VENUS CONCEPT LTD. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of Venus Concept Ltd. s (Venus Concept) financial condition and results of op

VENUS CONCEPT LTD. MANAGEMENT S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis of Venus Concept Ltd. s (Venus Concept) financial condition and results of operations for the

years ended December 31, 2018 and 2017 should be read together with the consolidated financial statements of Venus Concept and the related notes, included in the Current Report on Form 8-K/A filed by

Venus Concept Inc. with the Securities and Exchange Commission (SEC) on December 3, 2019. This discussion of Venus Concept s financial condition and results of operations contains certain statements that are not strictly historical

and are forward-looking statements and involve a high degree of risk and uncertainty. Actual results may differ materially from those projected in the forward-looking statements due to other risks and uncertainties that exist in Venus

Concept s operations, development efforts and business environment. All forward-looking statements are based on information available to Venus Concept as of the date hereof, and Venus Concept assumes no obligation to update any such

forward-looking statement.

Venus Concept is an innovative global medical technology company that develops, commercializes, and delivers minimally invasive and non-invasive medical aesthetic technologies and related practice enhancement services. To address the financial barriers faced by physicians and aesthetic service providers globally, Venus Concept focuses its

product sale strategy on a subscription-based business model in North America and in Venus Concept s well established direct global markets. Venus Concept has received FDA clearance for the combined use of multipolar RF and PEMF for non-invasive treatment of facial rhytides (wrinkles) in Fitzpatrick skin types I (ivory)-IV (light brown), and temporary reduction in the appearance of cellulite, among

others. Venus Concept also received FDA clearance for the use of its diode laser system for non-invasive fat reduction (lipolysis) in the abdomen and flanks for certain body types. In certain jurisdictions

outside of the United States, Venus Concept s products have received marketing authorizations for indications such as temporary increase of skin tightening, cellulite reduction and uses for certain soft tissue injuries, among others, and for

vaginal treatment in the Israeli market. Venus Concept s proprietary multipolar RF and PEMF technologies, also referred to as Venus Concept s (MP)2 technology, synergistically deliver

consistent, homogenous treatments in a minimally invasive process. Venus Concept also uses in its systems IPL for treatment of benign pigmented epidermal and cutaneous lesions, lasers for hair removal and fractional ablative RF modality for skin

resurfacing. Venus Concept designs and sells a full-suite of medical aesthetic products and markets its current products primarily to physicians interested in providing minimally invasive and non-invasive

aesthetic procedures, and to aesthetic medical spas. Through its NeoGraft division, Venus Concept offers an automated hair restoration system that facilitates the harvesting of follicles during an FUE process, improving the accuracy and speed over

commonly used manual extraction instruments. Venus Concept s NeoGraft systems are sold primarily to plastic surgeons and dermatologists, and in the United States, Venus Concept offers these doctors the services of a group of independently

contracted technicians, who Venus Concept markets as NeoGrafters . These technicians are certified to assist the physician during a NeoGraft hair restoration procedure.

Venus Concept has had recurring net operating losses and negative cash flows from operations. As of December 31, 2018 and 2017, Venus

Concept had an accumulated deficit of $35.1 million and $20.1 million, respectively. Venus Concept expects to continue to incur significant expenses and increasing operating losses for the foreseeable future in connection with its ongoing

activities. As of December 31, 2018 and 2017, Venus Concept had cash and cash equivalents of $6.8 million and $20.2 million, respectively. In order to continue its operations, Venus Concept must achieve profitable operations and/or

obtain additional equity investment or debt financing. Management plans to fund its operations and capital expenditures through the private placement of equity securities and through accessing Venus Concept s existing credit facilities. Until

Venus Concept generates revenue at a level to support its cost structure, Venus Concept expects to continue to incur substantial operating losses and net cash outflows.

Products and Services

Concept derives revenue from the sale of products and services. Product revenue includes revenue from the following:

Service revenue includes revenue derived from Venus Concept s NeoGrafter technician services, practice enhancement services, Venus

Concept s 2two5 internal advertising agency, and Venus Concept s extended warranty service contracts provided to Venus Concept s existing customer base.

Systems are sold through Venus Concept s subscription model, or through traditional sales contracts directly and through distributors.

