UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10 - Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2019

☐◻ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to ___________

Commission File Number 0-51481

STRATA SKIN SCIENCES, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction

of incorporation or organization)

13-3986004

(I.R.S. Employer

Identification No.)

~~100 Lakeside~~5 Walnut Grove Drive, Suite ~~100,~~140, Horsham, Pennsylvania 19044

(Address of principal executive offices, including zip code)

(215) 619-3200

(Registrant's telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	SSKN	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (i) 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 (ii) has been subject to such filing requirements for the past 90 days.

Yes ý◻ No ☐[X]

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Yes ý◻ No ☐[X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of ~~"large~~“large accelerated filer," ~~"accelerated filer"~~“accelerated filer”, ~~"smaller~~“smaller reporting ~~company"~~company”, and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ☐◻		Accelerated filer ☐ ◻
	Non-accelerated filer ☐[X]		Smaller reporting company ý [X]
	Emerging growth company ☐ ◻

If an emerging growth company, 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. ☐◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐◻ No ý[X]

The number of shares outstanding of the issuer's common stock as of ~~November 10, 2017~~October 31, 2019 was ~~4,076,089~~32,903,287 shares.

STRATA SKIN SCIENCES, INC.

TABLE OF CONTENTS

Part I. Financial Information:			PAGE

	ITEM 1. Financial ~~Statements~~Statements::
	a.	Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2019 (unaudited) and December 31, ~~2016~~2018	3

	b.	Condensed Consolidated Statements of Operations ~~and Comprehensive Loss~~ for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (unaudited)	4


	c.	Condensed Consolidated Statements of ~~Operations and Comprehensive Loss~~Changes in Stockholders’ Equity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (unaudited)	5

	d.	Condensed Consolidated ~~Statement~~Statements of ~~Changes in Equity~~Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and 2018 (unaudited)	6

	e.	Notes to Unaudited Condensed Consolidated Financial Statements ~~of Cash Flows for the nine months ended September 30, 2017 and 2016 (unaudited)~~	7

	f.		~~Notes to Unaudited Condensed Consolidated~~ITEM 2. Management’s Discussion and Analysis of Financial ~~Statements~~Condition and Results of Operations	922

	ITEM 2. ~~Management's Discussion~~3. Quantitative and ~~Analysis of Financial Condition and Results of Operations~~Qualitative Disclosure about Market Risk		29

	~~ITEM 3.~~ ~~Quantitative and Qualitative Disclosure about Market Risk~~		38

	ITEM 4. Controls and Procedures		3830

Part II. Other Information:

	ITEM 1. Legal Proceedings		3931

	ITEM 1A. Risk Factors		3931

	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		3931

	ITEM 3. Defaults Upon Senior Securities		3931

	ITEM 4. Mine Safety Disclosures		3931

	ITEM 5. Other Information		3931

	ITEM 6. Exhibits		4031

		Signatures	4132

		Certifications	E-31.1

PART I – Financial Information

ITEM 1. Financial Statements

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	September 30, 2017			December 31, 2016			March 31, 2019			December 31, 2018
ASSETS	(unaudited)						(unaudited)
Current assets:
Cash and cash equivalents	$	3,127		$	3,928		$	16,389		$	16,487
Accounts receivable, net of allowance for doubtful accounts of $177 and $135, respectively		3,184			3,390
Accounts receivable, net of allowance for doubtful accounts of $134 and $141, respectively								3,575			3,393
Inventories		3,533			2,817			3,121			2,794
Prepaid expenses and other current assets		209			617			430			536
Total current assets		10,053			10,752			23,515			23,210

Property and equipment, net		8,658			10,180			4,962			5,301
Operating lease right-of-use assets, net								755			-
Intangible assets, net		12,302			13,412			9,312			9,765
Goodwill		8,803			8,803			8,803			8,803
Other assets		48			46			392			428
Total assets	$	39,864		$	43,193		$	47,739		$	47,507

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable	$	34		$	339
Current portion of long-term debt		1,936			1,714		$	1,010		$	252
Accounts payable		1,907			1,853			2,045			1,764
Other accrued liabilities		1,899			1,992			4,724			4,500
Current portion of operating lease liabilities								293			-
Deferred revenues		350			235			2,063			2,099
Total current liabilities		6,126			6,133			10,135			8,615

Long-term liabilities:
Long-term debt, net		8,842			9,752			6,421			7,145
Senior secured convertible debentures, net		-			12,028
Warrant liability		28			105
Deferred tax liability		539			359			69			111
Long-term operating lease liabilities, net								479			-
Other liabilities		412			97			397			388
Total liabilities		15,947			28,474			17,501			16,259

Commitment and contingencies
Commitments and contingencies (see Note 15)

Stockholders' equity:
Series B Convertible Preferred Stock, $.10 par value, 10,000,000 shares authorized; 2,928 and 6,000 shares issued and outstanding, as of September 30, 2017 and December 31, 2016, respectively		-			1
Series C Convertible Preferred Stock, $.10 par value, 10,000,000 shares authorized; 40,482 and 0 shares issued and outstanding, as of September 30, 2017 and December 31, 2016,respectively		4			-
Common Stock, $.001 par value, 150,000,000 shares authorized; 2,477,743 and 2,166,898 shares issued and outstanding, as of September 30, 2017 and December 31, 2016, respectively		3			2
Series C Convertible Preferred Stock, $.10 par value, 10,000,000 shares authorized; 6,878 and 9,968 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively								1			1
Common Stock, $.001 par value, 150,000,000 shares authorized; 31,120,608 and 29,943,086 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively								31			30
Additional paid-in capital		251,594			225,289			242,310			241,988
Accumulated deficit		(227,686	)		(210,575	)		(212,104	)		(210,771	)
Accumulated other comprehensive income		2			2
Total stockholders' equity		23,917			14,719			30,238			31,248
Total liabilities and stockholders' equity	$	39,864		$	43,193
Total liabilities and stockholders’ equity							$	47,739		$	47,507

The accompanying notes are an integral part of these condensed consolidated financial statements.

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF ~~Operations and~~ OPERATIONS~~COMPREHENSIVE LOSS~~

(In thousands, except share and per share amounts)

(unaudited)

	For the Three Months Ended March 31,
	2019			2018

Revenues, net	$	7,483		$	6,738

Cost of revenues		2,874			3,345

Gross profit		4,609			3,393

Operating expenses:
Engineering and product development		304			338
Selling and marketing		3,066			2,871
General and administrative		2,480			1,884
		5,850			5,093

Loss from operations		(1,241	)		(1,700	)

Other (expense) income, net:
Interest expense, net		(135	)		(363	)
Change in fair value of warrant liability (see Note 1)		-			1
Other income, net		-			21
		(135	)		(341	)

Loss before income taxes		(1,376	)		(2,041	)
Income tax benefit (expense)		43			(40	)
Net loss	$	(1,333	)	$	(2,081	)

Loss attributable to common shares	$	(1,216	)	$	(512	)
Loss attributable to Preferred Series C shares	$	(117	)	$	(1,569	)
Loss per common share:
Basic	$	(0.04	)	$	(0.12	)
Diluted	$	(0.04	)	$	(0.12	)

Shares used in computing loss per common share:
Basic		30,703,501			4,371,369
Diluted		30,703,501			4,371,369
Loss per Preferred Series C share basic and diluted	$	(14.72	)	$	(43.57	)

Shares used in computing loss per basic and diluted Preferred Series C Shares		7,944			36,002

For the Three Months Ended
September 30,

2017 2016

Revenues $ 7,480 $ 7,767

Cost of revenues 3,276 3,070

Gross profit 4,204 4,697

Operating expenses:
Engineering and product development 411 382
Selling and marketing 2,687 2,840
General and administrative 1,678 1,880
4,776 5,102

Operating loss before other income (expense), net (572 ) (405 )

Other income (expense), net:
Interest expense, net (1,343 ) (1,175 )
Change in fair value of warrant liability 81 132
Other income, net - 3
Loss on extinguishment of debentures (11,799 ) -
(13,061 ) (1,040 )

Loss before income taxes (13,633 ) (1,445 )

Income tax expense 38 64

Net loss
$
(13,671 )
$
(1,509 )

Net loss per common share - basic and diluted
$
(3.32 )
$
(0.71 )

Shares used in computing net loss per basic and diluted common share 2,477,743 2,135,952

Net loss per Preferred C share - basic and diluted
$
(1,235.43 ) $ -

Shares used in computing net loss per basic and diluted Preferred C share 4,400 -

Other comprehensive loss:
Foreign currency translation adjustments -
$
(1 )

Comprehensive loss
$
(13,671 )
$
(1,510 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~Operations and~~ ~~COMPREHENSIVE LOSS~~

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

(In thousands, except share ~~and per share~~ amounts)

(unaudited)

	Convertible Preferred Stock – Series C					Common Stock				Additional Paid-In			Accumulated
	Shares			Amount		Shares		Amount		Capital			Deficit			Total
BALANCE, January 1, 2018		36,182		$	4		4,304,425	$	4	$	223,829		$	(203,957	)	$	19,880
Cumulative accounting adjustment from adoption of new standard net of tax		-			-		-		-		-			(234	)		(234	)
Cumulative accounting adjustment from adoption of new standard net of tax (Note 1)											2,614			(2,547	)		67
Stock-based compensation		-			-		-		-		19			-			19
Conversion of convertible preferred stock into common stock		(202	)		-		75,000		-		-			-			-
Net loss		-			-		-		-		-			(2,081	)		(2,081	)
BALANCE, March 31, 2018		35,980		$	4		4,379,425	$	4	$	226,462		$	(208,819	)	$	17,651


	Convertible Preferred Stock- Series C					Common Stock				Additional Paid-In			Accumulated
	Shares			Amount		Shares		Amount		Capital			Deficit			Total
BALANCE, January 1, 2019		9,968		$	1		29,943,086	$	30	$	241,988		$	(210,771	)	$	31,248
Stock-based compensation		-			-		-		-		323			-			323
Conversion of convertible preferred stock into common stock		(3,090	)		-		1,148,698		1		(1	)		-			-
Exercise of options		-			-		28,824		-		-			-			-
Net loss		-			-		-		-		-			(1,333	)		(1,333	)
BALANCE, March 31, 2019		6,878		$	1		31,120,608	$	31	$	242,310		$	(212,104	)	$	30,238

