Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains management's discussion and analysis of our financial condition and results of operations and should be read together with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2025 ("Form 10-Q"), with our audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2024 ("Form 10-K") and other filings we have made with the SEC.

Overview

We are an innovative global medical technology company that develops, commercializes and delivers minimally invasive and non-invasive medical aesthetic and hair restoration technologies and related services. Our systems have been designed on cost-effective, proprietary and flexible platforms that enable us to expand beyond the aesthetic industry's traditional markets of dermatology and plastic surgery, and into non-traditional markets, including family medicine, and general practitioners and aesthetic medical spas. In the three and nine months ended September 30, 2025 and 2024, respectively, a substantial majority of our systems delivered in North America were in non-traditional markets. As we grow our ARTAS hair restoration business and expand robotics offerings through the AI.ME™ platform we expect our penetration into the core practices of dermatology and plastic surgery to increase.

We have had recurring net operating losses and negative cash flows from operations. As of September 30, 2025 and December 31, 2024, we had an accumulated deficit of $355.5 million and $308.9 million, respectively. Until we generate revenue at a level to support our cost structure, we expect to continue to incur substantial operating losses and negative cash flows from operations. In order to continue our operations, we must achieve profitability and/or obtain additional equity investment or debt financing. Until we achieve profitability, we plan to fund our operations and capital expenditures with cash on hand, borrowings and issuances of capital stock. As of September 30, 2025and December 31, 2024, we had cash, cash equivalents, and restricted cash of $5.9 million and $4.3 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, trade disruptions due to tariff rate increases or proposed increases, declines in consumer confidence, and declines in economic growth. All these factors point to uncertainty about economic stability, and the severity and duration of these conditions on our business cannot be predicted.

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. There 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.

On June 5, 2025, the Company entered into the Purchase Agreement by and among the Company, Meta, and Meta Healthcare Group pursuant to which the Company agreed to sell the Venus Hair Business to Meta Healthcare Group in an all-cash transaction valued at $20 million, subject to a customary working capital adjustment. This transaction is further discussed in Note 1 "Nature of Operations" to our condensed consolidated financial statements included elsewhere in this report.

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. Other trade names, trademarks and service marks appearing in this document are the property of their respective owners. Solely for convenience, our trademarks and trade names referred to in this document appear without the TM or the ® symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the rights of the applicable licensor to these trademarks and trade names.

Equity Purchase Agreement with Lincoln Park

On June 16, 2020, we entered into the Equity Purchase Agreement with Lincoln Park which provided that, upon the terms and subject to the conditions and limitations set forth therein, we may sell to Lincoln Park up to $31.0 million of shares of our common stock pursuant to our shelf registration statement. The purchase price of shares of common stock related to a future sale was based on the then prevailing market prices of such shares at the time of sales as described in the Equity Purchase Agreement. Concurrently with entering into the Equity Purchase Agreement, we also entered into the Registration Rights Agreement. During the year ended December 31, 2022, we sold to Lincoln Park 0.003 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.

On July 12, 2022, we entered into the 2022 LPC Purchase Agreement with Lincoln Park, and we issued and sold to Lincoln Park 0.004 million shares of our common stock as a commitment fee in connection with entering into the 2022 LPC Purchase Agreement, with the total value of $0.3 million. Subsequent to execution of the 2022 LPC Purchase Agreement the Company issued approximately 39.5 thousand shares of common stock to Lincoln Park at an average price of $49.94 per share, for a total value of $1.97 million through December 31, 2022. During the twelve months ended December 31, 2023, the Company issued an additional 31.1 thousand shares of common stock to Lincoln Park at an average price of $35.53 per share, for a total value of $1.1 million. During 2024, the Company issued an additional 758 shares of common stock to Lincoln Park at an average price of $12.76 per share, for a total value of $10. The 2022 LPC Purchase Agreement expired on August 1, 2024.

In November 2022, we entered into a securities purchase agreement pursuant to which we issued and sold to the 2022 Investors an aggregate of 10,608 shares of our common stock, par value $0.0001 per share, and 3,185,000 shares of our Voting Preferred Stock, which are convertible into 193,014 shares of common stock upon receipt of a valid conversion notice from a 2022 Investor or at the option of the Company within 30 days following the occurrence of certain events (the "2022 Private Placement"). The 2022 Private Placement was completed on November 18, 2022. The gross proceeds from the securities sold in the 2022 Private Placement totaled $6.7 million before offering expenses. The costs incurred with respect to the 2022 Private Placement totaled $0.2 million and were recorded as a reduction of the 2022 Private Placement proceeds in the consolidated statements of stockholders' equity. The accounting effects of the 2022 Private Placement transaction are discussed in Note 14 "Stockholders' Equity" in the notes to our condensed consolidated financial statements included elsewhere in this report.

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. 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. 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.

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.

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.

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.

The Company used 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 condensed consolidated financial statements included elsewhere in this report.

Series X Convertible Preferred Stock

On October 4, 2023, the Company entered into the 2023 Exchange Agreement with the Madryn Noteholders, pursuant to which the Madryn Noteholders agreed to exchange $26.7 million in aggregate principal amount outstanding under the Notes for (i) $22.8 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 condensed consolidated financial statements included elsewhere in this report.

Registered Direct Offerings

On February 22, 2024, the Company, entered into the SPA with the 2024 Investors, pursuant to which the Company agreed to issue and sell to the 2024 Investors (i) in a registered direct offering, an aggregate of 74,342 shares of the Company's common stock, at a price of $16.115 per share and (ii) in a concurrent private placement, the 2024 Investor Warrants at an initial exercise price of $14.74 per share.

On April 9, 2025, the Company entered into a SPA with the April 9 Investors pursuant to which the Company agreed to issue and sell to the April 9 Investors in a registered direct offering an aggregate of 328,573 shares of the Company's common stock, at a price of $3.50 per share.

On April 11, 2025, the Company entered into a securities purchase agreement with the April 11 Investors pursuant to which the Company agreed to issue and sell to the April 11 Investors in a registered direct offering an aggregate of 386,700 shares of the Company's common stock, at a price of $4.06 per share.

HCW acted as the Company's placement agent in connection with the April 9 Offering and the April 11 Offerings. For each offering, the Company paid HCW consideration consisting of (i) a cash fee equal to 7.0% of the gross proceeds in the respective offering, (ii) a management fee equal to 1.0% of the aggregate gross proceeds in the respective offering, (iii) reimbursement of certain expenses and (iv) April 2025 Placement Agent Warrants to acquire up to an aggregate of (i) 23,000 shares of common stock in the April 9 Offering and (ii) 27,069 shares of common stock in the April 11 Offering. The April 2025 Placement Agent Warrants have an initial exercise price of $4.375 per share for the April 9 Offering and $5.075 per share for the April 11 Offering.

On June 6, 2025, the Company, entered into a SPA with certain institutional investors, pursuant to which the Company agreed to issue and sell to the June 6 Investors (i) in a registered direct offering, an aggregate of 434,720 shares of the Company's common stock, par value $0.0001 per share, at a price of $2.65 per share and (ii) in a concurrent private placement, the 2025 Investor Warrants, at an initial exercise price of $2.65 per share. HCW acted as the Company's placement agent in connection with Offering. The Company paid HCW consideration consisting of (i) a cash fee equal to 7.0% of the aggregate gross proceeds in the Offering, (ii) a management fee equal to 1.0% of the aggregate gross proceeds in the June 6 Offering, (iii) reimbursement of certain expenses and (iv) June 6 Placement Agent Warrants to acquire up to an aggregate of 30,430 shares of Common Stock. The June 6 Placement Agent Warrants are substantially similar to the 2025 Investor Warrants, except that the initial exercise price of the June 6 Placement Agent Warrants is $3.3125 per share.

The offerings transactions are discussed in Note 14 "Stockholders' Equity" in the notes to our condensed consolidated financial statements included elsewhere in this report.

Madryn Loan and Security Agreement

On April 23, 2024, the Company entered into the Loan and Security Agreement, by and among the Bridge Borrower, the 2024 Guarantors, the 2024 Lenders and Madryn Health Partners, LP, as administrative agent. Pursuant to the Loan and Security Agreement, the 2024 Lenders have agreed to provide the Bridge Borrower with Bridge Financing in the form of a term loan in the original principal amount of $2.2 million and one or more delayed draw term loans of up to an additional principal amount of $2.8 million.

