to Lincoln Park 0.05 million shares of our common stock as a commitment fee in connection with entering into the 2022 LPC Purchase Agreement, with the total value of $0.3 million.
Our systems have been designed on cost-effective, proprietary and flexible platforms that enable us to expand beyond the aesthetic industry’s traditional markets of dermatology and plastic surgery, and into non-traditional markets, including family and general practitioners and aesthetic medical spas. In 2022 and 2021, respectively, a substantial majority of our systems delivered in North America were in non-traditional markets.
Our systems have been designed on cost-effective, proprietary and flexible platforms that enable us to expand beyond the aesthetic industry’s traditional markets of dermatology and plastic surgery, and into non-traditional markets, including family medicine, general practitioners and aesthetic medical spas. In 2023 and 2022, respectively, a substantial majority of our systems delivered in North America were in non-traditional markets.
For additional information regarding the 2022 LPC Purchase Agreement, see Note 16 “ Stockholders Equity ” in the notes to our audited consolidated financial statements included elsewhere in this report.
For additional information regarding the 2022 LPC Purchase Agreement, see Note 14 “ Stockholders Equity ” in the notes to our audited consolidated financial statements included elsewhere in this report.
To ensure that each monthly payment is made on time and that the customer’s system is serviced in accordance with the terms of the warranty, every product purchased under a subscription agreement requires a monthly activation code, which we provide to the customer upon receipt of the monthly payment.
To ensure that each monthly payment is made on time and that the customer’s system is serviced in accordance with the terms of the warranty, every product purchased under Venus Prime requires a monthly activation code, which we provide to the customer upon receipt of the monthly payment.
Our subscription model includes an up-front fee and a monthly payment schedule, typically over a period of 36 months, with approximately 40% to 45% of total contract payments collected in the first year.
Like our legacy subscription model, Venus Prime includes an up-front fee and a monthly payment schedule, typically over a period of 36 months, with approximately 40% to 45% of total contract payments collected in the first year.
While we generated incremental product sales in these new markets, these revenues and the related margins did not fully offset the startup investments made in certain countries. We are evaluating our profitability and growth prospects in these countries and will continue to take steps to exit countries which we do not believe will produce sustainable results.
While we generated incremental product sales in these new markets, these revenues and the related margins did not fully offset the startup investments made in certain countries. We continue to evaluate our profitability and growth prospects in these countries and have taken and will continue to take steps to exit countries which we do not believe will produce sustainable results.
As of December 31, 2022 and 2021, we had cash and cash equivalents of $11.6 million and $30.9 million, respectively. The global economy, including the financial and credit markets, has recently experienced extreme volatility and disruption, including increases to inflation rates, rising interest rates, foreign currency impacts and declines in consumer confidence, and declines in economic growth.
As of December 31, 2023 and 2022, we had cash and cash equivalents of $5.4 million and $11.6 million, respectively. The global economy, including the financial and credit markets, has recently experienced extreme volatility and disruption, including increases to inflation rates, rising interest rates, foreign currency impacts and declines in consumer confidence, and declines in economic growth.
We had an Adjusted EBITDA loss of $25.4 million and $10.6 million for the year ended December 31, 2022, and 2021, respectively. 64 Table of Contents Use of Non-GAAP Financial Measures Adjusted EBITDA is a non-GAAP measure defined as net income (loss) before foreign exchange loss (gain), financial expenses, income tax expense (benefit), depreciation and amortization, stock-based compensation and non-recurring items for a given period.
We had an Adjusted EBITDA loss of $20.3 million and $25.4 million for the year ended December 31, 2023, and 2022, respectively. 68 Table of Contents Use of Non-GAAP Financial Measures Adjusted EBITDA is a non-GAAP measure defined as net income (loss) before foreign exchange loss (gain), financial expenses, income tax expense (benefit), depreciation and amortization, stock-based compensation and non-recurring items for a given period.