For the Nine Months Ended
September 30,

2017 2016

Revenues $ 23,454 $ 23,126

Cost of revenues 9,182 9,631

Gross profit 14,272 13,495

Operating expenses:
Engineering and product development 1,309 1,541
Selling and marketing 8,914 10,073
General and administrative 4,999 5,882
15,222 17,496

Operating loss before other income (expense), net (950 ) (4,001 )

Other income (expense), net:
Interest expense, net (4,264 ) (3,571 )
Change in fair value of warrant liability 77 5,316
Other income, net 6 (1 )
Loss on extinguishment of debentures (11,799 ) -
(15,980 ) 1,744

Loss before income taxes (16,930 ) (2,257 )

Income tax expense 181 191

Net loss
$
(17,111 )
$
(2,448 )

Net loss per common share:
Basic
$
(5.94 )
$
(1.16 )
Diluted
$
(5.94 )
$
(3.55 )

Shares used in computing net loss per common share:
Basic 2,328,274 2,107,365
Diluted 2,328,274 2,189,543

Net loss per Preferred C share - basic and diluted

$
(2,208.96 ) $ -

Shares used in computing net loss per basic and diluted Preferred C share 1,483 -

Other comprehensive income:
Foreign currency translation adjustments - $ 1

Comprehensive loss
$
(17,111 )
$
(2,447 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~CHANGES IN EQUITY~~

~~FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017~~CASH FLOWS

(In thousands, ~~except share and per share amounts~~)

~~(Unaudited)~~

Convertible Preferred Stock – Series B Convertible Preferred Stock – Series C Common Stock Additional Paid-In Accumulated Accumulated Other Comprehensive
Shares Amount Shares Amount Shares Amount Capital Deficit Loss Total
BALANCE, JANUARY 1, 2017 6,000 $ 1 - $ - 2,166,898 $ 2 $ 225,289
$
(210,575 ) $ 2 $ 14,719
Stock-based compensation - - - - - - 136 - - 136
Conversion of senior secured convertible debentures - - - - 70,000 - 262 - - 262
Conversion of convertible preferred stock (3,072 ) (1 ) - - 239,500 1 - - - -
Issuance of common stock for fractional shares in reverse stock split - - - - 1,345 - - - - -
Issuance of convertible preferred stock in exchange for convertible debentures - - 40,482 4 - - 25,906 - - 25,910
Net loss for the nine months ended September 30, 2017 - - - - - - - (17,111 ) - (17,111 )
BALANCE, SEPTEMBER 30, 2017 2,928 $ - 40,482 $ 4 2,477,743 $ 3 $ 251,594
$
(227,686 ) $ 2 $ 23,917

unaudited)

	For the Three Months Ended March 31,
	2019			2018
Cash Flows From Operating Activities:
Net loss	$	(1,333	)	$	(2,081	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		1,204			1,463
Amortization of right-of-use asset		93			-
Provision for doubtful accounts		(7	)		-
Loss on disposal of property and equipment and lasers placed in service		22			182
Loss on intangible assets from cancellation of distributor rights agreement		-			226
Stock-based compensation		323			19
Deferred taxes		(42	)		40
Amortization of debt discount		7			19
Amortization of deferred financing costs		27			20
Change in fair value of warrant liability		-			(1	)
Changes in operating assets and liabilities:
Accounts receivable		(175	)		650
Inventories		(327	)		(20	)
Prepaid expenses and other assets		142			(669	)
Accounts payable		281			381
Other accrued liabilities		224			(16	)
Other liabilities		9			227
Operating lease liabilities		(76	)		-
Deferred revenues		(36	)		(380	)
Net cash provided by operating activities		336			60

Cash Flows From Investing Activities:
Lasers placed-in-service		(434	)		(375	)
Purchases of property and equipment		-			(6	)
Payments on distributor rights liability		-			(24	)
Net cash used in investing activities		(434	)		(405	)

Cash Flows From Financing Activities:
Advance fees related to equity financing		-			(202	)
Payments on notes payable		-			(105	)
Net cash used in financing activities		-			(307	)

Net decrease in cash and cash equivalents		(98	)		(652	)
Cash and cash equivalents, beginning of period		16,487			4,069

Cash and cash equivalents, end of period	$	16,389		$	3,417

Supplemental information of cash and non-cash transactions:
Cash paid for interest	$	201		$	276
Lease liabilities arising from obtaining right-of-use assets	$	848		$	-

The accompanying notes are an integral part of these condensed consolidated financial statements.

STRATA SKIN SCIENCES, INC. ~~AND SUBSIDIARY~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(In thousands,~~ ~~unaudited)~~

For the Nine Months Ended September 30,
2017 2016
Cash Flows From Operating Activities:
Net loss $ (17,111 ) $ (2,448 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 4,811 4,844
Provision for doubtful accounts 58 91
Loss on disposal of property, plant and equipment - 124
Gain on cancelation of distributor rights agreement (40 ) -
Intangible asset write-off 23 -
Stock-based compensation 136 401
Deferred tax provision 180 180
Amortization of debt discount 2,344 1,821
Amortization of deferred financing costs 171 145
Loss on extinguishment of debt 11,799 -
Change in fair value of warrant liability (77 ) (5,316 )
Changes in operating assets and liabilities:
Accounts receivable 130 1,041
Inventories (716 ) 899
Prepaid expenses and other assets 406 202
Accounts payable 71 (2,559 )
Other accrued liabilities (162 ) (623 )
Other liabilities 108 (40 )
Deferred revenues 115 154
Net cash provided by (used in) operating activities 2,246 (1,084 )

Cash Flows From Investing Activities:
Lasers placed-in-service, net (1,450 ) (607 )
Purchases of property and equipment, net (321 ) -
Payments on distributor rights liability (115 ) -
Acquisition costs, net of cash received - 125
Restricted cash - 15
Net cash used in investing activities (1,886 ) (467 )

~~The accompanying notes are an integral part of these condensed consolidated financial statements~~

~~STRATA SKIN SCIENCES, INC. AND SUBSIDIARY~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(In thousands,~~ ~~unaudited)~~

For the Nine Months Ended September 30,
2017 2016

Cash Flows From Financing Activities:
Proceeds from long-term debt - 1,500
Repayments of long-term debt (857 ) -
Payments on notes payable (304 ) (299 )
Net cash (used in ) provided by financing activities (1,161 ) 1,201

Effect of exchange rate changes on cash - 4

Net decrease in cash and cash equivalents (801 ) (346 )
Cash and cash equivalents, beginning of period 3,928 3,303

Cash and cash equivalents, end of period $ 3,127 $ 2,957

Supplemental information:
Cash paid for interest $ 1,934 $ 1,517

Supplemental information of non-cash investing and financing activities:
Conversion of senior secured convertible debentures into common stock $ 262 $ 248
Conversion of series A convertible preferred stock into common stock $ 309
Recognition of warrants issued as debt discount $ - $ 47
Reclassification of warrant liabilities to equity $ - $ 1,541
Acquisition of distributor rights asset and license liability $ 286 $ -
Issuance of convertible preferred stock in exchange for convertible debentures $ 25,910 $ -

~~The accompanying notes are an integral part of these condensed consolidated financial statements~~

~~STRATA SKIN SCIENCES, INC. AND SUBSIDIARY~~

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Inin thousands, except share and per share amounts and number of lasers)

(unaudited)

Note 1

The Company:

Background

STRATA Skin Sciences ~~Inc. (and its subsidiary) ("STRATA" or "we" or the "Company"~~(the “Company”) is a medical technology company ~~focused on~~in Dermatology and Plastic Surgery dedicated to developing, commercializing and marketing innovative products for the ~~therapeutic and aesthetic dermatology market. STRATA sales~~treatment of dermatologic conditions. Its products include the ~~following products: XTRAC~~^®XTRAC® excimer laser and ~~VTRAC~~^® ~~excimer~~VTRAC® lamp systems utilized in the treatment of psoriasis, vitiligo and various other skin conditions; and the ~~STRATAPEN™~~STRATAPEN® MicroSystem, ~~a micropigmentation device; and Nordlys, a multi-technology aesthetic laser device~~marketed specifically for ~~treating vascular and pigmented lesions.~~the intended use of micropigmentation.

The XTRAC is an ultraviolet light excimer laser system utilized to treat psoriasis, vitiligo and other skin diseases. The XTRAC excimer laser system received ~~FDA~~ clearance from the United States Food and Drug Administration (the “FDA”) in 2000 and has since become a recognized treatment among dermatologists. The system delivers targeted 308um ultraviolet light to affected areas of the skin, leading to psoriasis clearing and vitiligo repigmentation, following a series of treatments.2000. As of ~~September 30, 2017,~~March 31, 2019, there were ~~776~~754 XTRAC systems placed in dermatologists' offices in the United States under the Company's recurring revenue business model. The XTRAC systems ~~employed~~deployed under the recurring revenue model generate revenue on a per procedure ~~basis.~~basis or include a fixed payment over an agreed upon period with a capped number of treatments, which if exceeded would incur additional fees. The per-procedure charge is inclusive of the use of the system and the services provided by the Company to the customer which includes system maintenance, ~~reimbursement support service~~ and ~~participation in the direct to patient marketing programs employed by the Company. The XTRAC system's use for psoriasis is covered by nearly all major insurance companies, including Medicare.~~other services. The VTRAC Excimer Lamp system, offered in addition to the XTRAC system internationally, provides targeted therapeutic efficacy demonstrated by excimer technology with ~~the simplicity of design and reliability of~~ a lamp system.

