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What changed in STRATA Skin Sciences, Inc.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of STRATA Skin Sciences, Inc.'s 2024 and 2025 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 2025 report.

+343 added−331 removedSource: 10-K (2026-03-26) vs 10-K (2025-03-28)

Top changes in STRATA Skin Sciences, Inc.'s 2025 10-K

343 paragraphs added · 331 removed · 250 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

51 edited+14 added−13 removed76 unchanged
Biggest changeAdditionally, 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.
Biggest changeXTRAC and VTRAC Systems The XTRAC 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.
Treatments are very comfortable, take 10 minutes to perform, are highly effective, and can be used on all skin types. Competition Our XTRAC product line competes with pharmaceutical compounds and methodologies used to treat an array of skin conditions.
Treatments are comfortable, take 10 minutes to perform, are highly effective, and can be used on all skin types. Competition Our XTRAC product line competes with pharmaceutical compounds and methodologies used to treat an array of skin conditions.
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.
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, 2025 , the national rates were as follows: • 96920 – designated for: the total area less than 250 square centimeters.
Because of the predominance of government-sponsored healthcare systems around the world, most of our customer relationships outside of the U.S. will be with governmental entities and therefore subject to such anti-bribery laws. Effective January 1, 2020, the California Consumer Privacy Act (CCPA) became effective.
Because of the predominance of government-sponsored healthcare systems around the world, most of our customer relationships outside of the U.S. will be with governmental entities and therefore subject to such anti-bribery laws. Effective January 1, 2020, the California Consumer Privacy Act (the “CCPA”) became effective.
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.
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.
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.
ITEM 1. BUSINESS Our Company Overview We are a medical technology company dedicated to developing, commercializing and marketing innovative products for the treatment of dermatologic conditions. Our products include the XTRAC® line of excimer lasers and VTRAC® lamp systems utilized in the treatment of psoriasis, vitiligo and various other skin conditions.
Since 2019, we have been transitioning our international dermatology procedures equipment sales through our master distributor to a direct distribution model for equipment sales and recurring revenue on a country by country basis. In January 2022, our agreement with our master distributor expired.
Since 2019, we have transitioned our international dermatology procedures equipment sales through our master distributor to a direct distribution model for equipment sales and recurring revenue on a country by country basis. In January 2022, our agreement with our master distributor expired.
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 .
Our products also include the TheraClear® X Acne Therapy System utilized in the treatment of mild to moderate inflammatory, comedonal and pustular acne. The Pharos device is no longer available.
Using the XTRAC and Pharos Excimer Lasers to Treat Vitiligo and Other Skin Diseases UV light therapy is considered to be an effective and safe treatment for many skin disorders beyond psoriasis.
Using the XTRAC Excimer Laser to Treat Vitiligo and Other Skin Diseases UV light therapy is considered to be an effective and safe treatment for many skin disorders beyond psoriasis.
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.
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, 2025 , we have 842 partner clinics throughout the United States.
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.
We estimate that there are over 1,000 XTRAC lasers in use in the U.S., of which 842 systems were, as of December 31, 2025 , included in our dermatology recurring procedures revenue model. The Pharos business we acquired in 2021 provided us with the opportunity to convert the Pharos customer base to our XTRAC excimer laser system.
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.
CMS assigned a 2025 national payment of $137 per treatment; • 96921 – designated for: the total area 250 to 500 square centimeters. CMS assigned a 2025 national payment of $146 per treatment; and • 96922 – designated for: the total area over 500 square centimeters. CMS assigned a 2025 national payment of $183 per treatment.
Fraud and Abuse Laws Because of the significant federal funding involved in Medicare and Medicaid, Congress and the states have enacted, and actively enforce, a number of laws whose purpose is to eliminate fraud and abuse in federal health care programs. Our business is subject to compliance with these laws.
Fraud and Abuse Laws Because of the significant federal funding involved in Medicare and Medicaid, Congress and the states have enacted, and actively enforce, a number of laws whose purpose is to eliminate fraud and abuse in federal health care programs.
Our XTRAC products remain substantially without approval for reimbursement in many international markets under either government or private reimbursement systems. To date, patients of the TheraClear products have had limited success in obtaining third party reimbursement for such treatments.
In most markets, there are private insurance systems, as well as government-managed systems. Our XTRAC products remain substantially without approval for reimbursement in many international markets under either government or private reimbursement systems. To date, patients of the TheraClear products have had limited success in obtaining third party reimbursement for such treatments.
Internationally, we have been transitioning our international dermatology procedures equipment sales through our master distributor to a direct distribution model for equipment sales and recurring revenue on a country by country basis.
Internationally, we transitioned our dermatology procedures equipment sales through a master distributor to a direct distribution model for equipment sales and recurring revenue on a country by country basis.
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.
Employees As of December 31, 2025 , we had 114 full-time employees, which consisted of three executive officers, three vice presidents, 44 sales and marketing staff, 29 people engaged in manufacturing of lasers, 16 customer-field service personnel, two engaged in research and development and 17 finance and administration staff.
The TheraClear Acne Therapy System delivers a two-part process for treating inflammatory acne, pustular acne and comedonal acne that combines a vacuum and broadband light that has been proven to clear skin rapidly for fast and visible reduction in acne and associated redness.
TheraClear In January 2022, we acquired the TheraClear assets from Theravant Corporation. The TheraClear Acne Therapy System delivers a two-part process for treating inflammatory acne, pustular acne and comedonal acne that combines a vacuum and broadband light that has been proven to clear skin rapidly for fast and visible reduction in acne and associated redness.
(See “Third Party Reimbursement” below.) 4 Table of Contents Psoriasis, the Disease The World Health Organization describes psoriasis as a chronic, noncommunicable, painful, disfiguring and disabling disease for which there is no cure, and which generates a great negative impact on patients’ quality of life.
Psoriasis, the Disease The World Health Organization describes psoriasis as a chronic, noncommunicable, painful, disfiguring and disabling disease for which there is no cure, and which generates a great negative impact on patients’ quality of life.
Momentum has an increased power range to improve patient safety and treatment efficiency; a new and exclusive proprietary short-hair tip, providing ease of use in difficult-to-treat scalp psoriasis; and an enhanced user interface and database.
This clearance is the first full platform clearance since 2008. Momentum has an increased power range to improve patient safety and treatment efficiency; a new and exclusive proprietary short-hair tip, providing ease of use in difficult-to-treat scalp psoriasis; and an enhanced user interface and database.
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 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. 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.
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.
To this effect, the XTRAC technology is FDA cleared for the treatment of not only psoriasis but also vitiligo (a skin pigment deficiency), atopic dermatitis (eczema) and leukoderma, which is a localized loss of skin pigmentation that occurs after an inflammatory skin condition such as a burn, intralesional steroid injection, or post dermabrasion.
To this effect, the XTRAC technology is FDA cleared for the treatment of not only psoriasis but also vitiligo (a skin pigment deficiency), atopic dermatitis (eczema) and leukoderma, which is a localized loss of skin pigmentation that occurs after an inflammatory skin condition such as a burn, intralesional steroid injection, or post dermabrasion. 5 Table of Contents XTRAC technology for vitiligo patients typically requires more therapy sessions than for psoriasis but is dependent on the severity of the disease.
Anti-Kickback Laws In the U.S., there are federal and state anti-kickback laws that generally prohibit the payment or receipt of kickbacks, bribes or other remuneration in exchange for the referral of patients or other health-related business.
Our business is subject to compliance with these laws. 8 Table of Contents Anti-Kickback Laws In the U.S., there are federal and state anti-kickback laws that generally prohibit the payment or receipt of kickbacks, bribes or other remuneration in exchange for the referral of patients or other health-related business.
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.
Insurance Reimbursement to physicians varies based upon insurance company and location. The national CPT code reimbursement established by the Center for Medicare & Medicaid Services (“CMS”), which forms the basis for most insurance companies’ reimbursement levels, ranged for the three codes between $137 per treatment to $183 per treatment for 2025 .
Specific advertisements encourage prospective patients to contact our patient advocacy center via telephone or web site, wherein we provide information on the treatment and insurance coverage, and ultimately we can schedule an appointment for the prospective patient to be evaluated by a physician within our customer network, convenient to their location, to determine if they would benefit from XTRAC treatments. 5 Table of Contents STRATAPEN In January 2017, we entered into an OEM agreement with Esthetic Education, LLC to private label the STRATAPEN device.
Specific advertisements encourage prospective patients to contact our patient advocacy center via telephone or web site, wherein we provide information on the treatment and insurance coverage, and ultimately we can schedule an appointment for the prospective patient to be evaluated by a physician within our customer network, convenient to their location, to determine if they would benefit from XTRAC treatments.
Accordingly, if less costly drugs or other treatments are available, third-party payers may not authorize, or may limit, reimbursement for the use of our products, even if our products are safer or more effective than the alternatives. Additionally, they may require changes to our pricing structure and revenue model before authorizing reimbursement.
Accordingly, if less costly drugs or other treatments are available, third-party payers may not authorize, or may limit, reimbursement for the use of our products, even if our products are safer or more effective than the alternatives.
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).
Following the filing of this Annual Report, we do not intend to make any further filings with the Commission. 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).
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.
Certification to the standard is awarded by accredited third parties. We believe that our present manufacturing capacity at these facilities is sufficient to meet foreseeable demand for our products. Research and Development Efforts Our research and development team, including engineers, consists of two employees. We conduct research and development activities at our facility located in Carlsbad, California.