As of December 31, 2022 and 2021, we had an accumulated deficit of $224.1 million and $180.4 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.
As of December 31, 2023 and 2022, we had an accumulated deficit of $261.9 million and $224.1 million, respectively. Until we generate revenue at a level to support our cost structure, we expect to continue to incur substantial operating losses and negative cash flows from operations.
In addition, our technology pipeline is heavily focused on the development of robotically assisted minimally invasive solutions for aesthetic procedures that are primarily treated by surgical intervention, including the AI.ME platform for which we received FDA 510(k) clearance for fractional skin resurfacing in December 2022.
In addition, our technology pipeline is heavily focused on improving and enhancing our current technologies, products, and services and the development of robotically assisted minimally invasive solutions for aesthetic procedures that are primarily treated by surgical intervention, including the AI.ME platform for which we received FDA 510(k) clearance for fractional skin resurfacing in December 2022.
The 2022 Private Placement On November 18, 2022, we entered into a securities purchase agreement pursuant to which we issued and sold to certain investors an aggregate of 1,750,000 shares of our common stock and 3,185,000 shares of our voting convertible preferred stock (the "2022 Private Placement").
The 2022 Private Placement On November 18, 2022, we entered into a securities purchase agreement pursuant to which we issued and sold to the 2022 Investors an aggregate of 116,668 shares of our common stock and 3,185,000 shares of our Voting Preferred Stock.
During the year ended December 31, 2022, we issued and sold 0.4 million shares of our common stock shares to Lincoln Park under the Equity Purchase Agreement, at which point this agreement expired. The net cash proceeds from shares issuance as of December 31, 2022 were $0.3 million.
During the year ended December 31, 2022, we sold to Lincoln Park 0.03 million shares of our common stock under the Equity Purchase Agreement, at which point this agreement expired. The net cash proceeds from shares issuance as of December 31, 2022 were $0.3 million. The Equity Purchase Agreement expired on July 1, 2022.
Since June 2020 we have closed 11 direct offices across Europe, Asia Pacific, Latin America and Africa and have increased our investment, and focus, in the United States market. In the years ended December 31, 2022 and 2021, respectively, we did not open any direct sales offices. Bad Debt Expense.
Since June 2020 we have ceased direct sales operations in 13 countries across Europe, Asia Pacific, Latin America and Africa and have increased our investment and focus in the United States market. In the years ended December 31, 2023 and 2022, respectively, we did not open any direct sales offices. Bad Debt Expense.
The following table sets forth the number of systems we have delivered in the geographic regions indicated: Year Ended December 31, 2022 2021 United States 438 435 International 1,134 1,234 Total systems delivered 1,572 1,669 Mix between traditional sales, subscription model sales and distributor sales.
The following table sets forth the number of systems we have delivered in the geographic regions indicated: Year Ended December 31, 2023 2022 United States 412 438 International 758 1,134 Total systems delivered 1,170 1,572 Mix between traditional sales, subscription model sales and distributor sales.
We had a net loss attributable to the Company of $43.7 million and $23.0 million in the year ended December 31, 2022, and 2021, respectively.
We had a net loss attributable to the Company of $37.2 million and $43.7 million in the year ended December 31, 2023, and 2022, respectively.
In the year ended December 31, 2022, we incurred bad debt expense of $7.3 million compared to a bad debt recovery of $0.3 milli on in the year ended December 31, 2021.
In the year ended December 31, 2023, we incurred bad debt expense of $1.4 million compared to a bad debt expense of $7.3 milli on in the year ended December 31, 2022.
Product revenue includes revenue from the following: • the sale, including traditional sales and subscription-based sales, of systems, inclusive of the main console and applicators/handpieces (referred to as system revenue); • marketing supplies and kits; • hair restoration kits, Viva® tips and other consumables and disposables; • Technician service revenue; and • replacement applicators/handpieces.