Effective March 1, 2017, the Company entered into an agreement to license the exclusive US distribution rights for the Ellipse family of products, Nordlys, from Ellipse USA ("Ellipse") through December 31, 2019. The agreement was to be renewed if certain minimum purchase requirements were achieved and an approximate $33 monthly license fee was paid, for a contractual total license fee of $1.1 million over the Initial Term. On October 26, 2017, by mutual agreement of the three parties involved in the transaction, the Company, Ellipse USA and the manufacturer Ellipse A/S, cancelled the agreement with Ellipse USA retroactively effective to August 9, 2017, and the Company entered into two new agreements. Under the new agreements the Company will have the exclusive US distribution rights for the Ellipse family of products, Nordlys, from Ellipse A/S, the Danish manufacturer, through August 9, 2020. If certain sales targets are met, the new agreement will automatically be extended for two additional years. Under the terms of the new agreements, the Company will be the exclusive US distributor of Ellipse lasers and will pay to Ellipse USA a monthly license fee of $10 through August 9, 2020, in addition to commissions for each system sold. The license fee amounts to approximately $355 over the Initial Term with a present value as of the effective date of the agreement of $286. As a result of the termination of the old agreement and the signing of the new agreements the Company reversed the intangible asset and corresponding liability recorded on March 1, 2017 (which resulted in a $40 gain) and recorded the distribution rights at the present value of the payments under the new agreements. See ~~Note 4~~, ~~Intangibles, net, for additional information.~~

Effective February 1, 2017, the Company entered into an exclusive OEM distribution agreement with Esthetic Education, LLC to be the exclusive marketer and seller of private label versions of the ~~SkinStylus~~SkinStylus® MicroSystem and associated parts under the name of ~~STRATAPen.~~STRATAPEN. This three-year agreement ~~allows~~has minimum annual sales requirements for ~~two one year extensions.~~renewal. The Company does not expect to meet the criteria for renewal.

Effective April 6, 2017, the Company completed a reverse stock split of its common stock at a ratio of 1-for-5 shares, and all data on common stock and equivalents are shown herein as reflective of this reverse stock split.

~~Liquidity~~

As of September 30, 2017, the Company had an accumulated deficit of $227,686 and had been incurring losses since inception as well as negative cash flows from operations until 2016. To date, the Company has dedicated most of its financial resources to research and development, sales and marketing, and general and administrative expenses.

~~Management believes that its cash and cash equivalents as of September 30, 2017 combined with the anticipated revenues from the sale of the Company's products will be sufficient to~~ satisfy its working capital needs, capital asset purchases, outstanding commitments, payments of the long-term debt as they become due and other liquidity requirements associated with its existing operations through the next twelve months following the filing of this Form 10-Q.

~~STRATA SKIN SCIENCES, INC. AND SUBSIDIARY~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts and number of lasers)~~

Basis of Presentation:

~~Accounting Principles~~

~~The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").~~

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned ~~subsidiary.~~subsidiary in India. All significant intercompany balances and transactions have been eliminated in consolidation. In 2019 and 2018, there are no operations in the subsidiary in India.

Unaudited ~~interim consolidated financial statements~~Interim Condensed Consolidated Financial Statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC") for interim financial reporting. These condensed consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to ~~state~~ fairly present the ~~consolidated balance sheets, consolidated statements~~results of ~~operations, consolidated statements of cash flows and consolidated statements of stockholders' equity, for~~ the ~~periods presented in accordance with GAAP.~~interim periods. The condensed consolidated balance sheet at December 31, ~~2016,~~2018 has been derived from the audited consolidated financial statements at that date. Operating results and cash flows for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2017,~~2019, or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with ~~US GAAP~~accounting principles generally accepted in the United States of America (US GAAP) have been omitted in accordance with the rules and regulations for interim reporting of the SEC. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016 ("2016~~2018 (the “2018 Form ~~10-K"~~10-K”), and other forms filed with the SEC from time to time. Dollar amounts included herein are in thousands, except per share data.

~~Reclassification~~

STRATA SKIN SCIENCES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts and number of lasers)

(unaudited)

Reclassifications

Certain reclassifications from the prior year presentation have been made to conform to the current year presentation. These reclassifications did not have a material impact on the ~~Company's financial statements.~~Company’s equity, results of operations, or cash flows.

Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in our ~~2016~~Annual Report on Form 10-K for the year ended December 31, 2018, and there have been no changes to the ~~Company's~~Company’s significant ~~accounting~~account policies during the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2019, except for the adoption of the new leasing standard as discussed under Accounting Pronouncements Recently Adopted later within this Note 1.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect amounts reported of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates and be based on events different from those assumptions. As of ~~September 30, 2017,~~March 31, 2019, the more significant estimates include (1) revenue recognition, in regards to deferred revenues and the contract term and valuation allowances of accounts receivable, (2) the inputs used in the impairment analyses of intangible assets and goodwill, (3) the estimated useful lives of intangible assets and property and equipment, ~~(3)~~(4) the inputs used in determining the fair value of equity-based awards, ~~(4)~~(5) the valuation allowance related to deferred tax assets, ~~and (5)~~(6) the fair value of financial instruments, including derivative ~~instruments.~~instruments and warrants, (7) the inventory reserves, (8) state sales and use tax accruals and (9) warranty claims.

~~STRATA SKIN SCIENCES, INC. AND SUBSIDIARY~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts and number of lasers)~~

Fair Value Measurements

The Company measures and discloses fair value in accordance with Financial Accounting Standards Board ~~("FASB"~~(“FASB”) Accounting Standards Codification 820, Fair Value Measurements and Disclosures ("“ASC Topic ~~820"~~820”). ASC Topic 820 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions there exists a three-tier ~~fair-value~~fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

	•	Level 1 – unadjusted quoted prices are available in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.
	•	Level 2 – pricing inputs are other than quoted prices in active markets that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
	•	Level 3 – pricing inputs are unobservable for the non-financial asset or liability and only used when there is little, if any, market activity for the non-financial asset or liability at the measurement date. The inputs into the determination of fair value require significant management judgment or estimation. Fair value is determined using comparable market transactions and other valuation methodologies, adjusted as appropriate for liquidity, credit, market and/or other risk ~~factors~~factors.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

~~The Company's recurring fair value measurements at September 30, 2017~~

STRATA SKIN SCIENCES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and ~~December 31, 2016 are as follows:~~per share amounts and number of lasers)

Fair Value as of
September 30, 2017

Quoted Prices
in Active Markets
for Identical Assets
(Level 1)

Significant
other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Liabilities:
Warrant liability (Note 8) $ 28 $ - $ - $ 28

Fair Value as of
December 31, 2016

Quoted Prices
in Active Markets
for Identical Assets
(Level 1)

Significant
other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Liabilities:
Warrant liability (Note 8) $ 105 $ - $ - $ 105

(unaudited)

The fair value of cash and cash equivalents are based on their respective demand value, which are equal to the carrying value. The fair value of derivative warrant ~~liabilities~~liability is estimated using option pricing models that are based on the fair value of the ~~Company's~~Company’s common stock as well as assumptions for volatility, remaining expected life, and the risk-free interest ~~rate and, in some cases, credit spread.~~rate. The derivative warrant ~~liabilities are~~liability is the only recurring Level 3 fair value ~~measures.~~measure. The carrying value of all other short-term monetary assets and liabilities is estimated to be approximate to their fair value due to the short-term nature of these instruments. ~~The~~As of March 31, 2019 and December 31, 2018, the Company assessed its long-term debt (including the current portion) and determined that the fair value of total debt ~~was $10,778~~approximated its book value as ~~of September 30, 2017. As of December 31, 2016~~ the ~~fair value of long-term~~interest rate on the debt ~~and convertible debentures was $20,082.~~approximates market rates.

~~STRATA SKIN SCIENCES, INC. AND SUBSIDIARY~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts and number of lasers)~~

Several of the warrants outstanding as of ~~September 30, 2017~~March 31, 2019 and ~~2016~~December 31, 2018 have non-standard terms as they relate to a fundamental transaction and require a net-cash settlement upon change in control of the Company and are classified as derivative liabilities. In addition, other warrants ~~as of September 30, 2016 contained full ratchet provisions that reduce the exercise price of the~~had a “down round” provision. These warrants ~~in the event of a transaction resulting in the issuance of equity below the current price of the warrants. Therefore these warrants are, or~~ were classified as ~~derivatives. These warrants have been~~derivatives prior to the adoption of Accounting Standards Update (“ASU”) No. 2017-11 on October 1,

2018 under the modified retrospective method with a cumulative effect adjustment recorded as of January 1, 2018. The Company’s warrant liabilities are recorded at their fair value using ~~a binomial~~the Black Scholes option pricing model and ~~will~~continue to be recorded at their respective fair value at each subsequent balance sheet ~~date.~~date until such terms expire. See Note 8,9, Warrants,, for additional discussion.

Recurring level 3 Activity and Recalculation

The table below provides a reconciliation of the beginning and ending balance for the liability measured at fair value using significant unobservable inputs (Level 3).

Issuance Date

December 31, 2018

Increase in

Fair Value

March 31, 2019

October 31, 2013

Issuance Date	January 1, 2018		Decrease in Fair Value			March 31, 2018

October 31, 2013	$	2	$	(1	)	$	1
February 5, 2014		1		-			1
	$	3	$	(1	)	$	2

Earnings Per Share

The Company calculates ~~net income (loss)~~loss per common share and Preferred Series C share in accordance with ASC 260, Earnings per ~~Share.~~Share. Under ASC 260, basic ~~net income (loss)~~loss per common share and Preferred Series C share is calculated by dividing ~~net income~~loss attributable to common shares and Preferred Series C shares by the weighted-average number of common shares and Preferred Series C shares outstanding during the reporting period and excludes dilution for potentially dilutive securities. Diluted ~~earnings~~loss per common share ~~("EPS")~~and Preferred Series C share gives effect to dilutive options, warrants and other potential common shares outstanding during the period.

The Company's Series C Convertible Preferred ~~Shares~~Stock are subordinate to all other securities at the same subordination level as common stock and they participate in all dividends and distributions declared or paid with respect to common stock of the Company, on an as-converted basis. Therefore, the Series C Convertible Preferred Shares meet the definition of common stock under ASC 260. Earnings per share is presented for each class of security meeting the definition of common stock. The ~~net~~ loss is allocated to each class of security meeting the definition of common stock based on their contractual terms.