Medical device companies, like us, can be held liable under false claims laws, even if they do not submit claims to the government, when they are deemed to have caused submission of false claims by, among other things, providing incorrect coding or billing advice about their products to customers that file claims, or by engaging in kickback arrangements with customers that file claims.
Medical device companies, like us, can be held liable under false claims laws, even if they do not submit claims to the government, when they are deemed to have caused submission of false claims by, among other things, providing incorrect coding or billing advice about their products to customers that file claims, or by engaging in kickback arrangements with customers that file claims. 9 Table of Contents The False Claims Act also has been used to assert liability on the basis of misrepresentations with respect to the services rendered and in connection with alleged off-label promotion of products.
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.
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.
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.
As of October 31, 2025 , CMS has advised that its updated 2026 reimbursement rates will be as follows: • 96920 – designated for: the total area less than 250 square centimeters. CMS assigned a 2026 national payment of $138 per treatment; • 96921 – designated for: the total area 250 to 500 square centimeters.
HIPAA and Other Privacy Regulations The regulations that implement HIPAA also establish uniform standards governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of individually identifiable health information maintained or transmitted by healthcare providers, health plans and healthcare clearinghouses, which are referred to as “covered entities.” Several regulations have been promulgated under HIPAA’s regulations including: the Standards for Privacy of Individually Identifiable Health Information, or the Privacy Rule, which restricts the use and disclosure of certain individually identifiable health information; the Standards for Electronic Transactions, or the Transactions Rule, which establishes standards for common healthcare transactions, such as claims information, plan eligibility, payment information and the use of electronic signatures; and the Security Standards for the Protection of Electronic Protected Health Information, or the Security Rule, which requires covered entities to implement and maintain certain security measures to safeguard certain electronic health information.
The law provides California residents with the right to know that their personal data is being collected; know whether that data is being sold or disclosed; to prevent the sale of their personal information; to access their personal data; to request that a business delete their personal information; and to not be discriminated against for exercising these rights. 10 Table of Contents HIPAA and Other Privacy Regulations The regulations that implement HIPAA also establish uniform standards governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of individually identifiable health information maintained or transmitted by healthcare providers, health plans and healthcare clearinghouses, which are referred to as “covered entities.” Several regulations have been promulgated under HIPAA’s regulations including: the Standards for Privacy of Individually Identifiable Health Information, or the Privacy Rule, which restricts the use and disclosure of certain individually identifiable health information; the Standards for Electronic Transactions, or the Transactions Rule, which establishes standards for common healthcare transactions, such as claims information, plan eligibility, payment information and the use of electronic signatures; and the Security Standards for the Protection of Electronic Protected Health Information, or the Security Rule, which requires covered entities to implement and maintain certain security measures to safeguard certain electronic health information.
However, the costs of defending such claims, as well as any sanctions imposed, could significantly affect our financial performance. 9 Table of Contents HIPAA Fraud and Other Regulations The Health Insurance Portability and Accountability Act of 1996, or HIPAA, created a class of federal crimes known as the “federal health care offenses,” including healthcare fraud and false statements relating to healthcare matters.
HIPAA Fraud and Other Regulations The Health Insurance Portability and Accountability Act of 1996, or HIPAA, created a class of federal crimes known as the “federal health care offenses,” including healthcare fraud and false statements relating to healthcare matters.
For any devices that are cleared through the 510(k) process, modifications or enhancements that could significantly affect the safety or effectiveness of the device, or that constitute a major change in the intended use of the device, will require a new 510(k) submission.
The FDA granted these clearances under Section 510(k) on the basis of substantial equivalence to other technologies that had received prior clearances. 7 Table of Contents For any devices that are cleared through the 510(k) process, modifications or enhancements that could significantly affect the safety or effectiveness of the device, or that constitute a major change in the intended use of the device, will require a new 510(k) submission.
We have received FDA 510(k) clearance to market our XTRAC and VTRAC systems for the treatment of psoriasis, vitiligo, atopic dermatitis and leukoderma. The FDA granted these clearances under Section 510(k) on the basis of substantial equivalence to other technologies that had received prior clearances.
We have received FDA 510(k) clearance to market our XTRAC and VTRAC systems for the treatment of psoriasis, vitiligo, atopic dermatitis and leukoderma.
We are unable to predict whether we would be subject to actions under the False Claims Act or a similar state law, or the impact of such actions.
We are unable to predict whether we would be subject to actions under the False Claims Act or a similar state law, or the impact of such actions. However, the costs of defending such claims, as well as any sanctions imposed, could significantly affect our financial performance.
To date, there is not sufficient data to confirm how long patients can expect their vitiligo to be in remission after XTRAC therapy. Based on anecdotal reports, we believe that re‑pigmentation may last for several years. Historically, vitiligo treatments had been considered cosmetic procedures by insurance companies, and as such were not reimbursed.
Based on anecdotal reports, we believe that re‑pigmentation may last for several years. Historically, vitiligo treatments had been considered cosmetic procedures by insurance companies, and as such were not reimbursed.
Additionally, state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations of HIPAA Privacy and Security Rules that threaten the privacy of state residents. 10 Table of Contents In addition to federal regulations issued under HIPAA, some states have enacted privacy and security statutes or regulations that, in some cases, are more stringent than those issued under HIPAA.
Additionally, state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations of HIPAA Privacy and Security Rules that threaten the privacy of state residents.
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.
We have renewed and/or amended several of these agreements as required to keep their terms current. 12 Table of Contents Available Information We have historically filed 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.
Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. Many international markets have government-managed healthcare systems that control reimbursement for new devices and procedures. In most markets, there are private insurance systems, as well as government-managed systems.
Additionally, they may require changes to our pricing structure and revenue model before authorizing reimbursement. 11 Table of Contents Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. Many international markets have government-managed healthcare systems that control reimbursement for new devices and procedures.
In addition, several courts have permitted kickback cases brought under the Federal False Claims Act to proceed, as discussed in more detail below. 8 Table of Contents The reach of the Anti-Kickback Statute was broadened by the Patient Protection and Affordable Care Act of 2010 (the “ACA”), which, among other things, amends the intent requirement of the federal Anti-Kickback Statute.
The reach of the Anti-Kickback Statute was broadened by the Patient Protection and Affordable Care Act of 2010 (the “ACA”), which, among other things, amends the intent requirement of the federal Anti-Kickback Statute.
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.
CMS assigned a 2026 national payment of $148 per treatment; and • 96922 – designated for: the total area over 500 square centimeters. CMS assigned a 2026 national payment of $176 per treatment. The national rates are adjusted by overhead factors applicable to each state.
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.
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 three XTRAC excimer models. In January 2020, we announced the FDA granted clearance for our XTRAC Momentum Excimer Laser System platform.
In those cases, it may be necessary to modify our planned operations and procedures to comply with the more stringent state laws. If we fail to comply with applicable state laws and regulations, we could be subject to additional sanctions.
If we fail to comply with applicable state laws and regulations, we could be subject to additional sanctions.
Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs.
Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. In addition, several courts have permitted kickback cases brought under the Federal False Claims Act to proceed, as discussed in more detail below.
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.
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.
XTRAC technology for vitiligo patients typically requires more therapy sessions than for psoriasis but is dependent on the severity of the disease. In the treatment of vitiligo, we believe the XTRAC functions to reactivate the skin’s melanocytes (the cells that produce melanin), which causes pigment to return.
In the treatment of vitiligo, we believe the XTRAC functions to reactivate the skin’s melanocytes (the cells that produce melanin), which causes pigment to return. To date, there is not sufficient data to confirm how long patients can expect their vitiligo to be in remission after XTRAC therapy.
Our TheraClear device is being manufactured for us by a third party, who is subject to the same regulations. We rely on the manufacturer to ensure compliance with the regulations.
Our TheraClear device has historically been manufactured for us by a third party, who is subject to the same regulations as we are. At the present time, we are not sourcing devices as our inventory is sufficient for current needs.
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 research and development efforts are focused on the application of our XTRAC system for the treatment of inflammatory skin disorders. 6 Table of Contents 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.
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.
VTRAC is a UV light lamp system that works in much the same way as the XTRAC.
We also rely on trade secrets and technical know-how in the manufacture and marketing of our products.
As of December 31, 2025 , 16 issued U.S. patents are in force or pending and several of these patents have foreign counterparts issued and pending. We also rely on trade secrets and technical know-how in the manufacture and marketing of our products. We require our employees, consultants and contractors to execute confidentiality agreements with respect to our proprietary information.
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Post-COVID-19 Pandemic Since March 2020, the global pandemic related to a new strain of coronavirus (“COVID-19”) has negatively impacted business conditions in the industry in which we operate, disrupted global supply chains, constrained workforce participation and created significant volatility and disruption of financial markets.
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We discontinued the Pharos line concurrent with the acquisition and provided service and support for Pharos laser system products through the expiration of extended warranty service contracts in 2024. Impact of Tariffs In 2025, the U.S. introduced trade policy actions that have increased import tariffs across a wide range of countries at various rates, with certain exemptions.
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The pandemic led to the suspension of elective procedures in the U.S. and to the temporary closure of many physician practices, which are our primary customers. While most offices have reopened, some physician practices closed and never reopened.
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To the extent that trade tariffs and other restrictions imposed by the U.S. or other countries increase the price of, or limit the amount of, our products or components or materials used in our products imported into the U.S., or create adverse tax consequences, the revenues, costs, or gross profit of our products and services, primarily in the Dermatology Procedures Equipment segment, may be adversely affected and the demand from our customers may be diminished.