Product revenue includes revenue from the following: • the sale, including traditional sales, Venus Prime and legacy subscription-based sales, of systems, inclusive of the main console and applicators/handpieces (referred to as system revenue); • marketing supplies and kits; • consumables and disposables • service revenue; and • replacement applicators/handpieces.
As of December 31, 2022, we operated directly in 15 international markets through our 12 direct offices in the United States, Canada, United Kingdom, Japan, South Korea, Mexico, Spain, Germany, Australia, China, Hong Kong, and Israel. Our revenues for the year ended December 31, 2022, and 2021 were $99.5 million and $105.6 million, respectively.
As of December 31, 2023, we operated directly in 14 international markets through our 11 direct offices in the United States, Canada, United Kingdom, Japan, Mexico, Spain, Germany, Australia, China, Hong Kong, and Israel. Our revenues for the year ended December 31, 2023, and 2022 were $76.4 million and $99.5 million, respectively.
The 2021 Private Placement On December 15, 2021, we entered into a securities purchase agreement pursuant to which we issued and sold to certain investors an aggregate of 9,808,418 shares of our common stock and 3,790,755 shares of our non-voting convertible preferred stock (the “2021 Private Placement”).
The 2021 Private Placement On December 15, 2021, we entered into a securities purchase agreement pursuant to which we issued and sold to certain investors an aggregate of 653,894 shares of our common stock and 252,717 shares of our Non-Voting Preferred Stock (the “2021 Private Placement”).
This strategic shift is designed to improve cash generation and reduce our exposure to defaults and increased bad debt expense given the increasingly challenging economic environment caused by the coexistence of high inflation and high interest rates. We generate revenue under our subscription-based business model and from traditional system sales.
This strategic shift is designed to improve cash generation and reduce our exposure to defaults and increased bad debt expense given the increasingly challenging economic environment caused by the coexistence of high inflation and high interest rates.
All these factors point to uncertainty about economic stability, and the severity and duration of these conditions on our business cannot be predicted. See ‘‘— Liquidity and Capital Resources ’’ for additional information.
All these factors point to uncertainty about economic stability, and the severity and duration of these conditions on our business cannot be predicted.
In addition, we increased the allowance for doubtful accounts as a percentage of gross outstanding accounts receivable from the period ended December 31, 2021 to the period ended December 31, 2022.
In addition, we decreased the allowance for expected credit losses as a percentage of gross outstanding accounts receivable from the period ended December 31, 2022 to the period ended December 31, 2023.
Reconciliation of Net loss to Non-GAAP Adjusted EBITDA Year Ended, December 31, 2022 2021 Reconciliation of net loss to adjusted EBITDA (in thousands) Net loss $ (43,584 ) $ (22,141 ) Foreign exchange loss 3,387 2,559 Loss on disposal of subsidiaries 1,482 567 Finance expenses 4,561 4,955 Income tax (benefit) expense (722 ) (707 ) Depreciation and amortization 4,463 4,854 Stock-based compensation expense 2,104 2,068 Gain on forgiveness of government assistance loans — (2,775 ) Inventory provision (1) 1,388 — Other adjustments (2) 1,544 — Adjusted EBITDA $ (25,377 ) $ (10,620 ) (1) For the year ended December 31, 2022, the inventory provision represents a strategic review of our product offerings which culminated in a decision to discontinue production and sale of certain models and component parts, resulting in an inventory adjustment of $1.4 million.
Reconciliation of Net loss to Non-GAAP Adjusted EBITDA Year Ended, December 31, 2023 2022 Reconciliation of net loss to adjusted EBITDA (in thousands) Net loss $ (37,050 ) $ (43,584 ) Foreign exchange (gain) loss (295 ) 3,387 Loss on disposal of subsidiaries 174 1,482 Loss on debt extinguishment 2,040 — Finance expenses 6,893 4,561 Income tax benefit (71 ) (722 ) Depreciation and amortization 4,115 4,463 Stock-based compensation expense 1,569 2,104 Inventory provision (1) — 1,388 Other adjustments (2) 2,362 1,544 Adjusted EBITDA $ (20,263 ) $ (25,377 ) (1) For the year ended December 31, 2022, the inventory provision represents a strategic review of our product offerings which culminated in a decision to discontinue production and sale of certain models and component parts, resulting in an inventory adjustment of $1.4 million.
