UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
ý[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172019
OR
☐◻ 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 Lakeside5 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, 20178, 2019 was 4,076,08932,903,287 shares.
STRATA SKIN SCIENCES, INC.
TABLE OF CONTENTS
Part I. Financial Information: | PAGE |
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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 | | | June 30, 2019 | | | December 31, 2018 | |
ASSETS | | (unaudited) | | | | | | (unaudited) | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 3,127 | | | $ | 3,928 | | | $ | 15,941 | | | $ | 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 $143 and $141, respectively | | | 3,476 | | | 3,393 | |
Inventories | | | 3,533 | | | | 2,817 | | | 3,607 | | | 2,794 | |
Prepaid expenses and other current assets | | | 209 | | | | 617 | | | | 630 | | | | 536 | |
Total current assets | | | 10,053 | | | | 10,752 | | | 23,654 | | | 23,210 | |
| | | | | | | | | | | | | | |
Property and equipment, net | | | 8,658 | | | | 10,180 | | | 4,789 | | | 5,301 | |
Operating lease right-of-use assets, net | | | 1,485 | | | - | |
Intangible assets, net | | | 12,302 | | | | 13,412 | | | 8,860 | | | 9,765 | |
Goodwill | | | 8,803 | | | | 8,803 | | | 8,803 | | | 8,803 | |
Other assets | | | 48 | | | | 46 | | | | 376 | | | | 428 | |
Total assets | | $ | 39,864 | | | $ | 43,193 | | | $ | 47,967 | | | $ | 47,507 | |
| | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | |
Note payable | | $ | 34 | | | $ | 339 | | |
Current portion of long-term debt | | | 1,936 | | | | 1,714 | | | $ | 1,767 | | | $ | 252 | |
Accounts payable | | | 1,907 | | | | 1,853 | | | 2,091 | | | 1,764 | |
Other accrued liabilities | | | 1,899 | | | | 1,992 | | | 4,748 | | | 4,500 | |
Current portion of operating lease liabilities | | | 239 | | | - | |
Deferred revenues | | | 350 | | | | 235 | | | | 2,292 | | | | 2,099 | |
Total current liabilities | | | 6,126 | | | | 6,133 | | | 11,137 | | | 8,615 | |
| | | | | | | | | | | | | | |
Long-term liabilities: | | | | | | | | | | | | | | |
Long-term debt, net | | | 8,842 | | | | 9,752 | | | 5,699 | | | 7,145 | |
Senior secured convertible debentures, net | | | - | | | | 12,028 | | |
Warrant liability | | | 28 | | | | 105 | | |
Deferred tax liability | | | 539 | | | | 359 | | | 22 | | | 111 | |
Long-term operating lease liabilities, net | | | 1,267 | | | - | |
Other liabilities | | | 412 | | | | 97 | | | | 383 | | | | 388 | |
Total liabilities | | | 15,947 | | | | 28,474 | | | | 18,508 | | | | 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; 2,103 and 9,968 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively | | | 1 | | | 1 | |
Common Stock, $.001 par value, 150,000,000 shares authorized; 32,903,287 and 29,943,086 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively | | | 33 | | | 30 | |
Additional paid-in capital | | | 251,594 | | | | 225,289 | | | 242,611 | | | 241,988 | |
Accumulated deficit | | | (227,686 | ) | | | (210,575 | ) | | | (213,186 | ) | | | (210,771 | ) |
Accumulated other comprehensive income | | | 2 | | | | 2 | | |
Total stockholders' equity | | | 23,917 | | | | 14,719 | | | | 29,459 | | | | 31,248 | |
Total liabilities and stockholders' equity | | $ | 39,864 | | | $ | 43,193 | | |
Total liabilities and stockholders’ equity | | | $ | 47,967 | | | $ | 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 (In thousands, except share and per share amounts)
(unaudited)
| | For the Three Months Ended June 30, | |
| | 2019 | | | 2018 | |
Revenues, net | | $ | 7,725 | | | $ | 7,388 | |
| | | | | | | | |
Cost of revenues | | | 2,815 | | | | 3,549 | |
| | | | | | | | |
Gross profit | | | 4,910 | | | | 3,839 | |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Engineering and product development | | | 235 | | | | 269 | |
Selling and marketing | | | 2,958 | | | | 2,378 | |
General and administrative | | | 2,700 | | | | 2,411 | |
| | | 5,893 | | | | 5,058 | |
| | | | | | | | |
Loss from operations | | | (983 | ) | | | (1,219 | ) |
| | | | | | | | |
Other expense, net: | | | | | | | | |
Interest expense, net | | | (145 | ) | | | (328 | ) |
Change in fair value of warrant liability (see Note 1) | | | - | | | | (23 | ) |
Other expenses, net | | | - | | | | (19 | ) |
| | | (145 | ) | | | (370 | ) |
| | | | | | | | |
Loss before income taxes | | | (1,128 | ) | | | (1,589 | ) |
Income tax benefit (expense) | | | 46 | | | | (40 | ) |
Net loss | | $ | (1,082 | ) | | $ | (1,629 | ) |
| | | | | | | | |
Loss attributable to common shares | | $ | (1,007 | ) | | $ | (958 | ) |
Loss attributable to Preferred Series C shares | | $ | (75 | ) | | $ | (671 | ) |
Loss per common share: | | | | | | | | |
Basic | | $ | (0.03 | ) | | $ | (0.07 | ) |
Diluted | | $ | (0.03 | ) | | $ | (0.07 | ) |
| | | | | | | | |
Shares used in computing loss per common share: | | | | | | | | |
Basic | | | 31,359,104 | | | | 13,734,384 | |
Diluted | | | 31,359,104 | | | | 13,734,384 | |
Loss per Preferred Series C share basic and diluted | | $ | (11.94 | ) | | $ | (25.96 | ) |
| | | | | | | | |
Shares used in computing loss per basic and diluted Preferred Series C Shares | | | 6,250 | | | | 25,847 | |
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 OPERATIONSCOMPREHENSIVE LOSS(In thousands, except share and per share amounts)
(unaudited)
| | 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 Six Months Ended June 30, | |
| | 2019 | | | 2018 | |
Revenues, net | | $ | 15,208 | | | $ | 14,126 | |
| | | | | | | | |
Cost of revenues | | | 5,689 | | | | 6,893 | |
| | | | | | | | |
Gross profit | | | 9,519 | | | | 7,233 | |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Engineering and product development | | | 539 | | | | 607 | |
Selling and marketing | | | 6,024 | | | | 5,249 | |
General and administrative | | | 5,180 | | | | 4,295 | |
| | | 11,743 | | | | 10,151 | |
| | | | | | | | |
Loss from operations | | | (2,224 | ) | | | (2,918 | ) |
| | | | | | | | |
Other expense, net: | | | | | | | | |
Interest expense, net | | | (280 | ) | | | (691 | ) |
Change in fair value of warrant liability | | | - | | | | (22 | ) |
Other income, net
| | | - | | | | 1 |
|
| | | (280 | ) | | | (712 | ) |
Loss before income taxes | | | (2,504 | ) | | | (3,630 | ) |
Income tax benefit (expense) | | | 89 | | | | (80 | ) |
Net loss | | $ | (2,415 | ) | | $ | (3,710 | ) |
| | | | | | | | |
Loss attributable to common shares | | $ | (2,226 | ) | | $ | (1,638 | ) |
Loss attributable to Preferred Series C shares | | $ | (189 | ) | | $ | (2,072 | ) |
Loss per common share: | | | | | | | | |
Basic | | $ | (0.07 | ) | | $ | (0.18 | ) |
Diluted | | $ | (0.07 | ) | | $ | (0.18 | ) |
| | | | | | | | |
Shares used in computing loss per common share: | | | | | | | | |
Basic | | | 31,033,114 | | | | 9,078,741 | |
Diluted | | | 31,033,114 | | | | 9,078,741 | |
Loss per Preferred Series C share basic and diluted | | $ | (26.66 | ) | | $ | (67.07 | ) |
| | | | | | | | |