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Accordingly, the COVID-19 pandemic and its variants have negatively impacted our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frames and those of our primary customers. It has also negatively impacted our supply chains and transport, customer behavior and staffing.
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Uncertainty surrounding international trade policy and regulations as well as disputes and protectionist measures could also have an adverse effect on consumer confidence and spending and may impact our results of operations.
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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.
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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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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.
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Reimbursement is expected to change in 2026 (see “Third Party Reimbursement” below). Beginning January 1, 2027, revised CPT code descriptors for excimer laser procedures (CPT 96920, 96921 and 96922) will become effective, expanding the scope of reimbursable indications to include additional inflammatory and autoimmune skin conditions beyond psoriasis, including vitiligo, atopic dermatitis and alopecia areata.
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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.
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In connection with the CMS Calendar Year 2026 Medicare Physician Fee Schedule Final Rule, CMS confirmed continued reimbursement for excimer laser treatments under these codes through December 31, 2026, and acknowledged the forthcoming descriptor revisions effective January 1, 2027.
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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.
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CMS also indicated that it will evaluate clinical, utilization and practice expense data submitted by stakeholders as part of the CY 2027 rulemaking process in coordination with the American Medical Association CPT Editorial Panel and the Relative Value Scale Update Committee. 4 Table of Contents The revised CPT code descriptors effective January 1, 2027 are expected to broaden Medicare reimbursement eligibility for excimer laser procedures to additional immune-mediated dermatologic conditions.
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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.
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Until such revisions take effect, CPT codes 96920–96922 remain applicable exclusively to excimer laser technology. The Company is engaging with commercial payers in advance of the January 1, 2027 effective date to promote alignment of coverage policies with the expanded indications.
Removed
We conduct research and development activities at our facility located in Carlsbad, California. Our research and development efforts are focused on the application of our XTRAC system for the treatment of inflammatory skin disorders.
Added
The Company believes that the implementation of the revised CPT descriptors beginning January 1, 2027 may support expanded utilization of excimer laser procedures; however, future reimbursement levels and coverage determinations remain subject to CMS rulemaking and third-party payer policies.
Removed
We are, or may become, subject to various other federal, state, local and foreign laws, regulations and policies relating to, among other things, safe working conditions, good laboratory practices and the use and disposal of hazardous or potentially hazardous substances used in connection with research and development.
Added
However, we estimate that as of December 31, 2025 , approximately 58% of the insured population in the U.S. is covered by insurance coverage or payment policies that reimburse physicians for using XTRAC treatments for the treatment of vitiligo.
Removed
The False Claims Act also has been used to assert liability on the basis of misrepresentations with respect to the services rendered and in connection with alleged off-label promotion of products.
Added
Recent changes to CPT code descriptions, which are scheduled to become effective on January 1, 2027, may impact the extent of this coverage in the future. Management believes these changes will encourage more patients to seek excimer laser treatments.
Removed
The law provides California residents with the right to know that their personal data is being collected; know whether that data is being sold or disclosed; to prevent the sale of their personal information; to access their personal data; to request that a business delete their personal information; and to not be discriminated against for exercising these rights.
Added
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.
Removed
The national rates are adjusted by overhead factors applicable to each state.
Added
Should we need to re-commence manufacturing the device, we have sufficient knowledge in-house to either manufacture it ourselves or to seek a new third party manufacturer.
Added
In addition to federal regulations issued under HIPAA, some states have enacted privacy and security statutes or regulations that, in some cases, are more stringent than those issued under HIPAA. In those cases, it may be necessary to modify our planned operations and procedures to comply with the more stringent state laws.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

83 edited+25 added−21 removed199 unchanged
Biggest changeOur 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.
Biggest changeOur 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. • Changes in the United States trade policy, including the impact of recently announced baseline tariffs, may have a material adverse effect on our business and results of operations. 14 Table of Contents Risks Relating to Our Common Stock • Our shares of common stock have been delisted from The Nasdaq Capital Market and are now traded over the counter (“OTC”). • 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.
We believe our sales and use tax accruals have properly recognized that if our arrangements with customers are deemed more likely than not that we would not be exempt from sales tax in a particular state are the basis for measurement of the state sales and use tax is calculated in accordance with ASC 405, Liabilities , as a transaction tax.
We believe our sales and use tax accruals have properly recognized that if our arrangements with customers are deemed more likely than not that we would not be exempt from sales tax in a particular state, the basis for measurement of the state sales and use tax is calculated in accordance with ASC 405, Liabilities , as a transaction tax.
The 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.
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; 23 Table of Contents • 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.
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.
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; 35 Table of Contents • 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.
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.
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; 15 Table of Contents • 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.
Further, the effects on our operations, financial performance and stock price may be significant if we do not or cannot take one or more of the above-listed actions in a timely manner and when needed, and our ability to do so may be limited significantly due to the instability of the global financial markets and the resulting limitations on available financing to us and to potential licensees, buyers and investors.
Further, the effects on our operations and financial performance may be significant if we do not or cannot take one or more of the above-listed actions in a timely manner and when needed, and our ability to do so may be limited significantly due to the instability of the global financial markets and the resulting limitations on available financing to us and to potential licensees, buyers and investors.
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.
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.
Additionally, these options may not be available to us as all of our assets have been pledged as security for the various financings. 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.
Additionally, these options may not be available to us as all of our assets have been pledged as security for the various financings. 32 Table of Contents 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.
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.
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.
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.
The state of California has made aggregate assessments of $2.4 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.
In general, obtaining PMA to achieve marketing authorization from the FDA is a more onerous process than seeking 510(k) clearance. 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.
In general, obtaining PMA to achieve marketing authorization from the FDA is a more onerous process than seeking 510(k) clearance. 26 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.
Failure to secure any necessary financing in a timely manner and on favorable terms could impair our ability to achieve our growth strategy, could harm our financial performance and stock price and could require us to delay or abandon development plans.
Failure to secure any necessary financing in a timely manner and on favorable terms could impair our ability to achieve our growth strategy, could harm our financial performance and could require us to delay or abandon development plans.
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.
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; • the lack of current public information regarding our business; • general economic, industry and market conditions; and • future sales of our common stock.
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.
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. • Our history of operating losses and current default on our long-term debt raise substantial doubt regarding our ability to continue as a going concern. • 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. 13 Table of Contents • If we fail to manage our sales and marketing force or to market and distribute our products effectively, we may experience diminished revenues and profits. • 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. • 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.
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.
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.
We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the U.S. or abroad. The medical device industry has been under heightened FDA scrutiny as the subject of government investigations and enforcement actions.
We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the U.S. or abroad. 30 Table of Contents The medical device industry has been under heightened FDA scrutiny as the subject of government investigations and enforcement actions.
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.
In connection with the Senior Term Facility, we issued a warrant to MidCap to purchase 80,000 shares of our common stock, with an exercise price of $8.80 per share.
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 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.
In order for TheraClear to be successful, patients and decision makers will need to be able to pay for treatments without insurance reimbursement. The continuing development of our products depends upon our developing and maintaining strong working relationships with physicians.
In order for TheraClear to be successful, patients and decision makers will need to be able to pay for treatments without insurance reimbursement. 18 Table of Contents The continuing development of our products depends upon our developing and maintaining strong working relationships with physicians.
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.
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 U.S. or international laws or regulations may impose tariffs or other trade restrictions that may have a material adverse effect on our business.
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.
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. 21 Table of Contents As of December 31, 2025 and 2024 , we have estimated our sales and use tax liability to be approximately $3.8 million and $5.1 million , respectively, which includes $0.6 million and $1.8 million at December 31, 2025 and 2024 , respectively, that was accrued as a result of the Appellate Division ruling.
If we cannot successfully integrate acquisitions (including the Pharos and TheraClear businesses), joint ventures and other partnerships on a timely basis, we may be unable to generate sufficient revenue to offset acquisition costs, we may incur costs in excess of what we anticipate, and our expectations of future results of operations, including certain cost savings and synergies, may not be achieved.
If we cannot successfully integrate acquisitions, joint ventures and other partnerships on a timely basis, we may be unable to generate sufficient revenue to offset acquisition costs, we may incur costs in excess of what we anticipate, and our expectations of future results of operations, including certain cost savings and synergies, may not be achieved.
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.
An escalating global trade war, including between the U.S. 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.
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.
As of December 31, 2025 , based on published coverage policies and payment practices of private and Medicare insurance plans, we estimate that approximately 89% 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.
See “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for discussion included in Item 7 of this Annual Report on Form 10-K. In addition, subject to restrictions in the agreements governing our credit facilities, we may incur additional debt.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for discussion included in Item 7 of this Annual Report. In addition, subject to restrictions in the agreements governing our credit facilities, we may incur additional debt.
Sanctions imposed by the United States and other countries in response to such conflicts, including the sanctions relating to Russia, may also adversely impact the financial markets and the global economy, and the economic countermeasures by the affected countries or others could exacerbate market and economic instability.
Sanctions imposed by the U.S. and other countries in response to such conflicts, including the sanctions relating to Russia, may also adversely impact the financial markets and the global economy, and the economic countermeasures by the affected countries or others could exacerbate market and economic instability.
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.
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. 19 Table of Contents To increase acceptance and utilization of our products, we may expand our sales and marketing programs in the U.S.
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 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 in the amount of $1.3 million . Oral argument was held by the Appellate Division on January 18, 2024.
