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What changed in STRATA Skin Sciences, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of STRATA Skin Sciences, Inc.'s 2023 and 2024 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 2024 report.

+268 added−252 removedSource: 10-K (2025-03-28) vs 10-K (2024-03-28)

Top changes in STRATA Skin Sciences, Inc.'s 2024 10-K

268 paragraphs added · 252 removed · 200 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIn support of its clinical effect, the XTRAC excimer lasers have been cited in over 45 clinical studies and research programs, with findings published in peer-reviewed medical journals around the world. The XTRAC excimer laser has also been endorsed by the National Psoriasis Foundation, and its use for psoriasis is covered by nearly all major insurance companies, including Medicare.
Biggest changeOur data shows that treatment with XTRAC excimer lasers has an 89% efficacy rate and produces only minimal side effects. In support of its clinical effect, the XTRAC excimer lasers have been cited in over 45 clinical studies and research programs, with findings published in peer-reviewed medical journals around the world.
ITEM 1. BUSINESS Our Company Overview We are a medical technology company in dermatology dedicated to developing, commercializing and marketing innovative products for the treatment of dermatologic conditions. Our 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.
ITEM 1. BUSINESS Our Company Overview We are a medical technology company in dermatology dedicated to developing, commercializing and marketing innovative products for the treatment of dermatologic conditions. Our products include the XTRAC® and Pharos® excimer lasers and VTRAC® lamp systems utilized in the treatment of psoriasis, vitiligo and various other skin conditions.
We continue to market the XTRAC Velocity, our third-generation laser and the XTRAC Ultra Plus, which is also a highly effective model marketed primarily in certain international markets. The Momentum, S3, Velocity and the Ultra Plus are capable of treating mild, moderate and severe psoriasis, vitiligo, atopic dermatitis and leukoderma.
We continue to market the XTRAC Velocity, our third-generation laser and the XTRAC Ultra Plus, which is also a highly effective model marketed primarily in certain international markets. The Momentum, Velocity and the Ultra Plus are capable of treating mild, moderate and severe psoriasis, vitiligo, atopic dermatitis and leukoderma.
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.
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, 2024 , the national rates were as follows: • 96920 – designated for: the total area less than 250 square centimeters.
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 .
The XTRAC system received U.S. 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.
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.
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 two employees.
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.
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 June 30, 2024. The Company no longer offers the device or accessories. TheraClear In January 2022, we acquired the TheraClear assets from Theravant Corporation.
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.
We estimate that there are over 1,000 XTRAC lasers in use in the U.S., of which 864 systems were, as of December 31, 2024 , 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 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.
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.
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 .
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, 2024 , we have 864 partner clinics throughout the United States.
We believe that our patented methods and apparatus, together with proprietary trade-secret technology and registered trademarks, give us a competitive advantage; however, whether a patent is infringed or is valid, or whether or not a patent application should be granted, are all complex matters of science and law, and therefore, we cannot be certain that, if challenged, our patented methods and apparatus and/or trade-secret technology would be upheld.
We require our employees, consultants and contractors to execute confidentiality agreements with respect to our proprietary information. 6 Table of Contents We believe that our patented methods and apparatus, together with proprietary trade-secret technology and registered trademarks, give us a competitive advantage; however, whether a patent is infringed or is valid, or whether or not a patent application should be granted, are all complex matters of science and law, and therefore, we cannot be certain that, if challenged, our patented methods and apparatus and/or trade-secret technology would be upheld.
We are subject to routine inspection by the FDA and, as noted above, must comply with a number of regulatory requirements applicable to firms that manufacture medical devices and other FDA-regulated products for distribution within the U.S., including requirements related to device labeling (including prohibitions against promoting products for unapproved or off-label uses), facility registration, medical device listing, adherence to the FDA’s Quality System Regulation, good manufacturing processes and requirements for the submission of reports regarding certain device-related adverse events to the FDA.
We are subject to routine inspection by the FDA and, as noted above, must comply with a number of regulatory requirements applicable to firms that manufacture medical devices and other FDA-regulated products for distribution within the U.S., including requirements related to device labeling (including prohibitions against promoting products for unapproved or off-label uses), facility registration, medical device listing, adherence to the FDA’s Quality System Regulation, good manufacturing processes and requirements for the submission of reports regarding certain device-related adverse events to the FDA. 7 Table of Contents We are also subject to the radiological health provisions of the FD&C Act and the general and laser-specific radiation safety regulations administered by the Center for Devices and Radiological Health, or CDRH, of the FDA.
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.
CMS assigned a 2024 national payment of $155 per treatment; • 96921 – designated for: the total area 250 to 500 square centimeters. CMS assigned a 2024 national payment of $170 per treatment; and • 96922 – designated for: the total area over 500 square centimeters.
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).
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).
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.
We believe that several factors have limited the growth of the use of XTRAC treatments for those who suffer from psoriasis and vitiligo.
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.
Insurance Reimbursement to physicians varies based upon insurance company and location. 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 $155 per treatment to $232 per treatment for 2024. Reimbursement is expected to change in 2025.
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. As of December 31, 2024 , 12 issued U.S. patents are in force or pending and several of these patents have foreign counterparts issued and pending.
Our products also include the TheraClear® Acne Therapy System utilized in the treatment of mild to moderate inflammatory, comedonal and pustular acne. Corporate Overview We were incorporated in the State of New York in 1989 under the name Electro-Optical Sciences, Inc. and subsequently reincorporated under the laws of the State of Delaware in 1997.
Corporate Overview We were incorporated in the State of New York in 1989 under the name Electro-Optical Sciences, Inc. and subsequently reincorporated under the laws of the State of Delaware in 1997. In April 2010, we changed our name to MELA Sciences, Inc.
Many peer reviewed studies have proven that the XTRAC excimer laser can clear psoriasis faster and produce longer remissions than other UVB modalities, resulting in fewer treatments to produce the desired result. We currently market four XTRAC excimer models.
In our XTRAC system, our targeted therapy approach delivers optimum amounts of UVB light directly to skin lesions, sparing healthy tissue. Many peer reviewed studies have proven that the XTRAC excimer laser can clear psoriasis faster and produce longer remissions than other UVB modalities, resulting in fewer treatments to produce the desired result.
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.
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. 3 Table of Contents XTRAC and Pharos Systems and VTRAC Systems The XTRAC and Pharos excimer laser technology emits highly concentrated UV light targeted primarily towards autoimmune dermatological skin disorders such as psoriasis, vitiligo, atopic dermatitis, and eczema, among others.
In August 2021 and January 2022, we acquired the Pharos U.S. dermatology business and the TheraClear acne treatment business, respectively.
On January 5, 2016, we changed our name to STRATA Skin Sciences, Inc., and 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.
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.
We have signed distributor contracts by year as follows: 2019 – Korea, 2020 – Japan, 2021 – China, Israel, Saudi Arabia, Kuwait, Oman, Qatar, Bahrain, UAE, Jordan and Iraq, and 2023 – Mexico and India. We have renewed and/or amended several of these agreements as required to keep their terms current.
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.
In June 2015, we completed the acquisition of the XTRAC® Excimer Laser and the VTRAC® excimer lamp businesses from PhotoMedex, Inc. (the “Acquisition”). 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.
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.
The XTRAC excimer laser has also been endorsed by the National Psoriasis Foundation, and its use for psoriasis is covered by nearly all major insurance companies, including Medicare. 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.
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.
Employees As of December 31, 2024 , we had 106 full-time employees, which consisted of three executive officers, three vice presidents, 37 sales and marketing staff, 28 people engaged in manufacturing of lasers, 16 customer-field service personnel, two engaged in research and development and 17 finance and administration staff.
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.
We have signed distributor contracts by year as follows: 2019 – Korea, 2020 – Japan, 2021 – China, Israel, Saudi Arabia, Kuwait, Oman, Qatar, Bahrain, UAE, Jordan and Iraq, and 2023 – Mexico and India. We have renewed and/or amended several of these agreements as required to keep their terms current.