Shares used in computing loss per basic and diluted Preferred Series C Shares | | | 7,093 | | | | 30,897 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2018
(In thousands, except share amounts)
(unaudited)
| | Convertible Preferred Stock – Series C | | | Common Stock | | | Common Stock Issuable | | | Additional Paid-In | | | Accumulated | | | | |
| | Shares | | | Amount | | | 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 (see 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 184 | | | | - | | | | 184 | |
Conversion of convertible preferred stock into common stock | | | (25,865 | ) | | | (3 | ) | | | 9,615,332 | | | | 10 | | | | - | | | | - | | | | (7 | ) | | | - | | | | - | |
Sale of common stock, net of expenses of $2,336 | | | - | | | | - | | | | 15,740,741 | | | | 16 | | | | - | | | | - | | | | 14,648 | | | | - | | | | 14,664 | |
Common stock issuable | | | - | | | | - | | | | | | | | | | | | 153,004 | | | | - | | | | | | | | - | | | | | |
Net loss | | | - | | | | - | | | | -- | | | | -- | | | | - | | | | - | | | | - | | | | (1,629 | ) | | | (1,629 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, June 30, 2018 | | | 10,115 | | | $ | 1 | | | | 29,735,498 | | | $ | 30 | | | | 153,004 | | | | - | | | $ | 241,287 | | | $ | (210,448 | ) | | $ | 30,870 | |
STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTSSTATEMENT OF
CHANGES IN STOCKHOLDERS’ EQUITYOperations and COMPREHENSIVE LOSSFOR THE SIX MONTHS ENDED JUNE 30, 2019
(In thousands, except share and per share amounts)
(unaudited)
| | 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 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 stock 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of convertible preferred stock into common stock | | | (4,775 | ) | | | - | | | | 1,775,093 | | | | 2 | | | | (2 | ) | | | - | | | | - | |
Stock-based compensation | | | - | | | | - | | | | - | | | | - | | | | 303 | | | | - | | | | 303 | |
Exercise of stock options | | | - | | | | - | | | | 7,586 | | | | - | | | | - | | | | - | | | | - | |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,082 | ) | | | (1,082 | ) |
BALANCE, June 30, 2019 | | | 2,103 | | | $ | 1 | | | | 32,903,287 | | | $ | 33 | | | $ | 242,611 | | | $ | (213,186 | ) | | $ | 29,459 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTSTATEMENTS OF
CHANGES IN EQUITYFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017CASH 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 Six Months Ended June 30, | |
| | 2019 | | | 2018 | |
Cash Flows From Operating Activities: | | | | | | |
Net loss | | $ | (2,415 | ) | | $ | (3,710 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | | | |
Depreciation and amortization | | | 2,347 | | | | 2,841 | |
Amortization of right-of-use asset | | | 147 | | | | - | |
Provision for doubtful accounts | | | 2 | | | | (49 | ) |
Loss on disposal of property and equipment and lasers placed in service | | | 22 | | | | 411 | |
Gain on cancellation of distributor rights agreement | | | - | | | | (11 | ) |
Stock-based compensation | | | 626 | | | | 203 | |
Deferred taxes | | | (89 | ) | | | 80 | |
Amortization of debt discount | | | 12 | | | | 39 | |
Amortization of deferred financing costs | | | 57 | | | | 42 | |
Change in fair value of warrant liability | | | - | | | | 22 |
|
Changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable | | | (85 | ) | | | 710 | |
Inventories | | | (813 | ) | | | 596 | |
Prepaid expenses and other assets | | | (42 | ) | | | (296 | ) |
Accounts payable | | | 327 | | | | (895 | ) |
Other accrued liabilities | | | 248 | | | | (3 | ) |
Other liabilities | | | (5 | ) | | | 255 | |
Operating lease liabilities | | | (126 | ) | | | -
| |
Deferred revenues | | | 193 | | | | (303 | ) |
Net cash provided by (used in) operating activities | | | 406 | | | | (68 | ) |
| | | | | | | | |
Cash Flows From Investing Activities: | | | | | | | | |
Lasers placed-in-service | | | (947 | ) | | | (885 | ) |
Purchases of property and equipment | | | (5 | ) | | | (6 | ) |
Payments on distributor rights liability | | | - | | | | (23 | ) |
Net cash used in investing activities | | | (952 | ) | | | (914 | ) |
| | | | | | | | |
Cash Flows From Financing Activities: | | | | | | | | |
Proceeds from issuance of common stock, net | | | - | | | | 14,664 | |
Repayments of long-term debt | | | | | | | (3,000 | ) |
Payments on notes payable | | | - | | | | (306 | ) |
Net cash provided by financing activities | | | - | | | | 11,358 | |
| | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | (546 | ) | | | 10,376 | |
Cash and cash equivalents, beginning of period | | | 16,487 | | | | 4,069 | |
| | | | | | | | |
Cash and cash equivalents, end of period | | $ | 15,941 | | | $ | 14,445 | |
| | | | | | | | |
Supplemental information of cash and non-cash transactions: | | | | | | | | |
Cash paid for interest | | $ | 404 | | | $ | 691 | |
| | | | | | | | |
Lease liabilities arising from obtaining right-of-use assets | | $ | 1,632 | | | | - | |
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)- 6 -
| | 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
The Company:
Background
STRATA Skin Sciences Inc. (and its subsidiary) ("STRATA" or "we" or the "Company"(the “Company”) is a medical technology company focused onin Dermatology and Plastic Surgery dedicated to developing, commercializing and marketing innovative products for the therapeutic and aesthetic dermatology market. STRATA salestreatment of dermatologic conditions. Its products include the following products: XTRAC®XTRAC® excimer laser and VTRAC® excimerVTRAC® 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 devicemarketed 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 SeptemberJune 30, 2017,2019, there were 776764 XTRAC systems placed in dermatologists' offices in the United States under the Company's recurring revenue business model. The XTRAC systems employeddeployed 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 SkinStylusSkinStylus® MicroSystem and associated parts under the name of STRATAPen.STRATAPEN. This three-year agreement allowshas 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.
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.
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 statementsInterim 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 statementsresults 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 ninesix months ended SeptemberJune 30, 20172019 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 GAAPaccounting 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 ("20162018 (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
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 2016Annual Report on Form 10-K for the year ended December 31, 2018, and there have been no changes to the Company'sCompany’s significant accountingaccount policies during the three and ninesix months ended SeptemberJune 30, 2017.2019, 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 SeptemberJune 30, 2017,2019, the more significant estimates include (1) revenue recognition, in regardsregard 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.
