UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to ___________

Commission File Number 0-51481
graphic
STRATA SKIN SCIENCES, INC.
(Exact name of registrant as specified in its charter)

 
Delaware
(State or other jurisdiction
of incorporation or organization)
 
13-3986004
(I.R.S.  Employer
Identification No.)
 

5 Walnut Grove Drive, Suite 140, Horsham, Pennsylvania 19044
(Address of principal executive offices, including zip code)

(215) 619-3200
(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:
 
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
SSKN
The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.
Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ☐
 
Accelerated filer ☐
 
 
Non-accelerated filer
 
Smaller reporting company
 
 
Emerging growth company
     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes   No ☒

The number of shares outstanding of the issuer’s common stock as of August 7, 2023 was 34,913,886 shares.



STRATA SKIN SCIENCES, INC.

TABLE OF CONTENTS

Part I. Financial Information:
PAGE
       
 
ITEM 1.  Financial Statements:
 
 
a.
1
       
 
b.
2
       
 
c.
3
       
 
d.
4
       
 
e.
5
       
 
f.
6
       
 
23
       
 
31
       
 
31
       
Part II. Other Information:
 
       
 
32
       
 
32
       
 
33
       
 
33
       
 
34
       
 
34
       
 
34
       
   
35
       
   
Certifications
E-31.1

PART I – Financial Information

ITEM 1.
Financial Statements

STRATA Skin Sciences, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)

   
June 30, 2023
   
December 31, 2022
 
    (unaudited)        
Assets
 

       
Current assets:
           
Cash and cash equivalents
 
$
9,034
   
$
5,434
 
Restricted cash
    1,361       1,361  
Accounts receivable, net of allowance for credit losses of $244 and $382 at June 30, 2023 and December 31, 2022, respectively
   
4,401
     
4,471
 
Inventories
   
5,921
     
5,547
 
Prepaid expenses and other current assets
   
528
     
691
 
Total current assets
   
21,245
     
17,504
 
Property and equipment, net
   
8,319
     
7,498
 
Operating lease right-of-use assets
   
807
     
975
 
Intangible assets, net
   
15,959
     
17,394
 
Goodwill
   
8,803
     
8,803
 
Other assets
   
71
     
98
 
Total assets
 
$
55,204
   
$
52,272
 
                 
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable
 
$
3,880
   
$
3,425
 
Accrued expenses and other current liabilities
   
6,731
     
6,555
 
Deferred revenues
    2,436
      2,778
 
Current portion of operating lease liabilities
   
392
     
355
 
Current portion of contingent consideration
   
681
     
313
 
Total current liabilities
   
14,120
     
13,426
 
Long-term debt, net
   
14,987
     
7,476
 
Deferred revenues and other liabilities
    596
      314
 
Deferred tax liability
   
306
     
306
 
Operating lease liabilities, net of current portion
   
387
     
610
 
Contingent consideration, net of current portion
   
7,899
     
8,309
 
Total liabilities
   
38,295
     
30,441
 
Commitments and contingencies (Note 14)
           
Stockholders’ equity:
               
Series C convertible preferred stock, $0.10 par value; 10,000,000 shares authorized; no shares issued and outstanding
   
     
 
Common stock, $0.001 par value; 150,000,000 shares authorized; 34,881,453 and 34,723,046 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively
   
35
     
35
 
Additional paid-in capital
   
250,085
     
249,024
 
Accumulated deficit
   
(233,211
)
   
(227,228
)
Total stockholders’ equity
   
16,909
     
21,831
 
Total liabilities and stockholders’ equity
 
$
55,204
   
$
52,272
 

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

STRATA Skin Sciences, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(unaudited)

   
Three Months Ended June 30,
 
   
2023
   
2022
 
Revenues, net
 
$
8,250
   
$
9,105
 
Cost of revenues
   
3,932
     
4,112
 
Gross profit
   
4,318
     
4,993
 
                 
Operating expenses:
               