For example, in recent periods, the United States government has announced, and may continue to announce, various import tariffs on goods imported from certain trade partners, which have resulted, and may continue to result, in reciprocal tariffs on goods exported from the United States to such trade partners.
For example, in recent periods, the U.S. government has announced, and may continue to announce, various import tariffs on goods imported from certain trade partners, which have resulted, and may continue to result, in reciprocal tariffs on goods exported from the U.S. to such trade partners.
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 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.
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.
In addition, public health epidemics or pandemics may adversely impact economies worldwide, which could result in adverse effects on our business, operations and prospects. Our business and operations could be adversely affected by public health epidemics or pandemics, including the COVID-19 pandemic, impacting the markets and industries in which we and our collaborators operate.
Future changes to environmental and health and safety laws could cause us to incur additional expenses or restrict our operations, which could have a material adverse effect on our business, financial condition, and results of operations. Unfavorable global economic conditions could adversely affect our business, financial condition, stock price and results of operations .
Future changes to environmental and health and safety laws could cause us to incur additional expenses or restrict our operations, which could have a material adverse effect on our business, financial condition, and results of operations. 33 Table of Contents Unfavorable global economic conditions could adversely affect our business, financial condition and results of operations.
In September 2021, we entered into a credit and security agreement with MidCap, which was amended in January 2022, September 2022 and June 2023.
In September 2021, we entered into a credit and security agreement with MidCap, which was amended in January 2022, September 2022, June 2023, February 2024 and March 2024.
Physician Payment Sunshine Act, now known as Open Payments, requires us to report to the Centers for Medicare & Medicaid Services, or CMS, payments and other transfers of value to all U.S. physicians and U.S. teaching hospitals, with the reported information made publicly available on a searchable website.
Physician Payment Sunshine Act, now known as Open Payments, requires us to report to CMS payments and other transfers of value to all U.S. physicians and U.S. teaching hospitals, with the reported information made publicly available on a searchable website.
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.
Each quarter-point increase in the variable interest rates would increase interest expense on our current variable rate debt by approximately $35,000 during 2026 . 20 Table of Contents If our actual liability for state sales and use taxes is higher than our accrued liability, it could have a material impact on our financial condition.
In addition, the FDA could then bring legal or regulatory enforcement actions against us and/or our products including, but not limited to, recalls or requirements for premarket 510(k) authorizations. We can give no assurance that our data will be substantiated in studies involving more patients. In such a case, we may never achieve significant revenues or profitability .
In addition, the FDA could then bring legal or regulatory enforcement actions against us and/or our products including, but not limited to, recalls or requirements for premarket 510(k) authorizations. We can give no assurance that our data will be substantiated in studies involving more patients.
Because of the complex and technical nature of our systems and the dynamic market in which we compete, any failure to attract and retain a sufficient number of qualified employees could materially harm our ability to develop and commercialize our technology, which would have a material adverse effect on our business, financial condition, and results of operations.
Because of the complex and technical nature of our systems and the dynamic market in which we compete, any failure to attract and retain a sufficient number of qualified employees could materially harm our ability to develop and commercialize our technology, which would have a material adverse effect on our business, financial condition, and results of operations. 28 Table of Contents Consolidation in the medical device industry could have an adverse effect on our revenue and results of operations.
At the same time, companies in the medical device industry are under increasing scrutiny by the U.S. Department of Health and Human Services Office of Inspector General, or OIG, and the U.S. Department of Justice, or DOJ, for improper relationships with physicians.
At the same time, companies in the medical device industry are under increasing scrutiny by the OIG and the U.S. Department of Justice, or DOJ, for improper relationships with physicians.
Any additional financing may dilute the ownership interest of our existing stockholders and could adversely affect the market price of our common stock. If we do not have enough capital to fund operations, then we will have to cut costs or raise funds.
Any additional financing may dilute the ownership interest of our existing stockholders and could adversely affect the market price of our common stock, to the extent an active market is available at such time. If we do not have enough capital to fund operations, then we will have to cut costs or raise funds.
In connection with the preparation of our consolidated financial statements for the year ended December 31, 2024, we identified a material weakness in our internal control over financial reporting related to a lack of detailed management review of account reconciliations and account analyses, including those prepared by third-party specialists .
In connection with the preparation of our consolidated financial statements for the years ended December 31, 2025 and 2024, we identified a material weakness in our internal control over financial reporting related to a lack of detailed management review of account reconciliations and account analyses, including those prepared by third-party specialists, and gaps in technical accounting expertise to account for complex transactions.
We are in the administrative process of appeal with respect to the remaining $1.3 million of assessments in the State of New York.
We are in the administrative process of appeal with respect to the remaining $2.6 million of assessments in the state of New York.
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.
Our net loss for the year ended December 31, 2025 was approximately $6.3 million , and as of December 31, 2025 , we had an accumulated deficit of approximately $254.4 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.
If it became necessary to take one or more of the above-listed actions, then our perceived valuation may be lower, which could impact the market price of our stock.
If it became necessary to take one or more of the above-listed actions, then our perceived valuation may be lower.
If one or more of those patents, patent applications and other intellectual property rights are invalidated, rejected or found unenforceable, those outcomes could reduce or eliminate any competitive advantage we might otherwise have had.
Therefore, we cannot be certain that, if challenged, our patents, patent applications and/or other intellectual property rights would be upheld. If one or more of those patents, patent applications and other intellectual property rights are invalidated, rejected or found unenforceable, those outcomes could reduce or eliminate any competitive advantage we might otherwise have had.
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.
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. 15 Table of Contents To finance any acquisitions or collaborations, we may choose to issue debt or equity securities 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.
Failure to comply with these legal and regulatory requirements could impact our business, and we have had and will continue to spend substantial time and financial resources to develop and implement enhanced structures, policies, systems and processes to comply with these legal and regulatory requirements, which may also impact our business and which could have a material adverse effect on our business, financial condition, and results of operations.
Failure to comply with these legal and regulatory requirements could impact our business, and we have had and will continue to spend substantial time and financial resources to develop and implement enhanced structures, policies, systems and processes to comply with these legal and regulatory requirements, which may also impact our business and which could have a material adverse effect on our business, financial condition, and results of operations. 25 Table of Contents International regulatory approval processes may take more or less time than the FDA clearance or approval process.
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 January 2021, 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.
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.
Therefore, the adverse decision stands and New York executed on the appellate bond we posted for $1.3 million . As of December 31, 2025 , we have a remaining accrual of $0.6 million including penalties and interest as a result of the Appellate Division ruling.
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.
As a result of shares sold or issued under the circumstances described above, your percentage ownership in our common stock will be diluted in the future. 34 Table of Contents Our stock price may be volatile, meaning purchasers of our common stock could incur substantial losses.
Therefore, we cannot be certain that we have not infringed the intellectual property rights of such third parties. Our potential competitors may assert that some aspect of our products infringes their patents. There also may be existing patents of which we are unaware that one or more components of our products may inadvertently infringe.
Therefore, we cannot be certain that we have not infringed the intellectual property rights of such third parties. Our potential competitors may assert that some aspect of our products infringes their patents.
International regulatory approval processes may take more or less time than the FDA clearance or approval process. If we fail to comply with applicable FDA and comparable non-U.S. regulatory requirements, we may not receive regulatory clearances or approvals or may be subject to FDA or comparable non-U.S. enforcement actions.
If we fail to comply with applicable FDA and comparable non-U.S. regulatory requirements, we may not receive regulatory clearances or approvals or may be subject to FDA or comparable non-U.S. enforcement actions.
Depending on the nature of the relief ordered by the court, we could become liable for additional damages to third parties. 28 Table of Contents We rely on our patents, patent applications and other intellectual property rights to give us a competitive advantage.
Depending on the nature of the relief ordered by the court, we could become liable for additional damages to third parties. We rely on our patents, patent applications and other intellectual property rights to give us a competitive advantage. Whether a patent is valid, or whether a patent application should be granted, is a complex matter of science and law.
We presently maintain liability insurance with coverage limits of at least $5.0 million per occurrence and overall aggregate, which we believe is an adequate level of product liability insurance, but product liability insurance is expensive and we might not be able to obtain product liability insurance in the future on acceptable terms or in sufficient amounts to protect us, if at all.
We may also be subject to claims that are caused by the actions of our suppliers, such as those who provide us with components and sub-assemblies. 22 Table of Contents We presently maintain liability insurance with coverage limits of at least $5.0 million per occurrence and overall aggregate, which we believe is an adequate level of product liability insurance, but product liability insurance is expensive and we might not be able to obtain product liability insurance in the future on acceptable terms or in sufficient amounts to protect us, if at all.
In addition, there is a risk that our current or future service providers, manufacturers or other collaborators may not survive such difficult economic times, which could directly affect our ability to attain our operating goals.
In addition, there is a risk that our current or future service providers, manufacturers or other collaborators may not survive such difficult economic times, which could directly affect our ability to attain our operating goals. We cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.
We cannot assure you that we will be able to raise additional capital or secure alternate financing to fund operations, if necessary, or that we will be able to raise additional capital under terms that are favorable to us. Further, we cannot assure that an acquisition will in any way negate or mitigate our need for future capital.
We cannot assure you that we will be able to raise additional capital or secure alternate financing to fund operations, if necessary, or that we will be able to raise additional capital under terms that are favorable to us.
As a result, regardless of whether we are insured, a product liability claim or product recall may result in losses that could result in the FDA taking legal or regulatory enforcement action against us and/or our products including recall, and could have a material adverse effect upon our business, financial condition and results of operations. 21 Table of Contents We must comply with complex statutes prohibiting fraud and abuse, and both we and physicians utilizing our products could be subject to significant penalties for noncompliance.
