If there is not sufficient demand for the procedures performed with our products, practitioner demand for our products could decline, resulting in unfavorable operating results.

Continued expansion of the global market for energy-based aesthetic procedures is a material assumption of our business strategy. Most procedures performed using our products are not reimbursable through government or private health insurance and are therefore elective procedures, the cost of which must be borne by the patient. The decision to utilize our products may therefore be influenced by a number of factors, including:

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consumer disposable income and access to consumer credit;

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the cost of procedures performed using our products;

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If, as a result of these factors, there is not sufficient demand for the procedures performed with our products, practitioner demand for our products could decline, which could have a material adverse effect on our results of operations.

The success and continued development of our products depends, in part, upon maintaining strong relationships with physicians and other healthcare professionals.

If we fail to maintain our working relationships with physicians and other ancillary healthcare professionals, our products may not be developed and marketed in line with the needs and expectations of the professionals who use and support our products. If we are unable to maintain these strong relationships, or form new relationships with physicians and other healthcare professionals beyond our traditional customer base, the development and marketing of our products could suffer, which could have a material adverse effect on our business, financial condition and results of operations.

We rely heavily on our sales professionals to market and sell our products worldwide. If we are unable to hire, effectively train, manage, improve the productivity of, and retain our sales professionals, our business will be harmed, which would impair our future revenue and profitability.

Our success largely depends on our ability to hire, train, manage and improve the productivity levels of our sales professionals worldwide. We train our existing and recently recruited sales professionals to better understand our existing and new product technologies and how they can be positioned against our competitors’ products and increase the revenue of our customers. It may take time for the sales professionals to become productive and there can be no assurance that recently recruited sales professionals will be adequately trained in a timely manner, or that our direct sales productivity will improve, or that we will not experience significant levels of attrition in the future.

Due to the complex nature of some of our products, we could be subject to product liability claims, including adverse outcomes resulting from treatments.

Our systems are inherently complex in design and require ongoing scheduled maintenance. Our products may malfunction when used by our customers. Furthermore, our products are sold in jurisdictions that vary as to the specific qualifications or training required for purchasers or operators of the products. There is a risk that our products may be purchased or operated by physicians with varying levels of training, and in some cases, by practitioners such as nurses, chiropractors and technicians who may not be adequately trained. The purchase and use of our products by non-physicians, or persons who lack adequate training, may result in the misuse of our products, which could give rise to adverse treatment outcomes. If we are unable to prevent product malfunctions or misuse, or if we fail to do so in a timely manner, we could

Such potential adverse effects may cause a significant increase in the premiums under our insurance policies. Further, the coverage limits of our product liability insurance policies may not be adequate to cover future claims. A successful claim brought against us in excess of, or outside of, our insurance coverage could have a material adverse effect on our business, financial condition and results of operations. Even if unsuccessful, such a claim could nevertheless have an adverse impact on us, due to damage to our reputation and diversion of management resources.

Due to our limited history of operations, we may not be able to continue our revenue growth and profitability.

We were incorporated in 2008 and launched our first product in 2010. Consequently, we have a somewhat limited history of operations. The future success of our business will depend, among other things, on our ability to increase product sales, successfully introduce new products, expand our sales force and distribution network and control costs, which we may be unable to do. As a result, we may not be able to continue to experience revenue growth and profitability.

We may have difficulty managing our growth which could limit our ability to increase sales and cash flow.

We have experienced significant growth in our operations and the number of our employees has significantly increased since inception. This growth has placed significant demands on our management, as well as our financial and operational resources. In order to achieve our business objectives, we will need to continue to grow our business. Continued growth would increase the challenges involved in:

If our growth continues, it will require that we continue to develop and improve our operational, financial and other internal controls. If we cannot scale and manage our business appropriately, we will not realize our projected growth and our financial results will suffer.

The failure to attract and retain key personnel could adversely affect our business.

Our success also will depend in large part on our ability to continue to attract, retain and motivate qualified and highly skilled personnel. Competition for highly skilled employees is intense. We may be unable to continue to attract and retain sufficient numbers of highly skilled employees. Our inability to attract and retain additional key employees or the loss of one or more of our current key employees could adversely affect our business, financial condition and results of operations.

Our financial results may fluctuate from quarter to quarter.

We base our production, inventory and operating expenditure levels on anticipated orders. If orders are not received when expected in any given quarter, expenditure levels could be disproportionately high in relation to sales for that quarter. A number of additional factors, over which we have limited control, may contribute to fluctuations in our financial results, including:

changes in our ability to obtain and maintain regulatory approvals and maintain compliance with applicable regulatory requirements;

positive or negative coverage in the media or clinical publications of our products or products of our competitors or industry;

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increases in the length of our sales cycle;

performance of our independent distributors; and

delays in, or failure of, product and component deliveries by our subcontractors and suppliers.

Competition among providers of energy-based devices for the medical aesthetics market is characterized by rapid innovation. If we do not continue to develop and commercialize new products and identify new markets for our products and technologies and expand beyond our traditional customer base, we may not remain competitive, and our revenues and operating results could suffer.

The industry in which we operate is subject to continuous technological development and product innovation. If we do not continue to be innovative in the development of new products and applications, our competitive position will likely deteriorate as other companies successfully design and commercialize new products and applications. While we attempt to protect our products through patents and other intellectual property, there are few barriers to entry that would prevent new entrants or existing competitors from developing products that compete directly with ours. We expect that any competitive advantage we may enjoy from our current and future innovations may diminish over time, as companies successfully respond to our, or create their own, innovations. Accordingly, our success depends in part on developing new and innovative applications of laser and other energy-based technology and identifying new markets for and applications of existing products to new customers and technology. Our future growth also depends, in part, on our ability to expand beyond our traditional customer base to ENTs, ophthalmologists, general practitioners and aesthetic clinicians. If we are unable to develop and commercialize new products and identify and penetrate new markets for our products and technology, our products and technology could become obsolete and our revenues and operating results could be adversely affected.

Our long-term growth depends on our ability to enhance our products, expand our indications and develop and commercialize additional products.

It is important to our business that we continue to enhance our products and develop and introduce new products. Developing products is expensive and time-consuming and could divert management’s attention away from our core business. The success of any new product offering or product enhancement to our current products will depend on several factors, including our ability to:

properly identify and anticipate physician and patient needs;

develop and introduce new products and product enhancements in a timely manner;

avoid infringing upon the intellectual property rights of third parties;

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demonstrate, if required, the safety and efficacy of new products with data from preclinical studies and clinical trials;

obtain the necessary regulatory clearances or approvals for expanded indications, new products or product modifications; and

be fully FDA-compliant with marketing of new devices or modified products.

If we are not successful in expanding our indications and developing and commercializing new products and product enhancements, our ability to increase our revenue may be impaired, which could have a material adverse effect on our business, financial condition and results of operations.

Our inability to compete effectively with our competitors may prevent us from achieving significant market penetration or improving our operating results.

Our products compete against products offered by public companies, including Allergan plc, Cutera, Inc., Hologic Inc. and Viveve Medical, Inc., as well as by private companies such as Lumenis Ltd., Sisram Medical Ltd. and Syneron Medical Ltd. Competition with these companies could result in reduced prices and profit margins and loss of market share, any of which could harm our business, financial condition and results of operations. We also face competition from medical products, including Botox, hyaluronic acid injections and collagen injections, and aesthetic procedures, such as face lifts, liposuction, sclerotherapy, electrolysis and chemical peels. Furthermore, we currently sell our products only to trained physicians and face competition from the medical spa market, which may offer a broader range of medical and non-medical products and technologies that are more readily available to customers at a lower cost. Our ability to compete effectively depends upon our ability to distinguish our company and our products from our competitors and their products, and includes the following factors:

Furthermore, potential customers also may need to recoup the cost of expensive products that they already have purchased from our competitors and may decide not to purchase our products, or to delay such purchases. If we are unable to achieve continued market penetration, we will be unable to compete effectively and our business will be harmed.

Consolidation in our industry may make it more difficult for us to compete.

The trend towards consolidation in our industry has increased, and may continue to increase, the intensity of the competition in our industry and could result in increased downward pressure on our product prices. Recently, many of our competitors in the aesthetics market have acquired other companies that operate within the same market. If this trend continues, we will be forced to compete primarily with and against larger competitors with greater resources and distribution networks. Our competitors could use their greater financial resources to acquire other companies to gain enhanced name recognition and market share, as well as to develop new technologies or products that could effectively compete with our product lines. If we are unable to effect strategic mergers or acquisitions of our own and are unable to obtain capital and other resources that would allow us to compete effectively, our business will be harmed.

The medical technology industry is intensely competitive. Pharmaceutical alternative treatments compete vigorously with traditional laser and other energy-based procedures, such as those carried out with our products. Some pharmaceutical companies, academic and research institutions or others may develop new, non-invasive or minimally invasive therapies that are more effective, more convenient or less expensive than our current or future products. The introduction of new technologies, along with these potential new therapies, could result in increased competition or make our products obsolete. Moreover, we could expand our business to include new, non-invasive or minimally invasive therapies which may compete with our current product offerings. We may not be able to respond effectively to technological changes and emerging industry standards, or to successfully identify, develop or support new technologies or enhancements to existing products in a timely and cost-effective manner. Any such developments could have a material adverse effect on our business, financial condition and results of operations.

Our markets are characterized by evolving technological standards and changes in customer requirements, and we may not be able to react to such changes and introduce new products in a timely manner.

The aesthetics market is characterized by extensive research and development, technological change, frequent modifications and enhancements, innovations, new applications, evolving industry standards and changes in customer requirements. Our future growth depends in part on our ability to introduce new products on a timely basis, as well as to introduce other product enhancements that address the evolving customer needs. This requires us to design, develop, manufacture, assemble, test, market and support these new products or product enhancements on a timely and cost-effective basis. It also requires continued substantial investment in research and development.

During each stage of the research and development process we may encounter obstacles that could delay development and consequently increase our expenses. This may ultimately force us to abandon a potential product in which we have already invested substantial time and resources. Technologies in development could prove to be more complex than initially understood or not scientifically or commercially viable. Even if we develop new products and technologies ahead of our competitors, we will still need to obtain the requisite regulatory approvals for such products, including from public agencies, such as the FDA, before we can commercially distribute them. We cannot assure you that we will successfully identify new technological opportunities, develop and bring new or enhanced products to market, obtain sufficient or any patent or other intellectual property protection for such new or enhanced products or obtain the necessary regulatory approvals in a timely and cost-effective manner, or, if such products are introduced, that those products will achieve market acceptance. Our failure to do so, or to address the technological changes and challenges in our markets, could have a material adverse effect on our business, financial condition and results of operations.

We rely on our own direct sales force to sell our products in certain territories, which may result in higher fixed costs than our competitors and may slow our ability to reduce costs in the face of a sudden decline in demand for our products.

We rely on our own direct sales force to market and sell our products in certain territories. Some of our competitors rely predominantly on independent sales agents and third-party distributors. A direct sales force may subject us to higher fixed costs than those of companies that market competing products through independent third parties, due to the costs that we will bear associated with employee benefits, and training and managing sales personnel. As a result, we could be at a competitive disadvantage. Additionally, these fixed costs may slow our ability to reduce costs in the face of a sudden decline in demand for our products, which could have a material adverse effect on our business, financial condition and results of operations.