On July 26, 2024 September 11, 2024, and November 1, 2024 additional delayed draws in the amounts of $1.0 million were made, respectively. On November 26, 2024, an additional delayed draw of $1.2 million was made, and on December 9, 2024, an additional delayed draw of $1.5 million was made, for a total drawdown as of December 31, 2024 of $7.9 million. From January 27, 2025 to September 30, 2025, an aggregate of $15.3 million in additional delayed draws were funded.

From May 24, 2024 through September 30, 2025 the Loan Parties entered into Bridge Financing Amendments Two through Twenty, which among other things, extended the maturity date to October 31, 2025, increased the delayed draw commitment from $2.8 million to $26.0 million, made interest payments payable-in-kind, deleted the net loss covenant, and granted relief from minimum liquidity requirements. These amendments are discussed in Note 11 "Madryn Debt and Convertible Notes" in the notes to our condensed consolidated financial statements included elsewhere in this report.

2024 Exchange Agreements, 2025 Exchange Agreements and Series Y Convertible Preferred Stock Issuance

On May 24, 2024, the Company entered into the 2024 Exchange Agreement with the Madryn Noteholders, pursuant to which the Madryn Noteholders agreed to exchange $52,142 in aggregate principal amount outstanding under the Main Street Priority Loan, dated December 8, 2020, for (i) $17,142 in aggregate principal amount of new secured convertible notes of the Company and (ii) 576,986 shares of Series Y Preferred Stock. As part of the extinguishment of principal, the Company recognized a $10.9 million non-cash loss.

On September 26, 2024, the Company entered into the Second 2024 Exchange Agreement whereby the Company exchanged $17,662 of the balance outstanding under the MSLP Loan Agreement for $2,662 in aggregate principal amount outstanding under the MSLP Loan Agreement and 203,583 shares of Series Y Preferred Stock. As part of the extinguishment of principal, the Company recognized a $0.5 million non-cash loss.

On March 31, 2025, the Company entered into the 2025 Exchange Agreement whereby the Company exchanged $28,016 in aggregate principal amount outstanding under the New Notes for $17,016 in aggregate principal of New Secured Notes and 379,311 shares of Series Y Preferred Stock. As part of the extinguishment of principal, the Company recognized a $1.0 million non-cash loss.

On June 30, 2025, the Company entered into the June 2025 Exchange Agreement with the Madryn Noteholders. Pursuant to the June 2025 Exchange Agreement, the Madryn Noteholders agreed to exchange $17,016 in aggregate principal amount of outstanding secured convertible notes of the Company for: (a) the New Madryn Note, and (b) 325,651 shares of the Company's convertible preferred stock, par value $0.0001 per share, designated as Series Y Preferred Stock. The Series Y Preferred Stock is priced at $19.96 per share, being equal to the product of (i) the average closing price (as reflected on Nasdaq.com) of the Company's common stock for the five trading days immediately preceding date of the June 2025 Exchange Agreement, multiplied by (ii) 9.0909. The New Secured Notes follow the same terms as the existing New Notes. As part of the extinguishment of principal, the Company recognized a $1.9 million non-cash loss.

On September 30, 2025, the Company entered into the September 2025 Exchange Agreement with Madryn Noteholders. Pursuant to the September 2025 Exchange Agreement, the Madryn Noteholders agreed to exchange $11,479 in aggregate principal and accrued interest amount of outstanding secured convertible notes of the Company for 545,335 shares of the Company's convertible preferred stock, par value $0.0001 per share, designated as Series Y Preferred Stock. The Series Y Preferred Stock is priced at $21.05 per share, being equal to the product of (i) the average closing price (as reflected on Nasdaq.com) of the Company's common stock for the five trading days immediately preceding the date of the September 2025 Exchange Agreement, multiplied by (ii) 9.0909. Following the September 2025 Exchange Agreement there was no principal or interest remaining on the New Secured Notes. As part of the debt extinguishment, the Company recognized an $11,297 non-cash loss.

The transactions are discussed in Note 11 "Madryn Debt and Convertible Notes" and Note 14 "Stockholders' Equity" in the notes to our condensed consolidated financial statements included elsewhere in this report.

Products and Services

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

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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);

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marketing supplies and kits;

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consumables and disposables;

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service revenue; and

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replacement applicators/handpieces.

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

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

We generate revenue from traditional system sales and from sales under our internal lease programs, which are available to customers in North America and select international markets. Approximately 30% and 28% of our aesthetic system revenues were derived from our internal lease programs in the nine months ended September 30, 2025 and September 30, 2024, respectively. We currently do not offer the ARTAS iX system under our internal lease programs. For additional details related to our internal lease programs, see Part 1, Item 1. Business as filed in our Form 10-K for the year ended December 31, 2024.

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. 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.

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. 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. 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.

We have developed and received regulatory clearance for twelve 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. Our medical aesthetic technology platforms have received regulatory clearance for a variety of indications, including treatment of facial wrinkles in certain skin types, temporary reduction of appearance of cellulite, non-invasive fat reduction (lipolysis) in the abdomen and flanks for certain body types and relief of minor muscle aches and pains in jurisdictions around the world. 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.

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. Outside the United States, we market our technologies in over 60 countries across Europe, the Middle East, Africa, Asia-Pacific and Latin America. Because each country has its own regulatory scheme and clearance process, not every device is cleared or authorized for the same indications in each market in which a particular system is marketed.

As of September 30, 2025, we operated directly in 11 international markets through our 9 direct offices in the United States, Canada, Mexico, Spain, Germany, Australia, China, Hong Kong, and Israel.

Our revenues for the three months ended September 30, 2025 and 2024 were $13.8 million and $15.0 million, respectively. Our revenues for the nine months ended September 30, 2025 and 2024 were $43.1 and $49.1 million, respectively. We had a net loss attributable to the Company of $22.6 million and $9.3 million in the three months ended September 30, 2025 and 2024, respectively. We had a net loss attributable to the Company of $46.7 and $39.0 million in the nine months ended September 30, 2025 and 2024, respectively. We had an Adjusted EBITDA loss of $7.8 million and $5.9 million for the three months ended September 30, 2025, and 2024, respectively. We had an Adjusted EBITDA loss of $25.0 and $15.1 million for the nine months ended September 30, 2025 and 2024, respectively.

Use of Non-GAAP Financial Measures

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

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

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2025				2024				2025				2024
Reconciliation of net loss to adjusted EBITDA		(in thousands)								(in thousands)
Net loss		$	(22,549	)		$	(9,302	)		$	(46,657	)		$	(38,955	)
Foreign exchange (gain) loss			(35	)			57				(699	)			1,155
Loss on disposal of subsidiaries			244				-				244				-
Loss on debt extinguishment			11,297				454				14,211				11,355
Finance expenses			1,016				1,665				3,753				5,785
Income tax (benefit) expense			531				(31	)			1,083				147
Depreciation and amortization			977				971				2,881				2,924
Stock-based compensation expense			135				239				479				817
ERC Claim recovery (4)			63				-				(1,442	)			-
Top up to 401(k) under the Voluntary Correction Plan (3)			-				-				516				-
CEWS (1)			-				-				-				418
Other adjustments (2)			498				73				618				1,220
Adjusted EBITDA		$	(7,823	)		$	(5,874	)		$	(25,013	)		$	(15,134	)

(1) In April 2022, the Canada Revenue Agency ("CRA") initiated an audit of the Canada Emergency Wage Subsidy Claim ("CEWS") that the Company filed between 2020-2021. The CRA has currently assessed a denial of CEWS claims made by the Company in 2020 and is requesting repayment of $418. The Company disputes the CRA assessment and intends to challenge this matter through the Tax Court or Judicial Review.

(2) For the three and nine months ended September 30, 2025, the other adjustments are represented by legal and other professional fees incurred to support the sale of the Venus Hair Business. For the three and nine months ended September 30, 2024, the other adjustments are represented by restructuring activities designed to improve the Company's operations and cost structure.

(3) A provision has been made under the Voluntary Correction Plan to account for a discrepancy noted by the IRS upon review of the Company's 401(K) plan.

(4) Represents funds received or accrued under the IRS Employee Retention Tax Credit (ERC) program providing relief to eligible businesses impacted by the COVID-19 pandemic.