As a result, regardless of whether we are insured, a product liability claim or product recall may result in losses that could result in the FDA taking legal or regulatory enforcement action against us and/or our products including recall, and could have a material adverse effect upon our business, financial condition and results of operations.
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.
In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted. 31 Table of Contents 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.
The FDA or state regulatory authorities may find that certain claims, design features or performance characteristics, in order to be made or included in the products, may have to be supported by further studies and marketing clearances or approvals, which could be lengthy, costly and possibly unobtainable. 29 Table of Contents If we fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with products, these products could be subject to restrictions or withdrawal from the market.
The FDA or state regulatory authorities may find that certain claims, design features or performance characteristics, in order to be made or included in the products, may have to be supported by further studies and marketing clearances or approvals, which could be lengthy, costly and possibly unobtainable.
We have introduced our XTRAC and VTRAC products into markets in more than 30 countries in Europe, the Middle East, Asia, Australia, South Africa and parts of Central and South America through distributors.
Our market acceptance in international markets requires regulatory approvals from foreign governments and may depend on third party reimbursement of participants’ cost. We have introduced our XTRAC and VTRAC products into markets in more than 30 countries in Europe, the Middle East, Asia, Australia, South Africa and parts of Central and South America through distributors.
Such laws, regulations and other constraints may exist at the federal, state or local levels in the U.S. and at analogous levels of government in foreign jurisdictions.
In both our U.S. and foreign markets, we are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints. Such laws, regulations and other constraints may exist at the federal, state or local levels in the U.S. and at analogous levels of government in foreign jurisdictions.
It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be. However, any changes could make it more difficult for us to maintain or attain clearance or approval to develop and commercialize our products and technologies.
It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be.
If our systems were to fail or we are unable to successfully expand the capacity of these systems, or we are unable to integrate new technologies into our existing systems, our operations and financial results could suffer. 31 Table of Contents We have also outsourced significant elements of our information technology infrastructure and as a result we depend on third parties who are responsible for maintaining significant elements of our information technology systems and infrastructure and who may or could have access to our confidential information.
We have also outsourced significant elements of our information technology infrastructure and as a result we depend on third parties who are responsible for maintaining significant elements of our information technology systems and infrastructure and who may or could have access to our confidential information.
If we reduce our prices because of consolidation in the healthcare industry, our revenue would decrease and our earnings, financial condition, or cash flows would suffer, which would have a material adverse effect on our business, financial condition, and results of operations. 27 Table of Contents We actively employ social media as part of our marketing strategy, which could give rise to regulatory violations, liability, breaches of data security or reputational damage.
If we reduce our prices because of consolidation in the healthcare industry, our revenue would decrease and our earnings, financial condition, or cash flows would suffer, which would have a material adverse effect on our business, financial condition, and results of operations.
We therefore cannot assure you that the marketplace will be receptive to our excimer laser technology over competing products, services and therapies or that a cure will not be found for the underlying diseases we are focused on treating.
If we are not successful, we may find that even if a geographic region has wide insurance reimbursement, the region’s physicians may decline to adopt the XTRAC system into their practices. 17 Table of Contents We therefore cannot assure you that the marketplace will be receptive to our excimer laser technology over competing products, services and therapies or that a cure will not be found for the underlying diseases we are focused on treating.
Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require our time and capital, distract management from operating our business, and may harm our reputation and financial results. 30 Table of Contents We may have a need for additional funds in the future and there is no guarantee that we will be able to generate those funds from our business.
Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require our time and capital, distract management from operating our business, and may harm our reputation and financial results.
Our existing cash position and ability to borrow funds and future revenue may not be sufficient to support the expenses of our operations in the near term.
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. Our existing cash position and ability to borrow funds and future revenue may not be sufficient to support the expenses of our operations in the near term.
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.
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.
Consolidation in the medical device industry could have an adverse effect on our revenue and results of operations. Many medical device industry companies are consolidating to create new companies with greater market power. As the medical device industry consolidates, competition to provide goods and services to industry participants will become more intense.
Many medical device industry companies are consolidating to create new companies with greater market power. As the medical device industry consolidates, competition to provide goods and services to industry participants will become more intense. These industry participants may try to use their market power to bundle the sale of more products to our customers in return for lower prices.
There are extensive federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can result in significant criminal and civil penalties.
We must comply with complex statutes prohibiting fraud and abuse, and both we and physicians utilizing our products could be subject to significant penalties for noncompliance. There are extensive federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can result in significant criminal and civil penalties.
Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or private financings, and such additional funds may not be available on terms that are favorable to us, or at all.
Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or private financings, and such additional funds may not be available on terms that are favorable to us, or at all. 16 Table of Contents 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 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.
In such a case, we may never achieve significant revenues or profitability. 24 Table of Contents Our failure to obtain or maintain necessary FDA clearances and approvals, or to maintain continued clearances, or equivalents thereof in the U.S. and relevant foreign markets, could hurt our ability to distribute and market our products.
Any infringement or misappropriation claim could cause us to incur significant costs, could place significant strain on our financial resources, divert management’s attention from our business and harm our reputation.
There also may be existing patents of which we are unaware that one or more components of our products may inadvertently infringe. 29 Table of Contents Any infringement or misappropriation claim could cause us to incur significant costs, could place significant strain on our financial resources, divert management’s attention from our business and harm our reputation.
Furthermore, an expansion in government’s role in the U.S. healthcare industry may lower reimbursements for our products, reduce medical procedure volumes and adversely affect our business, possibly materially.
We cannot predict what healthcare initiatives, if any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on us. Furthermore, an expansion in government’s role in the U.S. healthcare industry may lower reimbursements for our products, reduce medical procedure volumes and adversely affect our business, possibly materially.
We cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business. 32 Table of Contents Risks Relating to Our Common Stock Our shares of common stock could be delisted from the Nasdaq Capital Market which could result in, among other things, a decline in the price of our common stock and less liquidity for holders of shares of our common stock.
Risks Relating to Our Common Stock Our shares of common stock have been 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. Our common stock is no longer listed on The Nasdaq Capital Market.
If these physicians are not properly trained or are negligent, the capabilities and safety features of our products may be diminished or the patient may suffer critical injury. We may also be subject to claims that are caused by the actions of our suppliers, such as those who provide us with components and sub-assemblies.
If these physicians are not properly trained or are negligent, the capabilities and safety features of our products may be diminished or the patient may suffer critical injury.
If these 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.
Furthermore, all of our debt under the Senior Term Facility bears interest at variable rates. 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.
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.
However, there can be no assurance that these efforts will be successful or sufficient to mitigate the substantial doubt regarding our ability to continue as a going concern. 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 must also have the appropriate FDA clearances and/or approvals from other governmental entities in order to lawfully market devices and/or drugs.
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. We must also have the appropriate FDA clearances and/or approvals from other governmental entities in order to lawfully market devices and/or drugs.
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 have outstanding assessments from the states of New York and California aggregating to $5.6 million including penalties and interest. The audits cover the period from August 2017 through February 2025.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur IT Manager has been designated as our Chief Information Security Officer ("CISO"), who is responsible for identifying, assessing and managing our risks from cybersecurity threats. The CISO has been with the Company for over five years and has many years of experience in technology.
Biggest changeAdditionally, the Committee oversees the process by which our Board of Directors is informed regarding the risks facing us and coordinates with our legal counsel to ensure our Board of Directors receives regular risk assessment updates from management. 36 Table of Contents Our IT Manager has been designated as our Chief Information Security Officer (“CISO”), who has been with the Company for over five years and has many years of experience in information technology, including relevant experience overseeing IT systems and managing technology-related risks, and is responsible for identifying, assessing and managing our risks from cybersecurity threats.
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.
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.
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.
The CISO is supported by our outside IT consulting firm and its cybersecurity team, which includes personnel experienced in cybersecurity, 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.
Removed
Additionally, the Committee oversees the process by which our Board of Directors is informed regarding the risks facing us and coordinates with our legal counsel to ensure our Board of Directors receives regular risk assessment updates from management.

Item 2. Properties

Properties — owned and leased real estate

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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.
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. 37 Table of Contents
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.
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, at which time we expect to vacate the premises and transition our headquarters operations to a remote model.
Added
We lease a 17,000 sq. ft. facility consisting of office, manufacturing and warehousing space in Carlsbad, California. We entered into a new lease in March 2024, the term of which commenced in April 2024 and expires in September 2029.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe 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.
Biggest changeWe 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 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.
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.
In those states where we did not or may not prevail 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.
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 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 Tribunal overturning the favorable sales tax determination of the administrative law judge.
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.
These actions and proceedings are generally based on the position that the arrangements entered into by us are subject to sales and use tax rather than exempt from tax under applicable law. We have outstanding assessments from the states of New York and California aggregating to $5.6 million including penalties and interest.
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.
On April 11, 2024, we filed a motion for leave to appeal the Appellate Division’s decision to the Court of Appeals. On October 2 2, 2024, in an unsigned one-line decision, the Court of Appeals denied our motion to appeal the Appellate Division ruling.
The audits cover the period from March 2014 through November 2022. We received notification that an administrative state judge in New York issued an opinion finding in favor of us that the sale of XTRAC treatment codes was not taxable as sales tax with respect to that state’s first assessment.
The audits cover the period from August 2017 through February 2025. In January 2021, 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.
