| 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, 2022 and 2021. 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 and contingent consideration, 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. 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 two customers and one customer, international distributors, 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 years ended December 31, 2022 and 2021, respectively. Revenues from these customers were $8.5
million and $3.4 million, or 23%
and 11%, of total net revenues during the years ended December 31, 2022 and 2021, respectively. Accounts receivable associated with
these customers was $0.5 million and 11%
of net accounts receivable as of December 31, 2022, and less than 10% of total accounts receivable as of December 31, 2021. No other
customer represented more than 10% of total accounts receivable as of December 31, 2022 or 2021. 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, 2022 and 2021, cash equivalents consisted of credit card transactions with settlement terms of less than five days. Restricted Cash As discussed more fully in Note 12, an administrative state judge in the State of New York issued an opinion in January 2021 finding in favor of
the Company that the sale of XTRAC treatment codes was not taxable as sales tax with respect to that state’s first assessment. The relevant taxing authority filed an appeal of the administrative law judge’s finding and, following the submission
of legal briefs by both sides and oral argument held in January 2022, on May 6, 2022, the Company received a written decision from the State of New York Tax Appeals Tribunal (“Tribunal”) overturning the favorable sales tax determination of the
administrative law judge. The Company filed an appeal of the Tribunal’s decision, and posted the required appellate bond requiring the posting of cash collateral, with the New York State Appellate Division, and is awaiting for the appellate
court to set a briefing and oral argument schedule. The cash collateral is recorded as restricted cash on the consolidated balance sheet as of December 31, 2022. 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,
2022
2021
Cash and cash equivalents
$
5,434
$
12,586
Restricted cash
1,361
—
Total cash, cash equivalents and restricted cash presented in the consolidated statements of cash flows
$
6,795
$
12,586 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, net 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, 2022 and 2021. 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, 2022 and 2021 is summarized as follows (in thousands):
December 31,
2022
2021
Balance, beginning of year
$
79
$
113
Additions
246
71
Expirations and claims satisfied
(118
)
(105
)
Total
207
79
Less current portion within accrued expenses and other current liabilities
(136
)
(59
)
Balance within deferred revenues and other liabilities
$
71
$
20 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
2022
2021
Dermatology recurring procedures
$
23,025
$
22,528
Dermatology procedures equipment
13,136
7,449
Total net revenues
$
36,161
$
29,977 The following table summarizes the Company’s expected future undiscounted fixed treatment code payments from dermatology recurring procedures (in thousands):
Years ending December 31:
2023
$
1,207
2024
975
2025
384
2026
166
2027
4
$
2,736 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 and
service contracts leases. As of December 31, 2022 and 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $0.6
million and $1.3 million million million one The decrease in remaining performance obligations from December 31, 2021 to December 31, 2022 is due to the recognition of deferred service revenue associated with assumed service contracts from Ra Medical (see Note
3). Contract liabilities primarily relate to extended warranties and service contracts million million million million 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 during each of the years ended December 31, 2022 and 2021. 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,
2022. 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 2019 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. 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,
2022
2021
Restricted stock units
278,004
90,540
Stock options
4,474,714
3,938,613
Common stock warrants
373,626
373,626
5,126,344
4,402,779 Accounting Pronouncements Recently Adopted In May 2021, the FASB issued ASU 2021-04, 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 Recent Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrume nts 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 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 ’ 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. |