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.
However, we estimate that as of December 31, 2024, approximately 56% of insurers consider XTRAC treatments to be medically necessary for the treatment of vitiligo and therefore provide coverage . Recent changes to CPT code descriptions may impact the extent of this coverage in the future.
In October 2018, we announced the launch of XTRAC S3®, which, as compared to previous XTRAC generations, is smaller, faster and has a new user interface. In January 2020, we announced the FDA granted clearance for our XTRAC Momentum Excimer Laser System platform. This clearance is the first full platform clearance since 2008.
We currently market th ree XTRAC excimer models. In January 2020, we announced the FDA granted clearance for our XTRAC Momentum Excimer Laser System platform. This clearance is the first full platform clearance since 2008.
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.
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. Studies have shown that the remission time can last three to six months or longer.
VTRAC is a UV light lamp system that works in much the same way as the XTRAC.
VTRAC is a UV light lamp system that works in much the same way as the XTRAC. It received FDA clearance in August 2005 and Conformité Européenne (“CE”) mark approval in January 2006 and has been marketed exclusively in international markets.
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.
We also rely on trade secrets and technical know-how in the manufacture and marketing of our products.
Treatment protocols recommend that patients receive two treatments per week with a minimum of 48 hours between treatments. Our data shows that treatment with XTRAC excimer lasers has an 89% efficacy rate and produces only minimal side effects.
Studies have concluded that XTRAC treatment leads to significant improvement in psoriasis plaques and severity scores in as few as six to ten treatments. Treatment protocols recommend that patients receive two treatments per week with a minimum of 48 hours between treatments.
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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”).
Added
Our products also include the TheraClear® Acne Therapy System utilized in the treatment of mild to moderate inflammatory, comedonal and pustular acn e . The Pharos device is no longer available .
Removed
XTRAC and Pharos Systems and VTRAC Systems The XTRAC and Pharos excimer laser technology emits highly concentrated UV light targeted primarily towards autoimmune dermatological skin disorders such as psoriasis, vitiligo, atopic dermatitis, and eczema, among others. The XTRAC system received U.S.
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CMS assigned a 2024 national payment of $232 per treatment. 11 Table of Contents As of November 1, 2024, CMS has advised that its updated 2025 reimbursement rates will be as follows: • 96920 – designated for: the total area less than 250 square centimeters.
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Studies have shown that the remission time can last three to six months or longer. In our XTRAC system, our targeted therapy approach delivers optimum amounts of UVB light directly to skin lesions, sparing healthy tissue.
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CMS assigned a 2025 national payment of $135 per treatment; • 96921 – designated for: the total area 250 to 500 square centimeters. CMS assigned a 2025 national payment of $145 per treatment; and • 96922 – designated for: the total area over 500 square centimeters. CMS assigned a 2025 national payment of $183 per treatment.
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We require our employees, consultants and contractors to execute confidentiality agreements with respect to our proprietary information. In February 2021, the license for the exclusive rights for patents related to the delivery of treatment to vitiligo with the Icahn School of Medicine at Mount Sinai expired. We do not believe that this will have a material impact on our business.
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The national rates are adjusted by overhead factors applicable to each state.
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We are also subject to the radiological health provisions of the FD&C Act and the general and laser-specific radiation safety regulations administered by the Center for Devices and Radiological Health, or CDRH, of the FDA.
Added
Available Information We file annual, quarterly and current reports, proxy statements and other information with the Commission. These filings are available to the public on the Internet at the Commission’s website at http://www.sec.gov.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

62 edited+17 added−14 removed224 unchanged
Biggest changeAlthough 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.
Biggest changeDelays in obtaining regulatory clearance or approval could adversely affect our revenues and profitability. 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.
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.
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 State of California has made aggregate assessments of $1.2 million including penalties and interest. The audits cover the period from June 2018 through June 2022. We are in the administrative appeal process in this jurisdiction as well.
The State of California has made aggregate assessments of $2.1 million including penalties and interest. The audits cover the period from June 2018 through June 2022. We are in the administrative appeal process in this jurisdiction as well.
If our facilities or those of our manufacturers or suppliers are found to be in non-compliance or fail to take satisfactory corrective action in response to adverse QSR inspectional findings, FDA could take legal or regulatory enforcement actions against us and/or our products, including but not limited to the cessation of sales or the recall of distributed products, which could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands.
If our facilities or those of our manufacturers or suppliers are found to be in non-compliance or fail to take satisfactory corrective action in response to adverse QSR inspectional findings, the FDA could take legal or regulatory enforcement actions against us and/or our products, including but not limited to the cessation of sales or the recall of distributed products, which could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands.
If our operations or arrangements are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of its operations.
If our operations or arrangements are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of our operations.
The following factors, in addition to other risk factors described in this section and general market and economic conditions, may have a significant impact on the market price of our common stock: • failure of any of our products to achieve or continue to have commercial success; • the timing of regulatory approval for our future products; • adverse regulatory determinations with respect to our existing products; • results of our research and development efforts and our clinical trials; • the announcement of new products or product enhancements by us or our competitors; • regulatory developments in the U.S. and foreign countries; • our ability to manufacture our products to commercial standards; • developments concerning our clinical collaborators, suppliers or marketing partners; • changes in financial estimates or recommendations by securities analysts; • public concern over our products; • developments or disputes concerning patents or other intellectual property rights; • product liability claims and litigation against us or our competitors; • the departure of key personnel; • the strength of our balance sheet and any perceived need to raise additional funds; • variations in our financial results from expected financial results or those of companies that are perceived to be similar to us; • changes in the structure of third-party reimbursement in the U.S. and other countries; • changes in accounting principles or practices; • general economic, industry and market conditions; and • future sales of our common stock.
The following factors, in addition to other risk factors described in this section and general market and economic conditions, may have a significant impact on the market price of our common stock: 33 Table of Contents • failure of any of our products to achieve or continue to have commercial success; • the timing of regulatory approval for our future products; • adverse regulatory determinations with respect to our existing products; • results of our research and development efforts and our clinical trials; • the announcement of new products or product enhancements by us or our competitors; • regulatory developments in the U.S. and foreign countries; • our ability to manufacture our products to commercial standards; • developments concerning our clinical collaborators, suppliers or marketing partners; • changes in financial estimates or recommendations by securities analysts; • public concern over our products; • developments or disputes concerning patents or other intellectual property rights; • product liability claims and litigation against us or our competitors; • the departure of key personnel; • the strength of our balance sheet and any perceived need to raise additional funds; • variations in our financial results from expected financial results or those of companies that are perceived to be similar to us; • changes in the structure of third-party reimbursement in the U.S. and other countries; • changes in accounting principles or practices; • general economic, industry and market conditions; and • future sales of our common stock.
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.
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. • 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.
Our failure to comply with federal or state regulations, or with regulations in foreign markets that cover our product claims and advertising, including direct claims and advertising by us, may result in enforcement actions and imposition of penalties or otherwise harm the distribution and sale of its products.
Our failure to comply with federal or state regulations, or with regulations in foreign markets that cover our product claims and advertising, including direct claims and advertising by us, may result in enforcement actions and imposition of penalties or otherwise harm the distribution and sale of our products.
Risk 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.
Our business routinely encounters and addresses risks, some of which may cause our future results to be different – sometimes materially different – than we presently anticipate. 12 Table of Contents Risk 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. • 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. 13 Table of Contents • 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.
We and our manufacturers and suppliers are also subject to the regulations of foreign jurisdictions regarding the manufacturing process if we market its products overseas. The FDA enforces the QSR through periodic and announced or unannounced inspections of manufacturing facilities.
We and our manufacturers and suppliers are also subject to the regulations of foreign jurisdictions regarding the manufacturing process if we market our products overseas. The FDA enforces the QSR through periodic and announced or unannounced inspections of manufacturing facilities.
