10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10 - Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

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.)

5 Walnut Grove Drive, Suite 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 [x] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes [x]  No[  ]

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 accelerated filer," “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]	Accelerated filer [  ]
Non-accelerated filer [x]	Smaller reporting company [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 [x]

The number of shares outstanding of the issuer's common stock as of November 6, 2020 was 33,769,909 shares.

STRATA SKIN SCIENCES, INC.

TABLE OF CONTENTS

Part I. Financial Information:			PAGE
	ITEM 1.  Financial Statements:
	a.	Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019	1
	b.	Condensed Consolidated Statements of Operations for the three months ended September 30, 2020 and, 2019 (unaudited)	2
	c.	Condensed Consolidated Statements of Operations for the nine months ended September 30, 2020 and, 2019 (unaudited)	3
	d.	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended September 30, 2019 (unaudited)	4
	e.	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended September 30, 2020 (unaudited)	5
	f.	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and, 2019 (unaudited)	6
	g.	Notes to Unaudited Condensed Consolidated Financial Statements	7
	ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
	ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk		32
	ITEM 4.  Controls and Procedures		32
Part II. Other Information:
	ITEM 1.  Legal Proceedings		33
	ITEM 1A.  Risk Factors		33
	ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds		33
	ITEM 3.  Defaults Upon Senior Securities		33
	ITEM 4.  Mine Safety Disclosures		33
	ITEM 5.  Other Information		33
	ITEM 6.  Exhibits		33
		Signatures	34
		Certifications	E-31.1

PART I – Financial Information

ITEM 1.  Financial Statements

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	September 30, 2020			December 31, 2019
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	11,063		$	8,129
Restricted cash		7,397			7,500
Accounts receivable, net of allowance for doubtful accounts of $249 and $184, respectively		2,510			4,386
Inventories		3,502			3,027
Prepaid expenses and other current assets		464			513
Total current assets		24,936			23,555
Property and equipment, net		5,258			5,369
Operating lease right-of-use assets, net		1,072			1,314
Intangible assets, net		6,697			7,955
Goodwill		8,803			8,803
Other assets		298			347
Total assets	$	47,064		$	47,343
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable	$	7,275		$	7,275
Current portion of long-term debt		1,134			-
Accounts payable		3,488			1,880
Other accrued liabilities		4,558			5,134
Current portion of operating lease liabilities		361			313
Deferred revenues		1,864			2,832
Total current liabilities		18,680			17,434
Long-term liabilities:
Long-term debt, net		1,394			-
Deferred tax liability		207			-
Long-term operating lease liabilities, net		804			1,078
Other liabilities		52			178
Total liabilities		21,137			18,690
Commitments and contingencies (see Note 15)
Stockholders' equity:
Series C Convertible Preferred Stock, $.10 par value, 10,000,000 shares authorized; 0 and 2,103 shares issued and outstanding at September 30, 2020 and, December 31, 2019, respectively		-			1
Common Stock, $.001 par value, 150,000,000 shares authorized; 33,754,909 and 32,932,273 shares issued and outstanding at September 30, 2020 and, December 31, 2019, respectively		34			33
Additional paid-in capital		244,423			243,180
Accumulated deficit		(218,530	)		(214,561	)
Total stockholders' equity		25,927			28,653
Total liabilities and stockholders’ equity	$	47,064		$	47,343

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

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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 September 30,
	2020			2019
Revenues, net	$	5,613		$	7,480
Cost of revenues		2,383			2,855
Gross profit		3,230			4,625
Operating expenses:
Engineering and product development		411			249
Selling and marketing		2,051			2,887
General and administrative		1,929			2,218
		4,391			5,354
Loss from operations		(1,161	)		(729	)
Other expense, net:
Interest expense, net		(21	)		(153	)
		(21	)		(153	)
Loss before income taxes		(1,182	)		(882	)
Income tax (expense) benefit		(72	)		22
Net loss	$	(1,254	)	$	(860	)
Loss attributable to common shares	$	(1,254	)	$	(840	)
Loss attributable to Series C Convertible Preferred shares	$	-		$	(20	)
Loss per common share:
Basic	$	(0.04	)	$	(0.03	)
Diluted	$	(0.04	)	$	(0.03	)
Shares used in computing loss per common share:
Basic		33,754,909			32,903,287
Diluted		33,754,909			32,903,287
Loss per Series C Convertible Preferred share basic and diluted	$	-		$	(9.58	)
Shares used in computing loss per basic and diluted Series C Convertible Preferred shares		-			2,103

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

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STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

(unaudited)

	For the Nine Months Ended September 30,
	2020			2019
Revenues, net	$	16,373		$	22,688
Cost of revenues		6,780			8,544
Gross profit		9,593			14,144
Operating expenses:
Engineering and product development		950			788
Selling and marketing		6,446			8,911
General and administrative		5,921			7,398
		13,317			17,097
Loss from operations		(3,724	)		(2,953	)
Other expense, net:
Interest expense, net		(38	)		(433	)
		(38	)		(433	)
Loss before income taxes		(3,762	)		(3,386	)
Income tax (expense) benefit		(207	)		111
Net loss	$	(3,969	)	$	(3,275	)
Loss attributable to common shares	$	(3,947	)	$	(3,079	)
Loss attributable to Series C Convertible Preferred shares	$	(22	)	$	(196	)
Loss per common share:
Basic	$	(0.12	)	$	(0.10	)
Diluted	$	(0.12	)	$	(0.10	)
Shares used in computing loss per common share:
Basic		33,551,070			31,663,355
Diluted		33,551,070			31,663,355
Loss per Series C Convertible Preferred share basic and diluted	$	(43.73	)	$	(36.14	)
Shares used in computing loss per basic and diluted Series C Convertible Preferred shares		491			5,412

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

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STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

(In thousands, except share amounts)

(unaudited)

	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
Stock based compensation	-			-	-		-		257			-			257
Net loss	-			-	-		-		-			(860	)		(860	)
BALANCE, September 30, 2019	2,103		$	1	32,903,287	$	33	$	242,868		$	(214,046	)	$	28,856

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

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STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

(In thousands, except share amounts)

(unaudited)

	Convertible Preferred Stock – Series C						Common Stock				Additional Paid-In		Accumulated
	Shares			Amount			Shares		Amount		Capital		Deficit			Total
BALANCE, January 1, 2020		2,103		$	1			32,932,273	$	33	$	243,180	$	(214,561	)	$	28,653
Stock-based compensation		-			-			-		-		430		-			430
Conversion of convertible preferred stock into common stock		(2,103	)		(1	)		782,089		1		-		-			-
Net loss		-			-			-		-		-		(1,035	)		(1,035	)
BALANCE, March 31, 2020		-		$	-			33,714,362	$	34	$	243,610	$	(215,596	)	$	28,048
Stock-based compensation		-			-					-		410		-			410
Issuance of restricted stock		-			-			40,547		-		-		-			-
Net loss		-			-			-		-		-		(1,680	)		(1,680	)
BALANCE, June 30, 2020		-		$	-			33,754,909	$	34	$	244,020	$	(217,276	)	$	26,778
Stock based compensation		-			-			-		-		403		-			403
Net loss		-			-			-		-		-		(1,254	)		(1,254	)
BALANCE, September 30, 2020		-		$	-			33,754,909	$	34	$	244,423	$	(218,530	)	$	25,927

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

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STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	For the Nine Months Ended September 30,
	2020			2019
Cash Flows From Operating Activities:
Net loss	$	(3,969	)	$	(3,275	)
Adjustments to reconcile net loss to net cash provided by  operating activities:
Depreciation and amortization		2,793			3,437
Amortization of right-of-use asset		242			240
Provision for doubtful accounts		65			9
Loss on disposal of property and equipment and lasers placed in service		23			29
Stock-based compensation		1,243			883
Deferred taxes		207			(111	)
Amortization of debt discount		-			43
Amortization of deferred financing costs		-			64
Changes in operating assets and liabilities:
Accounts receivable		1,811			(261	)
Inventories		(475	)		(792	)
Prepaid expenses and other assets		98			76
Accounts payable		1,608			233
Other accrued liabilities		(576	)		437
Other liabilities		(126	)		(61	)
Operating lease liabilities		(226	)		(219	)
Deferred revenues		(968	)		384
Net cash provided by operating activities		1,750			1,116
Cash Flows From Investing Activities:
Lasers placed-in-service		(1,430	)		(1,370	)
Purchases of property and equipment		(17	)		(5	)
Net cash used in investing activities		(1,447	)		(1,375	)
Cash Flows From Financing Activities:
Proceeds from note payable and long-term debt		2,528			-
Net cash provided by financing activities		2,528			-
Net increase (decrease) in cash and cash equivalents and restricted  cash		2,831			(259	)
Cash, cash equivalents and restricted cash, beginning of period		15,629			16,487
Cash, cash equivalents and restricted cash, end of period	$	18,460		$	16,228
Cash and cash equivalents	$	11,063		$	16,228
Restricted cash		7,397			-
	$	18,460		$	16,228
Supplemental information of cash and non-cash transactions:
Cash paid for interest	$	157		$	604
Lease liabilities arising from obtaining right-of-use assets	$	-		$	1,632

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

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STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

Note 1

The Company:

Background

STRATA Skin Sciences (the “Company”) is a medical technology company in Dermatology and Plastic Surgery dedicated to developing, commercializing and marketing innovative products for the treatment of dermatologic conditions. Its products include the XTRAC® excimer laser and VTRAC® lamp systems utilized in the treatment of psoriasis, vitiligo and various other skin conditions.

The XTRAC is an ultraviolet light excimer laser system utilized to treat psoriasis, vitiligo and other skin diseases. The XTRAC excimer laser system received clearance from the United States Food and Drug Administration (the “FDA”) in 2000. As of September 30, 2020, there were 813 XTRAC systems placed in dermatologists' offices in the United States under the Company's recurring revenue business model. The XTRAC systems deployed under the recurring revenue model generate revenue on a per procedure 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, and other services. The VTRAC Excimer Lamp system, offered in addition to the XTRAC system internationally, provides targeted therapeutic efficacy demonstrated by excimer technology with a lamp system.

In July 2019, the Company signed a direct distribution agreement with its Korean distributor for a combination of direct capital sales and recurring revenues for the country of South Korea. The current term is until July 2021 with up to three additional twelve-month terms, subject to certain conditions.

In the third quarter of 2020, the Company signed a direct distribution agreement with our Japanese distributor for a combination of direct capital sales and recurring revenue for the country of Japan.The term is for twelve months with up to four additional twelve-month terms subject to certain conditions.

In late 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”) which appears to have originated from Wuhan, China. COVID-19 has since spread to over 100 countries, including every state in the United States. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic and on March 13, 2020 the United States declared a national emergency with respect to COVID-19. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, constrained work force participation and created significant volatility and disruption of financial markets. In addition, the pandemic lead to the suspension of elective procedures in the U.S. and to the temporary closure of many physician practices.  The extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance, including its ability to execute its business strategies and initiatives in the expected time frames, will depend on future developments, including the duration and spread of the COVID-19 outbreak, continued restrictions on travel and transport and the continued impact on worldwide economic and geopolitical conditions, all of which are uncertain and cannot be predicted.

Domestically, as the procedures in which the Company’s devices are used are elective in nature; and as social distancing, travel restrictions, quarantines and other restrictions have become prevalent in the United States, this has had a negative impact on the Company’s recurring revenue model and its financial position and cash flow. The virus has disrupted the supply chain from China and other countries and the Company depends upon its supply chain to provide a steady source of components to manufacture and repair our devices.

To mitigate the impact of COVID-19 the Company has taken a variety of measures to ensure the availability and functioning of its critical infrastructure by implementing business continuity plans, and to promote the safety and security of its employees while complying with various government mandates, including work-from-home arrangements and social-distancing initiatives to reduce the transmission of COVID-19, such as providing face masks for employees at facilities significantly impacted and requiring on-site body temperature monitoring before entering certain facilities. In addition, the Company has created programs utilizing its direct to consumer advertising and call center to contact patients and partner clinics to restart the Company’s partners’ businesses. In order to conserve its cash in order to mitigate the on-going impact of the COVID-19 pandemic, the Company furloughed employees, reduced all discretionary spending, reduced all inventory purchases and delayed payments to vendors. Delayed payments to vendors were approximately $1,100 as of September 30, 2020. With the receipt of the PPP loan, the Company brought back most of its employees on a leave of absence. See Note 2 Liquidity for discussion on Company liquidity.

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STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

In the event our own employees are impacted through direct or ancillary contact with a person who has the virus, we may need to devise other methods of transacting business in our offices by working from home and or potentially ceasing operations for a period of time.

Basis of Presentation:

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned, inactive subsidiary in India. All significant intercompany balances and transactions have been eliminated in consolidation.

Unaudited Interim Condensed Consolidated Financial Statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC") for interim financial reporting. These condensed consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to fairly present the results of the interim periods. The condensed consolidated balance sheet at December 31, 2019, has been derived from the audited consolidated financial statements at that date. Operating results and cash flows for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. 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, 2019 (the “2019 Form 10-K”), and other forms filed with the SEC from time to time. Dollar amounts included herein are in thousands, except share, per share data and number of lasers.

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 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 Annual Report on Form 10-K for the year ended December 31, 2019, and there have been no changes to the Company’s significant accounting policies during the nine months ended September 30, 2020.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates and be based on events different from those assumptions. As of September 30, 2020, the more significant estimates include (1) revenue recognition, in regard to deferred revenues and the contract term and valuation allowances of accounts receivable, (2) the inputs used in the impairment analyses of goodwill, (3) the estimated useful lives of intangible assets and property and equipment, (4) the inputs used in determining the fair value of equity-based awards, (5) the valuation allowance related to deferred tax assets, (6) the inventory reserves, (7) state sales and use tax accruals and (8) warranty claims.

Additionally, the full impact of the COVID-19 outbreak is unknown and cannot be reasonably estimated. However, management has made appropriate accounting estimates on certain accounting matters, which include the allowance for doubtful accounts, inventory valuation, carrying value of the goodwill and other long-lived assets, based on the facts and circumstances available as of the reporting date. The Company’s future assessment of the magnitude and duration of the COVID-19 outbreak, as well as other factors, could result in material impacts to the Company’s financial statements in future reporting periods.

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STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

Fair Value Measurements

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

• Level 1 – unadjusted quoted prices are available in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

• Level 2 – pricing inputs are other than quoted prices in active markets that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

• Level 3 – pricing inputs are unobservable for the non-financial asset or liability and only used when there is little, if any, market activity for the non-financial asset or liability at the measurement date. The inputs into the determination of fair value require significant management judgment or estimation. Fair value is determined using comparable market transactions and other valuation methodologies, adjusted as appropriate for liquidity, credit, market and/or other risk factors.

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 fair value of cash and cash equivalents and restricted cash are based on their respective demand value, which are equal to the carrying value. The carrying value of all short-term monetary assets and liabilities is estimated to be approximate to their fair value, due to the short-term nature of these instruments. As of September 30, 2020 and December 31, 2019, in evaluating the terms of the notes, the carrying value of the Company’s notes payable are estimated to approximate the fair value.

Earnings Per Share

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

No shares of the Company's Series C Convertible Preferred stock were outstanding as of September 30, 2020. These shares were subordinate to all other securities at the same subordination level as common stock, and they participated 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 met 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 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 loss per share by each class of security for the three and nine months ended September 30, 2020 and, 2019:

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STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

	Three Months Ended September 30, 2020					Nine Months Ended September 30, 2020
	Common Stock			Series C Convertible Preferred Stock		Common Stock			Series C Convertible Preferred Stock
Loss attributable to each class	$	(1,254	)	$	-	$	(3,947	)	$	(22	)
Weighted average number of shares outstanding during the period		33,754,909			-		33,551,070			491
Basic and Diluted loss per share	$	(0.04	)	$	-	$	(0.12	)	$	(43.73	)

	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Common Stock			Series C Convertible Preferred Stock			Common Stock			Series C Convertible Preferred Stock
Loss attributable to each class	$	(840	)	$	(20	)	$	(3,079	)	$	(196	)
Weighted average number of shares outstanding during the period		32,903,287			2,105			31,663,355			5,412
Basic and Diluted loss per share	$	(0.03	)	$	(9.58	)	$	(0.10	)	$	(36.14	)

The Company considered its Series C Convertible Preferred Stock to be participating securities in the presentation of earnings per share. For the three and nine months ended September 30, 2020 and 2019, diluted loss per common share and Series C Convertible Preferred Stock share is equal to the basic loss per common share and Series C Convertible Preferred Stock share, respectively, since all potentially dilutive securities are anti-dilutive.

The following table sets forth the weighted average of potential common stock equivalents outstanding during the three and nine months ended September 30, 2020, and 2019, that have been excluded from the loss per share calculation as their inclusion would have been anti-dilutive:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Common stock purchase warrants	149,901	1,073,319	530,923	1,776,216
Restricted stock units	119,330	120,773	149,637	123,675
Common stock options	4,908,038	4,033,038	4,908,038	4,178,663
Total	5,177,269	5,227,130	5,588,598	6,078,554

Accounting Pronouncements Recently Adopted

In January 2017, the FASB issued Accounting Standards Update (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 recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’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

- 10 -

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019 with early adoption permitted after January 1, 2017. The adoption of ASU No. 2017-04 on January 1, 2020 did not have an impact on the Company’s condensed consolidated financial statements.

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 adoption of ASU No. 2018-13 on January 1, 2020 did not have a material effect on the Company’s condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 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. 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 condensed 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 15, 2020, with early adoption permitted. The Company is currently evaluating the potential impact but does not believe there will be an impact of the adoption of this standard on its results of operations, financial position and cash flows and related disclosures.

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2020-06 will have on its financial statements.