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-valuefair 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 factorsfactors. |
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 and December 31, 2016 are as follows:
| | 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 | |
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 liabilitiesliability is estimated using option pricing models that are based on the fair value of the Company'sCompany’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 areliability 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. TheAs of June 30, 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 $10,778approximated its book value as of September 30, 2017. As of December 31, 2016 the fair value of long-terminterest rate on the debt and convertible debentures was $20,082.approximates market rates.
Several of the warrants outstanding as of September 30, 2017 and 2016December 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. All such warrants expired in February and April 2019. In addition, other warrants as of September 30, 2016 contained full ratchet provisions that reduce the exercise price of thehad 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 beenderivatives 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 liablities were recorded at their fair value using a binomialthe Black Scholes option pricing model and willcontinue to be recorded at their respective fair value at each subsequent balance sheet date.date until such terms expired. 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 | | | June 30, 2019 | |
October 31, 2013 | | $ | - | | | $ | - | | | $ | - | |
| | $ | - | | | $ | - | | | $ | - | |
Issuance Date | | January 1, 2018 | | | Increase in Fair Value | | | June 30, 2018 | |
October 31, 2013 | | $ | 2 | | | $ | 11 | | | $ | 13 | |
February 5, 2014 | | | 1 | | | | 11 | | | | 12 | |
| | $ | 3 | | | $ | 22 | | | $ | 25 | |
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 incomeloss 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 earningsloss 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 SharesStock 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.
The following table presents the calculation of basic and diluted net loss per share by each class of security for the three and ninesix months ended SeptemberJune 30, 2017:
2019 and 2018: | | 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 and the three months ended September 30, 2016, diluted net loss per common share is equal to the basic net loss per common share 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.
| | Three Months Ended June 30, 2019 | | | Six Months Ended June 30, 2019 | |
| | Common Stock | | | Series C Convertible Preferred Stock | | | Common Stock | | | Series C Convertible Preferred Stock | |
| | | | | | | | | | | | |
Loss attributable to each class | | $ | (1,007 | ) | | $ | (75 | ) | | $ | (2,226 | ) | | $ | (189 | ) |
| | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding during the period | | | 31,359,104 | | | | 6,250 | | | | 31,033,114 | | | | 7,093 | |
| | | | | | | | | | | | | | | | |
Basic and Diluted loss per share | | $ | (0.03 | ) | | $ | (11.94 | ) | | $ | (0.07 | ) | | $ | (26.66 | ) |
| | Three Months Ended June 30, 2018 | | | Six Months Ended June 30, 2018 | |
| | Common Stock | | | Series C Convertible Preferred Stock | | | Common Stock | | | Series C Convertible Preferred Stock | |
Loss attributable to each class
| | $ | (958 | ) | | $ | (671 | ) | | $ | (1,638 | ) | | $ | (2,072 | ) |
| | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding during the period | | | 13,734,384 | | | | 25,847 | | | | 9,078,741 | | | | 30,897 | |
| | | | | | | | | | | | | | | | |
Basic and Diluted loss per share | | $ | (0.07 | ) | | $ | (25.96 | ) | | $ | (0.18 | ) | | $ | (67.07 | ) |
Diluted
The Company considers Series C Convertible Preferred Stock to be participating securities in presentation of earnings per share.
For the three and six months ended June 30, 2019 and 2018, diluted loss per common share were calculated usingand Series C Convertible Preferred Stock share is equal to the following netbasic loss per common share and Series C Convertible Preferred Stock share, respectively, since all potentially dilutive securities are anti-dilutive.
The weighted average sharesof potential common stock equivalents outstanding forduring the ninethree and six months ended SeptemberJune 30, 2016:2019 and 2018 have been excluded from the loss per share calculation as their inclusion would have been anti-dilutive:
| | 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 | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Common stock purchase warrants | | 2,034,882 | | 2,396,721 | | 2,133,489 | | 2,401,646 |
Restricted stock units | | 120,773 | | 17,028 | | 125,150 | | 17,028 |
Common stock options | | 4,184,193
| | 3,037,796 | | 4,252,682 | | 1,962,933 |
Total | | 6,339,848 | | 5,451,545 | | 6,511,321 | | 4,381,607 |
Accounting Pronouncements Recently Adopted
In February 2016 the FASB issued ASU 2016-02, “Leases” (Topic 842) (“ASU 2016-02”), which will require lessees to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current US GAAP, the recognition, measurement and presentation of 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 balance sheet, the new guidance will require both types of leases to be recognized on the balance sheet. The ASU is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. In August 2018 the FASB issued ASU No. 2018-11, “Leases (Topic 842: Targeted Improvements”) which permits adoption of the 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 apply the new lease requirements through a cumulative-effect adjustment in the period of adoption rather than in the earliest period presented without adjusting historical financial statements.
The Company used the modified retrospective transition approach to ASU No. 2018-11 and applied the new lease requirements through a cumulative-effect adjustment in the period of adoption. The new standard provides a number of optional practical expedients in transition. We elected the package of practical expedients, which permits us not to reassess, under the new standard, our prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements;
The weighted average of potential common stock equivalents outstanding during the three and nine months ended September 30, 2017 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 as follows:
| | 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
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidancelatter not being applicable 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 of assets and activities (collectively, a "set") that is a business usually has outputs, outputs are not required to be present. In addition, all 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 theus. This accounting and presentation of share-based payments, including the income tax effects of awards and forfeiture assumptions. Under the new guidance, all excess tax benefits and tax deficiencies are recorded to income tax expense in the income statement. 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 became effective for interim and annual periods beginning after December 15, 2016, and early adoption was permitted. The adoption of this ASUstandard did not have a significantmaterial impact on our debt covenants. The Company has completed an evaluation of ASU 2016-02, including a review of our leases and other contracts for potential embedded leasing arrangements and has recognized approximately $848 in right-of-use assets and lease liabilities in the balance sheet as of January 1, 2019. There was no impact on the condensed consolidated financial statements.Company’s revenue recognition under ASC 842.
In November 2015, the FASB issued ASU 2015-17, Income Taxes, Balance Sheet Classification of Deferred Taxes topic of the Codification. This standard requires all deferred tax assets and liabilities to be classified as non-current on the balance sheet instead 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, except 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 financial statements.
In July 2015, The FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (Topic 330) ("ASU 2015-11"). ASU 2015-11 outlines that inventory within the scope of its guidance be measured at the lower of cost and net realizable value. Prior to the issuance of ASU 2015-11, inventory was measured at the lower of cost or market (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin). For a public entity, the amendments in ASU 2015-11 are effective, in a prospective manner, for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period (the first quarter of fiscal year 2017 for the Company). The adoption of this ASU did not have a significant impact on the Company's consolidated financial statements.
Recently Issued Accounting Standards
In July 2017 the FASB issued a two-part ASU 2017-11, "(“(Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception."” For public business entities the amendments in Part 1I of ASU 2017-11 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. IfThe Company previously adopted this ASU on October 1, 2018, and recorded an entity early adoptsadjustment for the amendments inadoption of a new accounting pronouncement of $67 as an interim period, any adjustments should be reflectedadjustment to warrant liability, $2,547 as an adjustment to accumulated deficit and $2,614 as an adjustment to additional paid-in-capital as of the beginning of the fiscal year in the year of adoption on January 1, 2018.