To successfully market and sell our products internationally, we must address many issues with which we have little or no experience.

International (non-U.S. and Canada) sales accounted for approximately 12% and 11% of our total revenue for the three months ended March 31, 2019 and year ended December 31, 2018, respectively. We believe that an increasing percentage of our future revenue will come from international sales as we expand our operations and develop opportunities in additional international territories. We currently depend on third-party distributors and a direct sales team in certain regions to sell our products internationally, including in connection with our joint venture in China. If these distributors or direct sales personnel underperform, we may be unable to increase or maintain our level of international revenue. We will need to attract additional distributors to grow our business and expand the territories in which we sell our products. Distributors may not commit the necessary resources to market and sell our products to the level of our expectations. If current or future distributors do not perform adequately, or we are unable to locate distributors in particular geographic areas, we may not realize expected international revenue growth. Additionally, we expect to expand our direct sales force in the United States, Canada, Europe and Latin America. If we are unable to do so successfully, our revenue from international operations will be adversely affected.

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reduced protection for intellectual property rights in some countries;

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export restrictions, trade regulations and foreign tax laws;

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fluctuating foreign currency exchange rates;

If one or more of these risks were realized, it could require us to dedicate significant resources to remedy the situation, and if we are unsuccessful at finding a solution, our revenue may decline.

We outsource almost all of the manufacturing of our products to a small number of manufacturing subcontractors. If our subcontractors’ operations are interrupted or if our orders exceed our subcontractors’ manufacturing capacity, we may not be able to deliver our products on time.

We outsource almost all of the manufacturing of our products to four subcontractors located in Israel, two of which we are substantially dependent on, while we manufacture our laser and intense pulsed light, or IPL, handpieces in-house in Israel. These subcontractors have limited manufacturing capacity that may be inadequate if our customers place orders for unexpectedly large quantities of our products. In addition, because our subcontractors are located in Israel, they on occasion may feel the impact of potential economic or political instability in the region. If the operations of one or more of our subcontractors were halted or limited, even temporarily, or if they were unable or unwilling to fulfill large orders, we could experience business interruption, increased costs, damage to our reputation and loss of our customers. In addition, finding new subcontractors that meet our manufacturing requirements, comply with regulatory requirements, and are ISO certified could take several months.

Components used in our products are complex in design, and defects may not be discovered prior to shipment to customers, which could result in warranty obligations, reducing our revenue and increasing our costs.

In manufacturing our products, we and our subcontractors depend upon third-party suppliers for various components. Many of these components require a significant degree of technical expertise to produce. If our suppliers fail to produce components to specification, or if the suppliers, our subcontractors, or we, use defective materials or workmanship in the manufacturing process, the reliability and performance of our products will be compromised.

If our products contain defects that cannot be repaired easily and inexpensively, we may experience:

We and our manufacturing subcontractors depend upon third-party suppliers, making us vulnerable to supply shortages, price fluctuations or other degradations in performance of these suppliers, which could harm our business and financial condition.

Many of the components that comprise our products are currently manufactured by a limited number of suppliers. Although each of our components can be obtained from more than one supplier, we do not have the ability to manufacture the components we outsource. Additionally, our subcontractors rely on a limited number of suppliers, or in some cases, one supplier, for some of the materials and components used in our products. If our subcontractors were to lose such suppliers, there can be no assurance that they will be able to identify or enter into agreements with alternative suppliers on a timely basis on acceptable terms, if at all, which could cause interruptions in their operations. If any of these third-party suppliers fails to adequately perform, our revenue and profitability could be adversely affected. A supply interruption or an increase in demand beyond current suppliers’ capabilities could harm our ability to manufacture our products until we identify and qualify a new source of supply, which could take several months.

There is a risk that our suppliers will not always act consistent with our best interests, and may not always supply goods that meet our requirements. Any interruption in the supply of components or materials, or our inability to obtain substitute components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers, which would have an adverse effect on our business, financial condition and results of operations.

Transitioning to a new supplier could be time-consuming and expensive, may result in interruptions in our operations and product delivery, could affect the performance specifications of our products or could require that we modify the design of certain product systems. If a change in manufacturer results in a significant change to any product, a new 510(k) clearance from the FDA or similar international regulatory authorization may be necessary before we implement the change, which could cause substantial delays.

There exists potential for misuse of our products, over which we have very little to no control, which could harm our reputation and our business.

In the United States, federal regulations allow us to sell our products to or on the order of  “licensed practitioners.” The definition of  “licensed practitioners” varies from state to state. As a result, depending on state law, our products may be purchased or operated by physicians or other licensed practitioners, including nurse practitioners, chiropractors and technicians. Outside the United States, many jurisdictions do not require specific qualifications or training for purchasers or operators of our products. Although we offer training on the use of our products, we do not supervise the treatments performed. Purchase and use of our products by non-physicians may result in product misuse. The potential misuse of our products by physicians and non-physicians may result in adverse treatment outcomes, which could harm our reputation and expose us to costly product liability litigation.

Our products include a limited time warranty which could result in substantial additional costs to us should we fail to monitor product quality effectively.

We generally provide a 12-month warranty on our products. After the warranty period, maintenance and support is provided on a service contract basis. If our products malfunction, warranty claims may become significant, which could cause a significant drain on our resources and materially adversely affect our results of operations.

Product liability suits could be brought against us due to defective material or design, or due to misuse of our products, and could result in expensive and time-consuming litigation, payment of substantial damages and an increase in our insurance rates.

If our products are alleged to be defectively designed, manufactured or labeled, contain defective components or are misused, we may become subject to substantial and costly litigation by our customers or their patients. Misusing our products or failing to adhere to operating guidelines could cause burns, scarring and tissue irregularities. In addition, if our operating guidelines are found to be inadequate, we may be subject to liability. We may in the future be involved, in claims related to the use of our products. Product liability claims could divert management’s attention from our core business, be expensive to defend and result in sizable damage awards against us. While we believe we are covered by insurance from

We forecast sales to determine requirements for our products and if our forecasts are incorrect, we may experience either shipment delays or increased costs.

Our subcontractors keep limited materials and components on hand. To help them manage their manufacturing operations and minimize inventory costs, we forecast anticipated product orders to predict our inventory needs up to six months in advance and enter into purchase orders on the basis of these forecasts. Our limited historical experience may not provide us with enough data to accurately predict future demand. If our business expands, our demand would increase and our suppliers may be unable to meet our demand. If we overestimate our requirements, our subcontractors will have excess inventory, and may transfer to us any increase in costs. If we underestimate our requirements, our subcontractors may have inadequate components and materials inventory, which could interrupt, delay or prevent delivery of our products to our customers. Any of these occurrences would negatively affect our financial performance and the level of satisfaction our customers have with our business.

Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.

We have entered into non-competition agreements with many of our professional employees. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors for a limited period. Under applicable employment laws, we may be unable to enforce these agreements, in whole or in part, and it may be difficult for us to restrict our competitors from gaining the expertise our former employees gained while working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or its intellectual property. If we cannot demonstrate that harm would be caused to us, we may be unable to prevent our competitors from benefiting from the expertise of our former employees.

We may become subject to the requirements of the 1940 Act, which would limit our business operations and require us to spend significant resources to comply with such act.

Section 3(a)(1)(C) of the 1940 Act defines an investment company as any issuer that “is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of U.S. government securities and cash items).” As of March 31, 2019, we held approximately 16% of our total assets (excluding U.S. government securities and cash items) in investment securities. However, we exceeded the 40% asset threshold in June 2018, marking the beginning of a one-year safe harbor period under Rule 3a-2 under the 1940 Act. Rule 3a-2 provides temporary relief from the registration requirements of the 1940 Act to an issuer that, on a transient basis, is deemed to be an investment company. The transient investment company exemption is available to a company no more than once every three years. Assuming no other exclusion from the definition of investment company is available to us, we will have to comply with the 40% asset threshold for at least three years following December 31, 2018, the date we ceased being an inadvertent investment company. This may limit our ability to make certain investments or enter into joint ventures that could otherwise have a positive impact on our earnings. We do not intend to engage primarily in the business of investing, reinvesting, owning, holding or trading in

If we are deemed to be an investment company, the consequences of failing to register under the 1940 Act would be significant. For example, investment companies that fail to register under the 1940 Act are prohibited from conducting business in interstate commerce. The ramifications of registering as an investment company, both in terms of the restrictions imposed on us and the cost of compliance, would be significant. For example, in addition to expenses related to initially registering as an investment company, the 1940 Act also would impose various restrictions with regard to our ability to enter into affiliated transactions, the diversification of our assets, and our ability to borrow money. If we became subject to the 1940 Act at some point in the future, our ability to continue pursuing our business plan would be severely limited.

The expense and potential unavailability of insurance coverage for our customers and our company could adversely affect our ability to sell our products and our financial condition.

Some of our customers and prospective customers are required to maintain liability insurance to cover their operations and use of our products. Medical malpractice carriers are withdrawing coverage in certain states or substantially increasing premiums. If this trend continues or worsens, our customers may discontinue using our products and, industry-wide, potential customers may opt against purchasing light, laser or radio frequency-based products due to the cost or inability to procure insurance coverage.

Global economic and social conditions may adversely affect our business, financial condition and results of operations.

Any negative conditions in the national and global economic environments may adversely affect our business, financial condition and results of operations. During uncertain economic times and in tight credit markets, many of our customers may experience financial difficulties or be unable or unwilling to borrow money to fund their operations, including obtaining credit lines for purchasing our products, and may delay or reduce purchases or reduce the extent of their operations. The market for aesthetic procedures and the market for our premium products can be particularly vulnerable to economic uncertainty, since the end-users of our products may decrease the demand for our products when they have less discretionary income or feel uneasy about spending their discretionary income. In addition, in many instances, the ability of our customers to purchase our products depends in part upon the availability of obtaining financing at acceptable interest rates.

These factors could result in reductions in revenues from sales of our products, longer sales cycles, difficulties in collection of accounts receivable, slower adoption of new technologies and increased price competition. Payment by our customers of our receivables is dependent upon the financial stability of the economies of certain countries. In light of the current economic state of many countries outside of the United States, we continue to monitor the creditworthiness of our customers because weakness in the end-user market could negatively affect the cash flows of our customers who could, in turn, delay paying their obligations to us. This would increase our credit risk exposure and cause delays in our recognition of revenues on current and future sales to these customers. Any of these events would likely harm our business, and could have a material adverse effect on our business, financial condition and results of operations.

Any acquisitions that we make could disrupt our business and harm our financial condition.

We expect to evaluate potential strategic acquisitions of complementary businesses, products or technologies. We may also consider joint ventures and other collaborative projects. We may not be able to identify appropriate acquisition candidates or strategic partners, or successfully negotiate, finance or integrate any businesses, products or technologies that we acquire. Furthermore, the integration of any acquisition and management of any collaborative project may divert management’s time and resources from our core business and disrupt our operations. We do not have any experience with acquiring companies or products. If we decide to expand our product offerings, we may spend time and money on projects that do not increase our revenue. Any cash acquisition we pursue would diminish the proceeds from this offering available to us for other uses, and any stock acquisition would be dilutive to our shareholders. While we

We may need to raise additional capital in the future, which may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our intellectual property or future revenue streams.