Note 2

Liquidity

The Company has been negatively impacted by the COVID-19 pandemic, has historically experienced recurring losses and has been dependent on raising capital from the sale of securities in order to continue to operate and meet the Company’s obligations in the ordinary course of business. Since the equity financing in May 2018 and the change in management, and prior to COVID, the Company has improved revenues, gross profit, generated positive cash flow from operations, refinanced its debt at a lower interest rate and received cash proceeds from the PPP loan and the EIDL loan (defined in Note 9 below). Management believes that the Company’s cash and cash equivalents, combined with the anticipated revenues from the sale or use of the Company’s products and the proceeds from the PPP loan and the EIDL loan, will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations through the next 12 months following the date of the issuance of these unaudited condensed consolidated financial statements. However, the negative impact of the COVID-19 outbreak on the financial markets could interfere with our ability to access financing and to access it on favorable terms, if at all.

- 11 -

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

Note 3

Revenue Recognition

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 generally 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 charges 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 U.S. GAAP only, these two types of arrangements are treated under the guidance of ASC 842, Leases. While these arrangements are not contractually operating leases, since the Company sells the physician access codes in order to operate the treatment equipment, these arrangements are similar to operating leases for accounting purposes, since the Company provides the customers limited rights to use the treatment equipment and the treatment equipment resides in the physician’s office and the Company may exercise the right to remove the equipment upon notice, under certain circumstances, 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 domestic 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 30 to 60-day notice. Amounts paid are generally non-refundable. For the first type of arrangement, sales of access codes are considered variable treatment code 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 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, through its distributors, the Company sells access codes for a fixed amount on a monthly basis to end user customers 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. 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 arrangement as a single lease component.

In the Dermatology Procedures Equipment segment the Company sells its products internationally through distributors and domestically, directly to a physician. For the product sales, the Company recognizes revenues 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.

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 excludes any equipment accounted for as leases. As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $162, and the Company expects to recognize $139 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 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

- 12 -

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

September 30, 2020, the $139 of short-term contract liabilities is presented as deferred revenues and the $23 of long-term contract liabilities is presented within Other Liabilities on the Condensed Consolidated Balance Sheet. For the three and nine months ended September 30, 2020, the Company recognized $52 and $162, respectively, as revenue from amounts classified as contract liabilities (i.e. deferred revenues) as of December 31, 2019.

With respect to contract acquisition costs, the Company applied the practical expedient and expenses these costs immediately.

The Company records co-pay reimbursements made to patients receiving laser treatments as a reduction of revenue. For the three and nine months ended September 30, 2020 and 2019, the Company recorded such reimbursements in the amounts of $160 and $414, and $213 and $545 respectively.

The following tables present the Company’s revenue disaggregated by geographical region for the three and nine months ended September 30, 2020 and 2019, 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 Company’s international master distributor for physicians based primarily in Asia and recurring revenue from our distributor in Korea.

	Three Months Ended September 30, 2020
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	3,690	$	261	$	3,951
Foreign		145		1,517		1,662
Total	$	3,835	$	1,778	$	5,613

	Nine Months Ended September 30, 2020
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	11,957	$	701	$	12,658
Foreign		375		3,340		3,715
Total	$	12,332	$	4,041	$	16,373

	Three Months Ended September 30, 2019
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	5,991	$	241	$	6,232
Foreign		-		1,248		1,248
Total	$	5,991	$	1,489	$	7,480

	Nine Months Ended September 30, 2019
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	17,142	$	943	$	18,085
Foreign		-		4,603		4,603
Total	$	17,142	$	5,546	$	22,688

- 13 -

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

The following table summarizes the Company’s expected future undiscounted fixed treatment code payments from international recurring revenue customers as of September 30,

Remaining 2020	$	148
2021		618
2022		618
2023		551
2024		267
Thereafter		2
Total	$	2,204

Note 4

Inventories:

Inventories consist of:

	September 30, 2020		December 31, 2019
Raw materials and work-in-process	$	3,071	$	2,651
Finished goods		431		376
Total inventories	$	3,502	$	3,027

Work-in-process is immaterial, given the Company’s typically short manufacturing cycle, and therefore is disclosed in conjunction with raw materials.

Note 5

Property and Equipment, net:

Property and equipment consist of:

	September 30, 2020			December 31, 2019
Lasers placed-in-service	$	22,239		$	20,925
Equipment, computer hardware and software		146			146
Furniture and fixtures		234			234
Leasehold improvements		43			26
		22,662			21,331
Accumulated depreciation and amortization		(17,404	)		(15,962	)
Property and equipment, net	$	5,258		$	5,369

Depreciation and related amortization expense was $454 and $1,535 and $637 and $2,079, respectively for the three and nine months ended September 30, 2020 and 2019, respectively.

Note 6

Intangible Assets, net:

Set forth below is a detailed listing of definite-lived intangible assets as of September 30, 2020:

- 14 -

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

	Balance		Accumulated Amortization			Intangible assets, net
Core technology	$	5,700	$	(2,993	)	$	2,707
Product technology		2,000		(2,000	)		-
Customer relationships		6,900		(3,623	)		3,277
Tradenames		1,500		(787	)		713
	$	16,100	$	(9,403	)	$	6,697

Related amortization expense was $353 and $1,258 and $453 and $1,358 for the three and nine months ended September 30, 2020 and 2019, respectively.

Definite-lived intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying value of the asset group may not be recoverable. The Company recognizes an impairment loss when and to the extent that the recoverable amount of an asset group is less than its carrying value. There were no impairment charges for the three and nine months ended September 30, 2020.

Estimated amortization expense for the above amortizable intangible assets for future periods is as follows:

Remaining 2020	$	352
2021		1,410
2022		1,410
2023		1,410
2024		1,410
2025		705
Total	$	6,697

Note 7

Other Accrued Liabilities:

Other accrued liabilities consist of:

	September 30, 2020		December 31, 2019
Accrued warranty, current	$	107	$	170
Accrued compensation, including commissions and vacation		780		1,193
Accrued state sales, use and other taxes		3,094		3,193
Accrued professional fees and other accrued liabilities		577		578
Total other accrued liabilities	$	4,558	$	5,134

Accrued State Sales and Use Tax

In the ordinary course of business, the Company is 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 and all of the Company’s tax positions are subject to audit. One state has assessed the Company an amount of $801 for the period from March 2014 through August 2017. The Company has declined an informal offer to settle at a substantially lower amount and is currently in that jurisdiction’s administrative process of appeal. In November 2020, the Company received an additional assessment from the same jurisdiction from September 2017 through February 2020 in the amount of $683 including tax, interest and penalties. A second jurisdiction has made an assessment of $720 from June 2015 through March 2018 plus interest of $171 through April 2020. The Company is currently also in that jurisdiction’s administrative process of appeal. If there is a determination that the true object of the Company’s recurring revenue model is not exempt from sales taxes and is not equivalent to 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.

- 15 -

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

The Company believes its state sales and use tax accruals have properly recognized such that if the Company’s arrangements with customers are deemed more likely than not that the Company would not be exempt from sales tax in a particular state the basis for measurement of the state sales and use tax is calculated in accordance with ASC 405, Liabilities, as a transaction tax. If and when the Company is successful in defending itself or in settling the sales tax obligation for a lesser amount, the reversal of this liability is to be recorded in the period the 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 condensed consolidated statements 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 nine months ended September 30, 2020 and 2019, is summarized as follows:

	Three Months Ended, September 30,						Nine Months Ended, September 30,
	2020			2019			2020			2019
Accrual at beginning of period	$	139		$	291		$	232		$	238
Additions charged to warranty expense		37			26			46			169
Expiring warranties/claimed satisfied		(41	)		(61	)		(143	)		(151	)
Total		135			256			135			256
Less: current portion		(107	)		(179	)		(107	)		(179	)
Total long-term accrued warranty costs	$	28		$	77		$	28		$	77

Note 8

Notes Payable

On December 30, 2019, the Company closed on a $7,275 loan with a commercial bank pursuant to a one-year Fixed Rate – Term Promissory Note (the “Note”). The Company's obligations under the Note are secured by an Assignment and Pledge of Time Deposit (the “Agreement”), under which the Company has pledged to the commercial bank the proceeds of a time deposit account in the amount of the Note and recorded the time deposit and accrued interest as restricted cash on the balance sheet. The principal is due on December 30, 2020 with no penalties for prepayments. The interest rate is fixed at 2.79%. The secured time deposit has a fixed interest rate of 1.79%. The Company concurrently fully repaid (including payment of termination and exit fees) its then existing long-term debt credit facility with MidCap Financial Trust (“MidCap”). The transaction was accounted for as a debt extinguishment.

Note 9

Long-term Debt: 

The following summarizes the Company’s long-term debt:

	September 30, 2020
Term notes		2,528
Less: current portion		(1,134	)
Total long-term debt	$	1,394

- 16 -

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

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 "Credit Agreement") and related financing documents with MidCap and the lenders listed therein. Under the Credit Agreement, the credit facility could be drawn down in two tranches, the first of which was drawn for $10,500 on December 30, 2015. The second tranche was drawn for $1,500 on January 29, 2016. The maturity date of the credit facility was December 1, 2020. The Company's obligations under the credit facility were secured by a first priority lien on all the Company's assets. This credit facility had an interest rate of one-month LIBOR plus 8.25% and included both financial and non-financial covenants, including a minimum net revenue covenant. On November 10, 2017, the minimum net revenue covenant was amended prospectively and there was an increase in 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 were no principal payments due.

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 U.S. 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 (the “Amendment”), pursuant to which the Company repaid $3,000 in principal of then existing $10,571 credit facility. The terms of the credit facility were amended to impose less restrictive covenants and lower prepayment fees for the Company and extended the maturity date to May 2022. The Amendment modified the principal payments including a period of 18 months where there were no principal payments due. Principal payments beginning December 2019 were $252 plus interest per month. The interest rate on the credit facility was one-month LIBOR plus 7.25%. The Company was in compliance with all covenants as of December 31, 2018. On April 30, July 15, August 26, and October 15, 2019, the Company received waivers from MidCap, as administrative agent for the lenders who were party to the Credit 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 to cure the event of default.

These amendments had been accounted for as debt modifications, as the present value of the cash flows changed by less than 10%.

All borrowings under the Credit Agreement were fully repaid in connection with the proceeds from a Fixed Rate-Promissory Note on December 30, 2019.

On April 22, 2020, the Company closed a loan of $2,028 (the “PPP loan”) from a commercial bank, pursuant to the Paycheck Protection Program (“PPP”) administered by the Small Business Administration (the “SBA”) pursuant to the CARES Act. The PPP loan matures on May 1, 2022 and bears an interest rate of 1% per annum. Payments of principal and interest of any unforgiven balance commence December 1, 2020. Under the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”), (i) the first payment date for the PPP loan will be the earlier of (a) 10 months after the end of the “covered period” (as determined under the PPP) or (b) the date the bank receives a remittance of the forgiven amount from the SBA, and (ii) the PPP loan’s maturity is extended to five years (from 2 years).

All or a portion of the PPP loan may be forgiven by the lender upon application by the Company beginning 60 days after loan approval and upon documentation of expenditures in accordance with the requirements set forth by the SBA pursuant to the CARES Act. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities at either; the Company’s election, the eight-week period or twenty-four week period beginning on the date of disbursement of proceeds from the PPP loan. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced, under certain circumstances, if full-time headcount declines or if salaries and wages for employees with salaries of $100 or less annually are reduced. In the event the PPP loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. The balance of the loan at September 30, 2020 was $2,028.

- 17 -

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

On May 22, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. The principal amount of the EIDL Loan is up to $500, with proceeds to be used for working capital purposes and is collateralized by all the Company’s assets. On June 12, 2020, the Company received these funds from the SBA. Interest accrues at the rate of 3.75% per annum. Installment payments, including principal and interest, are due monthly beginning March 26, 2021 (twelve months from the date of the promissory note) in the amount of $2. The balance of principal and interest is payable over the next thirty years from the date of the promissory note. There are no penalties for prepayment. Based upon guidance issued by the SBA on June 19, 2020, the EIDL Loan is not required to be refinanced by the PPP loan. The balance of the loan at September 30, 2020 was $500.

Note 10

Warrants:

The Company accounts for warrants that require net cash settlement upon change of control of the Company as liabilities instead of equity. During the nine months ended September 30, 2020, warrants to purchase 600,000 shares of common stock with an exercise price of $3.75 expired. No warrants expired during the three months ended September 30, 2020. During the nine months ended September 30, 2019, warrants to purchase 265,947 and 137,143 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 de minimus fair values and there was no change in fair value for the three and nine months ended September 30, 2019.

Outstanding common stock warrants at September 30, 2020 consist of the following:

Issue Date	Expiration Date	Total Warrants		Exercise Price
December 30, 2015	December 30, 2020		130,089	$	5.65
January 29, 2016	January 29, 2021		19,812	$	5.30
			149,901

Note 11

Stock-based Compensation:

As of September 30, 2020, the Company had options to purchase 4,908,038 shares of common stock outstanding with a weighted-average exercise price of $1.90. As of September 30, 2020, options to purchase 3,036,183 shares are vested and exercisable. There are 441,774 shares remaining available for issuance in the form of future equity awards as of September 30, 2020. There were 119,330 restricted stock units outstanding as of September 30, 2020 and during the nine months ended September 30, 2020, the Company issued 40,547 shares related to restricted stock units.

Stock-based compensation expense, which is included in general and administrative expense, for the three and nine months ended September 30, 2020 and 2019, was $403 and $1,243, and $257 and $883, respectively. As of September 30, 2020, there was $1,607 in unrecognized compensation expense, which will be recognized over a weighted average period of 0.91 years.

Note 12

Income 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 expense of $72 and $207 and benefits of $22 and $111 for the three and nine months ended September 30, 2020 and 2019, respectively, was comprised primarily of changes in deferred tax liability related to goodwill. Goodwill is an amortizing asset according to tax regulations.

The CARES Act, among other things contains numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment. The Company analyzed the impact of the CARES Act and does not foresee a significant impact on its condensed consolidated financial position, results of operations, effective tax rate and cash flows.

- 18 -

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

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 asset would also have an equal and offsetting adjustment to the valuation allowance.

Note 13

Business Segments:

The Company has organized its business into two operating segments to present its organization based upon the Company’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. The Dermatology Procedures Equipment segment generates revenues from the sale of equipment, such as lasers and lamp products. 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 income (expense), net, are also not allocated to the operating segments.

The following tables reflect results of operations from our business segments for the periods indicated below:

Three Months Ended September 30, 2020

	Dermatology Recurring Procedures			Dermatology Procedures Equipment			TOTAL
Revenues	$	3,835		$	1,778		$	5,613
Costs of revenues		1,368			1,015			2,383
Gross profit		2,467			763			3,230
Gross profit %		64.3	%		42.9	%		57.5	%
Allocated operating expenses:
Engineering and product development		329			82			411
Selling and marketing		1,883			168			2,051
Unallocated operating expenses		-			-			1,929
		2,212			250			4,391
Income (loss) from operations		255			513			(1,161	)
Interest expense, net		-			-			(21	)
Income (loss) before income taxes	$	255		$	513		$	(1,182	)

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STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

Nine Months Ended September 30, 2020

	Dermatology Recurring Procedures			Dermatology Procedures Equipment			TOTAL
Revenues	$	12,332		$	4,041		$	16,373
Costs of revenues		4,534			2,246			6,780
Gross profit		7,798			1,795			9,593
Gross profit %		63.2	%		44.4	%		58.6	%
Allocated operating expenses:
Engineering and product development		828			122			950
Selling and marketing		6,021			425			6,446
Unallocated operating expenses		-			-			5,921
		6,849			547			13,317
Income (loss) from operations		949			1,248			(3,724	)
Interest expense, net		-			-			(38	)
Income (loss) before income taxes	$	949		$	1,248		$	(3,762	)

Three Months Ended September 30, 2019

	Dermatology Recurring Procedures			Dermatology Procedures Equipment			TOTAL
Revenues	$	5,991		$	1,489		$	7,480
Costs of revenues		1,966			889			2,855
Gross profit		4,025			600			4,625
Gross profit %		67.2	%		40.3	%		61.8	%
Allocated operating expenses:
Engineering and product development		226			23			249
Selling and marketing		2,762			125			2,887
Unallocated operating expenses		-			-			2,218
		2,988			148			5,354
Income (loss) from operations		1,037			452			(729	)
Interest expense, net		-			-			(153	)
Income (loss) before income taxes	$	1,037		$	452		$	(882	)

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STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

Nine Months Ended September 30, 2019

	Dermatology Recurring Procedures			Dermatology Procedures Equipment			TOTAL
Revenues	$	17,142		$	5,546		$	22,688
Costs of revenues		5,492			3,052			8,544
Gross profit		11,650			2,494			14,144
Gross profit %		68.0	%		45.0	%		62.3	%
Allocated operating expenses:
Engineering and product development		666			122			788
Selling and marketing		8,301			610			8,911
Unallocated operating expenses		-			-			7,398
		8,967			732			17,097
Income (loss) from operations		2,683			1,762			(2,953	)
Interest expense, net		-			-			(433	)
Income (loss) before income taxes	$	2,683		$	1,762		$	(3,386	)

Note 14

Significant Customer Concentration:

For the three and nine months ended September 30, 2020, revenues from the Company’s international master distributor were $846 and $2,149, or 15.1% and 13.1%, respectively, of total revenue for such period. For the three months ended September 30, 2020, revenues from another distributor were $632 or 11.3% of total revenue for the period.

For the three and nine months ended September 30, 2019, revenues from sales to the Company’s international master distributor were $1,050 and $4,407, or 14% and 19%, respectively, of total revenues for such period.

No other customer represented more than 10% of total company revenues for the three and nine months ended September 30, 2020 and 2019. No customer represented more than 10% of total accounts receivable as of September 30, 2020.