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 majority of our revenue is generated from the delivery of systems, both under traditional sales contracts and internal financing programs. The following table sets forth the number of systems we have delivered in the geographic regions indicated:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2025				2024				2025				2024
United States			77				88				264				317
International			121				165				366				472
Total systems delivered			198				253				630				789

Mix between traditional sales, distributor sales, and sales made under our internal financing programs. We deliver systems through (1) traditional direct system sales contracts to customers, (2) our internal financing programs, and (3) system sales through distribution agreements. Unit deliveries under direct system sales contracts and internally financed sales have higher per unit revenues and gross margins, while revenues and gross margins on systems sold through distributors are lower. However, distributor sales do not require significant sales and marketing support as these expenses are borne by the distributors. In addition, while traditional system sales and internally financed sales have similar gross margins, cash collections on sales financed under our internal financing programs generally occur over a three-year period, with approximately 40% to 45% collected in the first year and the balance collected evenly over the remaining two years of the agreement. In the third quarter of 2022 we commenced an initiative to reduce our reliance on system sales sold under our internal financing programs in the United States. This strategic shift is designed to improve cash generation and reduce our exposure to defaults and increased bad debt expense given the increasingly challenging economic environment caused by the coexistence of high inflation and high interest rates.

Investment in Sales, Marketing and Operations. In previous years, we made a strategic decision to penetrate the global market by investing in sales and marketing expenses across all geographic segments. This included the opening of direct offices and hiring experienced sales, marketing, and operational staff. 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. Since June 2020 we have ceased direct sales operations in 14 countries across Europe, Asia Pacific, Latin America and Africa and have increased our investment in, and focus on, the United States market.

In the three and nine months ended September 30, 2025, and 2024, respectively, we did not open any direct sales offices.

Bad Debt Expense. We maintain an allowance for expected credit losses for estimated losses that may primarily arise from customers who purchased our products under our internal financing programs who are unable to make the remaining payments required under their agreements. We continue to focus our selling efforts on cash sales and internal financing customers with a stronger credit profile, with the goal of reducing our exposure to credit losses. We incurred a bad debt expense of $0.3 million and $2.6 million during the three and nine months ended September 30, 2025. This compares to $0.4 million and $0.9 million for the three and nine months ended September 30, 2024. As of September 30, 2025, our allowance for expected credit losses was $2.1 million which represented approximately 7.4% of the gross outstanding accounts receivable as of this date. As of September 30, 2024 our allowance for expected credit losses was $4.1 million which represented 16.4% of the gross outstanding accounts receivable as of this date.

Outlook

The global economy, including the financial and credit markets, has recently experienced extreme volatility and disruption due to persistent inflation, high interest rates, foreign currency impacts, declines in consumer confidence, and a challenging growth environment. In addition, we face uncertainty with respect to both the quantum and duration of tariffs the new U.S. Federal administration will levy on goods imported from Israel, China, Mexico, Europe, Canada and other international jurisdictions. These actions have prompted retaliatory tariffs and other measures by a number of countries. The U.S. Federal administration recently increased tariffs on goods imported from Israel to 15% (reduced from an initial increase of 17%) as of August 7, 2025. As the majority of our systems are sourced from Israel, our cost of goods will increase and we will experience modest margin erosion. All these factors point to potential recessionary impacts, and the severity and duration of these conditions on our business cannot be predicted. The bulk of the first half revenue decline was due to a significant tightening in credit markets in the U.S. and international markets due to higher interest rates and economic uncertainty impacting our customers' ability and/or desire to secure capital equipment financing. In addition, our international results were negatively affected by our international strategy to wind down underperforming countries as we continued to transition to third party distributors. To a lesser extent, the revenue declines were also impacted by supply disruptions caused by the Israel-Iran conflict impacting production at our contract manufacturer's facility in Israel. On a positive note, the Federal Reserve Board (Fed), the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Canada all recently reduced interest rates in an effort to reduce the degree of restrictiveness in monetary policy. We remain focused on adapting to the challenges presented by the current macro-economic environment, as well as the opportunities presented by an easing of monetary policy.

Israel -Hamas conflict. Following the October 7, 2023 attack by Hamas on Israeli citizens and the declaration of war that followed, we took steps to mitigate exposure to risks related to our Israeli operations, the risks of which are further described in Item 1A. Risk Factors in this Quarterly Report on Form 10-Q. These efforts included but were 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. Alongside the Company's continuity plan, we continue to maintain regular contact with our employees in Israel and previously 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. While the announcement of a ceasefire on October 10, 2025 is expected to reduce risks to our Israeli operations, Venus continues to evaluate risk mitigation steps moving forward.

Israel-Iran Conflict. On June 13, 2025, Israel launched a preemptive attack on Iran, to which Iran responded with ballistic missile and drone attacks. On June 23, 2025, Israel and Iran agreed to a ceasefire, although there is no assurance that the ceasefire will continue. How long and how severe the current conflict may become is unknown at this time, and any continued clash among Israel and Iran or other countries or militant groups in the region may escalate in the future into a greater regional conflict. The Company continues to monitor political and military developments closely and examine the consequences for its operations and assets.

Supply chain. We did experience some supply issues during the three and nine months ended September 30, 2025 primarily tracing to shipment delays and disruptions resulting from the Israe-Hamas and Israel-Iran conflicts impacting our contract manufacturer in Israel. We continue to actively work with our suppliers and third-party manufacturers to mitigate supply issues and build inventory of key component parts. We anticipate some supply challenges during the balance of 2025, 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. In addition, since the second quarter of 2021 we have experienced significant inflationary pressures throughout our supply chain, which may continue throughout the rest of 2025. We also face uncertainty with respect to the quantum and duration of tariffs the new U.S. Federal administration will levy on goods imported from China, Mexico, Europe, Canada and other international jurisdictions. These actions have prompted retaliatory tariffs and other measures by a number of countries. The U.S. Federal administration recently increased tariffs on goods imported from Israel to 15% (reduced from initial increase of 17%). As the majority of our systems are sourced from Israel, our cost of goods will increase and we will experience modest margin erosion. We continue to mitigate such pressures, where possible, through price increases and margin management.

Global economic conditions. General global economic downturns and macroeconomic trends, including heightened inflation, capital markets volatility, interest rate and currency rate fluctuations, protectionist trade policies and retaliatory measures, economic slowdowns, have resulted and may continue to result in unfavorable conditions and recessionary impacts that negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of operations. Both domestic and international markets experienced significant inflationary pressures in fiscal year 2024. While inflation rates in the U.S., as well as in other countries in which we operate, were showing signs of moderation, protectionist trade policies in 2025 are fueling inflation, affecting governments, consumers, corporations and small businesses alike. Our customers have also been affected by higher inflation and higher interest rates, impacting their ability to secure third party financing or causing many of them to delay capital purchases due to high interest rates. As noted above, the Federal Reserve in the U.S. and other central banks in various countries have commenced a cycle of interest rate reductions in response to concerns about stagnant growth, and protectionist trade policies.

Sales markets. We are a global business, having established a commercial presence in more than 60 countries during our history. While the continued post-pandemic recovery remains challenging due to the challenging global economic conditions noted above, 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 with the goal of reducing bad debt expenses. As of September 30, 2025, our allowance for expected credit losses stands at $2.1 million, which represents 7% of the gross outstanding accounts receivable as of that date. This represents a decrease of $1.7 million or 45% from our December 31, 2024 allowance for expected credit losses balance of $3.8 million.

Foreign Exchange fluctuations. We are primarily exposed to foreign exchange risk with respect to revenues generated outside of the United States denominated in New Israeli Shekels, Euros, Canadian dollars, Australian dollars, Hong Kong dollars, and Mexican pesos. 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. Financial market and currency volatility may limit our ability to cost-effectively hedge these exposures.

Basis of Presentation

Revenues

We generate revenue from (1) sales of systems through our internal financing programs, 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.

System Revenue

For the three and nine months ended September 30, 2025, approximately 27% and 30%, respectively, of our total system revenues were derived from our internal financing programs (Venus Prime and our legacy subscription model). For the three and nine months ended September 30, 2024, approximately 23% and 28% of our total system revenues were derived from our internal financing programs. Our internal financing program revenues are in line with our strategy to limit our internal financing program to a range of 25% to 30% of total system revenues. In so doing, we prioritize cash deals over internal financing program deals in order to improve cash generation and preserve liquidity. Our internal financing programs are 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. For accounting purposes, our internal financing programs are considered to be sales-type finance leases, where the present value of all cash flows to be received under the agreement is recognized as revenue upon shipment to the customer and achievement of the required revenue recognition criteria.

For the three and nine months ended September 30, 2025 approximately 62% and 62%, respectively, of our total system revenues were derived from traditional sales. For the three and nine months ended September 30, 2024, approximately 61% and 59%, respectively, of our total system revenues were derived from traditional sales. We continue to focus on traditional sales in line with our strategy to prioritize cash deals over internal lease program deals in order to improve cash generation and preserve liquidity.

Customers generally demand higher discounts in connection with traditional sales. 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.