In the future, we may finance our cash needs through a combination of equity offerings, debt financings, grants, and license and development agreements in connection with any collaborations. We do not have any committed external source of funds. In the event we seek additional funds, we may raise additional capital through the sale of equity or convertible debt securities. In such an event, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of our ordinary shares. Debt financing, if available, could result in increased fixed payment obligations and may involve agreements that include restrictive covenants, such as limitations on our ability to incur additional debt, make capital expenditures, acquire, sell or license intellectual property rights or declare dividends, and other operating restrictions that could hurt our ability to conduct our business.

Investing in marketable securities is subject to risks.

As of March 31, 2019, we had $19.0 million in cash and cash equivalents, $29.0 million in marketable securities (including U.S. government securities), and $16.1 million in bank deposits. We historically have invested excess cash in marketable securities, which may consist of equity securities, corporate or government bonds and mutual fund securities. These investments are subject to general credit, liquidity, and market risks, including from changes in interest rates and downturns similar to the U.S. sub-prime mortgage defaults that affected various sectors of the financial markets and caused credit and liquidity issues during the 2008 global financial crisis. Although we have not realized any significant losses from our investments in marketable securities, we may realize losses in the fair value of these investments, an inability to access cash in these investments for a potentially meaningful period, or a complete loss of these investments, which would have a negative effect on our operations, liquidity and financial condition.

In addition, should our investments cease paying or reduce the amount of interest paid to us, our interest income would decline. The market risks associated with our marketable securities may have an adverse effect on our results of operations, liquidity and financial condition.

We have broad discretion in the use of our existing cash, cash equivalents and marketable securities and may not use them effectively,

Our management will have broad discretion in the application of our cash, cash equivalents and marketable securities. Because of the number and variability of factors that will determine our use of our cash, cash equivalents and marketable securities, their ultimate use may vary substantially from their currently intended use. Our management might not apply our cash, cash equivalents and marketable securities in ways that ultimately increase the value of your investment. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest our cash in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to us. If we do not use our resources in ways that enhance shareholder value, we may fail to achieve expected financial results, which could cause our share price to decline.

Exchange rate fluctuations may decrease our earnings if we are not able to hedge our currency exchange risks successfully.

A majority of our revenues and a substantial portion of our expenses are denominated in U.S. dollars. However, a portion of our revenues and a portion of our costs, including personnel and some marketing and facilities expenses, are incurred in New Israeli Shekels, Canadian dollars and Euros. Inflation in Israel or Europe may have the effect of increasing the U.S. dollar cost of our operations in that country. If the U.S. dollar declines in value in relation to one or more of these currencies, it will become more expensive for

Cyber-attacks as well as improper disclosure or control of personal information could result in liability and harm our reputation, which could adversely affect our business and results of operations. We may face liability if we breach our obligations related to the protection, security, nondisclosure of confidential customer information or disclosure of sensitive data or failure to comply with data protection laws and regulations.

Our business is heavily dependent on the security of our IT networks and those of our customers. Internal or external attacks on any of those could disrupt the normal operations of our engagements and impede our ability to provide critical services to our customers, thereby subjecting us to liability under our contracts. Additionally, our business involves the use, storage and transmission of information about our employees, our customers and clients of our customers. While we take measures to protect the security of, and unauthorized access to, our systems, as well as the privacy of personal and proprietary information, it is possible that our security controls over our systems, as well as other security practices we follow or those systems of our customers into which we operate and rely upon, may not prevent the improper access to or disclosure of personally identifiable or proprietary information. Such disclosure could harm our reputation and subject us to liability under our contracts and laws that protect personal data, resulting in increased costs or loss of revenue.

Further, data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions and countries in which we provide services and continue to develop in ways which we cannot predict. We are subject to U.S. federal and state laws regarding data privacy and security including Section 5 of the Federal Trade Commission Act, or FTC Act. We are also subject to foreign data privacy and security laws, including the Global Data Protection Regulation, or GDPR, the European Union-wide legal framework to govern data collection, use and sharing and related consumer privacy rights. The GDPR includes significant penalties for non-compliance. Our failure to adhere to or successfully implement processes in response to changing regulatory requirements in this area could result in legal liability or impairment to our reputation in the marketplace, which could have a material adverse effect on our business, financial condition and results of operations.

In the course of providing services to our customers, we may have access to confidential customer information, including nonpublic personal data. We are bound by certain agreements to use and disclose this information in a manner consistent with the privacy standards under regulations applicable to our customers and are subject to numerous U.S. and foreign jurisdiction laws and regulations designed to protect this information, such as the European Union Directive on Data Protection and various U.S. federal and state laws governing the protection of health or other individually identifiable information. If any person, including a team member of ours, misappropriates customer confidential information, or if customer confidential information is inappropriately disclosed due to a security breach of our computer systems, system failures or otherwise, we may have substantial liabilities to our customers or our customers’ clients and may incur substantial liability and penalties in connection with any violation of applicable privacy laws and/or criminal prosecution. In addition, in the event of any breach or alleged breach of our confidentiality agreements with our customers, these customers may terminate their engagements with us or sue us for breach of contract, resulting in the associated loss of revenue and increased costs and damaged reputation. We may also be subject to civil or criminal liability if we are deemed to have violated applicable regulations. We cannot assure you that we will adequately address the risks created by the regulations to which we may be contractually obligated to abide.

We may become subject to numerous foreign, federal, and state healthcare statutes and regulations and our failure to comply could result in a material adverse effect to our business and operations.

Although none of our products or procedures using our products are currently covered by any state or federal government healthcare programs, or any private commercial payor, we may become subject to foreign, federal, and state laws intended to prevent healthcare fraud and abuse, including those that apply to all payors. These laws could include state anti-kickback and false claims laws, which may extend to services

Efforts to ensure that our internal operations and business arrangements with third parties comply with future applicable healthcare laws and regulations may involve substantial costs. These laws and regulations, among other things, could constrain our business, marketing and other promotional activities by limiting the kinds of financial arrangements, including financing programs, we may have with physicians or other potential purchasers of our products. It is possible that governmental authorities may conclude that our business practices, including our arrangements with physicians, some of whom received stock options as compensation for services provided, as well as fees for marketing to other physicians, are subject to and do not comply with current or future statutes, regulations, agency guidance or case law involving applicable healthcare laws. If our current or future operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties which could adversely affect our ability to operate our business and pursue our strategy.

We are subject to anti-bribery, anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act, as well as export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect our business, results of operations and financial condition.

As we grow our international presence and global operations, we will be increasingly exposed to trade and economic sanctions and other restrictions imposed by the United States, the European Union, the State of Israel and other governments and organizations. The U.S. Departments of Justice, Commerce, State and Treasury and other federal agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of economic sanctions laws, export control laws, the U.S. Foreign Corrupt Practices Act, or the FCPA, and other federal statutes and regulations, including those established by the Office of Foreign Assets Control, or OFAC. In addition, the U.K. Bribery Act of 2010, or the Bribery Act, prohibits both domestic and international bribery, as well as bribery across both private and public sectors. An organization that “fails to prevent bribery” by anyone associated with the organization can be charged under the Bribery Act unless the organization can establish the defense of having implemented “adequate procedures” to prevent bribery. Under these laws and regulations, as well as other anti-corruption laws, anti-money laundering laws, export control laws, customs laws, sanctions laws and other laws governing our operations, various government agencies may require export licenses, may seek to impose modifications to business practices, including cessation of business activities in sanctioned countries or with sanctioned persons or entities and modifications to compliance programs, which may increase compliance costs, and may subject us to fines, penalties and other sanctions. A violation of these laws or regulations would negatively affect our business, financial condition and results of operations.

We are in the process of implementing policies and procedures designed to ensure compliance by us and our directors, officers, employees, representatives, consultants and agents with the FCPA, OFAC restrictions, the Bribery Act and other export control, anti-corruption, anti-money-laundering and anti-terrorism laws and regulations. We cannot assure you, however, that our policies and procedures are or will be sufficient or that directors, officers, employees, representatives, consultants and agents have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our business partners have not engaged and will not engage in conduct that could materially affect their ability to perform their contractual obligations to us or even result in our being held liable for such conduct. Violations of the FCPA, OFAC restrictions, the Bribery Act or other export control, anti-corruption, anti-money laundering and anti-terrorism laws or regulations may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to protect our intellectual property rights, our competitive position could be harmed. Our success and ability to compete depends in large part upon our ability to protect our proprietary technology.

Our success and ability to compete depends in large part upon our ability to protect our proprietary technology. We rely primarily upon a combination of patents and trademarks, as well as nondisclosure, confidentiality and other contractual agreements to protect the intellectual property related to our brands, products and other proprietary technologies.

We generally apply for patents only in those countries where we intend to make, have made, use, offer for sale, or sell products. To date, we have only pursued patents in the United States, which we consider to be our main target market, and South Korea. Substantially all of our revenues for the three months ended March 31, 2019 and the years ended December 31, 2018 and 2017 were derived from the United States where we have patent protection. We do not seek protection in all countries where we sell products and we may not accurately predict all the countries where patent protection would ultimately be desirable. At this time, the countries in which we have not sought patent protection, but intend to offer our products for sale, are not our main target markets. We acknowledge that competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories in which we do not have patent protection. Such activity may prevent us from protecting our proprietary technology, and thus, may harm our competitive position.

Our patent portfolio consists of four issued patents and nine pending patent applications in the United States relating to our technology and products. Our pending and future patent applications may not issue as patents or, if issued, may not issue in a form that will be advantageous to us. Any issued patents may be challenged, invalidated or legally circumvented by third parties. We cannot be certain that our patents will be upheld as valid, proven enforceable or prevent the development of competitive products. Other companies may also design around technologies we have patented. Third parties may have blocking patents that could prevent us from marketing our products or practicing our own patented technology. In addition, competitors could purchase one of our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts, design around our protected technology, or develop their own competitive technologies that fall outside of our intellectual property rights. If our intellectual property is not adequately protected against competitors’ products and methods, our competitive position could be adversely affected, as could our business and financial results.

The U.S. Supreme Court and the U.S. Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how the patent laws of the United States are interpreted. Similarly, foreign courts have made, and will likely continue to make, changes in how the patent laws in their respective jurisdictions are interpreted. We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by U.S. and foreign legislative bodies.

We rely on a combination of patent and other intellectual property laws and confidentiality, non-disclosure and assignment of inventions agreements, as appropriate, with our employees and consultants, to protect and otherwise seek to control access to, and distribution of, our proprietary information. These measures may not be adequate to protect our technology from unauthorized disclosure, third-party infringement or misappropriation. Parties may breach these agreements, and we may not have adequate remedies for any breach. Also, the laws of certain countries in which we develop, manufacture or sell our products may not protect our intellectual property rights to the same extent as the laws of the United States or Israel.

The aesthetics industry is highly competitive and marked by frequent litigation. New patent applications may be pending or may be filed in the future by third parties covering technology that we currently use or may ultimately use. Third parties may from time to time claim that our current or future products infringe their patent or other intellectual property rights and may seek to prevent, limit or interfere with our ability to make, use, sell or import our products. Moreover, if such a claim were to be decided adversely to us or if we settled such a claim on adverse terms, we could be forced to pay substantial damages, to license the technology in question at high rates or to redesign or modify our products so as to avoid any infringement. Any of those results could adversely affect our sales, margins and results of operations.