Engineering and product development
   
374
     
209
 
Selling and marketing
   
3,416
     
4,146
 
General and administrative
   
2,490
     
2,332
 
     
6,280
     
6,687
 
                 
Loss from operations
   
(1,962
)
   
(1,694
)
                 
Other (expense) income:
               
Loss on debt extinguishment
    (909 )      
Interest expense
   
(298
)
   
(208
)
Interest income
    21       10  
      (1,186 )     (198 )
Net loss
 
$
(3,148
)
 
$
(1,892
)
                 
Net loss per share of common stock, basic and diluted
  $ (0.09 )   $ (0.05 )
Weighted average shares of common stock outstanding, basic and diluted
    34,881,453       34,723,046  

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

STRATA Skin Sciences, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(unaudited)

   
Six Months Ended June 30,
 
   
2023
   
2022
 
Revenues, net
 
$
15,817
   
$
16,146
 
Cost of revenues
   
7,111
     
7,025
 
Gross profit
   
8,706
     
9,121
 
                 
Operating expenses:
               
Engineering and product development
   
689
     
372
 
Selling and marketing
   
7,158
     
7,762
 
General and administrative
   
5,407
     
4,984
 
     
13,254
     
13,118
 
                 
Loss from operations
   
(4,548
)
   
(3,997
)
                 
Other (expense) income:
               
Loss on debt extinguishment
    (909 )      
Interest expense
    (584 )     (407 )
Interest income
    58       10  
      (1,435 )     (397 )
Net loss
 
$
(5,983
)
 
$
(4,394
)
                 
Net loss per share of common stock, basic and diluted
  $ (0.17 )   $ (0.13 )
 Weighted average shares of common stock outstanding, basic and diluted     34,871,826
      34,701,267
 

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

STRATA Skin Sciences, Inc. and Subsidiary
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Six Months Ended June 30, 2023 and 2022
(in thousands, except share amounts)
(unaudited)
 
          Additional 
          Total 
 
   
Common Stock
   
Paid-In
   
Accumulated
   
Stockholders’
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity
 
Balance at January 1, 2023
   
34,723,046
   
$
35
   
$
249,024
   
$
(227,228
)
 
$
21,831
 
Stock-based compensation expense
   
     
     
325
     
     
325
 
Issuance of restricted stock
   
158,407
     
     
     
     
 
Net loss
   
     
     
     
(2,835
)
   
(2,835
)
Balance at March 31, 2023
   
34,881,453
     
35
     
249,349
     
(230,063
)
   
19,321
 
Stock-based compensation expense
   
     
     
352
     

     
352
 
Modification of common stock warrants
                384             384  
Net loss
   

     
     
     
(3,148
)
   
(3,148
)
Balance at June 30, 2023
   
34,881,453
    $
35
    $
250,085
    $
(233,211
)
  $
16,909
 

          Additional 
          Total 
 
   
Common Stock
   
Paid-In
   
Accumulated
   
Stockholders’
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity
 
Balance at January 1, 2022
   
34,364,679
   
$
34
   
$
247,059
   
$
(221,679
)
 
$
25,414
 
Stock-based compensation expense
   
     
     
368
     
     
368
 
Issuance of common stock for acquisition
   
358,367
     
1
     
499
     
     
500
 
Net loss
   
     
     
     
(2,502
)
   
(2,502
)
Balance at March 31, 2022
   
34,723,046
     
35
     
247,926
     
(224,181
)
   
23,780
 
Stock-based compensation expense
   
     
     
452
           
452
 
Net loss
   

     
     
     
(1,892
)
   
(1,892
)
Balance at June 30, 2022
   
34,723,046
   
$
35
   
$
248,378
   
$
(226,073
)
 
$
22,340
 

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

STRATA Skin Sciences, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

   
For the Six Months Ended June 30,
 
   
2023
   
2022
 
Cash flows from operating activities:
           
Net loss
 
$
(5,983
)
 
$
(4,394
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
   
1,390
     
1,224
 
Amortization of operating lease right-of-use assets
   
168
     
181
 
Amortization of intangible assets
    1,435       1,436  
Amortization of deferred financing costs and debt discount     83       76  
Change in allowance for credit losses
   