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.
We have developed and received regulatory clearance for 12 novel aesthetic technology platforms, including our ARTAS and NeoGraft systems. We believe our ARTAS and NeoGraft systems are complementary and give us a hair restoration product offering that can serve a broad segment of the market.
Through December 31, 2022, the Company issued an additional 6.5 million shares of common stock to Lincoln Park at an average price of $0.30 per share, for a total value of $2.0 million.
Subsequent to execution of the 2022 LPC Purchase Agreement the Company issued 0.43 million shares of common stock to Lincoln Park at an average price of $4.54 per share, for a total value of $1.97 million through December 31, 2022.
Venus Ltd. commenced a subscription-based model in North America in 2011, which is also available in select international markets in which we operate directly. Approximately 42% and 55% of our aesthetic revenues were derived from our subscription model in the year ended December 31, 2022 and 2021, respectively.
We generate revenue from traditional system sales and from sales under our subscription-based business model, which is available to customers in North America and select international markets. Approximately 33% and 42% of our aesthetic revenues were derived from our subscription model in the year ended December 31, 2023 and 2022, respectively.
Through December 31, 2022, we issued an additional 6.5 million shares of common stock to Lincoln Park at an average price of $0.30 per share, for a total value of $2.0 million.
During the twelve months ended December 31, 2023, the Company issued an additional 0.34 million shares of common stock to Lincoln Park at an average price of $3.23 per share, for a total value of $1.1 million.
We maintain an allowance for doubtful accounts for estimated losses that may primarily arise from subscription customers that are unable to make the remaining payments required under their subscription agreements.
We maintain an allowance for expected credit losses for estimated losses that may primarily arise from subscription customers that are unable to make the remaining payments required under their subscription agreements. We continue to focus our selling efforts on cash sales and subscription customers with a stronger credit profile, thereby reducing our exposure to credit losses.
The accounting effects of the 2021 Private Placement transaction is discussed in Note 16 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report.
The accounting effects of the 2021 Private Placement transaction are discussed in Note 14 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report. These Non-Voting Preferred Stock shares were subsequently converted to common stock upon issuance of the 2022 Private Placement described below.
In the third quarter of 2022 we commenced an initiative to reduce our reliance on system sales sold under subscription agreements in the United States.
Service revenue includes revenue derived from our extended warranty service contracts provided to our existing customers. Systems are sold through traditional sales contracts directly, through our subscription model, and through distributors. In the third quarter of 2022 we commenced an initiative to reduce our reliance on system sales sold under subscription agreements in the United States.
The accounting effects of the 2021 Private Placement transaction is discussed in Note 16 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report.
The Company expects to use the proceeds of the Placements, after the payment of transaction expenses, for general working capital purposes. The accounting effects of the 2023 Multi-Tranche Private Placement transaction are discussed in Note 14 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report.
We work closely with our customers 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.
These recurring monthly payments provide our customers with enhanced financial transparency and predictability. This structure can provide greater flexibility than traditional equipment leases secured through financing companies. We work closely with our customers to provide business recommendations that improve the quality-of-service outcomes, build patient traffic and improve financial returns for the customer’s business.
In addition, the global economy, including the financial and credit markets, has recently experienced extreme volatility and disruption, including increases to inflation rates, rising interest rates, foreign currency impacts, declines in consumer confidence, and declines in economic growth.
As of December 31, 2023, our allowance for expected credit losses stands at $7.4 million which represents 15.5% of the gross outstanding accounts receivable as of this date. 70 Table of Contents Outlook The global economy, including the financial and credit markets, has recently experienced extreme volatility and disruption, including increases to inflation rates, rising interest rates, foreign currency impacts, declines in consumer confidence, and a challenging growth environment.