We do not grant rights of return or early termination rights to our customers under either our traditional sales or internal lease programs. These traditional sales are generally made through our sales team in the countries in which the team operates.

For the three and nine months ended September 30, 2025, approximately 11% and 8%, respectively, of our total system revenues were derived from distributor sales. For the three and nine months ended September 30, 2024, approximately 16% and 13%, respectively, of our total system revenues were derived from distributor sales. The decline is attributable to uncertainty about economic stability, a significant tightening in international credit markets, and supply chain disruptions due to the Israel-Iran conflict. 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. 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.

Procedure Based Revenue

We generate revenue from the harvesting, site making, and implantation procedures performed with our ARTAS system. 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). 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. 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. 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.

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.

Service Revenue

We generate ancillary revenue from our existing customers by selling additional services including extended warranty service contracts.

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). 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. 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. 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.

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. 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.

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. Our ongoing research and development activities are primarily focused on improving and enhancing our current technologies, products, and services, and on expanding our current product offering with the introduction of new products and expanded indications.

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

Finance Expenses

Foreign Exchange (Gain) Loss

Foreign currency exchange 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.

Loss on Debt Extinguishment

Loss on Debt Extinguishment is due to three exchanges: a) the March 2025 exchange of $28.0 million in aggregate principal and interest amount outstanding under the New Notes for $17.0 million in aggregate principal of the New Secured Notes and 379,311 shares of its Series Y Preferred Stock. As a result of the March 2025 extinguishment, the Company recognized a $1.0 million non-cash loss; b) the June 2025 exchange of $17.0 million in aggregate principal and interest amount outstanding under the New Secured Notes for $11.1 million in aggregate principal of the New Madryn Note and 325,651 shares of its Series Y Preferred Stock. As a result of the June 2025 extinguishment, the Company recognized a $1.9 million non-cash loss; and c) the September 2025 exchange of $11.5 million in aggregate principal and interest amount outstanding in convertible notes of the Company, for 545,335 shares of its Series Y Preferred Stock. As a result of the September 2025 extinguishment, the Company recognized an $11.3 million non-cash loss.

Income Tax Expense

We estimate our current and deferred tax liabilities based on current tax laws in the statutory jurisdictions in which we operate. These estimates include judgments about liabilities resulting from temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. In certain jurisdictions, only the payments invoiced in the current period are subject to tax, but for accounting purposes, the discounted value of the total subscription contract is reported and tax affected. This results in a deferred tax credit which is settled in the future period when the monthly installment payment is issued and settled with the customer. Since our inception, we have not recorded any tax benefits for the net operating losses we have incurred in each year or for the research and development tax credits we generated in the United States. We believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. Income tax expense is recognized based on the actual taxable income or loss incurred during the three and nine months ended September 30, 2025.

Non-Controlling Interests

We have minority shareholders in one jurisdiction in which we have direct operations. 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 (deficit).

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 periods indicated:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2025				2024				2025				2024
Consolidated Statements of Loss:		(dollars in thousands)								(dollars in thousands)
Revenues:
Leases		$	2,935			$	2,684			$	10,265			$	10,732
Products and services			10,841				12,323				32,846				38,336
Total revenue			13,776				15,007				43,111				49,068
Cost of goods sold:
Leases			906				651				3,019				2,538
Products and services			4,053				4,435				13,089				13,113
			4,959				5,086				16,108				15,651
Gross profit			8,817				9,921				27,003				33,417
Operating expenses:
Selling and marketing			7,386				6,654				22,063				21,076
General and administrative			9,647				8,732				28,815				27,640
Research and development			1,280				1,692				4,190				5,214
Total operating expenses			18,313				17,078				55,068				53,930
Loss from operations			(9,496	)			(7,157	)			(28,065	)			(20,513	)
Other expenses:
Foreign exchange (gain) loss			(35	)			57				(699	)			1,155
Finance expenses			1,016				1,665				3,753				5,785
Loss on disposal of subsidiaries			244				-				244				-
Loss on debt extinguishment			11,297				454				14,211				11,355
Loss before income taxes			(22,018	)			(9,333	)			(45,574	)			(38,808	)
Income tax (benefit) expense			531				(31	)			1,083				147
Net loss		$	(22,549	)		$	(9,302	)		$	(46,657	)		$	(38,955	)
Net loss attributable to stockholders of the Company			(22,565	)			(9,286	)			(46,649	)			(39,031	)
Net (loss) income attributable to non-controlling interest			16				(16	)			(8	)			76
As a % of revenue:
Revenues			100	%			100	%			100	%			100	%
Cost of goods sold			36.0				33.9				37.4				31.9
Gross profit			64.0				66.1				62.6				68.1
Operating expenses:
Selling and marketing			53.6				44.3				51.2				43.0
General and administrative			70.0				58.2				66.8				56.3
Research and development			9.3				11.3				9.7				10.6
Total operating expenses			132.9				113.8				127.7				109.9
Loss from operations			(68.9	)			(47.7	)			(65.1	)			(41.8	)
Foreign exchange (gain) loss			(0.3	)			0.4				(1.6	)			2.4
Finance expenses			7.4				11.1				8.7				11.8
Loss on debt extinguishment			82.0				3.0				33.0				23.1
Loss before income taxes			(159.8	)			(62.2	)			(105.7	)			(79.1	)

The following tables set forth our revenue by region and by product type for the periods indicated:

		Three Months Ended September 30,								Nine Months Ended September 30,
Revenues by region:		2025				2024				2025				2024
United States		$	7,489			$	8,548			$	25,623			$	27,902
International			6,287				6,459				17,488				21,166
Total revenue		$	13,776			$	15,007			$	43,111			$	49,068

		Three Months Ended September 30,								Nine Months Ended September 30,
		2025				2024				2025				2024
		(dollars in thousands)								(dollars in thousands)
Revenues by product:
Venus Prime / Subscription-Systems		$	2,936			$	2,684			$	10,265			$	10,732
Products-Systems			7,861				8,898				23,704				28,020
Products-Other (1)			2,332				2,741				7,196				7,945
Services (2)			647				684				1,946				2,371
Total revenue		$	13,776			$	15,007			$	43,111			$	49,068

(1)	Products-Other include ARTAS procedure kits, Viva tips, Glide and other consumables.
(2)	Services include extended warranty sales.

Comparison of the three months ended September 30, 2025 and 2024

Revenues

		Three Months Ended September 30,
		2025								2024								Change
(in thousands, except percentages)		$				% of Total				$				% of Total				$				%
Revenues:
Venus Prime / Subscription-Systems		$	2,936			21.3				$	2,684				17.9			$	252				9.4
Products-Systems			7,861			57.1					8,898				59.3				(1,037	)			(11.7	)
Products-Other			2,332			16.9					2,741				18.3				(409	)			(14.9	)
Services			647			4.7					684				4.5				(37	)			(5.4	)
Total		$	13,776			100.0				$	15,007				100.0			$	(1,231	)			(8.2	)

Total revenue decreased by $1.2 million, or 8.2%, to $13.8 million for the three months ended September 30, 2025 from $15.0 million for the three months ended September 30, 2024. The decrease in revenue is primarily attributed to lower revenue in the Venus Hair business and a decrease in revenue in our international markets compared to the prior year period. The effects of customer uncertainty and tighter third-party lending practices had a greater impact on our Hair business. Our international business was marginally impacted by the exiting of unprofitable direct markets.

We sold an aggregate of 198 systems in the three months ended September 30, 2025 compared to 253 systems in the three months ended September 30, 2024. The percentage of systems revenue derived from our internal lease programs was approximately 27% and 23% during the three months ended September 30, 2025 and 2024, respectively. While this represents an uptick in internal lease program revenues, we remain committed to our strategy to prioritize cash deals over internal financing program deals in order to improve cash generation and preserve liquidity. Specific to the U.S. market, systems revenue derived from our internal lease programs was approximately 18% and 24% during the three months ended September 30, 2025 and 2024, respectively. The Company remains steadfast in ensuring that its in-house financing program accepts only qualified customers with the goal to reduce future credit losses, often at the expense of topline revenue.

Other product revenue was $2.3 million in the three months ended September 30, 2025 a 14.9% decrease compared to product revenue of $2.7 million in the three months ended September 30, 2024.

Services revenue was $0.6 million in the three months ended September 30, 2025, compared to $0.7 million in the three months ended September 30, 2024. The decrease is primarily due to the overall decline in device sales.

