Company Quick10K Filing
InMode
20-F 2019-12-31 Filed 2020-02-18

INMD 20F Annual Report

Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosure on Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividends Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16. [Reserved]
Item 16A. Audit Committee Financial Experts
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
Note 1 - General
Note 2 - Significant Accounting Policies:
Note 3 - Marketable Securities and Fair Value Measurements:
Note 4 - Accounts Receivable:
Note 5 - Inventories:
Note 6 - Property and Equipment, Net:
Note 7 - Other Investments
Note 8 - Leases
Note 9 - Other Liabilities:
Note 10 - Commitments and Contingent Liabilities:
Note 11 - Shareholders' Equity:
Note 12- Taxes on Income:
Note 13 - Entity-Wide Disclosure:
Note 14 - Related Parties:
Note 15 - Subsequent Events:
EX-12.1 exhibit_12-1.htm
EX-12.2 exhibit_12-2.htm
EX-13.1 exhibit_13-1.htm
EX-13.2 exhibit_13-2.htm
EX-15.1 exhibit_15-1.htm

InMode Earnings 2019-12-31

Balance SheetIncome StatementCash Flow

20-F 1 zk2023956.htm 20-F


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 


FORM 20-F
 

(Mark One)
 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2019
 
OR
 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report
 
For the transition period from __________ to __________
 
Commission file number 001-39016
 


InMode Ltd.
(Exact name of Registrant as specified in its charter)
 
N/A
(Translation of Registrant’s name into English)
 
Israel
(Jurisdiction of incorporation or organization)
 
Tavor Building, Sha’ar Yokneam, P.O. Box 533
Yokneam, 2069206, Israel
 (Address of principal executive offices)
 
Moshe Mizrahy
+972-4-9096313
Tavor Building, Sha’ar Yokneam, P.O. Box 533
Yokneam, 2069206, Israel
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)


 

 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
 Trading Symbol(s)
 
Name of each exchange on which registered
Ordinary shares, par value NIS 0.01 per ordinary share
 
 INMD
 
Nasdaq Global Select Market
 
 
 
 
 
Securities registered or to be registered pursuant to Section 12(g) of the Act.
 
None
(Title of Class)
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
 
None
(Title of Class)
 


Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 32,799,082 Ordinary Shares, par value NIS 0.01 per share.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. 

Yes ☐ No ☒
 
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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

Yes ☒  No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
 
 
Emerging growth company ☒
 
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☒
 
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
 
U.S. GAAP ☒
 
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
 
Other ☐
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. N/A

☐ Item 17 ☐ Item 18
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒
 
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. N/A

Yes ☐ No ☐




TABLE OF CONTENTS
 
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Certain Definitions
 
In this Annual Report on Form 20-F, unless the context otherwise requires:
 

references to “InMode,” the “Company,” “us,” “we” and “our” refer to InMode Ltd., an Israeli company, and its consolidated subsidiaries;
 

references to “ordinary shares,” “our shares” and similar expressions refer to the Company’s ordinary shares;
 

references to “dollars,” “U.S. dollars” and “$” are to U.S. Dollars;
 

references to “shekels” and “NIS” are to New Israeli Shekels, the Israeli currency;
 

references to the “Companies Law” are to Israel’s Companies Law, 5759-1999, as amended;
 

references to the “SEC” are to the U.S. Securities and Exchange Commission; and
 

references to “U.S. GAAP” are to accounting principles generally accepted in the United States.
 
Forward-Looking Statements
 
The sections entitled “Item 3D. Key Information—Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects” and elsewhere in this Annual Report on Form 20-F contain forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this Annual Report on Form 20-F 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. In addition, the section of this Annual Report on Form 20-F entitled “Item 4. Information on the Company” contains industry and market data obtained from our own internal estimates and research as well as from industry publications and research, surveys and studies conducted by third parties. We have compiled, extracted and reproduced industry and market data from external sources that we believe to be reliable, but that we have not independently verified. Unless otherwise indicated in this Annual Report on Form 20-F, the basis for any statements regarding our competitive position is based on our own assessment and knowledge of the market in which we operate.
 
These forward-looking statements include, among other things, statements about:
 

our ability to identify and penetrate new markets for our products and technology;
 

our ability to innovate, develop and commercialize our existing and new products and expand beyond our traditional customer base;
 

our ability to obtain and maintain regulatory clearances;
 

our expectation regarding the safety and efficacy of our products;
 

the commercial experience of our management team;
 

our commercialization, marketing and manufacturing capabilities and strategy;
 

our estimates regarding the potential market opportunity for our products;
 

developments and projections relating to our competitors or our industry;
 

our ability to differentiate and distinguish our products from those of our competitors;
 
ii


our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
 

our sales and marketing capabilities and strategy in the United States and internationally;
 

the implementation of our business model, strategic plans for our business, products and technology;
 

our ability to attract or retain key personnel;
 

our intellectual property portfolio and position and our ability to protect our intellectual property rights;
 

our assessment of the impact to us of any third-party litigation claiming patent infringement; and
 

our expectations regarding the time during which we will remain an emerging growth company under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

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 Annual Report on Form 20-F, particularly in the section entitled “Item 3D. Key Information—Risk Factors”, that could cause actual results or events to differ materially from the forward-looking statements that we make. You should not put undue reliance on any forward-looking statements. Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements. Readers are encouraged to consult the Company’s filings made on Form 6-K, which are periodically filed with or furnished to the SEC.
 
iii

PART I
 
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Not applicable.
 
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
ITEM 3. KEY INFORMATION
 
A. Selected Financial Data
 
The following table sets forth our selected consolidated financial data for the periods ended and as of the dates indicated. The following selected historical consolidated financial data for the Company should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and other information provided elsewhere in this Annual Report on Form 20-F and our consolidated financial statements and related notes. The selected consolidated financial data in this section is not intended to replace the consolidated financial statements and is qualified in its entirety thereby. Except as otherwise indicated, all share amounts, per share amounts and related information in this Annual Report on Form 20-F have been adjusted retroactively for a 1-for-1.789 stock split of our ordinary shares by way of an issuance of bonus shares, which we refer to as the “Stock Split,” that was effected on July 24, 2019.
 
The historical results are not necessarily indicative of the results to be expected for any future periods. Our consolidated financial statements have been prepared in accordance U.S. GAAP.
 
The selected consolidated statements of income data for the fiscal years ended December 31, 2019, 2018 and 2017 and the selected consolidated balance sheet data as of December 31, 2019 and 2018 are derived from our audited consolidated financial statements included elsewhere in this Annual Report.

   
Year ended December 31,
 
   
2019
    2018
   
2017
 
   
(in thousands, except share and per share data)
 
Consolidated Statements of Income Data:
                 
Revenues          
 
$
156, 361
   
$
100,162
   
$
53,456
 
Cost of revenues          
   
20,238
     
15,057
     
9,053
 
Gross profit          
   
136,123
     
85,105
     
44,403
 
Operating expenses:
                       
Research and development          
   
5,699
     
4,180
     
2,575
 
Sales and marketing          
   
66,848
     
44,622
     
28,514
 
General and administrative          
   
3,958
     
4,814
     
4,364
 
Legal settlements and loss contingencies
   
     
8,000
     
 
Total operating expenses          
   
76,505
     
61,616
     
35,453
 
Income from operations          
 
$
59,618
   
$
23,489
   
$
8,950
 
Finance income, net          
   
2,423
     
136
     
849
 
Income before taxes          
 
$
62,041
   
$
23,625
   
$
9,799
 
Income taxes          
   
883
     
1,260
     
980
 
Net income          
 
$
61,158
   
$
22,365
   
$
8,819
 
Less: net income (loss) attributable to non-controlling interests          
   
13
     
(6
)
   
 
Net income attributable to Inmode Ltd.
 
$
61,145
   
$
22,371
   
$
8,819
 
Net income per share:
                       
Basic          
 
$
2.09
   
$
0.82
   
$
0.29
 
Diluted          
 
$
1.60
   
$
0.62
   
$
0.26
 
Weighted average number of shares outstanding used in computation of net income per share:
                       
Basic          
   
29,231,476
     
26,613,942
     
26,283,548
 
Diluted          
   
38,058,625
     
35,006,644
     
29,669,922
 
 

   
As of December 31,
 
     
2019
     
2018
     
2017
 
   
(in thousands)
 
Consolidated Balance Sheet Data:
                       
Cash and cash equivalents          
 
$
44,727
   
$
24,721
   
$
17,593
 
Working capital          
   
180,714
     
48,335
     
23,694
 
Total assets          
   
218,385
     
81,056
     
39,442
 
Total liabilities          
   
38,582
     
34,193
     
16,923
 
Redeemable non-controlling interests
   
-
     
2,187
     
3,066
 
Retained earnings          
   
93,986
     
32,971
     
10,819
 
Non-controlling interests          
   
3,737
     
1,413
     
-
 
Total shareholders’ equity          
   
179,803
     
44,676
     
19,453
 
 
B. Capitalization and Indebtedness
 
Not applicable.
 
C. Reasons for the Offer and Use of Proceeds
 
Not applicable.
 
D. Risk Factors
 
Our business faces significant risks. You should carefully consider all of the information set forth in this Annual Report on Form 20-F and in our other filings with the SEC, including the following risk factors which we face and which are faced by our industry. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may have similar adverse effects on us. This report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements, as a result of certain factors including the risks described below and elsewhere in this Annual Report on Form 20-F and our other SEC filings. See “Forward-Looking Statements” above.
 
Risks Related to Our Business and Industry
 
Our success depends upon market acceptance of our products.
 
We design, develop, manufacture and commercialize innovative minimally and non-invasive aesthetic medical products. We have developed products that apply our technology to rejuvenate the skin’s appearance through body and face reshaping and tightening, the treatment of superficial benign vascular and pigmented lesions, hair removal, wrinkle reduction and the treatment of acne, cellulite and leg veins. We were established in 2008 and have expanded our product offerings to include eight product platforms: BodyTite, Optimas, Votiva, Contoura, Triton, EmbraceRF, Evolve and Evoke. We expect to introduce at least one additional product platform by the end of 2020. If we fail to significantly penetrate current or new markets with our products or fail to properly manage the manufacturing and distribution of multiple products, our business, financial condition and results of operations could be negatively impacted. The success of our products depends on adoption and acceptance of our technology. The rate of adoption and acceptance may be affected adversely by perceived issues relating to quality and safety, customers’ reluctance to invest in new technologies, the cost of competitive treatments and widespread acceptance of other technologies. Our business strategy is based, in part, on our expectation that we will continue to make novel product introductions and upgrades that we can sell to new and existing users of our products, and that we will be able to identify new markets for our existing technologies.
 
To increase our revenues, we must:
 

continue to further penetrate our existing, traditional customer base, including plastic and facial surgeons, aesthetic surgeons, dermatologists and obstetricians/gynecologists, or OB/GYNs, and drive recurring revenues by demonstrating to our customers that our products or product upgrades would be an attractive revenue-generating addition to their practices;
 
2


expand our customer base to include non-traditional customers, such as ear, nose and throat physicians, or ENTs, opthalmologists, general practitioners and aesthetic clinicians;
 

leverage our existing technology to expand into new minimally and non-invasive applications that either add to or significantly improve our current products;
 

increase our sales presence to target and expand our market globally;
 

actively pursue business development opportunities including potential acquisitions and strategic partnerships to augment our product and technology portfolio; and
 

expand and maintain our intellectual property and patent portfolio.

In addition, the aesthetic solutions market is highly competitive and dynamic and marked by rapid and substantial technological development and product innovations. Demand for our products could be diminished by equivalent or superior products and technologies offered by competitors.
 
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:


consumer disposable income and access to consumer credit;
 

the cost of procedures performed using our products;
 

the cost, safety and effectiveness of alternative treatments, including treatments which are not based upon laser or other energy-based technologies and treatments which use pharmaceutical products;
 

the success of our sales and marketing efforts;
 

the education of our customers and patients on the benefits and uses of our products compared to competitors’ products and technologies; and
 

consumer confidence, which may be impacted by economic and political conditions.

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.
 
3

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 also experience, among other things, delays in the recognition of revenues or loss of revenues, particularly in the case of new products; legal actions by customers, patients and other third parties, which could result in substantial judgments against us or settlement costs; action by regulatory bodies; and diversion of development, engineering and management resources.
 
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:


implementing appropriate operational and financial systems;
 

expanding our sales and marketing infrastructure and capabilities;
 

ensuring compliance with applicable Food and Drug Administration, or FDA, and other regulatory requirements;
 

providing adequate training and supervision to maintain high quality standards; and
 

preserving our culture and values.

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.
 
4

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:


customer adoption of our products;
 

the willingness of individuals to pay directly for aesthetic medical procedures, in light of the lack of reimbursement by third-party payors;
 

continued availability of attractive equipment leasing terms for our customers, which may be negatively influenced by interest rate increases;
 

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;
 

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.
 
5

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;
 

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., Apyx Medical Corporation, Venus Concept Inc. and Viveve Medical, Inc., as well as by private companies such as Cynosure LLC, 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 the Company and our products from our competitors and their products, and includes the following factors:


product performance;
 

product pricing;
 

product safety;
 

intellectual property protection;
 

quality of customer support;
 

success and timing of new product development and introductions; and
 

development of successful distribution channels.

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.
 
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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 introduction of disruptive technological breakthroughs, whether pharmaceutical or other newer therapeutic solutions, may present an additional threat to our success in our target markets.
 
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.
 
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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.) sales accounted for approximately 21% of our total revenue for the year ended December 31, 2019. We believe that an increasing percentage of our future revenue will come from international sales as we continue to 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.
 
International sales are subject to a number of risks, including:


difficulties in staffing and managing our foreign operations;
 

difficulties in penetrating markets in which our competitors’ products are more established;
 

reduced protection for intellectual property rights in some countries;
 

export restrictions, trade regulations and foreign tax laws;
 

fluctuating foreign currency exchange rates;
 

obtaining and maintaining foreign certification and compliance with other regulatory requirements;
 

customs clearance and shipping delays; and
 

political and economic instability.

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.
 
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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:
 

loss of customer orders and delay in order fulfillment;
 

damage to our brand reputation;
 

increased cost of our warranty program due to product repair or replacement;
 

inability to attract new customers;
 

diversion of resources from our manufacturing and research and development departments into our service department;
 

product recalls; and
 

legal action.

The occurrence of any one or more of the foregoing could materially harm our business, financial condition and results of operations.
 
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.
 
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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.
 
Disruptions or interruptions to our suppliers could occur for many reasons, including fire, floods, hurricanes, typhoons, droughts, tsunamis, volcanoes, earthquakes, disease or other similar natural disasters, unplanned maintenance or other manufacturing problems, labor shortages, power outages or shortages, telecommunications failures, strikes, transportation interruption, government regulation, terrorism or other extraordinary events, including epidemics and related travel restrictions, such as the recent outbreak of the Coronavirus originating in Wuhan, China.  Such disruptions may continue over a sustained period and could cause direct injury or damage to our supplier’s employees and property with significant indirect consequences to us.  Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start manufacturing, each of which could negatively affect our ability to fill customer orders and our business and financial performance.
 
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 recognized insurers in such amounts and covering such risks as is sufficient for the conduct of our business and as is customary for companies engaged in similar businesses, our insurance coverage may be inadequate in amount or scope sufficient to provide us with adequate coverage against all potential liabilities, or we may be unable to maintain such insurance or obtain new insurance in the future. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry and reduce product sales. Product liability claims in excess of our insurance coverage would be paid out of cash reserves harming our financial condition and reducing our operating results. In addition, if our cash reserves are not sufficient to cover such contingency, our financial results could be harmed.
 
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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.
 
The expense and potential unavailability of insurance coverage for our customers and the 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.
 
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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 cash available to us for other uses, and any stock acquisition would be dilutive to our shareholders. While we from time to time evaluate potential collaborative projects and acquisitions of businesses, products and technologies, and anticipate continuing to make these evaluations, we have no present understandings, commitments or agreements with respect to any acquisitions or collaborative projects.
 
We may need to raise 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 funds, we may raise 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.
 
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 NIS, 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 us to fund our operations in the countries that use those other currencies. To date, we have not found it necessary to hedge the risks associated with fluctuations in currency exchange rates. In the future, if we do not successfully engage in hedging transactions, our results of operations may be subject to losses from fluctuations in foreign currency exchange rates.
 
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.
 
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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 reimbursable by any payor, as well as state consumer protection laws. Although we currently are not subject to transparency laws, we may become subject to such laws in the future. Such laws could include requirements to disclose payments to certain healthcare professionals and healthcare entities or disclosures related to sales and marketing, or that could require healthcare professionals to provide notice to their patients of ownership or financial arrangements with manufacturers.
 
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.
 
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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 continue to 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 have implemented 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.
 
Risks Related to Our Intellectual Property
 
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 patents in the United States, which we consider to be our main target market, and South Korea. Substantially all of our revenues for the years ended December 31, 2019, 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 five 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.
 
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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.
 
If it appears necessary or desirable, we may try to obtain licenses for those patents or intellectual property rights that we are allegedly infringing, may infringe, or desire to use. Although holders of these types of intellectual property rights commonly offer these licenses, we cannot assure you that licenses will be offered or that the terms of any offered licenses will be acceptable to us. Our failure to obtain a license for key intellectual property rights from a third party for technology used by us could cause us to incur substantial liabilities and to suspend the manufacturing and selling of products utilizing the technology.
 
