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What changed in STRATA Skin Sciences, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of STRATA Skin Sciences, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+315 added−278 removedSource: 10-K (2024-03-28) vs 10-K (2023-03-31)

Top changes in STRATA Skin Sciences, Inc.'s 2023 10-K

315 paragraphs added · 278 removed · 217 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

46 edited+5 added−5 removed89 unchanged
Biggest changeWhile most offices have reopened, some physician practices closed and never reopened, and the impact of the ongoing COVID-19 pandemic and its variants on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frames, will depend on future developments, including, but not limited to, the ongoing mutations and spread of the COVID-19 virus, impact on business operations, supply chains, and transport, and governmental and societal responses thereto, all of which are uncertain and cannot be predicted.
Biggest changeAccordingly, the COVID-19 pandemic and its variants have negatively impacted our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frames and those of our primary customers. It has also negatively impacted our supply chains and transport, customer behavior and staffing.
We have signed distributor contracts by year as follows: 2019 – Korea, 2020 – Japan, 2021 – China, Israel, Saudi Arabia, Kuwait, Oman, Qatar, Bahrain, UAE, Jordan, Iraq and 2023 – Mexico. Studies have concluded that XTRAC treatment leads to significant improvement in psoriasis plaques and severity scores in as few as six to ten treatments.
We have signed distributor contracts by year as follows: 2019 – Korea, 2020 – Japan, 2021 – China, Israel, Saudi Arabia, Kuwait, Oman, Qatar, Bahrain, UAE, Jordan, Iraq and 2023 – Mexico, India. Studies have concluded that XTRAC treatment leads to significant improvement in psoriasis plaques and severity scores in as few as six to ten treatments.
In February 2022, we announced the commercial launch of our next generation excimer laser system, XTRAC Momentum TM 1.0, which delivers higher power and a faster repetition rate than the current models, along with a new user interface and slim design.
In February 2022, we announced the commercial launch of our next generation excimer laser system, XTRAC Momentum® 1.0, which delivers higher power and a faster repetition rate than the current models, along with a new user interface and slim design.
Food and Drug Administration (“FDA”) clearance in 2000 and the Pharos in 2004, and excimer laser has since become a widely recognized treatment for psoriasis, vitiligo and other skin diseases. Psoriasis and vitiligo alone affect up to 13 million people in the U.S. and 195 million people worldwide.
Food and Drug Administration (“FDA”) clearance in 2000 and the Pharos system in 2004, and excimer laser has since become a widely recognized treatment for psoriasis, vitiligo and other skin diseases. Psoriasis and vitiligo alone affect up to 13 million people in the U.S. and 195 million people worldwide .
These filings are available to the public on the Internet at the Commission’s website at http://www.sec.gov . Our Internet address is http://www.strataskinsciences.com (this website address is not intended to function as a hyperlink and the information contained on our website is not intended to be a part of this Report).
These filings are available to the public on the Internet at the Commission’s website at http://www.sec.gov. Our Internet address is http://www.strataskinsciences.com (this website address is not intended to function as a hyperlink and the information contained on our website is not intended to be a part of this Annual Report).
Specific advertisements encourage prospective patients to contact our patient advocacy center via telephone or web site, wherein we provide information on the treatment and insurance coverage, and ultimately we can schedule an appointment for the prospective patient to be evaluated by a physician within our customer network, convenient to their location, to determine if they would benefit from XTRAC treatments. 6 Table of Contents STRATAPEN In January 2017, we entered into an OEM agreement with Esthetic Education, LLC to private label the STRATAPEN device.
Specific advertisements encourage prospective patients to contact our patient advocacy center via telephone or web site, wherein we provide information on the treatment and insurance coverage, and ultimately we can schedule an appointment for the prospective patient to be evaluated by a physician within our customer network, convenient to their location, to determine if they would benefit from XTRAC treatments. 5 Table of Contents STRATAPEN In January 2017, we entered into an OEM agreement with Esthetic Education, LLC to private label the STRATAPEN device.
Food, Drug and Cosmetics Act, or FD&C Act, and other federal and state laws and regulations govern the pre-clinical and clinical testing, design, manufacture, use, labeling and promotion of medical devices, including our XTRAC, VTRAC, STRATAPEN and TheraClear devices.
Food, Drug and Cosmetics Act, or FD&C Act, and other federal and state laws and regulations govern the pre-clinical and clinical testing, design, manufacture, use, labeling and promotion of medical devices, including our XTRAC, VTRAC, and TheraClear devices.
It received FDA clearance in August 2005 and Conformité Européenne (“CE”) mark approval in January 2006 and has been marketed exclusively in international markets. 4 Table of Contents Present in natural sunlight, ultraviolet B (“UVB”) is an accepted psoriasis treatment that penetrates the skin to slow the growth of damaged skin cells thereby placing the disease into remission for a period of time.
It received FDA clearance in August 2005 and Conformité Européenne (“CE”) mark approval in January 2006 and has been marketed exclusively in international markets. 3 Table of Contents Present in natural sunlight, ultraviolet B (“UVB”) is an accepted psoriasis treatment that penetrates the skin to slow the growth of damaged skin cells thereby placing the disease into remission for a period of time.
(See “Third Party Reimbursement” below.) 5 Table of Contents Psoriasis, the Disease The World Health Organization describes psoriasis as a chronic, noncommunicable, painful, disfiguring and disabling disease for which there is no cure, and which generates a great negative impact on patients’ quality of life.
(See “Third Party Reimbursement” below.) 4 Table of Contents Psoriasis, the Disease The World Health Organization describes psoriasis as a chronic, noncommunicable, painful, disfiguring and disabling disease for which there is no cure, and which generates a great negative impact on patients’ quality of life.
Russia-Ukraine War Prior to the outbreak of the Russia-Ukraine War, Ukraine was the largest exporter of noble gases including neon, krypton, and xenon. Historically, Ukraine has been the source of a significant amount of gas supplied to the Company by our contract suppliers. Neon gas is essential to the proper functioning of our lasers.
Impact of Russia-Ukraine War Prior to the outbreak of the Russia-Ukraine War, Ukraine was the largest exporter of noble gases including neon, krypton, and xenon and has historically been the source of a significant amount of gas supplied to us by our contract suppliers. Neon gas is essential to the proper functioning of our lasers.
We may from time to time provide important disclosures to investors by posting them in the Investor Relations section of our website, as allowed by the Commission’s rules. The information on the website listed above is not and should not be considered part of this Report and is intended to be an inactive textual reference only. 14 Table of Contents
We may from time to time provide important disclosures to investors by posting them in the Investor Relations section of our website, as allowed by the Commission’s rules. The information on the website listed above is not and should not be considered part of this Annual Report and is intended to be an inactive textual reference only.
In October 2004 the FDA granted clearance for the XTRAC Ultra (AL 8000) Excimer Laser System and, in March 2008 we received 510(k) clearance for the XTRAC Velocity (AL 10000) Excimer Laser System. 8 Table of Contents These approvals were originally granted to PhotoMedex, Inc. and acquired by us in the June 2015 acquisition described above.
In October 2004 the FDA granted clearance for the XTRAC Ultra (AL 8000) Excimer Laser System and, in March 2008 we received 510(k) clearance for the XTRAC Velocity (AL 10000) Excimer Laser System. These approvals were originally granted to PhotoMedex, Inc. and acquired by us in the June 2015 acquisition described above.
XTRAC treatment is a reimbursable procedure for psoriasis under three Current Procedural Terminology (“CPT”) codes. There are three applicable CPT codes that differ based on the total skin surface area being treated. Insurance Reimbursement to physicians varies based upon insurance company and location.
XTRAC treatment is a reimbursable procedure for psoriasis under three Current Procedural Terminology (“CPT”) codes that differ based on the total skin surface area being treated. Insurance Reimbursement to physicians varies based upon insurance company and location.
In January 2020, we announced the FDA granted clearance of our XTRAC Momentum Excimer Laser platform. The TheraClear device has been cleared by the FDA through the 510(k) process.
In January 2020, we announced the FDA granted clearance of our XTRAC Momentum Excimer Laser platform. 7 Table of Contents The TheraClear device has been cleared by the FDA through the 510(k) process.
We have signed distributor contracts by year as follows: 2019 – Korea, 2020 – Japan, 2021 – China, Israel, Saudi Arabia, Kuwait, Oman, Qatar, Bahrain, UAE, Jordan, Iraq and 2023 – Mexico. 13 Table of Contents Available Information We file annual, quarterly and current reports, proxy statements and other information with the Commission.
We have signed distributor contracts by year as follows: 2019 – Korea, 2020 – Japan, 2021 – China, Israel, Saudi Arabia, Kuwait, Oman, Qatar, Bahrain, UAE, Jordan, Iraq and 2023 – Mexico, India. Available Information We file annual, quarterly and current reports, proxy statements and other information with the Commission.
Customers Domestically, our XTRAC customers consist of dermatologists and dermatological group clinics who partner with us primarily in our dermatology procedures recurring revenue model. As of December 31, 2022, we have 909 partner clinics throughout the United States.
Customers Domestically, our XTRAC customers consist of dermatologists and dermatological group clinics who partner with us primarily in our dermatology procedures recurring revenue model. As of December 31, 2023, we have 923 partner clinics throughout the United States .
However, over the past several years, there has been a significant increase in insurance coverage for these procedures and we estimate that currently approximately 76% of insurers consider XTRAC treatments to be medically necessary for the treatment of vitiligo and therefore provide coverage.
However, over the past several years, there has been a significant increase in insurance coverage for these procedures and we estimate that as of December 31, 2023 , approximately 76% of insurers consider XTRAC treatments to be medically necessary for the treatment of vitiligo and therefore provide coverage.
The national CPT code reimbursement established by the Center for Medicaid Services (“CMS”), which forms the basis for most insurance companies’ reimbursement levels, ranges for the three codes between $162 per treatment to $240 per treatment.
The national CPT code reimbursement established by the Center for Medicaid Services (“CMS”), which forms the basis for most insurance companies’ reimbursement levels, ranges for the three codes between $153 per treatment to $228 per treatment.
We estimate that there are over 1,000 XTRAC lasers in use in the U.S., of which 909 systems were, as of December 31, 2022, included in our dermatology recurring procedures revenue model. The Pharos business provides the opportunity for us to convert the customer base to our XTRAC excimer laser system.
We estimate that there are over 1,000 XTRAC lasers in use in the U.S., of which 923 systems were, as of December 31, 2023, included in our dermatology recurring procedures revenue model. The Pharos business we acquired in 2021 provides us with the opportunity to convert the Pharos customer base to our XTRAC excimer laser system.
In April 2010, we changed our name to MELA Sciences, Inc. On January 5, 2016, we changed our name to STRATA Skin Sciences, Inc. In June 2015, we completed the acquisition of the XTRAC® Excimer Laser and the VTRAC® excimer lamp businesses from PhotoMedex, Inc. (the “Acquisition”).
In April 2010, we changed our name to MELA Sciences, Inc. In June 2015, we completed the acquisition of the XTRAC® Excimer Laser and the VTRAC® excimer lamp businesses from PhotoMedex, Inc. (the “Acquisition”).
Additionally, the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 has led to a further tightening of rare gas supplies as chip manufacturers reconfigure their supply chains to address the need to secure their own supplies of rare gases for use in the manufacture of computer chips, while struggling with the disruptions caused by this war.
Additionally, the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 has led to a further tightening of rare gas supplies as semiconductor chip manufacturers reconfigure their supply chains to address the need to secure their own supplies of rare gases for use in the manufacture of computer chips.
Our business is subject to compliance with these laws. Anti-Kickback Laws In the U.S., there are federal and state anti-kickback laws that generally prohibit the payment or receipt of kickbacks, bribes or other remuneration in exchange for the referral of patients or other health-related business.
Anti-Kickback Laws In the U.S., there are federal and state anti-kickback laws that generally prohibit the payment or receipt of kickbacks, bribes or other remuneration in exchange for the referral of patients or other health-related business.
Our supporters have been resourceful in continuing to supply gases to us but cannot assure us that the supply will not remain uninterrupted. The reduced supply and war have raised the price of gas significantly worldwide.
Our suppliers have been resourceful in continuing to supply gases to us but cannot assure us that the supply will not remain uninterrupted. The reduced supply and ongoing conflict have also impacted the price of gas worldwide.
The pandemic led to the suspension of elective procedures in the U.S. and to the temporary closure of many physician practices, which are our primary customers.
The pandemic led to the suspension of elective procedures in the U.S. and to the temporary closure of many physician practices, which are our primary customers. While most offices have reopened, some physician practices closed and never reopened.
Our TheraClear device is being manufactured for us by a third party and we purchase our STRATAPEN devices from third parties, who are subject to the same regulations. We rely on these third parties to ensure compliance with the regulations.
Our TheraClear device is being manufactured for us by a third party, who is subject to the same regulations. We rely on the manufacturer to ensure compliance with the regulations.
Imposition of these penalties is more likely now because HITECH significantly strengthens enforcement. It requires the Department of Health & Human Services (“HHS”) to conduct periodic audits to confirm compliance and to investigate any violation that involves willful neglect which carries mandatory penalties.
It requires the Department of Health & Human Services (“HHS”) to conduct periodic audits to confirm compliance and to investigate any violation that involves willful neglect which carries mandatory penalties.
Certification to the standard is awarded by accredited third parties. We believe that our present manufacturing capacity at these facilities is sufficient to meet foreseeable demand for our products. Research and Development Efforts Our research and development team, including engineers, consists of approximately four employees. We conduct research and development activities at our facility located in Carlsbad, California.
Certification to the standard is awarded by accredited third parties. We maintain third-party relationships for the manufacture and/or maintenance of our Pharos and TheraClear systems. We believe that our present manufacturing capacity at these facilities is sufficient to meet foreseeable demand for our products. Research and Development Efforts Our research and development team, including engineers, consists of approximately four employees.
As of December 31, 2022, 28 issued U.S. patents are in force, and many of these patents have foreign counterparts issued and pending. The Company maintains 15 patents from Mela Sciences, Inc. related to the MelaFind product. 7 Table of Contents We also rely on trade secrets and technical know-how in the manufacture and marketing of our products.
As of December 31, 2023, 24 issued U.S. patents are in force or pending, several of these patents have foreign counterparts issued and pending, and 15 patents are related to the discontinued MelaFind product. 6 Table of Contents We also rely on trade secrets and technical know-how in the manufacture and marketing of our products.
Medical device companies, like us, can be held liable under false claims laws, even if they do not submit claims to the government, when they are deemed to have caused submission of false claims by, among other things, providing incorrect coding or billing advice about their products to customers that file claims, or by engaging in kickback arrangements with customers that file claims. 10 Table of Contents The False Claims Act also has been used to assert liability on the basis of misrepresentations with respect to the services rendered and in connection with alleged off-label promotion of products.
