| Basis of Presentation and Summary of Significant Accounting Policies | 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements are presented in U.S. dollars and have been prepared in conformity with accounting
principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended
by Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”). The accompanying consolidated financial statements include the accounts of the Company and Photomedex India Private Limited, its wholly-owned
subsidiary in India. No operating activities have occurred within the Company’s subsidiary as of and during the years ended December 31, 2021 and 2020. Use of Estimates The preparation of the consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and reported amounts of revenue and expenses during the reporting period. The Company’s significant estimates and judgments involve revenue recognition with respect to deferred revenues and the contract term and
valuation allowances of accounts receivable, inputs used when evaluating goodwill for impairment, inputs used in the valuation of acquired intangible assets, state sales and use tax accruals, the estimated useful lives of intangible assets,
and the valuation allowance related to deferred tax assets. Actual results could differ from those estimates. Reclassifications Certain reclassifications from the prior year presentation have been made to conform to the current year presentation. Concentrations of Credit Risk and Major Customers The Company’s cash is held on deposit in demand accounts at a large financial institution in amounts in excess of the Federal Deposit Insurance Corporation, or FDIC, insurance
coverage limit of $0.3 million per depositor, per FDIC-insured bank, per ownership category. Management has reviewed the financial statements of this institution and believes it has sufficient assets and liquidity to conduct its operations in
the ordinary course of business with little credit risk to the Company. Financial instruments that
potentially subject the Company to concentrations of credit risk principally consist of cash equivalents and accounts receivable. The Company limits its credit risk associated with cash equivalents by placing investments in highly-rated
money market funds. The Company limits its credit risk with respect to accounts receivable by performing credit evaluations when deemed necessary, but it does not require collateral to secure amounts owed by its customers. The Company had one customer, an
international distributor from which it earns dermatology recurring procedures and dermatology procedures equipment revenues, that accounted for more than 10% of the Company’s revenues for the year ended December 31, 2021, and its former
international master distributor from which it earned dermatology procedures equipment revenues that accounted for more than 10% of the Company’s revenues for the year ended December 31, 2020. Revenues from this customer and the former
international master distributor were $3.4 million and $2.7 million, or 11% and 12%, of total net revenues during the years ended December 31, 2021 and 2020, respectively. Accounts receivable associated with the Company’s
customer and former international master distributor were less than 10% of total accounts receivable as of December 31, 2021 and
2020, respectively. No other customer represented more than 10% of total accounts receivable as of December 31, 2021 or 2020. Cash and Cash Equivalents The Company considers all highly-liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of
December 31, 2021 and 2020, cash equivalents consisted of credit card transactions with settlement terms of less than five days. Restricted Cash Restricted cash represents amounts held on deposit at a commercial bank used to secure the Company’s Note Payable. The Note Payable was repaid
during the year ended December 31, 2021. The following table provides a reconciliation of the components of cash, cash equivalents and restricted cash reported in the Company’s consolidated balance sheets to the
total of the amount presented in the consolidated statements of cash flows (in thousands):
December 31,
2021
2020
Cash and cash equivalents
$
12,586
$
10,604
Restricted cash
—
7,508
Total cash and restricted cash presented in the consolidated statements of cash flows
$
12,586
$
18,112 Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable primarily relates to amounts due from customers, which are typically due within 30 to 90 days from invoice date. The Company provides credit to its customers in the normal course of business and
maintains allowances for potential credit losses. The Company does not require collateral or other security for accounts receivable. The Company maintains allowances for doubtful accounts for estimated losses resulting from amounts deemed to
be uncollectible from its customers. These allowances are for specific amounts on certain customer accounts based on facts and circumstances determined on a case-by-case basis. The Company writes off accounts receivable when they are
considered uncollectible, and payments subsequently received on such receivables are credited to bad debt expense. The Company does not recognize interest accruing on accounts receivable past due. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined based on purchased cost for raw materials and all
production cost related to the laser manufacturing process (labor and indirect manufacturing cost, including sub-contracted work components) for work-in-process and finished goods is classified as inventory. For the Company’s products, cost is
determined on the first-in, first-out method. Work-in-process is immaterial, given the typically short manufacturing cycle and therefore , The Company’s equipment for the
treatment of skin disorders (e.g. the XTRAC) will either (i) be placed in a physician’s office and remain the property of the Company (at which date such equipment is transferred to property and equipment) or (ii) be sold to distributors or
physicians directly. The cost to build a laser, whether for sale or for placement, is accumulated in inventory. Reserves for slow - Property and Equipment Property and equipment are recorded at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred and costs of
improvements and renewals are capitalized. Depreciation and amortization are recognized using the straight-line method based on the estimated useful lives of the related assets. The Company uses an