Alternatively, we could be required to expend significant resources to develop non-infringing technology. We cannot assure you that we would be successful in developing non-infringing technology.

Third parties have and may in the future commence litigation against us claiming that our products infringe upon their patents or other intellectual property rights.

From time to time, we may be party to, or threatened with, litigation or other proceedings with third parties, including non-practicing entities, who allege that our products, components of our products, services, and/or proprietary technologies infringe, misappropriate or otherwise violate their intellectual property rights. The types of situations in which we may become a party to such litigation or proceedings include:

These lawsuits and proceedings, regardless of merit, are time-consuming and expensive to initiate, maintain, defend or settle, and could divert the time and attention of managerial and technical personnel, which could materially adversely affect our business. Any such claim could also force use to do one or more of the following:

In April 2018, Syneron Medical Ltd., or Syneron, and Candela Corporation, together with Syneron, Syneron-Candela, filed claims with the International Trade Commission and with Massachusetts General Hospital, or MGH, in the United States District Court for the District of Massachusetts against our U.S. and Israeli subsidiaries, alleging that our fractional RF products infringed two U.S. patents owned by Syneron-Candela and MGH that purport to cover systems and methods for treating skin and arranging electrodes on skin therapy devices. In January 2019, we reached a settlement with Syneron-Candela and MGH that resolved all patent claims previously in dispute in exchange for a one-time cash payment that we made to Syneron-Candela and MGH in February 2019. As part of such settlement agreement, we entered into a sublicense agreement with Syneron-Candela and MGH that granted us and our affiliates a fully paid non-exclusive, royalty-free worldwide sublicense to practice the patents and applications previously in dispute in the licensed field. The sublicense shall continue until the expiration of the last surviving patent or application granted pursuant to the sublicense agreement. Although we may try to resolve any potential future claims or actions, we may not be able to do so on reasonable terms, if at all. Infringement and other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate, and could divert management’s attention from our core business. If we lose this kind of litigation, a court could require us to pay substantial damages and could prohibit us from using technologies essential to our products, either of which would have a material adverse effect on our business, results of operations and financial condition.

We may become involved in litigation to protect the trademark rights associated with our company name or the names of our products. If we have to change the name of our company or products, we may experience a loss in goodwill associated with our brand name, customer confusion and a reduction in sales.

Some of our competitors may be able to sustain the costs of complex intellectual property litigation more effectively than we can because they have substantially greater resources. In addition, intellectual property litigation, regardless of its outcome, may cause negative publicity, adversely impact prospective customers, cause product shipment delays, or prohibit us from manufacturing, marketing or otherwise commercializing our products, services and technology. Any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results of operation, financial condition or cash flows.

In addition, we may indemnify our customers and distributors against claims relating to the infringement of intellectual property rights of third parties related to our products. Third parties may assert infringement claims against our customers or distributors. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers or distributors, regardless of the merits of these

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a material adverse effect on the price of our ordinary shares. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our ordinary shares.

For example, in April 2017, Syneron-Candela filed a lawsuit in the United States District Court for the Western District of Tennessee against us and our wholly-owned subsidiaries in Israel and the United States, asserting claims for inducement to breach contract, interference with employment relationships, tortious interference with business and violation of the Tennessee Uniform Trade Secrets Act with respect to four former employees of Syneron-Candela who subsequently accepted employment with us. In January 2018, we reached a settlement and the case was dismissed with prejudice. Additionally, in May 2017, Cynosure, Inc., or Cynosure, filed a claim with the United States District Court for the Southern District of Texas (Houston) against us and our U.S. subsidiary, claiming that we unlawfully solicited certain former Cynosure employees, misappropriated Cynosure’s trade secrets, and aided and abetted the employees’ breach of their fiduciary duties to Cynosure. We reached a settlement in February 2018 and the case was dismissed with prejudice.

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others may be able to develop and/or practice technology that is similar to our technology or aspects of our technology, but that are not covered by the claims of the patents that we own or control, assuming such patents have issued or do issue;

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we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;

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others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

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it is possible that our pending patent applications will not lead to issued patents;

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issued patents that we own may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;

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our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

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third parties performing manufacturing or testing for us using our products or technologies could use the intellectual property of others without obtaining a proper license;

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parties may assert an ownership interest in our intellectual property and, if successful, such disputes may preclude us from exercising exclusive rights over that intellectual property;

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we may not develop or in-license additional proprietary technologies that are patentable;

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we may not be able to obtain and maintain necessary licenses on commercially reasonable terms, or at all; and

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the patents of others may have an adverse effect on our business.

Our business is subject to extensive and continuing regulatory compliance obligations. If we fail to obtain and maintain necessary market clearances from the FDA and other marketing authorizations from counterpart foreign regulatory authorities for our products and indications, if clearances or other marketing authorizations for future products and indications are delayed or not issued, if we or any of our third-party suppliers or manufacturers fail to comply with applicable regulatory requirements, or if there are U.S. federal or state level or counterparty foreign regulatory changes, our commercial operations could be harmed.

Our products are medical devices subject to extensive regulation by the applicable regulatory authorities where our products are or will be sold prior to their marketing for commercial use. In the United States, our products are subject to extensive regulation by the FDA for developing, testing, manufacturing, labeling, sale, marketing, advertising, promotion, distribution, import, export, shipping, establishment registration and device listing, inspections and audits, record keeping, recalls and field safety corrective actions and post-market surveillance, including reporting of certain events.

Before a new medical device, or a new use of, or claim for, an existing product can be marketed in the United States, it must first receive marketing authorization from the FDA unless it is exempt. The FDA marketing authorizations include a 510(k) clearance or premarket approval. A relatively small number of devices may be exempt from 510(k) clearance or may receive marketing authorization through the de novo classification pathway. These processes can be expensive and lengthy. The FDA’s 510(k) clearance process usually takes from three to 12 months, but it can last longer. The process of obtaining premarket approval is much more costly and uncertain than the 510(k) clearance process and it generally takes from one to three years, or even longer, from the time the application is filed with the FDA. Our future products and enhancements or changes to products may require new 510(k) clearance or premarket approval from the FDA. All products that we currently market in the United States that require an FDA marketing authorization have received 510(k) clearance for the uses for which they are marketed.

The FDA or the applicable foreign regulatory bodies can delay, limit or deny clearance or approval of a device for many reasons, including:

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our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory bodies that our products are safe or effective for their intended uses;

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the disagreement of the FDA or the applicable foreign regulatory bodies with the design or implementation of our clinical trials or the interpretation of data from pre-clinical studies or clinical trials;

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serious and unexpected adverse device effects experienced by participants in our clinical trials;

In addition, the FDA or applicable foreign regulatory bodies may change their clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions, which may prevent or delay approval or clearance of our future products under development or impact our ability to modify our currently cleared products on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain new clearances, increase the costs of compliance or restrict our ability to maintain our current clearances. For example, as part of the Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted in 2012, Congress reauthorized the Medical Device User Fee Amendments with various FDA performance goal commitments and enacted several “Medical Device Regulatory Improvements” and miscellaneous reforms, which are further intended to clarify and improve medical device regulation both pre- and post-clearance and approval. Some of these proposals and reforms could impose additional regulatory requirements upon us that could delay our ability to obtain new 510(k) clearances, increase the costs of compliance or restrict our ability to maintain our current clearances.

Additionally regulatory clearances or approvals to market a product can contain limitations on the indicated uses for such product. Product clearances and approvals can be withdrawn due to failure to comply with regulatory standards or the occurrence of unforeseen problems following initial clearance or approval. FDA regulations depend heavily on administrative interpretation, and there can be no assurance that future interpretations made by the FDA or other regulatory bodies will not adversely affect our operations. We and our manufacturers may be inspected by the FDA from time to time to determine

The use, misuse or off-label use of our products may harm our reputation in the marketplace, result in injuries that lead to product liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business.

The use, misuse or off-label use of our products may harm our reputation or the image of our products in the marketplace, result in injuries that lead to product liability suits, which could be costly to our business, or result in legal sanctions if we are deemed or alleged to have engaged in off-label promotion.

A medical device may be authorized by the FDA for marketing through several regulatory mechanisms. The FDA classifies medical devices as Class I, Class II, or Class III, in increasing order of risk. Most of our products are Class I or Class II medical devices. As such, they are either exempt from premarketing authorization requirements or are subject to the 510(k) clearance process, and all are listed with the FDA pursuant to FDA’s medical device listing requirements.

Under FDA regulations, for each of our products we must only use labeling, including advertising and promotional materials, that is consistent with the specific indication(s) for use included in the FDA exemption regulation, clearance, or approval, that is applicable to the specific product. If the FDA or other authorities determine that our promotional or training materials constitute the unlawful promotion of an off-label use, they could request that we modify our training or promotional materials and/or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, civil money penalties, seizure, injunction or criminal fines and penalties. For example, on July 30, 2018, we received a letter, dated July 24, 2018, from the FDA seeking information as to the regulatory bases for marketing of our FormaV and FractoraV handpieces based on our promotion and labeling of these devices for use in certain women’s health conditions and procedures. For the three months ended March 31, 2019 and 2018, we derived approximately 15% and 28%, respectively, of our total U.S. revenues from our FormaV and FractoraV handpieces and related products. For the years ended December 31, 2018 and 2017, we derived approximately 23% and 21%, respectively, of our total U.S. revenues from our FormaV and FractoraV handpieces and related products. We timely responded to the FDA in August 2018 answering the FDA’s questions. We informed the FDA that the Forma V had received 510(k) clearance for the temporary relief of minor muscle aches and pain, temporary relief of muscle spasm, and temporary improvement of local blood circulation and that we had determined that the device also fell within a Class II premarketing exemption enabling marketing of the device for therapeutic use in the treatment of sexual dysfunction or as an adjunct to Kegel’s exercise (tightening of the muscles of the pelvic floor to increase muscle tone) without the need to obtain a 510(k) clearance. We also informed the FDA that the FractoraV has received 510(k) clearance for use in dermatologic and general surgical procedures for electrocoagulation and hemostasis. In addition, we advised the FDA that we have modified our promotional and labeling materials to remove statements using the terms “sexual dysfunction,” “vaginal rejuvenation” or “urinary stress incontinence,” which were the subject of the agency’s letter to us. The FDA responded in September 2018 by stating that the agency had reviewed our response letter and verified the changes in terminology made to our website. Moreover, the FDA further responded in November 2018 and confirmed we addressed all items raised by the agency in its letter, and that the FDA continued to expect us to conduct a review of our marketing and promotional materials to make appropriate changes and remove materials containing uncleared claims regarding this matter. We have received no further communications from the agency regarding this matter. We cannot be certain whether any further information may be requested by the FDA in the future and/or any further action may be required on our part, and we cannot guarantee that the FDA will continue to deem our response and actions to have addressed all items raised by the agency in this matter. If the FDA issues a further communication finding that some or all of our modifications to our marketing and labeling materials are insufficient, or otherwise takes the position that our products are being marketed for off-label uses, we could be subject to further discussions with and/or action by the agency, including the possibility of a warning letter or other enforcement activity. Other federal, state or foreign governmental authorities might also take action if they consider our promotion or training materials to constitute promotion of an

In addition, there may be increased risk of injury if physicians or others attempt to use our products off-label. The FDA does not restrict or regulate a physician’s use of a medical product within the practice of medicine, and we cannot prevent a physician from using our products for an off-label use. The use of our products for indications other than those for which our products have been approved or cleared by the FDA may not effectively treat the conditions not referenced in product indications, which could harm our reputation in the marketplace among physicians and patients. Physicians may also misuse our products or use improper techniques if they are not adequately trained in the particular use, potentially leading to injury and an increased risk of product liability. Product liability claims are expensive to defend and could divert management’s attention from our primary business and result in substantial damage awards against us. Any of these events could harm our business, results of operations and financial condition.