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:


we or our collaborators may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our products or processes do not infringe those third parties’ patents;
 

we or our collaborators may participate at substantial cost in International Trade Commission proceedings to abate importation of products that would compete unfairly with our products
 
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if our competitors file patent applications that claim technology also claimed by us, we may be required to participate in interference, derivation or opposition proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide a third party with a dominant patent position;
 

if third parties initiate litigation claiming that our processes or products infringe their patent or other intellectual property rights, we and our collaborators will need to defend against such proceedings;
 

if third parties initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory judgment that their product, service, or technology does not infringe our patents or patents licensed to us, we will need to defend against such proceedings;
 

we may be subject to ownership disputes relating to intellectual property, including disputes arising from conflicting obligations of consultants or others who are involved in developing our products; and
 

if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate its patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and we and our collaborators would need to defend against such proceedings.

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:
 

incur substantial monetary liability for infringement or other violations of intellectual property rights, which we may have to pay if a court decides that the product, service, or technology at issue infringes or violates the third party’s rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages and the third party’s attorneys’ fees;
 

pay substantial damages to our customers or end users to discontinue use or replace infringing technology with non-infringing technology;
 

stop manufacturing, offering for sale, selling, using, importing, exporting or licensing the product or technology incorporating the allegedly infringing technology or stop incorporating the allegedly infringing technology into such product, service, or technology;
 

obtain from the owner of the infringed intellectual property right a license, which may require us to pay substantial upfront fees or royalties to sell or use the relevant technology and which may not be available on commercially reasonable terms, or at all;
 

redesign our products, services, and technology so they do not infringe or violate the third party’s intellectual property rights, which may not be possible or may require substantial monetary expenditures and time;
 

enter into cross-licenses with our competitors, which could weaken our overall intellectual property position;
 

lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property against others;
 

find alternative suppliers for non-infringing products and technologies, which could be costly and create significant delay; or
 

relinquish rights associated with one or more of our patent claims, if our claims are held invalid or otherwise unenforceable.

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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 Radio Frequency, or 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 the Company name or the names of our products. If we have to change the name of the 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 claims. If any of these claims succeed, we may be forced to pay damages on behalf of our customers, suppliers or distributors, or may be required to obtain licenses for the products or services they use. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using our products or services.
 
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.
 
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
 
Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented, declared generic or determined to be infringing on other marks. We may not be able to protect our rights in these trademarks and trade names, which we need in order to build name recognition with potential partners or customers in our markets of interest. If we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected.
 
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We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of their former employers or other third parties.
 
We do and may employ individuals who were previously employed at universities or other pharmaceutical or medical device companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, and we are not currently subject to any claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties, we may in the future be subject to such claims. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
 
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.
 
Intellectual property rights do not necessarily address all potential threats to our business.
 
The degree of future protection afforded by our intellectual property rights is uncertain because even granted intellectual property rights have limitations, and may not adequately protect our business, provide a barrier to entry against our competitors or potential competitors or permit us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the practice of our technology, we may not be able to fully exercise or extract value from our intellectual property rights. The following examples are illustrative:


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;
 

we or any future strategic partners might not have been the first to conceive or reduce to practice the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;
 

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

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

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

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;
 

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;
 

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;
 

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

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

the patents of others may have an adverse effect on our business.
 
Should any of these events occur, they could significantly harm our business and results of operations.
 
Risks Related to Government Regulation
 
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.
 
Medical devices may be marketed only for the indications for which they are approved or cleared. We have obtained 510(k) clearance for the current treatments for which we offer our products. However, our clearances can be revoked under certain circumstances. If the FDA disagrees with us concerning the scope or applicability of a clearance or exemption with respect to a device, we may be required to change our promotional and/or labeling materials and/or stop marketing that device. Changes or modifications to an FDA-cleared device that could significantly affect its safety or effectiveness or that constitute a major change or modification in its intended use would require a new 510(k) clearance or possibly premarket approval. We may not be able to obtain additional 510(k) clearances or premarket approvals for new products or for modifications to, or additional indications for, our existing products in a timely fashion, or at all. Delays in obtaining future clearances or approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our revenue and future profitability.
 
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We have made modifications to our devices in the past and may make additional modifications in the future that we believe do not or will not require additional clearances or approvals. If the FDA disagrees, and requires new clearances or approvals for the modifications, we may be required to recall and to stop marketing the modified devices. We also are subject to the FDA’s Medical Device Reporting regulations, which require us to report to the FDA if our products cause or contribute to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury.
 
The FDA or the applicable foreign regulatory bodies can delay, limit or deny clearance or approval of a device for many reasons, including:


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;
 

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;
 

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

the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required;
 

our inability to demonstrate that the clinical and other benefits of the device outweigh the risks;
 

the manufacturing process or facilities we use may not meet applicable requirements; and
 

the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance or approval.

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 whether we or our manufacturers are in compliance with applicable laws, including the cGMP regulations set forth in the FDA’s Quality System Regulation/Medical Device Current Good Manufacturing Practices, or QSR, including those relating to specifications, development, documentation, validation, testing, quality control and product labeling. A determination that we are in violation of FDA or other applicable foreign regulations or any of our product clearances or approvals could lead to imposition of civil penalties, including fines, product recalls or product seizures and, in certain cases, criminal sanctions.
 
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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 years ended December 31, 2019, 2018 and 2017, we derived approximately 13%, 23% and 21%, respectively, of our total U.S. revenues from our FormaV and FractoraV handpieces and related products. We informed the FDA that the FormaV 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 uncleared or unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement, or exclusion from participation in federal health programs. In each event, our reputation could be damaged and the use of our products in the marketplace could be impaired, or our business could face significant hardship. While no third-party claims have been brought against us to date, it is possible that the FDA letter may lead to private litigation by third parties, potentially including purchasers of FormaV and FractoraV handpieces or patients who were treated using those handpieces.
 
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.
 
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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:


warning letters or untitled letters, fines, injunctions, consent decrees and civil penalties;
 

repair, replacement, refunds, recalls, termination of distribution, administrative detention or seizure of our products;
 

operating restrictions or partial suspension or total shutdown of production;
 

refusing our requests for 510(k) clearance or premarket approval of new products, new intended uses, or modifications to existing products;
 

withdrawing 510(k) clearances or premarket approvals or foreign regulatory approvals that have already been granted, resulting in prohibitions on sales of our products; and
 

criminal prosecution.

The occurrence of any of these events could harm our business, financial condition and results of operations.
 
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 QSR. The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our products. Because our products use optical energy, including lasers, our products also are covered by a performance standard for lasers set forth in FDA regulations. The laser performance standard imposes specific record-keeping, reporting, product testing and product labeling requirements. These requirements include affixing warning labels to laser products, as well as incorporating certain safety features in the design of laser products. The FDA enforces the QSR and laser performance standards through periodic announced or unannounced inspections. We and our subcontractors are subject to such inspections. Although we place our own quality control employee at each of our subcontractor’s facilities, we do not have complete control over our subcontractor’s compliance with these standards.
 
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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.
 
Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA. We may initiate voluntary withdrawals or corrections for our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, it could require us to report those actions as recalls and we may be subject to enforcement action. A future recall announcement could harm our reputation with customers, potentially lead to product liability claims against us and negatively affect our sales.
 
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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.
 
Risks Related to Our Ordinary Shares
 
The price of our ordinary shares may be volatile, and you may lose all or part of your investment.
 
The price of our ordinary shares has fluctuated and is likely to continue to fluctuate.  The market price for our ordinary shares could be highly volatile and may fluctuate substantially as a result of a number of factors, including:
 

fluctuations in our operating results or the operating results of our competitors;
 

changes in the estimates of the future size and growth rate of our market opportunities;
 

changes in the general economic, industry and market conditions;
 

success of competitive technologies and procedures;
 

recruitment or departure of key personnel;
 

the announcement of new products or enhancements by us or our competitors;
 
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the commencement or outcome of litigation against us, or involving our general industry or both;
 

changes in earnings estimates, investors’ perceptions, recommendations by securities analysts or our failure to achieve analysts’ earnings estimates;
 

developments in our industry, including the announcement of significant new technologies, procedures or acquisitions by us or our competitors;
 

actual or expected sales of our ordinary shares by the holders of our ordinary shares; and
 

the trading volume of our ordinary shares.
 
In addition, the stock prices of many newly public companies and companies in the medical device industry have experienced wide fluctuations that often have been unrelated to the operating performance of those companies. Prior to our initial public offering in August 2019, there was no public market for our ordinary shares and an active public trading market for our ordinary shares may not be sustained. An inactive market may 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. These factors and price fluctuations may materially and adversely affect the market price of our ordinary shares.
 
A significant share ownership position in the Company is held by a small number of existing shareholders, who may make decisions with which you may disagree.
 
As of December 31, 2019, our directors and officers, along with our two largest shareholders, in the aggregate, currently beneficially own or control approximately 58% of our outstanding ordinary shares. The interests of these shareholders may differ from your interests. These shareholders are not prohibited from selling a controlling interest in us to a third party. While these shareholders do not have the right to appoint board members directly, these shareholders, acting together, could exercise significant influence over our operations and business strategy and have sufficient voting power to influence all matters requiring approval by our shareholders, including the ability to elect or remove directors, to approve or reject mergers or other business combination transactions, the raising of future capital and the amendment of our articles of association, which govern the rights attached to our ordinary shares. In addition, this concentration of ownership may delay, prevent or deter a change in control, or deprive you of a possible premium for your ordinary shares as part of a sale of the Company. Furthermore, this concentration of ordinary share ownership may adversely affect the trading price for our ordinary shares because investors may perceive disadvantages in owning shares in companies where persons have a significant interest.
 
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 newly public company, whose ordinary shares are listed in the United States, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the Nasdaq Global Select Market, or Nasdaq, as applicable to foreign private issuers, and other applicable federal and state securities rules and regulations. Complying 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. In addition, we expect to lose our status as an emerging growth company and be deemed a “large accelerated filer” as of December 31, 2020. 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 and will face increased disclosure requirements as a non-emerging growth company (see “—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. Once we lose emerging growth status, the costs and demands placed upon our management are expected to increase”). Our management will be required to devote substantial time and attention to our public company reporting obligations and other ongoing compliance matters.
 
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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 relies 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. As a newly public company, we have only limited research coverage by equity research analysts. 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 acquire other companies by using our ordinary shares as consideration.
 
As of December 31, 2019, there are 32,799,082 ordinary shares outstanding.  Of our outstanding ordinary shares, all of the ordinary shares sold in our initial public offering (except for ordinary shares purchased in the directed share program, which were subject to a 180-day lock-up period that expired on February 4, 2020) are freely tradable by persons other than our “affiliates” without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act. All of the other outstanding ordinary shares are available for sale to the public market only if they are registered under the Securities Act, or if they qualify for an exemption from registration under Section 4(a)(1) of the Securities Act or Rule 144 thereunder.  Sales of these shares, or the perception that these sales may occur in the future, into the market could cause the market price of our ordinary shares to drop significantly.
 
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 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. 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 incur significant increased costs as a result of operating as a public company in the United States, and our management is required to devote substantial time to new compliance initiatives.
 
As a public company whose ordinary shares are listed in the United States, we are 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 is costly and time consuming. We may 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.
 
In addition, we expect to lose our emerging growth company status and be deemed a “large accelerated filer” as of December 31, 2020. Once we no longer qualify as an emerging growth company, we expect to incur significant management time and cost to comply with the more stringent reporting requirements applicable to “accelerated filers,” including complying with auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.
 
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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, 2019, and we do not expect to be classified as a PFIC for the current year ending December 31, 2020 or the foreseeable future. However, the determination of whether we are a PFIC is a factual determination made annually based on all the facts and circumstances and thus is subject to change. 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 the relevant tests will be outside our control. Therefore, no assurance can be given that we will not be a PFIC for any taxable year.
 
If we are determined to be a PFIC at any time during which a U.S. Holder (as defined in “Item 10E. Additional Information—Taxation — Material U.S. Federal Income Tax Considerations to U.S. Holders”) holds our shares, such U.S. Holder may be subject to materially adverse consequences, including additional U.S. federal income tax liability and tax filing obligations. See “Item 10E. Additional Information—Taxation— Material U.S. Federal Income Tax Considerations to U.S. Holders— Passive Foreign Investment Company Considerations.” U.S. Holders are strongly urged to consult their tax advisors as to whether or not we will be a PFIC.
 
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. Once we lose emerging growth status, the costs and demands placed upon our management are expected to increase.
 
We are an emerging growth company, as defined in the JOBS Act, and 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:
 

being permitted to provide only two years of audited financial statements, in addition to any required unaudited condensed consolidated interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
 

not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting; and
 

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements.
 
We expect to lose our emerging growth company status and be deemed a “large accelerated filer” as of December 31, 2020. 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 and will face increased disclosure requirements as a non-emerging growth company. Until such time that we lose emerging growth company status, 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. Once we lose emerging growth company status, we expect the costs and demands placed upon our management to increase, as we would have to comply with additional disclosure and accounting requirements.
 
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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. As a newly public reporting company, we will be in a continuing process of developing, establishing, and maintaining internal controls and procedures that will allow our management to report on, and our independent registered public accounting firm to attest to, our internal controls over financial reporting if and when required to do so under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404. Although our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 until the date we are no longer an emerging growth company (which we expect to occur as of December 31, 2020), our management is required to report on our internal controls over financial reporting under Section 404. 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 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 are 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 are not 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 are 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 also have four months after the end of each fiscal year to file our annual report with the SEC and are not required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders are 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 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 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 are permitted 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 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 “Item 16G. Corporate Governance” for details on the differences between Israeli corporate governance practices and comparable U.S. requirements and other home country practices we 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.
 
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Risks Related to Our Operations in Israel
 
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 interruption or curtailment of trade between Israel and its present trading partners could affect adversely our operations. Ongoing and revived hostilities or other Israeli political or economic factors, could prevent or delay shipments of our products, harm our operations and product development and cause our sales to decrease. In the event that hostilities disrupt the ongoing operation of our facilities or the airports and seaports on which we depend to import and export our supplies and products, our operations may be materially adversely affected. Furthermore, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries, principally those in the Middle East, still restrict business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continues or increases. These restrictive laws and policies may seriously limit our ability to sell our products in these countries and may have an adverse impact on our operating results, financial conditions or the expansion of our business.
 
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.
 
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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 Annual Report on Form 20-F 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 U.S. or foreign court.
 
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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 Israeli law. Specifically, we must produce all of our products, directly or through subcontractors, in Israel. Additionally, for any given year, we must meet one of the following conditions: (i) our revenues from any one country cannot exceed 75% of our total revenues, or (ii) 25% or more of our total revenues are derived from sales in a country with a population of at least 14 million. If we fail to meet these conditions in the future, the tax benefits could be canceled and we could be required to refund any tax benefits we might already have enjoyed. These tax benefits may not be continued in the future at their current levels or at any level. The termination or reduction of these tax benefits will increase our expenses in the future, which would reduce our expected profits or increase our losses. Additionally, if we increase our activities outside of Israel, for example, by future acquisitions, our increased activities generally will not be eligible for inclusion in Israeli tax benefit programs.
 
Provisions of our amended and restated articles of association and Israeli law may delay, prevent or make difficult an acquisition of the Company which could prevent a change of control even when the terms of such transaction are favorable to us and our shareholders and, therefore, could depress the price of our ordinary shares.
 
As a company incorporated under the laws of the State of Israel, we are subject to Israeli corporate law. Israeli corporate law regulates mergers, requires tender offers for acquisitions of ordinary shares above specified thresholds, requires special approvals for transactions involving directors, officers or certain significant shareholders and regulates other matters that may be relevant to these types of transactions. In addition, our amended and restated articles of association contain provisions that may make it more difficult to acquire us, such as classified board provisions. Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to some of our shareholders. These provisions of our amended and restated articles of association and Israeli law may delay, prevent or make difficult an acquisition of us, which could prevent a change of control and therefore depress the price of our ordinary shares.
 
Your rights and responsibilities as a holder of our ordinary shares will be governed by Israeli law, which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.
 
The rights and responsibilities of the holders of our ordinary shares are governed by our articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, a shareholder of an Israeli company has certain duties, including to act in good faith and fairness and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to the company’s articles of association, an increase of the company’s authorized share capital, a merger of the company, and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of an officer of the company has a duty to act in fairness towards the company with regard to such vote or appointment. See “Item 6C. Directors, Senior Management and Employees—Board Practices—Approval of Related Party Transactions under Israeli Law” for additional information. There is limited case law available to assist in understanding the nature of these duties or the implications of these provisions. These provisions may be interpreted to impose additional obligations on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.
 
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ITEM 4. INFORMATION ON THE COMPANY
 
A. History and Development of the Company
 
We were incorporated in the State of Israel on January 2, 2008. In November 2017, our corporate name was changed from Invasix Ltd. to InMode Ltd. Our registered office is located at Tavor Building, Sha’ar Yokneam, P.O. Box 533, Yokneam 2069206, Israel. The phone number of our registered office is +972-4-9096313. Our wholly‑owned subsidiary, Invasix Inc., a Delaware corporation, acts as our agent for service of process in the United States and is located at 20996 Bake Parkway, Suite 106, Lake Forest, California 96230. The phone number for Invasix Inc. is 949-387-5711.
 