estimated useful life of three years for computers, hardware and software, five years for machinery and equipment and for furniture and fixtures and the lesser of the useful life or lease term for leasehold improvements. Intangible Assets Intangible assets consist of core technology, product technology, customer relationships, trademarks and distribution rights. Intangible assets are
amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from three Goodwill Goodwill is the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and
liabilities assumed. Goodwill is not amortized, but is subject to an annual impairment test. The Company has two reporting units
and goodwill is allocated to the reporting units. The Company performs its goodwill impairment test on an
annual basis in the quarter of each fiscal year or more frequently if changes in circumstances or the occurrence of events suggest that an
impairment exists. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the reporting unit’s goodwill is less than the carrying value of the
reporting unit’s goodwill. The Company’s annual goodwill impairment test resulted in no impairment charges during
the years ended December and Impairment of Long-Lived Assets and Intangibles The Company reviews its long-lived assets and intangible assets subject to amortization for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset group may not be recoverable. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset group to future net cash flows expected to be generated by the asset
group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset group exceeds the fair value of the asset group, less costs to sell. The Company did not record any charges related to asset impairment during the years ended December 31, 2021 and 2020. Fair Value Measurements The Company measures financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires the use of
observable inputs and minimizes the use of unobservable inputs. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that
is available and significant to the fair value measurement:
•
Level 1 – quoted market prices in active markets for identical assets or liabilities.
•
Level 2 – observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other
inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•
Level 3 – inputs that are generally unobservable and typically reflect the Company’s estimate of assumptions that market participants would use in pricing the asset or liability. Accrued Warranty Costs The Company offers a
standard warranty on product sales generally for a one three The activity in the warranty accrual during the years ended December 31,
2021 and 2020 is summarized as follows (in thousands):
December 31,
2021
2020
Balance, beginning of year
$
113
$
232
Additions
71
67
Expirations and claims satisfied
(105
)
(186
)
Total
79
113
Less current portion within accrued expenses and other current liabilities
(59
)
(87
)
Balance within deferred revenues and other liabilities
$
20
$
26 Debt Issuance Costs The Company capitalizes direct costs incurred to obtain debt financing and amortizes these costs to interest expense over
the term of the debt using the effective interest method. These costs are recorded as a debt discount and are netted against the related debt on the Company’s consolidated balance sheets. Revenue Recognition Revenues from the Company’s dermatology recurring procedures customers are earned by providing physicians with its laser products and charging the physicians a fee for a fixed number of treatment sessions or 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. The placement of the laser products at physician locations represents embedded leases which are
accounted for as operating leases. For the lasers placed-in service under these arrangements, the terms of the domestic arrangements are generally 36
months with automatic one-year renewals and include a termination clause that can be effected at any time by either party with 30 to 60 day notice. Amounts paid
are generally non-refundable. Sales of access codes for a fixed number of treatment sessions are considered variable treatment code payments and are recognized as revenue over the estimated usage period of the agreed upon number of
treatments. Sales of access codes for a specified period of time are recognized as revenue on a straight-line basis as the lasers are being used over the term period specified in the agreement. Variable treatment code 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. Internationally, the Company generally sells access codes for a fixed amount on a monthly basis to
its distributors and the terms are generally 48 months, with termination in the event of the customers’ failure to remit payments
timely, and include a potential buy-out at the end of the term of the contract. Currently, this is the only foreign recurring revenue. Prepaid amounts recorded in deferred revenue and customer deposits recorded in accounts payable are
recognized as revenue over the lease term in the patterns described above. Pricing is fixed with the customer. With respect to lease and non-lease components, the Company adopted the practical expedient to account for the arrangement as a
single lease component. Revenues from the Company’s dermatology procedures equipment are recognized when control of the promised goods or services is transferred to its
customers or distributors, in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. Accordingly, the Company determines revenue recognition through the following steps:
•
identification of the contract, or contracts, with a customer;
•
identification of the performance obligations in the contract;
•
determination of the transaction price;
•
allocation of the transaction price to the performance obligations in the contract; and
•
recognition of revenue when, or as, performance obligations are satisfied. Accounting for the Company’s contracts involves the use of significant judgments and estimates including determining the separate performance obligations, allocating the
transaction price to the different performance obligations and determining the method to measure the entity’s performance toward satisfaction of performance obligations that most faithfully depicts when control is transferred to the customer.