STRATA SKIN SCIENCES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts and number of lasers)

(unaudited)

The following table presents the calculation of basic and diluted ~~net~~ loss per share by each class of security for the three ~~and nine~~ months ended ~~September~~March 31, 2019 and 2018:

	Three Months Ended March 31, 2019						Three Months Ended March 31, 2018
	Common Stock			Series C Convertible Preferred Stock			Common Stock			Series C Convertible Preferred Stock

Loss attributable to each class	$	(1,216	)	$	(117	)	$	(512	)	$	(1,569	)

Weighted average number of shares outstanding during the period		30,703,501			7,944			4,371,369			36,002

Basic and Diluted loss per share	$	(0.04	)	$	(14.72	)	$	(0.12	)	$	(43.57	)

The Company considers Series C Convertible Preferred Stock and 137,143 warrants issued on October 31, 2013 to be participating securities in presentation of earnings per share. However the warrants are excluded from the calculation of earnings per share in periods of losses as the warrant holders do not have an obligation to fund such losses. The above referenced warrants expired on April 30, ~~2017:~~

2019.

For the Three Months
ended September 30, 2017

For the Three Months
ended September 30, 2017

Common stock
Series C Preferred stock
Common stock Series C Preferred stock

Net loss $ (8,235 ) $ (5,436 ) $ (13,835 ) $ (3,276 )

Weighted average number of shares outstanding during the period 2,477,743 4,400 2,328,274 1,483

Basic and Diluted net loss per share $ (3.32 ) $ (1,235.43 ) $ (5.94 ) $ (2,208.96 )

For the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~the three months ended September 30, 2016,~~2018, diluted ~~net~~ loss per common share and Series C Convertible Preferred Stock share is equal to the basic ~~net~~ loss per common share and Series C Convertible Preferred Stock share, respectively, since all potentially dilutive securities are anti-dilutive. ~~The gain on the change in fair value of the warrant liability was considered when calculating the diluted earnings per share and was deemed to be antidilutive.~~

For the nine months ended September 30, 2016 diluted earnings per common share is computed by the numerator effected by the gain on the change in fair value of the warrant liability and the denominator is increased to include the number of additional potential common shares from the warrants underlying the warrant liability.

~~STRATA SKIN SCIENCES, INC. AND SUBSIDIARY~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts and number of lasers)~~

~~Diluted earnings per common share were calculated using the following net loss and weighted average shares outstanding for the nine months ended September 30, 2016:~~

	~~Nine Months Ended~~ ~~September 30, 2016~~

~~Net loss~~	$	~~(2,448~~	)
~~Gain on the change in fair value of the warrant liability~~		~~(5,316~~	)
~~Diluted earnings~~	$	~~(7,764~~	)

~~Weighted average number of common and common equivalent shares outstanding:~~
~~Basic number of common shares outstanding~~		~~2,107,365~~
~~Effect of warrants~~		~~82,178~~
~~Diluted number of common and common stock equivalent shares outstanding~~		~~2,189,543~~

~~STRATA SKIN SCIENCES, INC. AND SUBSIDIARY~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts and number of lasers)~~

The weighted average of potential common stock equivalents outstanding during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016 consist of common stock equivalents of common stock purchase warrants, senior secured convertible debentures, convertible preferred stock and common stock options, which are summarized~~2018 have been excluded from the loss per share calculation as ~~follows:~~their inclusion would have been anti-dilutive:

	Three Months Ended March 31,
	2019	2018
Common stock purchase warrants	2,233,192	2,406,625
Restricted stock units	129,576	-
Common stock options	4,321,932	876,127
Total	6,684,700	3,282,752

Three Months Ended
September 30,

Nine Months Ended
September 30,
2017 2016 2017 2016
Common stock equivalents of convertible debentures 7,546,299 8,541,577 8,191,777 8,561,343
Common stock purchase warrants 2,406,625 2,656,816 2,406,625 2,724,584
Common stock equivalents of convertible Preferred B stock 228,336 493,782 343,261 502,661
Common stock options 855,389 600,914 873,554 563,155
Total 11,036,649 12,293,089 11,815,217 12,351,743

~~Adoption of New~~ Accounting ~~Standards~~Pronouncements Recently Adopted

In ~~January 2017,~~February 2016 the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued ~~Accounting Standards Update ("ASU")~~ ~~No. 2017-01, Business Combinations~~ASU 2016-02, “Leases” (Topic ~~805):~~ ~~Clarifying the Definition of a Business~~842) (“ASU 2016-02”), which ~~clarifies the definition of a business with the objective of adding guidance~~will require lessees to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current guidance, there are three elements of business: inputs, processes, and outputs. While an integrated set ofrecognize assets and ~~activities (collectively, a "set") that is a business usually has outputs, outputs are not required to be present. In addition, all~~liabilities for leases with lease terms of more than 12 months. Consistent with current US GAAP, the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired set with their own inputs and processes. The new guidance provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. For public business entities, the guidance is effective prospectively for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, but can be adopted early. The Company has adopted this ASU effective January 1, 2017 and has applied the rules with its sub-distribution license with Ellipse and concluded that this transaction did not meet the definition of a business. As such, it has been accounted for as an asset acquisition. See ~~Note 4~~, ~~Intangibles, net~~.

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting~~ ~~(Topic 718), to simplify various aspects of the accounting~~recognition, measurement and presentation of ~~share-based payments, including~~expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. However, unlike current US GAAP, which requires only capital leases to be recognized on the ~~income tax effects of awards and forfeiture assumptions. Under~~balance sheet, the new guidance ~~all excess tax benefits and tax deficiencies are recorded~~will require both types of leases to ~~income tax expense in~~be recognized on the ~~income statement.~~balance sheet. The new guidance also changes the classification of excess tax benefits in the cash flow statement and impacts the diluted earnings per share calculation. Additionally, the new guidance permits to elect to account for forfeitures as they occur. The Company has made this election upon the adoption of this standard. The guidance becameASU is effective for interim and annual periods beginning after December 15, ~~2016, and~~2018, with early adoption ~~was~~ permitted. ~~The adoption of this ASU did not have a significant impact on the condensed consolidated financial statements.~~

In ~~November 2015,~~August 2018 the FASB issued ASU ~~2015-17,~~ ~~Income Taxes, Balance Sheet Classification of Deferred Taxes~~ ~~topic~~No. 2018-11, “Leases (Topic 842: Targeted Improvements”) which permits adoption of the ~~Codification. This standard requires all deferred tax assets~~guidance in ASU 2016-02 using either a modified retrospective transition, requiring application at the beginning of the earliest comparative period presented or a transition method whereby companies could continue to apply existing lease guidance during the comparative periods and ~~liabilities to be classified as non-current on~~apply the ~~balance sheet instead~~new lease requirements through a cumulative-effect adjustment in the period of separating deferred taxes into current and non-current amounts. In addition, valuation allowance allocations between current and non-current deferred tax assets are no longer required because those allowances also will be classified as non-current. This standard is effective for public companies for annual periods beginning after December 15, 2016. The Company's deferred tax assets are provided with a full valuation allowance as of December 31, 2016 and 2015, exceptadoption rather than in the ~~deferred tax liability related to goodwill amortization. As such,~~ ~~the adoption of this ASU did not have a significant impact on the condensed consolidated~~earliest period presented without adjusting historical financial statements.

1410

STRATA SKIN SCIENCES, INC. ~~AND SUBSIDIARY~~

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Inin thousands, except share and per share amounts and number of lasers)

(unaudited)

~~Recently Issued Accounting Standards~~

For the Three Months Ended

Statement of Operations

Change in fair value of warrant liability gain (loss)

Fair value of warrant liability

Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases, This statement requires lessees to present right-of-use assets and lease liabilities on the balance sheet. The standard is effective for public companies for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect the guidance will have on its financial condition and results of operations.

STRATA SKIN SCIENCES, INC. ~~AND SUBSIDIARY~~

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Inin thousands, except share and per share amounts and number of lasers)

(unaudited)

•

On March 30, 2018 the Company entered into a Stock Purchase Agreement (the “Accelmed SPA”) and a Registration Rights Agreement with Accelmed Growth Partners L.P. (“Accelmed”) investing $13,000 into the Company at a price per share of $1.08; upon closing Accelmed received 12,037,037 shares of its common stock.

•

In connection with the Accelmed investment, the Company entered into two separate stock purchase agreements, each for approximately $1,000 with its then current shareholders, Broadfin Capital (“Broadfin”) and Sabby Management (“Sabby”). Upon closing of these transactions, each of Sabby and Broadfin received 925,926 shares of the Company’s common stock at a price per share of $1.08.

•

Two separate subscription agreements were also executed on in connection with the Accelmed investment: (i) a subscription agreement with Gohan Investments, Ltd. for $1,000 to purchase 925,926 shares of the Company’s common stock at $1.08 per share; and (ii) a subscription agreement with Dr. Dolev Rafaeli, the CEO of the Company effective May 29, 2018, for $1,000 to purchase 925,926 shares of the Company’s common stock at $1.08 per share.

STRATA SKIN SCIENCES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts and number of lasers)

(unaudited)

STRATA SKIN SCIENCES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts and number of lasers)

(unaudited)

Accumulated depreciation and amortization

Property and equipment, net

STRATA SKIN SCIENCES, INC. ~~AND SUBSIDIARY~~

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Inin thousands, except share and per share amounts and number of lasers)

(unaudited)

~~Intangibles,~~Intangible Assets, net:

Customer relationships

Note 1~~, effective January 1, 2017~~7

Accrued State Sales and Use Tax

STRATA SKIN SCIENCES, INC. ~~AND SUBSIDIARY~~

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Inin thousands, except share and per share amounts and number of lasers)

(unaudited)

~~Other Accrued Liabilities:~~

~~Convertible Debentures:~~

InOne state has assessed the ~~following table~~Company an amount of $801 for the period from March 2014 through August 2017. The Company has declined an informal offer to settle at a substantially lower amount and is currently in that jurisdiction’s administrative process of appeal. A second jurisdiction is also conducting an audit and has not made an assessment. If there is a ~~summary of~~determination that the ~~Company's convertible debentures.~~

~~The total outstanding convertible debentures was exchanged~~Company’s recurring revenue model is not exempt from sales taxes and is not a prescription medicine or the Company does not have other defenses where the Company does not prevail, the Company may be subject to sales taxes in those particular states for ~~convertible Preferred C stock on September 20, 2017, thus there was no remaining outstanding balance as of September 30, 2017.~~previous years and in the future, plus potential interest and penalties for failure to pay such taxes.