To maintain the listing of our common stock on the Nasdaq Capital Market, we are required to meet certain listing requirements, including, among others, (i) a minimum closing bid price of $1.00 per share, (ii) a market value of publicly held shares (excluding shares held by our executive officers, directors and 10% or more stockholders) of at least $1 million and (iii) either: (x) stockholders’ equity of at least $2.5 million; or (y) a total market value of listed securities of at least $35 million.
To maintain the listing of our common stock on the Nasdaq Capital Market, we are required to meet certain listing requirements, including, among others, (i) a minimum closing bid price of $1.00 per share (“Bid Price Requirement”), (ii) a market value of publicly held shares (excluding shares held by our executive officers, directors and 10% or more stockholders) of at least $1 million and (iii) either: (x) stockholders’ equity of at least $2.5 million; or (y) a total market value of listed securities of at least $35 million.
The size and complexity of our information technology systems, and those of our third-party vendors, make such systems potentially vulnerable to service interruptions and security breaches from inadvertent or intentional actions by its employees, partners or vendors.
The size and complexity of our information technology systems, and those of our third-party vendors, make such systems potentially vulnerable to service interruptions and security breaches from inadvertent or intentional actions by our employees, partners or vendors.
These provisions: • limit who may call a special meeting of stockholders; • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon at stockholder meetings; • do not permit cumulative voting in the election of our directors, which would otherwise permit less than a majority of stockholders to elect directors; • prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; and • provide our board of directors the ability to designate the terms of and issue a new series of preferred stock without stockholder approval.
These provisions: • limit who may call a special meeting of stockholders; • establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon at stockholder meetings; • do not permit cumulative voting in the election of our directors, which would otherwise permit less than a majority of stockholders to elect directors; • prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; and 34 Table of Contents • provide our Board of Directors the ability to designate the terms of and issue a new series of preferred stock without stockholder approval.
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.
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 Financial Trust (“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.
In the event there is a determination that the true object of the delivery of phototherapy under the recurring revenue model is a sale or lease of property and it is not a prescription medication, or we do not have other defenses where we prevail, we may be subject to state sales taxes in those particular states for previous years and in the future, plus interest and penalties for failure to pay such taxes.
In those states where we did not or may not prevail in the future with the defenses we have proposed and in the event there is a determination that the true object of the delivery of phototherapy under the recurring revenue model is a sale or lease of property and it is not a prescription medication, or we do not have other defenses where we prevail, we may be subject to state sales taxes in those particular states for previous years and in the future, plus interest and penalties for failure to pay such taxes.
For example, the ACA was enacted into law in the U.S. in March 2010. They imposed on medical device manufacturers, a requirement to research into the effectiveness of treatment modalities and institute changes to the reimbursement and payment systems for patient treatments.
For example, the ACA was enacted into law in the U.S. in March 2010. It imposed on medical device manufacturers, a requirement to research into the effectiveness of treatment modalities and institute changes to the reimbursement and payment systems for patient treatments.
We have ceased manufacturing and marketing MelaFind but must still maintain records for FDA and foreign regulatory purposes. 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.
We have ceased manufacturing and marketing MelaFind but must still maintain records for FDA and foreign regulatory purposes. 24 Table of Contents 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.
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.
The precise scope, timing and time period at issue, as well as the final outcome of any audit and actual settlements, remain uncertain. 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.
We rely on social media companies, such as Facebook and Twitter, to reach our target markets. Facebook has announced that beginning in January 2022 it will limit the ability of advertisers to target certain markets.
We rely on social media companies, such as Facebook and X (formerly Twitter), to reach our target markets. Facebook has announced that, beginning in January 2022, it will limit the ability of advertisers to target certain markets.
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.
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.
We can give no assurance that health insurers will not adversely modify their reimbursement policies for the use of the XTRAC system in the future. Currently, there is little insurance reimbursement coverage for acne treatments, such as those provided by TheraClear.
We can give no assurance that health insurers will not adversely modify their reimbursement policies for the use of the XTRAC system in the future. 17 Table of Contents Currently, there is little insurance reimbursement coverage for acne treatments, such as those provided by TheraClear.
We also maintain a shelf-registration statement that provides us with the ability, from time to time, to offer and sell up to $25.0 million in securities, including selling up to $11.0 million of our common stock in registered “at-the-market” offerings pursuant to an equity distribution agreement entered into with Ladenburg Thalmann & Co. Inc. in October 2021.
We also maintain a shelf-registration statement that provides us with the ability, from time to time, to offer and sell up to $25.0 million in securities, including selling up to an additional $8.9 million of our common stock in registered “at-the-market” offerings pursuant to an equity distribution agreement entered into with Ladenburg Thalmann & Co. Inc. in October 2021.
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.
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.
Despite our efforts to monitor evolving social media communication guidelines and comply with applicable rules, there is risk that the use of social media by us, our employees or our customers to communicate about our products or business may cause us to be found in violation of applicable requirements, including requirements of regulatory bodies such as the FDA and Federal Trade Commission.
Despite our efforts to monitor evolving social media communication guidelines and comply with applicable rules, there is risk that the use of social media by us, our employees or our customers to communicate about our products or business may cause us to be found in violation of applicable requirements, including requirements of regulatory bodies such as the FDA and FTC.
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.
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. 23 Table of Contents In both our U.S. and foreign markets, we are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints.
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. 25 Table of Contents The medical device industry is now experiencing greater scrutiny and regulation by federal, state and foreign governmental authorities.
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.
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.
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.
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.
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. 19 Table of Contents Furthermore, all of our debt under the Senior Term Facility bears interest at variable rates.
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.
Our net loss for the year ended December 31, 2024 was approximately $10.1 million , and as of December 31, 2024 , we had an accumulated deficit of approximately $248.1 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.
There are significant risks involved in managing our sales and marketing force and marketing our products, including our ability: • to hire, as needed, a sufficient number of qualified sales and marketing personnel with the aptitude, skills and understanding to market our products; • to adequately train our sales and marketing force in the use and benefits of all our products and services, thereby making them more effective promoters; • to manage our sales and marketing force and our ancillary channels (e.g., telesales) such that variable and semi-fixed expenses grow at a lesser rate than our revenues; and • to set the prices and other terms and conditions for treatments using the XTRAC system in a complex legal environment so that treatments will be accepted as attractive skin health and appropriate alternatives to conventional modalities and treatments To increase acceptance and utilization of our products, we may expand our sales and marketing programs in the U.S.
There are significant risks involved in managing our sales and marketing force and marketing our products, including our ability: • to hire, as needed, a sufficient number of qualified sales and marketing personnel with the aptitude, skills and understanding to market our products; • to adequately train our sales and marketing force in the use and benefits of all our products and services, thereby making them more effective promoters; • to manage our sales and marketing force and our ancillary channels (e.g., telesales) such that variable and semi-fixed expenses grow at a lesser rate than our revenues; and 18 Table of Contents • to set the prices and other terms and conditions for treatments using the XTRAC system in a complex legal environment so that treatments will be accepted as attractive skin health and appropriate alternatives to conventional modalities and treatments.
This potential inability to obtain a control premium could reduce the price of our common stock. 35 Table of Contents
This potential inability to obtain a control premium could reduce the price of our common stock.
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.
As of December 31, 2024 , based on published coverage policies and payment practices of private and Medicare insurance plans, we estimate that approximately 85% 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.
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.
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.
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.
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; 22 Table of Contents • 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.
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.
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.
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.
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.
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.
Any such issuance of shares would dilute the ownership of our stockholders. 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.
We may not be able to find suitable strategic alliances or collaboration partners or identify other investment opportunities, and we may experience losses related to any such investments. To finance any acquisitions or collaborations, we may choose to issue debt or equity securities as consideration. Any such issuance of shares would dilute the ownership of our stockholders.
We may not be able to find suitable strategic alliances or collaboration partners or identify other investment opportunities, and we may experience losses related to any such investments. 15 Table of Contents To finance any acquisitions or collaborations, we may choose to issue debt or equity securities as consideration.