The Company allocates the contract’s transaction price to each performance obligation using the Company’s best estimate of the standalone selling price for each distinct good or service in the contract. The Company maximizes the use of
observable inputs by beginning with average historical contractual selling prices and adjusting as necessary and on a consistent and rational basis for other inputs such as pricing trends, customer types, volumes and changing cost and
margins. Revenues from dermatology procedures equipment are recognized when control of the promised products is transferred to either the Company’s distributors or end-user 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. The following table presents the Company’s net revenues disaggregated by dermatology recurring procedures and dermatology procedures equipment (in thousands):
Year Ended December
2021
2020
Dermatology recurring procedures
$
22,528
$
17,409
Dermatology procedures equipment
7,449
5,681
Total net revenues
$
29,977
$
23,090 The following table summarizes the Company’s expected future undiscounted fixed treatment code payments from dermatology recurring procedures (in thousands):
Years ending December 31:
2022
$
1,680
2023
1,624
2024
1,303
2025
530
2026
4
$
5,141 Remaining 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 exclude any dermatology procedures equipment accounted
for as leases. As of
December 31, 2021 and 2020, the aggregate amount of the transaction price
allocated to remaining performance obligations was $26 thousand and $115 thousand, respectively, and the Company expects to recognize $12
thousand and $108 thousand, respectively, of the remaining performance obligations within one year and the remainder over one Contract liabilities primarily relate to extended warranties where the Company has received payments but has not yet satisfied the related performance obligations. The allocations of the
transaction price are based on the price of stand-alone warranty contracts sold in the ordinary course of business. The advance consideration received from customers for the warranty services is a contract liability that is recognized
ratably over the warranty period. As of December 31, 2021 and 2020, the $12 thousand and $108 thousand of short-term contract liabilities, respectively, is presented as deferred revenues and the $14 thousand and $7 thousand of
long-term contract liabilities, respectively, is presented within deferred revenues and other liabilities on the consolidated balance sheets, respectively. For the years ended December 31, 2021 and 2020, the Company recognized $0.1 million and $0.2 million,
respectively, as revenue from amounts classified as contract liabilities (i.e. deferred revenues) as of December 31, 2020 and 2019. With respect to contract acquisition costs, the Company applied the practical
expedient and expenses these costs immediately. Engineering and Product Development Engineering and product development costs associated with research, new product development and product redesign are expensed
as incurred. Advertising Costs Advertising costs are expensed as incurred and included in selling and marketing expenses within the Company’s consolidated statement of
operations. The Company recognized advertising costs of $1.6 million and $0.7 million during the years ended December 31, 2021 and 2020, respectively. Stock-Based Compensation The Company measures share-based awards at their grant-date fair value and records compensation expense on a straight-line basis over the
requisite service period of the awards. Estimating the fair value of share-based awards requires the input of subjective assumptions, including the expected life of the options and
stock price volatility. The Company accounts for forfeitures of stock option awards as they occur. The estimated fair value of restricted stock awards is equal to the Company’s common stock price at the grant date. The Company uses the
Black-Scholes option pricing model to value its stock option awards. The assumptions used in estimating the fair value of stock-option awards represent management’s estimate and involve inherent uncertainties and the application of
management’s judgment. As a result, if factors change and management uses different assumptions, share-based compensation expense could be materially different for future awards. Income Taxes The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax basis of assets and liabilities, as well as on net operating loss carryforwards, and are measured using enacted tax rates and laws that are expected to be in effect when the
differences reverse. Any resulting net deferred tax assets are evaluated for recoverability and, accordingly, a valuation allowance is provided when it is not more likely than not that all or some portion of the deferred tax asset will be
realized. The Company recognizes the tax effects of uncertain tax positions only if the position is “more-likely-than-not” to be sustained were it to be
challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the
“more-likely-than-not” threshold, the largest amount of tax benefit that is more than 50% likely to be recognized upon ultimate settlement with the taxing authority is recorded. The Company has no uncertain tax positions as of December 31,
2021. The Company includes interest and penalties related to income tax obligations within income tax expense. The Company’s tax years are still under open status from 2017 to present. Net Loss Per Share Basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of