Accrued Warranty Costs

STRATA SKIN SCIENCES, INC. ~~AND SUBSIDIARY~~

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Inin thousands, except share and per share amounts and number of lasers)

On July 21, 2014, the Company entered into a definitive Securities Purchase Agreement (the "Purchase Agreement") with institutional investors (the "Investors") providing for the issuance of Senior Secured Convertible Debentures in the aggregate principal amount of $15,000, due, subject to the terms therein, in July 2019 (the "July 2014 Debentures"), and warrants (the "July 2014 Series A Warrants") to purchase up to an aggregate of 1,239,769 shares of common stock, $0.001 par value per share, at an exercise price of $12.25 per share expiring in July 2019. The July 2014 Debentures were bearing interest at an annual rate of 4%, payable quarterly or upon conversion into shares of common stock. The Debentures were convertible at any time into an aggregate of 1,169,595 shares of common stock at an initial conversion price of $12.825 per share. The Company's obligations under the July 2014 Debentures was secured by a first priority lien on all of the Company's intellectual property pursuant to the terms of a security agreement ("Security Agreement") dated July 21, 2014 among the Company and the Investors. In connection with the Purchase Agreement, the Company entered into a Registration Rights Agreement with the Investors pursuant to which the Company was obligated to file a registration statement to register for resale the shares of Common Stock issuable upon conversion of the Series B Preferred Stock (See ~~Note 8,~~ ~~Warrants~~) and Debentures and upon exercise of the Warrants. Under the terms of the Registration Rights Agreement, the Company filed a registration statement on August 19, 2014, which was declared effective by the SEC on October 20, 2014 (File No. 333-198249).

For financial reporting purposes, out of the $15,000 funded by the Investors on July 21, 2014 $5,296 was allocated first to the Warrants issued, then $4,565 to the intrinsic value of the beneficial conversion feature on the July 2014 Debentures. The balance was further reduced by the fair value of warrants issued to the placement agent for services rendered of $491, resulting in an initial carrying value of the Debentures of $4,647. The initial debt discount on the July 2014 Debentures totaled $10,353 and was being amortized using the effective interest method over the five year life of the July 2014 Debentures.

During the nine months ended September 30, 2017, the investors converted debentures amounting to $262 into 70,000 shares of common stock for the June 2015 note. The debt discount and deferred financing cost adjustment resulting from the conversions increased interest expense by $197 for the nine months ended September 30, 2017.

~~As a condition of the new note facility (See~~ ~~Note 7~~, ~~Long-term Debt~~) the Debentures from both the 2014 and 2015 financings were amended. The Debentures holders' first priority lien was subordinated to the new term note facility. Additionally, as a condition of the term note facility, the maturity date of both Debentures was extended to June 30, 2021 and treated as a modification.

On June 6, 2017, the Company entered into a Securities Exchange Agreement (the "Agreement") with the holders of its 2.25% Senior Series A Secured Convertible Debentures due June 30, 2021 and 4% Senior Secured Convertible Debentures due July 30, 2021, pursuant to which the holders have agreed to exchange all of such outstanding debentures into shares of newly created Series C Convertible Preferred Stock. The elimination of the senior secured debt will also eliminate the Company's obligation to pay approximately $4,000 of interest payments over the next four years. The stockholders approved the exchange at the stockholders' meeting held on September 14, 2017. The closing of the exchange was effective on September 20, 2017 and $40,465 of principle was exchanged for 40,482 shares of Series C Preferred Stock. In accordance with ASC Topic 470, Debt, the aforementioned exchange was treated as an extinguishment of debt. As there was no intrinsic value for the conversion feature on the date of extinguishment, none of the proceeds were allocated to the extinguishment of the beneficial conversion feature. As such, the difference between the fair value of the convertible preferred stock issued (determined based on the market value of the underlying common stock) and the net carrying value of the convertible debentures (adjusted for unamortized premium discount), of $11,799 was recognized as a loss on extinguishment of debentures.

Other than the limitations on conversions to keep each such holders beneficial ownership below 9.99%, the terms of the Series C Convertible Preferred Stock generally bestow the same rights to each holder as such holder would receive if they are common stock shareholder and are not redeemable by the holders, except the Series C Convertible Preferred Stock shares do not have voting rights. The Series C Convertible Preferred Stock have the same level of subordination as common stock. Each share of Series C Convertible Preferred Stock has a stated value of $1,000 and is convertible into 372 shares of common stock (at a conversion price equal to $2.69) for a total of approximately 15,049,000 shares of common stock.

~~STRATA SKIN SCIENCES, INC. AND SUBSIDIARY~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts and number of lasers)~~(unaudited)

~~Note 7~~

~~Long-term Debt:~~

September 30, 2017 December 31, 2016
(unaudited)
Term note, net of debt discount of $177 and $258, respectively; and deferred financing cost of $188 and $276, respectively $ 10,778 $ 11,466
Less: current portion (1,936 ) (1,714 )
Total long-term debt $ 8,842 $ 9,752

Term-Note Credit Facility

On December 30, 2015, the Company entered into a $12,000 credit facility pursuant to a Credit and Security Agreement (the ~~"Agreement"~~"Credit Agreement") and related financing documents with MidCap Financial Trust ("MidCap") and the lenders listed therein. Under the Credit Agreement, the credit facility may be drawn down in two tranches, the first of which was drawn for $10,500 on December 30, 2015. The proceeds of this first tranche were used to repay $10,000 principal amount of short-term senior secured promissory notes, plus associated interest, loan fees and expenses. The second tranche was drawn for $1,500 on January 29, 2016. The maturity date of the credit facility is December 1, 2020. The Company's obligations under the credit facility are secured by a first priority lien on all of the Company's assets. This credit facility ~~includes~~had an interest rate of one month LIBOR plus 8.25% and included both financial and non-financial covenants, including a minimum net revenue ~~covenant, beginning in January 2016. The Company is in compliance with these covenants as of September 30, 2017.~~covenant. On November 10, 2017, the minimum net revenue covenant was amended ~~prospectively.~~prospectively and there was an increase to the exit fee. Additionally, on November 10, 2017, the Company entered into an amendment to modify the principal payments including a period of six months where there isare no principal payments due. ~~Interest~~

On March 26, 2018, the Company entered into a Third Amendment to the Credit Agreement with MidCap. For the period beginning on the closing date of the loan and ending on January 31, 2018, the gross revenue in accordance with US GAAP for the twelve-month period ending on the last day of the most recently completed calendar month was amended to be less than the minimum amount on the Covenant Schedule, as defined in the Credit Agreement. This amendment waived the event of default related to the revenue covenant for the period ending February 2018. This amendment also amended the monthly net revenue covenant.

On May 29, 2018, the Company entered into a Fourth Amendment to Credit Agreement, pursuant to which the Company repaid $3,000 in principal of the existing $10,571 credit facility established with MidCap in 2015. The terms of the Credit Agreement were amended to impose less restrictive covenants, lower prepayment fees for the Company and extended the maturity date to May 2022. This amendment modified the principal payments including a period of 18 months where there are no principal payments due. The interest rate on the credit facility is ~~one month~~one-month LIBOR plus ~~8.25%, subject to a LIBOR floor of 0.5% (9.49%~~7.25%. Principal payments begin December 2019. Principal payments beginning December 2019 are $252 plus interest per month. The Company was in compliance with all covenants as of ~~September~~March 31, 2019. On April 30, ~~2017). As~~July 15, August 26 and October 15, 2019, the Company received waivers from MidCap as administrative agent for the lenders who are party to the Agreement, wherein the lenders waived the Company’s compliance with the obligation to deliver audited financial statements within 120 days of ~~September 30, 2017~~year-end pursuant to the ~~net balance of long-term debt~~Credit Agreement. The waivers were effective through November 7, 2019. The Company delivered the audited financial statements on or about October 29, 2019 and is ~~$8,842.~~currently in compliance with this covenant.

The following table summarizes the future payments that the Company ~~expects~~is obligated to make for the long-term debt for the future periods:

Remaining in 2017 $ 572
2018 2,387
2019 4,092
2020 4,092
$ 11,143

	For the Year ending December 31,
Remaining in 2019	$	252
2020		3,028
2021		3,028
2022		1,263
	$	7,571

~~STRATA SKIN SCIENCES, INC. AND SUBSIDIARY~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts and number of lasers)~~

Note 89

Warrants:

The Company accounts for warrants that require net cash settlement upon change of control of the Company ~~and warrants that have provisions that protect holders from a decline in the issue price of its common stock (or "down-round" provisions)~~ as liabilities instead of equity. ~~Warrants~~During the three months ended March 31, 2019, warrants to purchase 265,947 and 137,143 shares of common stock each with ~~"downround" provisions did not exist~~an exercise price of $3.75 per share were accounted for as derivatives. These warrants expired on February 5, 2019 and April 30, 2019, respectively. These derivatives had deminimus fair values as of ~~or during the nine months ended September 30, 2017 or as of December~~March 31, ~~2016.~~

The Company recognizes these liabilities at the fair value on each reporting date. The Company computed the value of the warrants using the binomial method. A summary of quantitative information with respect to the valuation methodology and significant unobservable inputs used for the Company's warrant liabilities that are categorized within Level 3 of the fair value hierarchy as of September 30, 20172019 and December 31, ~~2016 is as follows:~~

September 30, 2017 December 31, 2016

Number of shares underlying the warrants 403,090 403,090
Stock price $ 1.77 $ 2.20
Volatility 48.00 % 47.00 %
Risk-free interest rate 1.31 – 1.45 % 1.22 %
Expected dividend yield 0 % 0 %
Expected warrant life 1.37 – 1.60 years 2.12 – 2.35 years

~~Recurring Level 3 Activity and Reconciliation~~

~~The tables below provide a reconciliation~~2018, respectively. There was no change in fair value of ~~the beginning and ending balances~~these derivatives for the ~~liability measured at fair value using significant unobservable inputs (Level 3). The table reflects gains and losses for the nine month periods~~three months ended ~~September 30, 2017 and 2016, for all financial liabilities categorized as Level 3 as of September 30, 2017 and September 30, 2016, respectively.~~March 31, 2019.