In August 2019, we completed our initial public offering of 5,000,000 of our ordinary shares at an initial public offering price of $14.00 per ordinary share. The effective date of the registration statement on Form F-1 (File No. 333-232615) was August 7, 2019. Also during August 2019, the underwriters partially exercised their over-allotment option and purchased an additional 500,000 ordinary shares at the same price per share. Our ordinary shares commenced trading on Nasdaq on August 8, 2019, under the symbol “INMD.”
 
Our capital expenditures for the years ended December 31, 2019, 2018 and 2017 amounted to approximately $0.7 million, $0.4 million and $0.2 million, respectively. Our capital expenditures consist principally of the purchase of molds for manufacturing. We anticipate our capital expenditures in 2020 to be up to $1 million and to be financed from our existing cash and cash equivalents, including the net proceeds from our August 2019 initial public offering.
 
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers like InMode that file electronically with the SEC. The address of that site is www.sec.gov. We maintain a corporate website at www.inmodemd.com. The information contained on our website or available through our website is not incorporated by reference into and should not be considered a part of this Annual Report on Form 20-F, and the reference to our website in this Annual Report on Form 20-F is an inactive textual reference only.
 
B. Business Overview
 
Overview
 
We are a leading global provider of innovative, energy-based, minimally-invasive surgical aesthetic and medical treatment solutions. Within the global aesthetics market, our products and solutions are primarily designed to address three energy-based treatment categories comprised of: (i) face and body contouring; (ii) medical aesthetics; and (iii) women’s health. We have developed and commercialized products utilizing medically-accepted RF energy technology, which can penetrate deep into the subdermal fat, allowing adipose tissue remodeling. We believe our RF energy-based proprietary technologies — (i) Radio Frequency Assisted Lipolysis, or RFAL, (ii) Deep Subdermal Fractional RF (iii) Simultaneous Fat Destruction and Skin Tightening and (iv) Deep Heating Collagen Remodeling — represent a paradigm shift in the minimally-invasive aesthetic solutions market. These technologies are used by physicians to remodel subdermal adipose, or fatty, tissue in a variety of procedures including liposuction with simultaneous skin tightening, face and body contouring and ablative skin rejuvenation treatments. Our products, developed with our proprietary RF energy-based technologies, overcome many of the shortcomings of other aesthetic options by delivering surgical-grade results while significantly minimizing risks of scarring, downtime, pain and other complications typically accompanying surgical procedures. In addition to our minimally-invasive solutions, we design, develop, manufacture and market differentiated, non-invasive medical aesthetic products that target a wide array of procedures. These include 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, which we market and sell traditionally to plastic and facial surgeons, aesthetic surgeons, dermatologists and OB/GYNs may be used on a variety of body parts including the face, neck, abdomen, upper arms, thighs and intimate feminine regions.
 
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In addition to the existing group of patients who currently undergo full surgical aesthetic procedures, we believe our minimally-invasive solutions satisfy an unmet market demand in two incremental groups of patients: (i) those whose skin laxity or other physical attributes have previously precluded them from undergoing surgical aesthetic procedures and (ii) those who would entertain the idea of surgical or minimally-invasive aesthetic procedures, but are averse to the associated costs, downtime and potential safety risks. We believe these patient populations will continue to represent a significant opportunity for our differentiated minimally-invasive aesthetic solutions.
 
We believe our products have consistently been at the forefront of technological development in the aesthetic solutions market. Since 2010, we have launched eight product platforms: BodyTite, Optimas, Votiva, Contoura, Triton, EmbraceRF, Evolve and Evoke. Each product consists of the following components: a platform that incorporates multiple energy sources, one or more handpieces or hands-free applicators, our proprietary software and a simple user interface with touch screen. Our platforms have a small footprint and are lightweight compared to our competitors’ systems, which are typically larger and heavier. Our products can be upgraded easily by the user in order to perform additional treatments by adding handpieces, hands-free applicators and/or installing software in the existing platform. The ease of upgrades enables our customers to meet demand for aesthetic solutions through additional service offerings.
 
Our focus on innovation has resulted in a strong track record of sustained new and next-generation product development. We believe our ability to bring new products to market and continuously innovate is a distinct competitive advantage. We launched two new product platforms in the second half of 2019 and expect to launch at least one new product platform by the end of 2020, all of which are, or will be, based on our existing RF energy-based proprietary technology, with the goal of further penetrating the market for surgical aesthetic and medical treatment solutions. Our three new product platforms are intended to address the treatment of body skin tightening (Evolve), face and neck skin tightening (Evoke), and cellulite appearance (CelluTite). The Evolve platform received FDA clearance in June 2019 and was introduced to the market during the second half of 2019. We submitted a premarket notification to the FDA pursuant to Section 510(k) of the Food, Drug and Cosmetic Act, or FDCA, for our Evoke platform in July 2019. Upon receipt of FDA clearance, we introduced our Evoke platform to the market during the second half of 2019. Our CelluTite platform is comprised of three handpieces, each of which has been cleared by the FDA, intended to address the treatment of cellulite appearance. Two of the handpieces are cleared for use in dermatological and general surgical procedures for electrocoagulation and hemostasis of tissues including fat, and the third handpiece has been cleared for use in treatments for the temporary reduction in the appearance of cellulite. We expect to introduce the CelluTite platform to the market in late 2020. The CelluTite platform is subject to the same FDA 510(k) clearance process as our current products.
 
We expect that these new product platforms will complement our existing portfolio of products, allowing us to increase our offerings to existing customers and attract new customers. We believe that introducing new product platforms is important in order to satisfy consumer demand and respond to evolving technological developments.
 
In response to customers’ desires to enhance and expand their offering of our aesthetic and wellness office-based procedures, we are developing additional RF energy-based platforms, handpieces and applicators targeted towards several medical specialties.
 

For OB/GYNs, we currently sell the Votiva platform, which includes two handpieces, FormaV and Morpheus8. We are currently developing additional handpieces and applicators as part of this platform to assist with the following procedures:
 

non-incisional labiaplasty (a procedure to reshape the labia minora) using our AccuTite RFAL handpiece (Aviva); and
 
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post-partum restoration of abdominal muscles and pelvic floor restoration using our external and internal electrical muscle stimulation, or EMS, handpieces.
 

For ophthalmologists, we are developing a new platform that, in addition to our existing aesthetic handpieces, we expect will assist with the following procedures:
 

lower and upper eyelid contraction and fat reduction using the AccuTite and Morpheus8 handpieces; and
 

treatment of periorbital wrinkles and dry eye with a new continuous bi-polar RF energy handpiece.

Our new handpiece to treat dry eye and periorbital wrinkles is currently in an in-office ex vivo preclinical evaluation. We expect to introduce our new product platform for ophthalmologists comprising of three handpieces (AccuTite, Morpheus8 and our new dry eye and periorbital wrinkles treatment handpiece) to the market during the second quarter of 2020.


For ENTs, we are in the initial stage of developing a new platform and handpiece that we believe will provide patients with a medical treatment solution for snoring. The handpiece is based on our Deep Subdermal Fractional RF technology and is expected to contract and stiffen the soft palate (located on the back of the roof of the mouth), which blocks the airway, causing tissues to vibrate during sleep. This platform and handpiece are in the concept design phase.

We are focused on establishing and using clinical evidence to support and broaden our marketing claims and drive customer awareness and acceptance of our products. Traditionally, the aesthetic solutions market has relied heavily on marketing efforts and “before-and-after” pictures in an to attempt to distinguish products. We believe our focus on establishing clinical evidence for the efficacy of our products has been important for adoption by our surgically-trained customers, who are accustomed to seeing extensive clinical data in their non-aesthetic practices. To date, 40 third-party clinical studies have been completed and 16 third-party clinical studies are in the process of being conducted using our products. We also have a portfolio of 50 peer-reviewed publications. While we did not have any involvement in the clinical studies mentioned above, such studies provide qualitative results that we believe are meaningful. However, because these were third-party studies, we do not have access to any raw data to conduct any quantitative analyses.
 
To complement our surgical aesthetic and medical treatment solutions, we offer post-sales training and support services. We provide physicians with training focused on the most beneficial ways to utilize our products, including safety and instructional videos to expand procedural offerings and hands-on, personalized marketing support. We believe that we provide one of the most extensive training and ongoing support programs available to physicians throughout the aesthetic solutions market.
 
Our revenue increased to approximately $156.4 million for the year ended December 31, 2019, from approximately $100.2 million for the year ended December 31, 2018. For the years ended December 31, 2019 and 2018, we recorded a gross margin of approximately 87% and 85%, respectively, and net income of approximately $61.2 million and $22.4 million, respectively. We have 22 FDA clearances and, in addition to the United States, where we have an installed base of approximately 2,800 product platforms, we are permitted to sell our products in Europe, Argentina, Australia, Brazil, Canada, China, Colombia, the Commonwealth of Independent States, Israel, Mexico, Panama, Philippines, Russia, South Korea, Taiwan and Thailand. As of December 31, 2019, we sell and market our products in the United States, Canada, United Kingdom, Spain and India, through a direct sales force of approximately 121 representatives. We also sell and market our products through 39 distributors in 46 countries. As of December 31, 2019, we had a global installed base of approximately 4,900 product platforms capable of running various multi-use applicators and utilizing minimally-invasive consumables.
 
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Our Solution
 
Key benefits of our minimally-invasive surgical aesthetic and medical treatment solutions include:


Small to no incisions, which reduces the drawbacks and risks typically associated with surgical procedures such as significant pain, local or widespread scarring, infection, perforation and hemorrhage.
 

Outpatient procedures that typically do not require general anesthesia, which can decrease patient downtime, discomfort and other potential complications and typically reduces cost.
 

Minimally-invasive procedures with similar efficacy to surgical procedures that have the ability to expand the addressable patient population for aesthetics procedures.
 

Effective and long-lasting aesthetic solutions, many of which are supported by compelling clinical data, including 50 peer-reviewed publications.
 

Differentiated, RF energy-based technology simultaneously kills fat and tightens skin, overcoming the many shortcomings of traditional surgical, minimally and non-invasive aesthetic procedures.
 

Innovative dual wavelength laser technology that allows for permanent hair reduction on a wider range of skin types and hair textures than other aesthetic solutions currently on the market, reducing the number of treatments required.
 

Typically less expensive than other aesthetic solutions on the market that provide comparable results as a result of less required physician time and training required.
 
Leader in RF Energy
 
We believe we are the leader in using RF energy for both minimally-invasive and subdermal ablative aesthetic purposes. RF energy is different from optical energy because it is not absorbed by the epidermis and is able to be targeted to penetrate deep into the tissue. The application of RF energy in medicine is a well-established practice. For example, RF energy is the basis of magnetic resonance imaging, or MRI, and surgical diathermy, used to cauterize blood vessels to prevent excessive bleeding, both commonplace applications administered regularly in medical practice. RF energy is also used in cardiology for ablative interventions and in oncology surgery for tumor/metastasis ablation.
 
RF energy can be delivered to the skin in a variety of ways, the most common being monopolar delivery, whereby RF energy is delivered through a single probe placed on the skin with a grounding pad distant to the probe site. Alternatively, in bipolar delivery, RF energy is delivered from a probe with two electrodes placed over the treatment area. Bipolar delivery has an important advantage over monopolar delivery: depth of penetration of the RF energy is not dependent on the tissue impedance, or electrical resistance, which varies from person to person, or the cross-sectional area of the probe. That is not the case with monopolar delivery. Instead, in bipolar delivery, depth of penetration of the RF energy depends on the distance between the two electrodes on the probe, with increasing distance resulting in increased depth of penetration. We believe we are the leader in the development, design and commercialization of bipolar RF energy devices for minimally-invasive and subdermal ablative aesthetic purposes.
 
Radio-Frequency Assisted Lipolysis
 
Using our expertise in bipolar RF energy delivery, we developed what we believe is the next generation of lipolysis and adipose tissue remodeling technology, a new category that delivers a thermal response to the adipose tissue, skin and subdermal matrix. Our RFAL products deliver directional RF energy into the subcutaneous fat to coagulate, liquefy and remodel adipose tissue and heat the subcutaneous fibrous septa, or partitions, resulting in substantial collagen contraction of subdermal space. We believe we are the first company to utilize bipolar radio frequency in a minimally-invasive manner. Our RFAL products generate a higher power and more efficient energy transfer than laser energy systems and allow the treatment of larger volumes of the subcutaneous tissue with optimal thermal profiles, facilitating the significant tightening of the tissue. The shrinkage of tissue is significant and can reach double-digit percentages of the heated tissue volume. The thermal energy is delivered by an innovative handpiece comprised of two electrodes: the internal electrode is inserted into the fat layer while the other larger electrode is applied externally to the skin surface above the cannula tip. The internal cannula is passed through the subcutaneous fat while the external electrode is moved above and over the skin’s surface. The small, conductive tip of the cannula delivers RF energy into the subcutaneous fat, liquefying it and simultaneously contracting fibrous septa. The liquefied fat can then be removed from the body through a suction cannula. Our RFAL products also apply gentle uniform heating of the dermis, thereby promoting skin tightening. Figure 1 below shows how the RF energy is delivered through the handpiece to simultaneously liquefy fat and tighten the skin.
 
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Our BodyTite platform and the BodyTite and FaceTite handpieces rely on our proprietary RFAL technology. To date, there have been more than 78,000 successful RFAL procedures conducted with positive clinical results using our BodyTite platform and the BodyTite and FaceTite handpieces. We have demonstrated that RFAL has the potential to elicit three-dimensional soft tissue contraction reliably and predictably to both serve otherwise non-traditional liposuction candidates, as well as to improve outcomes in patients for whom liposuction is an option.
 
 
 
Figure 1: RFAL mechanism of action.
 
Deep Subdermal Fractional RF
 
Our Deep Subdermal Fractional RF delivers RF energy into the subdermal fat tissue to depths of up to four millimeters, or mm. Deep Subdermal Fractional RF provides skin tightening and adipose tissue remodeling directly under the dermal layer. Our Deep Subdermal Fractional RF products deliver RF energy under the dermis through an array of pins producing localized heat and small micro-lesion dots in the treatment area. The heat generated by the pins in the subdermal tissue promotes collagen restructuring and tissue reshaping. Physicians can offer a versatile fractional treatment creating a three-dimensional matrix of coagulation volumes inside the tissue. Deep Subdermal Fractional RF is used for wrinkle reduction, skin tightening and treatment of cellulite appearance. The most common areas of treatment are the face and neck. Our Fractora and FractoraV handpieces rely on our proprietary Deep Subdermal Fractional RF technology and are used in conjunction with our BodyTite, Optimas and Votiva platforms. Figure 2 below shows how the RF energy is delivered through the coated pins on the handpiece to reshape tissue under the dermal layer.
 
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Figure 2: Deep Subdermal Fractional RF mechanism of action.
 
Simultaneous Fat Destruction and Skin Tightening
 
Our Simultaneous Fat Destruction and Skin Tightening proprietary technology combines vacuum and bipolar RF energy with high and low amplitudes to both permanently kill adipose tissue and contract the skin. We believe our Simultaneous Fat Destruction and Skin Tightening technology is the first and only RF-based, non-invasive body contouring technology that permanently kills adipose tissue. Our BodyFX product platform and MiniFX handpieces utilize our Simultaneous Fat Destruction and Skin Tightening technology to address problematic fatty tissue in larger body areas such as the abdomen, back and thighs.
 
Deep Heating Collagen Remodeling
 
Our Deep Heating Collagen Remodeling propriety technology delivers heat in a uniform and volumetric form targeting deep into tissue while providing collagen remodeling with real-time control of the device’s temperature. The versatility of this technology allows the operator to provide a customized solution to address a variety of women’s wellness concerns that occur due to aging, hormonal stress or physical damage. Our FormaV handpiece on our Votiva product platform utilizes Deep Heating Collagen Remodeling technology while harnessing continuous bipolar RF energy with real-time temperature measurement. RF energy generated heat is delivered uniformly to vaginal tissue through a consumable applicator to provide vaginal and labia contraction with patients often seeing effects of the procedure immediately.
 
Pulse/Continuous Bi-polar RF
 
Continuous Bi-polar RF is electrical energy in the RF spectrum (1 MHz) that results from the flow of an electric charge between two electrodes. This conducted energy increases ion movement in the tissue and generates kinetic energy that is transformed to thermal energy (heating). In turn, this thermal energy causes controlled damage to the tissue and triggers a natural healing mechanism and tissue-renewal resulting in tissue tightening and remodeling. The distance between the electrodes allows for control of the depth of penetration of the bi-polar RF energy into the tissue. The distance between the electrodes is chosen based on the particular treatment and according to the tissue to be treated (generally varies between a few millimeters to 3–4 centimeters). Bi-polar RF can be delivered to the tissue in one of two modes: either pulse or continuous. In pulse mode, pulse duration is pre-determined and RF energy automatically stops. In continuous mode, the RF energy is delivered uninterrupted into the tissue for as long as the operator deems appropriate. As part of the design, continuous bi-polar RF energy allows real-time measurement of the patient’s skin temperature. This allows our products to provide real-time feedback to the operator throughout the treatment process and enhances overall safety and efficiency. All of our RF platforms (both existing and expected) and RF handpieces (both minimally and non-invasive) have both pulse bi-polar RF and continuous bi-polar RF capabilities. Our proprietary RFAL based products (such as our BodyTite product platform and FaceTite handpiece) and Deep Heating Collagen Remodeling based products (such as our FormaV handpiece) primarily utilize the continuous bi-polar RF feature. Our proprietary Deep Subdermal Fractional RF based products (such as our Fractora handpiece) and Simultaneous Fat Destruction and Skin Tightening products (such as our BodyFX handpiece) primarily utilize the pulse feature depending on the procedure and target result. Figure 3 below shows how RF energy is delivered through the handpiece by an electric charge between two electrodes continuously into the tissue.
 
