ITEM 1A. RISK FACTORS Our operations and financial results are subject to various risk and uncertainties, including those described below and the risk factors described under Part I, Item 1A. Risk Factors in our latest Form 10-K for the year ended December 31, 2024, any of which could adversely affect our business, results of operations, financial condition and prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. You should carefully consider the risks described below and the other information in this Quarterly Report on Form 10-Q, our unaudited condensed consolidated financial statements, and the related notes thereto, and Management s Discussion and Analysis of Financial Condition and Results of Operations , included herein, and the risk factors previously disclosed in Part I, Item 1A. Risk Factors in our Form 10-K for the year ended December 31, 2024 filed with the SEC and incorporated by reference herein . Conditions in the Middle East, including the October 2023 attack by Hamas and other terrorist organizations on Israel and Israel s war against them, and Israel's recent conflict with Iran, may adversely affect our operations and limit our ability to manage and market our products, which could lead to a decrease in revenues. Certain of our operations are conducted in Israel and a number of our employees, contract manufacturers and consultants, including employees of our service providers, are located in Israel. As such, our business and operations may be directly affected by economic, political, geopolitical and military conditions affecting Israel. On October 7, 2023, Hamas militants and members of other terrorist organizations infiltrated Israels southern border from the Gaza Strip and conducted a series of terror attacks on civilian and military targets. Thereafter, these terrorists launched extensive rocket attacks on the Israeli population and industrial centers located along the Israeli border with the Gaza Strip. Shortly following the attack, Israels security cabinet declared war against Hamas. While an initial armistice and hostages/prisoners exchange was agreed to by Israel and Hamas and came into effect on January 19, 2025, the war has since resumed. Further, on June 13, 2025, Israel launched a preemptive attack on Iran, to which Iran responded with ballistic missile and drone attacks. On June 23, 2025, Israel and Iran agreed to a ceasefire, although there is no assurance that the ceasefire will continue. How long and how severe the current conflict may become is unknown at this time, and any continued clash among Israel and Iran or other countries or militant groups in the region may escalate in the future into a greater regional conflict. The intensity, duration and impact of Israels current war wars against Hamas and Iran and the corresponding geopolitical instability in the region is difficult to predict, as are the wars economic implications on the Companys business and operations. Additionally, political uprisings, social unrest and violence in various other countries in the Middle East, including Israels neighboring countries Syria, Lebanon, Egypt and Jordan, are affecting the political stability of those countries. This instability may lead to deterioration of the political relationships that exist between Israel and certain countries and have raised concerns regarding security in the region and the potential for armed conflict. Iran is also believed to have a strong influence over various proxy militias across the Middle East, and among the Syrian government, Hamas and Hezbollah, in addition to its readiness to engage in conflict with Israel directly. These situations may potentially escalate in the future into more violent events which may affect Israel and us. These situations, including conflicts which involved missile strikes against civilian and military targets in various parts of Israel may negatively impact the Companys operations in Israel. Our facilities are within the range of rockets that have been launched from surrounding territories, though none of our operations or those of our manufacturers have been impacted to date. In the event that our facilities in Israel, or the facilities of our vendors in Israel, are damaged as a result of the hostilities or hostilities otherwise disrupt the ongoing operation of our facilities, our ability to deliver products to customers in a timely manner to meet our contractual obligations with customers and vendors could be materially and adversely affected. Any losses or damages incurred by us could have a material adverse effect on our business. 