Note 15

Commitments:

Leases

The Company recognizes right-of-use assets (“ROU assets”) and operating lease liabilitieswhen it obtains the right to control an asset under a leasing arrangement with an initial term greater than twelve months. The Company adopted the short-term accounting election for leases with a duration of less than one year. The Company leases its facilities and certain IT and office equipment under non-cancellable operating leases. All of the Company's leasing arrangements are classified as operating leases with remaining lease terms ranging from 1 to 5 years, and one facility lease has a renewal option for two years. Renewal options have been excluded from the determination of the lease term as they are not reasonably certain of exercise. The Company entered into an addendum with FR National Life, LLC for the Carlsbad facility. The extension began on October 1, 2019 for five years and was executed on May 1, 2019. Included in cash flows provided by operations for the nine months ended September 30, 2020 and 2019, there was amortization of right-of-use assets of $242 and $240, respectively.

Operating lease costs were $112 and $336 and $108 and $335 for the three and nine months ended September 30, 2020 and 2019, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $113 and $320, and $110 and $314 for the three and nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, the incremental borrowing rate was 9.76 % and the weighted average remaining lease term was 3.4 years. The following table summarizes the Company’s operating lease maturities as of September 30, 2020:

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STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

For the year ending December 31,	Amount
Remaining 2020	$	115
2021		456
2022		371
2023		242
2024		186
Total remaining lease payments		1,370
Less: imputed interest		(205	)
Total lease liabilities	$	1,165

Contingencies:

In the ordinary course of business, the Company is routinely defendants in or parties to pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. These actions and proceedings are generally based on alleged violations of employment, contract and other laws. In some of these actions and proceedings, claims for substantial monetary damages are asserted against the Company. In the ordinary course of business, the Company is also subject to regulatory and governmental examinations, information gathering requests, inquiries, investigations, and threatened legal actions and proceedings. In connection with formal and informal inquiries by federal, state, local and foreign agencies, the Company receives numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of its activities.

Note 16

Subsequent event:

In October, 2020, as a result of the exercise of options, the Company issued 15,000 shares of common stock.

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ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes to condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q (this “Report”). This discussion contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions of STRATA Skin Sciences, Inc., a Delaware corporation (referred to in this Report as “we,” “us,” “our,” “STRATA,” “STRATA Skin Sciences” or “registrant”) and other statements contained in this Report that are not historical facts. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business including the scope and duration of the COVID-19 outbreak and its impact on global economic systems. In particular, we encourage you to review the risks and uncertainties described in Part II-Item 1A “Risk Factors” included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and in our Annual Report on Form 10-K for the year ended December 31, 2019. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations and statements — see “Cautionary Note Regarding Forward-Looking Statements” that appears at the end of this discussion. These statements, like all statements in this Report, speak only as of their date (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments.

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

Introduction, Outlook and Overview of Business Operations

STRATA Skin Sciences is a medical technology company in Dermatology and Plastic Surgery dedicated to developing, commercializing and marketing innovative products for the treatment of dermatologic conditions. Its products include the XTRAC® excimer laser and VTRAC® lamp systems utilized in the treatment of psoriasis, vitiligo and various other skin conditions.

The XTRAC ultraviolet light excimer laser system utilized to treat psoriasis, vitiligo and other skin diseases. The XTRAC excimer laser system received clearance from the United States Food and Drug Administration in 2000 and has since become a widely recognized treatment among dermatologists. The system delivers targeted 308um ultraviolet light to affected areas of skin, leading to psoriasis clearing and vitiligo repigmentation, following a series of treatments. As of September 30, 2020, there were 813 XTRAC systems placed in dermatologists’ offices in the United States under our dermatology recurring procedure model, a decrease from 820 at the end of December 31, 2019. Under the dermatology recurring procedure model, the XTRAC system is placed in a physician's office and fees are charged on a per procedure basis or a fee is charged on a periodic basis not to exceed an agreed upon number of procedures. The XTRAC system’s use for psoriasis is covered by nearly all major insurance companies, including Medicare. The VTRAC Excimer Lamp system, offered internationally in addition to the XTRAC, provides targeted therapeutic efficacy demonstrated by excimer technology with the simplicity of design and reliability of a lamp system. We believe there are approximately 7.5 million people in the United States and up to 125 million people worldwide suffering from psoriasis, and 1% to 2% of the world’s population suffers from vitiligo.

In late 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”) which appears to have originated in Wuhan, China. COVID-19 has since spread to over 100 countries, including every state in the United States. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic and on March 13, 2020 the United States declared a national emergency with respect to COVID-19. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, constrained work force participation and created significant volatility and disruption of financial markets. In addition, the pandemic led to the suspension of elective procedures in the U.S. and to the temporary closure of many physician practices. While many offices have been reopening, the extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance, including its ability to execute its business strategies and initiatives in the expected time frames, will depend on future developments, including the duration and spread of the COVID-19 outbreak, continued restrictions on travel and transport and the continued impact on worldwide economic and geopolitical conditions, all of which are uncertain and cannot be predicted.

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Domestically, as the procedures in which our devices are used are elective in nature; and as social distancing, travel restrictions, quarantines and other restrictions have become prevalent in the United States, this has had a negative impact on our recurring revenue model and our financial position and cash flow. The impact to the Company’s customers may also result in an increase in past due accounts receivable or customer bankruptcies. The virus has disrupted the supply chain from China and other countries and may continue to do so. We depend upon our supply chain to provide a steady source of components to manufacture and repair our devices. A shut-down of suppliers within our supply chain would severely disrupt our ability to sell, place and repair our products, and this would have a material impact on our financial position and cash flow.

To mitigate the impact of COVID-19, the Company has taken a variety of measures to ensure the availability and functioning of its critical infrastructure by implementing business continuity plans and to promote the safety and security of its employees while complying with various government mandates, including work-from-home arrangements and social-distancing initiatives to reduce the transmission of COVID-19, such as providing face masks for employees at facilities significantly impacted and requiring on-site body temperature monitoring before entering certain facilities. In addition, we have created programs utilizing its direct to consumer advertising and call center contact to patients and partner clinics to restart our partners’ businesses. In order to conserve its cash during this time period, the Company furloughed employees, reduced all discretionary spending, reduced all inventory purchases and delayed payments to vendors. We continue to manage our expenses and cash disbursements. Delayed payments to vendors were cumulatively, approximately $1,100 as of September 30, 2020. With the receipt of the PPP loan, we brought back most of our employees on a leave of absence. At this time, based on the current regulations issued by the SBA we believe approximately 80% of the loan will be forgiven, but a final reconciliation will need to be completed.

In the event our own employees are impacted through direct or ancillary contact with a person who has the virus, we may need to devise other methods of transacting business in our offices by working from home and or potentially ceasing operations for a period of time.

The COVID-19 pandemic has had a negative impact on the Company’s results of operations and financial performance for the first three quarters of fiscal 2020, and the Company expects it will continue to have a negative impact on its revenue, earnings and cash flows in the next quarter of fiscal 2020, and as long as the pandemic continues. Accordingly, current results and financial condition discussed herein may not be indicative of future operating results and trends.

Key Technology

• XTRAC® Excimer Laser. XTRAC received FDA clearance in 2000 and has since become a widely recognized treatment among dermatologists for psoriasis and other skin diseases. The XTRAC System delivers ultra-narrowband ultraviolet B (“UVB”) light to affected areas of skin. Following a series of treatments typically performed twice weekly, psoriasis remission can be achieved, and vitiligo patches can be re-pigmented. XTRAC is endorsed by the National Psoriasis Foundation, and its use for psoriasis is covered by nearly all major insurance companies, including Medicare. We estimate that more than half of all major insurance companies now offer reimbursement for vitiligo as well, a figure that is increasing.

• In the third quarter of 2018, we announced the FDA granted clearance for our Multi Micro Dose (MMD) tip for our XTRAC excimer laser. The MMD Tip accessory is indicated for use in conjunction with the XTRAC laser system to filter the Narrow Band UVB (“NB-UVB”) light at delivery in order to calculate and individualize the maximum non-blistering dose for a particular patient.

• In the third quarter of 2018, we announced the launch of our S3®, the next generation XTRAC. The S3 is smaller, faster and has a smart user interface.

• In January 2020, we announced the FDA granted clearance of our XTRAC Momentum Excimer Laser Platform.

• VTRAC® Lamp. VTRAC received FDA clearance in 2005 and provides targeted therapeutic efficacy demonstrated by excimer technology with the simplicity of design and reliability of a lamp system.

- 24 -

Recent Developments

Japanese Distribution Agreement

In the third quarter of 2020, we signed a direct distribution agreement with our Japanese distributor for a combination of direct capital sales and recurring revenue for the Country of Japan.This agreement is expected to increase recurring revenues over time, but will have an initial impact of reducing sales of dermatology procedures equipment in the near term as the contract is to apply a similar recurring revenue model as we have in the United States. The term is for twelve months with up to four additional twelve-month terms, subject to certain conditions.

Korean Distribution Agreement

In the third quarter of 2019, we signed a direct distribution agreement with our Korean distributor for a combination of direct capital sales and recurring revenues for the country of South Korea. This agreement is expected to increase recurring revenues over time, but will have an initial impact of reducing sales of dermatology procedures equipment in the near term as the contract is to apply a similar recurring revenue model as we have in the United States. The current term is until July 2021 with up to three additional twelve-month terms, subject to certain conditions. For the nine months ended September 30, 2019, we recorded approximately $1,200 in dermatology equipment unit sales in Korea and have $270 in 2020. We have recorded $375 in recurring revenue associated from recurring revenue in South Korea for the nine months ended September 30, 2020 and none for the same period in 2019.

MidCap Credit Facility Extinguishment and Fixed Rate-Term Promissory Note

On May 29, 2018, we entered into a Fourth Amendment to Credit Agreement (the “Amendment”), pursuant to which the Company repaid $3.0 million in principal of the existing $10.6 million credit facility established with MidCap Financial Trust in 2015. The terms of the credit facility were amended to impose less restrictive covenants and lower prepayment fees for the Company and extended the maturity date to May 2022. The Amendment modified the principal payments payable under the Credit Agreement including a period of 18 months where there were no principal payments due. Principal payments beginning December 2019 were $252 plus interest per month. The interest rate on the credit facility was one-month LIBOR plus 7.25%.

On December 30, 2019, we closed on a $7.3 million loan with a commercial bank pursuant to a one-year Fixed Rate – Term Promissory Note (the “Note”). Our obligations under the Note are secured by an Assignment and Pledge of Time Deposit, under which we have pledged, to the commercial bank, the proceeds of a time deposit account in the amount of the Note. We concurrently fully repaid (including payment of termination and exit fees) our existing long-term debt credit facility with MidCap Financial Trust.

Paycheck Protection Program

On April 22, 2020, we closed on a loan of $2.0 million (the “PPP loan”) from a commercial bank, pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP loan matures on May 1, 2022 and bears an interest rate of 1% per annum. Payments of principal and interest of any unforgiven balance commence on December 1, 2020. Under the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”), (i) the first payment date for the PPP loan will be the earlier of (a) 10 months after the end of the “covered period” (as determined under the PPP) or (b) the date the bank receives a remittance of the forgiven amount from the SBA, and (ii) the PPP loan’s maturity is extended to five years (from 2 years).

All or a portion of the PPP loan may be forgiven by the lender upon application by US beginning 60 days after loan approval and upon documentation of expenditures in accordance with the requirements set forth by the Small Business Administration (the “SBA”) pursuant to the CARES Act. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities at either; our discretion, the eight-week period or twenty-four week period beginning on the date of disbursement of proceeds from the PPP loan. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced under certain circumstances if full-time headcount declines or if salaries and wages for employees with salaries of $100 or less annually are reduced. In the event the PPP loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal.

- 25 -

Economic Injury Disaster Loan

On May 22, 2020, we executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. The principal amount of the EIDL Loan is up to $500, with proceeds to be used for working capital purposes. On June 12, 2020, we received these funds from the SBA. Interest accrues at the rate of 3.75% per annum. Installment payments, including principal and interest, are due monthly beginning March 26, 2021 (twelve months from the date of the promissory note) in the amount of $2. The balance of principal and interest is payable over the next thirty years from the date of the promissory note. There are no penalties for prepayment.  Based upon guidance issued by the SBA on June 19, 2020, the EIDL Loan is not required to be refinanced by the PPP loan.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies in the nine months ended September 30, 2020. Critical accounting policies and the significant estimates made in accordance with such policies are regularly discussed with our Audit Committee. Those policies are discussed under “Critical Accounting Policies” in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7, as well as in our consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2019, of our Annual Report on Form 10-K as filed with the SEC on March 17, 2020.

Results of Operations

Revenues

The following table presents revenues from our segments for the periods indicated below:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Dermatology Recurring Procedures	$	3,835	$	5,991	$	12,332	$	17,142
Dermatology Procedures Equipment		1,778		1,489		4,041		5,546
Total Revenues	$	5,613	$	7,480	$	16,373	$	22,688

Dermatology Recurring Procedures

The COVID-19 pandemic has had a negative impact on the Company’s results for the first three quarters of 2020 and the Company expects it will have a negative impact on its revenue for as long as the pandemic continues. Recognized recurring treatment revenue for the three months ended September 30, 2020, was $3,835, which we estimate is approximately 55,000 treatments, with prices between $65 to $95 per treatment, compared to recognized recurring treatment revenue for the three months ended September 30, 2019, of $5,991, which we estimate is approximately 87,000 treatments, with prices between $65 to $95 per treatment.

Recognized treatment revenue for the nine months ending September 30, 2020, was $12,332, which we estimate is approximately 177,000 treatments, with prices between $65 and $95 per treatment, compared to recognized treatment revenue for the nine months ended September 30, 2019, of $17,142, which is approximately 246,000 treatments, with prices between $65 and $95 per treatment.

Increases in procedures are dependent upon building market acceptance through marketing programs with our physician partners and their patients, to show that the XTRAC procedures will be of clinical benefit and will be generally reimbursed by insurers. Separate from the current and potentially on-going impact of the COVID-19 pandemic on XTRAC treatments, we believe that several factors have an impact on the prescribed use of XTRAC treatments for psoriasis and vitiligo patients. Specifically, we believe that there is a lack of awareness of the positive effects of XTRAC treatments among both sufferers and providers; and the treatment regimen, which can sometimes require up to 12 or more treatments, has limited XTRAC use in certain patient populations. Therefore, our strategy is to continue to execute a direct-to-patient program for XTRAC advertising in the United States, targeting psoriasis and vitiligo patients through a variety of media, including television and radio; and through our use of social media such as Facebook and Twitter. We monitor the results of our advertising expenditures in this area to reach the more than 10 million patients in the United States we believe are afflicted with these diseases. During the COVID-19 pandemic,

- 26 -

we have reduced substantially all discretionary spend, including direct to consumer advertising. For the interim, as our partner clinics have reopened, we have leveraged our call-center to contact patients on their behalf, in order to get the patients back into treatment. We have begun and expect to continue to increase spending in the direct-to-patient programs, to drive patients to our partner clinics and to increase recurring revenue in the near future. The increase in spending on these programs precedes the recurring revenue, as there is a lag between our advertising and patients then receiving treatment, which we estimate to be three to nine months.

Revenues from Dermatology Recurring Procedures are recognized as revenue over the estimated usage period of the agreed upon number of treatments, as the treatments are being used. As of September 30, 2020 and 2019, we deferred net revenues of $1,391 and $2,217, respectively, which will be recognized as revenue over the remaining usage period. Lower deferred revenue at September 30, 2020 will have a negative impact on revenue in the fourth quarter of 2020, as compared to the fourth quarter of 2019.

In the third quarter of 2019, we signed a direct distribution agreement with our Korean distributor for a combination of direct capital sales and recurring revenues for the country of South Korea. We have placed 7 systems in the third quarter of 2020 under this contract, for a total of 24 systems in South Korea since July 2019. This agreement is expected to increase recurring revenues over time, but will have an initial impact of reducing sales of dermatology procedures equipment in the near term, as the contract is to apply a similar recurring revenue model as we have in the United States. For the nine months ended September 30, 2019 we recorded approximately $1,200 in dermatology equipment unit sales and have $270 in 2020.

In the third quarter of 2020, we signed a direct distribution agreement with our Japanese distributor for a combination of direct capital sales and recurring revenue for the country of Japan. This agreement is expected to increase recurring revenues over time, but will have an initial impact of reducing sales of dermatology procedures equipment in the near term, as the contract is to apply a similar recurring revenue model as we have in the United States. The term is for twelve months with up to four additional twelve-month terms, subject to certain conditions. There were no placements in Japan in the third quarter of 2020.

Dermatology Procedures Equipment

The COVID-19 pandemic has had a negative impact on the Company’s results for the first three quarters of 2020 and the Company expects it will have a negative impact on its revenue for as long as the pandemic continues. For the three months ended September 30, 2020, dermatology equipment revenues were $1,778. Internationally, we sold 19 systems (8 XTRAC and 11 VTRAC). Domestically, we sold 1 XTRAC system during the three months ended September 30, 2020.

For the three months ended September 30, 2019, dermatology equipment revenues were $1,489.  Internationally, we sold 9 systems, all XTRAC. Domestically, we sold 1 XTRAC system for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, dermatology equipment revenues were $4,041.  Internationally, we sold 29 systems (10 XTRAC and 19 VTRAC).  Domestically, we sold 2 XTRAC systems during the nine months ended September 30, 2020. As a result of the execution of the Korean distribution agreement, for the nine months ended September 30, 2019 we recorded approximately $1,200 in dermatology equipment unit sales and have sold $270 in 2020.

For the nine months ended September 30, 2019, dermatology equipment revenues were $5,546. Internationally, we sold 54 systems (52 XTRAC and 2 VTRAC). Domestically, we sold 5 XTRAC systems for the nine months ended September 30, 2019.

Cost of Revenues

The following table illustrates cost of revenues from our two business segments for the periods listed below:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Dermatology Recurring Procedures	$	1,368	$	1,966	$	4,534	$	5,492
Dermatology Procedures Equipment		1,015		889		2,246		3,052
Total Cost of Revenues	$	2,383	$	2,855	$	6,780	$	8,544

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Gross Profit Analysis

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

Company Profit Analysis	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Revenues	$	5,613		$	7,480		$	16,373		$	22,688
Percent decrease		(25.0	)%					(27.8	)%
Cost of revenues		2,383			2,855			6,780			8,544
Percent decrease		(16.5	)%					(20.6	)%
Gross profit	$	3,230		$	4,625		$	9,593		$	14,144
Gross profit  percentage		57.5	%		61.8	%		58.6	%		62.3	%

Gross profit decreased to $3,230 for the three months ended September 30, 2020, from $4,625 during the same period in 2019. As a percent of revenue, the gross margin was 57.5% for the three months ended September 30, 2020, as compared to 61.8% for the same period in 2019.