Medical device companies, like us, can be held liable under false claims laws, even if they do not submit claims to the government, when they are deemed to have caused submission of false claims by, among other things, providing incorrect coding or billing advice about their products to customers that file claims, or by engaging in kickback arrangements with customers that file claims.
HIPAA Fraud and Other Regulations The Health Insurance Portability and Accountability Act of 1996, or HIPAA, created a class of federal crimes known as the “federal health care offenses,” including healthcare fraud and false statements relating to healthcare matters.
However, the costs of defending such claims, as well as any sanctions imposed, could significantly affect our financial performance. 9 Table of Contents HIPAA Fraud and Other Regulations The Health Insurance Portability and Accountability Act of 1996, or HIPAA, created a class of federal crimes known as the “federal health care offenses,” including healthcare fraud and false statements relating to healthcare matters.
Our research and development efforts are focused on the application of our XTRAC system for the treatment of inflammatory skin disorders. Intellectual Property Our policy is to protect our intellectual property by obtaining U.S. and foreign patents to protect technology, inventions and improvements important to the development of our business.
Intellectual Property Our policy is to protect our intellectual property by obtaining U.S. and foreign patents to protect technology, inventions and improvements important to the development of our business.
We are unable to predict whether we would be subject to actions under the False Claims Act or a similar state law, or the impact of such actions. However, the costs of defending such claims, as well as any sanctions imposed, could significantly affect our financial performance.
We are unable to predict whether we would be subject to actions under the False Claims Act or a similar state law, or the impact of such actions.
STRATAPEN® MicroSystems is a micropigmentation device that provides advanced technology offering exceptional results. This contract expired in January 2020, but we continue to sell this product on a purchase order basis. THERACLEAR In January 2022, we acquired the TheraClear assets from Theravant Corporation.
STRATAPEN® MicroSystems is a micropigmentation device that provides advanced technology offering exceptional results. This contract expired in January 2020, and we continued to sell parts and accessories through January 1, 2024. The Company no longer offers the device or accessories. TheraClear In January 2022, we acquired the TheraClear assets from Theravant Corporation.
Additionally, state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations of HIPAA Privacy and Security Rules that threaten the privacy of state residents.
Additionally, state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations of HIPAA Privacy and Security Rules that threaten the privacy of state residents. 10 Table of Contents In addition to federal regulations issued under HIPAA, some states have enacted privacy and security statutes or regulations that, in some cases, are more stringent than those issued under HIPAA.
We are, or may become, subject to various other federal, state, local and foreign laws, regulations and policies relating to, among other things, safe working conditions, good laboratory practices and the use and disposal of hazardous or potentially hazardous substances used in connection with research and development. 9 Table of Contents Fraud and Abuse Laws Because of the significant federal funding involved in Medicare and Medicaid, Congress and the states have enacted, and actively enforce, a number of laws whose purpose is to eliminate fraud and abuse in federal health care programs.
We are, or may become, subject to various other federal, state, local and foreign laws, regulations and policies relating to, among other things, safe working conditions, good laboratory practices and the use and disposal of hazardous or potentially hazardous substances used in connection with research and development.
Employees As of December 31, 2022, we had 114 full-time employees, which consisted of 2 executive officers, 3 vice presidents, 60 sales and marketing staff, 17 people engaged in manufacturing of lasers, 16 customer-field service personnel, 4 engaged in research and development and 12 finance and administration staff.
The national rates are adjusted by overhead factors applicable to each state. 11 Table of Contents Employees As of December 31, 2023, we had 99 full-time employees, which consisted of 2 executive officers, 3 vice presidents, 35 sales and marketing staff, 28 people engaged in manufacturing of lasers, 15 customer-field service personnel, 4 engaged in research and development and 12 finance and administration staff.
Prior to the Acquisition, the Company’s only product was the MelaFind® system, or MelaFind, a device for aiding dermatologists in the evaluation of clinically atypical pigmented skin lesions. We have discontinued the MelaFind business. In August 2021 and January 2022, we acquired the Pharos U.S. dermatology business and the TheraClear acne treatment business, respectively.
Prior to the Acquisition, the Company’s only product was the MelaFind® system, or MelaFind, a device for aiding dermatologists in the evaluation of clinically atypical pigmented skin lesions. On January 5, 2016, we changed our name to STRATA Skin Sciences, Inc., and we have discontinued the MelaFind business.
We believe that several factors have limited the growth of the use of XTRAC treatments from those who suffer from psoriasis and vitiligo.
Recent changes to CPT code descriptions may impact the extent of this coverage in the future. We believe that several factors have limited the growth of the use of XTRAC treatments for those who suffer from psoriasis and vitiligo.
Our XTRAC products remain substantially without approval for reimbursement in many international markets under either government or private reimbursement systems.
Our XTRAC products remain substantially without approval for reimbursement in many international markets under either government or private reimbursement systems. To date, patients of the TheraClear products have had limited success in obtaining third party reimbursement for such treatments.
The reach of the Anti-Kickback Statute was broadened by the Patient Protection and Affordable Care Act of 2010 (the “ACA”), which, among other things, amends the intent requirement of the federal Anti-Kickback Statute.
In addition, several courts have permitted kickback cases brought under the Federal False Claims Act to proceed, as discussed in more detail below. 8 Table of Contents The reach of the Anti-Kickback Statute was broadened by the Patient Protection and Affordable Care Act of 2010 (the “ACA”), which, among other things, amends the intent requirement of the federal Anti-Kickback Statute.
While the government intended this legislation to reduce administrative expenses and burdens for the healthcare industry, our compliance with certain provisions of these standards entails significant costs for us. 11 Table of Contents The Health Information Technology for Economic and Clinical Health, or HITECH, Act has increased civil penalty amounts for violations of HIPAA by either covered entities or business associates up to an annual maximum of $1.5 million for uncorrected violations based on willful neglect.
The Health Information Technology for Economic and Clinical Health, or HITECH, Act has increased civil penalty amounts for violations of HIPAA by either covered entities or business associates up to an annual maximum of $1.5 million for uncorrected violations based on willful neglect. Imposition of these penalties is more likely now because HITECH significantly strengthens enforcement.
If we fail to comply with applicable state laws and regulations, we could be subject to additional sanctions.
In those cases, it may be necessary to modify our planned operations and procedures to comply with the more stringent state laws. If we fail to comply with applicable state laws and regulations, we could be subject to additional sanctions.
CMS assigned a 2022 national payment of $176 per treatment; and • 96922 – designated for: the total area over 500 square centimeters. CMS assigned a 2022 national payment of $240 per treatment. The national rates are adjusted by overhead factors applicable to each state.
CMS assigned a 2023 national payment of $153 per treatment; • 96921 – designated for: the total area 250 to 500 square centimeters. CMS assigned a 2023 national payment of $168 per treatment; and • 96922 – designated for: the total area over 500 square centimeters. CMS assigned a 2023 national payment of $228 per treatment.
Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. In addition, several courts have permitted kickback cases brought under the Federal False Claims Act to proceed, as discussed in more detail below.
Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs.
To date, patients of the TheraClear products have had limited success in obtaining third party reimbursement for such treatments. 12 Table of Contents Many private plans key their reimbursement rates to rates set by the CMS under three distinct CPT codes based on the total skin surface area being treated.
Many private plans key their reimbursement rates to rates set by the CMS under three distinct CPT codes based on the total skin surface area being treated. As of December 31, 2023 , the national rates were as follows: • 96920 – designated for: the total area less than 250 square centimeters.
While many of COVID-19’s initial disruptions and damage to the global economy have been mitigated, the COVID-19 pandemic has continued to negatively impact the economy, disrupted global supply chains, constrained workforce participation and created significant volatility and disruption of financial markets.
Post- COVID-19 Pandemic Since March 2020, the global pandemic related to a new strain of coronavirus (“COVID-19”) has negatively impacted business conditions in the industry in which we operate, disrupted global supply chains, constrained workforce participation and created significant volatility and disruption of financial markets.
Removed
Impact of COVID-19 Pandemic In late 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”) which became a global pandemic.
Added
In August 2021 and January 2022, we acquired the Pharos U.S. dermatology business and the TheraClear acne treatment business, respectively.
Removed
The ongoing COVID-19 pandemic has had a negative impact on our results of operations and financial performance through fiscal 2022, and we expect it will continue to have a negative impact on revenues, earnings and cash flows until such time as our customers adjust to the pandemic’s ramifications.
Added
We conduct research and development activities at our facility located in Carlsbad, California. Our research and development efforts are focused on the application of our XTRAC system for the treatment of inflammatory skin disorders.
Removed
Some physician offices continue to experience staffing issues, and we believe these shortages of trained personnel have negatively impacted our business. Accordingly, current results and financial conditions discussed herein may not be indicative of future operating results and trends.
Added
Fraud and Abuse Laws Because of the significant federal funding involved in Medicare and Medicaid, Congress and the states have enacted, and actively enforce, a number of laws whose purpose is to eliminate fraud and abuse in federal health care programs. Our business is subject to compliance with these laws.
Removed
In addition to federal regulations issued under HIPAA, some states have enacted privacy and security statutes or regulations that, in some cases, are more stringent than those issued under HIPAA. In those cases, it may be necessary to modify our planned operations and procedures to comply with the more stringent state laws.
Added
The False Claims Act also has been used to assert liability on the basis of misrepresentations with respect to the services rendered and in connection with alleged off-label promotion of products.
Removed
As of December 31, 2022, the national rates were as follows: • 96920 – designated for: the total area less than 250 square centimeters. CMS assigned a 2022 national payment of $162 per treatment; • 96921 – designated for: the total area 250 to 500 square centimeters.
Added
While the government intended this legislation to reduce administrative expenses and burdens for the healthcare industry, our compliance with certain provisions of these standards entails significant costs for us.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

80 edited+40 added−22 removed180 unchanged
Biggest changeRisk Factor Summary Risks Relating to Our Business Operations • We have incurred losses for a number of years and anticipate that we will incur continued losses for the foreseeable future. • Our results of operations have been, and may continue to be, negatively impacted by COVID-19 or other future outbreak of any other highly infectious or contagious diseases. • We may not be able to maintain an uninterrupted supply of the gases used to power our lasers, as the Russia-Ukraine War has disrupted supplies of rare gases. • We may acquire other assets or businesses, or form collaborations or make investments in other companies or technologies that could harm our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense. • We may not be able to successfully integrate newly acquired businesses, joint ventures and other partnerships into our operations or achieve expected profitability from our acquisitions. • Our laser treatments of psoriasis, vitiligo, atopic dermatitis and leukoderma and/or any of our future products or services may fail to gain market acceptance or be impacted by competitive products, services or therapies which could adversely affect our competitive position. • The success of our products depends on third-party reimbursement of patients’ costs, which could result in potentially reduced prices or reduced demand and adversely affect our revenues and business operations. • The continuing development of our products depends upon our developing and maintaining strong working relationships with physicians. • Any failure in our customer education efforts could have a material adverse effect on our revenue and cash flow. • If revenue from significant distributors declines, we may have difficulty replacing the lost revenue, which would negatively affect our results and operations. • If we fail to manage our sales and marketing force or to market and distribute our products effectively, we may experience diminished revenues and profits. • We are reliant on a limited number of suppliers for production of our products. • Our indebtedness could materially adversely affect our financial condition and our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations under our debt and could divert our cash flow from operations for debt payments. 15 Table of Contents • If our actual liability for state sales and use taxes is higher than our accrued liability, it could have a material impact on our financial condition. • Our failure to respond to rapid changes in technology and other applications in the medical devices industry or the development of a cure for skin conditions treated by our products could make our treatment system obsolete. • Our customers, or physicians and technicians, as the case may be, may misuse certain of our products, and product liability lawsuits and other damages imposed on us may exceed our insurance coverage, or we may be subject to claims that are not covered by insurance. • We must comply with complex statutes prohibiting fraud and abuse, and both we and physicians utilizing our products could be subject to significant penalties for noncompliance. • We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and regulations and could face substantial penalties if we are unable to fully comply with such laws. • If the effectiveness and safety of our devices are not supported by long-term data, and the level of acceptance of our products by dermatologists does not increase or is not maintained, our revenues could decline. • Our failure to obtain or maintain necessary FDA clearances and approvals, or to maintain continued clearances, or equivalents thereof in the U.S. and relevant foreign markets, could hurt our ability to distribute and market our products. • If required, clinical trials necessary to support a 510(k) notice or PMA application, for new or modified products, will be expensive and will require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit. • Our medical device operations are subject to FDA regulatory requirements. • Healthcare policy changes may have a material adverse effect on us. • Our market acceptance in international markets requires regulatory approvals from foreign governments and may depend on third party reimbursement of participants’ cost. • We face substantial competition, which may result in others discovering, developing or commercializing products more successfully than us. • Consolidation in the medical device industry could have an adverse effect on our revenue and results of operations. • We actively employ social media as part of our marketing strategy, which could give rise to regulatory violations, liability, breaches of data security or reputational damage. • Social media companies on which we rely for advertising may change their policies limiting our ability to reach our target markets. • We may become subject to claims of infringement or misappropriation of the intellectual property rights of others, which could prohibit us from shipping affected products, require us to obtain licenses from third parties or to develop non-infringing alternatives, and subject us to substantial monetary damages and injunctive relief.
Biggest changeRisk Factor Summary Risks Relating to Our Business Operations • We have incurred losses for a number of years and anticipate that we will incur continued losses for the foreseeable future. • Public health epidemics or pandemics may affect our ability to develop, market and sell our products, disrupt regulatory activities or have other adverse effects on our business and operations. • We may not be able to maintain an uninterrupted supply of the gases used to power our lasers, as the Russia-Ukraine War has disrupted supplies of rare gases. • We may not be able to successfully integrate newly acquired businesses, joint ventures and other partnerships into our operations or achieve expected profitability from our acquisitions. • Our laser treatments of psoriasis, vitiligo, atopic dermatitis and leukoderma and/or any of our future products or services may fail to gain market acceptance or be impacted by competitive products, services or therapies which could adversely affect our competitive position. 12 Table of Contents • The success of our products depends on third-party reimbursement of patients' costs, which could result in potentially reduced prices or reduced demand and adversely affect our revenues and business operations. • Any failure in our customer education efforts could have a material adverse effect on our revenue and cash flow. • If revenue from significant distributors declines, we may have difficulty replacing the lost revenue, which would negatively affect our results and operations. • If we fail to manage our sales and marketing force or to market and distribute our products effectively, we may experience diminished revenues and profits. • We are reliant on a limited number of suppliers for production of our products. • Our indebtedness could materially adversely affect our financial condition and our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations under our debt and could divert our cash flow from operations for debt payments. • If our actual liability for state sales and use taxes is higher than our accrued liability, it could have a material impact on our financial condition. • We must comply with complex statutes prohibiting fraud and abuse, and both we and physicians utilizing our products could be subject to significant penalties for noncompliance. • We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and regulations and could face substantial penalties if we are unable to fully comply with such laws. • If the effectiveness and safety of our devices are not supported by long-term data, and the level of acceptance of our products by dermatologists does not increase or is not maintained, our revenues could decline. • Our failure to obtain or maintain necessary FDA clearances and approvals, or to maintain continued clearances, or equivalents thereof in the U.S. and relevant foreign markets, could hurt our ability to distribute and market our products, and our products are subject to recall by such agencies. • If required, clinical trials necessary to support a 510(k) notice or PMA application, for new or modified products, will be expensive and will require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit. • Healthcare policy changes may have a material adverse effect on us. • Our market acceptance in international markets requires regulatory approvals from foreign governments and may depend on third party reimbursement of participants’ cost. • We face substantial competition, which may result in others discovering, developing or commercializing products more successfully than us. • We actively employ social media as part of our marketing strategy, which could give rise to regulatory violations, liability, breaches of data security or reputational damage. • Social media companies on which we rely for advertising may change their policies limiting our ability to reach our target markets. • We may become subject to claims of infringement or misappropriation of the intellectual property rights of others, which could prohibit us from shipping affected products, require us to obtain licenses from third parties or to develop non-infringing alternatives, and subject us to substantial monetary damages and injunctive relief.