shares of common stock outstanding during each period. Diluted loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities such as unvested restricted stock awards, stock options and
warrants for common stock which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same as for basic net loss per share due to the
fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive. Shares
of the Company’s Series C convertible preferred stock are subordinate to all other securities at the same subordination level as common stock and they participate in all dividends and distributions declared or paid with respect to common
stock of the Company, on an as-converted basis. Therefore, the Series C convertible preferred stock meets the definition of common stock. Net loss 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 potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock
outstanding, as they would be anti-dilutive:
December 31,
2021
2020
Unvested restricted stock units
90,540
—
Stock options
3,938,613
5,292,888
Common stock warrants
373,626
19,812
4,402,779
5,312,700 Recent Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments In December the FASB issued ASU - Income Taxes (Topic 740) : Simplifying the Accounting for Income Taxes . ASU - eliminated certain exceptions and changed guidance on other matters. The exceptions relate to the
allocation of income taxes in separate company financial statements, tax accounting for equity method investments and accounting for income taxes when the interim period year-to-date loss exceeds the anticipated full year loss. The changes
relate to the accounting for franchise taxes that are income-based and non-income-based, determining if a step up in tax basis is part of a business combination or if it is a separate transaction, when enacted tax law changes should be
included in the annual effective tax rate computation, and the allocation of taxes in separate company financial statements to a legal entity that is not subject to income tax. The new standard is effective for fiscal years, and interim
periods within those fiscal years, beginning after December with early adoption permitted. The adoption of ASU - on January did not have a material
effect on the Company’s consolidated financial statements In March 2020, the FASB issued ASU 2020 - 04, Reference Rate Reform (Topic 848) : Facilitation of the Effects of Reference Rate Reform on Financial Reporting and in January 2021, the FASB issued ASU 2021 - 01, Reference Rate Reform (Topic 848) : Scope . These pronouncements provide temporary optional expedients and exceptions for applying GAAP principles to contract modifications and hedging relationships to ease the financial reporting
burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The transition period for adopting these ASUs is March 2020 through December 31, 2022. The Company
continues to evaluate the temporary expedients and options available under this guidance and the effects of these pronouncements and, as the Company does not have any hedging activities, does not believe this will have a material effect on
its consolidated financial statements In August 2020, the FASB issued ASU 2020 - 06, Debt with Conversion and Other Options (Subtopic 470 - 20) and Derivative and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 - 40) : Accounting for Convertible Instruments and Contracts in an Entity’s own Equity . The
pronouncement simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Specifically, the ASU simplifies accounting
for convertible instruments by removing major separation models required under current GAAP. In addition, the ASU removes certain settlement conditions that are required for equity contracts to qualify for it and simplifies the diluted
earnings per share (EPS) calculations in certain areas. The guidance is effective for fiscal years beginning after December 15, 2023 and early adoption is
permitted. The Company does not currently engage in contracts covered by this guidance and does not believe it will have a material effect on the Company’s consolidated financial statements, but it could in the future In May the FASB issued ASU - Earnings per Share (Topic 260) , Debt – Modifications and Extinguishments (Subtopic 470 - 50) , Compensation – Stock Compensation (Topic 718) , and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 - 40) : Issuer’s Accounting for Certain Modifications or Exchanges or Freestanding Equity-Classified Written Call Options. The
pronouncement outlines how an entity should account for modifications made to equity-classified written call options, including stock options and warrants to purchase the entity’s own common stock. The guidance in the ASU requires an entity
to treat a modification of an equity-classified written call option that does not cause the option to become liability-classified as an exchange of the original option for a new option. This guidance applies whether the modification is
structured as an amendment to the terms and conditions of the equity-classified written call option or as termination of the original option and issuance of a new option. The guidance is effective prospectively for fiscal years beginning
after December and early adoption is permitted.
The adoption of this guidance on January did not
have a material effect on the consolidated financial statements. |