Cost of Goods Sold and Gross Profit

Cost of goods sold decreased by $0.1 million, or 2.5%, to $5.0 million in the three months ended September 30, 2025, compared to $5.1 million in the three months ended September 30, 2024. Gross profit decreased by $1.1 million, or 11.1%, to $8.8 million in the three months ended September 30, 2025, compared to $9.9 million in the three months ended September 30, 2024. The decrease in gross profit is primarily attributed to lower revenue in the Venus Hair business and a decrease in revenue in our international markets compared to the prior year. To a lesser extent, gross profit declines were also impacted by the effects of customer uncertainty about the economic environment, and tighter third-party lending practices which negatively impacted capital equipment sales. Gross margin was 64.0% of revenue in the three months ended September 30, 2025, compared to 66.1% of revenue in the three months ended September 30, 2024. The decrease in gross margin is primarily attributable to the impact of U.S. tariffs on our devices imported into the U.S. market, and to a lesser extent higher device system costs of goods sold tracing to manufacturing overheads spread over a lower volume base.

Operating expenses

		Three Months Ended September 30,
		2025								2024								Change
(in thousands, except percentages)		$				% of Revenues				$				% of Revenues				$				%
Operating expenses:
Selling and marketing		$	7,386				53.6			$	6,654				44.3			$	732				11.0
General and administrative			9,647			70.0					8,732				58.2				915				10.5
Research and development			1,280			9.3					1,692				11.3				(412	)			(24.3	)
Total operating expenses		$	18,313			132.9				$	17,078				113.8			$	1,235				7.2

Selling and Marketing

Selling and marketing expenses increased by $0.7 million or 11.0% in the three months ended September 30, 2025 compared to the three months ended September 30, 2024. This increase is largely due to higher sales commissions and increased sales and marketing activities in the U.S. market, designed to counter increased competitor activity. These expenses were also impacted by higher inflationary pressures associated with salaries and other cost elements. As a percentage of total revenues, our selling and marketing expenses increased by 9.3%, from 44.3% in the three months ended September 30, 2024 to 53.6% in the three months ended September 30, 2025. 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.

General and Administrative

General and administrative expenses increased by $0.9 million or 10.5% in the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to inflationary pressures associated with salaries and other cost elements, partially offset by savings from exiting certain unprofitable direct markets. As a percentage of total revenues, our general and administrative expenses increased by 11.8%, from 58.2% in the three months ended September 30, 2024, to 70.0% in the three months ended September 30, 2025, primarily due to the decrease in year over year total revenues.

Research and Development

Research and development expenses decreased by $0.4 million or 24.3% in the three months ended September 30, 2025 compared to the three months ended September 30, 2024. We experienced cost savings through the consolidation of activities between our Israel and United States sites, partially offset by investment in research and development efforts directed at new product initiatives. As a percentage of total revenues, our research and development expenses decreased by 2.0%, from 11.3% in the three months ended September 30, 2024, to 9.3% in the three months ended September 30, 2025.

Foreign Exchange (Gain) Loss

We had $0.04 million of foreign exchange gain in the three months ended September 30, 2025 compared to a foreign exchange loss of $0.06 million in the three months ended September 30, 2024, for a favorable variance of $0.1 million year over year. Changes in foreign exchange are driven mainly by the effect of foreign exchange on accounts receivable balances denominated in currencies other than the U.S. dollar. We do not currently hedge against foreign currency risk.

Finance Expenses

Finance expenses decreased by $0.7 million or 38.9%, from $1.7 million in the three months ended September 30, 2024, compared to $1.0 million for the three months ended September 30, 2025, primarily due to lower debt levels year over year.

Income Tax Expense

We had an income tax expense of $0.5 million in the three months ended September 30, 2025 compared to a $0.03 million income tax benefit in the three months ended September 30, 2024. The tax provision is driven by profitable sales and the actual effective tax rates where the sale took place or losses were incurred. In 2025, we had changes in timing of deductible expenses, tax accrual reversals and recognized tax losses in specific judications, which resulted in $0.5 million of income tax expense.

Comparison of the nine months ended September 30, 2025 and 2024

Revenues

		Nine Months Ended September 30,
		2025								2024								Change
(in thousands, except percentages)		$				% of Total				$				% of Total				$				%
Revenues:
Venus Prime / Subscription-Systems		$	10,265				23.8			$	10,732				21.9			$	(467	)			(4.4	)
Products-Systems			23,704				55.0				28,020				57.1				(4,316	)			(15.4	)
Products-Other			7,196				16.7				7,945				16.2				(749	)			(9.4	)
Services			1,946				4.5				2,371				4.8				(425	)			(17.9	)
Total		$	43,111				100.0			$	49,068				100.0			$	(5,957	)			(12.1	)

Total revenue decreased by $6.0 million, or 12.1%, to $43.1 million for the nine months ended September 30, 2025 from $49.1 million for the nine months ended September 30, 2024. The decrease in revenue is primarily attributed to the effects of customer uncertainty about economic stability, tighter third-party lending practices which negatively impacted capital equipment sales and the exiting of unprofitable direct markets. The difficult lending environment particularly impacted revenues on our Venus Hair business. To a lesser extent, the revenue declines were also impacted by supply disruptions caused by the Israel-Iran conflict impacting production at our contract manufacturer's facility in Israel. This revenue decline is the primary reason driving cash used in operations $9.4 million higher than the same period in 2024.

We sold an aggregate of 630 systems in the nine months ended September 30, 2025 compared to 789 systems in the nine months ended September 30, 2024. The percentage of systems revenue derived from our internal lease programs was approximately 30% and 28% during the nine months ended September 30, 2025 and 2024, respectively. The continuing low percentage is in line with our strategy to prioritize cash deals over internal financing program deals in order to improve cash generation and preserve liquidity. Specific to the U.S. market, systems revenue derived from our internal lease programs was approximately 26% and 30% during the nine months ended September 30, 2025 and 2024, respectively. The Company remains steadfast in ensuring that its in-house financing program accepts only qualified customers with the goal to reduce future credit losses, often at the expense of topline revenue.

Other product revenue was $7.2 million in the nine months ended September 30, 2025 a 9.4% decrease compared to product revenue of $7.9 million in the ninemonths ended September 30, 2024.

Services revenue was $1.9 million in the nine months ended September 30, 2025, compared to $2.4 million in the nine months ended September 30, 2024. The decrease is primarily due to the overall decline in device sales.

Cost of Goods Sold and Gross Profit

Cost of goods sold increased by $0.4 million, or 2.9%, to $16.1 million in the nine months ended September 30, 2025, compared to $15.7 million in the nine months ended September 30, 2024. Gross profit decreased by $6.4 million, or 19.2%, to $27.0 million in the nine months ended September 30, 2025, compared to $33.4 million in the nine months ended September 30, 2024. The decrease in gross profit is primarily attributed to the effects of customer uncertainty about economic stability, tighter third party lending practices which negatively impacted capital equipment sales, and a decrease in revenue in our international markets driven by the exit from unprofitable direct markets. To a lesser extent, gross profit declines were also impacted by supply disruptions caused by the Israel-Iran conflict impacting production at our contract manufacturer's facility in Israel. Gross margin was 62.6% of revenue in the nine months ended September 30, 2025, compared to 68.1% of revenue in the nine months ended September 30, 2024. The decrease in gross margin is primarily attributable to the supply disruptions noted above resulting in adverse sales mix due to shortages of higher margin devices, the impact of U.S. tariffs on our devices imported into the U.S. market, and higher device system costs of goods sold tracing to manufacturing overheads spread over a lower volume base.

Operating expenses

		Nine Months Ended September 30,
		2025								2024								Change
(in thousands, except percentages)		$				% of Revenues				$				% of Revenues				$				%
Operating expenses:
Selling and marketing		$	22,063				51.2			$	21,076				43.0			$	987				4.7
General and administrative			28,815				66.8				27,640				56.3				1,175				4.3
Research and development			4,190				9.7				5,214				10.6				(1,024	)			(19.6	)
Total operating expenses		$	55,068				127.7			$	53,930				109.9			$	1,138				2.1

Selling and Marketing

Selling and marketing expenses increased by $1.0 million or 4.7% in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. This increase is largely due to higher sales commissions and increased sales and marketing activities in the U.S market, designed to counter increased competitor activity. These expenses were also impacted by higher inflationary pressures associated with salaries and other cost elements. As a percentage of total revenues, our selling and marketing expenses increased by 8.2%, from 43.0% in the nine months ended September 30, 2024 to 51.2% in the nine months ended September 30, 2025. 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.