Gross profit decreased to $9,593 for the nine months ended September 30, 2020, from $14,144 during the same period in 2019. As a percent of revenue, the gross margin was 58.6% for the nine months ended September 30, 2020, as compared to 62.3% for the same period in 2019 and the decrease was primarily the result of lower sales due to the COVID-19 pandemic, fixed costs in manufacturing and the impact of deferred revenue.

Dermatology Recurring Procedures	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Revenues	$	3,835		$	5,991		$	12,332		$	17,142
Percent decrease		(35.9	)%					(28.1	)%
Cost of revenues		1,368			1,966			4,534			5,492
Percent decrease		(30.4	)%					(17.4	)%
Gross profit	$	2,467		$	4,025		$	7,798		$	11,650
Gross profit  percentage		64.3	%		67.2	%		63.2	%		68.0	%

The primary reasons for the decrease in gross profit for the three and nine months ended September 30, 2020, as compared to the same periods in 2019, were the result of lower sales due to the COVID-19 pandemic, fixed costs in manufacturing and the impact of the change in deferred revenue.

Dermatology Procedures Equipment	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Revenues	$	1,778		$	1,489		$	4,041		$	5,546
Percent increase (decrease)		19.4	%					(27.1	)%
Cost of revenues		1,015			889			2,246			3,052
Percent increase (decrease)		14.2	%					(26.4	)%
Gross profit	$	763		$	600		$	1,795		$	2,494
Gross profit  percentage		42.9	%		40.3	%		44.4	%		45.0	%

The primary reason for the change in gross margin percent for the three and nine months ended September 30, 2020, as compared to the same periods in 2019, was the result of lower year to date sales due to the COVID-19 pandemic and fixed costs in manufacturing, which was partially offset by higher sales and a more favorable product mix in the three months ended September 30, 2020.

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Engineering and Product Development

Engineering and product development expenses for the three months ended September 30, 2020, increased to $411 from $249 for the three months ended September 30, 2019. Engineering and product development costs for the nine months ended September 30, 2020 was $950 as compared to $788 for the nine months ended September 30, 2019. The increase was related to certain engineering projects.

Selling and Marketing Expenses

As of September 30, 2020, our sales and marketing personnel consisted of 56 full-time positions, inclusive of a vice president of sales, direct sales organization, an in-house call center staffed with patient advocates and a reimbursement group that provides necessary insurance information to our physician partners and their patients.

For the three months ended September 30, 2020, selling and marketing expenses were $2,051 as compared to $2,887 for the three months ended September 30, 2019. For the nine months ended September 30, 2020 selling and marketing costs were $6,446 as compared to $8,911 for the nine months ended September 30, 2019. Sales and marketing expenses for the three and nine months ended September 30, 2020 were lower, as compared to the same periods in 2019, due to the downturn in business as a result of the COVID-19 pandemic, the Company managed its costs with lower tradeshow costs, travel costs, compensation costs and direct to consumer advertising costs.

General and Administrative Expenses

For the three months ended September 30, 2020, general and administrative expenses decreased to $1,929 from $2,218 for the three months ended September 30, 2019. For the nine months ended September 30, 2020 general and administrative costs were $5,921 as compared to $7,398 for the nine months ended September 30, 2019. General and administrative expenses were lower for the three and nine months ended September 30, 2020, as compared to the same periods in 2019, primarily as a result of lower sales tax, audit, legal and consulting costs in connection with our change in auditors in 2019 partially offset by higher insurance and stock compensation costs.

Interest Expense, Net

Interest expense, net for the three months ended September 30, 2020, was $21 compared to expense, net of $153 in the three months ended September 30, 2019. Interest expense for the nine months ended September 30, 2020, was $38 as compared to $433 for the nine months ended September 30, 2019. The reduction in interest expense for the three and nine months ended September 30, 2020 compared to September 30, 2019, was the result of the payoff of our MidCap debt and its replacement with a lower interest rate note payable in December 2019.

Income Taxes

The Company recognized income tax expense of $72 for the three months ended September 30, 2020 and a $22 tax benefit for the three months ended September 30, 2019, all of which were comprised primarily of changes in deferred tax liability related to goodwill. The Company recognized an income tax expense of $207 for the nine months ended September 30, 2020 and an $111 tax benefit for the nine months ended September 30, 2019 all of which were comprised primarily of changes in deferred tax liability related to goodwill.

Non-GAAP Adjusted EBITDA

We have determined to supplement our condensed consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), presented elsewhere within this report, with certain non-GAAP measures of financial performance. These non-GAAP measures include non-GAAP adjusted EBITDA, “Earnings Before Interest, Taxes, Depreciation, and Amortization.”

This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for Net Earnings (Loss) determined in accordance with U.S. GAAP, and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under U.S. GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. We consider these non-GAAP measures in addition to our results prepared under current accounting standards, but they are not a substitute for, nor superior to, U.S. GAAP measures. These non-GAAP measures are provided to enhance readers’ overall understanding of our current financial performance and to provide further information for comparative purposes. This supplemental presentation should not be construed as an inference that the Company's future results will be unaffected by similar adjustments to Net

- 29 -

Earnings (Loss) determined in accordance with U.S. GAAP. Specifically, we believe the non-GAAP measures provide useful information to management and investors by isolating certain expenses, gains and losses that may not be indicative of our core operating results and business outlook. In addition, we believe non-GAAP measures enhance the comparability of results against prior periods. Reconciliation to the most directly comparable U.S. GAAP measure of all non-GAAP measures included in this report is as follows:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Net Loss	$	(1,254	)	$	(860	)	$	(3,969	)	$	(3,275	)
Adjustments:
Depreciation/amortization*		890			1,183			3,035			3,677
Income taxes		72			(22	)		207			(111	)
Interest expense, net		21			153			38			433
Non-GAAP EBITDA		(271	)		454			(689	)		724
Stock compensation		403			257			1,243			883
Non-GAAP adjusted EBITDA	$	132		$	711		$	554		$	1,607

*Includes depreciation of lasers placed-in-service of $471 and $1,500 and $629 and $2,054 for the three and nine months ended September 30, 2020 and 2019, respectively.

Liquidity and Capital Resources

As of September 30, 2020, we had $6,256 of working capital compared to $6,121 as of December 31, 2019. The change in working capital was primarily the result of cash received from long term debt and lower deferred revenue partially offset by lower accounts receivable as a result of lower sales and improved collections. Cash, cash equivalents and restricted cash were $18,460 as of September 30, 2020, as compared to $15,629 as of December 31, 2019. As a result of cash conservation measures implemented after the COVID-19 outbreak, we delayed payment of approximately a cumulative $1,100 in trade payables. As discussed above under “Recent Developments” in more detail, we:

• refinanced our long-term debt credit facility with MidCap Financial Trust in December 2019 by obtaining the Note with a commercial bank;

• obtained the PPP loan on April 22, 2020; and

• obtained the EIDL Loan on May 22, 2020, which was fully funded on June 12, 2020.

We have been negatively impacted by the COVID-19 pandemic, have historically experienced recurring losses and have been dependent on raising capital from the sale of securities in order to continue to operate and meet our obligations in the ordinary course of business. Since the equity financing in May 2018 and the change in management, and prior to being impacted by COVID-19, we have improved revenues, gross profit, generated positive cash flow from operations, and refinanced our debt at a lower interest rate and received cash proceeds from the PPP loan and EIDL loan. Management believes that the Company’s cash and cash equivalents, combined with the anticipated revenues from the sale or use of the Company’s products and the proceeds from the PPP loan and EIDL loan, will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations through the next 12 months following the date of the issuance of these unaudited condensed consolidated financial statements. However, the negative impact of the COVID-19 outbreak on the financial markets could negatively impact our ability to access financing and/or on favorable terms.

Net cash and cash equivalents provided by operating activities was $1,750 for the nine months ended September 30, 2020, compared to cash provided by operating activities of $1,116 for the nine months ended September 30, 2019. The increase in cash flows provided by operating activities for the nine months ended September 30, 2020 was the result of cash flow from accounts receivable and an increase in accounts payable, partially offset by a decrease of deferred revenue.

- 30 -

Net cash and cash equivalents used in investing activities was $1,447 for the nine months ended September 30, 2020, compared to cash used in investing activities of $1,375 for the nine months ended September 30, 2019. The increase is the result of additional lasers placed in service and refurbishments in the three quarters of 2020 as compared to the comparable period of 2019.

Net cash and cash equivalent provided by financing activities was $2,528 for the nine months ended September 30, 2020, as a result of the proceeds from the PPP loan and EIDL loan.

There were no cash flows from financing activities for the nine months ended September 30, 2019.

Commitments and Contingencies

There were no items, except as described above, that significantly impacted our commitments and contingencies as discussed in the notes to our 2019 annual financial statements included in our Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

At September 30, 2020, we had no off-balance sheet arrangements.

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this Report are "forward-looking statements." These forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions of STRATA Skin Sciences, Inc., a Delaware corporation (referred to in this Report as “we,” “us,” “our”, “registrant” or “the Company”), and other statements contained in this Report that are not historical facts. The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of the Company. Forward-looking statements in this Report or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, or the Commission, reports to our stockholders and other publicly available statements issued or released by us involve known and unknown risks, uncertainties and other factors which could cause our actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. Such future results are based upon management's best estimates based upon current conditions and the most recent results of operations. When used in this Report, the words "will, " "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate" or the negative of such terms and similar expressions identify statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. Forward-looking statements involve risks, assumptions and uncertainties. There are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors discussed under “ITEM 1A.  Risk Factors” in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and "Item 1A Risk Factors" of the 2019 Annual Report on Form 10-K. These forward-looking statements include, but are not limited to, statements about:

• forecasts of future business performance, consumer trends and macro-economic conditions, including the timing and pace of physician practices opening back up and remaining open after the COVID-19 pandemic subsides and/or regional, statewide, or country-wide restrictions are re-imposed, and our ability and its effectiveness to stimulate recurring revenue by generating patient referrals to our provider customers

• descriptions of market and/or competitive conditions;

• descriptions of plans or objectives of management for future operations, products or services;

• our estimates regarding the sufficiency of our cash resources, expenses, capital requirements and needs for additional financing, compliance with the terms of the PPP loan and related regulations, the terms of the EIDL loan and our ability to obtain additional financing;

• our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;

• our ability to obtain and maintain regulatory approvals of our products;

• anticipated results of existing or future litigation;

- 31 -

• health emergencies, the spread of infectious diseases; and

• descriptions or assumptions underlying or related to any of the above items.

These risks and uncertainties may be increased or intensified as a result of the COVID-19 pandemic and restrictions intended to slow the spread of COVID-19, including if there is a resurgence of the COVID-19 virus after the initial outbreak subsides. The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.

In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Report might not occur. Investors are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Report, even if subsequently made available by us on our website or otherwise. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. You should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. All subsequent forward-looking statements attributable to us or to any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

Not applicable.

ITEM 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), as of September 30, 2020. Based on that evaluation, management has concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Limitations on the Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting in our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - Other Information

ITEM 1. Legal Proceedings

From time to time in the ordinary course of our business, we may be a party to certain legal proceedings, incidental to the normal course of our business. These may include controversies relating to contract claims and employment related matters, some of which claims may be material, in which case, we will make separate disclosure as required.

ITEM 1A.  Risk Factors

A description of the risks associated with our business, financial conditions and results of operations is set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and filed with the SEC on March 17, 2020 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and filed with the SEC on May 13, 2020.

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

None

ITEM 3.  Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

None.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

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

- 33 -

3.8	Certificate of Amendment to Fifth Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 contained in our Current Report on Form 8-K, as filed on January 8, 2016).
3.9	Certificate of Designations of Series C Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 contained in our Current Report on Form 8-K, as filed on September 25, 2017).
10.1	Settlement Agreement and Release with RA Medical Systems, Inc. (Incorporated by reference to Exhibit 10.1 contained in our Current Report on Form 8-K, as filed on August 11, 2020).

31.1	Rule 13a-14(a) Certificate of Chief Executive Officer
31.2	Rule 13a-14(a) Certificate of Chief Financial Officer
32.1*	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Schema
101.CAL	XBRL Taxonomy Calculation Linkbase
101.DEF	XBRL Taxonomy Definition Linkbase
101.LAB	XBRL Taxonomy Label Linkbase
101.PRE	XBRL Taxonomy Presentation Linkbase

* The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

SIGNATURES

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

 STRATA SKIN SCIENCES, INC.

Date   November 10, 2020	By:	/s/ Dolev Rafaeli
		Name  Dolev Rafaeli
		Title    President & Chief Executive Officer

Date   November 10, 2020	By:	/s/ Matthew C. Hill
		Name  Matthew C. Hill
		Title    Chief Financial Officer

- 34 -

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Dolev Rafaeli, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of STRATA Skin Sciences, Inc.;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 10, 2020	By:	/s/ Dolev Rafaeli
		Name:  Dolev Rafaeli
		Title: Chief Executive Officer

E-31.1

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Matthew C. Hill, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of STRATA Skin Sciences, Inc.;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: November 10, 2020	By:	/s/ Matthew C. Hill
		Name: Matthew C. Hill
		Title: Chief Financial Officer

E-31.2

EX-32.1

EXHIBIT 32.1

SECTION 906 CERTIFICATION

CERTIFICATION (1)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted), Dolev Rafaeli, the Chief Executive Officer of STRATA Skin Sciences, Inc. (the “Company”), and Matthew C. Hill, the Chief Financial Officer of the Company, each hereby certifies that, to the best of their knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 10, 2020

By:	/s/ Dolev Rafaeli
	Name:  Dolev Rafaeli
	Title: Chief Executive Officer

By:	/s/ Matthew C. Hill
	Name:  Matthew C. Hill
	Title: Chief Financial Officer

(1) This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of STRATA Skin Sciences, Inc. under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to STRATA Skin Sciences, Inc. and will be retained by STRATA Skin Sciences, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

E-32.1

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Nov. 06, 2020
Cover [Abstract]
Entity Registrant Name	STRATA Skin Sciences, Inc.
Entity Central Index Key	0001051514
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Shell Company	false
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		33,769,909
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Entity Address, State or Province	PA

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 11,063	$ 8,129
Restricted cash	7,397	7,500
Accounts receivable, net of allowance for doubtful accounts of $249 and $184, respectively	2,510	4,386
Inventories	3,502	3,027
Prepaid expenses and other current assets	464	513
Total current assets	24,936	23,555
Property and equipment, net	5,258	5,369
Operating lease right-of-use assets, net	1,072	1,314
Intangible assets, net	6,697	7,955
Goodwill	8,803	8,803
Other assets	298	347
Total assets	47,064	47,343
Current liabilities:
Note payable	7,275	7,275
Current portion of long-term debt	1,134	0
Accounts payable	3,488	1,880
Other accrued liabilities	4,558	5,134
Current portion of operating lease liabilities	361	313
Deferred revenues	1,864	2,832
Total current liabilities	18,680	17,434
Long-term liabilities:
Long-term debt, net	1,394	0
Deferred tax liability	207	0
Long-term operating lease liabilities, net	804	1,078
Other liabilities	52	178
Total liabilities	21,137	18,690
Commitments and contingencies (see Note 15)
Stockholders' equity:
Series C Convertible Preferred Stock, $.10 par value, 10,000,000 shares authorized; 0 and 2,103 shares issued and outstanding at September 30, 2020 and, December 31, 2019, respectively	0	1
Common Stock, $.001 par value, 150,000,000 shares authorized; 33,754,909 and 32,932,273 shares issued and outstanding at September 30, 2020 and, December 31, 2019, respectively	34	33
Additional paid-in capital	244,423	243,180
Accumulated deficit	(218,530)	(214,561)
Total stockholders' equity	25,927	28,653
Total liabilities and stockholders' equity	$ 47,064	$ 47,343

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Current assets:
Allowance for doubtful accounts	$ 249	$ 184
Stockholders' equity:
Series C Convertible Preferred Stock, par value (in dollars per share)	$ 0.10	$ 0.10
Series C Convertible Preferred Stock, shares authorized (in shares)	10,000,000	10,000,000
Series C Convertible Preferred Stock, shares issued (in shares)	0	2,103
Series C Convertible Preferred Stock, shares outstanding (in shares)	0	2,103
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	150,000,000	150,000,000
Common stock shares issued on exercise of options (in shares)	33,754,909	32,932,273
Common stock, shares outstanding (in shares)	33,754,909	32,932,273

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenues, net	$ 5,613	$ 7,480	$ 16,373	$ 22,688
Cost of revenues	2,383	2,855	6,780	8,544
Gross profit	3,230	4,625	9,593	14,144
Operating expenses:
Engineering and product development	411	249	950	788
Selling and marketing	2,051	2,887	6,446	8,911
General and administrative	1,929	2,218	5,921	7,398
Total operating expenses	4,391	5,354	13,317	17,097
Loss from operations	(1,161)	(729)	(3,724)	(2,953)
Other expense, net:
Interest expense, net	(21)	(153)	(38)	(433)
Other (expense) income, net	(21)	(153)	(38)	(433)
Loss before income taxes	(1,182)	(882)	(3,762)	(3,386)
Income tax (expense) benefit	(72)	22	(207)	111
Net loss	$ (1,254)	$ (860)	$ (3,969)	$ (3,275)
Loss per common share:
Basic (in dollars per share)	$ (0.04)	$ (0.03)	$ (0.12)	$ (0.10)
Diluted (in dollars per share)	$ (0.04)	$ (0.03)	$ (0.12)	$ (0.10)
Shares used in computing loss per common share:
Basic (in shares)	33,754,909	32,903,287	33,551,070	31,663,355
Diluted (in shares)	33,754,909	32,903,287	33,551,070	31,663,355
Loss per Series C Convertible Preferred share basic and diluted (in dollars per share)	$ 0	$ (9.58)	$ (43.73)	$ (36.14)
Shares used in computing loss per basic and diluted Series C Convertible Preferred shares (in shares)	0	2,103	491	5,412
Series C Convertible Preferred Shares [Member]
Other expense, net:
Loss attributable to each class	$ 0	$ (20)	$ (22)	$ (196)
Common Shares [Member]
Other expense, net:
Net loss	0	0
Loss attributable to each class	$ (1,254)	$ (840)	$ (3,947)	$ (3,079)

