Basis of Presentation and Summary of Significant Accounting Policies (Policies) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Principles of Consolidation |
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are presented in U.S. dollars and have been prepared in conformity with accounting principles generally accepted in
the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates
(“ASUs”) of the Financial Accounting Standards Board (“FASB”). The accompanying consolidated financial statements include the accounts of the Company and Photomedex India Private Limited, its wholly-owned subsidiary in India. No operating
activities have occurred within the Company’s subsidiary as of and during the years ended December 31, 2023 and 2022.
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Reclassifications |
Reclassifications
Certain prior year amounts have been
reclassified to conform to the current year presentation, including the reclassification of lasers-in-process from raw materials and work-in-process inventories and finished goods inventories to property and equipment, net on the
consolidated balance sheet.
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Use of Estimates |
Use of Estimates
The preparation of the consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. The Company’s significant estimates and judgments include revenue recognition with respect to deferred revenues and the contract term and valuation
allowances of accounts receivable, inputs used when evaluating goodwill for impairment, inputs used in the valuation of contingent consideration, state sales and use tax accruals, the estimated useful lives of intangible assets, and the
valuation allowance related to deferred tax assets. Actual results could differ from those estimates.
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Concentrations of Credit Risk and Major Customers |
Concentrations of Credit Risk and Major Customers
The Company’s cash is held on deposit in demand accounts at a large financial institution in amounts in excess of the Federal Deposit Insurance Corporation, or FDIC, insurance
coverage limit of $0.3 million per depositor, per FDIC-insured bank, per ownership category. Management has reviewed the financial statements of this institution and believes it has sufficient assets and liquidity to conduct its operations in
the ordinary course of business with little credit risk to the Company.
Financial instruments that
potentially subject the Company to concentrations of credit risk principally consist of cash equivalents and accounts receivable. The Company limits its credit risk associated with cash equivalents by placing investments in highly-rated
money market funds. The Company limits its credit risk with respect to accounts receivable by performing credit evaluations when deemed necessary, but it does not require collateral to secure amounts owed by its customers.
The Company had one and two customers, international distributors, from which it earns dermatology recurring procedures and dermatology procedures equipment revenues, that
accounted for 10% or more of the Company’s revenues for the years ended December 31, 2023 and 2022, respectively. Revenues from these customers were $3.3
million and $8.5 million, or 10%
and 23%, of total net revenues during the years ended December 31, 2023 and 2022, respectively. Accounts receivable associated with
these customers was
as of December 31, 2023 and $0.5 million, or 11%, of net accounts receivable as of December 31, 2022. One other customer had $0.7 million,
or 16.5%, of net accounts receivable as of December 31, 2023. No other customer represented more than 10% of total accounts
receivable as of December 31, 2022. |
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Cash and Cash Equivalents |
Cash and Cash Equivalents
The Company considers all highly-liquid investments purchased with an original maturity of three
months or less to be cash equivalents. As of December 31, 2023 and 2022, cash equivalents consisted of credit card transactions with settlement terms of less than five days.
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Restricted Cash |
Restricted Cash
As discussed more fully in Note 11, an administrative state judge in the State of New York issued an
opinion in January 2021 finding in favor of the Company that the sale of XTRAC treatment codes was not taxable as sales tax with respect to that state’s first assessment. The relevant taxing authority filed an appeal of the administrative law
judge’s finding and, following the submission of legal briefs by both sides and oral argument held in January 2022, on May 6, 2022, the Company received a written decision from the State of New York Tax Appeals Tribunal (“Tribunal”)
overturning the favorable sales tax determination of the administrative law judge. The Company appealed the Tribunal’s decision to the New York State Appellate Division (“Appellate Division”), and posted the required appellate bond in the
form of cash collateral. Oral argument was held by the Appellate Division on January 18, 2024.
On March 8, 2024, the Company received a decision from the Appellate Division ruling against it in the matter of its sales tax appeal, affirming
the Tribunal’s ruling that the Company’s sale of XTRAC treatment codes is subject to sales tax. The Appellate Division concluded that, through the usage arrangements, the Company’s customers had possession of the laser devices and had a license
and ability to use the laser devices. The Appellate Division also agreed with the Tribunal that the primary function analysis was not applicable in this matter. The Company will be filing a motion to appeal the Appellate Division’s decision.