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 an oral argument held in January 2022 and, on May 6, 2022, we received a written decision from the State of New York Tax Appeals Tribunal (the “Tribunal”) overturning the favorable sales tax determination of the administrative law judge.
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 an oral argument held in January 2022, on May 6, 2022, we received a written decision from the State of New York Appeals Tribunal (“Tribunal”) overturning the favorable sales tax determination of the administrative law judge.
These requirements include, but are not limited to, filing certain reports with the FDA about the products and defects/safety issues related to the products as well as complying with radiological performance standards. The medical device industry is now experiencing greater scrutiny and regulation by federal, state and foreign governmental authorities.
These requirements include, but are not limited to, filing certain reports with the FDA about the products and defects/safety issues related to the products as well as complying with radiological performance standards. The medical device industry is now experiencing greater scrutiny and regulation by federal, state and foreign governmental authorities.
For example, the U.S. Physician Payment Sunshine Act, now known as Open Payments, requires us to report to the Centers for Medicare & Medicaid Services, or CMS, payments and other transfers of value to all U.S. physicians and U.S. teaching hospitals, with the reported information made publicly available on a searchable website.
Physician Payment Sunshine Act, now known as Open Payments, requires us to report to the Centers for Medicare & Medicaid Services, or CMS, payments and other transfers of value to all U.S. physicians and U.S. teaching hospitals, with the reported information made publicly available on a searchable website.
ITEM 1A. RISK FACTORS In addition to the other information contained in this Report and the exhibits hereto, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition, cash flows or results of operations could be materially adversely affected by any of these risks.
ITEM 1A. RISK FACTORS In addition to the other information contained in this Annual Report and the exhibits hereto, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition, cash flows or results of operations could be materially adversely affected by any of these risks.
Our indebtedness could materially adversely affect our financial condition and our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations under our debt and could divert our cash flow from operations for debt payments.
Our indebtedness could materially adversely affect our financial condition and our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations and could divert our cash flow from operations for debt payments.
Furthermore, all of our debt under the Senior Credit Facility bears interest at variable rates. As these rates increase as they did in 2022, our debt service obligations increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, correspondingly decrease.
Furthermore, all of our debt under the Senior Credit Facility bears interest at variable rates. As these rates increase as they did in 2023, our debt service obligations increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, correspondingly decrease.
As of December 31, 2021, we estimate, based on published coverage policies and on payment practices of private and Medicare insurance plans, that more than 86% of the insured population in the U.S. is covered by insurance coverage or payment policies that reimburse physicians for using the XTRAC system for treatment of psoriasis.
As of December 31, 2023 , based on published coverage policies and payment practices of private and Medicare insurance plans, we estimate that more than 86% of the insured population in the U.S. is covered by insurance coverage or payment policies that reimburse physicians for using the XTRAC system for treatment of psoriasis.
Acquisitions involve substantial risks, including: • unforeseen difficulties in integrating operations, technologies, services, accounting and personnel; • diversion of financial and management resources from existing operations; • unforeseen difficulties related to entering geographic regions where we do not have prior experience; • risks relating to obtaining sufficient equity or debt financing; and • potential loss of customers.
Acquisitions involve substantial risks, including: 15 Table of Contents • unforeseen difficulties in integrating operations, technologies, services, accounting and personnel; • diversion of financial and management resources from existing operations; • unforeseen difficulties related to entering geographic regions where we do not have prior experience; • risks relating to obtaining sufficient equity or debt financing; and • potential loss of customers.
There is no assurance that our efforts will be successful, and these limitations could have a material adverse effect on our financial position and results of operations. 29 Table of Contents These changes and additional proposed changes in the future could adversely affect the demand for our products as well as the way in which we conduct our business.
There is no assurance that our efforts will be successful, and these limitations could have a material adverse effect on our financial position and results of operations. These changes and additional proposed changes in the future could adversely affect the demand for our products as well as the way in which we conduct our business.
As a result of shares sold or issued under the circumstances described above, your percentage ownership in our common stock will be diluted in the future. In the event of certain contingencies, the investors in the May 2018 Equity Financing may receive additional shares issued pursuant to the Retained Risk Provisions as defined in the purchase agreements.
As a result of shares sold or issued under the circumstances described above, your percentage ownership in our common stock will be diluted in the future. 33 Table of Contents In the event of certain contingencies, the investors in the May 2018 Equity Financing may receive additional shares issued pursuant to the Retained Risk Provisions as defined in the purchase agreements.
Further, any such interruption, security breach, loss or disclosure of confidential information could result in financial, legal, business, and reputational harm to us and could have a material adverse effect on our business, results of operations and financial condition. 35 Table of Contents Environmental and health safety laws may result in liabilities, expenses and restrictions on our operations.
Further, any such interruption, security breach, loss or disclosure of confidential information could result in financial, legal, business, and reputational harm to us and could have a material adverse effect on our business, results of operations and financial condition. Environmental and health safety laws may result in liabilities, expenses and restrictions on our operations.
Any additional financing may dilute the ownership interest of our existing stockholders and could adversely affect the market price of our common stock. 34 Table of Contents If we do not have enough capital to fund operations, then we will have to cut costs or raise funds.
Any additional financing may dilute the ownership interest of our existing stockholders and could adversely affect the market price of our common stock. If we do not have enough capital to fund operations, then we will have to cut costs or raise funds.
There were additional contingencies included in the SPAs that expired in May 2020 and did not result in the issuance of shares. 36 Table of Contents Our stock price may be volatile, meaning purchasers of our common stock could incur substantial losses. Our stock price has been and is likely to continue to be volatile.
There were additional contingencies included in the SPAs that expired in May 2020 and did not result in the issuance of shares. Our stock price may be volatile, meaning purchasers of our common stock could incur substantial losses. Our stock price has been and is likely to continue to be volatile.
In order for TheraClear to be successful, patients and decision makers will need to be able to pay for treatments without insurance reimbursement. The continuing development of our products depends upon our developing and maintaining strong working relationships with physicians.
In order for TheraClear to be successful, patients and decision makers will need to be able to pay for treatments without insurance reimbursement. 17 Table of Contents The continuing development of our products depends upon our developing and maintaining strong working relationships with physicians.
Delays or failures in our clinical trials will prevent us from commercializing any modified or new products and will adversely affect our business, operating results and prospects. Initiating and completing clinical trials necessary to support a 510(k) notice or a PMA application will be time-consuming and expensive and the outcome uncertain.
Delays or failures in our clinical trials will prevent us from commercializing any modified or new products and will adversely affect our business, operating results and prospects. 24 Table of Contents Initiating and completing clinical trials necessary to support a 510(k) notice or a PMA application will be time-consuming and expensive and the outcome uncertain.
For example, SOFR is a secured overnight rate, while LIBOR is an unsecured rate that represents interbank funding over different maturities. In addition, because SOFR is a transaction-based rate, it is backward-looking, whereas LIBOR is forward-looking.
SOFR differs fundamentally from LIBOR. For example, SOFR is a secured overnight rate, while LIBOR is an unsecured rate that represents interbank funding over different maturities. In addition, because SOFR is a transaction-based rate, it is backward-looking, whereas LIBOR is forward-looking.
In some cases, we may look outside our organization for assistance in marketing our products. We are reliant on a limited number of suppliers for production of our products. Production of our products requires specific component parts obtained from our suppliers.
In some cases, we may look outside our organization for assistance in marketing our products. 18 Table of Contents We are reliant on a limited number of suppliers for production of our products. Production of our products requires specific component parts obtained from our suppliers.
This potential inability to obtain a control premium could reduce the price of our common stock. 38 Table of Contents
This potential inability to obtain a control premium could reduce the price of our common stock. 35 Table of Contents
In addition, subject to restrictions in the agreements governing our credit facilities, we may incur additional debt. 22 Table of Contents Our indebtedness could have negative consequences, including the following: • it may be difficult for us to satisfy our obligations, including debt service requirements under our outstanding debt, resulting in possible defaults on and acceleration of such indebtedness; • our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions or other general corporate purposes may be impaired; • a substantial portion of cash flow from operations may be dedicated to the payment of principal and interest on our debt, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures, future business opportunities, acquisitions and other purposes; • we are more vulnerable to economic downturns and adverse industry conditions and our flexibility to plan for, or react to, changes in our business or industry is more limited; • our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, may be compromised due to our high level of debt; and • our ability to borrow additional funds or to refinance debt may be limited.
Our indebtedness could have negative consequences, including the following: • it may be difficult for us to satisfy our obligations, including debt service requirements under our outstanding debt, resulting in possible defaults on and acceleration of such indebtedness; • our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions or other general corporate purposes may be impaired; • a substantial portion of cash flow from operations may be dedicated to the payment of principal and interest on our debt, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures, future business opportunities, acquisitions and other purposes; • we are more vulnerable to economic downturns and adverse industry conditions and our flexibility to plan for, or react to, changes in our business or industry is more limited; • our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, may be compromised due to our high level of debt; and • our ability to borrow additional funds or to refinance debt may be limited.
Our patents may also be subject to challenge on validity grounds, and our patent applications may be rejected. 16 Table of Contents • If we or our third-party manufacturers or suppliers fail to comply with the FDA’s Quality System Regulation or any applicable state equivalent, our manufacturing operations could be interrupted and our potential product sales and operating results could suffer. • If we fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with products, these products could be subject to restrictions or withdrawal from the market. • Our medical products may in the future be subject to product recalls that could harm our reputation, business and financial results. • If any of our medical products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions. • We may have a need for additional funds in the future and there is no guarantee that we will be able to generate those funds from our business. • If we do not have enough capital to fund operations, then we will have to cut costs or raise funds. • We may be subject to disruptions or failures in our information technology systems and network infrastructures, including through cyber-attacks or other third-party breaches that could have a material adverse effect on our business. • Environmental and health safety laws may result in liabilities, expenses and restrictions on our operations.
Our patents may also be subject to challenge on validity grounds, and our patent applications may be rejected. • If we or our third-party manufacturers or suppliers fail to comply with the FDA’s Quality System Regulation or any applicable state equivalent, our manufacturing operations could be interrupted and our potential product sales and operating results could suffer. • If any of our medical products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions. 13 Table of Contents • We may have a need for additional funds in the future and there is no guarantee that we will be able to generate those funds from our business, and if we do not have enough capital to fund operations, then we will have to cut costs or raise funds. • We may be subject to disruptions or failures in our information technology systems and network infrastructures, including through cyber-attacks or other third-party breaches that could have a material adverse effect on our business. • Environmental and health safety laws may result in liabilities, expenses and restrictions on our operations.
We may also be required to bear other costs or take other actions that may have a negative impact on our future sales and our ability to generate profits. 32 Table of Contents Current regulations depend heavily on administrative interpretation.
We may also be required to bear other costs or take other actions that may have a negative impact on our future sales and our ability to generate profits. Current regulations depend heavily on administrative interpretation.
In January 2021, we received notification that the administrative judge in this jurisdiction had issued an opinion finding in favor of us that the sale of XTRAC treatment codes were not taxable as sales tax with respect to the first assessment.
In January 2021, we received notification that the administrative judge in this jurisdiction had issued an opinion finding in favor of us that the sale of XTRAC treatment codes were not taxable as sales tax with respect to the first assessment, which amounted to $1.4 million.
Such increased costs and delays or failures could adversely affect our business, operating results and prospects. 28 Table of Contents Our medical device operations are subject to FDA regulatory requirements.
Such increased costs and delays or failures could adversely affect our business, operating results and prospects. Our medical device operations are subject to FDA regulatory requirements.
Failure by us to comply with statutes and regulations administered by the FDA and other regulatory bodies, discovery of previously unknown problems with our products (including unanticipated adverse events or adverse events of unanticipated severity or frequency), manufacturing problems, or failure to comply with regulatory requirements, or failure to adequately respond to any FDA observations concerning these issues, could result in, among other things, any of the following actions: • warning letters or untitled letters issued by the FDA; • fines, civil penalties, injunctions and criminal prosecution; • unanticipated expenditures to address or defend such actions; • delays in clearing or approving, or refusal to clear or approve, our products; • withdrawal or suspension of clearance or approval of our products by the FDA or other regulatory bodies; • product recall or seizure; • orders for physician or customer notification or device repair, replacement or refund; • interruption of production; and • operating restrictions. 33 Table of Contents If any of these actions were to occur, it would harm our reputation and adversely affect our business, financial condition and results of operations.
Failure by us to comply with statutes and regulations administered by the FDA and other regulatory bodies, discovery of previously unknown problems with our products (including unanticipated adverse events or adverse events of unanticipated severity or frequency), manufacturing problems, or failure to comply with regulatory requirements, or failure to adequately respond to any FDA observations concerning these issues, could result in, among other things, any of the following actions: • warning letters or untitled letters issued by the FDA; • fines, civil penalties, injunctions and criminal prosecution; • unanticipated expenditures to address or defend such actions; • delays in clearing or approving, or refusal to clear or approve, our products; • withdrawal or suspension of clearance or approval of our products by the FDA or other regulatory bodies; • product recall or seizure; • orders for physician or customer notification or device repair, replacement or refund; • interruption of production; and • operating restrictions.
In addition, the FDA could then bring legal or regulatory enforcement actions against us and/or our products including, but not limited to, recalls or requirements for premarket 510(k) authorizations. We can give no assurance that our data will be substantiated in studies involving more patients.
In addition, the FDA could then bring legal or regulatory enforcement actions against us and/or our products including, but not limited to, recalls or requirements for premarket 510(k) authorizations. We can give no assurance that our data will be substantiated in studies involving more patients. In such a case, we may never achieve significant revenues or profitability.
In addition, stockholders have, and may in the future, initiate securities class action lawsuits if the market price of our stock drops significantly. Whether or not meritorious, litigation brought against us could result in substantial costs and could divert the time and attention of our management.