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. • Your percentage ownership will be further diluted. • 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. • Our stock price may be volatile, meaning purchasers of our common stock could incur substantial losses. • Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable and could also limit the market price of our stock.
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. • Your percentage ownership will be further diluted in the future. • Our stock price may be volatile, meaning purchasers of our common stock could incur substantial losses. • Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable and could also limit the market price of our stock.
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.
In connection with the Senior Term Facility, as amended, we issued a warrant to MidCap to purchase 80,000 shares of our common stock, with an exercise price of $8.80 per share.
The global economy and financial markets may also be adversely affected by the current or anticipated impact of military conflict, including the ongoing conflict between Israel and Hamas, the ongoing war between Russia and Ukraine, terrorism or other geopolitical events.
An escalating global trade war, including between the United States and China, could harm our business and growth prospects. The global economy and financial markets may also be adversely affected by the current or anticipated impact of military conflict, including the ongoing conflict between Israel and Hamas, the ongoing war between Russia and Ukraine, terrorism or other geopolitical events.
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. In addition, public health epidemics or pandemics may adversely impact economies worldwide, which could result in adverse effects on our business, operations and prospects.
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.
The FDA has retained a number of COVID-19-related policies but with appropriate changes, as applicable. It is unclear how, if at all, these policies will impact our efforts to develop and commercialize our products. We may in the future face impediments or delays to regulatory meetings and approvals due to any pandemic measures.
It is unclear how, if at all, these policies will impact our efforts to develop and commercialize our products. We may in the future face impediments or delays to regulatory meetings and approvals due to any pandemic measures.
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.
The states of New York and California have assessed us an aggregate of $5.2 million including penalties and interest. The audits cover the period from March 2014 through November 2022.
Our business and operations could be adversely affected by public health epidemics or pandemics, including the recent COVID-19 pandemic, impacting the markets and industries in which we and our collaborators operate.
In addition, public health epidemics or pandemics may adversely impact economies worldwide, which could result in adverse effects on our business, operations and prospects. 14 Table of Contents Our business and operations could be adversely affected by public health epidemics or pandemics, including the recent COVID-19 pandemic, impacting the markets and industries in which we and our collaborators operate.
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.
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. 20 Table of Contents As of December 31, 2024 and 2023 , we have estimated our sales and use tax liability to be approximately $6.4 million and $4.3 million , respectively, which includes $1.8 million at December 31, 2024 that was accrued as a result of the Appellate Division ruling.
The PMA process is much more costly and lengthy. It may take from 11 months to three years, or even longer, and will likely require significant supporting human clinical data. Delays in obtaining regulatory clearance or approval could adversely affect our revenues and profitability.
The FDA’s 510(k) clearance process may take from three to 12 months, or longer, and may or may not require human clinical data. The PMA process is much more costly and lengthy. It may take from 11 months to three years, or even longer, and will likely require significant supporting human clinical data.
Even if a reverse stock split is effected, there can be no assurance that the market price per share of our common stock will remain in excess of the $1.00 minimum bid price for a sustained period of time.
On June 24, 2024, we regained compliance with the Bid Price Requirement. There can be no assurance that the market price per share of our common stock will remain in excess of the $1.00 minimum bid price for a sustained period of time.
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.
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.
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.
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.
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.
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. This ruling covers $1.8 million of the total $5.2 million of assessments.
In our recurring revenue model, we place the XTRAC system in the physician’s office under an arrangement for no upfront charge and generate our revenue on a per-use basis. In the ordinary course of business, we are, from time to time, subject to audits performed by state taxing authorities.
Included in accrued state sales and use taxes are certain known and estimated sales and use taxes and related penalties and interest to taxing authorities. In our recurring revenue model, we place the XTRAC system in the physician’s office under an arrangement for no upfront charge and generate our revenue on a per-use basis.
These actions and proceedings are generally based on the state’s position that the arrangements entered into by the Company are subject to state sales and use tax rather than exempt from applicable law. We are currently under audit by two taxing jurisdictions as it pertains to state sales and/or use tax.
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 state’s position that the arrangements entered into by us are subject to state sales and use tax rather than exempt from applicable law.
Whether a treatment may be delegated to non-physician staff members and, if so, to whom and to what extent, are matters that may vary state by state, as these matters are within the province of the state medical boards.
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. 16 Table of Contents Whether a treatment may be delegated to non-physician staff members and, if so, to whom and to what extent, are matters that may vary state by state, as these matters are within the province of the state medical boards.
Each medical device that we wish to market in the U.S. must first receive either 510(k) clearance or PMA from the FDA unless an exemption applies. Either process can be lengthy and expensive. The FDA’s 510(k) clearance process may take from three to 12 months, or longer, and may or may not require human clinical data.
Each medical device that we wish to market in the U.S. must first receive either 510(k) clearance or Pre Market Approval (“ PMA”), which is a stricter regulatory standard than 510(k), from the FDA unless an exemption applies. Either process can be lengthy and expensive.
On June 29, 2023, we received a notification from the Listing Department of Nasdaq indicating that during the preceding 30 consecutive business day period, the closing price of our common stock was below $1.00 per share. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had 180 calendar days, or until December 26, 2023, to regain compliance.
On June 29, 2023, we received a notification from the Listing Department of Nasdaq indicating that during the preceding 30 consecutive business day period, the closing price of our common stock was below $1.00 per share. Effective June 6, 2024, we implemented a reverse stock split of all our outstanding common stock at a ratio of one-to-ten shares.
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. Included in accrued state sales and use taxes are certain known and estimated sales and use taxes and related penalties and interest to taxing authorities.
Each quarter-point increase in the variable interest rates would increase interest expense on our current variable rate debt by approximately $38,000 during 2025 . 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.
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.
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 futur e . 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.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets and uncertainty about economic stability.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets and uncertainty about economic stability. We cannot predict whether future United States or international laws or regulations may impose tariffs or other trade restrictions that may have a material adverse effect on our business.
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.
If these rates increase, our debt service obligations will 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. Accordingly, our ability to borrow additional funds may be reduced and risks related to our indebtedness would intensify.
In September 2021, we entered into a secured borrowing facility with MidCap Financial Trust (“MidCap”), which was amended in January 2022, September 2022 and June 2023 (the “Senior Credit Facility”). On February 20, 2024, we amended the Senior Credit Facility to, among other things, revise the applicable minimum net revenue threshold financial covenant (the “Amendment”).
In September 2021, we entered into a credit and security agreement with MidCap, which was amended in January 2022, September 2022 and June 2023.
Removed
Our business routinely encounters and addresses risks, some of which may cause our future results to be different – sometimes materially different – than we presently anticipate.
Added
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. The FDA has retained a number of COVID-19-related policies but with appropriate changes, as applicable. Additionally, the Trump Administration has issued a number of Executive Orders related to global health issues.
Removed
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.
Added
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.
Removed
Because we were not in compliance with the applicable minimum net revenue financial threshold covenant for the period ended December 31, 2023, MidCap and the lenders in the Amendment agreed to, among other things, grant a limited waiver of the foregoing event that had occurred prior to the effectiveness of the Amendment and of any right the lenders may have to exercise any of their rights against us as a result.
Added
To increase acceptance and utilization of our products, we may expand our sales and marketing programs in the U.S.
Removed
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.
Added
On February 20, 2024, we amended the credit and security agreement to, among other things, revise the applicable minimum net revenue threshold financial covenant and on March 27, 2024, we further amended the credit and security agreement (as amended to date, the “Senior Term Facility”) to clarify certain provisions related to the maintenance of cash collateral accounts.
Removed
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.
Added
On April 11, 2024, we filed a motion for leave to appeal the Appellate Division’s decision to the New York State Court of Appeals (“Court of Appeals”). On October 22, 2024, in an unsigned one-line decision, the Court of Appeals denied our motion to appeal the Appellate Division ruling.