The impact from adopting ASU 2017-11 on the Company’s unaudited condensed balance sheets and consolidated statements of operations as of and for the following periods is as follows:
| | For the Three Months Ended June 30, 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 loss | | $ | (263 | ) | | $ | (23 | ) | | $ | (240 | ) |
Balance Sheet | | | | | | | | | | | | |
Fair value of warrant liability | | $ | 289 | | | $ | 25 | | | $ | (264 | )
|
| | For the Six Months Ended June 30, 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 loss | | $ | (222 | )
| | $ | (22 | ) | | $ | (200 | ) |
Balance Sheet | | | | | | | | | | | | |
Fair value of warrant liability | | $ | 289 | | | $ | 25 | | | $ | (264 | )
|
In June 2018 the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” with the objective of simplifying several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The provisions of this update are effective for fiscal years beginning after December 15, 2018, including interim periods within that includes that interim period.year. The amendments in Part 2adoption of ASU 2017-11 do not require any transition guidance because those amendments doNo. 2018-07 on January 1, 2019, did not have an accounting effect. The Company is currently evaluating the impact of this guidancea material effect on the Company'sCompany’s condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new guidance eliminated Step 2 from the goodwill impairment test which was required in computing the implied fair value of goodwill. Instead, under the new amendments, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit'sunit’s fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. If applicable, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The amendments in this guidance are effective for public business entities for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019 with early adoption permitted after January 1, 2017. As the Company has not identified a goodwill impairment loss, currently this guidance does not have an impact on the Company’s condensed consolidated financial statements, but could have an impact in the event of a good-will impairment.
In August 2018 the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The new guidance improves and clarifies the fair value measurement disclosure requirement of ASC 820. The new disclosure requirements include the changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurement held at the end of the reporting period and the explicit requirement to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The other provisions of ASU 2018-13 also include eliminated and modified disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted, including in an interim period for which financial statements have not been issued or made available for issuance. The Company is currently evaluatinghas evaluated the impact of adoption of this guidanceASU and determined that it will have no significant impact on the Company'sits condensed consolidated financial statements.
In February 2016,
Note 2
Equity Financing and Liquidity
Equity Financing
On March 30, 2018, the FASB issued ASU 2016-02, Leases, This statement requires lesseesCompany entered into multiple agreements in order to present right-of-use assets and lease liabilities onobtain $17,000 of equity financing (the “Financing”) from 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. following sources:
• | 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. |
The Company is currently evaluatingincurred $2,336 of costs related to the effectequity financing during the guidance will have on its financial condition and results of operations.year ended December 31, 2018.
In May 2014,
Liquidity
The FASB issued ASU 2014-09, RevenueCompany has experienced recurring operating losses and annually prior to 2017 negative cash flow from Contracts with Customers (Topic 606). ASU 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 also requires entities to disclose sufficient information, both quantitative and qualitative, to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. An entity should apply the amendments in this ASU using one of the following two methods: 1. retrospectively to each prior reporting period presented with a possibility to elect certain practical expedients, or, 2. using the modified retrospective method with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. If an entity elects the latter transition method, it also should provide certain additional disclosures. The new guidance will be effective for annual and interim periods beginning on or after December 15, 2017. The ASU may change our accounting for the revenues from recurring procedures based upon the determination of whenoperations. Historically, the Company has transferred controlbeen dependent on raising capital from the sale of securities in order to continue to operate and to meet our obligations in the ordinary course of business. Management believes that the Company’s cash and cash equivalents, combined with the anticipated revenues from the sale of the services. The potential impact of that change could increase or decreaseCompany’s products, will be sufficient to satisfy our revenues in any given periodworking capital needs, capital asset purchases, outstanding commitments and will depend, among others, onother liquidity requirements associated with our existing operations through the estimated unused treatments asnext 12 months following the issuance of the end of any reporting period. We are still evaluating the ASU for its potential impact on ourcondensed consolidated financial statements. We currently planIn the Company’s debt modification with MidCap in the prior year, MidCap reduced the restrictive covenants. However, if the Company fails to adoptmeet the ASU usingmonthly revenue covenants per the "modified retrospective" approach, which requiresMidCap loan agreement, the cumulative effect of initially applying the guidance toCompany may be recognized as an adjustment to our accumulated deficit asdeclared in breach of the January 1, 2018 adoption date.credit facility agreement and MidCap will have the option to call the loan balance.
Note 2
Inventories:
| | September 30, 2017 | | | December 31, 2016 | |
| | (unaudited) | | | | |
Raw materials and work in progress | | $ | 2,448 | | | $ | 2,440 | |
Finished goods | | | 1,085 | | | | 377 | |
Total inventories | | $ | 3,533 | | | $ | 2,817 | |
Work-in-process is immaterial, given the Company's typically short manufacturing cycle, and therefore is disclosed in conjunction with raw materials.
Note 3
PropertyRevenue:
In the Dermatology Recurring Procedures Segment the Company has two types of arrangements for its phototherapy treatment equipment as follows: (i) the Company places its lasers in a physician’s office at no charge to the physician, and Equipment, net:
| | 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 | |
Depreciationgenerally charges the physician a fee for an agreed upon number of treatments; or (ii) the Company places its lasers in a physician’s office and related amortization expense was $3,292charges the physician a fixed fee for a specified period of time not to exceed an agreed upon number of treatments; if that number is exceeded additional fees will have to be paid.
For the purposes of US GAAP only, these two types of arrangements are treated under the guidance of ASC 842, Leases. While these are not contractually operating leases, the Company sells the physician access codes in order to operate the treatment equipment, these are similar to operating leases for accounting purposes since in these arrangements the Company provides the customers limited rights to use the treatment equipment and $3,482the treatment equipment resides in the physician’s office while the Company may exercise the right to remove the equipment upon notice, while the physician controls the utility and output of such equipment during the term of the arrangement as it pertains to the use of access codes to treat the patients. The terms of the arrangements are generally 36 months with automatic one-year renewals and include a termination clause that can be affected at any time by either party with 60 day notice. Amounts paid are generally non-refundable. For the first type of arrangement, sales of access codes are considered variable lease payments and are recognized as revenue over the estimated usage period of the agreed upon number of treatments. For the second type of arrangement, customers purchase access codes and revenue is recognized ratably on a straight line basis as the lasers are being used over the term period specified in the agreement. Variable lease payments that will be paid only if the customer exceeds the agreed upon number of treatments are recognized only when such treatments are being exceeded and used. Pre-paid amounts are recorded in deferred revenue and recognized as revenue over the lease term in the patterns described above. Under both methods, pricing is fixed with the customer.
With respect to lease and non-lease components, the Company adopted the practical expedient to account for the nine months ended September 30, 2017arrangement as a single lease component.
In the Dermatology Procedures Equipment segment the Company sells its products internationally through a distributor, and 2016, respectively.domestically directly to a physician. For the product sales, the Company recognizes revenues when control of the promised products is transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products (the transaction price). Control transfers to the customer at a point in time. To indicate the transfer of control, the Company must have a present right to payment and legal title must have passed to the customer. The Company ships most of its products FOB shipping point, and as such, the Company primarily transfers control and records revenue upon shipment. From time to time the Company will grant certain customers, for example governmental customers, FOB destination terms, and the transfer of control for revenue recognition occurs upon receipt. The Company has elected to recognize the cost of freight and shipping activities as fulfillment costs. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of the underlying goods are transferred to the customer. The related shipping and freight charges incurred by the Company are included in cost of revenues.