In addition, stockholders have, and may in the future, initiate securities class action lawsuits if the market price of our stock drops significantly. Whether or not meritorious, litigation brought against us could result in substantial costs and could divert the time and attention of our management. Our insurance to cover claims of this sort may not be adequate.
Our net loss for the year ended December 31, 2022 was approximately $5.5 million, and as of December 31, 2022, we had an accumulated deficit of approximately $ 227 million. Our losses, among other things, have had and may continue to have an adverse effect on the adequacy of our capitalization and cash flow.
Our net loss for the year ended December 31, 2023 was approximately $10.8 million, and as of December 31, 2023 , we had an accumulated deficit of approximately $ 238.1 million. Our losses, among other things, have had and may continue to have an adverse effect on the adequacy of our capitalization and cash flow.
The healthcare laws and regulations that may affect our ability to operate include: • the federal healthcare programs’ anti-kickback laws, as modified by the ACA, which prohibits, among other things, persons or entities from soliciting, receiving, offering or providing remuneration, directly or indirectly, in return for or to induce either the referral of an individual for, or the purchase order or recommendation of, any item or service for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs; • federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, or are for items or services not provided as claimed and which may apply to entities like us to the extent that our interactions with customers may affect their billing or coding practices; • HIPAA, which established new federal crimes for knowingly and willfully executing a scheme to defraud any healthcare benefit program or making false statements in connection with the delivery of or payment for healthcare benefits, items or services, as well as leading to regulations imposing certain requirements relating to the privacy, security and transmission of individually identifiable health information; and • state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state laws governing the privacy of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
The healthcare laws and regulations that may affect our ability to operate include: • the federal healthcare programs’ anti-kickback laws, as modified by the ACA, which prohibits, among other things, persons or entities from soliciting, receiving, offering or providing remuneration, directly or indirectly, in return for or to induce either the referral of an individual for, or the purchase order or recommendation of, any item or service for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs; • federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, or are for items or services not provided as claimed and which may apply to entities like us to the extent that our interactions with customers may affect their billing or coding practices; • HIPAA, which established new federal crimes for knowingly and willfully executing a scheme to defraud any healthcare benefit program or making false statements in connection with the delivery of or payment for healthcare benefits, items or services, as well as leading to regulations imposing certain requirements relating to the privacy, security and transmission of individually identifiable health information; and • state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state laws governing the privacy of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. 22 Table of Contents The medical device industry has been under heightened scrutiny as the subject of government investigations and regulatory or legal enforcement actions involving manufacturers who allegedly offered unlawful inducements to potential or existing customers in an attempt to procure their business, including arrangements with physician consultants.
Future changes to environmental and health and safety laws could cause us to incur additional expenses or restrict our operations, which could have a material adverse effect on our business, financial condition, and results of operations.
Future changes to environmental and health and safety laws could cause us to incur additional expenses or restrict our operations, which could have a material adverse effect on our business, financial condition, and results of operations. Unfavorable global economic conditions could adversely affect our business, financial condition, stock price and results of operations.
Therefore, we cannot be certain that, if challenged, our patents, patent applications and/or other intellectual property rights would be upheld. If one or more of those patents, patent applications and other intellectual property rights are invalidated, rejected or found unenforceable, those outcomes could reduce or eliminate any competitive advantage we might otherwise have had.
If one or more of those patents, patent applications and other intellectual property rights are invalidated, rejected or found unenforceable, those outcomes could reduce or eliminate any competitive advantage we might otherwise have had.
To be successful, we must respond to new developments in technology, new applications of existing technology and new treatment methods. Our financial condition and operating results could be adversely affected if we fail to be responsive on a timely and effective basis to competitors’ new devices, applications, treatments or price strategies.
Our financial condition and operating results could be adversely affected if we fail to be responsive on a timely and effective basis to competitors’ new devices, applications, treatments or price strategies.
If it was determined that our recurring revenue model was not exempt from sales taxes in all states where we do business, and taxes and penalties were imposed in each of those states for the entire period through the expiration of each state’s statute of limitations, state sales and use tax, penalties and interest for such period would have a material negative impact on our financial condition and cash flow. 23 Table of Contents As of December 31, 2022 and 2021, we have estimated our sales and use tax liability to be approximately $4.0 million and $3.7 million, respectively.
If it was determined that our recurring revenue model was not exempt from sales taxes in all states where we do business, and taxes and penalties were imposed in each of those states for the entire period through the expiration of each state’s statute of limitations, state sales and use tax, penalties and interest for such period would have a material negative impact on our financial condition and cash flow.
The reduced supply and war have raised the price of gas significantly worldwide.
The reduced supply and war have also impacted the price of gas worldwide.
In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted. If any of our medical products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.
If any of our medical products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.
Additional funds may not be available on terms that are favorable to us, or at all. We may not be able to successfully integrate newly acquired businesses, joint ventures and other partnerships into our operations or achieve expected profitability from our acquisitions.
We may not be able to successfully integrate newly acquired businesses, joint ventures and other partnerships into our operations or achieve expected profitability from our acquisitions.
SOFR is a daily index of the interest rate banks and hedge funds pay to borrow money overnight, secured by U.S. Treasury securities. We also anticipate that we may use SOFR as the interest rate index in future agreements. SOFR differs fundamentally from LIBOR.
We transitioned to the one month Secured Overnight Financing Rate (“SOFR”) in connection with the amended Senior Credit Facility. SOFR is a daily index of the interest rate banks and hedge funds pay to borrow money overnight, secured by U.S. Treasury securities. We also anticipate that we may use SOFR as the interest rate index in future agreements.
Depending on the nature of the relief ordered by the court, we could become liable for additional damages to third parties. We rely on our patents, patent applications and other intellectual property rights to give us a competitive advantage. Whether a patent is valid, or whether a patent application should be granted, is a complex matter of science and law.
Depending on the nature of the relief ordered by the court, we could become liable for additional damages to third parties. 28 Table of Contents We rely on our patents, patent applications and other intellectual property rights to give us a competitive advantage.
Such reviews and investigations may result in civil and criminal proceedings; the imposition of substantial fines and penalties; the receipt of warning letters, untitled letters, demands for recalls or the seizure of our products; the requirement to enter into corporate integrity agreements, stipulated judgments or other administrative remedies, and result in our incurring substantial unanticipated costs and the diversion of key personnel and management’s attention from their regular duties, any of which may have an adverse effect on our financial condition, results of operations and liquidity, and may result in greater and continuing governmental scrutiny of our business in the future. 27 Table of Contents Additionally, federal, state and foreign governments and entities have enacted laws and issued regulations and other standards requiring increased visibility and transparency of our interactions with healthcare providers.
Such reviews and investigations may result in civil and criminal proceedings; the imposition of substantial fines and penalties; the receipt of warning letters, untitled letters, demands for recalls or the seizure of our products; the requirement to enter into corporate integrity agreements, stipulated judgments or other administrative remedies, and result in our incurring substantial unanticipated costs and the diversion of key personnel and management’s attention from their regular duties, any of which may have an adverse effect on our financial condition, results of operations and liquidity, and may result in greater and continuing governmental scrutiny of our business in the future. 25 Table of Contents We must also have the appropriate FDA clearances and/or approvals from other governmental entities in order to lawfully market devices and/or drugs.
There can be no guarantee that the changes in coverage under the ACA will not affect the type and level of reimbursement for our products. 20 Table of Contents Although we have received reimbursement approvals from a majority of private healthcare plans for the XTRAC system, we cannot give assurance that these private plans will continue to adopt or maintain favorable reimbursement policies or accept the XTRAC system in its clinical role as a second-line therapy in the treatment of psoriasis.
Although we have received reimbursement approvals from a majority of private healthcare plans for the XTRAC system, we cannot give assurance that these private plans will continue to adopt or maintain favorable reimbursement policies or accept the XTRAC system in its clinical role as a second-line therapy in the treatment of psoriasis.
We may also be subject to claims that are caused by the actions of our suppliers, such as those who provide us with components and sub-assemblies. 24 Table of Contents We presently maintain liability insurance with coverage limits of at least $5.0 million per occurrence and overall aggregate, which we believe is an adequate level of product liability insurance, but product liability insurance is expensive and we might not be able to obtain product liability insurance in the future on acceptable terms or in sufficient amounts to protect us, if at all.
We presently maintain liability insurance with coverage limits of at least $5.0 million per occurrence and overall aggregate, which we believe is an adequate level of product liability insurance, but product liability insurance is expensive and we might not be able to obtain product liability insurance in the future on acceptable terms or in sufficient amounts to protect us, if at all.
If, for example, such other companies have products or medical devices that require less time commitment from the dermatologist and yield an attractive return on a dermatologist’s time and investment, we may find that our efforts to increase our base of users are hindered. 19 Table of Contents We also face a risk that the overall cost of systemic or biologic medications or treatment modalities become less expensive through the development of generics or other means.
If, for example, such other companies have products or medical devices that require less time commitment from the dermatologist and yield an attractive return on a dermatologist’s time and investment, we may find that our efforts to increase our base of users are hindered.
If the price of our common stock is low or volatile, we may not be able to acquire other assets or companies or fund a transaction using our stock as consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or private financings.
If the price of our common stock is low or volatile, we may not be able to acquire other assets or companies or fund a transaction using our stock as consideration.
As a result, regardless of whether we are insured, a product liability claim or product recall may result in losses that could result in the FDA taking legal or regulatory enforcement action against us and/or our products including recall, and could have a material adverse effect upon our business, financial condition and results of operations.
As a result, regardless of whether we are insured, a product liability claim or product recall may result in losses that could result in the FDA taking legal or regulatory enforcement action against us and/or our products including recall, and could have a material adverse effect upon our business, financial condition and results of operations. 21 Table of Contents We must comply with complex statutes prohibiting fraud and abuse, and both we and physicians utilizing our products could be subject to significant penalties for noncompliance.
Smaller and early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. 30 Table of Contents Our competitors in medical device or pharmaceutical industries may also develop products that are more effective, more convenient, more widely used, less costly, or have a better safety profile than our products and these competitors may also be more successful than us in manufacturing and marketing their products.
Our competitors in medical device or pharmaceutical industries may also develop products that are more effective, more convenient, more widely used, less costly, or have a better safety profile than our products and these competitors may also be more successful than us in manufacturing and marketing their products.
Risks Relating to Our Common Stock Our shares of common stock could be delisted from the Nasdaq Capital Market which could result in, among other things, a decline in the price of our common stock and less liquidity for holders of shares of our common stock.
We cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business. 32 Table of Contents Risks Relating to Our Common Stock Our shares of common stock could be delisted from the Nasdaq Capital Market which could result in, among other things, a decline in the price of our common stock and less liquidity for holders of shares of our common stock.
The FDA or state regulatory authorities may find that certain claims, design features or performance characteristics, in order to be made or included in the products, may have to be supported by further studies and marketing clearances or approvals, which could be lengthy, costly and possibly unobtainable.
The FDA or state regulatory authorities may find that certain claims, design features or performance characteristics, in order to be made or included in the products, may have to be supported by further studies and marketing clearances or approvals, which could be lengthy, costly and possibly unobtainable. 29 Table of Contents If we fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with products, these products could be subject to restrictions or withdrawal from the market.
Provisions of our restated certificate of incorporation and bylaws and applicable provisions of Delaware law may make it more difficult for or prevent a third party from acquiring control of us without the approval of our board of directors.
Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable and could also limit the market price of our stock. 34 Table of Contents Provisions of our restated certificate of incorporation and bylaws and applicable provisions of Delaware law may make it more difficult for or prevent a third party from acquiring control of us without the approval of our board of directors.
If interest rates continue to increase, we will see a corresponding increase in these obligations. Accordingly, our ability to borrow additional funds may be reduced and risks related to our indebtedness would intensify. Each quarter-point increase in the variable interest rates would increase interest expense on our current variable rate debt by approximately $20 thousand during 2023.
If interest rates continue to increase, we will see a corresponding increase in these obligations. Accordingly, our ability to borrow additional funds may be reduced and risks related to our indebtedness would intensify.
The State of New York has assessed us, in two assessments, an aggregate amount of $1.5 million for the period from March 2014 through February 2020 including penalties and interest.
The State of New York has assessed us, in three assessments, an aggregate amount of $2.7 million including penalties and interest. The audits cover the period from March 2014 through November 2022.
This could have a significant negative effect on our results and our operations. 21 Table of Contents If we fail to manage our sales and marketing force or to market and distribute our products effectively, we may experience diminished revenues and profits.
This could have a significant negative effect on our results and our operations, including, but not limited to, failing to comply with a financial covenant in our credit facility with MidCap. If we fail to manage our sales and marketing force or to market and distribute our products effectively, we may experience diminished revenues and profits.
Our ability to market our products successfully, especially XTRAC treatments, depends in large part on the extent to which various third parties are willing to reimburse patients or providers for the costs of medical procedures utilizing such products.
The success of our products depends on third-party reimbursement of patients' costs, which could result in potentially reduced prices or reduced demand and adversely affect our revenues and business operations. 16 Table of Contents Our ability to market our products successfully, especially XTRAC treatments, depends in large part on the extent to which various third parties are willing to reimburse patients or providers for the costs of medical procedures utilizing such products.
We may initiate voluntary recalls involving our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, they could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect sales.
Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA. We may initiate voluntary recalls involving our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, they could require us to report those actions as recalls.
Our market acceptance in international markets requires regulatory approvals from foreign governments and may depend on third party reimbursement of participants’ cost. We have introduced our XTRAC and VTRAC products into markets in more than 30 countries in Europe, the Middle East, Asia, Australia, South Africa and parts of Central and South America through distributors.
We have introduced our XTRAC and VTRAC products into markets in more than 30 countries in Europe, the Middle East, Asia, Australia, South Africa and parts of Central and South America through distributors.
In addition, if the excise taxes contained in the House or Senate health reform bills are enacted into law, our loss from continuing operations resulting from such an excise tax and results of operations would be materially and adversely affected.
In addition, if the excise taxes contained in the House or Senate health reform bills are enacted into law, our loss from continuing operations resulting from such an excise tax and results of operations would be materially and adversely affected. 26 Table of Contents Our market acceptance in international markets requires regulatory approvals from foreign governments and may depend on third party reimbursement of participants’ cost.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for discussion included in Item 7 of this Annual Report on Form 10-K.
See “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for discussion included in Item 7 of this Annual Report on Form 10-K. In addition, subject to restrictions in the agreements governing our credit facilities, we may incur additional debt.
The medical device industry is intensely competitive and subject to rapid and significant technological change. Many of our competitors have significantly greater financial, technical and human resources.
The medical device industry is intensely competitive and subject to rapid and significant technological change. Many of our competitors have significantly greater financial, technical and human resources. Smaller and early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
In both our U.S. and foreign markets, we are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints. Such laws, regulations and other constraints may exist at the federal, state or local levels in the U.S. and at analogous levels of government in foreign jurisdictions.