Removed
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.
Added
Therefore, the adverse decision stands and New York will execute on the appellate bond we posted for $1.3 million. As of December 31, 2024, we have accrued $1.8 million including penalties and interest as a result of the Appellate Division ruling.
Removed
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.
Added
W e believe that the Appellate Division ruling provides an avenue for challenging the pending audit periods and subsequent periods, provided we can show that the value of the equipment provided to customers is either incidental to the overall value of the non-taxable services that are provided or should be treated similarly to pharmaceutical treatments, which are generally exempt from sales tax.
Removed
Because of these and other differences, there can be no assurance that SOFR will perform in the same way as LIBOR would have done at any time, and there is no guarantee that it is a comparable substitute for LIBOR.
Added
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.
Removed
As of December 31, 2023 and 2022, we have estimated our sales and use tax liability to be approximately $4.3 million and $4.0 million, respectively.
Added
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.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe Risk Management team meets at least annually with cybersecurity leadership to discuss cybersecurity related risks identified and the potential likelihood and severity of each risk. Through this process, cybersecurity risks are presented to the executive leadership team, including the CEO and CFO, as well as reported to the Committee.
Biggest changeThe Risk Management team meets at least annually with cybersecurity leadership to discuss cybersecurity related risks identified and the potential likelihood and severity of each risk. Through this process, cybersecurity risks are presented to the executive leadership team, including the Chief Executive Officer (“CEO”) and CAO, as well as reported to the Committee.
ITEM 1C. CYBERSECURITY Our Board of Directors administers its cybersecurity risk oversight function directly through our Audit Committee (the "Committee"). The Committee has primary responsibility for overseeing our risk management practices, programs, policies, and procedures related to data privacy, data protection, and cybersecurity.
ITEM 1C. CYBERSECURITY Our Board of Directors administers its cybersecurity risk oversight function directly through our Audit Committee (the “Committee”). The Committee has primary responsibility for overseeing our risk management practices, programs, policies, and procedures related to data privacy, data protection, and cybersecurity.
Cybersecurity risks, threats, and incidents, including those from third-party service providers, are tracked and regularly provided to the CISO. Processes for managing cybersecurity risks The cybersecurity team tracks risks and incidents related to cybersecurity until the risk is mitigated to an acceptable level or fully remediated.
Cybersecurity risks, threats, and incidents, including those from third-party service providers, are tracked and regularly provided to the CISO. 35 Table of Contents Processes for managing cybersecurity risks The cybersecurity team tracks risks and incidents related to cybersecurity until the risk is mitigated to an acceptable level or fully remediated.
Currently, we are not aware of any risks from cybersecurity threats, or from previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company. 36 Table of Contents
Currently, we are not aware of any risks from cybersecurity threats, or from previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company.
The CISO is supported by our outside IT consulting firm and its cybersecurity team that is staffed with personnel experienced in cyber security, security operations and incident management. The CISO reports to the CFO, who provides the Committee with bi-annual updates about our cybersecurity program and material risks.
The CISO is supported by our outside IT consulting firm and its cybersecurity team that is staffed with personnel experienced in cyber security, security operations and incident management. The CISO reports to the Chief Accounting Officer (“CAO”), who provides the Committee with bi-annual updates about our cybersecurity program and material risks.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur Carlsbad facility houses the manufacturing and development operations for our excimer laser business, as well as the patient call center and reimbursement center.
Biggest changeWe terminated our existing lease that was set to expire in September 2024 and entered into a new lease in March 2024. The term of the lease commenced in April 2024 and expires in September 2029. Our Carlsbad facility houses the manufacturing and development operations for our excimer laser business, as well as the patient call center and reimbursement center.
ITEM 2. PROPERTIES We lease an 8,513 sq. ft. facility in Horsham, Pennsylvania that houses our executive offices and marketing. The lease was set to expire in January 2023. In August 2022, we exercised the lease renewal option and extended the term of the lease to expire in August 2026.
ITEM 2. PROPERTIES We lease an 8,513 sq. ft. facility in Horsham, Pennsylvania that houses our executive offices and marketing. In August 2022, we exercised the lease renewal option and extended the term of the lease to expire in August 2026. We lease a 17,000 sq. ft. facility consisting of office, manufacturing and warehousing space in Carlsbad, California.
Removed
We 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 changeIf 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.
Biggest changeIn those states where we did not or may not prevail in the future with the defenses we have proposed and in the event 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.
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.
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 $5.2 million including penalties and interest.
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.
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.
These may include controversies relating to contract claims and employment related matters, some of which claims may be material, in which case, we will make separate disclosure as required.
These may include controversies relating to contract claims and employment related matters, some of which claims may be material, in which case, we will make separate disclosure as required. In the ordinary course of business, we are, from time to time, subject to audits performed by state taxing authorities.
We are also in the administrative process of appeal with respect to the remaining $2.5 million of assessments.
We are in the administrative process of appeal with respect to the remaining $1.3 million of assessments in the State of New Y ork.
This ruling covers $1.4 million of the total $3.9 million of assessments.
This ruling covers $1.8 million of the total $5.2 million of assessments.
Removed
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.
Added
On April 11, 2024, we filed a motion for leave to appeal the Appellate Division’s decision to the New York State Court of Appeals (“Court of Appeals”). On October 22, 2024, in an unsigned one-line decision, the Court of Appeals denied our motion to appeal the Appellate Division ruling.
Removed
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.
Added
Therefore, the adverse decision stands and New York will execute on the appellate bond we posted for $1.3 million . As of December 31, 2024 , we have accrued $1.8 million including penalties and interest as a result of the Appellate Division ruling.
Removed
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.
Added
We believe that the Appellate Division ruling provides an avenue for challenging the pending audit periods and subsequent periods, provided we can show that the value of the equipment provided to customers is either incidental to the overall value of the non-taxable services that are provided or should be treated similarly to pharmaceutical treatments, which are generally exempt from sales tax. 36 Table of Contents The State of California has made aggregate assessments of $2.1 million including penalties and interest.
Removed
On or about May 16, 2022, the plaintiff filed a First Amended Complaint adding a PAGA claim to the action. On or about June 2, 2022, the plaintiff filed an Application to Dismiss Class and Individual Claim without prejudice, in an attempt to pursue a PAGA only complaint.
Added
The audits cover the period from June 2018 through June 2022. We are in the administrative process of appeal in this jurisdiction as well.
Removed
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.
Added
The precise scope, timing and time periods at issue, as well as the final outcomes of the investigations and judicial proceedings, remain uncertain. Accordingly, our estimate may change from time to time, and actual losses could vary. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
Removed
The 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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePlan 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.
Biggest changeSee Note s 1 and 12 t o the consolidated financial statements for additional discussion. 37 Table of Contents 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 521,726 $ 8.16 7,270,212 Equity compensation plans not approved by security holders — — — 521,726 $ 8.16 7,270,212 RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES None.
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.
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, 2024.
MARKET 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.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES As of March 20, 2025 , we had 4,171,161 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 521,726 shares of common stock, of which 231,467 were vested as of March 20, 2025 , (ii) unissued restricted stock units of 2,265 , or (iii) 80,000 shares of common stock reserved for issuance pursuant to a warrant.
Removed
See Note s 1 and 13 t o the consolidated financial statements for additional discussion.
Removed
ISSUER PURCHASES OF EQUITY SECURITIES None. ITEM 6. [RESERVED]

Item 7. Management's Discussion & Analysis

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

90 edited+41 added−24 removed69 unchanged
Biggest changeCost 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.
Biggest changeCost of Revenues and Gross Profit The following tables present changes in our gross profit, by segment, for the periods presented below: Dermatology Recurring Procedures Year Ended December 31, Change (in thousands, except percentages) 2024 2023 Dollar Percentage Revenues $ 21,171 $ 21,530 $ (359 ) (2 )% Cost of revenues 7,893 8,729 (836 ) (10 )% Gross profit $ 13,278 $ 12,801 $ 477 4 % Gross profit percentage 62.7 % 59.5 % 45 Table of Contents Gross profit increased to $13.3 million for the year ended December 31, 2024 from $12.8 million for the year ended December 31, 2023 .