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Preferred Stock [Member] Convertible Preferred Stock - Series C [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated Deficit [Member]	Total
Beginning balance at Dec. 31, 2018	$ 1	$ 30	$ 241,988	$ (210,771)	$ 31,248
Beginning balance (in shares) at Dec. 31, 2018	9,968	29,943,086
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	$ 0	$ 0	323	0	323
Conversion of convertible preferred stock into common stock	$ 0	$ 1	(1)	0	0
Conversion of convertible preferred stock into common stock (in shares)	(3,090)	1,148,698
Exercise of stock options	$ 0	$ 0	0	0	0
Exercise of stock options (in shares)	0	28,824
Net loss	$ 0	$ 0	0	(1,333)	(1,333)
Ending balance at Mar. 31, 2019	$ 1	$ 31	242,310	(212,104)	30,238
Ending balance (in shares) at Mar. 31, 2019	6,878	31,120,608
Beginning balance at Dec. 31, 2018	$ 1	$ 30	241,988	(210,771)	31,248
Beginning balance (in shares) at Dec. 31, 2018	9,968	29,943,086
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss					(3,275)
Ending balance at Sep. 30, 2019	$ 1	$ 33	242,868	(214,046)	28,856
Ending balance (in shares) at Sep. 30, 2019	2,103	32,903,287
Beginning balance at Mar. 31, 2019	$ 1	$ 31	242,310	(212,104)	30,238
Beginning balance (in shares) at Mar. 31, 2019	6,878	31,120,608
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	$ 0	$ 0	303	0	303
Conversion of convertible preferred stock into common stock	$ 0	$ 2	(2)	0	0
Conversion of convertible preferred stock into common stock (in shares)	(4,775)	1,775,093
Exercise of stock options	$ 0	$ 0	0	0	0
Exercise of stock options (in shares)	0	7,586
Net loss	$ 0	$ 0	0	(1,082)	(1,082)
Ending balance at Jun. 30, 2019	$ 1	$ 33	242,611	(213,186)	29,459
Ending balance (in shares) at Jun. 30, 2019	2,103	32,903,287
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	$ 0	$ 0	257	0	257
Net loss	0	0	0	(860)	(860)
Ending balance at Sep. 30, 2019	$ 1	$ 33	242,868	(214,046)	28,856
Ending balance (in shares) at Sep. 30, 2019	2,103	32,903,287
Beginning balance at Dec. 31, 2019	$ 1	$ 33	243,180	(214,561)	28,653
Beginning balance (in shares) at Dec. 31, 2019	2,103	32,932,273
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	$ 0	$ 0	430	0	430
Conversion of convertible preferred stock into common stock	$ (1)	$ 1	0	0	0
Conversion of convertible preferred stock into common stock (in shares)	(2,103)	782,089
Net loss	$ 0	$ 0	0	(1,035)	(1,035)
Ending balance at Mar. 31, 2020	$ 0	$ 34	243,610	(215,596)	28,048
Ending balance (in shares) at Mar. 31, 2020	0	33,714,362
Beginning balance at Dec. 31, 2019	$ 1	$ 33	243,180	(214,561)	28,653
Beginning balance (in shares) at Dec. 31, 2019	2,103	32,932,273
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss					(3,969)
Ending balance at Sep. 30, 2020	$ 0	$ 34	244,423	(218,530)	25,927
Ending balance (in shares) at Sep. 30, 2020	0	33,754,909
Beginning balance at Mar. 31, 2020	$ 0	$ 34	243,610	(215,596)	28,048
Beginning balance (in shares) at Mar. 31, 2020	0	33,714,362
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	$ 0	$ 0	410	0	410
Issuance of restricted stock	$ 0	$ 0	0	0	0
Issuance of restricted stock (in shares)	0	40,547
Net loss	$ 0	$ 0	0	(1,680)	(1,680)
Ending balance at Jun. 30, 2020	$ 0	$ 34	244,020	(217,276)	26,778
Ending balance (in shares) at Jun. 30, 2020	0	33,754,909
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	$ 0	$ 0	403	0	403
Net loss	0	0	0	(1,254)	(1,254)
Ending balance at Sep. 30, 2020	$ 0	$ 34	$ 244,423	$ (218,530)	$ 25,927
Ending balance (in shares) at Sep. 30, 2020	0	33,754,909

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash Flows From Operating Activities:
Net loss	$ (3,969)	$ (3,275)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	2,793	3,437
Amortization of right-of-use assets	242	240
Provision for doubtful accounts	65	9
Loss on disposal of property and equipment and lasers placed in service	23	29
Stock-based compensation	1,243	883
Deferred taxes	207	(111)
Amortization of debt discount	0	43
Amortization of deferred financing costs	0	64
Changes in operating assets and liabilities:
Accounts receivable	1,811	(261)
Inventories	(475)	(792)
Prepaid expenses and other assets	98	76
Accounts payable	1,608	233
Other accrued liabilities	(576)	437
Other liabilities	(126)	(61)
Operating lease liabilities	(226)	(219)
Deferred revenues	(968)	384
Net cash provided by operating activities	1,750	1,116
Cash Flows From Investing Activities:
Lasers placed-in-service	(1,430)	(1,370)
Purchases of property and equipment	(17)	(5)
Net cash used in investing activities	(1,447)	(1,375)
Cash Flows From Financing Activities:
Proceeds from note payable and long-term debt	2,528	0
Net cash provided by financing activities	2,528	0
Net increase (decrease) in cash and cash equivalents and restricted cash	2,831	(259)
Cash, cash equivalents and restricted cash, beginning of period	15,629	16,487
Cash, cash equivalents and restricted cash, end of period	18,460	16,228
Cash and cash equivalents	11,063	16,228
Restricted cash	7,397	0
Supplemental information of cash and non-cash transactions:
Cash paid for interest	157	604
Lease liabilities arising from obtaining right-of-use assets	$ 0	$ 1,632

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The Company

9 Months Ended

Sep. 30, 2020

The Company [Abstract]

The Company

Note 1

The Company:

Background

STRATA Skin Sciences (the “Company”) is a medical technology company in Dermatology and Plastic Surgery dedicated to developing, commercializing and marketing innovative products for the treatment of dermatologic conditions. Its products include the XTRAC® excimer laser and VTRAC® lamp systems utilized in the treatment of psoriasis, vitiligo and various other skin conditions.

The XTRAC is an ultraviolet light excimer laser system utilized to treat psoriasis, vitiligo and other skin diseases. The XTRAC excimer laser system received clearance from the United States Food and Drug Administration (the “FDA”) in 2000. As of September 30, 2020, there were 813 XTRAC systems placed in dermatologists' offices in the United States under the Company's recurring revenue business model. The XTRAC systems deployed under the recurring revenue model generate revenue on a per procedure 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, and other services. The VTRAC Excimer Lamp system, offered in addition to the XTRAC system internationally, provides targeted therapeutic efficacy demonstrated by excimer technology with a lamp system.

In July 2019, the Company signed a direct distribution agreement with its Korean distributor for a combination of direct capital sales and recurring revenues for the country of South Korea. The current term is until July 2021 with up to three additional twelve-month terms, subject to certain conditions.

In the third quarter of 2020, the Company signed a direct distribution agreement with our Japanese distributor for a combination of direct capital sales and recurring revenue for the country of Japan.The term is for twelve months with up to four additional twelve-month terms subject to certain conditions.

In late 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”) which appears to have originated from Wuhan, China. COVID-19 has since spread to over 100 countries, including every state in the United States. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic and on March 13, 2020 the United States declared a national emergency with respect to COVID-19. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, constrained work force participation and created significant volatility and disruption of financial markets. In addition, the pandemic lead to the suspension of elective procedures in the U.S. and to the temporary closure of many physician practices.  The extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance, including its ability to execute its business strategies and initiatives in the expected time frames, will depend on future developments, including the duration and spread of the COVID-19 outbreak, continued restrictions on travel and transport and the continued impact on worldwide economic and geopolitical conditions, all of which are uncertain and cannot be predicted.

Domestically, as the procedures in which the Company’s devices are used are elective in nature; and as social distancing, travel restrictions, quarantines and other restrictions have become prevalent in the United States, this has had a negative impact on the Company’s recurring revenue model and its financial position and cash flow. The virus has disrupted the supply chain from China and other countries and the Company depends upon its supply chain to provide a steady source of components to manufacture and repair our devices.

To mitigate the impact of COVID-19 the Company has taken a variety of measures to ensure the availability and functioning of its critical infrastructure by implementing business continuity plans, and to promote the safety and security of its employees while complying with various government mandates, including work-from-home arrangements and social-distancing initiatives to reduce the transmission of COVID-19, such as providing face masks for employees at facilities significantly impacted and requiring on-site body temperature monitoring before entering certain facilities. In addition, the Company has created programs utilizing its direct to consumer advertising and call center to contact patients and partner clinics to restart the Company’s partners’ businesses. In order to conserve its cash in order to mitigate the on-going impact of the COVID-19 pandemic, the Company furloughed employees, reduced all discretionary spending, reduced all inventory purchases and delayed payments to vendors. Delayed payments to vendors were approximately $1,100 as of September 30, 2020. With the receipt of the PPP loan, the Company brought back most of its employees on a leave of absence. See Note 2 Liquidity for discussion on Company liquidity.

In the event our own employees are impacted through direct or ancillary contact with a person who has the virus, we may need to devise other methods of transacting business in our offices by working from home and or potentially ceasing operations for a period of time.

Basis of Presentation:

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned, inactive subsidiary in India. All significant intercompany balances and transactions have been eliminated in consolidation.

Unaudited Interim Condensed Consolidated Financial Statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC") for interim financial reporting. These condensed consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to fairly present the results of the interim periods. The condensed consolidated balance sheet at December 31, 2019, has been derived from the audited consolidated financial statements at that date. Operating results and cash flows for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. 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, 2019 (the “2019 Form 10-K”), and other forms filed with the SEC from time to time. Dollar amounts included herein are in thousands, except share, per share data and number of lasers.

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 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 Annual Report on Form 10-K for the year ended December 31, 2019, and there have been no changes to the Company’s significant accounting policies during the nine months ended September 30, 2020.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates and be based on events different from those assumptions. As of September 30, 2020, the more significant estimates include (1) revenue recognition, in regard to deferred revenues and the contract term and valuation allowances of accounts receivable, (2) the inputs used in the impairment analyses of goodwill, (3) the estimated useful lives of intangible assets and property and equipment, (4) the inputs used in determining the fair value of equity-based awards, (5) the valuation allowance related to deferred tax assets, (6) the inventory reserves, (7) state sales and use tax accruals and (8) warranty claims.

Additionally, the full impact of the COVID-19 outbreak is unknown and cannot be reasonably estimated. However, management has made appropriate accounting estimates on certain accounting matters, which include the allowance for doubtful accounts, inventory valuation, carrying value of the goodwill and other long-lived assets, based on the facts and circumstances available as of the reporting date. The Company’s future assessment of the magnitude and duration of the COVID-19 outbreak, as well as other factors, could result in material impacts to the Company’s financial statements in future reporting periods.

Fair Value Measurements

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

• Level 1 – unadjusted quoted prices are available in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

• Level 2 – pricing inputs are other than quoted prices in active markets that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

• Level 3 – pricing inputs are unobservable for the non-financial asset or liability and only used when there is little, if any, market activity for the non-financial asset or liability at the measurement date. The inputs into the determination of fair value require significant management judgment or estimation. Fair value is determined using comparable market transactions and other valuation methodologies, adjusted as appropriate for liquidity, credit, market and/or other risk factors.

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 fair value of cash and cash equivalents and restricted cash are based on their respective demand value, which are equal to the carrying value. The carrying value of all short-term monetary assets and liabilities is estimated to be approximate to their fair value, due to the short-term nature of these instruments. As of September 30, 2020 and December 31, 2019, in evaluating the terms of the notes, the carrying value of the Company’s notes payable are estimated to approximate the fair value.

Earnings Per Share

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

No shares of the Company's Series C Convertible Preferred stock were outstanding as of September 30, 2020. These shares were subordinate to all other securities at the same subordination level as common stock, and they participated 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 met 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 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 loss per share by each class of security for the three and nine months ended September 30, 2020 and, 2019:

	Three Months Ended September 30, 2020					Nine Months Ended September 30, 2020
	Common Stock			Series C Convertible Preferred Stock		Common Stock			Series C Convertible Preferred Stock
Loss attributable to each class	$	(1,254	)	$	-	$	(3,947	)	$	(22	)
Weighted average number of shares outstanding during the period		33,754,909			-		33,551,070			491
Basic and Diluted loss per share	$	(0.04	)	$	-	$	(0.12	)	$	(43.73	)

	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Common Stock			Series C Convertible Preferred Stock			Common Stock			Series C Convertible Preferred Stock
Loss attributable to each class	$	(840	)	$	(20	)	$	(3,079	)	$	(196	)
Weighted average number of shares outstanding during the period		32,903,287			2,105			31,663,355			5,412
Basic and Diluted loss per share	$	(0.03	)	$	(9.58	)	$	(0.10	)	$	(36.14	)

The Company considered its Series C Convertible Preferred Stock to be participating securities in the presentation of earnings per share. For the three and nine months ended September 30, 2020 and 2019, diluted loss per common share and Series C Convertible Preferred Stock share is equal to the basic loss per common share and Series C Convertible Preferred Stock share, respectively, since all potentially dilutive securities are anti-dilutive.

The following table sets forth the weighted average of potential common stock equivalents outstanding during the three and nine months ended September 30, 2020, and 2019, that have been excluded from the loss per share calculation as their inclusion would have been anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Common stock purchase warrants		149,901		1,073,319		530,923		1,776,216
Restricted stock units		119,330		120,773		149,637		123,675
Common stock options		4,908,038		4,033,038		4,908,038		4,178,663
Total		5,177,269		5,227,130		5,588,598		6,078,554

Accounting Pronouncements Recently Adopted

In January 2017, the FASB issued Accounting Standards Update (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 recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’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. The adoption of ASU No. 2017-04 on January 1, 2020 did not have an impact on the Company’s condensed consolidated financial statements.

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 adoption of ASU No. 2018-13 on January 1, 2020 did not have a material effect on the Company’s condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 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. 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 condensed 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 15, 2020, with early adoption permitted. The Company is currently evaluating the potential impact but does not believe there will be an impact of the adoption of this standard on its results of operations, financial position and cash flows and related disclosures.

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2020-06 will have on its financial statements.

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Liquidity

9 Months Ended

Sep. 30, 2020

Liquidity [Abstract]

Liquidity

Note 2

Liquidity

The Company has been negatively impacted by the COVID-19 pandemic, has historically experienced recurring losses and has been dependent on raising capital from the sale of securities in order to continue to operate and meet the Company’s obligations in the ordinary course of business. Since the equity financing in May 2018 and the change in management, and prior to COVID, the Company has improved revenues, gross profit, generated positive cash flow from operations, refinanced its debt at a lower interest rate and received cash proceeds from the PPP loan and the EIDL loan (defined in Note 9 below). Management believes that the Company’s cash and cash equivalents, combined with the anticipated revenues from the sale or use of the Company’s products and the proceeds from the PPP loan and the EIDL loan, will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations through the next 12 months following the date of the issuance of these unaudited condensed consolidated financial statements. However, the negative impact of the COVID-19 outbreak on the financial markets could interfere with our ability to access financing and to access it on favorable terms, if at all.

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Revenue Recognition

9 Months Ended

Sep. 30, 2020

Revenue Recognition [Abstract]

Revenue Recognition

Note 3

Revenue Recognition

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 generally 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 charges 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 U.S. GAAP only, these two types of arrangements are treated under the guidance of ASC 842, Leases. While these arrangements are not contractually operating leases, since the Company sells the physician access codes in order to operate the treatment equipment, these arrangements are similar to operating leases for accounting purposes, since the Company provides the customers limited rights to use the treatment equipment and the treatment equipment resides in the physician’s office and the Company may exercise the right to remove the equipment upon notice, under certain circumstances, 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 domestic 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 30 to 60-day notice. Amounts paid are generally non-refundable. For the first type of arrangement, sales of access codes are considered variable treatment code 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 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, through its distributors, the Company sells access codes for a fixed amount on a monthly basis to end user customers 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. 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 arrangement as a single lease component.

In the Dermatology Procedures Equipment segment the Company sells its products internationally through distributors and domestically, directly to a physician. For the product sales, the Company recognizes revenues 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.

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 excludes any equipment accounted for as leases. As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $162, and the Company expects to recognize $139 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 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 September 30, 2020, the $139 of short-term contract liabilities is presented as deferred revenues and the $23 of long-term contract liabilities is presented within Other Liabilities on the Condensed Consolidated Balance Sheet. For the three and nine months ended September 30, 2020, the Company recognized $52 and $162, respectively, as revenue from amounts classified as contract liabilities (i.e. deferred revenues) as of December 31, 2019.

With respect to contract acquisition costs, the Company applied the practical expedient and expenses these costs immediately.

The Company records co-pay reimbursements made to patients receiving laser treatments as a reduction of revenue. For the three and nine months ended September 30, 2020 and 2019, the Company recorded such reimbursements in the amounts of $160 and $414, and $213 and $545 respectively.