General and Administrative

General and administrative expenses increased by $1.2 million or 4.3% in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to higher bad debt expense and inflationary pressures associated with salaries and other cost elements, partially offset by savings from exiting certain unprofitable direct markets, lower restructuring costs and proceeds received from previously filed ERC claims. As a percentage of total revenues, our general and administrative expenses increased by 10.5%, from 56.3% in the nine months ended September 30, 2024, to 66.8% in the nine months ended September 30, 2025, primarily due to the decrease in year over year total revenues.

Research and Development

Research and development expenses decreased by $1.0 million or 19.6% in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. We experienced cost savings through the consolidation of activities between our Israel and United States sites, partially offset by investment in research and development efforts directed at new product initiatives. As a percentage of total revenues, our research and development expenses decreased by 0.9%, from 10.6% in the nine months ended September 30, 2024, to 9.7% in the nine months ended September 30, 2025.

Foreign Exchange (Gain) Loss

We had $0.7 million of foreign exchange gain in the nine months ended September 30, 2025 compared to a foreign exchange loss of $1.2 million in the nine months ended September 30, 2024, a favorable variance of $1.9 million year over year. Changes in foreign exchange are driven mainly by the effect of foreign exchange on accounts receivable balances denominated in currencies other than the U.S. dollar. We do not currently hedge against foreign currency risk.

Finance Expenses

Finance expenses decreased by $2.0 million or 35.1%, from $5.8 million in the nine months ended September 30, 2024, compared to $3.8 million for the nine months ended September 30, 2025, primarily due to significantly lower debt levels year over year.

Income Tax Expense

We had an income tax expense of $1.1 million in the nine months ended September 30, 2025 compared to a $0.1 million income tax expense in the nine months ended September 30, 2024. The tax provision is driven by profitable sales and the actual effective tax rates where the sale took place or losses were incurred. In 2025, we had changes in timing of deductible expenses, tax accrual reversals and recognized tax losses in specific judications, which resulted in $1.1 million of income tax expense.

Liquidity and Capital Resources

We had $5.9 million and $4.3 million of cash, cash equivalents, and restricted cash as of September 30, 2025, and December 31, 2024, respectively. We have funded our operations with cash generated from operating activities, through the sale of equity securities and through debt financing. We had total debt obligations of approximately $30.1 million as of September 30, 2025, including the MSLP Loan of $2.9 million, convertible notes of $2.1 million, and a note payable (bridge financing) of $25.1 million compared to total debt obligations of approximately $39.7 million as of December 31, 2024. Cash used in operating activities during the nine months ended September 30, 2025 was $16.6 million, representing a $9.4 million increase compared to the nine months ended September 30, 2024. Working capital is primarily impacted by the ratio of our internal lease program sales (Venus Prime sales and legacy subscription-based sales) to traditional cash sales. Our shift to prioritize traditional cash sales over internal lease program sales is designed to improve liquidity and reduce working capital requirements over time. Our expanding product portfolio may require higher inventory levels to meet demand and to accommodate the increased number of technology platforms offered. We had a split of lease program revenue to traditional sales revenue at a ratio of approximately 30:70 in the nine months ended September 30, 2025, compared to 32:68 in the nine months ended September 30, 2024. We expect the ratio of lease program sales to traditional sales for the balance of 2025 and beyond to approximate a 30:70 split. We expect inventory to remain relatively flat in the short term but increase at a lower rate than the rate of revenue growth over the longer term.

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

Issuance of Secured Subordinated Convertible Notes

Contemporaneously with the MSLP Loan Agreement, on December 9, 2020, we issued $26.7 million aggregate principal amount of the Notes to the Madryn Noteholders pursuant to the terms of the Exchange Agreement. The Notes accrued interest at a rate of 8.0% per annum from the date of original issuance of the Notes to the third anniversary date of the original issuance and thereafter interest accrued at a rate of 6.0% per annum. In connection with the Exchange Agreement, we also entered into (i) the Madryn Loan and Security Agreement, pursuant to which we agreed to grant Madryn a security interest, in substantially all of our assets, to secure the obligations under the Notes and (ii) the CNB Subordination Agreement. The Notes were convertible at any time into shares of our common stock at an initial conversion price of $536.25 per share, subject to adjustment. For additional information regarding the Notes, Exchange Agreement, Madryn Loan and Security Agreement and CNB Subordination Agreement, see Note 11 "Madryn Long-Term Debt and Convertible Notes" to our consolidated financial statements included elsewhere in this report.

On October 4, 2023, the Company entered into the 2023 Exchange Agreement with the Madryn Noteholders, pursuant to which the Madryn Noteholders agreed to exchange $26.7 million in aggregate principal amount outstanding under the Notes for (i) $22.8 million in the New Notes, and (ii) 248,755 shares of Series X Convertible Preferred Stock. The New Notes accrued interest, payable in kind on a quarterly basis, at an annual rate of 90-day Adjusted SOFR + 8.5% and are convertible at any time into shares of our common stock at an initial conversion price of $264 per share, subject to adjustment. On March 31, 2025, the Company entered into the 2025 Exchange Agreement, pursuant to which the Madryn Noteholders agreed to exchange $28.0 million in aggregate principal amount outstanding under the New Notes for (i)$17.0 million in New Secured Notes and (ii) 379,311 shares of Series Y Preferred Stock. The New Secured Notes follow the same terms as the previous New Notes. On June 30, 2025, the Company entered into the June 2025 Exchange Agreement, pursuant to which the Madryn Noteholders agreed to exchange $17.0 million in aggregate principal amount of outstanding secured convertible notes of the Company for: (a) a new promissory note to be issued by the Company to Madryn, in the original principal amount of $11.1 million, and (b) 325,651 shares of Series Y Preferred Stock. The New Madryn Notes follow the same terms as the previous New Secured Notes.

On September 30, 2025, the Company entered into the September 2025 Exchange Agreement, pursuant to which The Madryn Noteholders agreed to exchange the remaining $11,479 in aggregate principal and interest amount of outstanding secured convertible notes of the Company for 545,335 shares of Series Y Preferred Stock. Following the September 2025 Exchange Agreement there was no principal or interest outstanding on the New Secured Notes.

Main Street Priority Lending Program Term Loan

On December 8, 2020, we executed the MSLP Loan Agreement, MSLP Note, and related documents for a loan in the aggregate amount of $50.0 million for which CNB will serve as a lender pursuant to the Main Street Priority Loan Facility as established by the Board of Governors of the Federal Reserve System Section 13(3) of the Federal Reserve Act. On October 4, 2023, the Company, Venus USA, Venus Canada, and Venus Ltd. entered into the MSLP Loan Modification, which modified certain terms of the MSLP Loan Agreement. On April 23, 2024, the MSLP Loan was purchased by Madryn for an undisclosed amount from CNB with the consent of the Company. On May 24, 2024, the Lenders agreed to exchange $52.1 million in aggregate principal amount outstanding for $17.1 million in aggregate principal amount of new secured notes and 576,986 shares of newly-created Series Y Preferred Stock. On September 26, 2024, the Lenders agreed to another exchange of $17.7 million in aggregate principal amount outstanding for $2.7 million in aggregate principal of remaining secured notes and 203,583 shares of Series Y Preferred Stock. From June 21, 2024 through September 26, 2024, the Company entered into multiple Amendment and Consent Agreements with Madryn to, among other things, modify interest payments to be payable-in-kind, grant relief from the Minimum Deposit Relationship obligations and minimum liquidity requirements, and delete the net loss covenant. See Note 11 "Madryn Debt and Convertible Notes" to our condensed consolidated financial statements included elsewhere in this report.

EW Convertible Note

On January 18, 2024, the Company, Venus USA, Venus Canada and Venus Ltd. entered into the Note Purchase Agreement with the EW Investors. Pursuant to the Note Purchase Agreement, the Company issued and sold to the EW Investors $2.0 million aggregate principal value of the 2024 Notes. The 2024 Notes accrue interest at a rate equal to the 90-day adjusted term Secured Overnight Financing Rate (SOFR) plus 8.50% per annum; provided, however, that if there is an Event of Default (as defined below), the then-applicable interest rate will increase by 4.00% per annum. In connection with the Note Purchase Agreement, the Company entered into the EW Security Agreement pursuant to which, the Company granted to the EW Investors a security interest in substantially all of their assets to secure the obligations under the 2024 Notes. The 2024 Notes were convertible at any time into shares of our common stock at an initial conversion price of $13.761 per share, subject to adjustment.

For additional information regarding the 2024 Notes, Note Purchase Agreement, and EW Security Agreement, see Note 12 "EW Convertible Notes" to our condensed consolidated financial statements included elsewhere in this report.