~~Fair Value Measurements Using Significant Unobservable Inputs (Level 3):~~

Issuance Date
December 31, 2016 Decrease in Fair Value September 30, 2017

10/31/2013 $ 39
$
(28 ) $ 11
2/5/2014 66 ( 49 ) 17

Total $ 105
$
(77 ) $ 28

2117

STRATA SKIN SCIENCES, INC. ~~AND SUBSIDIARY~~

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Inin thousands, except share and per share amounts and number of lasers)

(unaudited)

~~Number of Warrants Subject to Remeasurement:~~

~~September 30, 2017~~

~~Stockholders' Equity:~~

~~Common Stock and Warrants~~

~~At September 30, 2017,~~

~~STRATA SKIN SCIENCES, INC. AND SUBSIDIARY~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts and number of lasers)~~

STRATA SKIN SCIENCES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts and number of lasers)

(unaudited)

~~STRATA SKIN SCIENCES, INC. AND SUBSIDIARY~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts and number of lasers)~~

Three Months Ended ~~September 30, 2017 (unaudited)~~March 31, 2019

~~Three Months Ended September 30, 2016 (unaudited)~~

STRATA SKIN SCIENCES, INC. ~~AND SUBSIDIARY~~

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Inin thousands, except share and per share amounts and number of lasers)

(unaudited)

~~Nine Months Ended September 30, 2017 (unaudited)~~

~~Nine~~Three Months Ended ~~September 30, 2016 (unaudited)~~March 31, 2018

Change in fair value of warrants

~~STRATA SKIN SCIENCES, INC. AND SUBSIDIARY~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts and number of lasers)~~

~~For the three and nine months ended September 30, 2017 and 2016 there were no material net revenues attributable to any individual foreign country. Net revenues by geographic area were, as follows:~~

~~Long-lived assets were 100% located in domestic markets as of September 30, 2017 and December 31, 2016.~~

STRATA SKIN SCIENCES, INC. ~~AND SUBSIDIARY~~

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Inin thousands, except share and per share amounts and number of lasers)

(unaudited)

~~On June 6, 2017,~~

~~Other than the limitations on conversions to keep each such holders beneficial ownership below 9.99%, the terms of the~~ Note 16

Series C Convertible Preferred Stock generally bestow the same rights to each holder as such holder would receive if they are common stock shareholder and are not redeemable by the holders, except that the Series C Convertible Preferred StockConversion

Expiration of Warrants

~~STRATA SKIN SCIENCES, INC. AND SUBSIDIARY~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts and number of lasers)~~

~~Commitments and Contingencies:~~

The Company has entered into various non-cancelable operating lease agreements for real property and three minor operating leases for personal property. These arrangements expire at various dates through 2019. As of September 30, 2017, aggregate annual minimum payments due under the Company's lease obligations are as follows:

~~Subsequent Events:~~

~~During October 2017, investors converted Series C Preferred Stock amounting to $4,299 into 1,598,346 shares of common stock.~~

The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes to condensed consolidated financial statements included elsewhere in this Quarterly Report on Form ~~10-Q.~~10-Q (this “Report”). This discussion contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions of STRATA Skin Sciences, Inc., a Delaware corporation (referred to in this Report as ~~"we," "us," "our," "STRATA," "STRATA~~“we,” “us,” “our,” “STRATA,” “STRATA Skin ~~Sciences"~~Sciences” or ~~"registrant"~~“registrant”) and other statements contained in this Report that are not historical facts. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business. In particular, we encourage you to review the risks and uncertainties described in Item 1A ~~"Risk Factors"~~“Risk Factors” included elsewhere in this report, in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations and statements — see ~~"Cautionary~~“Cautionary Note Regarding Forward-Looking ~~Statements"~~Statements” that appears at the end of this discussion. These statements, like all statements in this ~~report,~~Report, speak only as of their date (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments.

The following financial data, in this narrative, are expressed in thousands, except for the earnings per ~~share.~~share and prices per treatment.

In March 2017 we informed all of the users of the MelaFind System that all service efforts for the device would end on September 30, 2017, we have now fully discontinued our efforts to develop and commercialize MelaFind. This activity is included in the Dermatology Imaging segment. MelaFind is a non-invasive, point-of-care (i.e., in the doctor's office) instrument designed to aid in the dermatologists' decision to biopsy pigmented skin lesions, particularly melanoma. We have been unsuccessful in commercializing the MelaFind product in a way that would bring financial benefit to our shareholders. In March 2017, we sent a notice to the 90 owners of MelaFind devices informing them that, effective September 30, 2017, we no longer had the resources to continue to support the device and that our inventory of spare parts was being offered for sale to them on a first-come, first-serve basis.

2018 Equity Financing

Korean Distribution Agreement

MidCap Credit Facility

~~Reverse Stock Split~~

~~Critical Accounting Policies and Estimates~~

~~Results of Operations~~ ~~(The following financial data, in this narrative, are expressed in thousands, except for the earnings per share.)~~

For the Three Months Ended

For the Nine Months Ended

Dermatology Recurring Procedures

In the third quarter of 2019, we signed a direct distribution agreement with our Korean distributor for a combination of direct capital sales and recurring revenues for the country of South Korea. This agreement is expected to increase recurring revenues over time, but will have an initial impact of reducing sales of dermatology procedures equipment in the near term as the contract is to apply the same recurring revenue model we have in the United States.

For the nine months ended September 30, 2017 dermatology equipment revenues were $5,784. Internationally, we sold 46 systems for the nine months ended September 30, 2017, (31 XTRAC and 19 VTRAC). Domestically, we sold 17 XTRAC systems for the nine months ended September 30, 2017. For the nine months ended September 30, 2016 dermatology equipment revenues were $5,174. Internationally, we sold 65 systems for the nine months ended September 30, 2016, (39 XTRAC and 26 VTRAC).

For the Three Months Ended

For the Nine Months Ended

Gross Profit Analysis

The following tables analyze changes in our gross margin, by segment, for the periods presented below:

Company Profit Analysis

For the Three Months Ended

For the Nine Months Ended

Dermatology Recurring Procedures

For the Three Months Ended

For the Nine Months Ended

Dermatology Procedures Equipment

For the Three Months Ended

For the Nine Months Ended

The primary reason for the change in gross profit for the three and nine months ended September 30, 2017, compared to the same periods in 2016, was product mix. The gross margin change is affected by the mix of products sold as XTRAC systems have a lower gross margin than parts. Additionally, domestic XTRAC system sales and Nordlys system sales have a greater gross margin than international sales.

Engineering and Product Development

Selling and Marketing Expenses

General and Administrative Expenses

Interest Expense, Net

Change in Fair Value of Warrant Liability

~~Loss on extinguishment~~ of debentures of $11,799 for the three and nine months ended September 30, 2017, represents the loss recognized as a result of the exchange of the 2.25% Senior Series A Secured Convertible Debentures due June 30, 2021 and the 4% Senior Secured Convertible Debentures due July 30, 2021 for 40,482 shares of Series C Convertible Preferred Stock. For more information, see ~~Note 6~~ ~~to the accompanying consolidated financial statements.~~

Non-GAAP adjusted EBITDA

For the Three Months Ended

For the Nine Months Ended

* Includes depreciation on lasers placed-in-service of $3,229 and $3,329$959 for the ~~nine~~three months ended ~~September 30, 2017 and 2016, respectively.~~March 31, 2018.

Liquidity and Capital Resources

In June 2015, we raised additional gross proceeds of approximately $42,500 through the issuance of $32,500 of 2.25% senior secured convertible debentures due June 2020, $10,000 of Senior secured notes and warrants to purchase common stock. The debentures were convertible at any time into an aggregate of approximately 8.7 million shares of our common stock at a price of $3.75 per share. Our obligations under the debentures were secured by a subordinated first priority lien on all of our assets.

~~Since inception, we~~

Commitments and Contingencies

Off-Balance Sheet Arrangements

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this Report ~~on Form 10-Q contains~~are "forward-looking statements." These forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions of STRATA Skin Sciences, Inc., a Delaware corporation (referred to in this Report as “we,” “us,” “our”, “registrant” or “the Company”), and other statements contained in this Report that are not historical facts. The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of the Company. Forward-looking statements in this Report or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, or the Commission, reports to our stockholders and other publicly available statements issued or released by us involve known and unknown risks, uncertainties and other factors which could cause our actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. Such future results are based upon management's best estimates based upon current conditions and the most recent results of operations. When used in this Report, the words "will, " "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate" or the negative of such terms and similar expressions identify statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 ~~as amended,~~ and Section 21E of the Securities Exchange Act of 1934 ~~as amended, which~~and that are ~~subject~~intended to come within the ~~"safe harbor" created~~safe harbor protection provided by those sections. Forward-looking statements ~~are based on our management's beliefs and~~involve risks, assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "project," "predict," "intend," "potential" and similar expressions intended to identify forward-looking statements. These statements, including statements relating to our anticipated revenue streams and our beliefuncertainties. There are important factors that ~~the cash flow generated by these businesses will be sufficient to finance our operations, involve known and unknown risks, uncertainties and other factors which may~~could cause ~~our~~ actual results ~~performance, time frames or achievements~~ to bediffer materially ~~different~~ from ~~any future results, performance, time frames or achievements~~those expressed or implied by ~~the~~these forward-looking ~~statements. We discuss many of these risks, uncertainties~~statements, including our plans, objectives, expectations and intentions and other factors ~~in our~~discussed under "Item 1A Risk Factors" of the 2018 Annual Report on Form ~~10-K~~10-K. These forward-looking statements include, but are not limited to, statements about:

In light of these assumptions, risks and uncertainties, the ~~year ended December 31, 2016,~~results and events discussed in the forward-looking statements contained in this ~~Quarterly~~ Report ~~on Form 10-Q in greater detail under Item 1A. "Risk Factors." Given these risks, uncertainties and other factors, you should~~might not occur. Investors are cautioned not to place undue reliance on ~~these forward-looking statements. Also, these~~the forward-looking statements, ~~represent our estimates and assumptions~~which speak only as of the date of this ~~filing. You should read this Quarterly~~ Report, even if subsequently made available by us on ~~Form 10-Q completely~~our website or otherwise. We are not under any obligation, and ~~with the understanding that our actual future results may be materially different from what~~ we ~~expect. We hereby qualify our forward-looking statements by our cautionary statements. Except as required by law, we assume no~~expressly disclaim any obligation, to update ~~these~~or alter any forward-looking statements, ~~publicly,~~whether as a result of new information, future events or otherwise. You should not regards these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. All subsequent forward-looking statements attributable to us or to ~~update~~any person acting on our behalf are expressly qualified in their entirety by the ~~reasons actual results could differ materially from those anticipated~~cautionary statements contained or referred to in ~~these forward-looking statements, even if new information becomes available in the future.~~this section.