The following tables present the Company’s revenue disaggregated by geographical region for the three and nine months ended September 30, 2020 and 2019, 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 Company’s international master distributor for physicians based primarily in Asia and recurring revenue from our distributor in Korea.

	Three Months Ended September 30, 2020
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	3,690	$	261	$	3,951
Foreign		145		1,517		1,662
Total	$	3,835	$	1,778	$	5,613

	Nine Months Ended September 30, 2020
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	11,957	$	701	$	12,658
Foreign		375		3,340		3,715
Total	$	12,332	$	4,041	$	16,373

	Three Months Ended September 30, 2019
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	5,991	$	241	$	6,232
Foreign		-		1,248		1,248
Total	$	5,991	$	1,489	$	7,480

	Nine Months Ended September 30, 2019
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	17,142	$	943	$	18,085
Foreign		-		4,603		4,603
Total	$	17,142	$	5,546	$	22,688

The following table summarizes the Company’s expected future undiscounted fixed treatment code payments from international recurring revenue customers as of September 30,

Remaining 2020	$	148
2021		618
2022		618
2023		551
2024		267
Thereafter		2
Total	$	2,204

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Inventories

9 Months Ended

Sep. 30, 2020

Inventories [Abstract]

Inventories

Note 4

Inventories:

Inventories consist of:

	September 30, 2020		December 31, 2019
Raw materials and work-in-process	$	3,071	$	2,651
Finished goods		431		376
Total inventories	$	3,502	$	3,027

Work-in-process is immaterial, given the Company’s typically short manufacturing cycle, and therefore is disclosed in conjunction with raw materials.

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Property and Equipment, net

9 Months Ended

Sep. 30, 2020

Property and Equipment, net [Abstract]

Property and Equipment, net

Note 5

Property and Equipment, net:

Property and equipment consist of:

	September 30, 2020			December 31, 2019
Lasers placed-in-service	$	22,239		$	20,925
Equipment, computer hardware and software		146			146
Furniture and fixtures		234			234
Leasehold improvements		43			26
		22,662			21,331
Accumulated depreciation and amortization		(17,404	)		(15,962	)
Property and equipment, net	$	5,258		$	5,369

Depreciation and related amortization expense was $454 and $1,535 and $637 and $2,079, respectively for the three and nine months ended September 30, 2020 and 2019, respectively.

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Intangible Assets, net

9 Months Ended

Sep. 30, 2020

Intangible Assets, net [Abstract]

Intangible Assets, net

Note 6

Intangible Assets, net:

Set forth below is a detailed listing of definite-lived intangible assets as of September 30, 2020:

	Balance		Accumulated Amortization			Intangible assets, net
Core technology	$	5,700	$	(2,993	)	$	2,707
Product technology		2,000		(2,000	)		-
Customer relationships		6,900		(3,623	)		3,277
Tradenames		1,500		(787	)		713
	$	16,100	$	(9,403	)	$	6,697

Related amortization expense was $353 and $1,258 and $453 and $1,358 for the three and nine months ended September 30, 2020 and 2019, respectively.

Definite-lived intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying value of the asset group may not be recoverable. The Company recognizes an impairment loss when and to the extent that the recoverable amount of an asset group is less than its carrying value. There were no impairment charges for the three and nine months ended September 30, 2020.

Estimated amortization expense for the above amortizable intangible assets for future periods is as follows:

Remaining 2020	$	352
2021		1,410
2022		1,410
2023		1,410
2024		1,410
2025		705
Total	$	6,697

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Other Accrued Liabilities

9 Months Ended

Sep. 30, 2020

Other Accrued Liabilities [Abstract]

Other Accrued Liabilities

Note 7

Other Accrued Liabilities:

Other accrued liabilities consist of:

	September 30, 2020		December 31, 2019
Accrued warranty, current	$	107	$	170
Accrued compensation, including commissions and vacation		780		1,193
Accrued state sales, use and other taxes		3,094		3,193
Accrued professional fees and other accrued liabilities		577		578
Total other accrued liabilities	$	4,558	$	5,134

Accrued State Sales and Use Tax

In the ordinary course of business, the Company is 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 and all of the Company’s tax positions are subject to audit. One state has assessed the Company an amount of $801 for the period from March 2014 through August 2017. The Company has declined an informal offer to settle at a substantially lower amount and is currently in that jurisdiction’s administrative process of appeal. In November 2020, the Company received an additional assessment from the same jurisdiction from September 2017 through February 2020 in the amount of $683 including tax, interest and penalties. A second jurisdiction has made an assessment of $720 from June 2015 through March 2018 plus interest of $171 through April 2020. The Company is currently also in that jurisdiction’s administrative process of appeal. If there is a determination that the true object of the Company’s recurring revenue model is not exempt from sales taxes and is not equivalent to 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 Company believes its state sales and use tax accruals have properly recognized such that if the Company’s arrangements with customers are deemed more likely than not that the Company would not be exempt from sales tax in a particular state the basis for measurement of the state sales and use tax is calculated in accordance with ASC 405, Liabilities, as a transaction tax. If and when the Company is successful in defending itself or in settling the sales tax obligation for a lesser amount, the reversal of this liability is to be recorded in the period the 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 condensed consolidated statements 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 nine months ended September 30, 2020 and 2019, is summarized as follows:

	Three Months Ended, September 30,						Nine Months Ended, September 30,
	2020			2019			2020			2019
Accrual at beginning of period	$	139		$	291		$	232		$	238
Additions charged to warranty expense		37			26			46			169
Expiring warranties/claimed satisfied		(41	)		(61	)		(143	)		(151	)
Total		135			256			135			256
Less: current portion		(107	)		(179	)		(107	)		(179	)
Total long-term accrued warranty costs	$	28		$	77		$	28		$	77

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Notes Payable

9 Months Ended

Sep. 30, 2020

Notes Payable [Abstract]

Notes Payable

Note 8

Notes Payable

On December 30, 2019, the Company closed on a $7,275 loan with a commercial bank pursuant to a one-year Fixed Rate – Term Promissory Note (the “Note”). The Company's obligations under the Note are secured by an Assignment and Pledge of Time Deposit (the “Agreement”), under which the Company has pledged to the commercial bank the proceeds of a time deposit account in the amount of the Note and recorded the time deposit and accrued interest as restricted cash on the balance sheet. The principal is due on December 30, 2020 with no penalties for prepayments. The interest rate is fixed at 2.79%. The secured time deposit has a fixed interest rate of 1.79%. The Company concurrently fully repaid (including payment of termination and exit fees) its then existing long-term debt credit facility with MidCap Financial Trust (“MidCap”). The transaction was accounted for as a debt extinguishment.

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Long-term Debt

9 Months Ended

Sep. 30, 2020

Long-term Debt [Abstract]

Long-term Debt

Note 9

Long-term Debt:

The following summarizes the Company’s long-term debt:

	September 30, 2020
Term notes		2,528
Less: current portion		(1,134	)
Total long-term debt	$	1,394

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 "Credit Agreement") and related financing documents with MidCap and the lenders listed therein. Under the Credit Agreement, the credit facility could be drawn down in two tranches, the first of which was drawn for $10,500 on December 30, 2015. The second tranche was drawn for $1,500 on January 29, 2016. The maturity date of the credit facility was December 1, 2020. The Company's obligations under the credit facility were secured by a first priority lien on all the Company's assets. This credit facility had an interest rate of one-month LIBOR plus 8.25% and included both financial and non-financial covenants, including a minimum net revenue covenant. On November 10, 2017, the minimum net revenue covenant was amended prospectively and there was an increase in 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 were no principal payments due.

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 U.S. 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 (the “Amendment”), pursuant to which the Company repaid $3,000 in principal of then existing $10,571 credit facility. The terms of the credit facility were amended to impose less restrictive covenants and lower prepayment fees for the Company and extended the maturity date to May 2022. The Amendment modified the principal payments including a period of 18 months where there were no principal payments due. Principal payments beginning December 2019 were $252 plus interest per month. The interest rate on the credit facility was one-month LIBOR plus 7.25%. The Company was in compliance with all covenants as of December 31, 2018. On April 30, July 15, August 26, and October 15, 2019, the Company received waivers from MidCap, as administrative agent for the lenders who were party to the Credit 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 to cure the event of default.

These amendments had been accounted for as debt modifications, as the present value of the cash flows changed by less than 10%.

All borrowings under the Credit Agreement were fully repaid in connection with the proceeds from a Fixed Rate-Promissory Note on December 30, 2019.

On April 22, 2020, the Company closed a loan of $2,028 (the “PPP loan”) from a commercial bank, pursuant to the Paycheck Protection Program (“PPP”) administered by the Small Business Administration (the “SBA”) pursuant to the CARES Act. The PPP loan matures on May 1, 2022 and bears an interest rate of 1% per annum. Payments of principal and interest of any unforgiven balance commence December 1, 2020. Under the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”), (i) the first payment date for the PPP loan will be the earlier of (a) 10 months after the end of the “covered period” (as determined under the PPP) or (b) the date the bank receives a remittance of the forgiven amount from the SBA, and (ii) the PPP loan’s maturity is extended to five years (from 2 years).

All or a portion of the PPP loan may be forgiven by the lender upon application by the Company beginning 60 days after loan approval and upon documentation of expenditures in accordance with the requirements set forth by the SBA pursuant to the CARES Act. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities at either; the Company’s election, the eight-week period or twenty-four week period beginning on the date of disbursement of proceeds from the PPP loan. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced, under certain circumstances, if full-time headcount declines or if salaries and wages for employees with salaries of $100 or less annually are reduced. In the event the PPP loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. The balance of the loan at September 30, 2020 was $2,028.

On May 22, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. The principal amount of the EIDL Loan is up to $500, with proceeds to be used for working capital purposes and is collateralized by all the Company’s assets. On June 12, 2020, the Company received these funds from the SBA. Interest accrues at the rate of 3.75% per annum. Installment payments, including principal and interest, are due monthly beginning March 26, 2021 (twelve months from the date of the promissory note) in the amount of $2. The balance of principal and interest is payable over the next thirty years from the date of the promissory note. There are no penalties for prepayment. Based upon guidance issued by the SBA on June 19, 2020, the EIDL Loan is not required to be refinanced by the PPP loan. The balance of the loan at September 30, 2020 was $500.

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Warrants

9 Months Ended

Sep. 30, 2020

Warrants [Abstract]

Warrants

Note 10

Warrants:

The Company accounts for warrants that require net cash settlement upon change of control of the Company as liabilities instead of equity. During the nine months ended September 30, 2020, warrants to purchase 600,000 shares of common stock with an exercise price of $3.75 expired. No warrants expired during the three months ended September 30, 2020. During the nine months ended September 30, 2019, warrants to purchase 265,947 and 137,143 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 de minimus fair values and there was no change in fair value for the three and nine months ended September 30, 2019.

Outstanding common stock warrants at September 30, 2020 consist of the following:

Issue Date	Expiration Date	Total Warrants		Exercise Price
December 30, 2015	December 30, 2020		130,089	$	5.65
January 29, 2016	January 29, 2021		19,812	$	5.30
			149,901

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Stock-based Compensation

9 Months Ended

Sep. 30, 2020

Stock-based Compensation [Abstract]

Stock-based Compensation

Note 11

Stock-based Compensation:

As of September 30, 2020, the Company had options to purchase 4,908,038 shares of common stock outstanding with a weighted-average exercise price of $1.90. As of September 30, 2020, options to purchase 3,036,183 shares are vested and exercisable. There are 441,774 shares remaining available for issuance in the form of future equity awards as of September 30, 2020. There were 119,330 restricted stock units outstanding as of September 30, 2020 and during the nine months ended September 30, 2020, the Company issued 40,547 shares related to restricted stock units.

Stock-based compensation expense, which is included in general and administrative expense, for the three and nine months ended September 30, 2020 and 2019, was $403 and $1,243, and $257 and $883, respectively. As of September 30, 2020, there was $1,607 in unrecognized compensation expense, which will be recognized over a weighted average period of 0.91 years.

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Income Taxes

9 Months Ended

Sep. 30, 2020

Income Taxes [Abstract]

Income Taxes

Note 12

Income 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 expense of $72 and $207 and benefits of $22 and $111 for the three and nine months ended September 30, 2020 and 2019, respectively, was comprised primarily of changes in deferred tax liability related to goodwill. Goodwill is an amortizing asset according to tax regulations.

The CARES Act, among other things contains numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment. The Company analyzed the impact of the CARES Act and does not foresee a significant impact on its condensed consolidated financial position, results of operations, effective tax rate and cash flows.

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 asset would also have an equal and offsetting adjustment to the valuation allowance.

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Business Segments

9 Months Ended

Sep. 30, 2020

Business Segments [Abstract]

Business Segments

Note 13

Business Segments:

The Company has organized its business into two operating segments to present its organization based upon the Company’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. The Dermatology Procedures Equipment segment generates revenues from the sale of equipment, such as lasers and lamp products. 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 income (expense), net, are also not allocated to the operating segments.

The following tables reflect results of operations from our business segments for the periods indicated below:

Three Months Ended September 30, 2020

	Dermatology Recurring Procedures			Dermatology Procedures Equipment			TOTAL
Revenues	$	3,835		$	1,778		$	5,613
Costs of revenues		1,368			1,015			2,383
Gross profit		2,467			763			3,230
Gross profit %		64.3	%		42.9	%		57.5	%
Allocated operating expenses:
Engineering and product development		329			82			411
Selling and marketing		1,883			168			2,051
Unallocated operating expenses		-			-			1,929
		2,212			250			4,391
Income (loss) from operations		255			513			(1,161	)
Interest expense, net		-			-			(21	)
Income (loss) before income taxes	$	255		$	513		$	(1,182	)

Nine Months Ended September 30, 2020

	Dermatology Recurring Procedures			Dermatology Procedures Equipment			TOTAL
Revenues	$	12,332		$	4,041		$	16,373
Costs of revenues		4,534			2,246			6,780
Gross profit		7,798			1,795			9,593
Gross profit %		63.2	%		44.4	%		58.6	%
Allocated operating expenses:
Engineering and product development		828			122			950
Selling and marketing		6,021			425			6,446
Unallocated operating expenses		-			-			5,921
		6,849			547			13,317
Income (loss) from operations		949			1,248			(3,724	)
Interest expense, net		-			-			(38	)
Income (loss) before income taxes	$	949		$	1,248		$	(3,762	)

Three Months Ended September 30, 2019

	Dermatology Recurring Procedures			Dermatology Procedures Equipment			TOTAL
Revenues	$	5,991		$	1,489		$	7,480
Costs of revenues		1,966			889			2,855
Gross profit		4,025			600			4,625
Gross profit %		67.2	%		40.3	%		61.8	%
Allocated operating expenses:
Engineering and product development		226			23			249
Selling and marketing		2,762			125			2,887
Unallocated operating expenses		-			-			2,218
		2,988			148			5,354
Income (loss) from operations		1,037			452			(729	)
Interest expense, net		-			-			(153	)
Income (loss) before income taxes	$	1,037		$	452		$	(882	)

Nine Months Ended September 30, 2019

	Dermatology Recurring Procedures			Dermatology Procedures Equipment			TOTAL
Revenues	$	17,142		$	5,546		$	22,688
Costs of revenues		5,492			3,052			8,544
Gross profit		11,650			2,494			14,144
Gross profit %		68.0	%		45.0	%		62.3	%
Allocated operating expenses:
Engineering and product development		666			122			788
Selling and marketing		8,301			610			8,911
Unallocated operating expenses		-			-			7,398
		8,967			732			17,097
Income (loss) from operations		2,683			1,762			(2,953	)
Interest expense, net		-			-			(433	)
Income (loss) before income taxes	$	2,683		$	1,762		$	(3,386	)

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Significant Customer Concentration

9 Months Ended

Sep. 30, 2020

Significant Customer Concentration [Abstract]

Significant Customer Concentration

Note 14

Significant Customer Concentration:

For the three and nine months ended September 30, 2020, revenues from the Company’s international master distributor were $846 and $2,149, or 15.1% and 13.1%, respectively, of total revenue for such period. For the three months ended September 30, 2020, revenues from another distributor were $632 or 11.3% of total revenue for the period.

For the three and nine months ended September 30, 2019, revenues from sales to the Company’s international master distributor were $1,050 and $4,407, or 14% and 19%, respectively, of total revenues for such period.

No other customer represented more than 10% of total company revenues for the three and nine months ended September 30, 2020 and 2019. No customer represented more than 10% of total accounts receivable as of September 30, 2020.

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Commitments

9 Months Ended

Sep. 30, 2020

Commitments [Abstract]

Commitments

Note 15

Commitments:

Leases

The Company recognizes right-of-use assets (“ROU assets”) and operating lease liabilitieswhen it obtains the right to control an asset under a leasing arrangement with an initial term greater than twelve months. The Company adopted the short-term accounting election for leases with a duration of less than one year. The Company leases its facilities and certain IT and office equipment under non-cancellable operating leases. All of the Company's leasing arrangements are classified as operating leases with remaining lease terms ranging from 1 to 5 years, and one facility lease has a renewal option for two years. Renewal options have been excluded from the determination of the lease term as they are not reasonably certain of exercise. The Company entered into an addendum with FR National Life, LLC for the Carlsbad facility. The extension began on October 1, 2019 for five years and was executed on May 1, 2019. Included in cash flows provided by operations for the nine months ended September 30, 2020 and 2019, there was amortization of right-of-use assets of $242 and $240, respectively.

Operating lease costs were $112 and $336 and $108 and $335 for the three and nine months ended September 30, 2020 and 2019, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $113 and $320, and $110 and $314 for the three and nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, the incremental borrowing rate was 9.76 % and the weighted average remaining lease term was 3.4 years. The following table summarizes the Company’s operating lease maturities as of September 30, 2020:

For the year ending December 31,	Amount
Remaining 2020	$	115
2021		456
2022		371
2023		242
2024		186
Total remaining lease payments		1,370
Less: imputed interest		(205	)
Total lease liabilities	$	1,165

Contingencies:

In the ordinary course of business, the Company is routinely defendants in or parties to pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. These actions and proceedings are generally based on alleged violations of employment, contract and other laws. In some of these actions and proceedings, claims for substantial monetary damages are asserted against the Company. In the ordinary course of business, the Company is also subject to regulatory and governmental examinations, information gathering requests, inquiries, investigations, and threatened legal actions and proceedings. In connection with formal and informal inquiries by federal, state, local and foreign agencies, the Company receives numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of its activities.