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
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.
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 appealed the Tribunal’s decision to the Appellate Division, and posted the required appellate bond in the form of cash collateral in the amount of $1.3 million . Oral argument was held by the Appellate Division on January 18, 2024.
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.
Therefore, the adverse decision stands and New York executed on the appellate bond we posted for $1.3 million . As of December 31, 2025 , we have a remaining accrual of $0.6 million including penalties and interest as a result of the Appellate Division ruling.
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.
We are in the administrative process of appeal with respect to the remaining $2.6 million of assessments in the state of New York.
The audits cover the period from June 2018 through June 2022. We are in the administrative process of appeal in this jurisdiction as well.
The state of California has made aggregate assessments of $2.4 million including penalties and interest. 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
This ruling covers $1.8 million of the total $5.2 million of assessments.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+2 added−0 removed2 unchanged
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.
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 725,726 $ 6.13 536,826 Equity compensation plans not approved by security holders — — — 725,726 $ 6.13 536,826 39 Table of Contents 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, 2024.
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, 2025. See Note 13 .
DIVIDEND POLICY We have not declared or paid any dividend on our common stock, since our inception. We do not anticipate that any dividends on our common stock will be declared or paid in the future.
We do not anticipate that any dividends on our common stock will be declared or paid in the future.
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.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES As of March 16, 2026 , we had 5,888,199 shares of common stock issued and outstanding, which are quoted on the OTC under the symbol “SSKN.” This did not include (i) options to purchase 725,726 shares of common stock, of which 331,797 were vested as of March 16, 2026, (ii) unissued restricted stock units of 2,265, or (iii) 80,000 shares of common stock reserved for issuance pursuant to a warrant.
Added
HOLDERS On March 16, 2026 the number of record holders of our common stock was 140, not including beneficial holders whose securities are held in street name. DIVIDEND POLICY We have not declared or paid any dividend on our common stock, since our inception.
Added
Stock-Based Compensation in our audited financial statements and related notes thereto appearing elsewhere in this Annual Report for additional discussion.

Item 7. Management's Discussion & Analysis

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

96 edited+51 added−45 removed59 unchanged
Biggest changeThere is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. 43 Table of Contents Results of Operations Comparison of the Years ended December 31, 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.
Biggest changeResults of Operations Comparison of the Years ended December 31, 2025 and 2024 Year Ended December 31, Change (in thousands) 2025 2024 Dollar Percentage Revenues, net $ 30,696 $ 33,562 $ (2,866 ) (9 )% Cost of revenues 12,815 14,340 (1,525 ) (11 )% Gross profit 17,881 19,222 (1,341 ) (7 )% Operating expenses: Engineering and product development 421 883 (462 ) (52 )% Selling and marketing 13,111 12,430 681 5 % General and administrative 10,184 10,896 (712 ) (7 )% Impairment of goodwill — 4,268 (4,268 ) (100 )% Settlement gains (1,135 ) — (1,135 ) (100 )% 22,581 28,477 (5,896 ) (21 )% Loss from operations (4,700 ) (9,255 ) 4,555 (49 )% Other (expense) income: Interest expense (1,959 ) (2,107 ) 148 (7 )% Interest income 410 242 168 69 % Other income — 864 (864 ) (100 )% (1,549 ) (1,001 ) (548 ) 55 % Loss before benefit from income taxes $ (6,249 ) $ (10,256 ) $ 4,007 (39 )% 46 Table of Contents Revenues Revenues by Geography The following table presents revenues by geography for the periods presented below: Year Ended December 31, Change (in thousands) 2025 2024 Dollar Percentage Domestic $ 20,584 $ 20,888 $ (304 ) (1 )% International 10,112 12,674 (2,562 ) (20 )% Total revenues $ 30,696 $ 33,562 $ (2,866 ) (9 )% Revenues by Product Type The following table presents revenues by segment for the periods presented below: Year Ended December 31, Change (in thousands) 2025 2024 Dollar Percentage Dermatology recurring procedures $ 21,478 $ 21,171 $ 307 1 % Dermatology procedures equipment 9,218 12,391 (3,173 ) (26 )% Total revenues $ 30,696 $ 33,562 $ (2,866 ) (9 )% Dermatology Recurring Procedures Recurring treatment revenues for the year ended December 31, 2025 were $21.5 million , which we estimate is approximately 251,000 XTRAC treatments with prices between $65 and $100 per treatment, compared to recurring treatment revenues for the year ended December 31, 2024 of $21.2 million , which we estimate is approximately 253,000 XTRAC treatments with prices between $65 and $95 per treatment.
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%.
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.
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 our future results will be unaffected by similar adjustments to Net Earnings (Loss) determined in accordance with U.S. GAAP.
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.
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 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.
Non-GAAP Financial Measures We have determined to supplement our consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), presented elsewhere within this report, with certain non-GAAP measures of financial performance.
Non-GAAP Financial Measures We have determined to supplement our consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), presented elsewhere within this Annual Report, with certain non-GAAP measures of financial performance.
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.
Theravant was 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 was 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.
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.
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. 50 Table of Contents Reconciliation to the most directly comparable U.S.
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.
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.
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.
Upon an event of default, including a covenant violation, all principal and interest are due on demand. 51 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.
Its products include the XTRAC® and Pharos® excimer lasers and VTRAC® lamp systems utilized in the treatment of psoriasis, vitiligo, and various other skin conditions, as well as the TheraClear® X Acne Therapy System utilized in the treatment of acne-related skin conditions. The XTRAC ultraviolet light excimer laser system is utilized to treat psoriasis, vitiligo, and other skin diseases.
Its products include the XTRAC® line of excimer lasers and VTRAC® lamp systems utilized in the treatment of psoriasis, vitiligo, and various other skin conditions, as well as the TheraClear® X Acne Therapy System utilized in the treatment of acne-related skin conditions. The XTRAC ultraviolet light excimer laser system is utilized to treat psoriasis, vitiligo, and other skin diseases.
Specifically, we believe that there is a lack of awareness of the positive effects of XTRAC treatments among both sufferers and providers; and the treatment regimen, which can sometimes require up to 12 or more treatments, has limited XTRAC use to certain patient populations.
Specifically, we believe that there is a lack of awareness of the positive effects of XTRAC treatments among both patients and providers; and the treatment regimen, which can sometimes require up to 12 or more treatments, has limited XTRAC use to certain patient populations.
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 .
Our primary sources of capital have been from borrowings under our debt facilities and sales of our products. As of December 31, 2025 , we had $15.0 million of borrowings outstanding under our credit facility with MidCap, which has a final maturity in June 2028 .
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.
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 2 2, 2024, in an unsigned one-line decision, the Court of Appeals denied our motion to appeal the Appellate Division ruling.
We define our critical accounting policies as those accounting policies that are most important to the portrayal of our financial condition and results of operations and require our most difficult and subjective judgments. While our significant accounting policies are more fully described in “Note 2.
We define our critical accounting policies as those accounting policies that are most important to the portrayal of our financial condition and results of operations and require our most difficult and subjective judgments. While our significant accounting policies are more fully described in Note 2 .
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 process of appeal in this jurisdiction as well.
The state of California has made aggregate assessments of $2.4 million including penalties and interest. The audits cover the period from June 2018 through June 2022. We are in the administrative process of appeal in this jurisdiction as well.
Equity Distribution Agreement In October 2021, we entered into an equity distribution agreement under which we may sell up to $11.0 million of our shares of common stock in registered “at-the-market” offerings.
Equity Distribution Agreement In October 2021, we entered into an equity distribution agreement under which we could sell up to $11.0 million of our shares of common stock in registered “at-the-market” offerings.
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.
In ternational revenues were 33% and 38% for the years ended December 31, 2025 and 2024 , 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.
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.
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.
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.
Selling and Marketing As of December 31, 2025 , our sales and marketing personnel consisted of 46 full-time positions, compared to 39 full-time positions as of December 31, 2024 , 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.
For the trailing 12-month period ended December 31, 2024, this amount was set at $30.0 million, increasing to $33.0 million as set forth in such amendment for the trailing 12-month periods thereafter. In March 2024, the credit facility was further amended (as amended to date, “Senior Term Facility”) to clarify certain provisions related to the maintenance of cash collateral accounts.
For the trailing 12-month period ended December 31, 2024, this amount was set at $30.0 million, increasing to $33.0 million as set forth in such amendment for the trailing 12-month periods thereafter. In March 2024, the credit facility was further amended to clarify certain provisions related to the maintenance of cash collateral accounts.
The XTRAC excimer laser system received clearance from the United States Food and Drug Administration in 2000 and has since become a widely recognized treatment among dermatologists. The system delivers targeted 308nm ultraviolet light to affected areas of skin, leading to psoriasis clearing and vitiligo repigmentation, following a series of treatments.
The XTRAC excimer laser system received clearance from the U.S. Food and Drug Administration (the “FDA”) in 2000 and has since become a widely recognized treatment among dermatologists. The system delivers targeted 308nm ultraviolet light to affected areas of skin, leading to psoriasis clearing and vitiligo repigmentation, following a series of treatments.
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.
Sales in the United States represented 67% and 62% of our total revenues for the years ended December 31, 2025 and 2024, respectively, and have been generated by our direct sales force. Outside the United States, our sales are made through third-party distributors.
Other significant sales and marketing costs include conferences and trade shows, promotional and marketing activities, including direct and online marketing to the consumer and dermatologists, practice support programs, travel and training expenses.