Madryn Loan and Security Agreement

On April 23, 2024, the Company entered into the Loan and Security Agreement, by and among the Bridge Borrower, the 2024 Guarantors, the 2024 Lenders and Madryn Health Partners, LP, as administrative agent. Pursuant to the Loan and Security Agreement, the 2024 Lenders have agreed to provide the Bridge Borrower with Bridge Financing in the form of a term loan in the original principal amount of $2.2 million and one or more delayed draw term loans of up to an additional principal amount of $26.0 million. The transaction is discussed in Note 11 "Madryn Debt and Convertible Notes" in the notes to our condensed consolidated financial statements included elsewhere in this report.

Equity Purchase Agreement with Lincoln Park

On June 16, 2020, we entered into the Equity Purchase Agreement with Lincoln Park, which provided that, upon the terms and subject to the conditions and limitations set forth therein, we may sell to Lincoln Park up to $31.0 million of shares of our common stock pursuant to our shelf registration statement. The purchase price of shares of common stock related to a future sale will be based on the then prevailing market prices of such shares at the time of sales as described in the Equity Purchase Agreement. The aggregate number of shares that we could sell to Lincoln Park under the Equity Purchase Agreement may in no case exceed the Exchange Cap, unless (i) stockholder approval was obtained to issue shares above the Exchange Cap, in which case the Exchange Cap would no longer apply, or (ii) the average price of all applicable sales of common stock to Lincoln Park under the Equity Purchase Agreement equaled or exceeded $59.6325 per share (subject to adjustment) (which represents the minimum price, as defined under Nasdaq Listing Rule 5635(d), on the Nasdaq Global Market immediately preceding the signing of the Equity Purchase Agreement, such that the transactions contemplated by the Equity Purchase Agreement are exempt from the Exchange Cap limitation under applicable Nasdaq Listing Rules). Also, at no time could Lincoln Park (together with its affiliates) beneficially own more than 9.99% of our issued and outstanding common stock. Concurrently with entering into the Equity Purchase Agreement, we also entered into a Registration Rights Agreement with Lincoln Park. The Equity Purchase Agreement expired on July 1, 2022.

On July 12, 2022, we entered into the 2022 LPC Purchase Agreement with Lincoln Park, and we issued and sold to Lincoln Park 0.004 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. Through December 31, 2023 we issued an additional 70.6 thousand shares of common stock to Lincoln Park at an average price of $43.67 per share. During the twelve months ended December 31, 2024, the Company issued an additional 758 shares of common stock to Lincoln Park at an average price of $12.76 per share, for a total value of $10. For additional information regarding the 2022 LPC Purchase Agreement, see Note 14 "Stockholders' Equity" to our condensed consolidated financial statements included elsewhere in this report.

The 2022 Private Placement

On November 18, 2022, we consummated the 2022 Private Placement whereby we entered into a securities purchase agreement pursuant to which we issued and sold to the 2022 Investors an aggregate of 10,608 shares of our common stock and 3,185,000 shares of our Voting Preferred Stock. The gross proceeds from the securities sold in the 2022 Private Placement totaled $6.7 million before offering expenses. The costs incurred with respect to the 2022 Private Placement totaled $0.2 million and were recorded as a reduction of the 2022 Private Placement proceeds in the consolidated statements of stockholders' equity (deficit). 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.

The 2023 Multi-Tranche Private Placement

In May 2023, we entered into the 2023 Multi-Tranche Private Placement Stock Purchase Agreement, with the 2023 Investors pursuant to which the Company may issue and sell to the 2023 Investors up to $9.0 million in shares of Senior Preferred Stock, in multiple tranches from time to time until December 31, 2025, subject to a minimum aggregate purchase amount of $0.5 million in each tranche. The Initial Placement occurred on May 15, 2023, under which the Company sold the 2023 Investors 280,899 shares of Senior Preferred Stock for an aggregate purchase price of $2.0 million.

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.

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.

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. 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 transactions are discussed in Note 14 "Stockholders' Equity" in the notes to our condensed consolidated financial statements included elsewhere in this report.

Registered Direct Offerings

On February 22, 2024, the Company, entered into the SPA with the 2024 Investors, pursuant to which the Company agreed to issue and sell to the 2024 Investors (i) in a registered direct offering, an aggregate of 74,342 shares of the Company's common stock, at a price of $16.115 per share and (ii) in a concurrent private placement, warrants to acquire up to an aggregate of 74,342 shares of common stock, at an initial exercise price of $14.74 per share. HCW acted as the Company's placement agent in connection with Offering. The Company paid HCW consideration consisting of (i) a cash fee equal to 7.0% of the aggregate gross proceeds in the Offering, (ii) a management fee equal to 1.0% of the aggregate gross proceeds in the Offering, (iii) reimbursement of certain expenses and (iv) the February 22 Placement Agent Warrants. The February 22 Placement Agent Warrants are substantially similar to the 2024 Investor Warrants, except that the initial exercise price of February 22 Placement Agent Warrants is $20.1438 per share.

On April 9, 2025, the Company entered into the April 9 SPA with April 9 Investors, pursuant to which the Company agreed to issue and sell to the April 9 Investors in a registered direct offering an aggregate of 328,573 shares of the Company's common stock, at a price of $3.50 per share.

On April 11, 2025, the Company entered into the April 11 SPA with the April 11 Investors, pursuant to which the Company agreed to issue and sell to the April 11 Investors in a registered direct offering an aggregate of 386,700 shares of the Company's common stock at a price of $4.06 per share.

HCW acted as the Company's placement agent in connection with the April 9 Offering and the April 11 Offering. For each offering, the Company paid HCW consideration consisting of (i) a cash fee equal to 7.0% of the gross proceeds in the respective offering, (ii) a management fee equal to 1.0% of the aggregate gross proceeds in the respective offering, (iii) reimbursement of certain expenses and (iv) Placement Agent Warrants to acquire up to an aggregate of (i) 23,000 shares of common stock in the April 9 Offering and (ii) 27,069 shares of common stock in the April 11 Offering. The Placement Agent Warrants have an initial exercise price of $4.375 per share for the April 9 Offering and $5.075 per share for the April 11 Offering, are immediately exercisable and expire five years from the issuance date, and in certain circumstances may be exercised on a cashless basis.

On June 6, 2025, the Company, entered into a SPA with certain institutional investors, pursuant to which the Company agreed to issue and sell to the June 6 Investors (i) in a registered direct offering, an aggregate of 434,720 shares of the Company's common stock, par value $0.0001 per share, at a price of $2.65 per share and (ii) in a concurrent private placement the 2025 Investor Warrant, at an initial exercise price of $2.65 per share. The 2025 Investor Warrants are exercisable upon issuance and will expire on the eighteen-month anniversary of the effective date of the Resale Registration Statement, and in certain circumstances may be exercised on a cashless basis. HCW acted as the Company's placement agent in connection with Offering. The Company paid HCW consideration consisting of (i) a cash fee equal to 7.0% of the aggregate gross proceeds in the June 6 Offering, (ii) a management fee equal to 1.0% of the aggregate gross proceeds in the June 6 Offering, (iii) reimbursement of certain expenses and (iv) the June 6 Placement Agent Warrants. The June 6 Placement Agent Warrants are substantially similar to the Investor Warrants except that the initial exercise price of the Placement Agent Warrants is $3.3125 per share.

The offerings transactions are discussed in Note 14 "Stockholders' Equity" in the notes to our condensed consolidated financial statements included elsewhere in this report.

Capital Resources

As of September 30, 2025, we had capital resources consisting of cash, cash equivalents, and restricted cash of $5.9 million. We have financed our operations principally through the issuance and sale of our common stock and preferred stock, debt financing, and payments from customers.

We believe that the net proceeds from the Madryn Loan and Security Agreement, the Registered Direct Offering, the 2024 Note, the 2023 Multi-Tranche Private Placement, the 2022 Private Placement, the proceeds from issuance of our common stock to Lincoln Park, the proceeds from the MSLP Loan, the Short-Term Bridge Financing by Madryn, our strategic cash flow enhancement initiatives, our initiatives to pursue strategic alternatives, together with our existing cash, cash equivalents, and restricted cash will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. We can provide no assurances that we will be successful in raising additional capital or that such capital, if available at all, will be on terms that are acceptable to us. If we are unable to raise sufficient additional capital, we may be compelled to reduce the scope of our operations and planned capital or research and development expenditures or sell certain assets, including intellectual property assets.

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

•

delay or curtail our efforts to develop system product enhancements or new products, including any clinical trials that may be required to market such enhancements;

•

delay or curtail our plans to increase and expand our sales and marketing efforts; or

•

delay or curtail our plans to enhance our customer support and marketing activities.