We are subject to ongoing regulatory obligations and a failure to comply with post-marketing regulatory requirements could subject us to enforcement actions, including substantial penalties, and might require us to recall or withdraw a product from the market.

Even after we have obtained the proper regulatory clearance or approval to market a product, we have ongoing responsibilities under FDA regulations and applicable foreign laws and regulations. The FDA, state and foreign regulatory authorities have broad enforcement powers. The regulations to which we are subject are complex and have become more stringent over time. Regulatory changes could result in restrictions on our ability to continue or expand our operations, higher than anticipated costs, or lower than anticipated sales.

Our products and/or their use are also subject to state regulations and additional regulations in other foreign jurisdictions outside of the United States, which may change at any time. We cannot predict the impact or effect of future legislation or regulations and any changes in regulations may impede sales.

Furthermore, the FDA and state authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA or state agencies, which may include any of the following sanctions:

If we or our subcontractors fail to comply with federal and state regulation, including the FDA’s Quality System Regulation/Medical Device Good Manufacturing Practices and performance standards, our or our subcontractors’ manufacturing operations could be halted, and our business would suffer.

We and our subcontractors currently are required to demonstrate and maintain compliance with the FDA’s Quality System Regulation/Medical Device Current Good Manufacturing Practices, or QSR. The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing,

Any failure by us or our subcontractors to take satisfactory corrective action in response to an adverse QSR inspection or to comply with applicable laser performance standards could result in enforcement actions against us or our subcontractors, including warning letters or untitled letters; fines, injunctions or civil penalties; suspension or withdrawal of approvals or clearances; seizures or recalls of our products; total or partial suspension of production or distribution; administrative or judicially imposed sanctions; the FDA’s refusal to grant pending or future clearances or approvals for our products; clinical holds; refusal to permit the import or export of our products; and criminal prosecution of us or our employees. Any of these actions could significantly and negatively impact the supply of our products, and could cause our sales and business to suffer. In addition, we are subject to standards imposed on our activities outside of the United States, such as obtaining DEKRA certification (CE certification in Europe) and the Standards Institution of Israel (imposed on our activities in Israel), and failure to comply with such standards could adversely impact our business.

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

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

The FDA and foreign regulatory bodies have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health. We may also choose to voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations. Product defects or other errors may occur in the future. Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA may require, or we may decide, that we will need to obtain new approvals or clearances for the product before we may market or distribute the corrected product. Seeking such approvals or clearances may delay our ability to replace the recalled products in a timely manner. Moreover, if we do not adequately address problems associated with our products, we may face additional regulatory enforcement action, including FDA warning letters, product seizure, injunctions, administrative penalties or civil or criminal fines.

We may be unable to obtain or maintain international regulatory qualifications or approvals for our current or future products and indications, which could harm our business. Additionally, obtaining and maintaining regulatory approval in one jurisdiction does not mean we will be successful in obtaining regulatory approval for our products in other jurisdictions.

Sales of our products outside the United States are subject to foreign regulatory requirements that vary widely from country to country, including some regulatory requirements that we may not be fully aware, or that may change in ways that affect our ability to sell our products in those jurisdictions. Complying with international regulatory requirements can be an expensive and time-consuming process and approval is not certain. The regulatory process in foreign jurisdictions includes all the risks associated with obtaining FDA clearance, as well as additional risks not present in the FDA process. For example, the time required to obtain foreign clearance or approvals may be longer than that required for FDA clearance or approvals, and requirements for such clearances or approvals may significantly differ from FDA requirements, adding costs and variability. Foreign regulatory authorities may not approve our product for the same uses cleared by the FDA. Although we have obtained regulatory approvals to sell our products in the European Union and other countries outside the United States, we may be unable to maintain regulatory qualifications, clearances or approvals in these countries or to obtain approvals in other countries. We also may incur significant costs in attempting to obtain and in maintaining foreign regulatory approvals or qualifications. If we experience delays in receiving necessary qualifications, clearances or approvals to market our products outside the United States, or if we fail to receive those qualifications, clearances or approvals, we may be unable to market some of our products or enhancements in certain international markets effectively, or at all. Since the enactment of the Israeli Medical Equipment Law, 2012, or the Medical Equipment Law, in 2012, the manufacturing and marketing of medical and certain aesthetic devices, including our products, in Israel requires registration with the Israeli Ministry of Health. The Medical Equipment Law offers a fast-track registration process for devices that received approval from certain non-Israeli regulatory agencies, including FDA clearance or CE marks. We have taken advantage of such fast-track registration process in the past. If we are unable to obtain and maintain the necessary registration for any of our products in Israel, we may have to move the manufacturing of such unregistered products to a location outside of Israel and stop selling these products in Israel until the products are registered. We may also suffer harm to our reputation as a result.

New regulations may limit our ability to sell to non-physicians in the future.

Currently, we sell our products solely to physicians. However, where permitted under applicable laws, we intend to introduce certain of our products in the developing medical spa market, where aesthetic procedures are being performed at dedicated facilities by non-physicians under physician supervision. U.S., state and international regulations could change at any time, disallowing sales of our products to aestheticians, and/or limiting the ability of aestheticians and non-physicians to operate our products. We cannot predict the impact or effect of changes in U.S., state or international laws or regulations.

Our ordinary shares have not been publicly traded, and we expect that the price of our ordinary shares will fluctuate substantially.

Before this offering, there has been no public market for our ordinary shares. An active public trading market may not develop after completion of this offering or, if developed, may not be sustained. The lack of a trading market may result in the loss of research coverage by securities analysts. Moreover, we cannot

In addition, the stock prices of many companies in the medical device industry have experienced wide fluctuations that often have been unrelated to the operating performance of those companies. These factors and price fluctuations may materially and adversely affect the market price of our ordinary shares.

An active trading market for our ordinary shares may not develop, and you may not be able to resell your ordinary shares at or above the public offering price.

Prior to this offering, there has been no public market for our ordinary shares. The initial public offering price has been determined by negotiation between the representatives of the underwriters and us. This price may not reflect the market price of our ordinary shares following this offering. In addition, an active trading market may not develop following completion of this offering or, if it is developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other businesses, applications or technologies using our shares as consideration.

Purchasers in this offering will experience immediate and substantial dilution in net tangible book value.

The initial public offering price is substantially higher than the pro forma net tangible book value per share of our outstanding ordinary shares. As a result, investors purchasing ordinary shares in this offering will incur immediate dilution of  $10.21 per ordinary share, based on the initial public offering price of $14.00 per ordinary share. Investors purchasing ordinary shares in this offering will pay a price per ordinary share that substantially exceeds the net tangible book value per ordinary share.

In addition, the exercise of outstanding options will, and future equity issuances may, result in further dilution to investors. As of March 31, 2019, there were outstanding options to purchase 9,599,293 ordinary shares under our share option plans at a weighted average exercise price of  $1.08 per ordinary share.

A significant share ownership position in our company is held by a small number of existing shareholders, who may make decisions with which you may disagree.

Our directors and officers, along with our two largest shareholders, in the aggregate, currently beneficially own or control approximately 77% of our outstanding ordinary shares and will beneficially own or control approximately 65% of our outstanding ordinary shares following the completion of this offering,

We will have broad discretion in how we use the proceeds of this offering and we may not apply the proceeds to uses that will benefit shareholders.

We intend to use the net proceeds of this offering to expand our sales and marketing operations, to fund our research and development activities, and the remainder for general corporate purposes, including potential acquisitions of complementary products, technologies or businesses and research and development. We have no current agreements or commitments with respect to any investment or acquisition, and we are not engaged in negotiations with respect to any investment or acquisition. Our management will have broad discretion over the use and investment of the net proceeds from this offering, and accordingly investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds. Our management could spend the proceeds in ways that you do not agree with or that do not improve our results of operations or enhance the value of our ordinary shares. Our failure to apply these proceeds effectively could have a material adverse effect on our business and cause the price of our ordinary shares to decline.

The requirements of being a public company may strain our resources and divert management’s attention.

The requirements of being a public company may strain our resources and divert management’s attention. As a public company, whose ordinary shares are listed in the United States, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq as applicable to foreign private issuers, and other applicable federal and state securities rules and regulations. We expect that compliance with these rules and regulations will increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our business systems and resources. The Exchange Act requires, among other things, that we file annual and current reports with respect to our business and financial condition. Our management will be required to devote substantial time and attention to our public company reporting obligations and other compliance matters.

If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our ordinary shares, the price of our ordinary shares could decline.

The trading market for our ordinary shares will rely in part on the research and reports that equity research analysts publish about us and our business, our market or our competitors, if at all. We do not have control over these analysts and we do not have commitments from them to write research reports about us. The price of our ordinary shares could decline if no research reports are published about us or our business, if one or more equity research analysts downgrade our ordinary shares or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business, or if any of those analysts issues a comparatively more favorable recommendation about our competitors.

Future sales of our ordinary shares could reduce the price of our ordinary shares.

Sales by shareholders of substantial amounts of our ordinary shares, or the perception that these sales may occur in the future, could materially and adversely affect the market price of our ordinary shares and could impair our ability to raise capital through the sale of additional equity securities and our ability to

We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our ordinary shares.

We have never paid cash dividends on our ordinary shares and do not anticipate distributing cash or other dividends on our ordinary shares in the foreseeable future. The distribution of dividends on our ordinary shares will depend on our earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. We may only distribute dividends out of  “profits,” as defined by the Israeli Companies Law, 1999, as amended, or the Companies Law, and provided that the distribution is not reasonably expected to impair our ability to fulfill our outstanding and anticipated obligations as they become due. See “Description of Share Capital — Dividend and Liquidation Rights” for additional information. If we do not distribute dividends, our ordinary shares may be less valuable because a return on your investment will only occur if the price of our ordinary shares appreciates.

We will incur significant increased costs as a result of operating as a public company in the United States, and our management will be required to devote substantial time to new compliance initiatives.

As a public company whose ordinary shares are listed in the United States, we will be subject to an extensive regulatory regime, requiring us, among other things, to maintain various internal controls and facilities and to prepare and file periodic and current reports and statements. Complying with these requirements will be costly and time consuming. We will need to retain additional employees to supplement our current finance staff, and we may not be able to do so in a timely manner, or at all. In the event that we are unable to demonstrate compliance with our obligations as a public company in a timely manner, or are unable to produce timely or accurate financial statements, we may be subject to sanctions or investigations by regulatory authorities and investors may lose confidence in our operating results and the price of our ordinary shares could decline.

We may be subject to securities litigation, which is expensive to defend and could divert management’s attention.

In the past, following periods of market volatility in the price of a company’s securities or the reporting of unfavorable news, security holders have often instituted class action litigation. If the market value of our securities experience adverse fluctuations and we become involved in this type of litigation, regardless of the outcome, we could incur substantial legal costs and our management’s attention could be diverted from the operation of our business, causing our business to suffer. Any adverse determination in litigation could also subject us to significant liabilities.