The bulk of the revenue decline in the second half of 2022 was due to a strategy shift to prioritize cash deals over subscription deals in order to improve cash generation and preserve liquidity. However, we remain focused on adapting to the challenges presented by the current macro-economic environment. Supply chain.
We continue to focus on quality of revenue and despite the revenue decline, our cash used in operations was $14.1 million lower than the same period in 2022. We remain focused on adapting to the challenges presented by the current macro-economic environment. Israel – Hamas conflict.
The percentage of systems revenue derived from our subscription model was approximately 42% in the year ended December 31, 2022 compared to 51% in the year ended December 31, 2021 . The relative decrease in subscription revenues is in line with our strategy to prioritize cash deals over subscription deals in order to improve cash generation and preserve liquidity.
The bulk of the revenue decline in the year ended December 31, 2023 was due to an acceleration of our international strategy to wind down underperforming countries as we transition to third party distributors and our shift to prioritize cash deals over subscription deals in order to improve cash generation.
Removed
Venus Viva®, Venus Viva® MD, Venus Legacy®, Venus Concept®, Venus Versa®, Venus Fiore®, Venus Freedom™, Venus Bliss™, Venus Bliss Max™, NeoGraft®, Venus Glow™®, ARTAS®, ARTAS iX®, and AI.ME™, are trademarks of the Company and its subsidiaries. Our logo and our other trade names, trademarks and service marks appearing in this document are our property.
Added
All these factors point to uncertainty about economic stability, and the severity and duration of these conditions on our business cannot be predicted. See ‘‘— Liquidity and Capital Resources ’’ for additional information. On January 24, 2024, the Company announced that the Board has authorized the review of the strategic alternatives with a goal of enhancing stockholder value.
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Other trade names, trademarks and service marks appearing in this document are the property of their respective owners.
Added
The accounting effects of the 2022 Private Placement transaction are discussed in Note 14 "Stockholders'Equity" in the notes to our consolidated financial statements included elsewhere in this report. 66 Table of Contents The 2023 Multi-Tranche Private Placement In May 2023, the Company entered into the 2023 Multi-Tranche Private Placement Stock Purchase Agreement with the 2023 Investors pursuant to which the Company may issue and sell to the 2023 Investors up to $9.0 million in shares of the Senior Preferred Stock in multiple tranches from time to time until December 31, 2025, subject to a minimum aggregate purchase amount of $0.5 million in each tranche.
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During the year ended December 31, 2022, we sold to Lincoln Park 0.4 million shares of our common stock, at which point this agreement expired, and raised net cash proceeds of $0.3 million under the Equity Purchase Agreement. See ‘‘— Liquidity and Capital Resources ’’ below.
Added
The Initial Placement occurred on May 15, 2023, under which the Company sold the 2023 Investors 280,899 shares of Senior Preferred Stock for an aggregate purchase price of $2.0 million. On July 6, 2023, the Company and the 2023 Investors entered into the Multi-Tranche Amendment.
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The Equity Purchase Agreement expired on July 1, 2022 and was replaced by the 2022 LPC Purchase Agreement. The 2022 LPC Purchase Agreement On July 12, 2022, we entered into a subsequent purchase agreement (the "2022 LPC Purchase Agreement") with Lincoln Park, which will enhance our balance sheet and financial condition to support our future growth initiatives.
Added
The Multi-Tranche Amendment (a) clarifies the appropriate date pursuant to which the purchase price for each share of Senior Preferred Stock to be sold in the Private Placement is determined (such that the purchase price shall be equal to the “Minimum Price” as set forth in Nasdaq Listing Rule 5635(d)) and (b) permits the Company to specify a desired closing date (subject to approval by the 2023 Investors) for each sale in the 2023 Multi-Tranche Private Placement.