Note 4
Intangibles, net:
Set forth belowRemaining performance obligations related to ASC 606 represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year, which are fully or partially unsatisfied at the end of the period. Remaining performance obligations include the potential obligation to perform under extended warranties but excludes any equipment accounted for as leases. As of June 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $414, and the Company expects to recognize $200 of the remaining performance obligations within one year and the remainder over one to three years. Contract assets primarily relate to the Company’s rights to consideration for work completed in relation to its services performed but not billed at the reporting date. The contract assets are transferred to receivables when the rights become unconditional. Currently, the Company does not have any contract assets which have not transferred to a receivable. Contract liabilities primarily relate to extended warranties where we have received payments, but we have not yet satisfied the related performance obligations. The advance consideration received from customers for the services is a detailed listingcontract liability until services are provided to the customer. The $200 of definite-lived intangible assets:
| | 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 | |
Related amortization expense was $1,519short-term contract liabilities is presented as deferred revenues and $1,362 for the nine months ended September$214 of long-term contract liabilities is presented within Other Liabilities on the June 30, 2017 and 2016, respectively. During2019 Condensed Consolidated Balance Sheet. For the three and ninesix months ended SeptemberJune 30, 2017,2019, the Company wrote off core technologyrecognized $36 and $75, respectively, as revenue from amounts classified as contract liabilities (i.e. deferred revenues) as of $274December 31, 2018.
With respect to contract acquisition costs, the Company applied the practical expedient and accumulated amortizationexpenses these costs immediately.
The Company records co-pay reimbursements made to patients receiving laser treatments as a reduction of $251 relatedrevenue. For the three and six months ended June 30, 2019 and 2018, the Company recorded such reimbursements in the amounts of $177 and $332, and $174 and $300, respectively.
The following tables present the Company’s revenue disaggregated by geographical region for the three and six months ended June 30, 2019 and 2018, respectively. Domestic refers to revenue from customers based in the United States, and substantially all foreign revenue is derived from dermatology procedures equipment sales to the discontinuance of the MELAfind product. The value written off of $23 was recordedCompany’s international master distributor for physicians based primarily in cost of revenues.Asia.
Estimated amortization expense for amortizable patents and licensed technologies assets for the future periods is as follows:
Remaining 2017 | | $ | 476 | |
2018 | | | 1,905 | |
2019 | | | 1,905 | |
2020 | | | 1,670 | |
2021 | | | 1,410 | |
Thereafter | | | 4,936 | |
Total | | $ | 12,302 | |
| | Three Months Ended June 30, 2019 | |
| | Dermatology Recurring Procedures | | | Dermatology Procedures Equipment | | | TOTAL | |
Domestic | | $ | 5,839 | | | $ | 378 | | | $ | 6,217 | |
Foreign | | | - | | | | 1,508 | | | | 1,508 | |
Total | | $ | 5,839 | | | $ | 1,886 | | | $ | 7,725 | |
As discussed in Note 1, effective January 1, 2017 the Company follows the guidance in ASU 2017-01, which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the new guidance, companies are required to utilize an initial screening test to determine whether 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; if so, the set is not a business. The Company has determined that its transaction with Ellipse in the first quarter of 2017 is considered to be an acquisition of a single asset, therefore, the acquisition is not considered to be an acquisition of a business. The distribution rights asset had been assigned a value of $900 which was comprised of the present value of the license fee payments. Effective August 2017 the transaction was terminated and a new agreement was negotiated among the parties. See Note 1 for further details regarding these agreements. 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 and recorded the distribution rights at the present value of the payments under the new agreements, amounting to $286. The reversal of the aforementioned intangible asset and corresponding liability resulted in a $40 gain, recognized in sales and marketing expense.
| | Six Months Ended June 30, 2019 | |
| | Dermatology Recurring Procedures | | | Dermatology Procedures Equipment | | | TOTAL | |
Domestic | | $ | 11,151 | | | $ | 702 | | | $ | 11,853 | |
Foreign | | | - | | | | 3,355 | | | | 3,355 | |
Total | | $ | 11,151 | | | $ | 4,057 | | | $ | 15,208 | |
| | Three Months Ended June 30, 2018 | |
| | Dermatology Recurring Procedures | | | Dermatology Procedures Equipment | | | TOTAL | |
Domestic | | $ | 5,022 | | | $ | 313 | | | $ | 5,335 | |
Foreign | | | - | | | | 2,053 | | | | 2,053 | |
Total | | $ | 5,022 | | | $ | 2,366 | | | $ | 7,388 | |
| | Six Months Ended June 30, 2018 | |
| | Dermatology Recurring Procedures | | | Dermatology Procedures Equipment | | | TOTAL | |
Domestic | | $ | 9,792 | | | $ | 970 | | | $ | 10,762 | |
Foreign | | | - | | | | 3,364 | | | | 3,364 | |
Total | | $ | 9,792 | | | $ | 4,334 | | | $ | 14,126 | |
Note 4
Inventories:
Inventories consist of:
| | June 30, 2019 | | | December 31, 2018 | |
Raw materials and work in progress | | $ | 3,200 | | | $ | 2,442 | |
Finished goods | | | 407 | | | | 352 | |
Total inventories | | $ | 3,607 | | | $ | 2,794 | |
Work-in-process is immaterial, given the Company’s typically short manufacturing cycle, and therefore is disclosed in conjunction with raw materials.
Note 5
Other Accrued Liabilities:Property and Equipment, net:
| | September 30, 2017 | | | December 31, 2016 | |
| | (unaudited) | | | | |
Accrued warranty, current | | $ | 98 | | | $ | 102 | |
Accrued compensation, including commissions and vacation | | | 861 | | | | 1,177 | |
Accrued sales and other taxes | | | 520 | | | | 439 | |
Distributor rights liability, current | | | 82 | | | | - | |
Accrued professional fees and other accrued liabilities | | | 338 | | | | 274 | |
Total other accrued liabilities | | $ | 1,899 | | | $ | 1,992 | |
Property and equipment consist of:
| | June 30, 2019 | | | December 31, 2018 | |
Lasers placed-in-service | | $ | 19,241 | | | $ | 18,515 | |
Equipment, computer hardware and software | | | 147 | | | | 168 | |
Furniture and fixtures | | | 124 | | | | 124 | |
Leasehold improvements | | | 26 | | | | 26 | |
| | | 19,538 | | | | 18,833 | |
Accumulated depreciation and amortization | | | (14,749 | ) | | | (13,532 | ) |
Property and equipment, net | | $ | 4,789 | | | $ | 5,301 | |
Depreciation and related amortization expense was $691 and $926 for the three months ended June 30, 2019 and 2018, respectively; and $1,442 and $1,912 for the six months ended June 30, 2019 and 2018, respectively.
Note 6
Convertible Debentures:Intangible Assets, net:
In the following table
Set forth below is a summarydetailed listing of the Company's convertible debentures.
| | 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 | |
The total outstanding convertible debentures was exchanged for convertible Preferred C stock on September 20, 2017, thus there was no remaining outstanding balancedefinite-lived intangible assets as of SeptemberJune 30, 2017.2019:
The Company issued $32,500 aggregate principal amount of Debentures (the "June 2015 Debentures") that, subject to certain ownership limitations and stockholder approval conditions, was convertible into 8,666,668 shares of Company common stock at an initial conversion price of $3.75 per share. The Debentures were bearing interest at the rate of 2.25% per year, and, unless previously converted, were to mature on the five-year anniversary of the date of issuance, June 22, 2020.