Venus Concept s subscription model includes an up-front fee and a monthly payment schedule,

typically over a period of 36 months, with approximately 40% of total contract payments collected in the first year. To ensure that each monthly product payment is made on time and that the customer s system is serviced in accordance with the

terms of the warranty, every product purchased under a subscription agreement requires a monthly activation code, which Venus Concept provides to the customer upon receipt of the monthly payment. These recurring monthly payments provide Venus

Concept s customers with enhanced financial transparency and predictability. If economic circumstances are appropriate, Venus Concept provides customers in good standing with the opportunity to upgrade to new agreements for the

newest available or alternative Venus Concept technology throughout the subscription period. This structure can provide greater flexibility than traditional equipment leases secured through finance companies. Through Venus Concept s practice

enhancement services, Venus Concept works closely with its customers and physicians to provide business recommendations that improve the quality of service outcomes, build patient traffic and improve financial returns for the customer s

Venus Concept has developed and commercialized nine technology platforms, including the NeoGraft platform. Venus Concept s

medical aesthetic technology platforms have received regulatory clearance for indications such as treatment of facial wrinkles in certain skin types, temporary reduction of appearance of cellulite and relief of minor muscle aches and pains, as well

as other indications, that are cleared for marketing in overseas markets but not in the United States, including treatment of certain soft tissue injuries, temporary increase of skin tightening, temporary body contouring, and vaginal treatments in

the Israeli market only. In 2018 Venus Concept purchased the NeoGraft business to penetrate the hair restoration market.

States, Venus Concept has obtained 510(k) clearance from FDA for Venus Concept s Venus Freeze and Venus Freeze Plus, Venus Viva, Venus Legacy, Venus Versa, Venus Velocity, Venus Heal and Venus Bliss systems. The Venus Glow and NeoGraft systems

are listed as class I devices under FDA classification system. Outside the United States, Venus Concept markets its technologies in over 60 countries across Europe, Asia-Pacific and Latin America. Because each country has its own regulatory scheme

and approval process, not every device is authorized for the same indications in each market in which a particular system is marketed.

Venus Concept generates recurring monthly revenue under its subscription model and traditional system sales. Venus Concept commenced its

subscription model in North America in 2011 and, for the years ended December 31, 2018 and 2017, approximately 75% and 77%, respectively, of system revenues were derived from its subscription model. Venus Concept operates directly in 29

international markets through its 24 direct offices, including wholly-owned subsidiaries in the United States, Canada, United Kingdom, Japan, South Korea, Mexico, Argentina, Colombia, Spain, France, Germany, Israel and Australia, and majority-owned

subsidiaries in China, Hong Kong, Singapore, Indonesia, Vietnam, India, Italy, Bulgaria, Russia, Kazakhstan and South Africa.

Concept s revenues increased from $89.1 million in 2017 to $102.6 million in 2018. Venus Concept had a net (loss) income attributable to Venus Concept of ($15.0 million) and $5.7 million in the years ended December 31,

2018 and 2017, respectively. Venus Concept had Adjusted EBITDA of $9.8 million and $14.3 million in 2018 and 2017, respectively.

Use of Non-GAAP Financial Measures

Adjusted EBITDA is a non-GAAP measure defined as net loss income before foreign exchange

loss, financial expenses, income tax expense, depreciation and amortization, stock-based compensation and non-recurring items for a given period. Adjusted EBITDA is not a measure of Venus

Concept s financial performance under U.S. GAAP and should not be considered an alternative to net income or any other performance measures derived in accordance with U.S. GAAP. Accordingly, you should consider Adjusted EBITDA along with other

financial performance measures, including net income, and Venus Concept s financial results presented in accordance with U.S. GAAP. Other companies, including companies in Venus Concept s industry, may calculate Adjusted EBITDA differently

or not at all, which reduces its usefulness as a comparative measure. Venus Concept understands that although Adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA has

limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of Venus Concept s results as reported under U.S. GAAP. Some of these limitations are: Adjusted EBITDA does not reflect Venus

Concept s cash expenditures or future requirements for capital expenditures or contractual commitments; Adjusted EBITDA does not reflect changes in, or cash requirements for, Venus Concept s working capital needs; and although depreciation

is a non-cash charge, the assets being depreciated will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

Venus Concept believes that Adjusted EBITDA is a useful measure for analyzing the performance of Venus Concept s core business because it

facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by changes in foreign exchange rates that impact financial assets and liabilities denominated in currencies other

than the U.S. dollar, tax positions (such as the impact on periods or companies of changes in effective tax rates), the age and book depreciation of fixed assets (affecting relative depreciation expense), stock-based compensation expense (because it

is a non-cash expense) and non-recurring items as explained below.