Borrowings under the credit facility bear interest at a rate per annum equal to the sum of (a) the greater of (i) the sum of (A) 30-day forward-looking term rate of one month SOFR, as published by CME Group Benchmark Administration Limited, from time to time, plus (B) 0.10%, and (ii) the applicable floor rate of 3.50%, with such sum reset monthly, and (b) 7.50%.
Borrowings under the credit facility bear interest at a rate per annum equal to the sum of (a) the greater of (i) the sum of (A) 30-day forward-looking term rate of one month SOFR, as published by CME Group Benchmark Administration Limited, from time to time, plus (B) 0.10%, and (ii) the applicable floor rate of 3.50%, with such sum reset monthly, and (b) 7.50%.
To calculate the fair value of the earnout at December 31, 2023 , using Monte Carlo simulations, Company projections were utilized to develop expected revenues and gross profits based on the risk inherent in the projections using the Geometric-Brownian motion for the earnout periods and related earnout payments.
To calculate the fair value of the earnout at December 31, 2023 , using Monte Carlo simulations, our projections were utilized to develop expected revenues and gross profits based on the risk inherent in the projections using the Geometric-Brownian motion for the earnout periods and related earnout payments.
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.
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. 47 Table of Contents Reconciliation to the most directly comparable U.S.
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.
Changes in our actual results and/or estimates or any of our other assumptions used in our analysis could result in a different conclusion. 53 Table of Contents 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 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.
The impairments were 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.
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 primary sources of capital have been from borrowings under our debt facilities and sales of our products. As of December 31, 2024 , we had $15.0 million of borrowings outstanding under our credit facility with MidCap, which has a final maturity in June 2028 .
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. We also amended and restated the existing warrant to allow MidCap to purchase 800,000 shares of our common stock at an exercise price of $0.88 per share for a 10-year period ending June 30, 2033.
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. We also amended and restated the existing warrant to allow MidCap to purchase 80,000 shares of our common stock at an exercise price of $8.80 per share for a 10-year period ending June 30, 2033.
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 ternational revenues were 38% and 31% for the years ended December 31, 2024 and 2023 , 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.
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.
Our non-U.S. business focuses on a direct distribution model for equipment sales and recurring revenue, and we have d istribution agreements in place in the Mid-East, Asia and Mexico . Post-COVID-19 Pandemic In late 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”) which became a global pandemic.
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.
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 Middle East conflict, supply chain disruptions, rising interest rates, and related responses by our customers and our ultimate consumers as a result thereof.
In June 2023, we amended our credit facility with MidCap to: (i) refinance our existing $8.0 million term loan, (ii) borrow an additional $7.0 million, and (iii) provide for an additional $5.0 million tranche that can be drawn under certain conditions in 2024. The facility matures on June 1, 2028.
In June 2023, we amended our credit facility with MidCap to: (i) refinance our existing $8.0 million term loan, (ii) borrow an additional $7.0 million , and (iii) provide for an additional $5.0 million tranche that could have been drawn under certain conditions in 2024. The facility matures on June 1, 2028.
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.
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.
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.
Sales in the United States represented 62% and 69% of our total revenues for the years ended December 31, 2024 and 2023, respectively, and have been generated by our direct sales force. Outside the United States, our sales are made through third-party distributors.
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.
Benefit from Income Taxes We recognized a benefit from income taxes of $0.2 million for the year ended December 31, 2024 as compared to a benefit from income taxes of $0.1 million for the year ended December 31, 2023 , which is comprised primarily of changes in the deferred tax liability related to goodwill .
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%.
In September 2022, we amended the credit facility to transition, upon the cessation of LIBOR, to bear interest at one-month Secured Overnight Financing Rate (“SOFR”), or such other applicable period, plus 0.10%, with a floor of 0.50%.
In June 2023, we amended the credit facility to: (i) refinance our existing $8.0 million term loan, (ii) borrow an additional $7.0 million, and (iii) provide for an additional $5.0 million tranche that can be drawn under certain conditions in 2024. The facility matures on June 1, 2028.
In June 2023, we amended the credit facility to: (i) refinance our existing $8.0 million term loan, (ii) borrow an additional $7.0 million , and (iii) provide for an additional $5.0 million tranche that could have been drawn under certain conditions in 2024. The facility matures on June 1, 2028.
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.
Selling and Marketing As of December 31, 2024, our sales and marketing personnel consisted of 39 full-time positions, compared to 35 full-time positions as of December 31, 2023, inclusive of a vice president of sales and a vice president of marketing and business growth , 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.
The states of New York and California have assessed us an aggregate of $3.9 million including penalties and interest. The audits cover the period from March 2014 through November 2022.
The states of New York and California have assessed us an aggregate of $5.2 million including penalties and interest. The audits cover the period from March 2014 through November 2022.
We estimate that more than half of all major insurance companies now offer reimbursement for vitiligo as well, a figure that is increasing. • In the third quarter of 2018, we announced the FDA granted clearance for our Multi Micro Dose (MMD) tip for our XTRAC excimer laser.
We estimate that more than half of all major insurance companies now offer reimbursement for vitiligo as well. • In the third quarter of 2018, we announced the FDA granted clearance for our Multi Micro Dose (“MMD”) tip for our XTRAC excimer laser.
Theravant is eligible to receive up to $3.0 million in future earnout payments upon the 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 development and commercialization related targets.
Theravant is eligible to receive up to $3.0 million in future earnout payments upon the achievement of certain annual net revenue milestones ( $1.0 million of which is due upon the earlier of achieving a revenue target or July 2025), 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 development and commercialization related targets.
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.
Neon gas is essential to the proper functioning of our lasers. 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 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.
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. This ruling covers $1.8 million of the total $5.2 million of assessments.
For the year ended December 31, 2023 , sales and marketing expenses were $ 13.0 million as compared to $ 15.3 million for the year ended December 31, 2022 .
For the year ended December 31, 2024, sales and marketing expenses were $12.3 million as compared to $13.0 million for the year ended December 31, 2023.
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.
As of December 31, 2024 , we had $5.3 million of intangible assets. 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.
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.
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 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.
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 2024 expenses.
During the year ended December 31, 2023 , we recorded a $7.4 million reduction to the carrying value of the product technology intangible asset as a result of the revaluation of contingent consideration related to the purchase of the TheraClear devices. As of December 31, 2023 we had $ 7.3 million of intangible assets.
During the year ended December 31, 2023 , we recorded a $7.4 million reduction to the carrying value of the product technology intangible asset as a result of the revaluation of contingent consideration related to the purchase of the TheraClear devices. There was no such revaluation of the contingent consideration during the year ended December 31, 2024 .
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.
Our gross margin has been and will continue to be affected by a variety of factors, primarily product sales mix and pricing manufacturing costs.
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.
As of both December 31, 2024 and 2023 , we deferred domestic net revenues of $1.6 million , which will be recognized as revenue over the remaining usage period for the related placements. Dermatology Procedures Equipment For the year ended December 31, 2024 , dermatology procedures equipment revenues were $12.4 million .
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.
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. The debt agreement was further amended in February 2024 to, among other things, revise the applicable minimum net revenue threshold financial covenant.
Upon an event of default, including a covenant violation, all principal and interest are due on demand. 48 Table of Contents In February 2024, the parties amended the credit facility to, among other things, revise the applicable minimum net revenue threshold financial covenant.
Oral argument was held by the Appellate Division on January 18, 2024. 52 Table of Contents 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.
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.
Based on the assessment performed in the fourth quarter of 2023 in conjunction with the budgeting process, we recorded a $2.3 million impairment charge related to goodwill, which was the amount of the excess of the carrying value of the Dermatology Recurring Procedures reporting unit over its fair value.