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Subsequent Event

9 Months Ended

Sep. 30, 2020

Subsequent Event [Abstract]

Subsequent Event

Note 16

Subsequent event:

In October, 2020, as a result of the exercise of options, the Company issued 15,000 shares of common stock.

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The Company (Policies)

9 Months Ended

Sep. 30, 2020

The Company [Abstract]

Principles of Consolidation

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned, inactive subsidiary in India. All significant intercompany balances and transactions have been eliminated in consolidation.

Unaudited Interim Condensed Consolidated Financial Statements

Unaudited Interim Condensed Consolidated Financial Statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC") for interim financial reporting. These condensed consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to fairly present the results of the interim periods. The condensed consolidated balance sheet at December 31, 2019, has been derived from the audited consolidated financial statements at that date. Operating results and cash flows for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. 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, 2019 (the “2019 Form 10-K”), and other forms filed with the SEC from time to time. Dollar amounts included herein are in thousands, except share, per share data and number of lasers.

Reclassifications

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 equity, results of operations, or cash flows.

Significant Accounting Policies

Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, and there have been no changes to the Company’s significant accounting policies during the nine months ended September 30, 2020.

Use of Estimates

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates and be based on events different from those assumptions. As of September 30, 2020, the more significant estimates include (1) revenue recognition, in regard to deferred revenues and the contract term and valuation allowances of accounts receivable, (2) the inputs used in the impairment analyses of goodwill, (3) the estimated useful lives of intangible assets and property and equipment, (4) the inputs used in determining the fair value of equity-based awards, (5) the valuation allowance related to deferred tax assets, (6) the inventory reserves, (7) state sales and use tax accruals and (8) warranty claims.

Additionally, the full impact of the COVID-19 outbreak is unknown and cannot be reasonably estimated. However, management has made appropriate accounting estimates on certain accounting matters, which include the allowance for doubtful accounts, inventory valuation, carrying value of the goodwill and other long-lived assets, based on the facts and circumstances available as of the reporting date. The Company’s future assessment of the magnitude and duration of the COVID-19 outbreak, as well as other factors, could result in material impacts to the Company’s financial statements in future reporting periods.

Fair Value Measurements

Fair Value Measurements

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

• Level 1 – unadjusted quoted prices are available in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

• Level 2 – pricing inputs are other than quoted prices in active markets that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

• Level 3 – pricing inputs are unobservable for the non-financial asset or liability and only used when there is little, if any, market activity for the non-financial asset or liability at the measurement date. The inputs into the determination of fair value require significant management judgment or estimation. Fair value is determined using comparable market transactions and other valuation methodologies, adjusted as appropriate for liquidity, credit, market and/or other risk factors.

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 fair value of cash and cash equivalents and restricted cash are based on their respective demand value, which are equal to the carrying value. The carrying value of all short-term monetary assets and liabilities is estimated to be approximate to their fair value, due to the short-term nature of these instruments. As of September 30, 2020 and December 31, 2019, in evaluating the terms of the notes, the carrying value of the Company’s notes payable are estimated to approximate the fair value.

Earnings Per Share

Earnings Per Share

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

No shares of the Company's Series C Convertible Preferred stock were outstanding as of September 30, 2020. These shares were subordinate to all other securities at the same subordination level as common stock, and they participated 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 met 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 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 loss per share by each class of security for the three and nine months ended September 30, 2020 and, 2019:

	Three Months Ended September 30, 2020					Nine Months Ended September 30, 2020
	Common Stock			Series C Convertible Preferred Stock		Common Stock			Series C Convertible Preferred Stock
Loss attributable to each class	$	(1,254	)	$	-	$	(3,947	)	$	(22	)
Weighted average number of shares outstanding during the period		33,754,909			-		33,551,070			491
Basic and Diluted loss per share	$	(0.04	)	$	-	$	(0.12	)	$	(43.73	)

	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Common Stock			Series C Convertible Preferred Stock			Common Stock			Series C Convertible Preferred Stock
Loss attributable to each class	$	(840	)	$	(20	)	$	(3,079	)	$	(196	)
Weighted average number of shares outstanding during the period		32,903,287			2,105			31,663,355			5,412
Basic and Diluted loss per share	$	(0.03	)	$	(9.58	)	$	(0.10	)	$	(36.14	)

The Company considered its Series C Convertible Preferred Stock to be participating securities in the presentation of earnings per share. For the three and nine months ended September 30, 2020 and 2019, diluted loss per common share and Series C Convertible Preferred Stock share is equal to the basic loss per common share and Series C Convertible Preferred Stock share, respectively, since all potentially dilutive securities are anti-dilutive.

The following table sets forth the weighted average of potential common stock equivalents outstanding during the three and nine months ended September 30, 2020, and 2019, that have been excluded from the loss per share calculation as their inclusion would have been anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Common stock purchase warrants		149,901		1,073,319		530,923		1,776,216
Restricted stock units		119,330		120,773		149,637		123,675
Common stock options		4,908,038		4,033,038		4,908,038		4,178,663
Total		5,177,269		5,227,130		5,588,598		6,078,554

Accounting Pronouncements Recently Adopted and Not Yet Adopted

Accounting Pronouncements Recently Adopted

In January 2017, the FASB issued Accounting Standards Update (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 recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’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. The adoption of ASU No. 2017-04 on January 1, 2020 did not have an impact on the Company’s condensed consolidated financial statements.

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 adoption of ASU No. 2018-13 on January 1, 2020 did not have a material effect on the Company’s condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 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. 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 condensed 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 15, 2020, with early adoption permitted. The Company is currently evaluating the potential impact but does not believe there will be an impact of the adoption of this standard on its results of operations, financial position and cash flows and related disclosures.

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2020-06 will have on its financial statements.

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The Company (Tables)

9 Months Ended

Sep. 30, 2020

The Company [Abstract]

Calculation of Basic and Diluted Loss Per Share by Class of Security

The following table presents the calculation of basic and diluted loss per share by each class of security for the three and nine months ended September 30, 2020 and, 2019:

	Three Months Ended September 30, 2020					Nine Months Ended September 30, 2020
	Common Stock			Series C Convertible Preferred Stock		Common Stock			Series C Convertible Preferred Stock
Loss attributable to each class	$	(1,254	)	$	-	$	(3,947	)	$	(22	)
Weighted average number of shares outstanding during the period		33,754,909			-		33,551,070			491
Basic and Diluted loss per share	$	(0.04	)	$	-	$	(0.12	)	$	(43.73	)

	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Common Stock			Series C Convertible Preferred Stock			Common Stock			Series C Convertible Preferred Stock
Loss attributable to each class	$	(840	)	$	(20	)	$	(3,079	)	$	(196	)
Weighted average number of shares outstanding during the period		32,903,287			2,105			31,663,355			5,412
Basic and Diluted loss per share	$	(0.03	)	$	(9.58	)	$	(0.10	)	$	(36.14	)

Antidilutive Securities Excluded from Computation of Earnings Per Share

The following table sets forth the weighted average of potential common stock equivalents outstanding during the three and nine months ended September 30, 2020, and 2019, that have been excluded from the loss per share calculation as their inclusion would have been anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Common stock purchase warrants		149,901		1,073,319		530,923		1,776,216
Restricted stock units		119,330		120,773		149,637		123,675
Common stock options		4,908,038		4,033,038		4,908,038		4,178,663
Total		5,177,269		5,227,130		5,588,598		6,078,554

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Revenue Recognition (Tables)

9 Months Ended

Sep. 30, 2020

Revenue Recognition [Abstract]

Disaggregation of Revenue

The following tables present the Company’s revenue disaggregated by geographical region for the three and nine months ended September 30, 2020 and 2019, 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 Company’s international master distributor for physicians based primarily in Asia and recurring revenue from our distributor in Korea.

	Three Months Ended September 30, 2020
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	3,690	$	261	$	3,951
Foreign		145		1,517		1,662
Total	$	3,835	$	1,778	$	5,613

	Nine Months Ended September 30, 2020
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	11,957	$	701	$	12,658
Foreign		375		3,340		3,715
Total	$	12,332	$	4,041	$	16,373

	Three Months Ended September 30, 2019
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	5,991	$	241	$	6,232
Foreign		-		1,248		1,248
Total	$	5,991	$	1,489	$	7,480

	Nine Months Ended September 30, 2019
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	17,142	$	943	$	18,085
Foreign		-		4,603		4,603
Total	$	17,142	$	5,546	$	22,688

Future Undiscounted Fixed Treatment Code Payments from International Recurring Revenue Customers

The following table summarizes the Company’s expected future undiscounted fixed treatment code payments from international recurring revenue customers as of September 30,

Remaining 2020	$	148
2021		618
2022		618
2023		551
2024		267
Thereafter		2
Total	$	2,204

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Inventories (Tables)

9 Months Ended

Sep. 30, 2020

Inventories [Abstract]

Inventories

Inventories consist of:

	September 30, 2020		December 31, 2019
Raw materials and work-in-process	$	3,071	$	2,651
Finished goods		431		376
Total inventories	$	3,502	$	3,027

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Property and Equipment, net (Tables)

9 Months Ended

Sep. 30, 2020

Property and Equipment, net [Abstract]

Property and Equipment, Net

Property and equipment consist of:

	September 30, 2020			December 31, 2019
Lasers placed-in-service	$	22,239		$	20,925
Equipment, computer hardware and software		146			146
Furniture and fixtures		234			234
Leasehold improvements		43			26
		22,662			21,331
Accumulated depreciation and amortization		(17,404	)		(15,962	)
Property and equipment, net	$	5,258		$	5,369

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Intangible Assets, net (Tables)

9 Months Ended

Sep. 30, 2020

Intangible Assets, net [Abstract]

Definite-lived Intangible Assets

Set forth below is a detailed listing of definite-lived intangible assets as of September 30, 2020:

	Balance		Accumulated Amortization			Intangible assets, net
Core technology	$	5,700	$	(2,993	)	$	2,707
Product technology		2,000		(2,000	)		-
Customer relationships		6,900		(3,623	)		3,277
Tradenames		1,500		(787	)		713
	$	16,100	$	(9,403	)	$	6,697

Finite-lived Intangible Assets Amortization Expense

Estimated amortization expense for the above amortizable intangible assets for future periods is as follows:

Remaining 2020	$	352
2021		1,410
2022		1,410
2023		1,410
2024		1,410
2025		705
Total	$	6,697

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Other Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2020

Other Accrued Liabilities [Abstract]

Other Accrued Liabilities

Other accrued liabilities consist of:

	September 30, 2020		December 31, 2019
Accrued warranty, current	$	107	$	170
Accrued compensation, including commissions and vacation		780		1,193
Accrued state sales, use and other taxes		3,094		3,193
Accrued professional fees and other accrued liabilities		577		578
Total other accrued liabilities	$	4,558	$	5,134

Accrued Warranty Costs Activity

The activity in the warranty accrual during the three and nine months ended September 30, 2020 and 2019, is summarized as follows:

	Three Months Ended, September 30,						Nine Months Ended, September 30,
	2020			2019			2020			2019
Accrual at beginning of period	$	139		$	291		$	232		$	238
Additions charged to warranty expense		37			26			46			169
Expiring warranties/claimed satisfied		(41	)		(61	)		(143	)		(151	)
Total		135			256			135			256
Less: current portion		(107	)		(179	)		(107	)		(179	)
Total long-term accrued warranty costs	$	28		$	77		$	28		$	77

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Long-term Debt (Tables)

9 Months Ended

Sep. 30, 2020

Long-term Debt [Abstract]

Long-term Debt

The following summarizes the Company’s long-term debt:

	September 30, 2020
Term notes		2,528
Less: current portion		(1,134	)
Total long-term debt	$	1,394

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Warrants (Tables)

9 Months Ended

Sep. 30, 2020

Warrants [Abstract]

Outstanding Common Stock Warrants

Outstanding common stock warrants at September 30, 2020 consist of the following:

Issue Date	Expiration Date	Total Warrants		Exercise Price
December 30, 2015	December 30, 2020		130,089	$	5.65
January 29, 2016	January 29, 2021		19,812	$	5.30
			149,901

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Business Segments (Tables)

9 Months Ended

Sep. 30, 2020

Business Segments [Abstract]

Segment Reporting Information by Segment

The following tables reflect results of operations from our business segments for the periods indicated below:

Three Months Ended September 30, 2020

	Dermatology Recurring Procedures			Dermatology Procedures Equipment			TOTAL
Revenues	$	3,835		$	1,778		$	5,613
Costs of revenues		1,368			1,015			2,383
Gross profit		2,467			763			3,230
Gross profit %		64.3	%		42.9	%		57.5	%
Allocated operating expenses:
Engineering and product development		329			82			411
Selling and marketing		1,883			168			2,051
Unallocated operating expenses		-			-			1,929
		2,212			250			4,391
Income (loss) from operations		255			513			(1,161	)
Interest expense, net		-			-			(21	)
Income (loss) before income taxes	$	255		$	513		$	(1,182	)

Nine Months Ended September 30, 2020

	Dermatology Recurring Procedures			Dermatology Procedures Equipment			TOTAL
Revenues	$	12,332		$	4,041		$	16,373
Costs of revenues		4,534			2,246			6,780
Gross profit		7,798			1,795			9,593
Gross profit %		63.2	%		44.4	%		58.6	%
Allocated operating expenses:
Engineering and product development		828			122			950
Selling and marketing		6,021			425			6,446
Unallocated operating expenses		-			-			5,921
		6,849			547			13,317
Income (loss) from operations		949			1,248			(3,724	)
Interest expense, net		-			-			(38	)
Income (loss) before income taxes	$	949		$	1,248		$	(3,762	)

Three Months Ended September 30, 2019

	Dermatology Recurring Procedures			Dermatology Procedures Equipment			TOTAL
Revenues	$	5,991		$	1,489		$	7,480
Costs of revenues		1,966			889			2,855
Gross profit		4,025			600			4,625
Gross profit %		67.2	%		40.3	%		61.8	%
Allocated operating expenses:
Engineering and product development		226			23			249
Selling and marketing		2,762			125			2,887
Unallocated operating expenses		-			-			2,218
		2,988			148			5,354
Income (loss) from operations		1,037			452			(729	)
Interest expense, net		-			-			(153	)
Income (loss) before income taxes	$	1,037		$	452		$	(882	)

Nine Months Ended September 30, 2019

	Dermatology Recurring Procedures			Dermatology Procedures Equipment			TOTAL
Revenues	$	17,142		$	5,546		$	22,688
Costs of revenues		5,492			3,052			8,544
Gross profit		11,650			2,494			14,144
Gross profit %		68.0	%		45.0	%		62.3	%
Allocated operating expenses:
Engineering and product development		666			122			788
Selling and marketing		8,301			610			8,911
Unallocated operating expenses		-			-			7,398
		8,967			732			17,097
Income (loss) from operations		2,683			1,762			(2,953	)
Interest expense, net		-			-			(433	)
Income (loss) before income taxes	$	2,683		$	1,762		$	(3,386	)

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Commitments (Tables)

9 Months Ended

Sep. 30, 2020

Commitments [Abstract]

Operating Leases Maturities

The following table summarizes the Company’s operating lease maturities as of September 30, 2020:

For the year ending December 31,	Amount
Remaining 2020	$	115
2021		456
2022		371
2023		242
2024		186
Total remaining lease payments		1,370
Less: imputed interest		(205	)
Total lease liabilities	$	1,165

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The Company, Background (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2020 USD ($) Extension
Finite-Lived Intangible Assets, Net [Abstract]
Delayed payments to vendors | $	$ 1,100
South Korea [Member]
Finite-Lived Intangible Assets, Net [Abstract]
Number of extensions of agreement	3
Japan [Member]
Finite-Lived Intangible Assets, Net [Abstract]
Term of distribution agreement	12 months
Number of extensions of agreement	4

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The Company, Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Earnings Per Share [Abstract]
Series C Convertible Preferred Stock, shares outstanding (in shares)	0		0		2,103
Earnings Per Share, Basic and Diluted, Other Disclosures [Abstract]
Potential common stock equivalents (in shares)	5,177,269	5,227,130	5,588,598	6,078,554
Series C Convertible Preferred Shares [Member]
Earnings Per Share [Abstract]
Series C Convertible Preferred Stock, shares outstanding (in shares)	0		0
Loss attributable to each class	$ 0	$ (20)	$ (22)	$ (196)
Weighted average number of shares outstanding during the period (in shares)	0	2,105	491	5,412
Basic and diluted loss per share (in dollars per share)	$ 0	$ (9.58)	$ (43.73)	$ (36.14)
Common Stock [Member]
Earnings Per Share [Abstract]
Loss attributable to each class	$ (1,254)	$ (840)	$ (3,947)	$ (3,079)
Weighted average number of shares outstanding during the period (in shares)	33,754,909	32,903,287	33,551,070	31,663,355
Basic and diluted loss per share (in dollars per share)	$ (0.04)	$ (0.03)	$ (0.12)	$ (0.10)
Common Stock Purchase Warrants [Member]
Earnings Per Share, Basic and Diluted, Other Disclosures [Abstract]
Potential common stock equivalents (in shares)	149,901	1,073,319	530,923	1,776,216
Restricted Stock Units [Member]
Earnings Per Share, Basic and Diluted, Other Disclosures [Abstract]
Potential common stock equivalents (in shares)	119,330	120,773	149,637	123,675
Common Stock Options [Member]
Earnings Per Share, Basic and Diluted, Other Disclosures [Abstract]
Potential common stock equivalents (in shares)	4,908,038	4,033,038	4,908,038	4,178,663