The cash collateral is recorded as restricted cash on the consolidated balance sheets as of December 31, 2023 and 2022. The
following table provides a reconciliation of the components of cash, cash equivalents and restricted cash reported in the Company’s consolidated balance sheets to the total of the amount presented in the consolidated statements of cash flows
(in thousands):
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Accounts Receivable and Allowance for Credit Losses |
Accounts Receivable and Allowance for Credit Losses
Accounts
receivable primarily relates to amounts due from customers, which are typically due within 30 to 90 days from invoice date. The Company provides credit to its customers in the normal course of business and maintains allowances for expected
credit losses over the remaining contractual lives of its receivables, considering customer financial condition, historical loss experience with customers, current market economic conditions and forecasts of future economic conditions when
appropriate. The Company does not require collateral or other security for accounts receivable. The Company also maintains allowances for estimated losses resulting from amounts deemed to be uncollectible from its customers. These allowances
are for specific amounts on certain customer accounts based on facts and circumstances determined on a case-by-case basis. The Company writes off accounts receivable when they are considered uncollectible, and payments subsequently received
on such receivables are credited to bad debt expense. The Company does not recognize interest accruing on accounts receivable past due.
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Inventories |
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined based on purchased cost for raw materials and all
production cost related to the laser manufacturing process (labor and indirect manufacturing cost, including sub-contracted work components) for work-in-process and finished goods is classified as inventory. For the Company’s products, cost is
determined on the first-in, first-out method. Work-in-process is immaterial, given the typically short manufacturing cycle and therefore, is disclosed in conjunction with raw materials.
The Company’s equipment for the treatment of skin disorders (e.g. the XTRAC) will either (i) be placed in a physician’s office and remain the property of the Company (at which date such equipment is transferred to property and
equipment) or (ii) be sold to distributors or physicians directly. The cost to build a laser for sale is accumulated in inventory, and the cost to build a laser for placement is accumulated in property and equipment.
Reserves for slow-moving and obsolete inventories are provided based on historical experience and product
demand. Management evaluates the adequacy of these reserves periodically based on forecasted sales and market trends.
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Property and Equipment, net |
Property and Equipment, net
Property and equipment
are recorded at cost less accumulated depreciation and amortization. Maintenance and repairs are charged to expense as incurred and costs of improvements and renewals are capitalized. Upon
retirement or disposition, the applicable property and equipment amounts are deducted from the accounts and any gain or loss is recorded in the consolidated statements of operations.
Depreciation and amortization are recognized using the straight-line method based on the estimated useful lives of the related assets. The Company uses an estimated useful life of three years for computers, hardware and software, five years for
machinery and equipment and seven years for furniture and fixtures
and the lesser of the useful life or lease term for leasehold improvements.
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Intangible Assets |
Intangible Assets
Intangible assets consist of core technology, product technology, customer relationships, trademarks and distribution rights. Intangible assets are
amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from
to 12 years. |
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Goodwill |
Goodwill
Goodwill is the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed. Goodwill is not
amortized, but is subject to an annual impairment test. The Company has two reporting units and goodwill is allocated to the
reporting units (see Note 15).
The Company performs its goodwill impairment test on an annual basis in the fourth quarter of each fiscal year or more frequently if changes in circumstances or the
occurrence of events suggest that an impairment exists. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded for the amount by which the carrying amount of the reporting unit, including
goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. In conjunction with the annual budgeting process during the fourth quarter of 2023 and using data collected since the official launch
of the TheraClear devices, the Company reduced its projected earnings from TheraClear devices (see Note 3). As a result, the Company bypassed the qualitative assessment of goodwill impairment and performed a quantitative assessment by
comparing the fair value of each reporting unit with its carrying amount. The Company recorded a $2.3 million impairment charge related to goodwill, which was the amount of the
excess of the carrying value of the dermatology recurring procedures reporting unit over its fair value. The impairment was primarily driven by a decline in projected cash flows, including revenues and profitability. The fair values of the
reporting units were determined using both a market and income approach, with the market approach given a 25% weighting and the
income approach given a 75% weighting. Significant assumptions used in the income approach include growth and discount rates,
profit margins and the Company’s weighted average cost of capital. Historical performance and management estimates of future performance were used to determine profit margins and growth rates.
The impairment charge is included in impairment of goodwill within the consolidated
statement of operations for the year ended December 31, 2023. The dermatology procedures equipment reporting unit was not identified as having impairment for the year ended December 31, 2023. The Company’s annual goodwill impairment test
resulted in no impairment charge during the year ended December 31, 2022.
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Impairment of Long-Lived Assets and Intangibles |
Impairment of Long-Lived Assets and Intangibles
The Company reviews its long-lived assets and intangible assets subject to amortization for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset group may not be recoverable. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset group to future net cash flows expected to be generated by the asset
group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset group exceeds the fair value of the asset group, less costs to sell. The Company did not record any charges related to asset impairment during the years ended December 31, 2023 and 2022.