Based on the assessments performed in the fourth quarters of 2024 and 2023 in conjunction with the budgeting process, we recorded impairment charges of $3.9 million and $2.3 million , respectively, related to goodwill, which was the amount of the excess of the carrying value of the Dermatology Recurring Procedures reporting unit over its fair value.
Any difference between the cash payment and the amount accrued for contingent consideration will result in an adjustment to the technology intangible asset. During 2023, we revised our projections of expected revenues and gross profits to be earned from the sale of TheraClear devices. The change in projections was considered significant enough to warrant a revaluation of the contingent consideration.
Any difference between the cash payment and the amount accrued for contingent consideration will result in an adjustment to the product technology intangible asset. 52 Table of Contents During 2023, we revised our projections of expected revenues and gross profits to be earned from the sale of TheraClear devices.
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 .
As of December 31, 2024 , there were 864 XTRAC systems placed in dermatologists’ offices in the United States under our dermatology recurring procedures model, a decrease from 923 as of December 31, 2023 .
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 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.
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 .
Financing Activities Net cash provided by financing activities was $1.9 million for the year ended December 31, 2024 , compared to cash provided by financing activities of $6.9 million for the year ended December 31, 2023 .
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 .
The following table summarizes our sources and uses of cash for each of the periods presented: Year Ended December 31, 2024 2023 (in thousands) Cash provided by (used in) Operating activities $ 188 $ (519 ) Investing activities (1,636 ) (5,019 ) Financing activities 1,925 6,861 Net increase in cash, cash equivalents and restricted cash $ 477 $ 1,323 49 Table of Contents Operating Activities Net cash provided by operating activities was $0.2 million for the year ended December 31, 2024 , compared to net cash used in operating activities of $0.5 million for the year ended December 31, 2023 .
We have not completed a study to assess whether an ownership change has occurred in the past. Our existing NOLs may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change, our ability to utilize NOLs could be further limited by Section 382 of the Code.
Our existing NOLs may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change, our ability to utilize NOLs could be further limited by Section 382 of the Code.
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.
Therefore, our strategy going forward is to continue 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 X (formerly Twitter), and aimed at motivating them to seek out XTRAC treatments from our physician partners .
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.
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.
We anticipate that our general and administrative expenses will remain similar to our fiscal year 2023 expenses. Impairment of Goodwill Impairment expense consists of an impairment charge related to goodwill resulting from the acquisition of the XTRAC and VTRAC businesses in 2015.
We anticipate that our general and administrative expenses will decrease compared to our fiscal year 2024 expenses as we continue to manage our expenses and seek cost reductions. Impairment of Goodwill Impairment expense consists of an impairment charge related to goodwill resulting from the acquisition of the XTRAC and VTRAC businesses in 2015.
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.
Summary of Significant Accounting Policies ” in our audited financial statements and related notes thereto appearing elsewhere in this Annual Report, we believe the following discussion addresses our most critical accounting policies. 51 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.
Significant assumptions used in the income approach include growth and discount rates, profit margins and our weighted average cost of capital. We used historical performance and management estimates of future performance to determine profit margins and growth rates. Discount rates selected for each reporting unit varied.
We used historical performance and management estimates of future performance to determine profit margins and growth rates. Discount rates selected for each reporting unit varied. Our weighted average cost of capital included a review and assessment of market and capital structure assumptions.
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.
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.
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).
Internationally, we sold 98 systems ( 89 XTRAC and 9 VTRAC). Domestically, we sold 12 XTRAC systems for the year ended December 31, 2024 . For the year ended December 31, 2023 , dermatology procedures equipment revenues were $11.8 million . Internationally, we sold 68 systems ( 60 XTRAC and 8 VTRAC).
Contingent Consideration Theravant, the seller of the TheraClear devices, is eligible to receive up to $3.0 million in future earnout payments upon the 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.
Remaining lease obligations are $1.2 million as of December 31, 2024 , with payments of $0.3 million due within the next year. 50 Table of Contents Contingent Consideration Theravant, the seller of the TheraClear devices, is eligible to receive up to $3.0 million in future earnout payments upon the achievement of certain annual net revenue milestones ($1.0 million of which is due upon the earlier of achieving a revenue target or July 2025) , 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.
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.
The new loan was 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 .
Estimates that involve a significant level of estimation uncertainty include the valuation of contingent consideration, which was determined using forecasted financial information available at the acquisition date, a discount rate and various other assumptions as described in more detail in Note 3 to our consolidated financial statements.
Estimates that involve a significant level of estimation uncertainty include the valuation of contingent consideration, which was determined using forecasted financial information available at the acquisition date, a discount rate, revenue volatility, a cost of equity and various other assumptions.
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 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.
Based on the assessment performed in the fourth quarter of 2023 in conjunction with the annual budgeting process, we recorded impairment for the amount by which the carrying value of the dermatology recurring procedures reporting unit exceeded its fair value. The impairment was primarily driven by a decline in projected cash flows, including revenues and profitability.
Based on the assessments performed in the fourth quarters of 2024 and 2023 in conjunction with the annual budgeting process, we recorded impairment in both 2024 and 2023 for the amount by which the carrying value of the dermatology recurring procedures reporting unit exceeded its fair value.
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.
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.
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.
Cost of revenues also includes costs related to personnel, depreciation, amortization, warranty, shipping, and our operations and field service departments. 41 Table of Contents 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.
The Development Agreement has a three-year term, unless terminated sooner by either party. 50 Table of Contents Impact of Inflation We do not believe that inflation has had a material effect on our business, financial condition or results of operations during the year ended December 31, 2023.
Impact of Inflation We do not believe that inflation has had a material effect on our business, financial condition or results of operations during the year ended December 31, 2024 .
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.
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.
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. 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.
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. 43 Table of Contents Results of Operations Comparison of the Years ended December 31, 2024 and 2023 Year Ended December 31, Change (in thousands) 2024 2023 Dollar Percentage Revenues, net $ 33,562 $ 33,358 $ 204 1 % Cost of revenues 14,481 14,897 (416 ) (3 )% Gross profit 19,081 18,461 620 3 % Operating expenses: Engineering and product development 883 1,317 (434 ) (33 )% Selling and marketing 12,289 12,956 (667 ) (5 )% General and administrative 11,303 10,508 795 8 % Impairment of goodwill 3,861 2,284 1,577 69 % 28,336 27,065 1,271 5 % Loss from operations (9,255 ) (8,604 ) (651 ) 8 % Other (expense) income: Interest expense (2,107 ) (1,640 ) (467 ) 28 % Interest income 242 231 11 5 % Loss on debt extinguishment — (909 ) 909 (100 )% Other income 864 — 864 100 % (1,001 ) (2,318 ) 1,317 (57 )% Loss before benefit from income taxes $ (10,256 ) $ (10,922 ) $ 666 (6 )% Revenues Revenues by Geography The following table presents revenues by geography for the periods presented below: Year Ended December 31, Change (in thousands) 2024 2023 Dollar Percentage Domestic $ 20,888 $ 23,028 $ (2,140 ) (9 )% International 12,674 10,330 2,344 23 % Total revenues $ 33,562 $ 33,358 $ 204 1 % Revenues by Product Type The following table presents revenues by segment for the periods presented below: Year Ended December 31, Change (in thousands) 2024 2023 Dollar Percentage Dermatology recurring procedures $ 21,171 $ 21,530 $ (359 ) (2 )% Dermatology procedures equipment 12,391 11,828 563 5 % Total revenues $ 33,562 $ 33,358 $ 204 1 % 44 Table of Contents Dermatology Recurring Procedures Recurring treatment revenues for the year ended December 31, 2024 were $21.2 million , which we estimate is approximately 253,000 XTRAC treatments with prices between $65 and $100 per treatment, compared to recurring treatment revenues for the year ended December 31, 2023 of $21.5 million , which we estimate is approximately 280,000 XTRAC treatments with prices between $65 and $95 per treatment.