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Figure 3: Pulse/Continuous Bi-polar RF mechanism of action.
 
Non-invasive Medical Aesthetic Technologies
 
In addition to our proprietary minimally-invasive solutions, we continue to develop innovative non-invasive medical aesthetic solutions, including:
 

Simultaneous non-invasive fat killing and skin tightening. We believe our technology is the first and only RF-based, non-invasive body contouring technology that permanently kills adipose tissue while simultaneously contracting the skin. This technology addresses problematic fatty tissue in large body areas such as the abdomen, back and thighs. Customers use this technology with the Contoura platform and the BodyFX and MiniFX handpieces.
 

Dual wavelength for permanent hair reduction. Our single-pulse, dual wavelength product for permanent hair reduction, Triton, combines two wavelengths in one platform, overcoming certain limitations of standard lasers. This optimal mix of wavelengths allows the highest efficiency and safety. We believe Triton is the only FDA-cleared, single-pulse, dual wavelength product for permanent hair reduction. Customers use this technology with the Triton Duo Light and Triton Duo Dark handpieces.
 

High-power Intense Pulsed Light. Our high-power IPL is a breakthrough technology that delivers up to three times more energy than typical IPL devices within the 500 to 600 nanometer, or nm, range to improve efficacy for vascular and pigmented lesions. It is optimized to treat a variety of skin types and conditions in a single session. Customers use this technology with the Optimas platform and the Lumecca handpiece.
 

Controlled continuous RF heating. We believe our controlled continuous RF technology is the first auto-adjusting non-invasive thermal skin treating technology for deep and uniform tissue stimulation. This technology uses bipolar RF energy delivery that allows uniformity between the electrodes to provide a comfortable thermal effect with immediate and subsequent contraction. Customers use this technology with the Optimas, Votiva and Contoura platforms and the Forma, FormaV and Plus handpieces.
 
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Differentiated and Comprehensive Post-Sales Support
 
To complement our innovative aesthetic solutions, we offer post-sales training and support services. We provide physicians training focused on the most beneficial ways to utilize our products, including a disciplined focus on safety. Our clinical training and support program consists of three key components:
 

i.
A visit by a new physician to one of our many highly qualified plastic surgery facilities for instruction followed by a live patient demonstration;
 

ii.
A visit to the new physician’s office by a trained registered nurse or physician’s assistant to attend the first day of treatments to in-service; and
 

iii.
Open house workshops organized by us, wherein the new physician invites his or her patient base and we assist him or her in “kick starting” marketing efforts. These events typically secure significant procedural revenues for the physician.
 
In addition, we offer ongoing livestream cases for customers where they can observe and interact in real-time with both our training staff and highly qualified physician instructors on a regular basis. Advanced training is also available for physicians who choose to expand their education on highly skilled procedures, including non-excisional breast lifting or brachioplasty. We are continuing to build a library of on-line instructional videos as both a reference tool and to expand physicians’ procedural offerings. We also provide support to help customers educate and engage patients about the new minimally-invasive procedures available to them through our In-Practice program. This program provides hands-on, personalized marketing support for customers’ practices including signage, educational collateral, digital marketing and advertising assets. We believe that we provide one of the most extensive training and ongoing support programs available to physicians throughout the aesthetics industry.
 
Our Competitive Strengths
 
We attribute the growing commercial success of our various platforms and products to the following:
 

Pioneer of the minimally-invasive aesthetic solutions market. We believe our proprietary technologies represent a paradigm shift in the minimally-invasive and surgical aesthetic solutions market. We believe our technologies and products demonstrate numerous performance advantages over other aesthetic options and enable physicians and patients to obtain results that can generally only be achieved with more expensive and invasive surgical procedures. Our RF proprietary energy-based technology simultaneous kills fat and tightens skin, overcoming many of the limitations of other surgical, minimally and non-invasive procedures, positioning us to address unmet patient needs and expand the addressable patient population for aesthetic solutions. Although each of our product platforms has a primary handpiece or applicator that is either minimally or non-invasive, our platforms are designed to be modular, which enables the user to provide complementary treatments using a single platform by attaching different handpieces or applicators.
 

Strong brand recognition. Our brand is associated with product leadership, significant technological advances and extensive clinical data, which has led to strong customer loyalty. Unlike many of our competitors, our technology is not exclusively laser-based or limited to superficial treatment of the skin. Instead, we have developed and commercialized products utilizing medically-accepted RF energy technology, which can penetrate deep into the subdermal fat, allowing adipose tissue remodeling. We believe our brand is synonymous throughout the physician and patient communities with having the broadest RF energy-based portfolio in the minimally-invasive aesthetics market for fat destruction and remodeling, face and body contouring and skin tightening.
 
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Provide comprehensive solutions for physicians and patients. We have an extensive product portfolio that includes solutions for a wide range of both minimally and non-invasive procedures across the aesthetic solutions market. For each of our products, we offer post-sales support services including training, installation, practice growth consulting and repair support that minimizes product downtime and associated lost revenues to physicians.
 

Broad regulatory approvals supported by extensive clinical data. We have 22 FDA clearances and in addition to the United States, are permitted to sell in Europe, Argentina, Australia, Brazil, Canada, China, Colombia, the Commonwealth of Independent States, Israel, Mexico, Panama, Philippines, Russia, South Korea, Taiwan and Thailand. To date, we also have a portfolio of 50 peer-reviewed publications and there are 40 completed and 16 ongoing third-party clinical studies on a number of our products (BodyTite, FaceTite, NeckTite, Optimas, Fractora, Forma, Lumecca, DiolazeXL, Votiva, FractoraV, FormaV, Contoura, BodyFX, MiniFX, Evolve, Morpheus8 and AccuTite). While we did not have any involvement in the clinical studies mentioned above, such studies provide qualitative results that we believe are significant. However, because these were third-party studies, we do not have access to any raw data to conduct any quantitative analyses. We believe our focus on demonstrated clinical data and effectiveness differentiates us from our competition and helps to validate our technology with surgically-trained physicians, who we believe are typically the most difficult segment of the market to penetrate.
 

Strong management team with proven track record. Our management team has significant expertise in the medical aesthetics industry with a proven track record of successfully developing and commercializing innovative technologies. Moshe Mizrahy and Dr. Michael Kreindel, our co-founders, previously founded Syneron Medical Ltd. Our senior executive team has an average of over 15 years of medical aesthetics industry experience and has served in various leadership positions at Syneron Medical Ltd. and Cynosure, Inc.
 
Our Growth Strategy
 
Our objective is to expand our technological leadership in the aesthetic solutions market and to leverage our RF proprietary technologies to expand into the medical solutions market. We intend to achieve this goal by implementing the following strategies:


Increase our sales presence to target and expand our addressable market globally. We plan to continue to expand our direct sales organization and our distribution network and seek to recruit and train exceptionally talented sales representatives in existing and new markets to help us broaden the adoption of our products, drive further market penetration and expand beyond our traditional customer base.
 

United States: In 2019, we expanded our direct sales team by approximately 25 representatives.
 

Canada: We have a direct sales presence in Canada and plan to keep expanding our direct sales team.
 

Europe: We intend to establish sales and marketing organizations and a network of exclusive European distributors (in addition to our existing networks in the United Kingdom and Spain).
 

Latin America: We plan to expand our network of exclusive distributors in Argentina, Brazil, Colombia, Mexico and Panama.
 

Asia-Pacific: In addition to our direct sales presence in India and Australia, we intend to establish a direct sales presence in China through our joint venture in Guangzhou, as well as expand our network of exclusive distributors in Japan, Philippines, South Korea, Taiwan and Thailand.
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Continue to further penetrate our existing customer base and drive recurring revenues. We believe that there are opportunities for us to generate additional revenue from existing customers who are already familiar with our products. Since our inception, approximately 30% of our U.S. customers have purchased a second platform to expand their treatment offerings. Additionally, we have experienced growth in the sales of consumables over the past three years. Since inception, we have sold over 338,000 consumables. We expect that as our customer base grows, the percentage of our revenues attributable to consumables will increase. We also expect that certain 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 seek to increase the number of customers that enter into service contracts and extended warranties, which would provide us with additional recurring revenues.
 

Leverage our existing technology to expand into new minimally and non-invasive applications. We have an active research and development pipeline focused on additional solutions targeted to our traditional customer base. Our near-term product development portfolio consists of new and second generation solutions for various conditions, including wearable, non-invasive face and body reshaping products, cellulite, large area lipolysis, fractional RF treatment of severe vaginal laxity pelvic floor muscle restoration, labiaplasty procedures, post-partum treatments, snoring treatments, dry eye and eyelid treatments. We expect to launch at least one new product platform by the end of 2020, which we believe will allow us to continue to grow our revenues over the long term and further penetrate the market for aesthetic solutions. Each such product is or will be subject to the FDA regulatory framework, specifically, the FDA’s 510(k) clearance requirements, described in this Annual Report on Form 20-F.
 

Expand our customer base beyond traditional customers. We intend to develop products that leverage our minimally and non-invasive technologies to address the unmet market needs of a non-traditional customer base, which includes ENTs, ophthalmologists, general practitioners and aesthetic clinicians. We intend to adapt our products to the expertise and skill level of these providers, further expanding our addressable market.
 

Actively pursue business development opportunities. We may seek to engage in targeted business development activities, including acquisitions and strategic partnerships, in order to augment our product and technology portfolio in our existing and potentially adjacent markets. We believe we can leverage our global infrastructure and existing relationships to implement a disciplined tuck-in acquisition strategy.
 

Expand our intellectual property and patent portfolio. We intend to expand our existing intellectual property and patent portfolio as we develop additional applications and continue to aggressively defend against potential infringement by our competitors.

Our Products
 
We offer a broad portfolio of aesthetic treatment solutions that consist of a variety of platforms providing minimally and non-invasive applications. The following tables provides information concerning our product platforms and their applications.
 
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Minimally-Invasive Platforms

Product Platform
Energy Source(s)
Year Introduced
Handpiece(s)
Primary (not Exclusive) Applications*
BodyTite
Bipolar RF
2010
BodyTite
FaceTite
NeckTite
AccuTite
Body Contouring (MI)
Face Contouring (MI)
Neck Contouring (MI)
Face/Body Contouring (MI)
Optimas
Laser
Bipolar RF
IPL
2016
Morpheus8
Forma
Lumecca
DiolazeXL
Vasculaze
Morpheus8
Skin Rejuvenation (MI)
Skin Rejuvenation (NI)
Skin Rejuvenation & Pigmentation (NI)
Hair Removal (NI)
Vascular Lesion (NI)
Facial Wrinkles and Texture (MI)
EmbraceRF
Bipolar RF
2018
FaceTite
Morpheus8
AccuTite
Face Remodeling (MI)
Facial Wrinkles and Texture (MI)
Face/Body Contouring (MI)
Votiva
Bipolar RF
2017
FractoraV
FormaV
Women’s Health (MI)
Woman’s Health (NI)


*
“MI” = Minimally-Invasive and “NI” = Non-Invasive
 
Non-Invasive Platforms

Product Platform
Energy Source(s)
Year Introduced
Handpiece(s)
Primary (not Exclusive) Applications*
Contoura
Bipolar RF
2017
BodyFX
MiniFX
Plus
Body Contouring
Face/Neck Contouring
Skin Tightening
Triton
Laser
2018
Triton Duo Light
Triton Duo Dark
Hair Removal
Hair Removal
Evolve
Bipolar RF
EMS
2019
Tite (HF)
Trim (HF)
Tone (HF)
Skin Tightening
Body Contouring
EMS
Evoke
Bipolar RF
2019
Cheek (HF)
Chin (HF)
Skin Rejuvenation
Skin Rejuvenation


*
“HF” = Hands-free application
 
In addition to the products described above, prior versions of our products continue to be used by customers. Outside of the United States, we also offer some alternative versions of our aesthetic treatment solutions, in some cases under different trademarks, which are tailored to the specific preferences and needs of certain countries and regions.
 
Components of Our Products
 
Each of our products consists of the following components:
 

platform;
 

one or more handpieces or hands-free applicators; and
 

our proprietary software.

Platforms
 
Our platforms are mostly electronic boxes, comprised of RF energy generators and modules supporting lasers and IPL, as applicable, a 110/220VAC input power supply, controller and a user interface with touch screen. The user interface allows the physician to select the handpiece and set treatment parameters to meet the requirements of a particular application and patient. Using the touch screen, the physician can independently adjust the energy level, pulse width and other parameters depending on application to optimize the treatment’s safety and effectiveness. The user interface on our multiple energy workstations also allows the user to change energy sources with the press of a button. The control system communicates the operator’s settings from the user interface to the system’s modules and manages system operation and performance.
  
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Handpieces and Hands-Free Applicators
 
Our handpieces and hands-free applicators are used to apply the energy to the patient treatment area. The handpieces and hands-free applicators are designed for specific targeted body areas, type of energy to maximize treatment safety and efficacy for specific treatment. Certain of our handpieces and hands-free applicators have a contained thermal field that ensures a controlled and safe treatment through our Acquire, Control and Extend, or ACE, technology. Our ACE technology ensures that no areas are under or over treated using therapeutic temperatures safely and efficiently. Built-in safeguards, including real time measurements of skin temperature, impedance monitoring, power cut-off and audible feedback, help ensure patient safety throughout the procedure. A number of our handpieces and hands-free applicators are, or contain, one-time use applicators, or consumables, that must be replaced following each treatment.
 
Minimally-Invasive
 
BodyTite — The minimally-invasive, consumable BodyTite handpiece, introduced in 2010, utilizes directional RF energy for RFAL treatments using needle-size cannula and external electrodes to apply RF energy to the subcutaneous adipose tissue. The tissue is heated to 50°C to 70°C to destroy fat and contract connective tissue, simultaneously remodeling the dermis at external temperatures of up to 42°C. This handpiece allows tissue treatment using a 17cm cannula that provides treatment depth up to 50mm.
 
FaceTite/NeckTite — The minimally-invasive, consumable FaceTite and NeckTite handpieces, introduced in 2012, utilize directional RF energy for RFAL treatments using cannula with diameters of 1.8mm and 2.2mm and external electrodes to apply RF energy to the subcutaneous adipose tissue. The tissue is heated to 50°C to 70°C to destroy fat and contract connective tissue, simultaneously remodeling the dermis at external temperatures up to 42°C. This handpiece allows tissue treatment using a 10cm cannula that provides treatment depth up to 25mm.
 
AccuTite — The minimally-invasive AccuTite handpiece, introduced in April 2019, utilizes directional RF energy for RFAL treatments using sub-millimeter cannula with diameters of 0.9mm and external electrodes to apply RF energy to subcutaneous adipose tissue. The tissue is heated to 50°C to 70°C to destroy fat and contract connective tissue, simultaneously remodeling the dermis at external temperatures of up to 42°C. This handpiece allows tissue treatment using a 60mm cannula that provides treatment depth up to 25mm. Additionally, in May 2019, we began marketing AccuTite for Aviva, a minimally-invasive procedure that restores the function and appearance of the vulva by offering a non-excisional alternative to a labiaplasty. Aviva is powered by AccuTite to deliver safe and uniform heat to the entire soft tissue matrix of the labia minora, labia majora, clitoral hood, vaginal introitus and perineal body.
 
Fractora/FractoraV — The minimally-invasive Fractora handpiece, introduced in 2011, uses customizable fractional energy and superficial fractional resurfacing for subdermal adipose tissue remodeling. The handpiece offers two treatment depths (skin surface and subdermal) and is safe on all skin types including type IV. The consumable applicator tip contains 24-coated pins with a length of up to 4mm.
 
Morpheus8 — The minimally-invasive Morpheus8 handpiece, introduced in 2018, uses RF energy for subdermal adipose tissue remodeling, which is programmable by the user according to treatment area. The handpiece offers treatment depth up to 4mm. The upper part of the needle and external electrodes are coated with a polymer to prevent skin surface thermal damage while delivering RF energy into the subdermal space.
 
Non-Invasive
 
BodyFX/MiniFX — The non-invasive BodyFX and MiniFX handpieces, introduced in 2013, combine vacuum and bipolar RF energy with high and low amplitudes to both permanently kill adipose tissue and contract the skin. The BodyFX handpiece, intended for use on various parts of the body, comprises a vacuum cavity with a depth of 0.5in and a size of 2in x 1in. The MiniFX handpiece, better suited to address problematic fatty tissue in smaller areas, uses a chamber size of approximately 1in x 1in.
 
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DiolazeXL (810nm) — The non-invasive DiolazeXL (810nm) handpiece, introduced in 2017, is a high-speed, gold standard 810nm (diode) laser indicated for permanent hair reduction. DiolazeXL’s differentiated triple contact cooling technology (pre, parallel and post), or 3PC technology, provides for a safe and comfortable patient experience. The handpiece covers a spot size of 12mm x 26mm to allow for the removal of a variety of hair colors and thickness. This handpiece offers short and long pulse durations and repetition rates that enable treatment times up to 6cm2/second.
 