Such laws, regulations and other constraints may exist at the federal, state or local levels in the U.S. and at analogous levels of government in foreign jurisdictions.
We have also outsourced significant elements of our information technology infrastructure and as a result we depend on third parties who are responsible for maintaining significant elements of our information technology systems and infrastructure and who may or could have access to our confidential information.
If our systems were to fail or we are unable to successfully expand the capacity of these systems, or we are unable to integrate new technologies into our existing systems, our operations and financial results could suffer. 31 Table of Contents We have also outsourced significant elements of our information technology infrastructure and as a result we depend on third parties who are responsible for maintaining significant elements of our information technology systems and infrastructure and who may or could have access to our confidential information.
Additionally, the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 has led to a further tightening of rare gas supplies as chip manufacturers reconfigure their supply chains to address the need to secure their own supplies of rare gases for use in the manufacture of computer chips, while struggling with the disruption caused by this war. 18 Table of Contents We may acquire other assets or businesses, or form collaborations or make investments in other companies or technologies that could harm our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.
Additionally, the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 has led to a further tightening of rare gas supplies as chip manufacturers reconfigure their supply chains to address the need to secure their own supplies of rare gases for use in the manufacture of computer chips, while struggling with the disruption caused by this war.
In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that the device would cause serious injury or death. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found.
The FDA has the authority to require the recall of commercialized medical device products in the event of material deficiencies or defects in design or manufacture. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that the device would cause serious injury or death.
We may be faced with pressure to reduce our costs to be competitive which may negatively impact our business. In addition, our business could be negatively impacted if these medications are prescribed for less severe cases of the diseases or if new, more effective or less expensive medications are developed. CPT codes for all procedures are subject to continued reevaluation.
In addition, our business could be negatively impacted if these medications are prescribed for less severe cases of the diseases or if new, more effective or less expensive medications are developed.
If we reduce our prices because of consolidation in the healthcare industry, our revenue would decrease and our earnings, financial condition, or cash flows would suffer, which would have a material adverse effect on our business, financial condition, and results of operations.
If we reduce our prices because of consolidation in the healthcare industry, our revenue would decrease and our earnings, financial condition, or cash flows would suffer, which would have a material adverse effect on our business, financial condition, and results of operations. 27 Table of Contents We actively employ social media as part of our marketing strategy, which could give rise to regulatory violations, liability, breaches of data security or reputational damage.
COVID-19 or another pandemic has or could have material and adverse effects on our ability to successfully operate our business due to, among other factors: • a general decline in business activity; • the destabilization of the markets and negative impacts on the healthcare system globally could negatively impact our ability to market and sell our products, including through the disruption of health care activities in general and elective health care procedures in particular, the inability of our sales team to contact and/or visit doctors in person, patients’ interest in starting or continuing procedures involving our products and our ability to support patients that presently use our products; • difficulty accessing the capital and credit markets on favorable terms, or at all, and a severe disruption and instability in the global financial markets, or deteriorations in credit and financing conditions which could affect our access to capital necessary to fund business operations; • the potential negative impact on the health of our employees, especially if a significant number of them are impacted; • the impact of the pandemic on our customers, which may result in a decrease in the use of our products and services as well as an increase in past due accounts receivable, write-offs and customer bankruptcies; and • a deterioration in our ability to ensure business continuity during a disruption.
We and our partners have faced and may in the future face disruptions that affect our ability to operate due to various factors, including: • the ability to source raw materials and supplies; • a general decline in business activity; • the destabilization of the markets and negative impacts on the healthcare system globally, which could negatively impact our ability to market and sell our products, including through the disruption of health care activities in general and elective health care procedures in particular, the inability of our sales team to contact and/or visit doctors in person, patients’ interest in starting or continuing procedures involving our products and our ability to support patients that presently use our products; and • difficulty accessing the capital and credit markets on favorable terms, or at all, and a severe disruption and instability in the global financial markets, or deteriorations in credit and financing conditions which could affect our access to capital necessary to fund business operations. 14 Table of Contents Further, the Biden Administration ended the public health emergency declarations related to the COVID-19 pandemic in May 2023 and the FDA ended a number of COVID-related policies.
A violation of any of these federal and state fraud and abuse laws and regulations could have a material adverse effect on our liquidity and financial condition.
A violation of any of these federal and state fraud and abuse laws and regulations could have a material adverse effect on our liquidity and financial condition. An investigation into the use of our products by physicians may dissuade physicians from either purchasing or using our products and could have a material adverse effect on our revenues.
Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require our time and capital, distract management from operating our business, and may harm our reputation and financial results.
Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require our time and capital, distract management from operating our business, and may harm our reputation and financial results. 30 Table of Contents We may have a need for additional funds in the future and there is no guarantee that we will be able to generate those funds from our business.
Although we have obtained 510(k) clearances for our XTRAC system for use in treating psoriasis, vitiligo, atopic dermatitis and leukoderma, these approvals and clearances may be subject to revocation if post-marketing data demonstrates safety issues or lack of effectiveness.
Although we have obtained 510(k) clearances for our XTRAC system for use in treating psoriasis, vitiligo, atopic dermatitis and leukoderma, these approvals and clearances may be subject to revocation if post-marketing data demonstrates safety issues or lack of effectiveness. 23 Table of Contents Many medical devices, such as medical lasers, are also regulated by the FDA as “electronic products.” In general, manufacturers and marketers of “electronic products” are subject to certain FDA regulatory requirements intended to ensure the radiological safety of the products.
We must comply with complex statutes prohibiting fraud and abuse, and both we and physicians utilizing our products could be subject to significant penalties for noncompliance. There are extensive federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can result in significant criminal and civil penalties.
There are extensive federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can result in significant criminal and civil penalties.
Any restrictions by Facebook or any other social media platform on which we depend to reach our target market could have a significant impact on our ability to develop customer awareness and generate new users for our physician partners. 31 Table of Contents We may become subject to claims of infringement or misappropriation of the intellectual property rights of others, which could prohibit us from shipping affected products, require us to obtain licenses from third parties or to develop non-infringing alternatives, and subject us to substantial monetary damages and injunctive relief.
We may become subject to claims of infringement or misappropriation of the intellectual property rights of others, which could prohibit us from shipping affected products, require us to obtain licenses from third parties or to develop non-infringing alternatives, and subject us to substantial monetary damages and injunctive relief.
In September 2021, we issued a warrant to MidCap Financial Trust to purchase 373,626 shares of our common stock, with an exercise price of $1.82 per share.
In connection with the Senior Credit Facility, as amended, we issued a warrant to MidCap Financial Trust to purchase 800,000 shares of our common stock, with an exercise price of $0.88 per share.
If these physicians are not properly trained or are negligent, the capabilities and safety features of our products may be diminished or the patient may suffer critical injury.
If these physicians are not properly trained or are negligent, the capabilities and safety features of our products may be diminished or the patient may suffer critical injury. We may also be subject to claims that are caused by the actions of our suppliers, such as those who provide us with components and sub-assemblies.
Our failure to respond to rapid changes in technology and other applications in the medical devices industry or the development of a cure for skin conditions treated by our products could make our treatment system obsolete. The medical device industry is subject to rapid and substantial technological development and product innovations.
The precise scope, timing and time period at issue, as well as the final outcome of any audit and actual settlements, remain uncertain. 20 Table of Contents Our failure to respond to rapid changes in technology and other applications in the medical devices industry or the development of a cure for skin conditions treated by our products could make our treatment system obsolete.
An investigation into the use of our products by physicians may dissuade physicians from either purchasing or using our products and could have a material adverse effect on our revenues. 25 Table of Contents We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and regulations and could face substantial penalties if we are unable to fully comply with such laws.
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and regulations and could face substantial penalties if we are unable to fully comply with such laws.
In such a case, we may never achieve significant revenues or profitability. 26 Table of Contents Our failure to obtain or maintain necessary FDA clearances and approvals, or to maintain continued clearances, or equivalents thereof in the U.S. and relevant foreign markets, could hurt our ability to distribute and market our products.
Our failure to obtain or maintain necessary FDA clearances and approvals, or to maintain continued clearances, or equivalents thereof in the U.S. and relevant foreign markets, could hurt our ability to distribute and market our products. In both our U.S. and foreign markets, we are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints.
A government-mandated or voluntary recall by us or one of our distributors could occur as a result of component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations.
Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of component failures, manufacturing errors, design or labeling defects or other deficiencies and issues.
Our existing cash position and ability to borrow funds and future revenue may not be sufficient to support the expenses of our operations in the near term, although based upon our cash and cash equivalents, current budgeting and projected cash flow models, we believe that we will be able to support our operations for at least the next 12 months following the filing of this Report.
Our existing cash position and ability to borrow funds and future revenue may not be sufficient to support the expenses of our operations in the near term.
Our medical products may in the future be subject to product recalls that could harm our reputation, business and financial results. The FDA has the authority to require the recall of commercialized medical device products in the event of material deficiencies or defects in design or manufacture.
If any of these actions were to occur, it would harm our reputation and adversely affect our business, financial condition and results of operations. Our medical products may in the future be subject to product recalls that could harm our reputation, business and financial results.
The Financial Conduct Authority (the authority that regulates the London Interbank Offer Rate (“LIBOR”) announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after June 30, 2022. As discussed above, we amended the Senior Credit Facility to transition to SOFR upon such occurrence.
Each quarter-point increase in the variable interest rates would increase interest expense on our current variable rate debt by approximately $38,000 during 2024. 19 Table of Contents The Financial Conduct Authority (the authority that regulates the London Interbank Offer Rate (“LIBOR”) announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after June 30, 2022.
The closing bid price for our common stock must remain at or above $1.00 per share to comply with the Bid Price Requirement for continued listing.
To regain compliance, the closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business days.
The FDA requires that certain classifications of recalls be reported to the FDA within ten working days after the recall is initiated. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA.
Recalls of any of our products would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations. The FDA requires that certain classifications of recalls be reported to the FDA within ten working days after the recall is initiated.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe lease a 17,000 sq. ft. facility consisting of office, manufacturing and warehousing space in Carlsbad, California. The lease was set to expire on September 30, 2019. On May 1, 2019, we entered into the Fifth Amendment to the lease. The term of the lease commenced on October 1, 2019 and expires on September 30, 2024.
Biggest changeWe lease a 17,000 sq. ft. facility consisting of office, manufacturing and warehousing space in Carlsbad, California. On May 1, 2019, we entered into the Fifth Amendment to the lease. The term of the lease commenced on October 1, 2019 and expires on September 30, 2024 .

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe settlement, which would require us to pay $0.1 million, is tentative and subject to court approval and the right of individual class members to reject the settlement and proceed on their own. We are currently under audit by two taxing jurisdictions, pertaining to sales and/or use tax.
Biggest changeThe settlement, which requires us to pay $0.1 million, was subject to the right of individual class members to reject the settlement and proceed on their own. N o individual has requested to opt out of the settlement. In the ordinary course of business, we are, from time to time, subject to audits performed by state taxing authorities.
On April 1, 2022, a proposed representative class action under California’s Private Attorneys General Act (“PAGA”) was filed in Superior Court of California, County of San Diego against the Company and an employment agency (“Co-Defendant”) which provided the Company with temporary employees.
On April 1, 2022, a proposed representative class action under California’s Private Attorneys General Act (“PAGA”) was filed in Superior Court of California, County of San Diego against the Company and an employment agency (“Co-Defendant”) which provided us with temporary employees.
In a related matter, the attorneys in this matter and the proposed class representative, in a letter dated March 12, 2022, to the California Labor & Workforce Development Agency made nearly identical claims seeking the right to pursue a PAGA action against the Company and the employment agency.
In a related matter, the attorneys in this matter and the proposed class representative, in a letter dated March 12, 2022, to the California Labor & Workforce Development Agency made nearly identical claims seeking the right to pursue a PAGA action against us and the employment agency.
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, we received a written decision from the Taxing Authority’s Appeals Tribunal (“Tribunal”) overturning the favorable sales tax determination of the administrative law judge.
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, we received a written decision from the State of New York Appeals Tribunal (“Tribunal”) overturning the favorable sales tax determination of the administrative law judge.
The complaint alleges various violations of the California Labor Code, including California’s wage and hour laws, relating to current and former non-exempt employees of the Company. The complaint seeks class status and payments for allegedly unpaid compensation and attorney’s fees.
The complaint alleges various violations of the California Labor Code, including California’s wage and hour laws, relating to certain of our current and former non-exempt employees. The complaint seeks class status and payments for allegedly unpaid compensation and attorney’s fees.
On or about June 30, 2022, the parties entered into a stipulation to allow the plaintiff to file a Second Amended Complaint to clarify the PAGA claim and to stay the pending action to allow an attempt at through mediation. The mediation was held on February 23, 2023, and the matter was settled on terms agreeable to the Company.
On or about June 30, 2022, the parties entered into a stipulation to allow the plaintiff to file a Second Amended Complaint to clarify the PAGA claim and to stay the pending action to allow mediation. The mediation was held on February 23, 2023, and the matter was settled on terms agreeable to us.
In January 2021, we received notification that the administrative law judge had issued an opinion finding in favor of us that the sale of XTRAC treatment codes is not taxable as sales tax with respect to the first assessment.
The audits cover the period from March 2014 through November 2022. We received notification that an administrative state judge in New York issued an opinion finding in favor of us that the sale of XTRAC treatment codes was not taxable as sales tax with respect to that state’s first assessment.
Removed
One jurisdiction has assessed us an amount of $1.5 million including penalties and interest, in two assessments, for the period from March 2014 through February 2020. We have declined an informal offer to settle the first assessment at a substantially lower amount and are currently in that jurisdiction’s administrative process of appeal.
Added
These actions and proceedings are generally based on the position that the arrangements entered into by us are subject to sales and use tax rather than exempt from tax under applicable law. The states of New York and California have assessed us an aggregate of $3.9 million including penalties and interest.
Removed
We filed an appeal of the Tribunal’s decision, and posted the required appellate bond requiring posting cash collateral, with the appellate court, and are awaiting for the appellate court to set a briefing and oral argument schedule.
Added
This ruling covers $1.4 million of the total $3.9 million of assessments.
Removed
A second jurisdiction has made an assessment of $0.7 million from June 2015 through March 2018 plus interest of $0.2 million through April 2020. We are in this jurisdiction’s administrative process of appeal as well and the timing of the process has been impacted by the COVID-19 pandemic.
Added
We 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.
Removed
If it is found we are not exempt from sales tax in these or other states then potential tax liabilities including interest and penalties would be higher than accrued amounts . 39 Table of Contents ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
Added
On March 8, 2024, we received a decision from the Appellate Division ruling against us in the matter of our sales tax appeal, affirming the Tribunal's ruling that our sale of XTRAC treatment codes is subject to sales tax.
Added
The Appellate Division concluded that, through the usage arrangements, our 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. We will be filing a motion to appeal the Appellate Division’s decision.
Added
We are also in the administrative process of appeal with respect to the remaining $2.5 million of assessments.