Other significant sales and marketing costs include conferences and trade shows, promotional and marketing activities, including direct and online marketing to consumers and dermatologists, practice support programs, travel and training expenses.
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.
Subsequent to the launch of the TheraClear Acne Therapy System, there were 166 and 144 TheraClear devices placed in dermatologists’ offices in the United States under our recurring procedures model as of December 31, 2025 and 2024 , respectively.
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 .
Financing Activities Net cash provided by financing activities was $3.6 million for the year ended December 31, 2025 , compared to cash provided by financing activities of $1.9 million for the year ended December 31, 2024 .
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 .
As of December 31, 2025 , there were 842 XTRAC systems placed in dermatologists’ offices in the United States under our dermatology recurring procedures model, a decrease from 864 as of December 31, 2024 .
The shares will be offered at prevailing market prices, and we will pay commissions of up to 3.0% of the gross proceeds from the sale of shares sold through our agent, which may act as an agent and/or principal.
The shares were offered at prevailing market prices, and we paid commissions of up to 3.0% of the gross proceeds from the sale of shares sold through our agent, which may act as an agent and/or principal.
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.
Based on the assessments performed in the fourth quarters of 2025 and 2024 in conjunction with the annual budgeting process, no impairment was recorded in 2025 and we recorded an impairment in 2024 for the amount by which the carrying value of the dermatology recurring procedures reporting unit exceeded its fair value.
Our gross margins on revenues from sales of dermatology procedures equipment are lower than our gross margins on revenues from sales of dermatology recurring procedures and, as a result, the sales mix between dermatology recurring procedures and dermatology procedures equipment can affect the gross margin in any reporting period.
Our gross profit percentages on revenues from sales of dermatology procedures equipment are lower than our gross profit percentages on revenues from sales of dermatology recurring procedures and, as a result, the sales mix between dermatology recurring procedures and dermatology procedures equipment can affect the gross profit percentage in any reporting period.
Net cash provided by operations was $0.2 million during the year ended December 31, 2024 and net cash used in operations was $0.5 million during the year ended December 31, 2023 .
Net cash used in operations was $2.8 million during the year ended December 31, 2025 and net cash provided by operations was $0.2 million during the year ended December 31, 2024 .
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 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.
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.
Engineering and Product Development For the year ended December 31, 2025 , engineering and product development expenses were $0.4 million as compared to $0.9 million for the year ended December 31, 2024 . Engineering and product development costs during the year ended December 31, 2025 were lower primarily as a result of decreases in salaries and outside services.
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.
The shares were offered at prevailing market prices, and we paid commissions of up to 3.0% of the gross proceeds from the sale of shares sold through our agent, which may act as an agent and/or principal.
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.
Based on the assessments performed in the fourth quarters of 2025 and 2024 in conjunction with the budgeting process, we recorded no impairment charge for 2025 and a $4.3 million impairment charge for 2024, 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.
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.
Contingent Consideration Theravant, the seller of the TheraClear devices, was 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 was due upon the earlier of achieving a revenue target or July 2025), up to $20.0 millio n 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.
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.
For the year ended December 31, 2025 , sales and marketing expenses were $13.1 million as compared to $12.4 million for the year ended December 31, 2024 .
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.
Oral argument was held by the Appellate Division on January 18, 2024. 57 Table of Contents On March 8, 2024, we received a decision from the Appellate Division ruling against us in the matter of its sales tax appeal, affirming the Tribunal’s ruling that our sale of XTRAC treatment codes is subject to sales tax.
We recognized ERC funds received as other income during the year ended December 31, 2024. Income Taxes As of December 31, 2024 , we had federal and state net operating loss (“NOL”) carryforwards of $203.5 million and $62.8 million , respectively.
We recognized ERC funds received as other income during the year ended December 31, 2024. 45 Table of Contents Income Taxes As of December 31, 2025 , we had federal and state net operating loss (“NOL”) carryforwards of $206.8 million and $69.0 million , respectively.
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 January 2021, 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.
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 .
Provision for (Benefit from) Income Taxes We recognized a provision for income taxes of $12.0 thousand for the year ended December 31, 2025 as compared to a benefit from income taxes of $0.2 million for the year ended December 31, 2024, which is comprised primarily of changes in the deferred tax liability related to indefinite-lived intangible assets.
Our gross margin has been and will continue to be affected by a variety of factors, primarily product sales mix and pricing manufacturing costs.
We calculate our gross profit percentage as our gross profit divided by our revenues. Our gross profit percentage has been and will continue to be affected by a variety of factors, primarily product sales mix and pricing manufacturing costs.
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 .
As of December 31, 2025 and 2024 , we deferred domestic net revenues of $1.5 million and $1.6 million , respectively, which will be recognized as revenue over the remaining usage period for the related placements. 47 Table of Contents Dermatology Procedures Equipment For the year ended December 31, 2025 , dermatology procedures equipment revenues were $9.2 million .
Domestically, we sold 24 XTRAC systems for the year ended December 31, 2023 .
Domestically, we sold 12 XTRAC systems for the year ended December 31, 2024 .
In July 2024, we sold 665,136 shares of our common stock under the equity distribution agreement at an average purchase price of $3.16 per share for total gross and net proceeds of $2.1 million and $1.9 million , respectively. Management On August 12, 2024, Christopher Lesovitz, our Chief Financial Officer, submitted his resignation effective August 14, 2024.
In July 2024, we sold 665,136 shares of our common stock under the equity distribution agreement at an average purchase price of $3.16 per share for total gross and net proceeds of $2.1 million and $1.9 million , respectively.
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.
Therefore, the adverse decision stands and New York executed on the appellate bond we posted for $1.3 million . As of December 31, 2025 , we have a remaining accrual of $0.6 million including penalties and interest as a result of the Appellate Division ruling.
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 .
The following table summarizes our sources and uses of cash for each of the periods presented: Year Ended December 31, (in thousands) 2025 2024 Cash (used in) provided by: Operating activities $ (2,794 ) $ 188 Investing activities (1,468 ) (1,636 ) Financing activities 3,579 1,925 Net (decrease) increase in cash, cash equivalents and restricted cash $ (683 ) $ 477 Operating Activities Net cash used in operating activities was $2.8 million for the year ended December 31, 2025 , compared to net cash provided by operating activities of $0.2 million for the year ended December 31, 2024 .
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).
Internationally, we sold 64 systems ( 54 XTRAC and 10 VTRAC). Domestically, we sold 4 XTRAC systems for the year ended December 31, 2025 . For the year ended December 31, 2024 , dermatology procedures equipment revenues were $12.4 million . Internationally, we sold 98 systems ( 89 XTRAC and 9 VTRAC).
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.
Changes in our actual results and/or estimates or any of our other assumptions used in our analysis could result in a different conclusion. 56 Table of Contents All of our intangible assets are finite-lived assets, with amortization recorded over the estimated useful life on a straight-line basis.
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.
We plan to incur engineering and product development expenses for the near future as we expect to continue our development efforts focused on the application of our XTRAC system for the treatment of inflammatory skin disorders.
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.
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.
Critical Accounting Policies and Estimates The preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP, and the rules and regulations of the SEC requires us to make estimates and assumptions, based on judgments considered reasonable, which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
GAAP and the rules and regulations of the SEC requires us to make estimates and assumptions, based on judgments considered reasonable, which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
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.
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 are in the administrative process of appeal with respect to the remaining $1.3 million of assessments in the State of New Y ork .
We are in the administrative process of appeal with respect to the remaining $2.6 million of assessments in the state of New York.
As a percentage of revenues, gross profit was 62.7% for the year ended December 31, 2024 , as compared to 59.5% for the year ended December 31, 2023 .
As a percentage of revenues, gross profit was 49.5% for the year ended December 31, 2025 , as compared to 47.2% for the year ended December 31, 2024 .
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.
No royalties were incurred through December 31, 2025 . In October 2021, we entered into an equity distribution agreement under which we could sell up to $11.0 million of our shares of common stock in registered “at-the-market” offerings.
Other Income During the year ended December 31, 2024 , we received $0.9 million from the Employee Retention Credit, a refundable tax credit available under the Coronavirus Aid, Relief, and Economic Securities Act (“CARES Act”) that was designed to keep employees on the payroll during the COVID-19 pandemic.
Other Income During the year ended December 31, 2024 , we received $0.9 million from the ERC, a refundable tax credit available under the CARES Act that was designed to keep employees on the payroll during the COVID-19 pandemic. There was no such credit received during the year ended December 31, 2025 .
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 measure of all non-GAAP measures included in this Annual Report is as follows: Year Ended December 31, (in thousands) 2025 2024 Net loss $ (6,261 ) $ (10,086 ) Adjustments: Depreciation and amortization 4,123 4,968 Amortization of operating lease right-of-use asset 344 339 Loss on disposal of property and equipment 92 49 Provision for (benefit from) income taxes 12 (170 ) Interest income (410 ) (242 ) Interest expense 1,959 2,107 Non-GAAP EBITDA (141 ) (3,035 ) Impairment of goodwill — 4,268 Stock-based compensation 643 427 Employee retention credit — (864 ) Settlement gains (1,135 ) — Non-GAAP adjusted EBITDA $ 633 $ 796 Liquidity and Capital Resources As of December 31, 2025 , we had cash and cash equivalents and restricted cash of $7.9 million and an accumulated deficit of $254.4 million .
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.
In those states where we did not or may not prevail 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.
However, if these sources are insufficient to satisfy our liquidity requirements, we may seek to sell additional debt or equity securities or enter into a new credit facility or another form of third-party funding or seek other debt financing.