Triton Duo Light (755nm & 810nm) — The non-invasive Triton Duo Light handpiece, introduced in 2017, combines two wavelengths for optimal treatment of light skin patients. The handpiece utilizes a blend of 755nm (Alexandrite) and 810nm (diode) laser wavelengths that have been optimized for hair removal on patients with skin types I to IV. We believe the Triton platform is the only FDA-cleared device capable of firing two wavelengths in one pulse. The handpiece covers a spot size of 12mm x 26mm and provides two pulse durations and high repetition rates.
 
Triton Duo Dark (810nm & 1064nm) — The non-invasive Triton Duo Dark handpiece, introduced in 2017, combines two wavelengths for optimal treatment of dark skin patients. The handpiece utilizes a blend of 810nm (diode) and 1064nm (Nd:YAG) laser wavelengths that have been optimized for hair removal on patients with skin types I to IV. We believe the Triton platform is the only FDA-cleared device capable of firing two wavelengths in one pulse. The handpiece covers a spot size of 12mm x 26mm and provides two pulse durations and high repetition rates.
 
Forma — The non-invasive Forma handpiece, introduced in 2013, uses our ACE technology to deliver auto-adjusting uniform RF energy-generated heat (up to 43°C) for collagen remodeling and skin contraction of the face and neck. We believe Forma is the first thermal face and neck skin tightening device to have both temperature monitoring and automatic, user programmable, RF on/off control. This handpiece has an RF energy output power of up to 65 watts and covers a spot size of 22mm x 20mm.
 
FormaV — The non-invasive FormaV handpiece, introduced in 2017, uses our ACE technology to deliver auto-adjusting uniform RF energy generated heat (up to 43°C) to vaginal tissue through a consumable applicator.
 
Plus — The non-invasive Plus handpiece, introduced in 2013, uses our ACE technology to deliver auto-adjusting uniform RF generated heat (up to 43°C) for collagen remodeling and skin contraction of the body. We believe Plus is the first thermal body skin tightening device to have both temperature monitoring and automatic, user programmable, RF on/off control. This handpiece has an RF energy output of up to 65 watts and covers a spot size of 45mm x 45mm.
 
Lumecca — The non-invasive Lumecca handpiece, introduced in 2015, is an IPL optimized for both light and dark skin that uses a xenon flash lamp to deliver filtered optical energy in the 515nm to 1200nm range for light skin treatment and 580nm to 1200nm range for darker skin. Lumecca is intended for treatment of superficial vascular and pigmented lesions. The handpiece covers a spot size of 30mm x 10mm with a peak optical power of 10,000 watts.
 
Vasculaze — The non-invasive Vasculaze handpiece, introduced in 2018, is a 1064nm wavelength diode laser intended for use in the coagulation and hemostasis of benign vascular legions such as, but not limited to, reticular leg veins, spider veins, hemangiomas, port wine stains and venus lakes. Vasculaze is optimized with high peak power, strong contact cooling and an ergonomic head intended to maximize treatment efficiency. The handpiece covers a spot size of 3mm x 4mm and has pulse duration of 20 to 100 milliseconds, or msec.
 
Trim The non-invasive Trim, introduced in 2019, is a set of six hands-free applicators for the Evolve platform. The mechanism of action is similar to BodyFX handpiece. The Trim is mounted on a belt and works automatically without the assistance of a physician or technician.
 
Tite  The non-invasive Tite, introduced in 2019, is a set of eight hands-free applicators for the Evolve platform. The mechanism of action is similar to the Plus handpiece. The Tite is mounted on a belt for treatment of different body parts and areas without the assistance of a physician or technician.
 
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Tone  The non-invasive Tone, introduced in 2019, is a set of four hands-free electro-muscle stimulation applicators. The Tone is designed to be used on the Evolve platform for muscle stimulation and improving skin tone.
 
Cheek  The non-invasive Cheek, introduced in 2019, is a hands-free device containing eight applicators that is mounted on the face and designed to be used with the Evoke platform. The mechanism of action is similar to the Forma handpiece, but works automatically on both sides of the face without the assistance of a physician or technician.
 
Chin  The non-invasive Chin, introduced in 2019, is a hands-free device containing two applicators that is mounted on the chin and designed to be used with the Evoke platform. The mechanism of action is similar to the Forma handpiece, but works automatically on the chin without the assistance of a physician or technician.
 
Proprietary Software
 
Our software permits the user to define treatment parameters to be communicated to the electronic modules in the platform and deliver RF or optical energy through the handpiece or hands-free applicator to the patient. In addition, our software controls and manages proper system performance and automatic temperature control, system self-calibration, system setup and detection of any malfunction of the system. We believe our software’s automative capabilities allow physicians to dedicate their attention and focus to patient treatment rather than system monitoring. Our users upgrade their products through the purchase of additional treatment applicators and corresponding software plugs. All of our software complies with applicable medical specifications and regulations.
 
Applications and Procedures
 
Our products provide our customers with a broad range of applications among both traditional procedures and emerging applications.
 
Face and Body Contouring
 
Minimally-Invasive
 
Generally performed by a physician, RFAL delivers directional RF energy into a patient’s subcutaneous fat to coagulate and liquefy adipose tissue and heat the subcutaneous fibrous septa, resulting in substantial collagen contraction of the subdermal space. RF energy is delivered through an innovative handpiece comprised of two electrodes. The internal electrode is inserted into the fat layer, while the other larger electrode is applied externally to the skin surface above the cannula tip. The internal cannula passes through the subcutaneous fat, while the external electrode slides over the skin’s surface. The small conductive tip of the cannula concentrates RF energy in the subcutaneous fat, liquefying it and simultaneously contracting the fiber septa. This liquefied fat can then be removed from the body. Our RFAL technology can be administered on all regions of the body and typical treatments are approximately 30 to 90 minutes each under local anesthesia. We received 510(k) FDA clearance for our RFAL technology in 2016. Users conduct minimally-invasive face and body contouring using RFAL technology with the BodyTite platform and BodyTite, FaceTite and AccuTite handpieces.
 
Generally performed by a physician, Deep Subdermal Fractional RF, delivers RF energy into the subcutaneous adipose tissue to depths of up to 4mm through an array of coated needles producing localized heat and matrix of small lesions in the subcutaneous fat. The heat generated by the pins in the subdermal tissue promotes connective tissue restructuring. As a result, physicians can offer a versatile fractional treatment creating a three-dimensional collagen contraction and subdermal fat coagulation. The deep fractional remodeling is used when fat layer is not thick enough to use RFAL technology or when patient wants only superficial result. Deep Subdermal Fractional RF can be used for wrinkle reduction, skin tightening and treatment of cellulite appearance. In addition to reshaping, Deep Subdermal Fractional RF provides long term results for inflammatory acne by coagulating enlarged sebaceous glands. The most common areas of treatment are the face and neck. Patients generally receive between one to three treatments for approximately 30 minutes each. Treatments are typically spaced two to three weeks apart. We received two 510(k) FDA clearances for Fractora in 2011 and 2016. Customers use this technology with the BodyTite and Optimas platforms using the Fractora handpiece.
 
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Non-Invasive
 
Handpieces: Administered by physicians and other aesthetic practitioners, our differentiated fat reduction solution is based on skin shaping using a vacuum and delivering both low amplitude bipolar RF energy for gentle deep tissue heating and high amplitude RF energy to simultaneously kill fat and tighten skin. The handpiece is placed over the desired area of the body and vacuum energy shapes the skin into the cavity for safe and effective RF energy delivery allowing greater volumes of fat to be treated (up to 2.5cm in depth). Subsequently, temperature-controlled RF energy is applied to preheat the tissue and fat uniformly to 42°C to 43°C. High amplitude RF energy delivered in ultra-short pulse duration is then administered via electrodes causing apoptosis of adipose tissue and resulting in simultaneous skin contraction. Our technology can be administered on all regions of the body. Patients generally receive six treatments for approximately 10 to 20 minutes each. Treatments are typically spaced one to two weeks apart. We received 510(k) FDA clearance for this technology in 2013. Users conduct non-invasive face and body contouring with the Contoura platform using the BodyFX or MiniFX handpieces.
 
Hands-Free Applicators: Applied by physicians and other aesthetic practitioners, our differentiated skin tightening, fat reduction and muscle stimulation solution is based on bipolar RF and EMS technologies, delivered through a set of hands-free applicators mounted or placed over the body or face. The setup of the parameters is determined by a doctor. Subsequently, temperature-controlled RF energy is applied to preheat the tissue and fat uniformly to 42°C to 43°C. High amplitude RF energy delivered in ultra-short pulse duration is then administered via electrodes causing apoptosis of adipose tissue and resulting in simultaneous skin contraction. Our technology can be administered on all regions of the body and face. Patients generally receive three to six treatments for approximately 30 minutes each. Treatments are typically spaced one to two weeks apart. We received 510(k) FDA clearance for the Evoke and Evolve in 2019. Users conduct hands-free face and body contouring with the Evoke and Evolve platforms using the Trim, Tite and Tone hands-free applicators for the Evolve, and Cheek and Chin hands-free applicators for the Evoke.
 
Medical Aesthetics
 
Skin Rejuvenation/Vascular & Pigmented Lesion Treatment
 
Generally performed by a physician or other aesthetic professional, different types of energy and treatments are provided depending on the handpiece. The application of IPL energy enables the improvement of photodamage, as well as other pigmented abnormalities and superficial vascular lesions. A 1064nm laser is used for the treatment of larger and deeper veins. Patients often see results after a single treatment but typically two to three treatments of approximately 15 minutes each are recommended. Treatments are typically spaced two to four weeks apart. We received 510(k) FDA clearance for superficial vascular and pigmented lesion treatments in 2013 and for hair removal and permanent hair reduction in 2017 and 2018, respectively. Users rejuvenate the skin with the Optimas platform using the Vasculaze and Lumecca handpieces.
 
Sub-Necrotic Thermal Tissue Remodeling
 
Administered by physicians and other aesthetic practitioners, the application is based on uniform and deep heating of the skin and subdermal layer using bipolar RF energy. The handpiece is moved over the desired area of the treatment area, while maintaining the designated temperature for the predetermined time for safe and effective collagen remodeling. Subsequently, temperature-controlled RF energy is applied automatically to heat tissue uniformly to 42°C to 43°C. The Forma handpiece is utilized to target fat and heats the tissue to depths of up to 4.5mm while the Plus handpiece is used for larger body areas and provides effect up to 6mm in depth. Patients generally receive six treatments for approximately 10 to 20 minutes each. Treatments are typically spaced one to two weeks apart. We received three 510(k) FDA clearances for this technology in 2014, 2016 and 2017. Users conduct facial treatment with the Optimas platform using the Forma handpiece and body contouring with the Contoura platform using the Plus handpiece.
 
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Permanent Hair Reduction
 
Administered by a user, who is not necessarily a physician, our differentiated dual wavelength technology incorporated in the Triton platform fires two wavelengths in a single pulse destroying the hair follicles located in the dermis and subdermal layers. This procedure is continued over the target area and can last from a few minutes to 90 minutes depending on the size of the treatment area. In general, permanent hair reduction requires four to six treatments spaced four to eight weeks apart. More sessions may be required for stubborn hairs. Due to our unique dual wavelength technology, our Triton platform allows practitioners to address all skin types and tones. We received 510(k) FDA clearance for our Optimas and dual wavelength Triton platforms for permanent hair reduction treatments in 2016 and 2018, respectively. Users perform permanent hair reduction procedures with our Optimas and Triton platforms using the DiolazeXL and Triton Duo Light and Triton Duo Dark handpieces, respectively.
 
Women’s Health
 
Performed by a physician, the administration of energy addresses women’s wellness. Depending on the handpiece, the administration of bipolar RF energy or subdermal heating is applied to gently warm and massage the internal vaginal tissue (FormaV), the external vaginal tissue (FractoraV), or to deliver uniform heat to the entire soft tissue matrix of the labia minora, labia majora, clitoral hood, vaginal introiotus and perineal body (Aviva procedure administered by the AccuTite handpiece). Depending on the treatment type, patients typically receive between two to three treatments of approximately 15 minutes each. Treatments are typically spaced two to three weeks apart. We received 510(k) FDA clearance for FormaV for certain indications in 2017. In July 2018 we received a letter from the FDA seeking information as to the regulatory basis for marketing of our FormaV and FractoraV devices based on our promotion and labeling of these devices for use in certain women’s health conditions and procedures. We timely responded to the FDA by immediately altering the wording of our promotional and labeling materials, and we submitted a response letter in August 2018 answering the FDA’s questions and advising the agency that we had modified our promotional and labeling materials to remove certain statements regarding uses of our products for conditions and procedures that were questioned by the FDA in the agency’s informational request letter. 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 continues to expect us to conduct a review of our marketing and promotional materials to make appropriate changes and remove materials containing uncleared claims. We have received no further communications from the agency regarding this matter.
 
Sales and Marketing
 
Our primary strategy to increase market penetration relies on selling directly to our traditional customer base of plastic and facial surgeons, aesthetic surgeons, dermatologists and OB/GYNs. We believe we are the only company commercializing minimally-invasive aesthetic solutions specifically targeting the surgical community and believe our products represent a significant opportunity for these practitioners to deliver improved patient treatment results and significantly increase their ability to generate additional revenue. We are also targeting a newer aesthetic market opportunity consisting of ENTs, ophthalmologists, general practitioners and aesthetic clinicians as an incremental growth opportunity.
 
We target potential customers through office visits, trade shows, professional journals and various forms of paid and unpaid media. We also conduct clinical workshops featuring recognized expert panelists and key opinion leaders to promote existing and new treatment techniques using our products. We believe that these workshops enhance customer loyalty and provide us with new sales opportunities. We plan to continue to offer a large number of workshops spanning from single-day workshops to three-day workshops. We also use direct mail programs to target specific segments of the market that we seek to access, such as members of medical societies and attendees at meetings sponsored by medical societies or associations. In addition, we maintain an active public relations program that has resulted in treatments based on our products being featured in various televised and printed media outlets including InStyle, Shape, The Doctors and Harper’s Bazaar. In August 2019, international pop icon, Paula Abdul, agreed to join us as our brand ambassador to share her positive experience with our BodyTite, FaceTite and Morpheus8 technologies.
 
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We currently sell and market our products in the United States, Canada, the United Kingdom, Spain, Australia and India, through a direct sales force of approximately 120 representatives. We also sell and market our products through 39 distributors in 46 countries. Our U.S. sales efforts are headquartered in Lake Forest, California. To support the continued roll-out of our products and further penetrate the market, we anticipate that our direct salesforce in the United States will continue to increase.
 
In international markets, to complement our direct sales force in Canada, the United Kingdom, Spain, Australia and India, we sell our products through a network of distributors. Our Canadian sales efforts are headquartered in Toronto, Canada.  As of December 31, 2019, we had an international sales management team of six employees supporting 39 independent distributors. The percentage of our revenues from customers located outside of the United States for the years ended December 31, 2019 and 2018 was 21% and 19%, respectively. We intend to continue to increase penetration of our customer base in international markets and expand into attractive new international markets, including within the Canada, United Kingdom, Spain, Australia and India, by identifying and training qualified distributors. In addition, we may opportunistically hire a direct sales force and expand our marketing campaigns in select international markets. We require our distributors to provide customer training, to invest in equipment and marketing and to attend certain exhibitions and industry meetings.
 
Service and Support
 
We support our customers with a range of services, including installation and product training, business and practice development consulting and product service and maintenance. In connection with the direct sales of our products, we arrange for the installation of the system and initial product training. In the United States, our dedicated sales representatives install our systems and our clinical support staff provides customer training. Outside of the United States, our trained third-party distributors install our systems and provide training. The cost of installation and initial training are all included in the purchase price of our systems.
 
We service our products in three service centers: (1) the U.S. market is serviced through our facility in Lake Forest, California, (2) the Canadian market is serviced through our facility in Toronto, Canada, and (3) the rest of the world is serviced through our distributors and our facility in Yokneam, Israel. In the event of a technical malfunction, our customers first contact us (if in the United States or Canada) or our distributors (if outside of the United States or Canada) telephonically. If a product requires service or repair that cannot be addressed telephonically, we or our distributors ship a temporary “loaner” system to the customer as soon as possible, often overnight. This unique “loaner” system reduces any product downtime and associated lost revenues for the physician. We then arrange for shipment of the defective product to one of our service centers in the United States or Canada. Outside the United States or Canada, the product is sent to our distributors or our facility in Israel. Either we or our distributors quickly repair the faulty product and ship it back to the customer. We have designed our products in a light-weight, modular fashion to enable quick and efficient service and support. Specifically, we build our platforms to be less than 35 kilograms in weight to ensure acceptance by traditional, commercial third-party logistics providers for next-day delivery of replacement products without requiring specialized shipping procedures. We believe our depot service and support model provides for more efficient and less costly operations.
 
Our standard warranty term is 12 months, however, many of our products are sold with multi-year warranties. Our standard warranty covers parts, labor, participation in our loaner program and a white glove, door-to-door, shipping service for expedited repair service, and can be extended for an additional charge. We believe that we have a significant opportunity to increase our recurring customer revenue by increasing the number of our customers that enter into service contracts and extended warranties for our systems. All of our distributors have a service department and are required by us to maintain a full inventory of spare parts. All service staff is trained by our service department in Israel.
 