Added
If there is a determination that the true object of our recurring revenue model is not exempt from sales taxes and is not a prescription medicine, or we do not have other defenses where we prevail, we may be subject to sales taxes in those particular states for previous years and in the future, plus potential interest and penalties. 37 Table of Contents ITEM 4.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES As of March 15, 2023, we had 34,881,453 shares of common stock issued and outstanding, which are listed on the Nasdaq Capital Markets under the symbol “SSKN.” This did not include (i) options to purchase 4,464,714 shares of common stock, of which 2,368,841 were vested as of March 15, 2023, (ii) unissued restricted stock units of 119,597, or (iii) 373,626 shares of common stock reserved for issuance pursuant to a warrant.
Biggest changeMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES As of March 20, 2024, we had 35,060,920 shares of common stock issued and outstanding, which are listed on the Nasdaq Capital Markets under the symbol “SSKN.” This did not include (i) options to purchase 5,391,069 shares of common stock, of which 1,146,465 were vested as of March 20, 2024, (ii) unissued restricted stock units of 22,654, or (iii) 800,000 shares of common stock reserved for issuance pursuant to a warrant.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS Equity Compensation Plan Information The following is a summary of all of our equity compensation plans, including plans that were assumed through acquisitions and individual arrangements that provide for the issuance of equity securities as compensation, as of December 31, 2022.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS Equity Compensation Plan Information The following is a summary of all of our equity compensation plans, including plans that were assumed through acquisitions and individual arrangements that provide for the issuance of equity securities as compensation, as of December 31, 2023.
Plan Category Number of securities to be issued upon exercise of outstanding securities (#) Weighted average exercise price of outstanding options ($) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) (#) (a) (b) (c) Equity compensation plans approved by security holders 4,474,714 $ 1.72 3,193,706 Equity compensation plans not approved by security holders — — — 4,474,714 $ 1.72 3,193,706 40 Table of Contents RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES None.
Plan Category Number of securities to be issued upon exercise of outstanding securities (#) Weighted average exercise price of outstanding options ($) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) (#) (a) (b) (c) Equity compensation plans approved by security holders 7,728,721 $ 1.11 1,329,375 Equity compensation plans not approved by security holders — — — 7,728,721 $ 1.11 1,329,375 38 Table of Contents RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES None.
See Notes 1 and 14 to the consolidated financial statements for additional discussion.
See Note s 1 and 13 t o the consolidated financial statements for additional discussion.
Added
ISSUER PURCHASES OF EQUITY SECURITIES None. ITEM 6. [RESERVED]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations Comparison of the Years ended December 31, 2022 and 2021 (in thousands) Year Ended December 31, Change 2022 2021 Dollar Percentage Revenues, net $ 36,161 $ 29,977 $ 6,184 21 % Cost of revenues 14,393 10,127 4,266 42 Gross profit 21,768 19,850 1,918 10 Operating expenses: Engineering and product development 1,029 1,434 (405 ) (28 ) Selling and marketing 15,301 13,106 2,195 17 General and administrative 10,087 9,712 375 4 26,417 24,252 2,165 9 Loss from operations (4,649 ) (4,402 ) (247 ) 6 Other (expense) income: Interest expense (926 ) (314 ) (612 ) (195 ) Interest income 89 15 74 493 Gain on forgiveness of debt — 2,029 (2,029 ) (100 ) (837 ) 1,730 (2,567 ) (148 ) Loss before income tax expense $ (5,486 ) $ (2,672 ) $ (2,814 ) 105 % 46 Table of Contents Revenues Revenues by Geography The following tables present revenues by geography for the periods presented below: (in thousands) Year Ended December 31, Change 2022 2021 Dollar Percentage Domestic $ 23,981 $ 23,197 $ 784 3 % International 12,180 6,780 5,400 80 Total Revenues $ 36,161 $ 29,977 $ 6,184 21 % Revenues by Product Type The following tables present revenues by segment for the periods presented below: (in thousands) Year Ended December 31, Change 2022 2021 Dollar Percentage Dermatology recurring $ 23,025 $ 22,528 $ 497 2 % Dermatology equipment 13,136 7,449 5,687 76 Total Revenues $ 36,161 $ 29,977 $ 6,184 21 % Dermatology Recurring Procedures The ongoing COVID-19 pandemic has had a negative impact on our results for 2022 and 2021, and we expect it will continue to have a negative impact on revenue given the change in the behavior of our customers and the ultimate consumer of our products and services as a result of the pandemic.
Biggest changeThere is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. 43 Table of Contents Results of Operations Comparison of the Years ended December 31, 2023 and 2022 Year Ended December 31, Change (in thousands) 2023 2022 Dollar Percentage Revenues, net $ 33,358 $ 36,161 $ (2,803 ) (8 )% Cost of revenues 14,897 14,393 504 4 % Gross profit 18,461 21,768 (3,307 ) (15 )% Operating expenses: Engineering and product development 1,317 1,029 288 28 % Selling and marketing 12,956 15,301 (2,345 ) (15 )% General and administrative 10,508 10,087 421 4 % Impairment of goodwill 2,284 — 2,284 100 % 27,065 26,417 648 2 % Loss from operations (8,604 ) (4,649 ) (3,955 ) 85 % Other (expense) income: Interest expense (1,640 ) (926 ) (714 ) 77 % Interest income 231 89 142 160 % Loss on debt extinguishment (909 ) — (909 ) 100 % (2,318 ) (837 ) (1,481 ) 177 % Loss before benefit from / (provision for) income taxes $ (10,922 ) $ (5,486 ) $ (5,436 ) 99 % Revenues Revenues by Geography The following table presents revenues by geography for the periods presented below: Year Ended December 31, Change (in thousands) 2023 2022 Dollar Percentage Domestic $ 23,028 $ 23,981 $ (953 ) (4 )% International 10,330 12,180 (1,850 ) (15 )% Total revenues $ 33,358 $ 36,161 $ (2,803 ) (8 )% Revenues by Product Type The following table presents revenues by segment for the periods presented below: Year Ended December 31, Change (in thousands) 2023 2022 Dollar Percentage Dermatology recurring procedures $ 21,530 $ 23,025 $ (1,495 ) (6 )% Dermatology procedures equipment 11,828 13,136 (1,308 ) (10 )% Total revenues $ 33,358 $ 36,161 $ (2,803 ) (8 )% 44 Table of Contents Dermatology Recurring Procedures Recurring treatment revenues for the year ended December 31, 2023 were $21.5 million, which we estimate is approximately 280,000 XTRAC treatments with prices between $65 and $95 per treatment, compared to recurring treatment revenues for the year ended December 31, 2022 of $23.0 million, which we estimate is approximately 329,000 XTRAC treatments with prices between $65 and $95 per treatment.
Dermatology Recurring Procedures Segment: we have primarily two types of arrangements for our phototherapy treatment equipment as follows: (i) we place our lasers in a physician’s office at no charge to the physician, and generally charge the physician a fee for an agreed upon number of treatments; or (ii) we place our lasers in a physician’s office and charge 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.
Dermatology Recurring Procedures Segment: we have primarily two types of arrangements for our phototherapy treatment equipment as follows: (i) we place our lasers in a physician’s office at no charge to the physician, and generally charge the physician a fee for an agreed upon number of treatments; or (ii) we place our lasers in a physician’s office and charge 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 be paid.
Its products include the XTRAC® and now Pharos® excimer lasers and VTRAC® lamp systems utilized in the treatment of psoriasis, vitiligo and various other skin conditions, as well as the TheraClear® X Acne Therapy System utilized in the treatment of acne-related skin conditions. The XTRAC ultraviolet light excimer laser system is utilized to treat psoriasis, vitiligo and other skin diseases.
Its products include the XTRAC® and Pharos® excimer lasers and VTRAC® lamp systems utilized in the treatment of psoriasis, vitiligo, and various other skin conditions, as well as the TheraClear® X Acne Therapy System utilized in the treatment of acne-related skin conditions. The XTRAC ultraviolet light excimer laser system is utilized to treat psoriasis, vitiligo, and other skin diseases.
In February 2022, we announced the commercial launch, with the first installation in the U.S. market, of our next generation excimer laser system, XTRAC Momentum TM 1.0. • VTRAC® Lamp.
In February 2022, we announced the commercial launch, with the first installation in the U.S. market, of our next generation excimer laser system, XTRAC Momentum ® 1.0. • VTRAC® Lamp.
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 Appeals Tribunal (“Tribunal”) overturning the favorable sales tax determination of the administrative law judge.
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, we received a written decision from the State of New York Appeals Tribunal (“Tribunal”) overturning the favorable sales tax determination of the administrative law judge.
The shares will be offered at prevailing market prices, and we will pay commissions of up to 3.0% of the gross proceeds from the sale of shares sold through our agent, which may act as an agent and/or principal. We have no obligation to sell any shares under this agreement and may, at any time, suspend solicitations under this agreement.
The shares will be offered at prevailing market prices, and we will pay commissions of up to 3.00% of the gross proceeds from the sale of shares sold through our agent, which may act as an agent and/or principal. We have no obligation to sell any shares under this agreement and may, at any time, suspend solicitations under this agreement.
The definite lived assets are tested for impairment when events or changes in circumstances indicate that the carrying value of the asset group may not be recoverable. Our intangible assets are grouped into five categories: core technology, product technology, customer relationships, trade names and Pharos customer lists.
The finite-lived assets are tested for impairment when events or changes in circumstances indicate that the carrying value of the asset group may not be recoverable. Our intangible assets are grouped into five categories: core technology, product technology, customer relationships, trade names and Pharos customer lists.
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. 49 Table of Contents Reconciliation to the most directly comparable U.S.
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.
The Company’s sales tax expense that is not presently being collected and remitted for the recurring revenue business is recorded in general and administrative expenses within the consolidated statements of operations.
Our sales tax expense that is not presently being collected and remitted for the recurring revenue business is recorded in general and administrative expenses within the consolidated statements of operations.
Russia-Ukraine War Prior to the outbreak of the Russia-Ukraine War, Ukraine was the largest exporter of noble gases including neon, krypton, and xenon. Historically, Ukraine has been the source of a significant amount of gas supplied to the Company by our contract suppliers. Neon gas is essential to the proper functioning of our lasers.
Impact of Russia-Ukraine War Prior to the outbreak of the Russia-Ukraine War, Ukraine was the largest exporter of noble gases including neon, krypton, and xenon and has historically been the source of a significant amount of gas supplied to us by our contract suppliers. Neon gas is essential to the proper functioning of our lasers.
During the fourth quarter of 2022, the Company also made a $0.5 million milestone payment upon the launch of the TheraClear Acne Therapy System, one of development related targets.
During the fourth quarter of 2022, we also made a $0.5 million milestone payment upon the launch of the TheraClear Acne Therapy System, one of the development-related targets.
Federal and many state net operating losses generated in 2018 and into the future now have an indefinite life. In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income.
Federal and many state net operating losses generated in 2018 and into the future now have an indefinite life. In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an "ownership change" is subject to limitations on its ability to utilize its NOLs to offset future taxable income.
We refer you to the section titled “—Critical Accounting Policies and Use of Estimates—Revenue Recognition” appearing elsewhere in this Annual Report on Form 10-K for additional information regarding how we account for revenues.
We refer you to the section titled “—Critical Accounting Policies and Use of Estimates—Revenue Recognition” appearing elsewhere in this Annual Report for additional information regarding how we account for revenues.
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 and through our use of social media such as Facebook and Twitter.
Therefore, our strategy going forward is to increase our direct-to-patient program for XTRAC advertising in the United States, targeting psoriasis and vitiligo patients through a variety of media and through our use of social media such as Facebook and Twitter.
Changes in our actual results and/or estimates or any of our other assumptions used in our analysis could result in a different conclusion. Sales and Use Taxes The Company records state sales tax collected and remitted for its customers on dermatology procedures equipment sales on a net basis, excluded from revenue.
Changes in our actual results and/or estimates or any of our other assumptions used in our analysis could result in a different conclusion. Sales and Use Taxes We record state sales tax collected and remitted for our customers on dermatology procedures equipment sales on a net basis, excluded from revenue.
The Company believes its state sales and use tax accruals have been 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.
We believe our state sales and use tax accruals have been properly recognized such that, if our arrangements with customers are deemed more likely than not that we 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.
The Company received notification that an administrative state judge issued an opinion 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. This ruling covers $1.5 million of the total $2.4 million of assessments.
We received notification that an administrative state judge in New York issued an opinion 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. This ruling covers $1.4 million of the total $3.9 million of assessments.
While most offices have reopened, some physician practices closed and never reopened, and the impact of the ongoing COVID-19 pandemic and its variants on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frames, will depend on future developments, including, but not limited to, the ongoing mutations and spread of the COVID-19 virus, impact on business operations, supply chains and transport, and governmental and societal responses thereto, all of which are uncertain and cannot be predicted.
While most offices have reopened, some physician practices closed and never reopened, and the impact of the COVID-19 pandemic and its variants on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frames, will depend on future developments, including, but not limited to, impact on supply chains and transport, and governmental and customer responses, including staffing issues, all of which are uncertain and cannot be predicted.
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 a prescription medicine, or the Company does not have other defenses where the Company prevails, the Company may be subject to sales taxes in those particular states for previous years and in the future, plus potential interest and penalties.
If there is a determination that the true object of our recurring revenue model is not exempt from sales taxes and is not a prescription medicine, or we do not have other defenses where we prevail, we may be subject to sales taxes in those particular states for previous years and in the future, plus potential interest and penalties.
Engineering and Product Development For the year ended December 31, 2022, engineering and product development expenses were $1.0 million as compared to $1.4 million for the year ended December 31, 2021.
Engineering and Product Development For the year ended December 31, 2023 , engineering and product development expenses were $ 1.3 million as compared to $ 1.0 million for the year ended December 31, 2022 .
From October 2024 to maturity, we will make payments of principal and interest in 24 equal installments. The loan is senior to all other indebtedness and is secured by substantially all of our assets. We are subject to customary affirmative and negative covenants including a financial covenant based on minimum revenue thresholds.
We are obligated to make interest-only payments through June 2026. From July 2026 to maturity, we will make principal payments in 24 equal installments. The loan is senior to all other indebtedness and is secured by substantially all of our assets. We are subject to customary affirmative and negative covenants including a financial covenant based on minimum net revenue thresholds.
As of December 31, 2022, there were 909 XTRAC systems placed in dermatologists’ offices in the United States under our dermatology recurring procedures model, an increase from 890 at the end of December 31, 2021.
As of December 31, 2023 , there were 923 XTRAC systems placed in dermatologists’ offices in the United States under our dermatology recurring procedures model, an increase from 909 as of December 31, 2022 .
Sales in the United States represented 66% and 77% of our total revenues for the years ended December 31, 2022 and 2021, respectively, and have been generated by our direct sales force. Outside the United States, our sales are made through third-party distributors. International revenues were 34% and 23% for the years ended December 31, 2022 and 2021, respectively.