If we are unable to regain compliance with our debt covenants or modify our existing debt facility, we may seek to sell additional debt or equity securities or enter into a new credit facility or another form of third-party funding or seek other debt financing.
We refer you to the section titled “—Critical Accounting Policies and Use of Estimates—Revenue Recognition” appearing elsewhere in this Annual Report for additional information regarding how we account for revenues.
We also derive revenues from service and repair extended warranty contracts with our existing customers. 43 Table of Contents We refer you to the section titled “—Critical Accounting Policies and Estimates—Revenue Recognition” appearing elsewhere in this Annual Report for additional information regarding how we account for revenues.
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 .
Investing Activities Net cash used in investing activities was $1.5 million for the year ended December 31, 2025 , compared to net cash used in investing activities of $1.6 million for the year ended December 31, 2024 . The cash used in both periods is primarily the result of purchases of property and equipment.
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 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 in the amount of $1.3 million .
The VTRAC Excimer Lamp system, offered internationally in addition to the XTRAC, provides targeted therapeutic efficacy demonstrated by excimer technology with the simplicity of design and reliability of a lamp system. The Pharos excimer laser system holds FDA clearance to treat chronic skin diseases, including psoriasis, vitiligo, atopic dermatitis, and leukoderma.
The VTRAC Excimer Lamp system, offered internationally in addition to the XTRAC, provides targeted therapeutic efficacy demonstrated by excimer technology with the simplicity of design and reliability of a lamp system.
As of December 31, 2024 , we may sell up to an additional $8.9 million of our shares of common stock under this distribution agreement.
As of December 31, 2025 , we could sell up to an additional $5.1 million of our shares of common stock under the equity distribution agreement.
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.
Cost of Revenues and Gross Profit Cost of revenues primarily consists of the costs of components and the manufacture of our XTRAC, VTRAC and TheraClear 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.
We test goodwill for impairment during the fourth quarter of each year and whenever circumstances indicate the carrying value of goodwill may not be recoverable.
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 test goodwill for impairment during the fourth quarter of each year and otherwise whenever circumstances indicate the carrying value of goodwill may not be recoverable.
Dermatology Procedures Equipment Segment: we sell our products internationally through distributors and domestically, directly to a physician. We also derive revenues from service and repair extended warranty contracts with our existing customers.
Dermatology Procedures Equipment Segment: we sell our products internationally through distributors and domestically, directly to a physician.
The change in net cash provided by operating activities during the current period as compared to net cash used in operating activities in the prior period was primarily due to (i) a decrease in net loss of approximately $0.7 million and (ii) an increase in cash provided by changes in current balance sheet accounts in the ordinary course of business of approximately $0.8 million , primarily due to an increase of $2.5 million in accrued expenses primarily due to the adverse Appellate Division ruling with respect to the applicability of sales and use taxes to our sales of XTRAC treatment codes, partially offset by decreases of $0.8 million from accounts receivable due to increased sales to international customers who take longer to pay and $0.9 million from accounts payable due to timing, partially offset by (iii) a $0.8 million decrease in cash provided from non-cash adjustments.
The change in net cash used in operating activities during the current period as compared to net cash provided by operating activities in the prior period was primarily the result of (i) an increase in cash used from net non-cash transactions of $5.6 million , primarily as a result of (a) a reduction in impairment expense, as a goodwill write-down was recognized in 2024 and no impairment was recorded in 2025, (b) the recognition of settlement gains and (c) a reduction in amortization expense as certain intangible assets became fully amortized in the current period, (ii) increases in cash used by changes in current balance sheet accounts in the ordinary course of business of approximately $1.2 million , primarily due to (a) $3.1 million from accrued expenses and other current liabilities due to the payment of sales and use taxes accrued in the prior year related to the adverse Appellate Division ruling with respect to the applicability of sales and use taxes to our sales of XTRAC treatment codes and (b) $0.9 million from purchases of inventory, partially offset by decreases in cash used of (c) $1.6 million due to collections of accounts receivable and (d) $1.3 million in accounts payable due to the timing of payments, all partially offset by (iii) a decrease in cash used from a decrease in net loss of approximately $3.8 million .
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 .
No royalties were incurred through December 31, 2025 . 54 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, 2025 . Critical Accounting Estimates The preparation of our financial statements in accordance with U.S.
A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied, which is generally the point in time when the product is shipped or control is transferred for our dermatology procedures equipment sales.
Variable treatment code payments that will be paid only if the customer exceeds the agreed upon number of treatments are recognized only when such treatments are being exceeded and used. 55 Table of Contents A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied, which is generally the point in time when the product is shipped or control is transferred for our dermatology procedures equipment sales.
On November 13, 2024, we designated our Vice President Finance, John Gillings, as our principal financial officer and Chief Accounting Officer. Components of Results of Operations Revenues To date, we have generated revenues primarily from the placement of our lasers in physicians’ offices and the related sales and rentals and the recurring revenues from our sale of treatment sessions.
Revenues To date, we have generated revenues primarily from the placement of our lasers in physicians’ offices and the related sales and rentals and the recurring revenues from our sale of treatment sessions.
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.
Operating Lease Obligations We lease our facilities and certain IT and office equipment under non-cancellable operating leases with remaining lease terms of up to four years. Remaining lease obligations are $1.2 million as of December 31, 2025 , with payments of $0.3 million due within the next year.
The decrease in gross profit percentage from 2023 to 2024 was primarily the result of a reduction in service billings related to Pharos laser system products and the write-off of inventories related to Pharos laser system products that will no longer be needed for warranty purposes due to the expiration of the related warranty service contracts, an increase in maintenance costs largely driven by TheraClear devices placed into service, and a discount on the sale of certain lasers to an international distributor, partially offset by a decrease in domestic sales with longer warranty periods, leading to a lower amount of deferred revenue for those sales.
The increase in gross profit percentage from 2025 to 2024 was primarily the result of the write-off of inventories related to the Pharos laser system products that will no longer be needed for warranty purposes due to the expiration of the related warranty service contracts during 2024 , a discount on the sale of certain lasers to an international distributor during 2024 and reduced obsolescence costs during 2025 , partially offset by an increase in manufacturing overhead and service fees and the impact of tariffs and retaliatory trade practices by foreign governments against products sold by U.S. companies.
Sales and marketing expenses for the year ended December 31, 2024 were lower primarily as a result of decreases in (i) salaries and other employee related expenses due to a reduction in the number of executives in this department, (ii) external consulting fees, and (iii) other corporate marketing and communication expenses, partially offset by increases from our direct-to-patient advertising campaign aimed at motivating psoriasis and vitiligo patients to seek out XTRAC treatments from our physician partners.
Sales and marketing expenses for the year ended December 31, 2025 were higher primarily as a result of increases in (i) certain employee related expenses, including personnel costs resulting from the hiring of individuals to fill previously open positions and expanded recruiting efforts, (ii) expenses related to our direct-to-patient advertising campaign aimed at motivating psoriasis and vitiligo patients to seek out XTRAC treatments from our physician partners, and (iii) trade shows and advertising expenses.
As a percentage of revenues, gross profit was 46.8% for the year ended December 31, 2024 , as compared to 47.9% for the year ended December 31, 2023 .
Gross profit decreased to $13.3 million for the year ended December 31, 2025 from $13.4 million for the year ended December 31, 2024 . As a percentage of revenues, gross profit was 62.0% for the year ended December 31, 2025 , as compared to 63.2% for the year ended December 31, 2024 .
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.
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. 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 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 have outstanding assessments from the states of New York and California aggregating to $5.6 million including penalties and interest. The audits cover the period from August 2017 through February 2025.
Upon an event of default, including a covenant violation, all principal and interest are due on demand. The credit facility was further amended in February 2024 to, among other things, revise the applicable minimum net revenue threshold financial covenant, and in March 2024 to clarify certain provisions related to the maintenance of cash collateral accounts.
The credit facility was further amended in February 2024 to, among other things, revise the applicable minimum net revenue threshold financial covenant, March 2024 to clarify certain provisions related to the maintenance of cash collateral accounts, and November 2025 to, among other things, remove the measurement of net revenue for purposes of calculating financial covenant compliance for the quarterly period ended September 30, 2025, and continuing thereafter through the quarterly period ending September 30, 2026 (the “Pause Period”).
General and Administrative For the year ended December 31, 2024 , general and administrative expenses increased to $11.3 million from $10.5 million for the year ended December 31, 2023 . General and administrative expenses for the year ended December 31, 2024 were higher primarily as a result of an increase in our sales tax accrual (see Note 10 .
General and administrative expenses for the year ended December 31, 2025 were lower primarily as a result of (i) an increase in our sales tax accrual during 2024 (see Note 11. Commitments and Contingencies to the Notes to Consolidated Financial Statements) and (ii) decreases in certain employee related expenses, partially offset by (iii) increases in accounting and legal expenses.
The TheraClear® Acne Therapy System combines intense pulse light with vacuum (suction) for the treatment of mild to moderate inflammatory acne (including acne vulgaris), comedonal acne and pustular acne. Recent Developments MidCap Financing We amended our credit facility with MidCap Financial Trust (“MidCap”) on February 20, 2024 to, among other things, revise the applicable minimum net revenue threshold financial covenant.
The TheraClear® Acne Therapy System combines intense pulse light with vacuum (suction) for the treatment of mild to moderate inflammatory acne (including acne vulgaris), comedonal acne and pustular acne.

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