Manufacturing and Supply
 
We rely primarily on outsourced manufacturing to produce our devices while maintaining control over the production process. Outsourcing allows us to carry low inventory levels and maintain fixed unit costs without incurring significant capital expenditures. We outsource almost all of the manufacturing of our products to four subcontractors located in Israel, two of which we are substantially dependent on as part of our business. Through our strategic arrangement with Flextronics (Israel) Ltd., or Flex, we maintain dedicated manufacturing lines supervised by us in Flex’s medical grade manufacturing facility in Migdal Haemek, Israel. Within the Flex facility, all proprietary manufacturing, testing and assembly equipment has been built and is owned by us. We also use three separate manufacturers in addition to Flex to produce our products.
 
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We believe our outsourced manufacturers’ processes comply with all applicable U.S. and international quality and safety standards, such as ISO 13485:2016, CE and the FDA quality system regulations. We conduct in-house prototype development and present detailed manufacturing documents to our subcontractors, who then purchase most of the necessary components and manufacture the product. These 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 facilities.
 
The contracts we have with manufacturing subcontractors do not have minimum purchase requirements and allow us to purchase end products entered into on a purchase order basis. Under these contracts, our manufacturing subcontractors provide manufacturing services pursuant to our written specifications. These manufacturing services include labor, materials, testing, packaging and delivery, as well as allocating production and storage space within their facilities for our products. Pricing under these contracts are reviewed between us and the manufacturing subcontractors every three months. The contracts have one-year terms that automatically renew for successive one-year terms unless either we or the manufacturing subcontractor provide three months written notice prior to the expiration of the term. To date, we have not experienced any significant manufacturing delays. The contracts can be terminated by either party, without cause, with four months prior written notice.
 
We manufacture all laser and IPL handpieces in our facility in Yokneam, Israel and procure other major components of our products on behalf of our third-party manufacturers from a limited number of suppliers. We have flexibility to adjust the number of lasers and other components that we either manufacture or procure as well as the delivery schedules. The forecasts that we use are based on historical demands and expected future plans. Lead times may vary significantly depending on the size of the order, time required to fabricate and test the components, specific supplier requirements and current market demand for the components. We intend to reduce any potential for delays of supply by maintaining relationships with multiple suppliers of major components. To date, we have not experienced significant delays in obtaining our major components.
 
In November 2019, we signed a Share Purchase and Shareholders Agreement, or the SPA, with Medimor Ltd., or Medimor, one of our turnkey manufacturing subcontractors. Pursuant to the SPA, we committed to invest an aggregate of $600,000, or the Investment Amount, in several closings, in consideration for up to 1,369,863 ordinary shares of Medimor (which reflects a 10.34% ownership interest in Medimor at the signing date, on a fully diluted basis), of which 955,479 ordinary shares, or the Milestone Shares, in the amount of $418,500, or the Milestone Shares Investment Amount, were to be issued upon, and subject to the occurrence of, certain milestone events. As of December 31, 2019, we have paid Medimor the full Investment Amount, and were issued 414,384 ordinary shares of Medimor, which reflects a 3.37% ownership interest in Medimor, on a fully diluted basis, upon such issuance. However, as of December 31, 2019, none of the Milestone Events have occurred and accordingly, the Milestone Shares have not been issued to us. Pursuant to the provisions of the SPA, in the event that all of the Milestone Shares have not been issued to us within 24 months of the signing date, then any remaining balance of the prepaid Milestone Shares Investment Amount will be deducted from any payments then due or to be due in the future to Medimor by us in our capacity as a customer of Medimor.
 
Research and Development
 
Our research and development activities are conducted internally by a team of 17 research and development staff based in Israel. Our research and development efforts are focused on the development of new products, as well as on the extension of our existing products to introduce new applications in the minimally and non-invasive and medical aesthetic markets. We expect to concentrate our research and development efforts in the coming years on developing procedures and platforms based on our proprietary technologies: (i) RFAL, (ii) Deep Subdermal Fractional RF (iii) Simultaneous Fat Destruction and Skin Tightening and (iv) Deep Heating Collagen Remodeling, and developing new technologies. We have a number of new projects and products under development, mainly focusing on additional minimally and non-invasive aesthetic and medical treatments.
 
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Our research and development expenditures for the years ended December 31, 2019, 2018 and 2017 were approximately $5.7 million, $4.2 million and $2.6 million, respectively.
 
Seasonality
 
Our business is not significantly impacted by seasonality; however, our fourth quarter has historically generated slightly stronger operating results. We have historically experienced stronger sales in the fourth quarter in correlation with our customers’ spending patterns and budget cycles. Most physicians operate on an annual budget cycle with a fiscal year that begins on January 1. It is not uncommon to experience a higher level of purchasing activity from physicians in the final months and weeks of their fiscal year. Consequently, our fourth quarter revenues may be greater than other quarters. Our business is also impacted by general economic conditions, which may impact future seasonal variations.
 
Intellectual Property
 
We rely on a combination of patent and trademark laws to protect our intellectual property rights.
 
Patents and Patent Applications
 
As of December 31, 2019, we own five issued U.S. patents and one issued Korean patent. As of December 31, 2019, we have filed nine patent applications that are pending in the United States Patent and Trademark Office. Our issued U.S. patents are projected to expire between 2027 and 2038 (assuming pending U.S. patent applications are approved). These patents and patent applications cover the technologies described herein, and contribute to the protection of our rights to our proprietary technology. Our patents relate to radio frequency (RF) based technology that may be used for minimally-invasive aesthetic solutions, such as fat destruction, and fractional skin ablation relating to skin tightening and fat destruction, among others, and cover our existing products. Without these patents, we cannot guarantee that we can prevent others from manufacturing similar products that are covered by our patent rights. We also rely on our issued patents to make, use, sell, and distribute our products. The term of the patents depends on the legal term for patents in the countries in which they are granted. In most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country. We also rely upon trademarks in various jurisdictions covering the InMode brand and our product lines, as well as upon U.S. copyright law for protection of the software programs associated with our products.
 
We cannot assure you that patents will issue from any of our pending applications or that, if patents issue, they will be of sufficient scope or strength to provide meaningful protection for our technology. Our policy is to obtain patents and to seek to operate without infringing on the intellectual property rights of third parties. Loss or invalidation of our patents, or a finding of unenforceability or limitation of scope of our patents, could have a material adverse effect on us. The patent position of many inventions in the areas related to our business is highly uncertain, involves many complex legal, factual and technical issues and has recently been the subject of litigation industry-wide. There is no certainty in predicting the breadth of allowable patent claims or the degree of protection afforded under any issued patents.
 
Notwithstanding the scope of the patent protection available to us, a competitor could develop treatment methods or devices that are not covered by our patents. Furthermore, numerous U.S. and foreign issued patents and patent applications owned by third parties exist in the fields in which we are developing products. Because patent applications can take many years to issue, there may be applications unknown to us, which applications may later result in issued patents that our existing or future products or proprietary technologies may be alleged to infringe. Third parties may also obtain patents that we may need to license from them in order to conduct our business.
 
It is possible that patents issued to us will be successfully challenged or that patents issued to others may preclude us from commercializing our products under development. Litigation to establish or challenge the validity of patents, to defend against infringement, unenforceability or invalidity claims or to assert infringement, invalidity or unenforceability claims against others, if required, can be lengthy and expensive, and may result in determinations materially adverse to us. We cannot assure you that the products currently marketed or under development by us will not be found to infringe patents issued or licensed to others.
 
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Patent Litigation
 
We may receive allegations from third parties contending that we are infringing their patents. If such third parties were to commence infringement suits against us, and such third-party patents were found by a court to be valid, enforceable and infringed upon by us, then we could be required to pay damages and/or make royalty payments, and we could also be enjoined from continuing the infringing activity. Depending on the nature of the patent found to be infringed upon by us, a court order requiring us to cease such infringement could have a material adverse effect on us. We might be unable to design-around such patents or continue offering the products or services found to be infringing, or we could suffer other adverse consequences.
 
In January 2016, Syneron filed a claim with the United States District Court for the Central District of California against our U.S. and Israeli subsidiaries alleging that certain of our products infringed four U.S. patents owned by Syneron. In September 2018, the court granted summary judgment and ruled in our favor on all claims asserted against us related to the intellectual property in dispute. In April 2018, Syneron and Candela Corporation, or 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 entered into a settlement agreement 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. See “Item 3D. Key Information—Risk Factors—Risks Related to Our Intellectual Property—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.”
 
Copyrights, Trademarks and Trade Secrets
 
The software programs associated with our products are protected by U.S. copyright law.
 
We also filed for protection available under trademark law. As of December 31, 2019, we own 2 registered trademarks in the United States and we own 29 registered trademarks in various jurisdictions outside the United States, including for the marks “InMode” and “RFAL” and certain key product names, in particular, BodyFX, BodyTite, Diolaze, Fractora and Lumecca. We also have 15 pending foreign trademark applications. We also have 11 trademark applications in the United States pending for BodyTite, Contoura by InMode, FaceTite, InMode, Optimas by InMode, Triton by InMode, Votiva by InMode, Triton by InMode, AccuTite, Morpheus, Evolve and Evoke.
 
We also rely upon know-how and continuing technological innovation, and may pursue licensing opportunities in the future, to develop and maintain our competitive position. We seek to protect our proprietary rights through a variety of methods, including confidentiality agreements and proprietary information agreements with suppliers, employees, consultants and others who may have access to proprietary information, under which they are bound to assign to us inventions made during the term of their employment or term of service.
 
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All professional employees and technical consultants are required to execute confidentiality agreements in connection with their employment and consulting relationships with us. We also require them to agree to disclose and assign to us all inventions conceived in connection with their services to us. However, there can be no assurance that these confidentiality agreements will be enforceable or that they will provide us with adequate protection.
 
Competition
 
Our industry is subject to intense competition, subject to rapid change and highly sensitive to the introduction of new products or other market activities of industry participants. We compete against products offered by public companies, including Allergan plc, Cutera, Inc., Apyx Medical Corporation, Venus Concept Inc. and Viveve Medical, Inc., as well as by private companies, such as Cynosure LLC (formerly Cynosure Inc.), Lumenis Ltd., Sisram Medical Ltd. and Syneron Medical Ltd. In the past few years, several large pharmaceutical and medical device companies have also entered the aesthetic device market, including Valeant Pharmaceuticals International Inc. and Merz Pharma Group. Our products compete against conventional medical products, including Botox, hyaluronic acid injections and collagen injections, and aesthetic procedures, such as face lifts, liposuction, sclerotherapy, electrolysis, chemical peels and microdermabrasion, that are unrelated to laser, light and RF-based technologies. Our products also compete against laser and other light and radio frequency-based products.
 
Competition among providers of laser and other light and radio frequency-based products for the aesthetic medical market is characterized by extensive research efforts and rapid technological progress. While we attempt to protect our products through patents and other intellectual property rights, there are few barriers to entry that would prevent new entrants or existing competitors from developing products that would compete directly with ours. There are many companies, both public and private, that are developing innovative devices that use laser and other energy-based and alternative technologies. Many of these competitors have significantly greater financial and human resources than we do and have established reputations, greater brand name recognition, broader product lines, and larger customer bases, as well as worldwide distribution channels that are more effective than ours. Additional competitors may enter the market, and we are likely to compete with new companies in the future. Any business combinations or mergers among our competitors that result in larger competitors with greater resources or distribution networks, or the acquisition of a competitor by a major medical or technology corporation seeking to enter this business, could further result in increased competition.
 
To compete effectively, we have to demonstrate that our products are attractive alternatives to other devices and treatments by differentiating our products on the basis of performance, brand name, reputation and price. We have encountered and expect to continue to encounter potential customers who, due to existing relationships with our competitors, are committed to, or prefer the products offered by, these competitors. We expect that competitive pressures may over time result in price reductions and reduced margins for our products.
 
Other medical companies, academic and research institutions, or others, may develop new technologies or therapies, including medical devices, surgical procedures or pharmacological treatments and obtain regulatory approval for products utilizing such techniques that are more effective in treating the conditions that we target or are less expensive than our current or future products. Our technologies and products could be rendered obsolete by such developments.
 
Government Regulation
 
Our products and operations are subject to extensive and rigorous regulation by the relevant governmental authorities in the countries where we market and sell or products. These include the FDA, which enforces, among others, the FDCA as well as other similar laws and regulatory bodies worldwide. The Federal Trade Commission, or FTC, also regulates the advertising of our products in the United States. Further, we are subject to laws directed at preventing fraud and abuse, which subject our sales and marketing, training and other practices to government scrutiny.
 
In some jurisdictions, such as the United States, Canada, South Korea and Israel, we must complete an application process with the relevant regulator, which includes submitting the results of clinical trials for their review. In other jurisdictions, such as the European Union and certain countries in Asia, we are required to self-certify that our devices meet the applicable standards (which may include the completion of satisfactory clinical trials) but without the requirement of a formal application with, or review of clinical trials by, the relevant regulatory body.
 
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In addition to the requirements regarding product clearance, many countries also impose product standards, packaging requirements, environmental requirements, labeling requirements and import and export restrictions on our devices. Each country also has its own tariff regulations, duties and tax requirements. Failure to comply with applicable regulatory requirements may result in fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, criminal prosecution, or other consequences.
 
In the United States, the FDCA and its implementing regulations govern the following activities that we perform and will continue to perform to help ensure that medical products distributed within the United States are safe and effective for their intended uses:
 

product design and development;
 

product testing;
 

product manufacturing;
 

product safety;
 

product labeling;
 

product storage;
 

record-keeping;
 

premarket clearance or approval;
 

advertising and promotion;
 

manufacturing and production;
 

product sales and distribution;
 

import, export and shipping;
 

establishment registration and device listing; and
 

recalls, field safety corrective actions and post-market surveillance.

Each of our currently marketed products has received 510(k) clearance for the uses for which they are being marketed.
 
FDA’s Premarket Clearance and Approval Requirements
 
Unless an exemption applies, each medical device we wish to commercially distribute in the United States requires 510(k) clearance or premarket approval. The FDA classifies medical devices into one of three classes — Class I, Class II or Class III — depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure safety and effectiveness. Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions of the QSR, facility registration and product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and promotional materials. Class II devices are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. These special controls can include performance standards, post-market surveillance, patient registries and FDA guidance documents. While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially distribute the device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is generally known as 510(k) clearance. All of our current products are Class II devices subject to the 510(k) clearance requirements.
 
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Devices deemed by the FDA to pose the greatest risks, such as life-sustaining, life-supporting or some implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed in Class III, requiring approval of a premarket approval application, or PMA. Some pre-amendment devices are unclassified, but are subject to the FDA’s premarket notification and clearance process in order to be commercially distributed.
 
510(k) Clearance Pathway
 
When a 510(k) clearance is required, we must submit a premarket notification demonstrating that our proposed device is “substantially equivalent,” as defined in the statute, to a previously cleared 510(k) device or a device that was in commercial distribution in the United States before May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, for which the FDA has not yet called for the submission of premarket approval applications.
 
After a 510(k) premarket notification is submitted, the FDA determines whether to accept it for substantive review. If it lacks necessary information for substantive review, the FDA will refuse to accept the 510(k) notification. If it is accepted for filing, the FDA begins a substantive review. By statute, the FDA is required to complete its review of a 510(k) notification within 90 days of receiving the 510(k) notification. As a practical matter, if the FDA requires additional information, clearance often takes far longer, and clearance is never assured. Although most 510(k) premarket notifications are cleared without clinical data, the FDA may require further information, including clinical data, to make a determination regarding substantial equivalence, which may significantly prolong the review process. If the FDA agrees that the device is substantially equivalent, it will grant clearance to commercially market the device.
 
If the FDA determines that the device is not “substantially equivalent” to a predicate device, or if the device is automatically classified into Class III, the device sponsor must then fulfill the much more rigorous premarketing requirements of the PMA approval process, or seek reclassification of the device through the de novo process. A manufacturer can also submit a petition for direct de novo review if the manufacturer is unable to identify an appropriate predicate device and the new device or new use of the device presents a moderate or low risk.
 
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or major change in its intended use, will require a new 510(k) clearance or, depending on the modification, could require a PMA application or de novo classification. The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k) or a PMA in the first instance, but the FDA can review any such decision and disagree with a manufacturer’s determination. Many minor modifications are accomplished by a letter-to-file in which the manufacture documents the change in an internal letter-to-file. The letter-to-file is in lieu of submitting a new 510(k) to obtain clearance for such change. The FDA can always review these letters to file in an inspection. If the FDA disagrees with a manufacturer’s determination regarding whether a new premarket submission is required for the modification of an existing device, the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or approval of a PMA is obtained. In addition, in these circumstances, the FDA can impose significant regulatory fines or penalties for failure to submit the requisite PMA(s).
 
Laser devices used for aesthetic procedures, such as hair removal, have generally qualified for clearance under 510(k) procedures.
 
The table below presents the specific FDA 510(k) clearances, dates and summary of cleared indications for our BodyTite (Inmode RF), Optimas, Votiva, Contoura, Triton, EmbraceRF, Evolve and Evoke platforms.
 