Our exposure to market risk is confined to our cash, cash equivalents, and short-term investments. We invest in high-quality financial instruments, primarily money market funds, with the average effective duration of the portfolio within one year which we believe are subject to limited credit risk. We currently do not hedge interest rate exposure. Due to the short-term nature of our investments, we do not believe that we have any material exposure to interest rate risk arising from our investments. We are exposed to credit risks in the event of default by the financial institutions or issuers of investments in excess of FDIC insured limits. We perform periodic evaluations of the relative credit standing of these financial institutions and limit the amount of credit exposure with any institution.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The design and operating effectiveness of our controls were inadequate to ensure that complex accounting matters are properly accounted for and reviewed in a timely manner which resulted in the following identified control deficiencies. These material weaknesses caused the restatements of our financial statements for our first, second and third quarters of 2018 and 2017 and for the year ended December 31, 2017. These errors are a result of the following control deficiencies:

Control Environment and Risk Assessment

Monitoring Activities

Limitations on the Effectiveness of Controls.

Changes in Internal Control over Financial Reporting

PART II - Other Information

ITEM 1A. Risk Factors

ITEM 3. Defaults ~~upon senior securities.~~Upon Senior Securities.

ITEM 4. Mine Safety Disclosures

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

STRATA SKIN SCIENCES, INC.

Date November ~~14, 2017~~8, 2019

/s/ ~~Christina L. Allgeier~~Dolev Rafaeli

Name ~~Christina L. Allgeier~~Dolev Rafaeli

Title President & Chief Executive Officer

Date November 8, 2019

Name Matthew C. Hill

Title Chief Financial Officer

	Three Months Ended March 31, 2019
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	5,312	$	324	$	5,636
Foreign		-		1,847		1,847
Total	$	5,312	$	2,171	$	7,483

	Three Months Ended March 31, 2018
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	4,770	$	657	$	5,427
Foreign		-		1,311		1,311
Total	$	4,770	$	1,968	$	6,738

	March 31, 2019		December 31, 2018

Raw materials and work in progress	$	2,872	$	2,442
Finished goods		249		352
Total inventories	$	3,121	$	2,794

	September 30, 2017			December 31, 2016
	(unaudited)
Lasers placed-in-service	$	18,018		$	16,712
Equipment, computer hardware and software		468			160
Furniture and fixtures		118			111
Leasehold improvements		31			25
		18,635			17,008
Accumulated depreciation and amortization		(9,977	)		(6,828	)
Property and equipment, net	$	8,658		$	10,180

	September 30, 2017			December 31, 2016
	(unaudited)
Core technology	$	5,700		$	5,974
Product technology		2,000			2,000
Customer relationships		6,900			6,900
Tradenames		1,500			1,500
Distribution rights		286			-
		16,386			16,374
Accumulated amortization		(4,084	)		(2,962	)
Patents and licensed technologies, net	$	12,302		$	13,412

	For the Three Months Ended September 30,
	2017			2016

Revenues	$	7,480		$	7,767

Cost of revenues		3,276			3,070

Gross profit		4,204			4,697

Operating expenses:
Engineering and product development		411			382
Selling and marketing		2,687			2,840
General and administrative		1,678			1,880
		4,776			5,102

Operating loss before other income (expense), net		(572	)		(405	)

Other income (expense), net:
Interest expense, net		(1,343	)		(1,175	)
Change in fair value of warrant liability		81			132
Other income, net		-			3
Loss on extinguishment of debentures		(11,799	)		-
		(13,061	)		(1,040	)

Loss before income taxes		(13,633	)		(1,445	)

Income tax expense		38			64

Net loss	$	(13,671	)	$	(1,509	)

Net loss per common share - basic and diluted	$	(3.32	)	$	(0.71	)

Shares used in computing net loss per basic and diluted common share		2,477,743			2,135,952

Net loss per Preferred C share - basic and diluted	$	(1,235.43	)	$	-

Shares used in computing net loss per basic and diluted Preferred C share		4,400			-

Other comprehensive loss:
Foreign currency translation adjustments		-		$	(1	)

Comprehensive loss	$	(13,671	)	$	(1,510	)

	For the Nine Months Ended September 30,
	2017			2016

Revenues	$	23,454		$	23,126

Cost of revenues		9,182			9,631

Gross profit		14,272			13,495

Operating expenses:
Engineering and product development		1,309			1,541
Selling and marketing		8,914			10,073
General and administrative		4,999			5,882
		15,222			17,496

Operating loss before other income (expense), net		(950	)		(4,001	)

Other income (expense), net:
Interest expense, net		(4,264	)		(3,571	)
Change in fair value of warrant liability		77			5,316
Other income, net		6			(1	)
Loss on extinguishment of debentures		(11,799	)		-
		(15,980	)		1,744

Loss before income taxes		(16,930	)		(2,257	)

Income tax expense		181			191

Net loss	$	(17,111	)	$	(2,448	)

Net loss per common share:
Basic	$	(5.94	)	$	(1.16	)
Diluted	$	(5.94	)	$	(3.55	)

Shares used in computing net loss per common share:
Basic		2,328,274			2,107,365
Diluted		2,328,274			2,189,543

Net loss per Preferred C share - basic and diluted	$	(2,208.96	)	$	-

Shares used in computing net loss per basic and diluted Preferred C share		1,483			-

Other comprehensive income:
Foreign currency translation adjustments		-		$	1

Comprehensive loss	$	(17,111	)	$	(2,447	)



	Convertible Preferred Stock – Series B						Convertible Preferred Stock – Series C				Common Stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive
	Shares			Amount			Shares		Amount		Shares		Amount		Capital		Deficit			Loss		Total
BALANCE, JANUARY 1, 2017		6,000		$	1			-	$	-		2,166,898	$	2	$	225,289	$	(210,575	)	$	2	$	14,719
Stock-based compensation		-			-			-		-		-		-		136		-			-		136
Conversion of senior secured convertible debentures		-			-			-		-		70,000		-		262		-			-		262
Conversion of convertible preferred stock		(3,072	)		(1	)		-		-		239,500		1		-		-			-		-
Issuance of common stock for fractional shares in reverse stock split		-			-			-		-		1,345		-		-		-			-		-
Issuance of convertible preferred stock in exchange for convertible debentures		-			-			40,482		4		-		-		25,906		-			-		25,910
Net loss for the nine months ended September 30, 2017		-			-			-		-		-		-		-		(17,111	)		-		(17,111	)
BALANCE, SEPTEMBER 30, 2017		2,928		$	-			40,482	$	4		2,477,743	$	3	$	251,594	$	(227,686	)	$	2	$	23,917

	For the Nine Months Ended September 30,
	2017			2016
Cash Flows From Operating Activities:
Net loss	$	(17,111	)	$	(2,448	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		4,811			4,844
Provision for doubtful accounts		58			91
Loss on disposal of property, plant and equipment		-			124
Gain on cancelation of distributor rights agreement		(40	)		-
Intangible asset write-off		23			-
Stock-based compensation		136			401
Deferred tax provision		180			180
Amortization of debt discount		2,344			1,821
Amortization of deferred financing costs		171			145
Loss on extinguishment of debt		11,799			-
Change in fair value of warrant liability		(77	)		(5,316	)
Changes in operating assets and liabilities:
Accounts receivable		130			1,041
Inventories		(716	)		899
Prepaid expenses and other assets		406			202
Accounts payable		71			(2,559	)
Other accrued liabilities		(162	)		(623	)
Other liabilities		108			(40	)
Deferred revenues		115			154
Net cash provided by (used in) operating activities		2,246			(1,084	)

Cash Flows From Investing Activities:
Lasers placed-in-service, net		(1,450	)		(607	)
Purchases of property and equipment, net		(321	)		-
Payments on distributor rights liability		(115	)		-
Acquisition costs, net of cash received		-			125
Restricted cash		-			15
Net cash used in investing activities		(1,886	)		(467	)

	Fair Value as of September 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Warrant liability (Note 8)	$	28	$	-	$	-	$	28

	Fair Value as of December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Warrant liability (Note 8)	$	105	$	-	$	-	$	105

	Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016
Common stock equivalents of convertible debentures	7,546,299	8,541,577	8,191,777	8,561,343
Common stock purchase warrants	2,406,625	2,656,816	2,406,625	2,724,584
Common stock equivalents of convertible Preferred B stock	228,336	493,782	343,261	502,661
Common stock options	855,389	600,914	873,554	563,155
Total	11,036,649	12,293,089	11,815,217	12,351,743

	For the Three Months Ended March 31, 2018
	Balances prior to Adoption of ASU 2017-11		Balances after the Adoption of ASU 2017-11		Effect of Adoption Higher/(Lower)
Statement of Operations
Change in fair value of warrant liability gain (loss)	$	40	$	1	$	(39	)
Balance Sheet
Fair value of warrant liability	$	24	$	2	$	(22	)