We officially launched our TheraClear® X Acne Therapy System in January 2023. 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.
Through December 31, 2024, we have incurred $0.1 million of royalty and gross profit payments based on gross profit from domestic and international sales.
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 will continue to identify and plan around potential future pandemics and disruptions to our business. 39 Table of Contents 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.
There was no impairment incurred during the year ended December 31, 2022. 46 Table of Contents Loss on Debt Extinguishment During the second quarter of 2023, we refinanced our Senior Term Facility with MidCap (see Note 10 , Long-term Debt to the Notes to Consolidated Financial Statements).
Loss on Debt Extinguishment During the second quarter of 2023, we refinanced our Senior Term Facility with MidCap (see Note 9 . Long-term Debt to the Notes to Consolidated Financial Statements).
We reduced our direct-to-patient advertising during 2023, which we believe contributed to the reduction in number of XTRAC treatments compared to 2022.
We reduced our direct-to-patient advertising over the course of 2023, which we believe contributed to a reduction in the number of XTRAC treatments compared to prior periods that continued into 2024.
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.
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 have not completed a study to assess whether an ownership change has occurred in the past.
We are also in the administrative process of appeal with respect to the remaining $2.5 million of assessments.
We are in the administrative process of appeal with respect to the remaining $1.3 million of assessments in the State of New Y ork .
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.
In those states where we did not or may not prevail in the future with the defenses we have proposed and in the event 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. 54 Table of Contents Recently Issued Accounting Pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our audited financial statements appearing elsewhere in this Annual Report.
These non-GAAP measures include non-GAAP gross profit, which excludes the non-cash expense of amortization of acquired intangible assets classified as cost of revenues, and non-GAAP adjusted EBITDA, “Earnings Before Interest, Taxes, Depreciation, and Amortization.” These non-GAAP disclosures have limitations as an analytical tool, should not be viewed as a substitute for Gross Profit or Net Earnings (Loss) determined in accordance with U.S.
These non-GAAP measures include non-GAAP adjusted EBITDA, “Earnings Before Interest, Taxes, Depreciation, and Amortization.” This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for Net Earnings (Loss) determined in accordance with U.S. GAAP, should not be considered in isolation or as a substitute for analysis of our results as reported under U.S.
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.
GAAP measure of all non-GAAP measures included in this Annual Report is as follows: Year Ended December 31, (in thousands) 2024 2023 Net loss $ (10,086 ) $ (10,830 ) Adjustments: Depreciation and amortization 4,968 5,553 Amortization of operating lease right-of-use asset 339 349 Loss on disposal of property and equipment 49 72 Benefit from income taxes (170 ) (92 ) Interest income (242 ) (231 ) Interest expense 2,107 1,640 Non-GAAP EBITDA (3,035 ) (3,539 ) Impairment of goodwill 3,861 2,284 Stock-based compensation 427 1,303 Loss on debt extinguishment — 909 Employee retention credit (864 ) — Non-GAAP adjusted EBITDA $ 389 $ 957 Liquidity and Capital Resources As of December 31, 2024 , we had cash and cash equivalents and restricted cash of $8.6 million and an accumulated deficit of $248.1 million .
GAAP, should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. We consider these non-GAAP measures in addition to our results prepared under current accounting standards, but they are not a substitute for, nor superior to, U.S. GAAP measures.
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 .
Engineering and Product Development For the year ended December 31, 2024 , engineering and product development expenses were $0.9 million as compared to $1.3 million for the year ended December 31, 2023 . Engineering and product development costs during the year ended December 31, 2024 were lower primarily as a result of a decrease in salaries and outside services.
Loss on Debt Extinguishment During the second quarter of 2023, we refinanced our Senior Term Facility with MidCap (see Note 10 , Long-term Debt to the Notes to Consolidated Financial Statements). The new loan is considered substantially different from the original loan and, as such, we recorded a loss on debt extinguishment during the year ended December 31, 2023 .
The new loan was considered substantially different from the original loan and, as such, we recorded a loss on debt extinguishment during the year ended December 31, 2023 . There were no significant changes to our Senior Term Facility during the year ended December 31, 2024 .
In connection with the launch of the TheraClear Acne Therapy System, there were 92 TheraClear devices place in dermatologists’ offices in the United States under our recurring procedures model as of December 31, 2023 . Nominal revenue was earned from these devices during the year ended December 31, 2023 .
Subsequent to the launch of the TheraClear Acne Therapy System, there were 144 and 92 TheraClear devices placed in dermatologists’ offices in the United States under our recurring procedures model as of December 31, 2024 and 2023 , respectively.
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.
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 five years.
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.
While most physician offices have reopened, some of our partner physician practices closed permanently, 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 is ongoing.
This supplemental presentation should not be construed as an inference that the Company's future results will be unaffected by similar adjustments to Gross Profit or Net Earnings (Loss) determined in accordance with U.S. GAAP.
These non-GAAP measures are provided to enhance readers’ overall understanding of our current financial performance and to provide further information for comparative purposes. This supplemental presentation should not be construed as an inference that the our future results will be unaffected by similar adjustments to Net Earnings (Loss) determined in accordance with U.S. GAAP.
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.
As of December 31, 2024 , we have estimated the future earnout payments at $1.1 million , of which $1.0 million is expected to be paid within the next year unless an agreement between the parties is negotiated.
Impairment of Goodwill For the year ended December 31, 2023, impairment expense was $2.3 million. The impairment charge relates to goodwill associated with the dermatology recurring procedures segment and was primarily driven by a decline in projected cash flows, including revenues and profitability.
The impairment charges relate to goodwill associated with the dermatology recurring procedures segment and were primarily driven by a decline in projected cash flows, including revenues and profitability. Interest Expense Interest expense is primarily attributable to our debt obligations.
We organized our business into two operating segments, which also serve as our goodwill reporting units and are defined as Dermatology Recurring Procedures and Dermatology Procedures Equipment Sales. Our analysis employed the use of both a market and income approach, with the market approach given a 25% weighting and the income approach given a 75% weighting.
The determination of the fair value of the reporting units to which the goodwill relates requires management to make estimates and assumptions. We organized our business into two operating segments, which also serve as our goodwill reporting units and are defined as Dermatology Recurring Procedures and Dermatology Procedures Equipment.
The increase in domestic equipment sales from 2022 to 2023 was due to a temporary shift in strategy during 2023 whereby we offered physicians in the United States the option to purchase lasers rather than operate under the dermatology recurring procedures model.
The $ 0 .6 million increase in dermatology procedures equipment revenues from the year ended December 31, 2023 to the year ended December 31, 2024 was primarily the result of a $1.6 million increase in international equipment sales , partially offset by a $0.2 million decrease in deferred service revenue associated with service contracts assumed in connection with the Pharos asset acquisition due to the expiration of those contracts during 2024 and a $0.6 million decrease in domestic equipment sales that was due to a temporary shift in strategy during 2023 whereby we offered physicians in the United States the option to purchase lasers rather than operate under the dermatology recurring procedures model.
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.
The impairments were primarily driven by a decline in projected cash flows, including revenues and profitability. 42 Table of Contents 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.
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.
For the year ended December 31, 2024 , interest expense increased to $2.1 million from $1.6 million for the year ended December 31, 2023 . The increase was primarily the result of the additional $7.0 million borrowed under our Senior Term Facility on June 30, 2023.
We experienced an increase in accounts receivable in the prior year and had increased our inventories to avoid supply chain disruption. 49 Table of Contents Investing Activities Net cash used in investing activities was $ 5.0 million for the year ended December 31, 2023 , compared to cash used in investing activities of $ 4.4 million for the year ended December 31, 2022 .
Investing Activities Net cash used in investing activities was $1.6 million for the year ended December 31, 2024 , compared to net cash used in investing activities of $5.0 million for the year ended December 31, 2023 .

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