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Product Platform
Energy Source
Handpiece
FDA 510(k) Clearance and Cleared Indications
Evolve
Powered muscle stimulator
Tone
K192249 (12/17/2019)
The Evolve platform with the Tone hands-free applicator is used in EMS mode for:
•          prevention or retardation of disuse atrophy;
•          maintaining or increasing range of motion;
•          muscle re-education;
•          relaxation of muscle spasms;
•          increasing local blood circulation; and
•          immediate postsurgical stimulation of calf muscles to prevent venous thrombosis;
And in TENS mode for:
•          symptomatic relief and management of chronic, intractable pain;
•          post-surgical acute pain; and
•          post-traumatic acute pain.
EmFace (Evoke)
Radiofrequency (RF)
Cheek
Chin
K191855 (10/29/2019)
The EmFace (Evoke) platform with the Cheek and Chin hands-free applicators is indicated for the temporary relief of minor muscle aches and pain, temporary relief of muscle spasm, and temporary improvement of local blood circulation.
EmBody (Evolve)
Radiofrequency (RF)
EMBodyPlus – Tite
EmBodyFX – Trim
 
K183450 (06/20/2019)
The EmBody (Evolve) platform with its designated applicators is intended for the treatment of the following medical conditions:
The EmBodyPlus (Tite) hans-fee applicator is intended for the temporary relief of minor muscle aches and pain, temporary relief of muscle spasm, and temporary improvement of local blood circulation. 
The EmBodyFX (Tite) hands-free applicator is intended for the treatment of the following medical conditions using RF combined with massage:
•          relief of minor muscle aches and pain, relief of muscle spasm, and temporary improvement of local blood circulation; and
•          temporary reduction in the appearance of cellulite.
InMode RF / BodyTite / EmbraceRF
Radiofrequency (RF)
BodyTite minimally-invasive handpiece for thick body areas (>20mm)
K171593 (10/10/2017)
The InMode RF/BodyTite/ EmbraceRF platform with the minimally-invasive BodyTite handpiece for thick body areas is indicated for use in dermatological and general surgical procedures for electrocoagulation and hemostasis.
InMode RF /
BodyTite / EmbraceRF
Radiofrequency (RF)
BodyTite minimally-invasive handpiece for thin body areas (<20mm) or for large specialty areas
K163190 (12/12/2016)
The InMode RF/BodyTite/ EmbraceRF platform with the minimally-invasive BodyTite handpiece for thin body and large specialty areas is indicated for use in dermatological and general surgical procedures for electrocoagulation and hemostasis.
InMode RF / EmbraceRF
Radiofrequency (RF)
FaceTite
K151793 (02/19/2016)
The InMode RF/EmbraceRF platform with the FaceTite handpiece is indicated for use in dermatological and general surgical procedures for electrocoagulation and hemostasis.
Optimas / InMode RF
Radiofrequency (RF)
Fractora (60 pin tip)
K102461 (06/02/2011)
The Optimas/InMode RF platform with the Fractora 60 pin tip handpiece is indicated for use in dermatological procedures requiring ablation and resurfacing of the skin.
Optimas / InMode RF /
EmbraceRF
Radiofrequency (RF)
Fractora (24 pin tip)
FractoraV
K151273 (01/04/2016)
The Optimas/InMode RF/ EmbraceRF platform with the Fractora 24 pin tip handpiece is indicated for use in dermatologic and general surgical procedures for electrocoagulation and hemostasis.
Optimas
 
Radiofrequency (RF)
Morpheus8
K180189 (06/01/2018)
The Optimas platform with the Morpheus8 handpiece is indicated for use in dermatological and general surgical procedures for electrocoagulation and homeostasis.
InMode RF
Radiofrequency (RF)
Morpheus8
(24 pin tip)
Morpheus8
(40 pin tip)
Morpheus8
(12 pin tip)
Morpheus8
(T Pin tip)
K192695 (12/27/2019)
The InMode RF platform with the Morpheus8 handpieces is indicated for use in dermatological and general surgical procedures for electrocoagulation and homeostasis.

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InMode RF / EmbraceRF
Radiofrequency (RF)
AccuTite
K182325 (08/27/2018)
The InMode RF/EmbraceRF platform with the AccuTite handpiece is indicated for use in dermatological and general surgical procedures for electrocoagulation and hemostasis.
Contoura / Optimas
 
Radiofrequency (RF)
Plus
Plus90
Plus-Plus
K172302 (12/08/2017)
The Contoura/Optimas platform with the Forma Plus, Plus90, Plus-Plus handpieces is indicated for the temporary relief of minor muscle aches and pain, temporary relief of muscle spasm, and temporary improvement of local blood circulation.
Optimas
Intense Pulsed Light (IPL)
Lumecca 515
Lumecca 580
K123860 (04/02/2013)
The Optimas platform with the Lumecca 515 and Lumecca 580 handpieces is indicated for:
•          the treatment of benign pigmented epidermal lesions, including dyschrornia, hyperpigmentation, melasma, ephelides (freckles); and
•          the treatment of benign cutaneous vascular lesions, including port wine stains, facial truncal and leg telangiectasias, rosacea, erythema of rosacea, angiomas and spider angiomas, poikilodenna of civatte, superficial leg veins and venous malformations.
Triton / Optimas
Laser
DiolazeXL
K170738 (08/07/2017)
The Triton/Optimas platform with the DiolazeXL handpiece is indicated for hair removal and permanent hair reduction defined as stable, long-term reduction in hair counts at six, nine or 12 months following a treatment regime.
Triton / Optimas
Powered Laser
Vasculaze
K173677 (02/23/2018)
The Triton/Optimas platform with the Vasculaze handpiece is indicated for the treatment of vascular lesions, including angiomas, hemangiomas, telangiectasia, port wine stains, leg veins and other benign vascular lesions.
Votiva
Radiofrequency (RF)
FormaV
K153568 (07/12/2016)*
The InMode Plus90 (Votiva) platform with the FormaV handpiece is indicated for the temporary relief of minor muscle aches and pain, temporary relief of muscle spasm, and temporary improvement of local blood circulation.
Contoura / Optimas  
Radiofrequency (RF)
BodyFX
K131362 (10/08/2013)
The Contoura/Optimas platform with the BodyFX handpiece is indicated for the treatment of:
•          relief of minor muscle aches and pains, muscle spasms and temporary improvement of blood circulation; and
•           temporary reduction in the appearance of cellulite.
Contoura / Optimas  
Radiofrequency (RF)
MiniFX
K160329 (08/19/2016)
The Contoura/Optimas platform with the MiniFX handpiece is indicated for the treatment of:
•          relief of minor muscle aches and pain, muscle spasms, and temporary improvement of local blood circulation; and
•          temporary reduction in the appearance of cellulite.
Triton / Optimas
Laser
Triton Duo Light/
Triton Duo Dark
InMode Diolaze XL 755/810nm
InMode Diolaze XL 810/1064nm
InMode Diolaze XL 810nm
K180719 (06/14/2018)
The Triton/Optimas platform with the Triton Duo Light and Triton Duo Dark handpieces is indicated for hair removal and permanent hair reduction.


*
In addition to the 510(k) clearance, we also market the FormaV for use with the Votiva platform pursuant to a classification regulation for “genital vibrators for therapeutic use” under 21 C.F.R. 884.5960, which permits “electronically operated devices intended and labeled 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)” to be marketed without a 510(k) clearance.
 
Premarket Approval Pathway
 
A PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process. A PMA must be supported by extensive data, including, but not limited to, technical, preclinical, clinical trials, manufacturing and labeling, to demonstrate the safety and effectiveness of the device to the FDA’s satisfaction.
  
No device that we have developed has required premarket approval, nor do we currently expect that any future device or indication will require premarket approval.
 
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Pervasive and Continuing Regulation
 
After the FDA permits a device to enter commercial distribution, numerous regulatory requirements apply. These include:


QSR, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process;
 

clearance or approval of product modifications to 510(k)-cleared or PMA-approved devices that could affect safety or effectiveness;
 

labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or “off-label” uses;
 

advertising and promotion requirements;
 

medical device reporting regulations, which require that manufacturers report to the FDA if their devices may have caused or contributed to deaths or serious injuries or malfunctioned in ways that would likely cause or contribute to deaths or serious injuries if the malfunctions were to recur;
 

medical device correction and removal reporting regulations, which require the manufacturers to report to the FDA corrections and removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; and
 

post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the devices.

We may be subject to similar foreign laws that may include applicable post-marketing requirements such as safety surveillance. Our manufacturing processes are required to comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices intended for human use. The QSR also requires, among other things, maintenance of a device master file, device history file, and complaint files. As a manufacturer, our facilities, records and manufacturing processes are subject to periodic scheduled or unscheduled inspections by the FDA. Our failure to maintain compliance with the QSR or other applicable regulatory requirements could result in the shut-down of, or restrictions on, our manufacturing operations and the recall or seizure of our products. The discovery of previously unknown problems with any of our products, including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory device recalls.
 
The FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by the FDA to determine our compliance with the QSR and other regulations, and these inspections may include the facilities of our manufacturing subcontractors.
 
We also are regulated under the Radiation Control for Health and Safety Act, which requires laser products to comply with performance standards, including design and operation requirements, and manufacturers to certify in product labeling and in reports to the FDA that their products comply with all such standards. The law also requires laser manufacturers to file new product and annual reports, maintain manufacturing, testing and sales records, and report product defects. Various warning labels must be affixed and certain protective devices installed, depending on the class of the product.
 
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:


warning or untitled letters, fines, injunctions, consent decrees and civil penalties;
 

unanticipated expenditures, repair, replacement, refunds, recalls, administrative detention or seizure of products;
 

operating restrictions, partial suspension or total shutdown of production;
 

refusing requests for 510(k) clearance or PMAs of new products or new intended uses;
 
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withdrawing 510(k) clearance or PMAs that have already been granted; and
 

criminal prosecution.
 
The FDA also has the authority to require us to repair, replace or refund the cost of any medical device that we have manufactured or distributed. If any of these events were to occur, they could have a material adverse effect on our business.
 
We are also subject to a wide range of federal, state and local laws and regulations, including those related to the environment, health and safety, land use, and quality assurance. We believe that we are in compliance with these laws and regulations as currently in effect, and our compliance with such laws will not have a material adverse effect on our capital expenditures, earnings, and competitive and financial position.
 
Other Healthcare Laws
 
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 be subject to a number of foreign, federal, and state laws and regulations that may restrict our business practices, including, without limitation, anti-kickback, false claims, physician payment transparency and data privacy and security laws. The government has interpreted these laws broadly as they apply to the marketing and sales activities of manufacturers and distributors. Companies targeted in such prosecutions and in civil litigation have paid substantial fines, penalties, and settlements in the hundreds of millions of dollars or more, have been forced to implement extensive corrective action plans, can be excluded from federal health care programs, and have often become subject to consent decrees, settlement agreements or corporate integrity agreements severely restricting the manner in which they conduct their business. Many U.S. states and countries outside the United States have similar fraud and abuse statutes or regulations that may be broader in scope than the U.S. federal laws, and may apply regardless of payor, in addition to items and services reimbursed under government programs.
 
International Regulations
 
International manufacturing and sales of medical devices are subject to foreign governmental regulations, which vary substantially from country to country. The time required to obtain clearance or approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may be different.
 
The primary regulatory environment in Europe is that of the European Union, which consists of 28 countries encompassing most of the major countries in Europe. The European Union has adopted numerous directives, and European Standardization Committees have promulgated voluntary standards regulating the design, manufacture, clinical trials, labeling and adverse event reporting for medical devices. Devices that comply with the essential requirements of the EU Medical Devices Directive (Directive 93/42/EEC) will be entitled to bear CE conformity marking, indicating that the device conforms with the essential requirements of the EU Medical Devices Directive and, accordingly, can be commercially distributed throughout the member states of the European Union, the member states of the European Free Trade Association and countries that have entered into a Mutual Recognition Agreement. The method of assessing conformity varies depending on the type and class of the product but normally involves a combination of self-assessment by the manufacturer and a third-party assessment by a Notified Body, an independent and neutral institution appointed by a country to conduct the conformity assessment. This third-party assessment may consist of an audit of the manufacturer’s quality system and specific testing of the manufacturer’s device. An assessment by a Notified Body in one member state of the European Union, the European Free Trade Association or one country that has entered into a Mutual Recognition Agreement is required in order for a manufacturer to commercially distribute the product throughout these countries. ISO 9001 and ISO 13845 certification are voluntary harmonized standards. Compliance establishes the presumption of conformity with the essential requirements for a CE Marking.
 
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As a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use, that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and safety of the device are supported by suitable evidence. All manufacturers placing medical devices into the market in the EEA must comply with the EU Medical Device Vigilance System. Under this system, incidents must be reported to the relevant authorities of the Member States of the EEA, and manufacturers are required to take Field Safety Corrective Actions, or FSCAs, to reduce a risk of death or serious deterioration in the state of health associated with the use of a medical device that is already placed on the market. An incident is defined as any malfunction or deterioration in the characteristics and/or performance of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might have led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. An FSCA may include the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its legal representative to its customers and/or to the end users of the device through Field Safety Notices.
 
On April 5, 2017, the European Parliament passed the Medical Devices Regulation, which repeals and replaces the EU Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the EEA member states, the regulations would be directly applicable (i.e., without the need for adoption of EEA member state laws implementing them) in all EEA member states and are intended to eliminate current differences in the regulation of medical devices among EEA member states. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and in vitro diagnostic devices and ensure a high level of safety and health while supporting innovation.
 
The Medical Devices Regulation will however only become applicable three years after publication. Once applicable, the new regulations will among other things:
 

strengthen the rules on placing devices on the market and reinforce surveillance once they are available;
 

establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market;
 

improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;
 

set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the European Union; and
 

strengthened rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.

These modifications may have an impact on the way we design and manufacture products and the way we conduct our business in the EEA.
 
Several member states of the European Free Trade Association have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Other countries, such as Switzerland, have entered into Mutual Recognition Agreements and allow the marketing of medical devices that meet European Union requirements.
 
In Israel, the Israeli Medical Equipment Law, 2012, or the Medical Equipment Law, generally governs the regulatory process and authorizations required for the manufacture, marketing and use of medical and certain aesthetic products in Israel. Under the Medical Equipment Law, we are required to register our products with the Israeli Ministry of Health. The Medical Equipment Law offers a fast-track approval process for devices that received approval from certain non-Israeli regulatory agencies, including FDA clearance or CE marks. The registration process under this fast-track process involves submitting an application to the Israeli Ministry of Health which includes, among other things, documentation confirming receipt of the necessary regulatory approvals, such as 510(k) clearance or CE mark certification. In addition, we must provide details regarding the approval, including the period for which the applicable device was authorized for marketing in the applicable country, registration terms, any limitations, and any instructions given with respect to the labeling and packaging of such device. If approved, the registration of the device in Israel will be valid for the same period that such device was authorized to be marketed in the applicable non-Israeli country (but in any event not more than five years from the date of registration in Israel), and the device will be subject to the terms and conditions imposed by the relevant non-Israeli regulatory agency, if any. We have taken advantage of such fast-track approval in the past. All of our products that we currently sell in Israel are registered with the Israeli Ministry of Health, with registrations expiring on January 31, 2021. We intend to apply for extensions as required to maintain active registrations.
 
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Federal Communications Commission and other governmental agencies governing the use of radio frequency energy
 
Our products generate and use radio frequency energy and therefore may be subject to technical equipment authorization and other regulatory requirements in the countries and regions where they are marketed or distributed. In the United States, our products are subject to the Federal Communications Commission’s equipment verification procedures, under which the manufacturer is required to determine or verify that the equipment complies with the applicable technical standards and to keep a record of test measurements demonstrating compliance before the equipment can be marketed or sold in the United States. Any modifications to our products may require reverification before we are permitted to market and distribute the modified devices.
 
We obtain regulatory approvals in countries requiring advance clearance of our products before they are marketed or distributed in those countries. Our failure to comply with the technical, equipment authorization or other regulatory requirements of a specific country or region could impair our ability to commercially market and distribute our products in that country or region.
 
Data Protection
 
Our business involves the use, storage and transmission of information about our employees, our customers and, to a certain extent, clients of our customers. In the course of our operations, we may gain 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. With the recent increase in publicity regarding data breaches resulting in improper dissemination of consumer information, many states have passed laws regulating the actions that a business must take if it experiences a data breach, such as prompt disclosure to affected customers, governmental entities, and the media. In addition to data breach notification laws, some states have enacted statutes and rules requiring businesses to protect certain types of personal information they hold or to otherwise comply with certain specified data security requirements for personal information. We intend to protect all personal information and to comply with all applicable laws regarding the protection of such information.
 
In the European Union, the GDPR imposes several stringent requirements for controllers and processors of personal data, including, for example, higher standards for obtaining consent from individuals to process their personal data, more robust disclosures to individuals and a strengthened individual data rights regime, shortened timelines for data breach notifications, limitations on retention and secondary use of information, increased requirements pertaining to health data and pseudonymised (i.e., key-coded) data and additional obligations when we contract third-party processors in connection with the processing of the personal data. The GDPR provides that EU member states may make their own further laws and regulations limiting the processing of genetic, biometric or health data, which could limit our ability to use and share personal data or could cause our costs could increase, and harm our business and financial condition. Failure to comply with the requirements of GDPR and the applicable national data protection laws of the EU member states may result in fines of up to €20,000,000 or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties. To comply with the new data protection rules imposed by GDPR, we may be required to put in place additional mechanisms ensuring compliance.
 
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European data protection law also imposes strict rules on the transfer of personal data out of the European Union, including to the United States. These obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other requirements or our practices. In addition, these rules are constantly under scrutiny. We rely on a mixture of mechanisms to transfer personal data from the European Union to the United States, and could be impacted by changes in law as a result of a future review of these transfer mechanisms by European regulators under the GDPR, as well as current challenges to these mechanisms in the European courts.
 