	Balance		Accumulated Amortization			Intangible assets, net

Core technology	$	5,700	$	(2,138	)	$	3,562
Product technology		2,000		(1,500	)		500
Customer relationships		6,900		(2,587	)		4,313
Tradenames		1,500		(563	)		937
	$	16,100	$	(6,788	)	$	9,312

Remaining 2017	$	476
2018		1,905
2019		1,905
2020		1,670
2021		1,410
Thereafter		4,936
Total	$	12,302

Remaining 2019	$	1,357
2020		1,610
2021		1,410
2022		1,410
2023		1,410
Thereafter		2,115
Total	$	9,312

	March 31, 2019		December 31, 2018

Accrued warranty, current	$	183	$	156
Accrued compensation, including commissions and vacation		1,017		1,275
Accrued state sales, use and other taxes		2,840		2,719
Accrued professional fees and other accrued liabilities		684		350
Total other accrued liabilities	$	4,724	$	4,500

	December 31, 2016

Senior secured 2.25% convertible debentures, net of unamortized debt discount of $24,314; and deferred financing costs of $524	$	7,174
Senior secured 4% convertible debentures, net of unamortized debt discount of $3,469; and deferred financing costs of $392		4,854
Total convertible debt	$	12,028

	March 31,
	2019			2018

Accrual at beginning of year	$	238		$	178
Additions charged to warranty expense		68			63
Expiring warranties/claimed satisfied		(34	)		(46	)
Total		272			195
Less: current portion		(183	)		(120	)
Total long-term accrued warranty costs	$	89		$	75

	March 31, 2019			December 31, 2018

Term note, net of debt discount of $103 and $110 respectively; and deferred financing cost of $37 and $64, respectively	$	7,431		$	7,397
Less: current portion		(1,010	)		(252	)
Total long-term debt	$	6,421		$	7,145

	September 30, 2017			December 31, 2016

Number of shares underlying the warrants		403,090			403,090
Stock price	$	1.77		$	2.20
Volatility		48.00	%		47.00	%
Risk-free interest rate		1.31 – 1.45	%		1.22	%
Expected dividend yield		0	%		0	%
Expected warrant life	1.37 – 1.60 years			2.12 – 2.35 years

Issuance Date	December 31, 2016		Decrease in Fair Value			September 30, 2017

10/31/2013	$	39	$	(28	)	$	11
2/5/2014		66		( 49	)		17

Total	$	105	$	(77	)	$	28

Issuance Date	December 31, 2015		Decrease in Fair Value			Reclassification to Equity			September 30, 2016

10/31/2013	$	379	$	(312	)	$	-		$	67
2/5/2014		715		(597	)		-			118
7/24/2014 Series A		2,415		(1,573	)		(842	)		-
7/24/2014 Series B		1,726		(1,713	)		(13	)		-
6/22/2015		1,807		(1,121	)		(686	)		-

Total	$	7,042	$	(5,316	)	$	(1,541	)	$	185

	~~Issuance Date~~	~~September 30, 2017~~

	~~10/31/2013~~	~~137,143~~
	~~2/5/2014~~	~~265,947~~

	~~Total~~	~~403,090~~

Issue Date	Expiration Date	Total Warrants		Exercise Price

4/26/2013	4/26/2018		13,865	$	55.90
10/31/2013	4/30/2019		137,143	$	3.75
2/5/2014	2/5/2019		265,947	$	3.75
7/24/2014	7/24/2019		1,239,769	$	3.75 - $ 12.25
6/22/2015	6/22/2020		600,000	$	3.75
12/30/2015	12/30/2020		130,089	$	5.65
1/29/2016	1/29/2021		19,812	$	5.30
			2,406,625

	Dermatology Recurring Procedures			Dermatology Procedures Equipment			Dermatology Imaging			TOTAL
Revenues	$	5,720		$	1,751		$	9		$	7,480
Costs of revenues		2,084			967			225			3,276
Gross profit		3,636			784			(216	)		4,204
Gross profit %		63.6	%		44.8	%		(2400.0	%)		56.2	%

Allocated operating expenses:
Engineering and product development		348			63			-			411
Selling and marketing expenses		2,238			449			-			2,687

Unallocated operating expenses		-			-			-			1,678
		2,586			512			-			4,776
Income (loss) from operations		1,050			272			(216	)		(572	)

Interest expense, net		-			-			-			(1,343	)
Change in fair value of warrant liability		-			-			-			81
Loss on extinguishment of debt		-			-			-			(11,799	)

Income (loss) before income taxes	$	1,050		$	272		$	(216	)	$	(13,633	)

For the year ending December 31,	Amount
Remaining in 2019	$	293
2020		234
2021		229
2022		134
Total remaining lease payments		890
Less: imputed interest		(118	)
Total lease liabilities	$	772

Year,
2017 (remaining three months)	$	113
2018		429
2019		160
Total	$	702

	•	XTRAC® Excimer Laser. XTRAC received FDA clearance in 2000 and has since become a widely recognized treatment among dermatologists for psoriasis and other skin diseases. The XTRAC System delivers ultra-narrowband ultraviolet B ~~("UVB"~~(“UVB”) light to affected areas of skin. Following a series of treatments typically performed twice weekly, psoriasis remission can be achieved, and vitiligo patches can be re-pigmented. XTRAC is endorsed by the National Psoriasis Foundation, and its use for psoriasis is covered by nearly all major insurance companies, including Medicare. We estimate that more than half of all major insurance companies now offer reimbursement for vitiligo as well, a figure that is increasing.
	•	In the third quarter of 2018, we announced the FDA granted clearance for our Multi Micro Dose (MMD) tip for our XTRAC excimer laser. The MMD Tip accessory is indicated for use in conjunction with the XTRAC laser system to filter the Narrow Band UVB (“NB-UVB”) light at delivery in order to calculate and individualize the maximum non-blistering dose for a particular patient.
	•	In the third quarter of 2018, we announced the launch of our S3®, the next generation XTRAC. The S3 is smaller, faster and has a smart user interface.
	•	VTRAC® Lamp. VTRAC received FDA clearance in 2005 and provides targeted therapeutic efficacy demonstrated by excimer technology with the simplicity of design and reliability of a lamp system.
	•	~~Nordlys System.~~ ~~Nordlys has 16 indications cleared by FDA and has the ability to use a multitude of light based technologies all in on compact platform–SWT (Selective Waveband Technology: the latest evolution and advancement of Intense Pulsed Light), Nd:YAG and the FRAX 1550 non-ablative fractionated technology.~~
	•	~~STRATAPEN™~~STRATAPEN®. STRATAPEN uses the patent-pending Biolock cartridge. The Biolock needle depth can be adjusted during the course of the procedure to accommodate different treatment areas and can easily maneuver around facial contours and delicate features, such as the eyes, nose and mouth.

	For the Three Months Ended March 31,
	2019		2018
Dermatology Recurring Procedures	$	5,312	$	4,770
Dermatology Procedures Equipment		2,171		1,968

Total Revenues	$	7,483	$	6,738

·	~~A decrease of approximately $535 for the nine months ended September 30, 2017, respectively, due to the closing of the Irvington, NY facility in May 2016.~~
·	~~A decrease $266 in stock compensation from the nine months ended September 30, 2017 from the same periods in 2016.~~

•	forecasts of future business performance, consumer trends and macro-economic conditions;
•	descriptions of market and/or competitive conditions;
•	descriptions of plans or objectives of management for future operations, products or services;
•	our estimates regarding the sufficiency of our cash resources, expenses, capital requirements and needs for additional financing and our ability to obtain additional financing;
•	our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;
•	our ability to obtain and maintain regulatory approvals of our products;
•	anticipated results of existing or future litigation; and
•	descriptions or assumptions underlying or related to any of the above items.

3.1		Fifth Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 contained in our Registration Statement on Form S-3 (File No. 333-167113), as filed on May 26, 2010).
3.2		Fourth Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.2 contained in our Form 8-K current report as filed on January 8, 2016).
3.3		Certificate of Amendment to Fifth Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 contained in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 filed on August 7, 2013).
3.4		Certificate of Amendment to Fifth Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 contained in our Current Report on Form 8-K, filed on July 10, 2014).
3.5		Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 contained in our Current Report on Form 8-K, filed on February 3, 2014).
3.6		Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 contained in our Current Report on Form 8-K, filed on July 23, 2014).
3.7		Certificate of Amendment to Fifth Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 contained in our Current Report on Form 8-K, as filed on September 30, 2015).
3.8		Certificate of Amendment to Fifth Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 contained in our Current Report on Form 8-K, as filed on January 8, 2016).
3.9		Certificate of Designations of Series C Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 contained in our Current Report on Form 8-K, as filed on September 25, 2017).

~~10.51~~10.1		~~Second~~Fifth Amendment to ~~Credit~~Standard Industrial/Commercial Multi-Tenant Lease between FR National Life, LLC and ~~Security Agreement dated as~~Strata Skin Sciences, Inc. for office and manufacturing space at 2375 and 2365 Camino Vida Roble Carlsbad, California 92011 (incorporated by reference to Exhibit 10.1 of ~~November 10, 2017 among MidCap Financial Trust, as administrative agent, the Lenders as listed~~our Current Report on ~~the signature pages thereto and the Company. (Filed here within).~~
~~10.52~~		~~Amended and Restated Fee Letter Agreement dated as of November 10, 2017, by and between MidCap Financial Trust as Agent and the Company. (Filed here within)~~Form 8-K filed on May 6, 2019).
31.1		Rule 13a-14(a) Certificate of Chief Executive Officer
31.2		Rule 13a-14(a) Certificate of Chief Financial Officer
32.1*		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Schema
101.CAL		XBRL Taxonomy Calculation Linkbase
101.DEF		XBRL Taxonomy Definition Linkbase
101.LAB		XBRL Taxonomy Label Linkbase
101.PRE		XBRL Taxonomy Presentation Linkbase

	STRATA SKIN SCIENCES, INC.

~~Date November 14, 2017~~	~~By:~~	~~/s/ Francis J. McCaney~~
		~~Name Francis J. McCaney~~
		~~Title President and Chief Executive Officer~~

Date November 8, 2019	By:	/s/ Matthew C. Hill
		Name Matthew C. Hill
		Title Chief Financial Officer