Sales in the United States represented 69% and 66% of our total revenues for the years ended December 31, 2023 and 2022, respectively, and have been generated by our direct sales force. Outside the United States, our sales are made through third-party distributors.
We plan to incur engineering and product development expenses for the near future as we expect to continue our development that focuses on the application of our XTRAC system for the treatment of inflammatory skin disorders. As a result, we expect our engineering and product development expenses to remain similar to our fiscal year 2022 expenses.
We plan to incur engineering and product development expenses for the near future as we expect to continue our development that focuses on the application of our XTRAC system for the treatment of inflammatory skin disorders.
Our gross margin has been and will continue to be affected by a variety of factors, primarily product sales mix and pricing manufacturing costs.
We calculate our gross margin as our gross profit divided by our revenues. Our gross margin has been and will continue to be affected by a variety of factors, primarily product sales mix and pricing manufacturing costs.
Interest Expense Interest expense consists of cash interest payable under our debt facilities and non-cash interest attributable to the amortization of deferred financing costs related to our indebtedness. 45 Table of Contents Interest Income Interest income is earned on our cash and cash equivalent account balances.
Interest Expense Interest expense consists of cash interest payable under our debt facility and non-cash interest attributable to the amortization of deferred financing costs related to our indebtedness. Interest Income Interest income is earned on our cash and cash equivalents account balances.
Additionally, the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 has led to a further tightening of rare gas supplies as chip manufacturers reconfigure their supply chains to address the need to secure their own supplies of rare gases for use in the manufacture of computer chips, while struggling with the disruptions caused by this war. 42 Table of Contents Key Technologies • XTRAC® Excimer Laser.
Additionally, the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 has led to a further tightening of rare gas supplies as semiconductor chip manufacturers reconfigure their supply chains to address the need to secure their own supplies of rare gases for use in the manufacture of computer chips. Key Technologies • XTRAC® Excimer Laser.
In connection with the development of three devices, Theravant is eligible to receive $0.5 million upon FDA clearance for each device and $0.5 million upon achievement of certain net revenue targets for each device, aggregating to $3.0 million of potential future milestone payments under the Development Agreement. The Development Agreement has a three-year term, unless terminated sooner by either party.
In connection with the development of three devices, Theravant is eligible to receive $0.5 million upon FDA clearance for each device and $0.5 million upon achievement of certain net revenue targets for each device, aggregating to $3.0 million of potential future milestone payments under the Development Agreement.
For the year ended December 31, 2022, dermatology procedures equipment revenues were $13.1 million. Internationally, we sold 100 systems (88 XTRAC and 12 VTRAC). Domestically, we sold 7 XTRAC systems for the year ended December 31, 2022. For the year ended December 31, 2021, dermatology procedures equipment revenues were $7.5 million.
Internationally, we sold 68 systems ( 60 XTRAC and 8 VTRAC). Domestically, we sold 24 XTRAC systems for the year ended December 31, 2023 . For the year ended December 31, 2022 , dermatology procedures equipment revenues were $13.1 million. Internationally, we sold 100 systems ( 88 XTRAC and 12 VTRAC).
Income Taxes As of December 31, 2022, we had federal and state NOL carryforwards of $198.1 million and $60.8 million, respectively. The net operating loss carryforwards generated prior to 2018 began to expire for federal income tax purposes and begin expiring in 2030 for state income tax purposes.
Income Taxes As of December 31, 2023 , we had federal and state NOL carryforwards of $205.2 million and $63.6 million, respectively. The net operating loss carryforwards generated prior to 2018 began to expire for federal income tax purposes and begin expiring in 2030 for state income tax purposes.
The loan is senior to all other indebtedness and is secured by substantially all of our assets. We are subject to customary affirmative and negative covenants including a financial covenant based on minimum revenue thresholds.
The loan is senior to all other indebtedness and is secured by substantially all of our assets. We are subject to customary affirmative and negative covenants including a financial covenant based on minimum net revenue thresholds. Upon an event of default, including a covenant violation, all principal and interest are due on demand.
Our primary sources of capital have been from borrowings under our debt facilities and sales of our products. As of December 31, 2022, we had $8.0 million of borrowings outstanding under our debt facility with MidCap Financial Trust, or MidCap, which has a final maturity in September 2026.
Our primary sources of capital have been from borrowings under our debt facilities and sales of our products. As of December 31, 2023, we had $15.0 million of borrowings outstanding under our debt facility with MidCap, which has a final maturity in June 2028.
Our supporters have been resourceful in continuing to supply gases to us but cannot assure us that the supply will not remain uninterrupted. The reduced supply and war have raised the price of gas significantly worldwide.
Our suppliers have been resourceful in continuing to supply gases to us but cannot assure us that the supply will not remain uninterrupted. The reduced supply and ongoing conflict have also impacted the price of gas worldwide.
We used $1.1 million in cash flows from operating activities and received cash flows from operating activities of $1.5 million during the years ended December 31, 2022 and 2021, respectively.
We used $ 0.5 million and $ 0.9 million in cash flows from operating activities during the years ended December 31, 2023 and 2022 , respectively.
Selling and Marketing As of December 31, 2022, our sales and marketing personnel consisted of 63 full-time positions, inclusive of a vice president of sales, a vice president of marketing and a vice president of relations, direct sales organization as well as 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. 48 Table of Contents For the year ended December 31, 2022, sales and marketing expenses were $15.3 million as compared to $13.1 million for the year ended December 31, 2021.
Selling and Marketing As of December 31, 2023 , our sales and marketing personnel consisted of 35 full-time positions, compared to 63 full-time positions as of December 31, 2022 , inclusive of a vice president of sales, a vice president of marketing and a vice president of relations, direct sales organization as well as 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.
Income Tax Expense We recognized an income tax expense of $0.1 million for the year ended December 31, 2022 as compared to $34 thousand for the year ended December 31, 2021, which is comprised primarily of changes in deferred tax liability related to goodwill.
Benefit from / (Provision for) Income Taxes We recognized a benefit from income taxes of $ 0.1 million for the year ended December 31, 2023 as compared to a provision for income taxes of $ 0.1 million for the year ended December 31, 2022 , which is comprised primarily of changes in the deferred tax liability related to goodwill.
Theravant Corporation is eligible to receive up to $3.0 million in future earnout payments upon achievement of certain annual net revenue milestones, up to $20.0 million in future royalty payments based upon a percentage of gross profit from future domestic sales ranging from 10-20%, 25% of gross profit from international sales over the subsequent four-year period, and up to $0.5 million in future milestone payments upon the achievement of certain commercialization related targets. 43 Table of Contents MidCap Financing In September 2021, we entered into an $8.0 million secured borrowing facility with MidCap Financial Trust, or MidCap.
Theravant is eligible to receive up to $3.0 million in future earnout payments upon achievement of certain annual net revenue milestones, up to $20.0 million in future royalty payments based upon a percentage of gross profit from future domestic sales ranging from 10-20%, 25% of gross profit from international sales over the subsequent four-year period, and up to $0.5 million in future milestone payments upon the achievement of certain commercialization related targets.
Other significant sales and marketing costs include conferences and trade shows, promotional and marketing activities, including direct and online marketing to the consumer and dermatologists, practice support programs, travel and training expenses.
Other significant sales and marketing costs include conferences and trade shows, promotional and marketing activities, including direct and online marketing to the consumer and dermatologists, practice support programs, travel and training expenses. We anticipate that our selling and marketing expenses will remain similar to our fiscal year 2023 expenses.
Cost of revenues also includes costs related to personnel, depreciation, amortization, warranty, shipping, and our operations and field service departments. Our gross profit is calculated by subtracting our cost of revenues from our revenues. We calculate our gross margin as our gross profit divided by our revenues.
Cost of Revenues and Gross Margin Cost of revenues primarily consists of the costs of components and the manufacture of our XTRAC and VTRAC systems. Cost of revenues also includes costs related to personnel, depreciation, amortization, warranty, shipping, and our operations and field service departments. Our gross profit is calculated by subtracting our cost of revenues from our revenues.
The following table summarizes our sources and uses of cash for each of the periods presented: Year Ended December 31, (in thousands) 2022 2021 Cash (used in) provided by Operating activities $ (1,108 ) $ 1,508 Investing activities (4,183 ) (7,126 ) Financing activities (500 ) 92 Net decrease in cash, cash equivalents and restricted cash $ (5,791 ) $ (5,526 ) Operating Activities Net cash, cash equivalents and restricted cash used in operating activities was $1.1 million for the year ended December 31, 2022, compared to cash, cash equivalents and restricted cash provided by operating activities of $1.5 million for the year ended December 31, 2021.
The following table summarizes our sources and uses of cash for each of the periods presented: Year Ended December 31, (in thousands) 2023 2022 Cash (used in) provided by Operating activities $ (519 ) $ (924 ) Investing activities (5,019 ) (4,367 ) Financing activities 6,861 (500 ) Net increase (decrease) in cash, cash equivalents and restricted cash $ 1,323 $ (5,791 ) Operating Activities Net cash used in operating activities was $ 0.5 million for the year ended December 31, 2023 , compared to cash used in operating activities of $ 0.9 million for the year ended December 31, 2022 .
Summary of Significant Accounting Policies” in our audited financial statements and related notes thereto appearing elsewhere in this Annual Report on Form 10-K, we believe the following discussion addresses our most critical accounting policies. 52 Table of Contents Revenue Recognition We have primarily two types of arrangements for our phototherapy treatment equipment from which we earn revenues from dermatology recurring procedures: (i) we place our lasers in a physician’s office at no charge to the physician, and generally charge the physician a fee for an agreed upon number of treatments; or (ii) we place our lasers in a physician’s office and charge 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.
Revenue Recognition We have primarily two types of arrangements for our phototherapy treatment equipment from which we earn revenues from dermatology recurring procedures: (i) we place our lasers in a physician’s office at no charge to the physician, and generally charge the physician a fee for an agreed upon number of treatments; or (ii) we place our lasers in a physician’s office and charge 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.
Selling and Marketing Selling and marketing expenses consist of market research and commercial activities related to the sale of our dermatology recurring procedures and dermatology procedures equipment sales, and salaries and related benefits and sales commissions for employees focused on these efforts.
As a result, we expect our engineering and product development expenses to remain similar to our fiscal year 2023 expenses. 42 Table of Contents Selling and Marketing Selling and marketing expenses consist of market research and commercial activities related to the sale of our dermatology recurring procedures and dermatology procedures equipment sales, and salaries and related benefits and sales commissions for employees focused on these efforts.
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.
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. The Pharos excimer laser system holds FDA clearance to treat chronic skin diseases, including psoriasis, vitiligo, atopic dermatitis, and leukoderma.
GAAP measure of all non-GAAP measures included in this report is as follows: Year Ended December 31, (in thousands) 2022 2021 Gross Profit $ 21,768 $ 19,850 Amortization of acquired intangible assets 2,031 570 Non-GAAP gross profit $ 23,799 $ 20,420 Gross profit percentage 60.2 % 66.2 % Non-GAAP gross profit percentage 65.8 % 68.1 % Year Ended December 31, (in thousands) 2022 2021 Net loss $ (5,549 ) $ (2,706 ) Adjustments: Depreciation and amortization 5,293 3,736 Amortization of operating lease right-of-use asset 395 350 Loss on disposal of property and equipment 52 140 Income taxes 63 34 Gain on forgiveness of debt — (2,029 ) Interest income (89 ) (15 ) Interest expense 926 314 Non-GAAP EBITDA 1,091 (176 ) Stock-based compensation 1,466 1,643 Non-GAAP adjusted EBITDA $ 2,557 $ 1,467 Liquidity and Capital Resources As of December 31, 2022, we had cash and cash equivalents and restricted cash of $6.8 million and an accumulated deficit of $227.2 million.
GAAP measure of all non-GAAP measures included in this Annual Report is as follows: Year Ended December 31, (in thousands) 2023 2022 Gross profit $ 18,461 $ 21,768 Amortization of acquired intangible assets 1,861 2,031 Non-GAAP gross profit $ 20,322 $ 23,799 Gross profit percentage 55.3 % 60.2 % Non-GAAP gross profit percentage 60.9 % 65.8 % 47 Table of Contents Year Ended December 31, (in thousands) 2023 2022 Net loss $ (10,830 ) $ (5,549 ) Adjustments: Depreciation and amortization 5,553 5,293 Amortization of operating lease right-of-use asset 349 395 Loss on disposal of property and equipment 72 52 (Benefit from) / provision for income taxes (92 ) 63 Interest income (231 ) (89 ) Interest expense 1,640 926 Non-GAAP EBITDA (3,539 ) 1,091 Impairment of goodwill 2,284 — Stock-based compensation 1,303 1,466 Loss on debt extinguishment 909 — Non-GAAP adjusted EBITDA $ 957 $ 2,557 Liquidity and Capital Resources As of December 31, 2023 , we had cash and cash equivalents and restricted cash of $ 8.1 million and an accumulated deficit of $ 238.1 million.
The TheraClear® Acne Therapy System combines intense pulse light with vacuum (suction) for the treatment of mild to moderate inflammatory acne (including acne vulgaris), comedonal acne and pustular acne. Recent Developments Asset Acquisitions Pharos Laser Acquisition . In August 2021 we acquired certain assets and certain liabilities related to the Pharos U.S. dermatology business of Ra Medical Systems, Inc.
The TheraClear® Acne Therapy System combines intense pulse light with vacuum (suction) for the treatment of mild to moderate inflammatory acne (including acne vulgaris), comedonal acne and pustular acne. Recent Developments TheraClear Acquisition In January 2022, we acquired certain assets related to the TheraClear devices from Theravant Corporation (“Theravant”).
Changes in our actual results and/or estimates or any of our other assumptions used in our analysis could result in a different conclusion. All of our intangibles are definite lived assets, with amortization recorded over the estimated useful life on a straight-line basis. As of December 31, 2022 we had $17.4 million of intangible assets.
The impairment was primarily driven by a decline in projected cash flows, including revenues and profitability. Changes in our actual results and/or estimates or any of our other assumptions used in our analysis could result in a different conclusion. All of our intangible assets are finite-lived assets, with amortization recorded over the estimated useful life on a straight-line basis.
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.
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. 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.
General and Administrative For the year ended December 31, 2022, general and administrative expenses increased to $10.1 million from $9.7 million for the year ended December 31, 2021. General and administrative expenses were higher for the year ended December 31, 2022, as compared to the same period in 2021.
General and Administrative For the year ended December 31, 2023 , general and administrative expenses increased to $ 10.5 million from $ 10.1 million for the year ended December 31, 2022 .
Based on our current business plan, we believe that our cash and cash equivalents as of December 31, 2022 and anticipated revenues from sales of our products and operating expense management will be sufficient to meet our cash requirements for at least 12 months from the date of issuance of the Annual Report.
Based on our current business plan, we believe that our cash and cash equivalents, combined with the anticipated revenues from the sale or use of our products and operating expense management, will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations for at least the next 12 months following the date of the issuance of this Annual Report.