C. Organizational Structure
 
Our significant subsidiaries, the countries of their incorporation/residence and proportion of ownership interest are as follows:
 
Name
 
Jurisdiction of Incorporation
 
Percentage Ownership
 Invasix Inc.
 
 Delaware, USA
 
100%
 Invasix Corp.
 
 Canada
 
100%
 InMode M.D. Ltd.
 
 Israel
 
100%
 Invasix UK Ltd.
 
 United Kingdom
 
51%
 InMode Japan KK
 
 Japan
 
100%
 Invasix Iberia S.L.
 
 Spain
 
100%
 Guangzhou InMode Medical Technology Ltd.
 
 China
 
51%
 InMode Asia Limited.
 
 Hong Kong
 
100%
 InMode India Private Limited
 
 India
 
100%
 InMode Australia Pty Ltd
 
 Australia
 
100%
 
D. Property, Plant and Equipment
 
We lease our main office, manufacturing and research and development facilities, located in the Industrial Zone in Yokneam, Israel, pursuant to a lease that expires in December 2021. In January 2019, we signed a supplemental lease agreement, expanding our headquarters in Israel by 4,478 square feet. We lease approximately 14,768 square feet in the Israeli facility. Our current monthly rent payment is approximately $27,337.
 
Our U.S. subsidiary leases a 7,344-square foot facility in Lake Forest, California pursuant to a lease that expires in August 2022 in consideration for a current monthly rent payment of $9,914.
 
Our Canadian subsidiary leases a 5,973-square foot facility in Richmond Hill, Ontario pursuant to a lease that expires in June 2022 in consideration for a current monthly rent payment of approximately $5,300.
 
We believe our current office space is sufficient to meet our anticipated needs for the foreseeable future and is suitable for the conduct of our business.
 
ITEM 4A. UNRESOLVED STAFF COMMENTS
 
  None.
 
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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 20-F. In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this Annual Report on Form 20-F. On July 24, 2019, the Stock Split of our ordinary shares by way of an issuance of bonus shares was effected and all information in this Annual Report on Form 20-F reflects the Stock Split unless otherwise indicated.
 
Overview
 
We design, develop, manufacture and commercialize innovative, energy-based, minimally-invasive surgical aesthetic and medical treatment solutions. Since 2010, we have launched eight product platforms (BodyTite, Optimas, Votiva, Contoura, Triton, EmbraceRF, Evolve and Evoke) that we market and sell traditionally to plastic and facial surgeons, aesthetic surgeons, dermatologists and OB/GYNs.
 
As of December 31, 2019, we had a global installed base of approximately 4,900 product platforms capable of running various multi-use applicators and minimally-invasive consumables.
 
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.
 
Components of Our Operating Results
 
Revenues
 
We generate our revenues primarily from the sale of energy-based medical aesthetic products, which consist of platforms and non-consumable handpieces and hands-free applicators. To a lesser extent, we generate revenue from the sale of consumables and from the sale of extended warranties. For the year ended December 31, 2019, we derived approximately 91% of our revenues from the sale of medical aesthetic products and approximately 9% 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 years ended December 31, 2019 and 2018, we derived approximately $88.5 million, or 57%, and $69.4 million, or 69%, respectively, of our total revenues from the sale of minimally-invasive platforms in the United States, and approximately $22.2 million, or 14%, and $9.6 million, or 10%, respectively, of our total revenues from the sale of non-invasive platforms in the United States. This resulted in growth of $19.1 million, or 28%, and $12.6 million, or 132%, in revenues from the sale of minimally-invasive platforms and non-invasive platforms in the United States, respectively.  In the future, we expect that revenues from the sale of minimally-invasive platforms in the United States will continue to be a major contributor to our revenues. We do not anticipate that the platforms that are currently under development will contribute meaningfully to our revenues in 2020.
 
We sell our products directly in the United States, Canada, United Kingdom, Spain, and India, and indirectly through third-party distributors in other countries.
 
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The following table provides information regarding the breakdown of our revenue by geographic region for the years ended December 31, 2019, 2018 and 2017:
 
   
Years ended December 31,
 
Geographic region
 
2019 (%)
   
2018 (%)
   
2017 (%)
 
United States          
   
79
     
81
     
80
 
International (non-U.S.)          
   
21
     
19
     
20
 
Total          
   
100
     
100
     
100
 

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 expenses, external engineering fees, materials used and other overhead expenses that are incurred in connection with the design and development of our products. For further details with respect to government regulations we are subject to, see “Item 4B. Information on the Company—Business Overview—Government Regulations.” We expense all of our research and development costs as incurred. While we do not track our research and development spending by technology, product or application, we do expect that our overall research and development costs will increase in absolute dollars in the future as we develop more products and technologies. We expect research and development expenses as a percentage of our total revenue to vary over time depending on the level and timing of initiating new product development efforts.
 
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Sales and Marketing Expenses
 
Our sales and marketing expenses consist primarily of salaries, commissions and personnel-related expenses, including share-based compensation expenses, for our employees that are engaged in sales and marketing activities, which include marketing and public support of our products, participation in trade shows and industry events, promotional and public relations activities, and administrative functions in support of sales and marketing. We expect sales and marketing expenses to continue to increase in absolute dollars as we continue to expand our marketing organization to both drive and support our planned growth in revenue. However, we expect sales and marketing expenses to decrease as a percentage of our total revenue primarily as, and to the extent, our revenue grows.
 
General and Administrative Expenses
 
Our general and administrative expenses consist primarily of salaries and personnel-related expenses, including share-based compensation expenses, for executive, accounting and administrative personnel, professional fees and other general corporate expenses. We expect our general and administrative expenses will continue to increase in the future as we increase our headcount and expand our administrative infrastructure to support our growth and operations. We also expect to see an increase in our share-based compensation expense with the establishment of our new equity plan and related grants either in the form of restricted stock or options. During the years ended December 31, 2018 and 2017, the majority of our general and administrative expenses were attributable to legal costs and expenses related to our patent litigations. We expect general and administrative expenses to remain flat as a percentage of our total revenue due to the dismissal of all patent litigation following the entry into a settlement agreement in January 2019.
 
Income Taxes
 
We are subject to income taxes in Israel, the United States and numerous foreign jurisdictions.
 
Our facilities in Israel were granted the status of  “Benefited Enterprise” that provides us with a ten-year corporate tax exemption for undistributed income, provided that we meet certain conditions, including that the production of all of our products, directly or through subcontractors, is performed in Israel. The first year in which we were exempted from Israeli corporate tax was 2012 with the ten-year eligibility period of tax exemption expected to terminate in 2021.
 
Critical Accounting Policies and Estimates
 
Our discussion and analysis of our financial condition and results of our operations is based upon our audited consolidated financial statements as of and for the years ended December 31, 2019 and 2018, 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. We base our estimates on historical experience, authoritative pronouncements and various other assumptions that we believe to be reasonable under the circumstances. On a periodic basis, we evaluate our estimates. 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.
 
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Revenue Recognition
 
We recognize revenue in accordance with Accounting Standards Update No. 2014-09, Accounting Standards Codification, or ASC, No. 606, “Revenue from Contracts with Customers” (“ASC 606”) 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 follow the following practical expedients that are permitted under the rules:


We recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. These costs are included in sales and marketing expenses.


We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
 
Product Revenue, Net
 
Revenues from product sales are recognized when the customer obtains control over our product, typically upon shipment to the customer. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.
 
Payment terms and conditions vary by customer. Our standard terms for end users usually require payment upon delivery and for distributors require 50% down payment and 50% payment within 30 days from the invoice date. 
 
From time to time, we may decide to enter into installment sales contracts with certain end users that provide them with long-term (generally up to 60 months) financing of the purchase of our product. The interest rate used in these contracts reflects the credit characteristics of the party receiving financing in the contract, as well as any collateral or security provided by the customer. Interest income on these receivables is recognized as financing income and earned over the term of the contract.
 
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 do not grant any right of return, refund, cancelation or termination. From time to time, we participate in our customers’ marketing activities and deduct costs related to such activities from revenue.
 
65

Service Revenue

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. Proceeds from these maintenance agreements are included in contract liabilities.
 
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 No. 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 No. 718, “Compensation—Stock Compensation” (“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.
 
Marketable Securities
 
We account for marketable securities in accordance with ASU 2016-01, “Financial Instruments - Overall (Subtopic 825‑10): Recognition and Measurement of Financial Assets and Liabilities” (“ASU 2016-01”), which relates to certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.
 
Our investments in marketable securities consist of government bonds, corporate debt securities and certificates of deposit measured at fair value in each reporting period. The fair value of quoted securities is based on current market value.
 
Since marketable securities represent a significant amount of our assets, we check, on periodic basis, the compliance of our investment portfolio with our investment policy.
 
Accounts Receivable and Allowance for Doubtful Accounts
 
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.
 
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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. 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
 
We generally provide, as a standard, a one-year parts delivery and labor warranty on end-user sales of our aesthetic treatment systems. Distributors generally provide a one-year manufacturing warranty on parts only. We estimate and provide for future costs for initial product warranties at the time revenue is recognized. We base product warranty costs on related material costs, delivery cost, technical support labor costs and overhead.
 
We provide for the estimated cost of product warranties by considering historical material, delivery, labor and overhead expenses and applying the experience rates to the outstanding warranty period for products sold. As we sell new products to our customers, we exercise considerable judgment in estimating the expected failure rates and warranty costs. If actual product failure rates, material usage, service delivery costs or overhead costs differ from our estimates, we would be required to revise our estimated warranty liability.
 
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Operating Results
 
The following table summarizes the results of our operations for the periods presented:
 
   
Years ended December 31,
 
   
2019
   
2018
   
2017
 
   
($)
   
(% of Revenues)
   
($)
   
(% of Revenues)
   
($)
   
(% of Revenues)
 
   
(in thousands)
 
Revenues          
   
156,361
     
100
     
100,162
     
100
     
53,456
     
100
 
Cost of revenues          
   
20,238
     
13
     
15,057
     
15
     
9,053
     
17
 
Gross profit          
   
136,123
     
87
     
85,105
     
85
     
44,403
     
83
 
Operating expenses:
                                               
Research and development          
   
5,699
     
3
     
4,180
     
4
     
2,575
     
5
 
Sales and marketing          
   
66,848
     
43
     
44,622
     
45
     
28,514
     
53
 
General and administrative          
   
3,958
     
3
     
4,814
     
5
     
4,364
     
8
 
Legal settlements and loss contingencies
   
-
     
-
     
8,000
     
8
     
-
     
-
 
Total operating expenses          
   
76,505
     
49
     
61,616
     
62
     
35,453
     
66
 
Income from operations          
   
59,618
     
38
     
23,489
     
23
     
8,950
     
17
 
Finance income, net          
   
2,423
     
(2
)
   
136
     
(1
)
   
849
     
(2
)
Income before taxes          
   
62,041
     
40
     
23,625
     
24
     
9,799
     
18
 
Income taxes          
   
883
     
1
     
1,260
     
2
     
980
     
2
 
Net income          
   
61,158
     
39
     
22,365
     
22
     
8,819
     
16
 
Less: net income (loss) attributable to non-controlling interests
   
13
     
0
     
(6
)
   
0
     
-
     
-
 
Net income attributable to Inmode Ltd
   
61,145
     
39
     
22,371
     
22
     
8,819
     
16
 

Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
 
Revenues
 
Our revenues increased by approximately $56.2 million, or 56%, to approximately $156.4 million for the year ended December 31, 2019, compared to approximately $100.2 million for the year ended December 31, 2018. This increase was primarily attributable to increased patient and physician awareness of our technologies and product offerings, the expansion of our direct sales organization and an increase in our average selling prices in the United States.
 
Our revenues in Unites States increased by approximately $43.1 million, or 53%, to approximately $124.2 million for the year ended December 31, 2019, compared to approximately $81.1 million for the year ended December 31, 2018. This increase was primarily attributable to the expansion of our direct sales organization, which increased sales in the United States, and an increase in our average selling prices in the United States.
 
Our revenues outside of the United States increased by approximately $13.1 million, or 68%, to approximately $32.2 million for the year ended December 31, 2019, compared to approximately $19.1 million for the year ended December 31, 2018. This increase was primarily driven by an increase in the number of distributors in Europe and an increase in our sales team in Europe and Canada.
 
Our revenues from the sale of consumables and extended warranties for the year ended December 31, 2019, increased by approximately 94% compared to the year ended December 31, 2018. 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 $5.1 million, or 34%, to approximately $20.2 million for the year ended December 31, 2019, compared to approximately $15.1 million for the year ended December 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 87% for the year ended December 31, 2019, compared to approximately 85% for the year ended December 31, 2018, primarily due to a higher percentage of revenues derived from direct sales compared to sales through distributors, which has increased our average selling price.
 
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Research and development expenses
 
Our research and development expenses increased by approximately $1.5 million, or 36%, to approximately $5.7 million for the year ended December 31, 2019, compared to approximately $4.2 million for the year ended December 31, 2018. This increase was primarily attributable to increased costs of materials and sub-contractors used in research and development activities, as well as an increase in spending on clinical studies.
 
Sales and marketing expenses
 
Our sales and marketing expenses increased by approximately $22.3 million, or 50%, to approximately $66.9 million for the year ended December 31, 2019, compared to approximately $44.6 million for the year ended December 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 the United States.
 
General and administrative expenses
 
Our general and administrative expenses decreased by approximately $0.9 million, or 19%, to approximately $3.9 million for the year ended December 31, 2019, compared to approximately $4.8 million for the year ended December 31, 2018. This decrease was primarily attributable to a decrease in legal costs and expenses related to our patent litigations offset by an increase in salaries and related expenses resulting from our increased headcount and increased costs associated with our product liability and directors and officers liability insurance policies.
 
Legal settlements and loss contingencies
 
We had no expenses related to legal settlements and loss contingencies in the year ended December 31, 2019, compared to approximately $8.0 million for the year ended December 31, 2018. The expense in 2018 was primarily attributable to a settlement agreement entered into in January 2019.
 
Finance income, net
 
Our finance income, net was approximately $2.4 million for the year ended December 31, 2019, compared to approximately $0.1 million for the year ended December 31, 2018. This increase in finance income, net was primarily attributable to an increase in interest income from our growing portfolio of investments in government bonds and corporate debt securities and short-term bank deposits, and from changes in foreign currency translation.
 
Income taxes
 
Our income taxes decreased by approximately $0.4 million, or 30%, to approximately $0.9 million for the year ended December 31, 2019, compared to approximately $1.3 million for the year ended December 31, 2018. In 2019, the tax benefit derived from our “Benefited Enterprise” status was approximately $13.8 million, which represents approximately 22% of our income before taxes.
 
Comparison of the Year Ended December 31, 2018 to the Year Ended December 31, 2017
 
Revenues
 
Our revenues increased by approximately $46.7 million, or 87%, to approximately $100.2 million for the year ended December 31, 2018, compared to approximately $53.5 million for the year ended December 31, 2017. This increase was primarily attributable to increased patient and physician awareness of our technologies and product offerings and the expansion of our direct sales organization. In addition, approximately $11.8 million, or 25%, of this increase was attributable to the introduction of new products, including our Votiva platform that launched in the third quarter of 2017. Approximately $4.3 million, or 9%, of the increase was attributable to an increase in our average selling prices in the United States.
 
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Our revenues in the United States increased by approximately $38.4 million, or 90%, to approximately $81.1 million for the year ended December 31, 2018, compared to approximately $42.7 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 the United States, the commercial launch of our Votiva platform, during the third quarter of 2017, and an increase in our average selling prices in the United States.
 
Our revenues outside of the United States increased by approximately $8.3 million, or 77%, to approximately $19.1 million for the year ended December 31, 2018, compared to approximately $10.8 million for the year ended December 31, 2017. This increase was primarily driven by the establishment of a direct sales team in the Canada, 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 the United States, as well as a higher percentage of revenue derived from the United States 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 the United States.
 
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.
 
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Finance income, net
 
Our finance 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 finance income, net was primarily attributable to loss from foreign currency translation and loss from marketable equity securities revaluation. This decrease was partially offset by an increase in income from dividend and interest derived from our investments in government and corporate debt securities, in the year ended December 31, 2018, as compared to a gain on foreign currency translation in the year ended December 31, 2017.
 
Income taxes
 
Our income taxes increased by approximately $0.3 million, or 29%, to approximately $1.3 million for the year ended December 31, 2018, compared to approximately $1.0 million for the year ended December 31, 2017. In 2018, the tax benefit derived from our “Benefited Enterprise” status was approximately $5.1 million, which represents approximately 22% of our income before taxes.
 
Selected Quarterly Results of Operations
 
The following tables show our unaudited quarterly statements of operations for the periods indicated. We have prepared this quarterly information on a basis consistent with our audited consolidated financial statements and we believe it includes all adjustments, consisting of normal recurring adjustments necessary for a fair statement of the information shown. Operating results for any quarter are not necessarily indicative of results for a full fiscal year.
 
   
2019
   
2018
 
   
Dec. 31
   
Sep. 30
   
Jun. 30
   
Mar. 31
   
Dec. 31
   
Sep. 30
   
Jun. 30
   
Mar. 31
 
                                                 
Revenues          
 
$
47,002
   
$
40,010
   
$
38,797
   
$
30,552