The June 2015 Debentures included a beneficial conversion feature valued at $27,300 that was recorded as a discount to the debentures. On the date of issuance the beneficial conversion feature value was calculated as the difference resulting from subtracting the conversion price of $3.75 from $6.90, the opening market value of the Company's common stock following the announcement of the transaction, multiplied by the number of common shares into which the June 2015 Debentures were convertible. This discount was being amortized over the five year life of the June 2015 Debentures using the effective interest method. The embedded conversion feature contained an anti-dilution provision that allowed for downward exercise price adjustments in certain situations. The embedded conversion feature was not bifurcated as it did not meet all of the elements of a derivative.
| | Balance | | | Accumulated Amortization | | | Intangible assets, net | |
Core technology | | $ | 5,700 | | | $ | (2,280 | ) | | $ | 3,420 | |
Product technology | | | 2,000 | | | | (1,600 | ) | | | 400 | |
Customer relationships | | | 6,900 | | | | (2,760 | ) | | | 4,140 | |
Tradenames | | | 1,500 | | | | (600 | ) | | | 900 | |
| | $ | 16,100 | | | $ | (7,240 | ) | | $ | 8,860 | |
On July 21, 2014, the Company entered into a definitive Securities Purchase Agreement (the "Purchase Agreement") with institutional investors (the "Investors") providing
Related amortization expense was $452 and $452 for the issuance of Senior Secured Convertible Debenturesthree months ended June 30, 2019 and 2018, respectively; and $905 and $929 for the six months ended June 30, 2019 and 2018, respectively.
Definite-lived intangible assets are tested for impairment when events or changes in circumstances indicate that 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 Debenturesasset group may not be recoverable. The Company recognizes an impairment loss when and to the extent that the recoverable amount of $4,647. The initial debt discount onan asset group is less than its carrying value. There were no impairment charges for the July 2014 Debentures totaled $10,353three and was being amortized using the effective interest method over the five year life of the July 2014 Debentures.six months ended June 30, 2019.
During the ninethree months ended SeptemberMarch 31, 2018, the Company wrote off distribution rights of $286 and accumulated amortization of $60 related to the discontinuance of the Nordlys product line. The net value written off of $226 was recorded in selling and marketing expense. In the three months ended June 30, 2017,2018, the investors converted debentures amounting to $262 into 70,000 sharesCompany wrote off distributor liabilities of common stock$237 as a result of the termination of the agreement on May 31, 2018 and the net value written off of $11 was recorded in selling and marketing expense for the six months ended June 2015 note. The debt discount and deferred financing cost adjustment resulting from the conversions increased interest30, 2018.
Estimated amortization expense by $197 for the nine months ended September 30, 2017.above amortizable intangible assets for future periods is as follows:
As a condition
Remaining 2019 | | $ | 905 | |
2020 | | | 1,610 | |
2021 | | | 1,410 | |
2022 | | | 1,410 | |
2023 | | | 1,410 | |
Thereafter | | | 2,115 | |
Total | | $ | 8,860 | |
Note 7
Other Accrued Liabilities:
Other accrued liabilities consist of:
| | June 30, 2019 | | | December 31, 2018 | |
| | | | | | |
Accrued warranty, current | | $ | 194 | | | $ | 156 | |
Accrued compensation, including commissions and vacation | | | 945 | | | | 1,275 | |
Accrued state sales, use and other taxes | | | 2,908 | | | | 2,719 | |
Accrued professional fees and other accrued liabilities | | | 701 | | | | 350 | |
Total other accrued liabilities | | $ | 4,748 | | | $ | 4,500 | |
Accrued State Sales and Use Tax
In the ordinary course of business, the Company is, from time to time, subject to audits performed by state taxing authorities. These actions and proceedings are generally based on the position that the arrangements entered into by the Company are subject to sales and use tax rather than exempt from tax under applicable law. The Company uses estimates when accruing its sales and use tax liability. All of the new note facility (See Note 7, Long-term Debt)Company’s tax positions are subject to audit. One state has assessed the DebenturesCompany an amount of $801 for the period from bothMarch 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 determination that the 2014Company’s recurring revenue model is not exempt from sales taxes and 2015 financings were amended. 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 previous years and in the future, plus potential interest and penalties for failure to pay such taxes.
The Debentures holders' first priority lien was subordinatedCompany believes its state sales and use tax accruals have properly recognized that if the Company’s arrangements with its customers are deemed to be subject to sales tax in a particular state are more likely than not, the new term note facility. Additionally, as a conditionbasis for measurement of the term note facility, the maturity date of both Debentures was extended to June 30, 2021sales 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. Inuse tax would be 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 recognized405, Liabilities as a loss on extinguishmenttransaction tax. If and when the Company is successful in defending itself in settling the sales tax obligation for a lesser amount, the reversal of debentures.this liability is to be recorded in the period settlement is reached. However, the precise scope, timing and time period at issue, as well as the final outcome of any audit and actual settlement remains uncertain.
The Company records state sales tax collected and remitted for its customers on equipment sales on a net basis, excluded from revenue. The Company’s sales tax expense that is not presently being collected and remitted for the recurring revenue business are recorded in general and administrative expenses on the statement of operations.
Accrued Warranty Costs
The Company offers a standard warranty on product sales generally for a one to two-year period, however, the Company has offered longer warranty periods, ranging from three to four years, in order to meet competition or meet customer demands. The Company provides for the estimated cost of the future warranty claims on the date the product is sold. Total accrued warranty is included in other accrued liabilities and other liabilities on the condensed consolidated balance sheet. The activity in the warranty accrual during the three and six months ended June 30, 2019 and 2018, is summarized as follows
| | Three Months Ended, June 30, | | | Six Months Ended June 30, | |
| | 2019 | | | 2018 | | | 2019 | | | 2018 | |
Accrual at beginning of period | | $ | 272 | | | $ | 195 | | | $ | 238 | | | $ | 178 | |
Additions charged to warranty expense | | | 75 | | | | 75 | | | | 143 | | | | 138 | |
Expiring warranties/claimed satisfied | | | (56 | ) | | | (35 | ) | | | (90 | ) | | | (81 | ) |
Total | | | 291 | | | | 235 | | | | 291 | | | | 235 | |
Less: current portion | | | (194 | ) | | | (149 | ) | | | (194 | ) | | | (149 | ) |
Total long-term accrued warranty costs | | $ | 97 | | | $ | 86 | | | $ | 97 | | | $ | 86 | |
Note 78
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 | |
The following summarizes the Company’s long-term debt:
| | June 30, 2019 | | | December 31, 2018 | |
Term note, net of debt discount of $98 and $110 respectively; and deferred financing cost of $7 and $64, respectively | | $ | 7,466 | | | $ | 7,397 | |
Less: current portion | | | (1,767 | ) | | | (252 | ) |
Total long-term debt | | $ | 5,699 | | | $ | 7,145 | |
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 includeshad 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 rate on the credit facility is one month LIBOR plus 8.25%, subject to a LIBOR floor of 0.5% (9.49% as of September 30, 2017). As of September 30, 2017 the net balance of long-term debt is $8,842.