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. We offer credit terms to some qualified customers and distributors. In the event that a customer or distributor defaults on the amounts payable to us, our financial results may be adversely affected. For the three six months ended March 31, June 30, 2025 and 2024, approximately 25% 32% and 30% of our total system revenues were derived from our internal lease programs (Venus Prime and our legacy subscription-based model). model), respectively. Under our internal lease programs, we collect an up-front fee, combined with a monthly payment schedule typically over a period of 36 months, with approximately 40% to 45% of total contract payments collected in the first year. For accounting purposes, these arrangements are considered to be sales-type finance leases, where the present value of all cash flows to be received under the Venus Prime or subscription agreement is recognized as revenue upon shipment of the system to the customer. We cannot provide any assurance that the financial position of customers purchasing products and services under a Venus Prime or subscription agreement will not change adversely before we receive all the monthly installment payments due under the contract. In the event that there is a default by any of the customers to whom we have sold systems under our internal lease programs (Venus Prime or our legacy subscription-based model), we may recognize bad debt expenses in our general and administrative expenses. If the extent of such defaults is material, it could negatively affect our results of operations and operating cash flows. In addition to our internal lease programs, we generally offer credit terms of 30 to 90 days to qualified customers and distributors. In the event that there is a default by any of the customers or distributors to whom we have provided credit terms, we may recognize bad debt expenses in our general and administrative expenses. If the extent of such defaults is material, it could negatively affect our future results of operations and cash flows. We may also be adversely affected by bankruptcies or other business failures of our customers, distributors, and potential customers. A significant delay in the collection of accounts receivable or a reduction of accounts receivables collected may impact our liquidity or result in bad debt expenses. We may not be able to maintain our listing on The Nasdaq Capital Market and it may become more difficult to sell our stock in the public market . Minimum Stockholder Equity Requirement On May 31, 2023, we received a notice (the Notice) from Nasdaq stating that our stockholders equity as reported in our Quarterly Report on Form 10-Q for the period ended March 31, 2023 was below the minimum $2,500,000 required for continued listing under Nasdaq Listing Rule 5550(b)(1) (Minimum Equity Requirement). The Notice had no immediate effect on the listing of our common stock. On July 17, 2023, we submitted to Nasdaq a plan to regain compliance with the Minimum Equity Requirement (the "Plan"). On July 28, 2023, Nasdaq granted us an extension until November 27, 2023 to evidence compliance with the Minimum Equity Requirement, conditioned upon our achievement of certain milestones as set forth in the Plan. On November 28, 2023, the Company received a written notice from the Nasdaq Staff which described its determination that the Company had not regained compliance with the Minimum Equity Requirement within the Plan period. As a result, the Nasdaq Staff advised the Company that its securities will be delisted at the opening of business on December 7, 2023, unless the Company timely requests a hearing before a Nasdaq Hearings Panel (the "Panel). On December 5, 2023, the Company timely requested a hearing before the Panel. The hearing was held on March 5, 2024, staying any delisting pending the issuance of the Panels decision. On March 20, 2024, the Company received a decision from the Panel granting its request for continued listing on the Nasdaq Capital Market, subject to the Company demonstrating compliance with Nasdaq Listing Rule 5550(b) on or before May 28, 2024, and certain other conditions. On June 4, 2024, the Company was formally notified by Nasdaq that the Company had regained compliance with the stockholders equity Minimum Equity Requirement. The Company is subject to a Mandatory Panel Monitor, as defined in Nasdaq Listing Rule 5815(d)(4)(B), through June 4, 2025. If the Company is found to be noncompliant with the Minimum Equity Requirement within the monitoring period, the Company would not be allowed to provide the Nasdaq Listing Qualifications Staff with a plan to regain compliance with the Minimum Equity Requirement; rather, the Nasdaq Listing Qualifications Staff would be required to issue a delist determination. In such case, the Company would have the opportunity to request a new hearing before the Panel, which request would stay any further action by the Nasdaq Listing Qualifications Staff until the time of the hearing. Minimum Bid Price Requirement On April 11, 2024, the Company received a notice from Nasdaq stating that for 32 consecutive business days the Companys common stock did not maintain a minimum closing bid price of $1.00 per share as required for continued listing under Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days, or until the Initial Compliance Date, to regain compliance with the Minimum Bid Price Requirement. The Company did not regain compliance with the Bid Price Requirement by the Initial Compliance Date. On October 17, 2024, Nasdaq notified the Company that it is eligible for an additional 180 calendar day period, or until the Extended Compliance Date, to regain compliance with the Bid Price Requirement. If, at any time before the Extended Compliance Date, the bid price for the Companys common stock closes at $1.00 or more for a minimum of 10 consecutive business days as required under the Compliance Period Rule, the Staff will provide written notification to the Company