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.
If and when we are successful in defending ourselves 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 facility bears interest at LIBOR plus 7.50%, with a LIBOR floor of 0.50%, and matures on September 1, 2026. In September 2022, we amended the facility to transition, upon the cessation of LIBOR, to one-month SOFR, or such other applicable period, plus 0.10%, with a floor or 0.50%. We are obligated to make interest-only payments through September 2024.
In September 2022, we amended the facility to transition, upon the cessation of LIBOR, to one-month Secured Overnight Financing Rate (“SOFR”), or such other applicable period, plus 0.10%, with a floor of 0.50%.
As of December 31, 2022, we have estimated the future earnout payments at $8.6 million, of which $0.3 million is expected to be paid within the next year.
Through December 31, 2023 , we have incurred $0.1 million of royalty and gross profit payments based on gross profit from domestic and international sales. As of December 31, 2023, we have estimated the future earnout payments at $1.2 million, of which $0.1 million is expected to be paid within the next year.
The TheraClear asset acquisition will allow the Company to futher develop, commercialize and market the TheraClear devices that are used for acne treatment, as well as advance the TheraClear technology into multiple other devices that can be used to treat a range of additional indications.
The TheraClear asset acquisition will allow us to further develop, commercialize and market the TheraClear devices that are used for acne treatment, as well as advance the TheraClear technology into multiple other devices that can be used to treat a range of additional indications. 40 Table of Contents We made an upfront cash payment of $0.5 million and issued to Theravant 358,367 shares of common stock with an aggregate value of $0.5 million in connection with the TheraClear asset acquisition.
We expect that both our United States and international revenues will increase in the near term as we continue to expand our product offerings and increase the related patient utilization in the United States, as well as grow our presence in Asia. 44 Table of Contents Cost of Revenues and Gross Margin Cost of revenues primarily consists of the costs of components and the manufacture of our XTRAC and VTRAC systems.
In ternational revenues were 31% and 34% for the years ended December 31, 2023 and 2022 , respectively. We expect that both our United States and international revenues will increase in the near term as we continue to expand our product offerings and increase the related patient utilization in the United States, as well as grow our presence in Asia.
In September 2021, we also repaid our note payable with the proceeds from the pledged time deposit held by the lender. Equity Distribution Agreement In October 2021, we entered into an equity distribution agreement under which we may sell up to $11.0 million of our shares of common stock in registered “at-the-market” offerings.
Through December 31, 2023 , we have incurred $0.1 million of royalty and gross profit payments based on gross profit from domestic and international sales. In October 2021, we entered into an equity distribution agreement with an investment bank under which we may sell up to $11.0 million of our shares of common stock in registered “at-the-market” offerings.
Investing Activities Net cash, cash equivalents and restricted cash used in investing activities was $4.2 million for the year ended December 31, 2022, compared to cash, cash equivalents and restricted cash used in investing activities of $7.1 million for the year ended December 31, 2021.
Financing Activities Net cash provided by financing activities was $ 6.9 million for the year ended December 31, 2023 , compared to cash used in financing activities of $ 0.5 million for the year ended December 31, 2022 .
The decrease in cash flows from operating activities for the year ended December 31, 2022 was primarily driven by an increase in inventories to avoid supply chain disruptions, an increase in accounts receivable, and a decrease in accrued compensation.
The decrease in cash used in operating activities for the year ended December 31, 2023 was primarily driven by a decrease in inventories and a consistent level of accounts receivable, offset by a higher net loss in the current year.
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. Several states have assessed the Company an aggregate of $2.4 million including penalties and interest for the period from March 2014 through April 2020.
In the ordinary course of business, we are, from time to time, subject to audits performed by state taxing authorities. These actions and proceedings are generally based on the position that the arrangements entered into by us are subject to sales and use tax rather than exempt from tax under applicable law.
We also earn revenue from customers from services outside of their warranty term or annual service contracts. Revenue from these service-type warranties is recognized as the services are provided. Asset Acquisitions Accounting for transactions as asset acquisitions is significantly different than business combinations. Goodwill is only recognized in business combination transactions.
We also earn revenue from customers from services outside of their warranty term or annual service contracts. Revenue from these service-type warranties is recognized as the services are provided. Contingent Consideration The purchase price for certain assets acquired related to TheraClear devices during January 2022 includes earnout payments, or contingent consideration.
No shares of our common stock have been sold under this distribution agreement during fiscal 2022 or 2021. We cannot predict our revenues and expenses in the short term as a result of the COVID-19 pandemic and related responses by our customers and our ultimate consumers as a result thereof.
We cannot predict our revenues and expenses in the short term as a result of the COVID-19 pandemic, the ongoing Russia-Ukraine war, the Israel-Hamas conflict, supply chain disruptions, rising interest rates, and related responses by our customers and our ultimate consumers as a result thereof.
No shares of our common stock have been sold under this distribution agreement during fiscal 2022 or 2021. Components of Results of Operations Revenues To date, we have generated revenues primarily from the placement of our lasers in physicians’ offices and the related sales and rentals and the recurring revenues from our sale of treatment sessions.
Rafaeli an option to purchase 1,745,569 shares of common stock, with a strike price of $0.53 per share, vesting over a three-year period. 41 Table of Contents Components of Results of Operations Revenues To date, we have generated revenues primarily from the placement of our lasers in physicians’ offices and the related sales and rentals and the recurring revenues from our sale of treatment sessions.
Upon an event of default, including a covenant violation, all principal and interest are due on demand. Operating Lease Obligations We lease our facilities and certain IT and office equipment under non-cancellable operating leases with remaining lease terms of up to four years.
Operating Lease Obligations We lease our facilities and certain IT and office equipment under non-cancellable operating leases with remaining lease terms of up to three years. Remaining lease obligations are $0.6 million as of December 31, 2023 , with payments of $0.4 million due within the next year.
The pandemic led to the suspension of elective procedures in the U.S. and to the temporary closure of many physician practices, which are our primary customers.
Since March 2020, the COVID-19 pandemic has negatively impacted business conditions in the industry in which we operate, disrupted global supply chains, constrained workforce participation, and created significant volatility and disruption of financial markets. The pandemic led to the suspension of elective procedures in the U.S. and to the temporary closure of many physician practices, which are our primary customers.
Gain on Forgiveness of Debt During the year ended December 31, 2021, we received notification our PPP loan had been forgiven and we recorded a gain on forgiveness of debt of $2.0 million. Interest Expense Interest expense is primarily attributable to our debt obligations.
The new loan is considered substantially different from the original loan and, as such, we recorded a loss on debt extinguishment of $0.9 million during the year ended December 31, 2023 . There was no such financing event or debt extinguishment during the year ended December 31, 2022 . Interest Expense Interest expense is primarily attributable to our debt obligations.
As of December 31, 2022 and 2021, we deferred domestic net revenues of $2.2 million and $1.9 million, respectively, which will be recognized as revenue over the remaining usage period for the related placements. 47 Table of Contents Dermatology Procedures Equipment The ongoing COVID-19 pandemic has had a negative impact on our results for 2022 and 2021, and we expect it will continue to have a negative impact on revenue given the change in the behavior of our customers and the ultimate consumer of our products and services as a result of the pandemic.
As of December 31, 2023 and 2022 , we deferred domestic net revenues of $1.6 million and $2.2 million, respectively, which will be recognized as revenue over the remaining usage period for the related placements. Dermatology Procedures Equipment For the year ended December 31, 2023 , dermatology procedures equipment revenues were $11.8 million.
For the year ended December 31, 2022, interest expense increased to $1.0 million from $0.3 million for the year ended December 31, 2021. The increase is primarily the result of a higher interest rate on the Senior Term Facility entered into in September 2021.
T he increase was primarily the result of a higher interest rate on our variable rate Senior Term Facility entered into in September 2021 and the additional $7.0 million borrowed under our Senior Term Facility on June 30, 2023.
During the year ended December 31, 2021, we received net proceeds of $7.9 million from our senior term facility with MidCap, offset by debt repayments of $7.8 million associated with our note payable and EIDL Loan. 51 Table of Contents Contractual Obligations and Commitments Debt Obligations In September 2021, we entered into an $8.0 million secured borrowing facility with MidCap.
The increase is primarily the result of the refinancing of the Senior Term Facility, pursuant to which we borrowed an additional $6.9 million, net of financing costs. Contractual Obligations and Commitments Debt Obligations In September 2021, we entered into an $8.0 million secured borrowing facility with MidCap.
In September 2021, we entered into an $8.0 million secured borrowing facility with MidCap. The facility bears interest at LIBOR plus 7.50%, with a LIBOR floor of 0.50%, and matures on September 1, 2026.
In September 2021, we entered into a credit and security agreement with MidCap, also acting as the administrative agent, and the lenders identified therein and borrowed $8.0 million in the form of a senior term loan. The term loan bore interest at LIBOR (with a LIBOR floor rate of 0.50%) plus 7.50% per year.
Any difference between the cash payment and the amount accrued for contingent consideration will result in an adjustment to the technology intangible asset. Goodwill and Intangible Impairments As of December 31, 2022, we had $8.8 million of goodwill related to the acquisitions of XTRAC and VTRAC businesses in fiscal 2015.
The fair value of the contingent consideration as of December 31, 2023 was estimated to be $1.2 million, which resulted in a reduction in contingent consideration of $7.4 million with a corresponding adjustment to the carrying value of the product technology intangible asset. 51 Table of Contents Goodwill and Intangible Impairments As of December 31, 2023 , we had $ 6.5 million of goodwill related to the acquisitions of the XTRAC and VTRAC businesses in fiscal 2015.
The Company filed an appeal of the Tribunal’s decision, and posted the required appellate bond requiring posting cash collateral, with the New York State Appellate Division , and is awaiting for the appellate court to set a briefing and oral argument schedule.
We 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.
The TheraClear® X Acne Therapy System combines intense pulse light with vacuum (suction) for the treatment of mild to moderate inflammatory acne (including acne vulgaris), comedonal acne and pustular acne. 41 Table of Contents COVID-19 Pandemic In late 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”) which became a global pandemic.
The TheraClear® X Acne Therapy System combines intense pulse light with vacuum (suction) for the treatment of mild to moderate inflammatory acne (including acne vulgaris), comedonal acne and pustular acne. The TheraClear device was cleared by the FDA through the 510(k) process. Currently, there is little insurance reimbursement coverage for acne treatments, such as those provided by TheraClear.
Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities.
Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations.
The Company is also in another jurisdiction’s administrative process of appeal with respect to the remaining $0.9 million of assessments, and the timing of the process has been impacted by the COVID-19 pandemic.
We are also in the administrative process of appeal with respect to the remaining $2.5 million of assessments.
Our non-U.S. business focuses on a direct distribution model for equipment sales and recurring revenue, and we have distribution agreements in place in the Mid-East, Asia, and Mexico. The Pharos excimer laser system holds FDA clearance to treat chronic skin diseases, including psoriasis, vitiligo, atopic dermatitis and leukoderma.
Our non-U.S. business focuses on a direct distribution model for equipment sales and recurring revenue, and we have distribution agreements in place in the Mid-East, Asia, and Mexico. 39 Table of Contents Post-COVID-19 Pandemic In late 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”) which became a global pandemic.
Cost of Revenues and Gross Profit The following tables present changes in our gross margin, by segment, for the periods presented below: Dermatology Recurring Procedures (in thousands) Year Ended December 31, Change 2022 2021 Dollar Percentage Revenues $ 23,025 $ 22,528 $ 497 2 % Cost of revenues 8,371 6,418 1,953 30 Gross profit $ 14,654 $ 16,110 $ (1,456 ) (9 )% Gross profit percentage 63.6 % 71.5 % The primary reasons for the decrease in gross profit for the year ended December 31, 2022 were higher amortization of intangible assets due to the Pharos and TheraClear asset acquisitions and higher depreciation expenses and labor costs in 2022 compared to 2021, partially offset by higher recurring procedures sales.
Cost of Revenues and Gross Profit The following tables present changes in our gross margin, by segment, for the periods presented below: Dermatology Recurring Procedures Year Ended December 31, Change (in thousands, except percentages) 2023 2022 Dollar Percentage Revenues $ 21,530 $ 23,025 $ (1,495 ) (6 )% Cost of revenues 8,729 8,371 358 4 % Gross profit $ 12,801 $ 14,654 $ (1,853 ) (13 )% Gross profit percentage 59.5 % 63.6 % The primary reason for the decrease in gross profit for the year ended December 31, 2023 was higher depreciation costs due to more XTRAC lasers and new TheraClear devices placed into service. 45 Table of Contents Dermatology Procedures Equipment Year Ended December 31, Change (in thousands, except percentages) 2023 2022 Dollar Percentage Revenues $ 11,828 $ 13,136 $ (1,308 ) (10 )% Cost of revenues 6,168 6,022 146 2 % Gross profit $ 5,660 $ 7,114 $ (1,454 ) (20 )% Gross profit percentage 47.9 % 54.2 % The primary reasons for the decrease in gross profit for the year ended December 31, 2023 were lower recognition of previously deferred service revenue associated with service contracts assumed from Ra Medical in 2021 in connection with the Pharos asset acquisition, which is decreasing as the related service contracts expire, and an increase in domestic sales with longer warranty periods, leading to a greater amount of deferred revenue for those sales.
Upon an event of default, including a covenant violation, all principal and interest are due on demand. Proceeds from our MidCap facility were used to repay, in their entirety, the outstanding principal and interest associated with our Economic Injury Disaster Loan.
Upon an event of default, including a covenant violation, all principal and interest are due on demand. The debt agreement was further amended in February 2024 to, among other things, revise the applicable minimum net revenue threshold financial covenant.
Engineering and product development costs during the year ended December 31, 2022 were lower primarily as a result of reduction of costs incurred in connection with developing XTRAC Momentum TM 1.0, our next generation excimer laser system that was commercially launched in February 2022.
Engineering and product development costs during the year ended December 31, 2023 were higher primarily as a result of an increase in consulting expenses related to future enhancements of our devices.
Our weighted average cost of capital included a review and assessment of market and capital structure assumptions. For both reporting units the fair value was in excess of the carrying value. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows.
Our weighted average cost of capital included a review and assessment of market and capital structure assumptions.
The increase is primarily due to higher consulting services, including legal and professional services, offset by higher compensation, severance and recruiting expenses incurred during the first quarter of 2021 as a result of the CEO transition.
General and administrative expenses for the year ended December 31, 2023 were higher primarily due to higher legal and accounting costs and severance and other compensation-related expenses incurred as a result of the CEO transition, offset by a decrease in non-executive employee-related expenses, such as salaries and stock-based compensation expense.
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While many of COVID-19’s initial disruptions and damage to the global economy have been mitigated, the COVID-19 pandemic has continued to negatively impact the economy, disrupted global supply chains, constrained workforce participation and created significant volatility and disruption of financial markets.

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