The following table summarizes the future payments that the Company expects 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 | |
| | | | |
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 LIBOR plus 7.25%. Principal payments begin December 2019. Principal payments beginning December 2019 are $252 plus interest per month. On April 30, 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 year-end pursuant to the 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 currently in compliance with this covenant.
The following table summarizes the future payments that the Company is obligated to make for the long-term debt for the future periods:
| | For the year ending December 31, | |
Remaining in 2019 | | $ | 252 | |
2020 | | | 3,028 | |
2021 | | | 3,028 | |
2022 | | | 1,263 | |
| | $ | 7,571 | |
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 with "downround" provisions did not exist as of or duringDuring the ninethree and six months ended SeptemberJune 30, 2017 or2019, warrants to purchase 137,143 and 265,947 shares of common stock each with 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 December 31, 2016.
The Company recognizes these liabilities at the2018. There was no change in fair value on each reporting date. The Company computedof these derivatives for the valuethree and six months ended June 30, 2019.
Outstanding common stock warrants at June 30, 2019 consist 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, 2017 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 Reconciliationfollowing:
The tables below provide a reconciliation of the beginning and ending balances for the liability measured at fair value using significant unobservable inputs (Level 3). The table reflects gains and losses for the nine month periods ended September 30, 2017 and 2016, for all financial liabilities categorized as Level 3 as of September 30, 2017 and September 30, 2016, respectively.
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 | |
Issue Date | | Expiration Date | | Total Warrants | | | Exercise Price | |
July 24, 2014 | | July 24, 2019 | | | 1,239,769 | | | $ | 3.75 - $ 12.25 | |
June 22, 2015 | | June 22, 2020 | | | 600,000 | | | $ | 3.75 | |
December 30, 2015 | | December 30, 2020 | | | 130,089 | | | $ | 5.65 | |
January 29, 2016 | | January 29, 2021 | | | 19,812 | | | $ | 5.30 | |
| | | | | 1,989,670 | | | | | |
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 | |
Number of Warrants Subject to Remeasurement:
| Issuance Date
| September 30, 2017
| |
| | | |
| 10/31/2013 | 137,143 | |
| 2/5/2014 | 265,947 | |
| | | |
| Total | 403,090 | |
Note 9
Stockholders' Equity:
Common Stock and Warrants
Outstanding common stock warrants consist at September 30, 2017 of the following:
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 | | | | | |
Note 10
Stock-based compensation:Compensation:
At September
As of June 30, 2017,2019, the Company had 855,389 options to purchase 4,033,038 shares of common stock outstanding with a weighted-average exercise price of $4.93 and a weighted average remaining contractual life$1.78. As of 8.5 years. 401,077June 30, 2019, options to purchase 1,640,421 shares are vested and exercisable. During the six months ended June 30, 2019, 86,250 in options were exercised at a weighted-average exercise price of $1.74 which resulted in the issuance of 36,410 shares of common stock. There are 1,385,011 options available for issuance as of June 30, 2019.
In connection with the closing of the Financing, there were changes to the board of directors and the Company issued equity grants to new members as well as equity grants to all members as compensation. In total, in 2018 the Company granted 140,097 restricted stock units to the board members at a fair value of $2.07. Restricted stock units of 19,324 issued to the Chairman were cancelled in January 2019. The restricted stock units vest quarterly over twelve months. The aggregate fair value of the restricted stock units granted was $290.
Stock-based compensation expense, primarilywhich is included in general and administration,administrative expense, for the three and ninesix months ended SeptemberJune 30, 20172019, was $63$303 and $136, respectively. For$626, respectively; and for the three and ninesix months ended SeptemberJune 30, 2016 stock-based compensation2018, was $116$184 and $401,$203, respectively. As of SeptemberJune 30, 20172019, there was $211$1,884 in unrecognized compensation expense, which will be recognized over a weighted average period of 2.751.05 years.
Note 11
Income taxes:Taxes:
The Company accounts for income taxes using the asset and liability method for deferred income taxes. The provision for income taxes includes federal, state and local income taxes currently payable and deferred taxes resulting from temporary differences between the financial statement and tax bases of assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
Income tax expensebenefit of $38$46 and $181$89 and for the three and ninesix months ended SeptemberJune 30, 20172019, and $64an expense of $40 and $191$80 for the three and ninesix months ended SeptemberJune 30, 2016,2018, respectively, was comprised primarily of the change in deferred tax liability related to goodwill. Goodwill is an amortizing asset according to tax regulations. This generates
The Company has experienced certain ownership changes, which under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, result in annual limitations on the Company's ability to utilize its net operating losses in the future. The February 2014, July 2014, June 2015 and May 2018 equity raises by the Company, will limit the annual use of these net operating loss carryforwards. Although the Company has not performed a Section 382 study, any limitation of its pre-change net operating loss carryforwards that would result in a reduction of its deferred tax liability that is not usedasset would also have an equal and offsetting adjustment to offset deferred tax assets forthe valuation allowance considerations.allowance.
Note 12
Business Segments and Geographic Data:Segments:
The Company has organized its business into threetwo operating segments to better alignpresent its organization based upon the Company'sCompany’s management structure, products and services offered, markets served and types of customers, as follows: The Dermatology Recurring Procedures segment derives its revenues from the usage of its equipment by dermatologists to perform XTRAC procedures performed by dermatologists.procedures. The Dermatology Procedures Equipment segment generates revenues from the sale of equipment, such as lasers and lamp products. The Dermatology Imaging segment generated revenues from the sale and usage of imaging devices. The Company has announced that it will no longer support the imaging devices effective September 30, 2017 thus there will be minimal continuing revenues for this segment. Management reviews financial information presented on an operating segment basis for the purposes of making certain operating decisions and assessing financial performance.
Unallocated operating expenses include costs that are not specific to a particular segment but are general to the group; included are expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses. Interest expense and other financing income (expense), net, isare also not allocated to the operating segments.