U.S. investors in the company could suffer adverse tax consequences if we are characterized as a passive foreign investment company.

We believe that we were not a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our taxable year ended December 31, 2018, and we do not expect to be classified as a PFIC for the current year ending December 31, 2019 or the foreseeable future. However, the relevant rules for determining whether or not we are a PFIC as applied to our business are not entirely clear and certain aspects of such determination will be outside our control. Therefore, no assurance can be given that we will not be classified as a PFIC for any taxable year.

We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our ordinary shares less attractive to investors.

We are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements that are applicable to other public companies that are not emerging growth companies.

For as long as we remain an emerging growth company we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not “emerging growth companies.” These exemptions include, among others:

We will remain an emerging growth company until the earliest of: (i) the last day of our fiscal year during which we have total annual gross revenues of at least $1.07 billion; (ii) the last day of our fiscal year following the fifth anniversary of the closing of this offering; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. We have irrevocably opted out of the extended transition period made available to emerging growth companies to comply with newly adopted public company accounting requirements.

When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above. We cannot predict if investors will find our ordinary shares less attractive as a result of our reliance on exemptions under the JOBS Act. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our ordinary share price may be more volatile.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our ordinary shares.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, is designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us, as and when required, conducted in connection with Section 404 of the Sarbanes-Oxley Act, or Section 404, or any subsequent testing by our independent registered public accounting firm, as and when required, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our ordinary shares.

We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.

We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we will be subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under regulations promulgated under the Companies Law, as an Israeli public company listed on the Nasdaq, we will be required to disclose the compensation of our five most highly compensated officers on an individual basis, this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will also have four months after the end of each fiscal year to file our annual report with the SEC and will not be required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions and short-swing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protections available to you in comparison to those applicable to a U.S. domestic reporting companies.

As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicable SEC and Nasdaq requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.

As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwise required under the listing rules of Nasdaq for domestic U.S. issuers. For instance, we intend to follow our home country law instead of the listing rules of Nasdaq that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involving issuances of a 20% or greater interest in the Company, and certain acquisitions of the stock or assets of another company. Under the Companies Law as currently applicable to us, there is no requirement to receive shareholder approval for the issuance of securities for such dilutive events, and under our amended and restated articles of association our board of directors is authorized to issue securities, including ordinary shares, warrants and convertible notes. Additionally, under the Companies Law, unless the articles of association otherwise provide, the quorum required for an ordinary meeting of shareholders must consist of at least two shareholders who hold at least 25% of the voting rights (instead of the 331∕3% required under Nasdaq rules), and we are not required to have a nominating committee consisting solely of independent directors for the nomination of directors. See “Management — Corporate Governance Practices” for details on the differences between Israeli corporate governance practices and comparable U.S. requirements and other home country practices we intend to follow instead of the listing rules of Nasdaq. We may in the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on Nasdaq may provide less protection to you than what is accorded to investors under the listing rules of Nasdaq applicable to domestic U.S. issuers.

Political, economic and military instability in Israel may impede our ability to operate and harm our financial results.

Our principal executive offices and research and development facilities as well as our third-party manufacturers are located in Israel. In addition, all of our subcontractors are located in Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region could directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors, Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon). Any hostilities involving Israel or the

In addition, political uprisings and conflicts in various countries in the Middle East are affecting the political stability of those countries. This instability has raised concerns regarding security in the region and the potential for armed conflict. In Syria, a country bordering Israel, a civil war is taking place. In addition, there are concerns that Iran, which has previously threatened to attack Israel, may step up its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. Additionally, the Islamic State of Iraq and Levant, or ISIL, a violent jihadist group whose stated purpose is to take control of the Middle East, has been growing in influence. The tension between Israel and Iran and/or these groups may escalate in the future and turn violent, which could affect the Israeli economy in general and us in particular. Any potential future conflict could also include missile strikes against parts of Israel, including our offices and facilities. Such instability may lead to deterioration in the political and trade relationships that exist between the State of Israel and certain other countries. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions, could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business may be disinclined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.

Our insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East or for any resulting disruption in our operations. Although the Israeli government has in the past covered the reinstatement value of direct damages that were caused by terrorist attacks or acts of war, we cannot be assured that this government coverage will be maintained or, if maintained, will be sufficient to compensate us fully for damages incurred and the government may cease providing such coverage or the coverage might not suffice to cover potential damages. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions generally and could harm our results of operations.

Our operations may be disrupted by the obligations of our personnel to perform military service.

Many of our employees in Israel, including members of our senior management, are obligated to perform up to 36 days, and in some cases longer periods, of military reserve duty annually until they reach the age of 40 (or older, for citizens who hold certain positions in the Israeli armed forces reserves) and, in the event of a military conflict or emergency situations, could be called to immediate active duty for extended periods of time. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be similar large-scale military reserve duty call-ups in the future. Our operations could be disrupted by the absence due to military service of a significant number of our employees or of one or more of our key employees for extended periods of time, and such disruption could materially adversely affect our business. Additionally, the absence of a significant number of the employees of our Israeli suppliers and subcontractors related to military service or the absence for extended periods of one or more of their key employees for military service may disrupt their operations which may subsequently disrupt our operations.

We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.

We have entered into assignment of invention agreements with our employees pursuant to which such individuals agree to assign to us all rights to any inventions created during their employment or engagement with us. A significant portion of our intellectual property has been developed by our employees in the course of their employment with us. Under the Israeli Patent Law, 1967, or the Patent Law, inventions conceived by an employee during the scope of his or her employment with a company and as a result thereof are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no agreement between an employer and an employee with respect to the employee’s right to receive compensation for such “service inventions,” the Israeli Compensation and Royalties Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his or her service inventions and the scope and conditions for such remuneration. Although our employees have agreed to assign to us service invention rights, as a result of uncertainty under Israeli law with respect to the efficacy of waivers of service invention rights, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business.

Our operations may be affected by negative economic conditions or labor unrest in Israel.

General strikes or work stoppages, including at Israeli ports, have occurred periodically or have been threatened in the past by Israeli trade unions due to labor disputes. These general strikes or work stoppages may have an adverse effect on the Israeli economy and on our business, including our ability to deliver products to our customers and to receive raw materials from our suppliers in a timely manner and could have a material adverse effect on our results of operations.

You may have difficulties enforcing a U.S. judgment against us, our executive officers and directors and Israeli experts named in this prospectus in Israel or the United States, asserting U.S. securities laws claims in Israel or serving process on our officers and directors and these experts in Israel.

We are incorporated in Israel and our corporate headquarters are located in Israel. A significant portion of our assets and the assets of certain of our directors and executive officers are located outside the United States. Therefore, a judgment obtained against us or any of them in the United States, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. Further, if a foreign judgment is enforced by an Israeli court, it will be payable in Israeli currency. It also may be difficult for you to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment in Israel, you may not be able to collect any damages awarded by either a United States or foreign court. For more information regarding the enforceability of civil liabilities against us, our directors and our executive officers, please see “Enforceability of Civil Liabilities.”

The tax benefits available to us require us to meet several conditions and may be terminated or reduced in the future, which would increase our costs and taxes.

We have generated income and are able to take advantage of tax exemptions and reductions resulting from the “Benefited Enterprise” status of our facilities in Israel. Our “Benefited Enterprise” status provides us with a ten-year tax exemption for undistributed income. The first year in which we were exempted from tax as stated above was 2012 and such ten-year eligibility period of tax exemption will terminate in 2021. Our entitlement to these tax benefits as a “Benefited Enterprise” is subject to the conditions stipulated by

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this prospectus regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management’s beliefs and assumptions, and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make.

Our net tangible book value as of March 31, 2019 was $56.6 million, or $2.10 per ordinary share. Net tangible book value per ordinary share represents the amount of our total consolidated tangible assets less our total consolidated liabilities, divided by the number of ordinary shares outstanding.

Pro forma net tangible book value dilution per ordinary share represents the difference between the amount per ordinary share paid by purchasers of ordinary shares in this offering and net tangible book value per ordinary share immediately after the completion of this offering on a pro forma basis. After giving effect to the sale of 5,000,000 ordinary shares by us in this offering at the initial public offering price of  $14.00 per ordinary share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value would have been approximately $121.0 million, or approximately $3.79 per ordinary share based on 31,946,737, ordinary shares outstanding upon completion of this offering. This represents an immediate increase in pro forma net tangible book value of  $1.69 per ordinary share to existing shareholders and an immediate dilution of $10.21 per ordinary share to purchasers of ordinary shares in this offering. The following table illustrates this per ordinary share dilution:

If all of our outstanding stock options had been exercised as of March 31, 2019, our pro forma net tangible book value as of March 31, 2019, before giving effect to the issuance and sale of ordinary shares in this offering, would have been $10.3 million, or $1.81 per ordinary share, and our pro forma net tangible book value as of March 31, 2019 after this offering would have been $131.3 million, or $3.16 per share, causing dilution to new investors of  $10.84 per ordinary share.

The following table presents, on a pro forma basis, as of March 31, 2019, the differences between the number of ordinary shares purchased from us, the total consideration paid to us, and the average price per ordinary share paid by existing shareholders and by new investors purchasing ordinary shares at the initial offering price of  $14.00 per ordinary share, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The total number of ordinary shares does not include ordinary shares issuable upon the exercise of the over-allotment option granted to the underwriters.

If the underwriters exercise their option to purchase additional ordinary shares in full, the total consideration paid by new investors and the average price per ordinary share paid by new investors would be approximately $80.5 million and $14.00 per ordinary share, respectively.

The above tables and discussions are based on our ordinary shares outstanding as of March 31, 2019, which gives effect to the pro forma transactions described above and excludes:

We design, develop, manufacture and commercialize innovative, energy-based, minimally-invasive surgical aesthetic and medical treatment solutions. Our proprietary minimally-invasive RFAL, Deep Subdermal Fractional RF, Simultaneous Fat Destruction and Skin Tightening and Deep Heating Collagen Remodeling technologies are used by physicians to remodel subdermal adipose, or fatty, tissue in a variety of procedures including fat reduction with simultaneous skin tightening, face and body contouring and ablative skin rejuvenation treatments. Our non-invasive medical aesthetic products target a wide array of procedures including simultaneous fat killing and skin tightening, permanent hair reduction through the use of our innovative dual wavelength technology, and other treatments targeting skin appearance and texture through the use of our high power IPL technology. Our products may be used on a variety of body parts, including the face, neck, abdomen, upper arms, thighs and intimate feminine regions. Since 2010, we have launched six product platforms (BodyTite, Optimas, Votiva, Contoura, Triton and EmbraceRF) that we market and sell traditionally to plastic and facial surgeons, aesthetic surgeons, dermatologists and OB/​GYNs.

Our revenues increased to approximately $30.6 million for the three months ended March 31, 2019, from approximately $20.9 million for the three months ended March 31, 2018. Our revenues increased to approximately $100.2 million for the year ended December 31, 2018 from approximately $53.5 million for the year ended December 31, 2017. For the three months ended March 31, 2019 and 2018, we recorded a gross profit margin of approximately 86% and 83%, respectively, and net income of approximately $10.2 million and $6.4 million, respectively. For the years ended December 31, 2018 and 2017, we recorded a gross profit margin of approximately 85% and 83%, respectively, and net income of approximately $22.4 million and $8.8 million, respectively.