The following reconciliation of net (loss) income to Adjusted EBITDA for the periods presented:

Reconciliation of Net Income to Non-GAAP Adjusted EBITDA

Key Factors Impacting Venus Concept s Results of

Venus Concept s results of operations are impacted by several factors, but it considers the following to be

particularly significant to its business:

Basis of Presentation

Venus Concept generates

revenue from (1) sales of systems through Venus Concept s subscription model, traditional system sales to customers and distributors, (2) other product revenues from the sale of marketing supplies and kits, consumables and Venus

skincare and hair products and (3) service revenue from the sale of Venus Concept s NeoGrafter technician services, Venus Concept s 2two5 internal advertising agency and Venus Concept s extended warranty service contracts

provided to existing customers.

For the years ended December 31, 2018 and 2017, approximately 75% and 77%, respectively, of Venus Concept s system revenues were

derived from subscription contracts. Venus Concept s subscription model is designed to provide a low barrier to ownership of Venus Concept s systems and includes an up-front fee followed by

monthly payments, typically over a 36-month period. The up-front fee serves as a deposit. The significantly

reduced up-front financial commitment, coupled with less onerous credit and disclosure requirements, is intended to make the sales program more appealing and affordable to physicians, including larger non-traditional providers of

aesthetic services such as family practice, general practice, and medical spas. For accounting purposes, these arrangements are considered to be sales-type finance equipment leases, where the

present value of all cash flows to be received under the subscription agreement is recognized as revenue upon shipment to the customer and achievement of the required revenue recognition criteria.

For the years ended December 31, 2018 and 2017, approximately 20% and 17%, respectively, of Venus Concept s system revenues were

derived from traditional sales. Customers generally demand higher discounts in connection with these types of sales. Venus Concept recognizes revenues from products sold to end customers when title and risk of ownership have been transferred which

usually occurs upon shipment to the end customer. Venus Concept does not generally grant rights of return or early termination rights to its end customers. These traditional sales are generally made through Venus Concept s sales team in the

countries in which the team operates.

For the years ended December 31, 2018 and 2017, approximately 5% and 6%, respectively, of

Venus Concept s system revenues were derived from distributor sales. Under the traditional distributor relationship, Venus Concept does not sell directly to the end customer and, accordingly, achieves a lower overall margin on each system sold

compared to Venus Concept s direct sales. These sales are non-refundable, non-returnable and without any rights of price protection or stock

rotation. Accordingly, Venus Concept considers distributors as end customers, or the sell-in method.

For those cases in which revenue recognition criteria for distributor sales were not satisfied at the time of shipment, generally because

collectability had not been established, revenues are recognized once the product is delivered to the end customer, or the sell-through method. Because Venus Concept does not have reliable information regarding the distributors, sale of its products

through to end customers, Venus Concept uses cash collection from distributors as a basis for revenue recognition under the sell-through method.

Other Product Revenue

Concept also generates revenue from its customer base by selling Glide (a cooling/conductive gel which is required for use with many of Venus Concept s systems), marketing supplies and kits, consumables and disposables, replacement applicators

and handpieces, Venus Concept skincare products (Venus Skin) and hair products.

Venus Concept generates ancillary revenue from its existing customers by selling additional services including Venus Concept s NeoGrafter

technician services for hair restoration, extended warranty service contracts, and services provided by Venus Concept s 2two5 internal advertising agency.

Cost of Goods Sold and Gross Profit

Cost of goods sold consists primarily of costs associated with manufacturing Venus Concept s different systems, including direct product

costs from third-party manufacturers, warehousing and storage costs and fulfillment and supply chain costs inclusive of personnel-related costs (primarily salaries, benefits, incentive compensation and stock-based compensation). Cost of goods sold

also includes the cost of upgrades, technology amortization, royalty fees, parts, supplies, and cost of product warranties.

Selling and Marketing. Venus Concept currently sells its products and services using direct sales representatives in