The following tables reflect results of operations from our business segments for the periods indicated below:
The following tables reflect results of operations from our business segments for the periods indicated below:
Three Months Ended SeptemberJune 30, 2017 (unaudited)2019
| | Dermatology Recurring Procedures | | | Dermatology Procedures Equipment | | | Dermatology Imaging | | | TOTAL | | | Dermatology Recurring Procedures | | | Dermatology Procedures Equipment | | | TOTAL | |
Revenues | | $ | 5,720 | | | $ | 1,751 | | | $ | 9 | | | $ | 7,480 | | | $ | 5,839 | | | $ | 1,886 | | | $ | 7,725 | |
Costs of revenues | | | 2,084 | | | | 967 | | | | 225 | | | | 3,276 | | | | 1,733 | | | | 1,082 | | | | 2,815 | |
Gross profit | | | 3,636 | | | | 784 | | | | (216 | ) | | | 4,204 | | | | 4,106 | | | | 804 | | | | 4,910 | |
Gross profit % | | | 63.6 | % | | | 44.8 | % | | | (2400.0 | %) | | | 56.2 | % | | 70.3 | % | | 42.6 | % | | 63.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Allocated operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | |
Engineering and product development | | | 348 | | | | 63 | | | | - | | | | 411 | | | 198 | | | 37 | | | 235 | |
Selling and marketing expenses | | | 2,238 | | | | 449 | | | | - | | | | 2,687 | | |
Selling and marketing | | | 2,771 | | | 187 | | | 2,958 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Unallocated operating expenses | | | - | | | | - | | | | - | | | | 1,678 | | | | - | | | | - | | | | 2,700 | |
| | | 2,586 | | | | 512 | | | | - | | | | 4,776 | | | | 2,969 | | | | 224 | | | | 5,893 | |
Income (loss) from operations | | | 1,050 | | | | 272 | | | | (216 | ) | | | (572 | ) | | 1,137 | | | 580 | | | (983 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | - | | | | - | | | | - | | | | (1,343 | ) | | | - | | | | - | | | | (145 | ) |
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 | ) | | $ | 1,137 | | | $ | 580 | | | $ | (1,128 | ) |
| | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2019
Three Months Ended September 30, 2016 (unaudited)
| | Dermatology Recurring Procedures | | | Dermatology Procedures Equipment | | | Dermatology Imaging | | | TOTAL | | | Dermatology Recurring Procedures | | | Dermatology Procedures Equipment | | | TOTAL | |
Revenues | | $ | 6,205 | | | $ | 1,550 | | | $ | 12 | | | $ | 7,767 | | | $ | 11,151 | | | $ | 4,057 | | | $ | 15,208 | |
Costs of revenues | | | 2,162 | | | | 877 | | | | 31 | | | | 3,070 | | | | 3,526 | | | | 2,163 | | | | 5,689 | |
Gross profit | | | 4,043 | | | | 673 | | | | ( 19 | ) | | | 4,697 | | | | 7,625 | | | | 1,894 | | | | 9,519 | |
Gross profit % | | | 65.2 | % | | | 43.4 | % | | | (158.3 | %) | | | 60.5 | % | | 68.4 | % | | 46.7 | % | | 62.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Allocated operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | |
Engineering and product development | | | 343 | | | | 31 | | | | 8 | | | | 382 | | | 440 | | | 99 | | | 539 | |
Selling and marketing expenses | | | 2,767 | | | | 57 | | | | 16 | | | | 2,840 | | |
Selling and marketing | | | 5,539 | | | 485 | | | 6,024 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Unallocated operating expenses | | | - | | | | - | | | | - | | | | 1,880 | | | | - | | | | - | | | | 5,180 | |
| | | 3,110 | | | | 88 | | | | 24 | | | | 5,102 | | | | 5,979 | | | | 584 | | | | 11,743 | |
Income (loss) from operations | | | 933 | | | | 585 | | | | (43 | ) | | | (405 | ) | | 1,646 | | | 1,310 | | | (2,224 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Interest expense, net | | | - | | | | - | | | | - | | | | (1,175 | ) | | | - | | | | - | | | | (280 | ) |
Change in fair value of warrant liability | | | - | | | | - | | | | - | | | | 132 | | |
Other income (expense), net | | | - | | | | - | | | | - | | | | 3 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | $ | 933 | | | $ | 585 | | | $ | (43 | ) | | $ | (1,445 | ) | | $ | 1,646 | | | $ | 1,310 | | | $ | (2,504 | ) |
Nine
Three Months Ended SeptemberJune 30, 2017 (unaudited)2018
| | Dermatology Recurring Procedures | | | Dermatology Procedures Equipment | | | Dermatology Imaging | | | TOTAL | | | Dermatology Recurring Procedures | | | Dermatology Procedures Equipment | | | TOTAL | |
Revenues | | $ | 17,653 | | | $ | 5,784 | | | $ | 17 | | | $ | 23,454 | | | $ | 5,022 | | | $ | 2,366 | | | $ | 7,388 | |
Costs of revenues | | | 5,969 | | | | 2,988 | | | | 225 | | | | 9,182 | | | | 1,919 | | | | 1,630 | | | | 3,549 | |
Gross profit | | | 11,684 | | | | 2,796 | | | | ( 208 | ) | | | 14,272 | | | | 3,103 | | | | 736 | | | | 3,839 | |
Gross profit % | | | 66.2 | % | | | 48.3 | % | | | (1223.5 | %) | | | 60.9 | % | | 61.8 | % | | 31.1 | % | | 52.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Allocated operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | |
Engineering and product development | | | 1,104 | | | | 204 | | | | 1 | | | | 1,309 | | | 210 | | | 59 | | | 269 | |
Selling and marketing expenses | | | 7,747 | | | | 1,167 | | | | - | | | | 8,914 | | |
Selling and marketing | | | 2,168 | | | 210 | | | 2,378 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Unallocated operating expenses | | | - | | | | - | | | | - | | | | 4,999 | | | | - | | | | - | | | | 2,411 | |
| | | 8,851 | | | | 1,371 | | | | 1 | | | | 15,222 | | | | 2,378 | | | | 269 | | | | 5,058 | |
Income (loss) from operations | | | 2,833 | | | | 1,425 | | | | (209 | ) | | | (950 | ) | | 725 | | | 467 | | | (1,219 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | - | | | | - | | | | - | | | | (4,264 | ) | | - | | | - | | | (328 | ) |
Change in fair value of warrant liability | | | - | | | | - | | | | - | | | | 77 | | |
Extinguishment of debt | | | - | | | | - | | | | - | | | | (11,799 | ) | |
Other income (expense), net | | | - | | | | - | | | | - | | | | 6 | | |
| | | | | | | | | | | | | | | | | |
Change in fair value of warranty liability | | | - | | | - | | | (23 | ) |
Other expense, net | | | | - | | | | - | | | | (19 | ) |
Income (loss) before income taxes | | $ | 2,833 | | | $ | 1,425 | | | $ | (209 | ) | | $ | (16,930 | ) | | $ | 725 | | | $ | 467 | | | $ | (1,589 | ) |
| | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2018
| | Dermatology Recurring Procedures | | | Dermatology Procedures Equipment | | | TOTAL | |
Revenues | | $ | 9,792 | | | $ | 4,334 | | | $ | 14,126 | |
Costs of revenues | | | 3,908 | | | | 2,985 | | | | 6,893 | |
Gross profit | | | 5,884 | | | | 1,349 | | | | 7,233 | |
Gross profit % | | | 60.1 | % | | | 31.1 | % | | | 51.2 | % |
| | | | | | | | | | | | |
Allocated operating expenses: | | | | | | | | | | | | |
Engineering and product development | | | 484 | | | | 123 | | | | 607 | |
Selling and marketing | | | 4,384 | | | | 865 | | | | 5,249 | |
| | | | | | | | | | | | |
Unallocated operating expenses | | | - | | | | - | | | | 4,295 | |
| | | 4,868 | | | | 988 | | | | 10,151 | |
Income (loss) from operations | | | 1,016 | | | | 361 | | | | (2,918 | ) |
| | | | | | | | | | | | |
Interest expense, net | | | - | | | | - | | | | (691 | ) |
| | | | | | | | | | | | |
Change in fair value of warrant liability | | | - | | | | - | | | | (22 | ) |
| | | | | | | | | | | | |
Other income, net
| | | - | | | | - | | | | 1 |
|
| | | | | | | | | | | | |
Income (loss) before income taxes | | $ | 1,016 | | | $ | 361 | | | $ | (3,630 | ) |
Nine Months Ended September 30, 2016 (unaudited)