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Fair Value Measurements |
Fair Value Measurements
The Company measures financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires the use of
observable inputs and minimizes the use of unobservable inputs. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that
is available and significant to the fair value measurement:
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Accrued Warranty Costs |
Accrued Warranty Costs
The Company offers a
standard warranty on product sales generally for a to two-year period, however, the Company has offered longer warranty periods, ranging from 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.
The activity in the warranty accrual during the years
ended December 31, 2023 and 2022 is summarized as follows (in thousands):
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Debt Issuance Costs |
Debt Issuance Costs
The Company capitalizes direct costs incurred to obtain debt financing and amortizes these costs to interest expense over
the term of the debt using the effective interest method. These costs are recorded as a debt discount and are netted against the related debt on the Company’s consolidated balance sheets.
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Revenue Recognition |
Revenue Recognition
Revenues from the Company’s dermatology recurring procedures customers are earned by providing physicians with its laser products and charging the physicians a fee for a fixed number of treatment sessions or a fixed fee
for a specified period of time not to exceed an agreed upon number of treatments; if that number is exceeded additional fees will have to be paid. The placement of the laser products at physician locations represents embedded leases which are
accounted for as operating leases. For the lasers placed-in service under these arrangements, the terms of the domestic arrangements are generally 36
months with automatic one-year renewals and include a termination clause that can be effected at any time by either party with 30 to 60 day notice. Amounts paid
are generally non-refundable. Sales of access codes for a fixed number of treatment sessions are considered variable treatment code payments and are recognized as revenue over the estimated usage period of the agreed upon number of
treatments. Sales of access codes for a specified period of time are recognized as revenue on a straight-line basis as the lasers are being used over the term specified in the agreement. Variable treatment code payments that will be paid only
if the customer exceeds the agreed upon number of treatments are recognized only when such treatments are being exceeded and used. Internationally, the Company generally sells access codes for a fixed amount on a monthly basis to its
distributors and the terms are generally 48 months, with termination in the event of the customers’ failure to remit payments
timely, and include a potential buy-out at the end of the term of the contract. Currently, this is the only foreign recurring revenue. Prepaid amounts recorded in deferred revenue and customer deposits recorded in accounts payable are
recognized as revenue over the lease term in the patterns described above. Pricing is fixed with the customer. With respect to lease and non-lease components, the Company adopted the practical expedient to account for the arrangement as a
single lease component.
Revenues from the Company’s dermatology procedures equipment are recognized when control of the promised goods or services is transferred to its
customers or distributors, in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. Accordingly, the Company determines revenue recognition through the following steps:
Accounting for the Company’s contracts involves the use of significant judgments and estimates including determining the separate performance obligations, allocating the
transaction price to the different performance obligations and determining the method to measure the entity’s performance toward satisfaction of performance obligations that most faithfully depicts when control is transferred to the customer.
The Company allocates the contract’s transaction price to each performance obligation using the Company’s best estimate of the standalone selling price for each distinct good or service in the contract. The Company maximizes the use of
observable inputs by beginning with average historical contractual selling prices and adjusting as necessary and on a consistent and rational basis for other inputs such as pricing trends, customer types, volumes and changing cost and
margins.
Revenues from dermatology procedures equipment are recognized when control of the promised products is transferred to either the Company’s distributors or end-user customers, in
an amount that reflects the consideration the Company expects to be entitled to in exchange for those products (the transaction price). Control transfers to the customer at a point in time. To indicate the transfer of control, the Company
must have a present right to payment and legal title must have passed to the customer. The Company ships most of its products FOB shipping point, and as such, the Company primarily transfers control and records revenue upon shipment. From
time to time the Company will grant certain customers, for example governmental customers, FOB destination terms, and the transfer of control for revenue recognition occurs upon receipt. The Company has elected to recognize the cost of
freight and shipping activities as fulfillment costs. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of the underlying goods are transferred to the
customer. The related shipping and freight charges incurred by the Company are included in cost of revenues.
The following table presents the Company’s net revenues disaggregated by dermatology recurring procedures and dermatology procedures equipment (in thousands):
The following table summarizes the Company’s expected future undiscounted fixed treatment code payments from international dermatology recurring procedures, the Company’s only
long-term arrangements (in thousands):
Remaining performance obligations related to ASC 606 represent the aggregate transaction price allocated to performance obligations with an original contract term greater than
one year, which are fully or partially unsatisfied at the end of the period. Remaining performance obligations include the potential obligation to perform under extended warranties and service contracts but exclude any dermatology procedures equipment accounted for as leases. As of December 31, 2023 and 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $0.7
million and $0.6 million, respectively, and the Company expects to recognize $0.3 million and $0.4 million, respectively, of the remaining performance obligations within one year and the remainder over 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 and service contracts 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 standalone warranty contracts sold in the ordinary course of business. The advance consideration received from customers for the
warranty services is a contract liability that is recognized ratably over the warranty period. As of December 31, 2023 and 2022, the $0.3
million and $0.4 million of short-term contract liabilities, respectively, is presented as deferred revenues and the $0.4 million
and $0.2 million
of long-term contract liabilities, respectively, is presented within deferred revenues and other liabilities on the consolidated balance sheets. For the years ended December 31, 2023 and 2022, the Company recognized $0.4 million and $0.9 million, respectively, as revenue from amounts classified as contract liabilities (i.e. deferred revenues) as of December 31, 2022 and
2021.