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Revenue Recognition, Remaining Performance Obligation (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Remaining Performance Obligation [Abstract]
Remaining performance obligations	$ 162
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-10-01
Remaining Performance Obligation [Abstract]
Remaining performance obligations	$ 139
Expected timing of satisfaction period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-10-01 | Minimum [Member]
Remaining Performance Obligation [Abstract]
Expected timing of satisfaction period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-10-01 | Maximum [Member]
Remaining Performance Obligation [Abstract]
Expected timing of satisfaction period	3 years

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Revenue Recognition, Contract Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Treatment Equipment [Abstract]
Lease term	36 months		36 months
Contract with Customer, Liability [Abstract]
Short-term contract liabilities	$ 139		$ 139
Long-term contract liabilities	23		23
Change in Contract with Customer, Liability [Abstract]
Contract liabilities recognized as revenue	52		162
Co-pay reimbursements recorded as reduction of revenue	$ (160)	$ (213)	$ (414)	$ (545)
Minimum [Member]
Treatment Equipment [Abstract]
Notice period to cancel contract agreement			30 days
Maximum [Member]
Treatment Equipment [Abstract]
Notice period to cancel contract agreement			60 days
South Korea [Member]
Treatment Equipment [Abstract]
Lease term	48 months		48 months

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Revenue Recognition, Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Disaggregation of Revenue [Abstract]
Revenues, net	$ 5,613	$ 7,480	$ 16,373	$ 22,688
Dermatology Recurring Procedures [Member]
Disaggregation of Revenue [Abstract]
Revenues, net	3,835	5,991	12,332	17,142
Dermatology Procedures Equipment [Member]
Disaggregation of Revenue [Abstract]
Revenues, net	1,778	1,489	4,041	5,546
Domestic [Member]
Disaggregation of Revenue [Abstract]
Revenues, net	3,951	6,232	12,658	18,085
Domestic [Member] | Dermatology Recurring Procedures [Member]
Disaggregation of Revenue [Abstract]
Revenues, net	3,690	5,991	11,957	17,142
Domestic [Member] | Dermatology Procedures Equipment [Member]
Disaggregation of Revenue [Abstract]
Revenues, net	261	241	701	943
Foreign [Member]
Disaggregation of Revenue [Abstract]
Revenues, net	1,662	1,248	3,715	4,603
Foreign [Member] | Dermatology Recurring Procedures [Member]
Disaggregation of Revenue [Abstract]
Revenues, net	145	0	375	0
Foreign [Member] | Dermatology Procedures Equipment [Member]
Disaggregation of Revenue [Abstract]
Revenues, net	$ 1,517	$ 1,248	$ 3,340	$ 4,603

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Revenue Recognition, Future Undiscounted Fixed Payments from International Recurring Revenue Customers (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Remaining Performance Obligation [Abstract]
Future undiscounted fixed payments from international recurring revenue customers	$ 162
International [Member]
Remaining Performance Obligation [Abstract]
Future undiscounted fixed payments from international recurring revenue customers	2,204
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-10-01
Remaining Performance Obligation [Abstract]
Future undiscounted fixed payments from international recurring revenue customers	$ 139
Expected timing of satisfaction period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-10-01 | International [Member]
Remaining Performance Obligation [Abstract]
Future undiscounted fixed payments from international recurring revenue customers	$ 148
Expected timing of satisfaction period	3 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01 | International [Member]
Remaining Performance Obligation [Abstract]
Future undiscounted fixed payments from international recurring revenue customers	$ 618
Expected timing of satisfaction period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-01-01 | International [Member]
Remaining Performance Obligation [Abstract]
Future undiscounted fixed payments from international recurring revenue customers	$ 618
Expected timing of satisfaction period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01 | International [Member]
Remaining Performance Obligation [Abstract]
Future undiscounted fixed payments from international recurring revenue customers	$ 551
Expected timing of satisfaction period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-01-01 | International [Member]
Remaining Performance Obligation [Abstract]
Future undiscounted fixed payments from international recurring revenue customers	$ 267
Expected timing of satisfaction period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2025-01-01 | International [Member]
Remaining Performance Obligation [Abstract]
Future undiscounted fixed payments from international recurring revenue customers	$ 2
Expected timing of satisfaction period

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Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Schedule of inventory [Abstract]
Raw materials and work-in-process	$ 3,071	$ 2,651
Finished goods	431	376
Total inventories	$ 3,502	$ 3,027

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Property and Equipment, net (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Property, Plant and Equipment, Net [Abstract]
Property and equipment, gross	$ 22,662		$ 22,662		$ 21,331
Accumulated depreciation and amortization	(17,404)		(17,404)		(15,962)
Property and equipment, net	5,258		5,258		5,369
Depreciation and related amortization expense	454	$ 637	1,535	$ 2,079
Lasers Placed-In-Service [Member]
Property, Plant and Equipment, Net [Abstract]
Property and equipment, gross	22,239		22,239		20,925
Equipment, Computer Hardware and Software [Member]
Property, Plant and Equipment, Net [Abstract]
Property and equipment, gross	146		146		146
Furniture and Fixtures [Member]
Property, Plant and Equipment, Net [Abstract]
Property and equipment, gross	234		234		234
Leasehold Improvements [Member]
Property, Plant and Equipment, Net [Abstract]
Property and equipment, gross	$ 43		$ 43		$ 26

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Intangible Assets, net (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Finite-Lived Intangible Assets, Net [Abstract]
Balance	$ 16,100		$ 16,100
Accumulated amortization	(9,403)		(9,403)
Intangible assets, net	6,697		6,697
Amortization expense of intangible assets	353	$ 453	1,258	$ 1,358
Impairment of intangible assets	0		0
Estimated amortization expense [Abstract]
Remaining 2020	352		352
2021	1,410		1,410
2022	1,410		1,410
2023	1,410		1,410
2024	1,410		1,410
2025	705		705
Intangible assets, net	6,697		6,697
Core Technology [Member]
Finite-Lived Intangible Assets, Net [Abstract]
Balance	5,700		5,700
Accumulated amortization	(2,993)		(2,993)
Intangible assets, net	2,707		2,707
Estimated amortization expense [Abstract]
Intangible assets, net	2,707		2,707
Product Technology [Member]
Finite-Lived Intangible Assets, Net [Abstract]
Balance	2,000		2,000
Accumulated amortization	(2,000)		(2,000)
Intangible assets, net	0		0
Estimated amortization expense [Abstract]
Intangible assets, net	0		0
Customer Relationships [Member]
Finite-Lived Intangible Assets, Net [Abstract]
Balance	6,900		6,900
Accumulated amortization	(3,623)		(3,623)
Intangible assets, net	3,277		3,277
Estimated amortization expense [Abstract]
Intangible assets, net	3,277		3,277
Tradenames [Member]
Finite-Lived Intangible Assets, Net [Abstract]
Balance	1,500		1,500
Accumulated amortization	(787)		(787)
Intangible assets, net	713		713
Estimated amortization expense [Abstract]
Intangible assets, net	$ 713		$ 713

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Other Accrued Liabilities (Details) - USD ($) $ in Thousands		9 Months Ended
	Nov. 11, 2020	Sep. 30, 2020	Dec. 31, 2019	Sep. 30, 2019
Other Accrued Liabilities [Abstract]
Accrued warranty, current		$ 107	$ 170	$ 179
Accrued compensation, including commissions and vacation		780	1,193
Accrued state sales, use and other taxes		3,094	3,193
Accrued professional fees and other accrued liabilities		577	578
Total other accrued liabilities		4,558	$ 5,134
Income Tax Examination, Penalties and Interest Accrued [Abstract]
Estimated tax positions subject to audit		801
Assessment amount		720
Interest amount		$ 171
Subsequent Event [Member] | Tax Period from September 2017 through February 2020 [Member]
Income Tax Examination, Penalties and Interest Accrued [Abstract]
Additional assessment including tax, interest and penalties	$ 683

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Other Accrued Liabilities, Accrued Warranty Costs (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Product Warranty Accrual [Roll Forward]
Accrual at beginning of period	$ 139	$ 291	$ 232	$ 238
Additions charged to warranty expense	37	26	46	169
Expiring warranties/claims satisfied	(41)	(61)	(143)	(151)
Total	135	256	135	256
Less: current portion	(107)	(179)	(107)	(179)	$ (170)
Total long-term accrued warranty costs	$ 28	$ 77	$ 28	$ 77
Minimum [Member]
Accrued warranty costs [Abstract]
Standard warranty period			1 year
Offered warranty period			3 years
Maximum [Member]
Accrued warranty costs [Abstract]
Standard warranty period			2 years
Offered warranty period			4 years

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Notes Payable (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Dec. 30, 2019
Note [Member]
Debt Instruments [Abstract]
Face amount of debt		$ 7,275
Debt instrument term	1 year
Maturity date	Dec. 30, 2020
Fixed interest rate		2.79%
Time Deposit [Member]
Debt Instruments [Abstract]
Fixed interest rate		1.79%

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Long-term Debt (Details) $ in Thousands					9 Months Ended
	May 22, 2020 USD ($)	May 29, 2018 USD ($)	Jan. 29, 2016 USD ($)	Dec. 30, 2015 USD ($) Tranche	Sep. 30, 2020 USD ($)	Apr. 22, 2020 USD ($)	Dec. 31, 2019 USD ($)
Long-term Debt [Abstract]
Term notes					$ 2,528
Less: current portion					(1,134)		$ 0
Total long-term debt					$ 1,394		$ 0
PPP Loans [Member]
Long-term Debt [Abstract]
Maturity date					May 01, 2022
Face amount of debt						$ 2,028
Interest rate percentage						1.00%
Debt instrument term					2 years
Debt instrument, extended term					5 years
Balance amount of loan					$ 2,028
EDIL [Member]
Long-term Debt [Abstract]
Face amount of debt	$ 500
Interest rate percentage	3.75%
Debt instrument term					30 years
Balance amount of loan					$ 500
Installment monthly payment amount	$ 2
MidCap Financial Trust [Member] | Term-Note Credit Facility [Member]
Long-term Debt [Abstract]
Maximum borrowing capacity under the agreement				$ 12,000
Number of tranches | Tranche				2
Repayment of debt		$ (3,000)
Maturity date					May 31, 2022
Credit facility amount outstanding		$ 10,571
Period without debt principal payments due					18 months
Monthly payment, principal					$ 252
Percentage of change in cash flows, due to debt modifications		10.00%
MidCap Financial Trust [Member] | Term-Note Credit Facility [Member] | LIBOR [Member]
Long-term Debt [Abstract]
Basis spread on variable rate				8.25%	7.25%
MidCap Financial Trust [Member] | Term-Note Credit Facility [Member] | First Tranche [Member]
Long-term Debt [Abstract]
Proceeds from credit facility				$ 10,500
MidCap Financial Trust [Member] | Term-Note Credit Facility [Member] | Second Tranche [Member]
Long-term Debt [Abstract]
Proceeds from credit facility			$ 1,500

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Warrants (Details) - $ / shares	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2020	Sep. 30, 2019
Warrants and Rights [Abstract]
Number of warrants expired (in shares)	0	600,000
Total Warrants (in shares)	149,901	149,901
Exercise price (in dollars per share)	$ 3.75	$ 3.75
Expiration Date, February 5, 2019 [Member]
Warrants and Rights [Abstract]
Exercise price (in dollars per share)			$ 3.75
Number of shares underlying warrants (in shares)			265,947
Expiration Date, April 30, 2019 [Member]
Warrants and Rights [Abstract]
Exercise price (in dollars per share)			$ 3.75
Number of shares underlying warrants (in shares)			137,143
Expiration Date, December 30, 2020 [Member]
Warrants and Rights [Abstract]
Issue date		Dec. 30, 2015
Expiration date		Dec. 30, 2020
Total Warrants (in shares)	130,089	130,089
Exercise price (in dollars per share)	$ 5.65	$ 5.65
Expiration Date, January 29, 2021 [Member]
Warrants and Rights [Abstract]
Issue date		Jan. 29, 2016
Expiration date		Jan. 29, 2021
Total Warrants (in shares)	19,812	19,812
Exercise price (in dollars per share)	$ 5.30	$ 5.30

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Stock-based Compensation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Additional General Disclosures [Abstract]
Stock-based compensation expense	$ 403	$ 257	$ 1,243	$ 883
Compensation Cost Not yet Recognized [Abstract]
Unrecognized compensation expense	$ 1,607		$ 1,607
Weighted average period of recognition			10 months 28 days
Stock Options [Member]
Number of Stock Options [Abstract]
Options outstanding (in shares)	4,908,038		4,908,038
Weighted average exercise price, outstanding (in dollars per share)	$ 1.90		$ 1.90
Vested (in shares)	3,036,183		3,036,183
Exercisable (in shares)	3,036,183		3,036,183
Number of shares available for issuance (in shares)	441,774		441,774
Restricted Stock Units [Member]
Restricted Stock Units [Abstract]
Restricted stock units outstanding (in shares)	119,330		119,330
Restricted stock units issued (in shares)			40,547

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income Taxes [Abstract]
Income tax expense (benefits)	$ 72	$ (22)	$ 207	$ (111)

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Business Segments (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($) Segment	Sep. 30, 2019 USD ($)
Business Segments [Abstract]
Number of operating segments | Segment			2
Results of Operations from Business Segments [Abstract]
Revenues	$ 5,613	$ 7,480	$ 16,373	$ 22,688
Cost of revenues	2,383	2,855	6,780	8,544
Gross profit	$ 3,230	$ 4,625	$ 9,593	$ 14,144
Gross profit %	57.50%	61.80%	58.60%	62.30%
Allocated operating expenses [Abstract]
Engineering and product development	$ 411	$ 249	$ 950	$ 788
Selling and marketing	2,051	2,887	6,446	8,911
Unallocated operating expenses	1,929	2,218	5,921	7,398
Total operating expenses	4,391	5,354	13,317	17,097
Loss from operations	(1,161)	(729)	(3,724)	(2,953)
Interest expense, net	(21)	(153)	(38)	(433)
Loss before income taxes	(1,182)	(882)	(3,762)	(3,386)
Dermatology Recurring Procedures [Member]
Results of Operations from Business Segments [Abstract]
Revenues	3,835	5,991	12,332	17,142
Dermatology Procedures Equipment [Member]
Results of Operations from Business Segments [Abstract]
Revenues	1,778	1,489	4,041	5,546
Operating Segments [Member] | Dermatology Recurring Procedures [Member]
Results of Operations from Business Segments [Abstract]
Revenues	3,835	5,991	12,332	17,142
Cost of revenues	1,368	1,966	4,534	5,492
Gross profit	$ 2,467	$ 4,025	$ 7,798	$ 11,650
Gross profit %	64.30%	67.20%	63.20%	68.00%
Allocated operating expenses [Abstract]
Engineering and product development	$ 329	$ 226	$ 828	$ 666
Selling and marketing	1,883	2,762	6,021	8,301
Unallocated operating expenses	0	0	0	0
Total operating expenses	2,212	2,988	6,849	8,967
Loss from operations	255	1,037	949	2,683
Interest expense, net	0	0	0	0
Loss before income taxes	255	1,037	949	2,683
Operating Segments [Member] | Dermatology Procedures Equipment [Member]
Results of Operations from Business Segments [Abstract]
Revenues	1,778	1,489	4,041	5,546
Cost of revenues	1,015	889	2,246	3,052
Gross profit	$ 763	$ 600	$ 1,795	$ 2,494
Gross profit %	42.90%	40.30%	44.40%	45.00%
Allocated operating expenses [Abstract]
Engineering and product development	$ 82	$ 23	$ 122	$ 122
Selling and marketing	168	125	425	610
Unallocated operating expenses	0	0	0	0
Total operating expenses	250	148	547	732
Loss from operations	513	452	1,248	1,762
Interest expense, net	0	0	0	0
Loss before income taxes	$ 513	$ 452	$ 1,248	$ 1,762

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Significant Customer Concentration (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Concentration Risk [Abstract]
Revenues, net	$ 5,613	$ 7,480	$ 16,373	$ 22,688
Revenue [Member] | Customer Concentration Risk [Member] | International Master Distributor [Member]
Concentration Risk [Abstract]
Revenues, net	$ 846	$ 1,050	$ 2,149	$ 4,407
Concentration risk percentage	15.10%	14.00%	13.10%	19.00%
Revenue [Member] | Customer Concentration Risk [Member] | Japanese Distributor [Member]
Concentration Risk [Abstract]
Revenues, net	$ 632
Concentration risk percentage	11.30%

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Commitments (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Lessee, Operating Lease, Description [Abstract]
Amortization of right-of-use assets			$ 242	$ 240
Operating lease costs	$ 112	$ 108	336	335
Cash paid for amounts included in measurement of operating lease liabilities	$ 113	$ 110	$ 320	$ 314
Incremental borrowing rate			9.76%
Weighted average remaining lease term	3 years 4 months 24 days		3 years 4 months 24 days
Operating Lease Maturities [Abstract]
Remaining 2020	$ 115		$ 115
2021	456		456
2022	371		371
2023	242		242
2024	186		186
Total remaining lease payments	1,370		1,370
Less: imputed interest	(205)		(205)
Total lease liabilities	$ 1,165		$ 1,165
Minimum [Member]
Lessee, Operating Lease, Description [Abstract]
Remaining lease term			1 year
Maximum [Member]
Lessee, Operating Lease, Description [Abstract]
Remaining lease term			5 years
Facility One [Member]
Lessee, Operating Lease, Description [Abstract]
Renewal option term	2 years		2 years
Carlsbad Facility [Member]
Lessee, Operating Lease, Description [Abstract]
Renewal option term	5 years		5 years

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Subsequent Event (Details) - Common Stock [Member] - shares	1 Months Ended	3 Months Ended
	Oct. 31, 2020	Jun. 30, 2019	Mar. 31, 2019
Subsequent Event [Abstract]
Shares issued as a result of exercise of options (in shares)		7,586	28,824
Subsequent Event [Member]
Subsequent Event [Abstract]
Shares issued as a result of exercise of options (in shares)	15,000