that it complies with the Bid Price Requirement, unless the Staff exercises its discretion to extend this 10 day period pursuant to Nasdaq Listing Rule 5810(c)(3)(H). On March 3, 2025, the Company effected the Reverse Stock Split of the Companys issued and outstanding common stock, par value $0.0001 per share by the filing of a Certificate of Amendment of Certificate of Incorporation with the Secretary of State of the State of Delaware pursuant to the Delaware General Corporation Law. The Reverse Stock Split became effective at 5:00 p.m. Eastern Time on March 3, 2025, and began trading on a Reverse Stock Split-adjusted basis as of the opening of the Nasdaq Capital Market on March 4, 2025. On March 18, 2025, the Company received a notice from Nasdaq stating that the Company had regained compliance with the Bid Price Requirement. If our common stock ultimately is delisted for failure to comply with the Minimum Bid Price or Minimum Equity Requirement, our shareholders could face significant adverse consequences, including: Limited availability or market quotations for our common stock; Reduced liquidity of our common stock; Determination that shares of our common stock are penny stock, which would require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our common stock; Limited amount of news analysts coverage of us; and Decreased ability for us to issue additional equity securities or obtain additional equity or debt financing in the future. Macroeconomic conditions in our domestic and international markets, as well as inflation concerns, instability of financial institutions, rising interest rates, and recessionary concerns may adversely affect our industry, business and financial results. Our business depends on the overall demand for our products and on the economic health and willingness of our customers and potential customers to make capital commitments to purchase our products and services. As a result of macroeconomic or market uncertainty, including inflation concerns, rising interest rates, recessionary concerns, and geopolitical conflicts, customers may decide to delay purchasing our products and services or not purchase at all. In the past, unfavorable macroeconomic and market conditions have resulted in sustained periods of decreased demand. Reductions in customer spending in response to unfavorable or uncertain macroeconomic and market conditions, globally or in a particular region where we operate, would adversely affect our business, results of operations and financial condition. Changes in trade policies among the United States and other countries, in particular the imposition of new or higher tariffs or retaliatory tariffs, may adversely impact costs related to the production, manufacturing and transportation of our products. Increased tariffs or the imposition of other barriers to international trade could decrease demand and have a negative effect on our revenues and operating results. The U.S. Federal administration has imposed or proposed new or higher tariffs on certain products exported by a number of U.S. trading partners, including China, Europe, Canada, and Mexico. In response, many of those trading partners, including China, have imposed or proposed new or higher tariffs on American products. The U.S. Federal administration recently increased tariffs on goods imported from Israel to 10% (reduced from initial increase of 17%). As the majority of our systems are sourced from Israel, our cost of goods will increase and we will experience modest margin erosion. In addition, the Company derives a meaningful percentage of its revenues from outside of the US, and therefore, these developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may have a material adverse effect on the Company's business and operations. In addition, the Company and/or its contract manufacturers, source component parts used in our products from countries affected by higher tariffs. We also routinely ship our products internationally. An increase in tariffs may adversely affect our gross profit margins in the future due to higher costs of production, manufacturing and transportation of our products and/or impact our ability to sell our product in certain affected international markets. We also face uncertainty in the interpretation of new tariffs and their applicability, including with respect to customs valuation, product classification and country-of-origin determinations. Although we and our suppliers seek to comply with applicable customs laws and regulations, the application of rules regarding new tariffs can be subject to varying interpretations or future re-interpretations. It is possible that U.S. or other relevant authorities could, upon review or audit, disagree with the valuation, rules of origin or classification methods applied to certain products. We cannot control the duration or depth of such actions which may increase our product costs which would in turn reduce our margins and potentially decrease the competitiveness of our products. These actions could have a negative effect on our business, results of operations, or financial condition. Furthermore, compliance with export controls and implementation of additional tariffs may increase compliance costs and further affect our business and operating results. 40 42