With respect to contract acquisition costs, the Company applies the practical
expedient and expenses these costs immediately.
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Engineering and Product Development |
Engineering and Product Development
Engineering and product development costs associated with research, new product development and product redesign are expensed
as incurred.
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Advertising Costs |
Advertising Costs
Advertising costs are expensed as incurred and included in selling and marketing expenses within the Company’s consolidated statement of
operations. The Company recognized advertising costs of $0.5 million and $1.6 million during the years ended December 31, 2023 and 2022, respectively.
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Stock-Based Compensation |
Stock-Based Compensation
The Company measures share-based awards at their grant-date fair value and records compensation expense on a straight-line basis over the
requisite service period of the awards.
Estimating the fair value of share-based awards requires the input of subjective assumptions,
including the expected life of the options and stock price volatility. The Company accounts for forfeitures of stock option awards as they occur. The estimated fair value of restricted stock awards is equal to the Company’s common stock
price at the grant date. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in estimating the fair value of stock-option awards represent management’s estimate and involve inherent
uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, share-based compensation expense could be materially different for future awards.
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Income Taxes |
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax basis of assets and liabilities, as well as on net operating loss carryforwards, and are measured using enacted tax rates and laws that are expected to be in effect when the
differences reverse. Any resulting net deferred tax assets are evaluated for recoverability and, accordingly, a valuation allowance is provided when it is not more likely than not that all or some portion of the deferred tax asset will be
realized.
The Company recognizes the tax effects of uncertain tax positions only if the position is “more-likely-than-not” to be sustained were it to be
challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the
“more-likely-than-not” threshold, the largest amount of tax benefit that is more than 50% likely to be recognized upon ultimate settlement with the taxing authority is recorded. The Company has no uncertain tax positions as of December 31,
2023. The Company includes interest and penalties related to income tax obligations within income tax expense. The Company’s tax years are still under open status from 2020 to present.
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Net Loss Per Share |
Net Loss Per Share
Basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of
shares of common stock outstanding during each period. Diluted loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities such as unvested restricted stock awards, stock options and
warrants for common stock which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same as for basic net loss per share due to the
fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.
The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock
outstanding, as they would be anti-dilutive:
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Accounting Pronouncements Recently Adopted and Recent Accounting Pronouncements Not Yet Adopted |
Accounting Pronouncements Recently Adopted
In June
2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended subsequently by ASUs 2018-19, 2019-04,
2019-05, 2019-10, 2019-11 and 2020-03. The guidance in the ASUs requires that credit losses be reported using an expected losses model rather than the incurred losses model that was previously used. The standard also establishes additional
disclosures related to credit risks. This standard was effective for fiscal years beginning after December 15, 2022. The adoption of this guidance on January 1, 2023 did not have a material effect on the consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In August 2020, the FASB issued ASU 2020-06, Debt with
Conversion and Other Options (Subtopic 470-20) and Derivative and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s own Equity. The pronouncement
simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Specifically, the ASU simplifies accounting for convertible
instruments by removing major separation models required under current GAAP. In addition, the ASU removes certain settlement conditions that are required for equity contracts to qualify for it and simplifies the diluted earnings per share
(EPS) calculations in certain areas. The guidance is effective for annual periods, including interim periods, beginning after December 15, 2023 and early adoption is permitted. The Company does not currently believe it will have a material
effect on its consolidated financial statements, but it could in the future.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which will primarily
require enhanced disclosures about significant segment expenses and information used to assess segment performance and enhanced disclosures in interim periods. The guidance in this ASU will be applied retrospectively and is effective for
fiscal years beginning after December 15, 2023 and interim reporting periods in fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the effect this ASU will have on its
consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to improve income tax disclosure
requirements by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) the disaggregation of income taxes paid by jurisdiction. The guidance makes several other changes to the income
tax disclosure requirements. The guidance in this ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for
issuance. The Company is currently evaluating the effect this ASU will have on its consolidated financial statements.
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