We were incorporated in January 2008 and have a limited history of operations, having commenced sales in 2010. In February 2016, we received FDA clearance enabling us to market our RFAL-based BodyTite products for use in dermatological and general surgical procedures for electrocoagulation and hemostasis. We sell our products directly in the United States, Canada, United Kingdom, Spain and India, and indirectly through third-party distributors in other countries. As of June 30, 2019, we had a global installed base of over 3,900 product platforms capable of running various multi-use applicators and minimally-invasive consumables.

As a result of continued innovation, recently received FDA clearances and product launches, we increased our sales and marketing efforts in connection with product introductions and other marketing activities, as well as expanded the number of our direct salespersons in North America from 55 representatives as of December 31, 2017, to 86 representatives as of June 30, 2019.

We outsource a majority of the manufacturing of our products to four subcontractors in Israel, while we manufacture our laser and IPL handpieces in-house in Israel. Outsourcing allows us to carry low inventory levels and maintain fixed unit costs without incurring significant capital expenditures. Our manufacturing subcontractors provide us fully assembled, or “turn-key,” services. We control and monitor the quality of our products by having one of our quality control employees at each of our subcontractor’s

We anticipate that our quarterly results of operations may fluctuate from quarter to quarter due to several factors, including seasonality, unexpected delays in the introduction and market acceptance of our products, unexpected delays in our manufacturing operations, introduction of new and improved products by our competitors and the performance of our direct sales organization.

We generate our revenues primarily from the sale of energy-based medical aesthetic products, which consist of platforms and non-consumable handpieces. To a lesser extent, we generate revenue from the sale of consumables and from the sale of extended warranties. For the three months ended March 31, 2019 and 2018, we derived approximately 91% and 93%, respectively, of our revenues from the sale of medical aesthetic products and approximately 9% and 7%, respectively, of our revenues from the sale of consumables and extended warranties. For the years ended December 31, 2018, 2017 and 2016, we derived approximately 93% of our revenues from the sale of medical aesthetic products and approximately 7% of our revenues from the sale of consumables and extended warranties. We expect our revenues from the sale of consumables and extended warranties to increase over time as our installed base continues to grow. We have experienced growth in sales of consumables in the past three years. Recent revenue growth has been driven by, and we expect continued growth as a result of, increased patient and physician awareness of our medical aesthetic products and additional sales representatives. We have expanded our sales and marketing organization to help us drive and support revenue growth and intend to continue this expansion.

For the three months ended March 31, 2019 and 2018, we derived approximately 23% and 35%, respectively, of our total revenues from the sale of products and solutions relating to our BodyTite and EmbraceRF platforms in the United States, approximately 22% and 17%, respectively, of our total revenues from the sale of products and solutions relating to our Optimas platform in the United States, approximately 15% and 28%, respectively, of our total revenues from the sale of products and solutions in the United States primarily designed to address women’s health and approximately 13% and 8%, respectively, of our total revenues from the sale of products and solutions relating to our Contoura platform in the United States. For the years ended December 31, 2018, 2017 and 2016, we derived approximately 27%, 26% and 17%, respectively, of our total revenues from the sale of products and solutions relating to our BodyTite and EmbraceRF platforms in the United States, approximately 19%, 10% and 0%, respectively, of our total revenues from the sale of products and solutions relating to our Optimas platform in the United States and approximately 23%, 21% and 0%, respectively, of our total revenues from the sale of products and solutions in the United States primarily designed to address women’s health. For the years ended December 31, 2018, 2017 and 2016, we derived less than 10% of our total revenues from the sale of products and solutions related to our Contoura platform in the United States. In the future, we expect that the contributions to revenues from the sale of products and solutions relating to our BodyTite, EmbraceRF and Optimas platforms and women’s health related treatments in the United States will continue to be similar to the contributions to revenues for year ended December 31, 2018 (excluding the impact of new products from which we generate revenues). We do not anticipate that the platforms that are currently under development will contribute meaningfully to our revenues in 2019.

We sell our products directly in the United States, Canada, United Kingdom, Spain and India, and indirectly through third-party distributors in other countries. For the three months ended March 31, 2019, we derived approximately 88% of our revenues in North America compared to approximately 89% of our revenues for the three months ended March 31, 2018. For the year ended December 31, 2018, we derived approximately 89% of our revenues in North America compared to approximately 83% of our revenues for the year ended December 31, 2017.

We believe that there are opportunities for us to generate additional revenue from existing customers who are already familiar with our products. For example, one-third of our customers purchase a second platform to expand their treatment offerings within 18 months of their first transaction. We intend to continue to make significant investments in research and development activities, increase the number of sales representatives in our sales and marketing organization and introduce innovative next-generation pipeline products to our customers. As a result, we expect that certain existing customers will be candidates for technology upgrades to enhance the capabilities of their existing InMode products. In addition, as we continue to grow our support services program, we expect to increase the number of customers that enter into service contracts and extended warranties with us, which would result in additional recurring revenues. We also plan to expand our current product line in order to reach non-traditional customers, such as ENTs, ophthalmologists, general practitioners and aesthetic clinicians, and generate additional revenue.

Cost of Revenues

Our cost of revenues consists primarily of the expenses we incur to have our products manufactured and assembled by third parties and the direct costs we incur in order to obtain the materials, labor and overhead that are needed to manufacture and assemble our products.

Our cost of revenues also includes shipping, handling, service and warranty expenses, as well as salaries and personnel-related expenses for our operations management team, which is comprised of subcontractor supervisors and purchasing and quality control employees. We expect our cost of revenues to increase in absolute dollars primarily as, and to the extent, our revenue grows.

Our cost of revenues as a percentage of revenues has been, and we expect it to continue to be, affected by a variety of factors, including manufacturing costs, the average selling price of our products, the maturity of our existing products, promotional prices being offered to existing customers for our new products, and to a lesser extent the sales mix between the United States and the rest of the world as our average selling price in the United States tends to be higher than in the rest of the world. We expect our gross margin to be positively affected over time to the extent we are successful in reducing manufacturing costs as our sales volume increases and our average selling prices are maintained. However, our gross margin may fluctuate from period to period.

Research and Development Expenses

Our research and development expenses consist of salaries and personnel-related expenses, including share-based compensation expenses, for our employees that are primarily engaged in research, development and engineering activities. Our research and development expenses also include regulatory-related costs and

Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

Our revenues in North America increased by approximately $8.3 million, or 45%, to approximately $26.9 million for the three months ended March 31, 2019, compared to approximately $18.6 million for the three months ended March 31, 2018. This increase was primarily attributable to the expansion of our direct sales organization and an increase in clinical workshops for customers and prospects.

Our revenues in Europe increased by approximately $0.5 million, or 27%, to approximately $2.1 million for the three months ended March 31, 2019, compared to approximately $1.6 million for the three months ended March 31, 2018. This increase was primarily driven by the expansion of the direct sales team in the United Kingdom and Spain and their subsequent training, experience and familiarity with our products.

Our revenues from the sale of consumables and extended warranties for the three months ended March 31, 2019 increased by approximately 70% compared to the three months ended March 31, 2018. This increase was primarily attributable to the growth in our installed platform base, as well as increased patient and physician awareness of our technologies and product offerings through personal experience and referrals.

Cost of Revenues.   Our cost of revenues increased by approximately $0.7 million, or 21%, to approximately $4.3 million for the three months ended March 31, 2019, compared to approximately $3.5 million for the three months ended March 31, 2018. This increase was primarily due to increased costs to purchase manufactured products to support the higher sales volume. Our gross margin increased to approximately 86% for the three months ended March 31, 2019, compared to approximately 83% for the three months ended March 31, 2018, primarily due to a reduction in fixed expenses and service costs related to legacy products.

Sales and Marketing Expenses.   Our sales and marketing expenses increased by approximately $4.4 million, or 46%, to approximately $14.1 million for the three months ended March 31, 2019, compared to approximately $9.7 million for the three months ended March 31, 2018. This increase was primarily attributable to the expansion of our direct sales organization and an increase in compensation related to revenue increases in North America.

General and Administrative Expenses.   Our general and administrative expenses increased by approximately $0.2 million, or 18%, to approximately $1.1 million for the three months ended March 31, 2019, compared to approximately $0.9 million for the three months ended March 31, 2018. This increase was primarily attributable to an increase in salaries and related expenses resulting from our increased headcount and increased premiums and related expenses under our product liability insurance policy as a result of our increase in sales compared to the prior period.

Financial Income, Net.   Our financial income, net, was approximately $0.4 million for the three months ended March 31, 2019, compared to approximately $0.3 million for the three months ended March 31, 2018. This increase was primarily attributable to an increase in income from interest derived from our increased investments in government and corporate debt securities and bank deposits.

Income Tax.   Our income tax was approximately $0.2 million for the three months ended March 31, 2019, compared to a tax benefit of approximately $0.2 million for the three months ended March 31, 2018.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Our revenues in North America increased by approximately $44.8 million, or 100%, to approximately $89.4 million for the year ended December 31, 2018, compared to approximately $44.6 million for the year ended December 31, 2017. This increase was primarily attributable to the expansion of our direct sales organization, which increased sales in North America, the commercial launch of our Votiva platform, during the third quarter of 2017, and an increase in our average selling prices in North America.

Our revenues in Europe increased by approximately $1.1 million, or 24%, to approximately $5.7 million for the year ended December 31, 2018, compared to approximately $4.6 million for the year ended December 31, 2017. This increase was primarily driven by the establishment of a direct sales team in the United Kingdom and Spain, which increased sales in those regions and an increase in the number of distributors in Europe.

Our revenues from the sale of consumables and extended warranties for the year ended December 31, 2018 increased by approximately 107% compared to the year ended December 31, 2017. This increase was primarily attributable to the growth in our installed platform base, as well as patients and physicians becoming more familiar with our products.

Cost of Revenues.   Our cost of revenues increased by approximately $6.0 million, or 66%, to approximately $15.1 million for the year ended December 31, 2018, compared to approximately $9.1 million for the year ended December 31, 2017. This increase was primarily due to increased costs to purchase manufactured products to support the higher sales volume. Our gross margin increased to approximately 85% for the year ended December 31, 2018, compared to approximately 83% for the year ended December 31, 2017, primarily due to the increase in our average selling prices in North America, as well as a higher percentage of revenue derived from North America as compared to other regions, because our average selling price in the United States tends to be higher than in rest of the world.

Research and Development Expenses.   Our research and development expenses increased by approximately $1.6 million, or 62%, to approximately $4.2 million for the year ended December 31, 2018, compared to approximately $2.6 million for the year ended December 31, 2017. This increase was primarily attributable to the increased costs of materials used in research and development activities.

Sales and Marketing Expenses.   Our sales and marketing expenses increased by approximately $16.1 million, or 56%, to approximately $44.6 million for the year ended December 31, 2018, compared to approximately $28.5 million for the year ended December 31, 2017. This increase was primarily attributable to the expansion of our direct sales organization and an increase in compensation related to revenue increases in North America.

General and Administrative Expenses.   Our general and administrative expenses increased by approximately $0.4 million, or 10%, to approximately $4.8 million for the year ended December 31, 2018, compared to approximately $4.4 million for the year ended December 31, 2017. This increase was primarily attributable to an increase in salaries and related expenses resulting from our increased headcount and increased premiums and related expenses under our product liability insurance policy offset by a decrease in legal costs and expenses related to our patent litigations.