We are restricted by covenants in the MSLP Loan, EW Security Agreement, and the Madryn Loan and Security Agreement. These covenants restrict, among other things, our ability to incur additional indebtedness, which may limit our ability to obtain additional debt financing. In the event that the current macroeconomic headwinds continue to cause or present disruptions for an extended period of time, we cannot assure you that we will remain in compliance with the financial covenants contained in our credit facilities. We also cannot assure you that our lenders would provide relief or that we could secure alternative financing on favorable terms, if at all. Our failure to comply with the covenants contained in our credit facilities, including financial covenants, could result in an event of default, which could materially and adversely affect our results of operations and financial condition.

We have based our projections on the amount of time through which our financial resources will be adequate to support our operations on assumptions that may prove to be incorrect, and we may use all our available capital resources sooner than we expect. Our future funding requirements, including long-term funding requirements, will depend on many factors, including, but not limited to:

•

the cost of growing our ongoing commercialization and sales and marketing activities;

•

the costs of manufacturing and maintaining enough inventories of our systems to meet anticipated demand and inventory write-offs related to obsolete products or components;

•

the costs of enhancing the existing functionality and development of new functionalities for our systems;

•

the costs of preparing, filing, prosecuting, defending, and enforcing patent claims and other patent related costs, including litigation costs and the results of such litigation;

•

any product liability or other lawsuits and the costs associated with defending them or the results of such lawsuits;

•

the costs associated with conducting business and maintaining subsidiaries and other entities in foreign jurisdictions;

•

customers in jurisdictions where our systems are not approved delaying their purchase, and not purchasing our systems, until they are approved or cleared for use in their market;

•

the costs to attract and retain personnel with the skills required for effective operations; and

•

the costs associated with being a public company.

In order to grow our business and increase revenues, we will need to introduce and commercialize new products, grow our sales and marketing force, implement new software systems, as well as identify and penetrate new markets. Such endeavors have in the past increased, and may continue in the future, to increase our expenses, including sales and marketing, and research and development. We will have to continue to increase our revenues while effectively managing our expenses in order to achieve profitability and to sustain it. Our failure to control expenses could make it difficult to achieve profitability or to sustain profitability in the future. Moreover, we cannot be sure that our expenditures will result in the successful development and introduction of new products in a cost-effective and timely manner or that any such new products will achieve market acceptance and generate revenues for our business.

Cash flows

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

		Nine Months Ended September 30,
		2025				2024
		(in thousands)
Cash used in operating activities		$	(16,648	)		$	(7,259	)
Cash used in investing activities		(214		)			(43	)
Cash provided by financing activities		18,522					6,395
Net increase (decrease) in cash, cash equivalents, and restricted cash		$	1,660			$	(907	)

Cash Flows from Operating Activities

For the nine months ended September 30, 2025, cash used in operating activities consisted of a net loss of $46.6 million, partially offset by non-cash operating expenses of $26.5 million and a decrease in net operating assets of $3.5 million. The decreased use of cash in net operating assets was primarily attributable to an increase in accrued expenses and other current liabilities of $3.1 million, a decrease in operating right-of-use assets of $0.8 million, an increase in trade payables of $0.7 million and a decrease in inventory of $0.6 million. These were partially offset primarily by a decrease of $1.0 million in accounts receivable, and a decrease in long-term operating lease liabilities $0.6 million. The non-cash operating expenses primarily consisted of depreciation and amortization of $2.9 million, provision for expected credit losses of $2.6 million, a loss on extinguishment of debt of $14.2 million, provision for inventory obsolescence of $1.0 million, and finance expenses and accretion of $4.0 million.

For the nine months ended September 30, 2024, cash used in operating activities consisted of a net loss of $39.0 million, partially offset by decreases in net operating assets of $10.9 million and non-cash operating expenses of $20.8 million. The use of cash in net operating assets was attributable to a decrease in accrued expenses and other current liabilities of $1.6 million, a decrease in trade payables of $1.6 million, a decrease in unearned interest income of $0.8 million, and a decrease in long-term operating lease liabilities of $0.8 million. These were offset by a decrease in accounts receivable of $9.9 million, a decrease in inventories of $3.2 million, a decrease in advances to suppliers of $1.1 million, a decrease in other current assets of $0.7 million, and a decrease in operating right-of-use assets of $0.9 million. The non-cash operating expenses consisted of provision for expected credit losses of $0.9 million, a loss on extinguishment of debt of 11.4 million, depreciation and amortization of $2.9 million, stock-based compensation expense of $0.8 million, provision for inventory obsolescence of $1.0 million, and finance expenses and accretion of $4.2 million.

Cash Flows from Investing Activities

In the nine months ended September 30, 2025, cash used in investing activities consisted of $0.2 million for the purchase of property and equipment.

In the nine months ended September 30, 2024, cash used in investing activities consisted of $0.04 million for the purchase of property and equipment.

Cash Flows from Financing Activities

In the nine months ended September 30, 2025, cash provided by financing activities consisted of net proceeds from the 2025 Registered Direct Offering of shares and warrants of $3.3 million and net proceeds from the short-term bridge financing by Madryn $15.2 million.

In the nine months ended September 30, 2024, cash provided by financing activities primarily consisted of net proceeds from the 2024 Registered Direct Offering of shares and warrants of $1.0 million, net proceeds from the 2024 Convertible Notes issued to EW of $1.6 million, and proceeds from the short-term bridge financing by Madryn of $3.9 million.

Contractual Obligations and Other Commitments

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

As of September 30, 2025, we had non-cancellable purchase orders placed with our contract manufacturers in the amount of $12.1 million. In addition, as of September 30, 2025, we had no open purchase orders that can be cancelled with 270 days' notice.

The following table summarizes our contractual obligations as of September 30, 2025, which represent material expected or contractually committed future obligations.

		Payments Due by Period
		Less than 1 Year				2 to 3 Years				4 to 5 Years				More than 5 Years				Total
		(in thousands)
Debt obligations, including interest		$	25,512			$	5,885			$	-			$	-			$	31,397
Operating leases			1,250				1,018				198				132				2,598
Purchase commitments			12,116				-				-				-				12,116
Total contractual obligations		$	38,878			$	6,903			$	198			$	132			$	46,111

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

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

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

Our significant accounting policies are more fully described in Note 2 to the audited consolidated financial statements included in our Annual Report filed on Form 10-K for the year ended December 31, 2024. We believe that the assumptions and estimates associated with revenue recognition, long-term receivables, allowance for expected credit losses, warranty accrual, and stock-based compensation have the most significant impact on our consolidated financial statements, and therefore, we consider these to be our critical accounting policies and estimates.

Revenue Recognition

We generate revenue from (1) sales of systems through our internal lease programs, in accordance with ASC 842, "Leases" ("ASC 842"), traditional system sales to customers and distributors, (2) other product revenues from the sale of ARTAS procedure kits, marketing supplies and kits, consumables and (3) our extended warranty service contracts provided to existing customers.

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

We record our revenue net of sales tax.

Long-term receivables

Long-term receivables relate to our internal lease programs revenue or contracts which stipulate payment terms which exceed one year. They are comprised of the unpaid principal balance, net of the allowance for expected credit losses. These receivables have been discounted based on the implicit interest rate in the subscription lease which range between 8% and 10% for the nine months ended September 30, 2025 and 8% and 10% for the nine months ended September 30, 2024. Unearned interest revenue represents the interest only portion of the respective lease program payments and will be recognized in income over the respective payment term as it is earned.

Allowance for expected credit losses

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

Warranty accrual

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

Stock-Based Compensation

We account for stock-based compensation costs in accordance with the accounting standards for stock-based compensation, which require that all stock based payments to employees be recognized in the condensed consolidated statements of operations based on their fair values.

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

Financial statements in U.S. dollars

We believe that the U.S. dollar is the currency in the primary economic environment in which we operate. The U.S. dollar is the most significant currency in which our revenues are generated, and our costs are incurred. In addition, our debt and equity financings are generally based in U.S. dollars. Therefore, our functional currency, and that of our subsidiaries, is the U.S. dollar.

Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Non-dollar transactions and balances are re-measured into U.S. dollars in accordance with the principles set forth in ASC 830-10 "Foreign Currency Translation." All exchange gains and losses from re-measurement of monetary balance sheet items resulting from transactions in non-U.S. dollar currencies are recorded as foreign exchange (gain) loss in the condensed consolidated statement of operations as they arise.

Recent Accounting Pronouncements

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