Removed
As part of the 2022 LPC Purchase Agreement, we issued and sold to Lincoln Park 0.7 million shares of our common stock as a commitment fee for entering into the 2022 LPC Purchase Agreement with the total value of $0.3 million.
Added
On July 12, 2023, the Company and the 2023 Investors consummated the Second Placement under the 2023 Multi-Tranche Private Placement, under which the Company sold the 2023 Investors 500,000 shares of Senior Preferred Stock for an aggregate purchase price of $2.0 million.
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The accounting effects of the 2022 Private Placement transaction is discussed in Note 16 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report. Products and Services We derive revenue from the sale of products and services.
Added
On September 8, 2023, the Company and the 2023 Investors consummated the Third Placement under the 2023 Multi-Tranche Private Placement, under which the Company sold the 2023 Investors 292,398 shares of Senior Preferred Stock for an aggregate purchase price of $1.0 million.
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Service revenue includes revenue derived from our extended warranty service contracts provided to our existing customers and VeroGrafters technician services (which were discontinued in the fourth quarter of 2021). 63 Table of Contents Systems are sold through our subscription model, through traditional cash sales directly and through distributors.
Added
On October 20, 2023, the Company and the 2023 Investors consummated the Fourth Placement under the 2023 Multi-Tranche Private Placement, under which the Company sold the 2023 Investors 502,513 shares of Senior Preferred Stock for an aggregate purchase price of $2.0 million.
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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” into our newest available or alternative Venus Concept technology throughout the subscription period. This structure can provide greater flexibility than traditional equipment leases secured through financing companies.
Added
Series X Convertible Preferred Stock On October 4, 2023, the Company entered into an Exchange Agreement (the "2023 Exchange Agreement") with the Madryn Noteholders, pursuant to which the Madryn Noteholders agreed to exchange $26,695,110.58 in aggregate principal amount outstanding under the Notes for (i) $22,791,748.32 in aggregate principal amount of new secured convertible notes of the Company and (ii) 248,755 shares of newly-created convertible preferred stock of the Company, par value $0.0001 per share designated as "Series X Convertible Preferred Stock." The transaction is discussed in Note 14 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report. 67 Table of Contents Products and Services We derive revenue from the sale of products and services.
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During the year ended December 31, 2022, our collections results were negatively impacted by macroeconomic headwinds, including increased interest rates and inflationary factors impacting the operating costs and liquidity positions of our customers.
Added
In January 2024, the Company launched its new Venus Prime program which is a structured in-house financing program replacing its legacy subscription program for customers in North America.
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As of December 31, 2022, our allowance for doubtful accounts stands at $13.6 million which represents 19% of the gross outstanding accounts receivable as of this date. 66 Table of Contents Outlook While the impact of COVID-19 on our business has largely subsided, we continue to closely monitor all COVID-19 developments, including its impact on our customers, employees, suppliers, vendors, business partners, and distribution channels.
Added
Under our Venus Prime program, select customers can qualify for competitive financing rates and continue to benefit from the payment flexibility afforded by our previous subscription financing program when purchasing our aesthetic medical devices, as well as a seamless technology upgrade program made available to our customers in years 2 and 3 of ownership.
Removed
All these factors point to uncertainty about economic stability, and the severity and duration of these conditions on our business cannot be predicted. The momentum and strength in our overall performance demonstrated in the first half of this fiscal year slowed in the second half of 2022.
Added
(2) For the year ended December 31, 2023, the other adjustments of $2.4 million primarily represent restructuring activities designed to improve the Company's operations and cost structure.
Removed
In the second half of 2021 we were impacted by the global supply disruptions related to COVID-19, which resulted in our inability to fulfil demand for certain of our products.
Added
During the year ended December 31, 2023, our collections results were favorably impacted by the above noted changes, resulting in a significant reduction in bad debt expenses by $5.9 million when compared to the year ended December 31, 2022.
Removed
The value of such purchase order backlog in the third and the fourth quarters of 2021 was $2.4 million and $1.0 million, respectively, which was substantially fulfilled during the fourth quarter of 2021 and the first quarter of 2022.