Legal Settlements and Loss Contingencies.   Our legal settlements and loss contingencies were approximately $8.0 million for the year ended December 31, 2018, compared to approximately $0 million for the year ended December 31, 2017. This increase was primarily attributable to a settlement agreement entered into in January 2019.

Financial Income, Net.   Our financial income, net was approximately $0.1 million for the year ended December 31, 2018, compared to approximately $0.8 million for the year ended December 31, 2017. This decrease in financial income, net was primarily attributable to loss from foreign currency translation and

We anticipate that the proceeds of this offering and cash flows from operations will be adequate to fund our expected capital expenditures and other cash requirements and commitments through at least the next 12 months. If existing cash and cash generated from operations are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. If we raise additional funds by issuing equity securities, our shareholders would experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our shareholders. Additional financing may not be available at all, or in amounts or on terms unacceptable to us. If we are unable to obtain additional financing, we may be required to delay the development, commercialization and marketing of our aesthetic medical products.

Cash Flows

Net cash provided by operating activities decreased by approximately $4.6 million, or 63%, to approximately $2.8 million for the three months ended March 31, 2019, compared to approximately $7.4 million for the three months ended March 31, 2018. This decrease was primarily attributable to the payment of a settlement agreement entered into in January 2019. Net cash provided by operating activities increased by approximately $22.3 million, or 152%, to approximately $36.9 million for the year ended December 31, 2018, compared to approximately $14.6 million for the year ended December 31, 2017. This increase was primarily attributable to an increase in our net income. As we expect our revenues to continue to grow, we anticipate our accounts receivables and inventory will similarly continue to grow, including our available working capital.

Net Cash Used in Investing Activities

Net cash used in investing activities increased by approximately $6.7 million, or 336%, to approximately $8.7 million for the three months ended March 31, 2019, compared to approximately $2.0 million for the three months ended March 31, 2018. This increase was primarily attributable to investment in short-term deposits and purchases of marketable securities, which increased from approximately $0 million and $9.4 million, respectively, as of March 31, 2018, to approximately $16.1 million and $29.1 million, respectively, as of March 31, 2019. Net cash used in investing activities increased by approximately $24.0 million, or 423%, to approximately $29.7 million for the year ended December 31, 2018, compared to approximately $5.7 million for the year ended December 31, 2017. This increase was primarily attributable to purchases of marketable securities, which increased from approximately $7.4 million as of December 31, 2017, to approximately $26.5 million as of December 31, 2018.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was approximately $0.1 million for the three months ended March 31, 2019, and approximately $0.2 million for the three months ended March 31, 2018. This decrease was primarily attributable to proceeds from exercise of options. Net cash provided by financing activities was approximately $0.2 million for the year ended December 31, 2018, and approximately $1.8 million for the year ended December 31, 2017. This decrease was primarily attributable to funding from a non-controlling partner in our Chinese joint venture in 2017.

The following table summarizes our contractual obligations and commitments as of March 31, 2019:

Foreign Currency Risk

Our consolidated revenues are generated primarily in U.S. dollars. In addition, a substantial portion of our consolidated costs are incurred in dollars. We believe that the U.S. dollar is the primary currency of the economic environment we operate in. Thus, the U.S. dollar is our primary functional and reporting currency.

Our transactions and balances originally denominated in dollars are presented at their original amounts. Balances in non-dollar currencies are translated into U.S. dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non-U.S. dollar transactions and other items in the consolidated statements of income (indicated below), the following exchange rates are used: (i) for transactions, exchange rates at transaction dates or average rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation and amortization), historical exchange rates. Currency translation gains and losses are presented in financial income or expenses, as appropriate.

A significant portion of our operations is conducted through operations in countries other than the United States and Israel. Revenues from our global operations that were recorded in U.S. dollars represented approximately 83% for the three months ended March 31, 2019, and 84% for the year ended December 31, 2018.

The functional currencies of our subsidiaries are their respective local currencies or the U.S. dollar. For purposes of consolidation, the financial statements of the Foreign Subsidiaries are translated into U.S. dollars in accordance with Accounting Standards Codification, or ASC, No. 830, “Foreign Currency Matters” (“ASC 830”). Assets and liabilities are translated at period-end exchange rates, while revenues and expenses are translated at exchange rates for each transaction. All gains and losses resulting from translation are presented in other comprehensive income within the consolidated statements of comprehensive income.

Interest Rate Risk

The primary objective of our investment activities is to preserve principal while maximizing the interest income we receive from our investments, without increasing risk. Currently, we do not have any outstanding borrowings. We intend to invest our cash balances primarily in bank deposits and fixed-income securities issued by corporations, the United States and non-U.S. governments. We are exposed to market risks resulting from changes in interest rates relating primarily to our financial investments in cash, cash

For a description of our related party transactions, see “Certain Relationships and Related Party Transactions.”

Our discussion and analysis of our financial condition and results of our operations is based upon our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, sales and expenses and related disclosure of contingent assets and liabilities. On a periodic basis, we evaluate our estimates, including those related to revenue recognition, warranty provision, income taxes and share-based compensation. We base our estimates on historical experience, authoritative pronouncements and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.

The following are our critical accounting policies and the significant judgments and estimates affecting the application of those policies in our consolidated financial statements.

Revenue Recognition

We recognize revenue in accordance with Accounting Standards Update No. 2014-09 (“ASC 606”) “Revenue from Contracts with Customers,” when our customers obtain control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of ASC 606, we perform the following five steps:

i.

identify the contract(s) with a customer;

ii.

identify the performance obligations in the contract — we determined that our arrangements are generally comprised of the following elements that are recognized as separate performance obligations: products, consumables and extended warranties. Installation and training services are not essential to the functionality of our products;

iii.

determine the transaction price;

iv.

allocate the transaction price to the performance obligations in the contract — we estimated the standalone selling prices of the services to be provided based on expected pricing of service contract purchased on a standalone basis and used the residual approach to estimate the selling price of the products; and

v.

recognize revenue when (or as) the performance obligation is satisfied.

We apply the five-step model to contracts only when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to our customer, after considering any price concession expected to be provided to the customer, when applicable. At contract inception, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

We recognize any variable consideration at the time that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration mainly includes price concessions related to installment sales contracts.

We also generate revenues from long-term maintenance contracts, or Extended Warranties. Revenue from Extended Warranties is recognized ratably, on a straight-line basis, over the period of the applicable service contract. Contract liabilities include deferred revenues derived from these maintenance agreements.

Revenue from repairs performed in the absence of Extended Warranties is recognized when the related services are performed and it is probable that we will collect the consideration we are entitled to. We classify the portion of contract liabilities not expected to be earned in the subsequent 12 months as long-term.

Income Taxes

We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”), using the liability method whereby deferred tax assets and liability account balances are determined based on the differences between financial reporting and the tax basis for assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We provide a valuation allowance, if necessary, to reduce deferred tax assets to the amounts that are more likely-than-not to be realized.

ASC 740 also contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes.

The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We accrue interest and penalties related to unrecognized tax benefits in our income taxes.

Share-Based Compensation

We account for share-based compensation in accordance with ASC 718 which requires that all share-based payments to employees and non-employees be recognized in our consolidated statements of income based on their fair values. The grant date fair value of share-based compensation is recognized as an expense over the requisite service period, net of estimated forfeitures. We recognize compensation expense for awards conditioned only on continued service that have a graded vesting schedule using the accelerated method based on the multiple-option award approach, and classify these amounts in our consolidated statements of income based on the department to which the related employee and non-employee reports.

We selected the binomial option-pricing model to determine the fair value of each option grant to our employees and non-employees.

The binomial model includes assumptions regarding dividend yields, expected volatility, and risk-free interest rates, early exercise multiple and expected lives. These assumptions reflect our best estimates, but these items involve inherent uncertainties based on market conditions that are generally outside of our

Expected dividend yield:    We have never declared or paid any cash dividends and we do not plan to pay cash dividends in the foreseeable future.

Risk-free interest rate:   The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the options granted in dollar terms.

Early exercise multiple:   Since our ordinary shares are not publicly traded, the early exercise multiple was based on academic empirical findings. The early exercise multiple of grantees in private companies is expected to be higher due to the lack of marketability that leads to a longer exercise period for options.

The following table shows information concerning options granted to employees and non-employees during the period from March 31, 2017 through June 30, 2019:

In preparation for our initial public offering, in January 2019 and February 2019, with the assistance of a third-party valuation firm, we performed prospective valuations of our ordinary shares as of December 31, 2018 and February 28, 2019 which determined that their fair value was $7.49 and $10.23 per ordinary share, respectively. In July 2018, with the assistance of a third-party valuation firm, we performed retrospective valuations of our ordinary shares as of December 31, 2016, May 31, 2017, March 31, 2018 and July 31, 2018, which determined that their fair values were $0.44, $0.58, $5.53 and $6.32 per ordinary share, respectively. For the purpose of determining our equity value, we used the discounted cash flow, or

Having determined our equity value, we allocated it among the different elements of our share capital using the option pricing method, or OPM. Under the OPM, each security — ordinary shares and options — is treated as a call option having an exercise price based on the amount and optimal conversion price. The value of the call option is determined using the Black-Scholes option pricing model. The Black-Scholes model requires significant assumptions and in particular the assumptions regarding the volatility of our ordinary shares.

Accounts Receivable and Allowance for Doubtful Accounts

Our accounts receivable balance, net of allowance for doubtful accounts, was approximately $7.4 million as of March 31, 2019, compared to approximately $7.5 million as of March 31, 2018. The allowance for doubtful accounts as of March 31, 2019 was approximately $0.4 million compared to approximately $0.3 million as of March 31, 2018. Our accounts receivable balance, net of allowance for doubtful accounts, was approximately $7.6 million as of December 31, 2018, compared to approximately $6.9 million as of December 31, 2017. The allowance for doubtful accounts for the years ended December 31, 2018 and 2017 was approximately $0.4 million. This increase is primarily attributable to increasing sales.

We maintain an allowance, or reserve, for doubtful accounts based upon known collectability issues. While our credit losses have historically been within our expectations and the allowances established, we may not continue to experience the same credit losses that we have in the past, which could cause our provisions for doubtful accounts to increase. We work to mitigate bad debt exposure through our credit evaluation policies and geographical dispersion of sales.

Inventories Valuation

We state all inventories at the lower of cost or net realizable value. We determine our finished products using a “moving average” method and we determine our raw materials using a “first in, first out” method. Our inventory balance was approximately $7.1 million as of March 31, 2019, compared to approximately $5.9 million as of March 31, 2018. Our inventory balance was approximately $7.0 million as of December 31, 2018, compared to approximately $5.0 million as of December 31, 2017. We review the need for inventory allowances when conditions indicate that the selling price could be less than cost due to physical deterioration, usage, obsolescence, reductions in estimated future demand and reductions in selling prices. We balance the need to maintain strategic inventory levels with the risk of obsolescence due to changing technology and customer demand levels. Unfavorable changes in market conditions may result in a need for inventory reserves that could adversely impact our gross margins. Conversely, favorable changes in demand could result in higher gross margins when we sell products.

Product Warranty and Service Costs