Added
Following the October 7, 2023 attack by Hamas on Israeli citizens and the declaration of war that followed, we have taken steps to mitigate exposure to risks related to our Israeli operations, the risks of which are further described in Item 1A.
Removed
We did not experience significant supply issues during the year ended December 31, 2022 as we continue to actively work with our suppliers and third-party manufacturers to mitigate supply issues and build inventory of key component parts.
Added
Risk Factors – Conditions in Israel, including the recent attack by Hamas and other terrorist organizations from the Gaza Strip and Israel ’ s war against them, may adversely affect our operations and limit our ability to manage and market our products, which could lead to a decrease in revenues and
Removed
We anticipate some supply challenges in 2023, including long production lead times and shortages of certain materials or components that may impact our ability to manufacture the number of systems required to meet customer demand. In addition, since the second quarter of 2021 we have experienced significant inflationary pressures throughout our supply chain, which we expect to continue into 2023.
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We expect to mitigate such pressures, where possible, through price increases and margin management. Global Economic conditions .
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General global economic downturns and macroeconomic trends, including heightened inflation, capital markets volatility, interest rate and currency rate fluctuations, and economic slowdown or recession, have resulted and may continue to result in unfavorable conditions that negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of operations.
Removed
Both domestic and international markets experienced significant inflationary pressures in fiscal year 2022 and inflation rates in the U.S., as well as in other countries in which we operate, are currently expected to continue at elevated levels for the near-term, impacting our cost of sales as well as selling, general and administrative expenses.
Removed
In addition, the Federal Reserve in the U.S. and other central banks in various countries have raised, and may again raise, interest rates in response to concerns about inflation.
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Interest rate increases or other government actions taken to reduce inflation have resulted in recessionary pressures in many parts of the world and has had and may continue to have the effect of further increasing economic uncertainty and heightening these risks. Sales markets.
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We are a global business, having established a commercial presence in more than 60 countries during our history. While the continued economic recovery related to COVID-19 in individual countries during 2022 progressed well in most countries in which we operate, we continue to evaluate our direct operations, particularly those outside of North America. Accounts receivable collections.
Removed
We remain fully focused on reactivating collections with those at-risk accounts that have struggled through the pandemic but show signs of viability. As of December 31, 2022, our allowance for doubtful accounts stands at $13.6 million, which represents 19.3% of the gross outstanding accounts receivable as of that date.
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This represents an increase of $1.6 million from our December 31, 2021 allowance for doubtful accounts balance of $12.0 million. Foreign Exchange fluctuations .
Removed
We are primarily exposed to foreign exchange risk with respect to revenues generated outside of the United States denominated in NIS, Euro, CAD, British Pound, Australian Dollar, Chinese Renminbi, Hong Kong Dollar, Japanese Yen, and Mexican Peso. We manage our foreign currency exposures on a consolidated basis, which allows us to net exposures and take advantage of any natural offsets.
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We do not hedge our entire foreign exchange exposure and are still subject to earnings and stockholders' equity volatility relating to foreign exchange risk.
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Financial market and currency volatility may limit our ability to cost-effectively hedge these exposures. 67 Table of Contents Basis of Presentation Revenues 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 marketing supplies, ARTAS kits, Viva tips, other consumables and (3) service revenue from our extended warranty service contracts provided to existing customers and the sale of our VeroGrafters technician services.
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VeroGrafters services were discontinued in the fourth quarter of 2021. System Revenue For the years ended December 31, 2022 and 2021, approximately 42% and 51%, respectively, of our system revenues were derived from our subscription contracts.
Removed
The relative decrease in subscription revenues in 2022 is in line with our strategy to prioritize cash deals over subscription deals in order to improve cash generation and preserve liquidity. Our subscription model is designed to provide a low barrier to ownership of our systems and includes an up-front fee followed by monthly payments, typically over a 36-month period.

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