(138
)
   
(47
)
Stock-based compensation expense
   
677
     
820
 
Loss on disposal of property and equipment
    24       35  
Loss on debt extinguishment
    909        
Changes in operating assets and liabilities:
               
Accounts receivable
   
208
     
491
 
Inventories
   
(272
)
   
(898
)
Prepaid expenses and other assets
   
190
     
(203
)
Accounts payable
   
351
     
1,419
 
Accrued expenses and other liabilities
   
211
     
(217
)
Deferred revenues
   
(95
)
   
(135
)
Operating lease liabilities
   
(186
)
   
(197
)
Net cash used in operating activities
   
(1,028
)
   
(409
)
Cash flows from investing activities:                
Purchase of property and equipment
    (2,337 )     (1,510 )
Cash paid in connection with TheraClear asset acquisition
          (631 )
Net cash used in investing activities
    (2,337 )     (2,141 )
Cash flows from financing activities:
               
Proceeds from long-term debt
    7,000        
Payment of deferred financing costs
    (35 )      
Net cash provided by financing activities
    6,965        
Net increase (decrease) in cash, cash equivalents and restricted cash
   
3,600
     
(2,550
)
Cash, cash equivalents and restricted cash, beginning of period
   
6,795
     
12,586
 
Cash, cash equivalents and restricted cash, end of period
 
$
10,395
   
$
10,036
 
                 
Cash and cash equivalents
 
$
9,034
   
$
10,036
 
Restricted cash
   
1,361
     
 
   
$
10,395
   
$
10,036
 
Supplemental disclosure of cash flow information:
               
Cash paid for interest
 
$
497
   
$
329
 
                 
Supplemental disclosure of non-cash operating, investing and financing activities:
               
Inventories acquired in connection with TheraClear asset acquisition
  $     $ 71  
Intangible assets acquired in connection with TheraClear asset acquisition
  $     $ 10,182  
Contingent consideration issued in connection with TheraClear asset acquisition
  $     $ 9,122  
Common stock issued in connection with TheraClear asset acquisition
  $     $ 500  
Modification of common stock warrants
  $
384     $
 
Transfer of property and equipment to inventories   $ 102     $ 449  
Accrued payment of contingent consideration   $ 42     $  
Accrued exit fee recorded as debt discount
  $
450     $
 
Deferred financing costs in accounts payable
  $
62     $
 

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

STRATA Skin Sciences, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts and number of lasers)
(unaudited)

 

Note 1
The Company:

Background
STRATA Skin Sciences, Inc. (the “Company”) is a medical technology company in dermatology dedicated to developing, commercializing and marketing innovative products for the treatment of dermatologic conditions. 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. In January 2022, the Company acquired the TheraClear Acne Therapy System to broaden its opportunities with expansion potential in the acne care market. The Company markets the device under the brand name TheraClear® X.

The XTRAC is an ultraviolet light excimer laser system utilized to treat psoriasis, vitiligo and other skin diseases. The XTRAC excimer laser system received clearance from the United States Food and Drug Administration (the “FDA”) in 2000. As of June 30, 2023, there were 930 XTRAC systems placed in dermatologists’ offices in the United States and 35 systems internationally under the Company’s recurring revenue business model. The XTRAC systems deployed under the recurring revenue model generate revenue on a per procedure basis or include a fixed payment over an agreed upon period with a capped number of treatments which, if exceeded, would incur additional fees. The per-procedure charge is inclusive of the use of the system and the services provided by the Company to the customer, which includes system maintenance and other services. The VTRAC Excimer Lamp system, offered in addition to the XTRAC system internationally, provides targeted therapeutic efficacy demonstrated by excimer technology with a lamp system.

The Pharos excimer laser system holds FDA clearance to treat chronic skin diseases, including psoriasis, vitiligo, atopic dermatitis and leukoderma.

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.

Since 2019, the Company has been transitioning its international dermatology procedures equipment sales through its master distributor to a direct distribution model for equipment sales and recurring revenue on a country-by-country basis. In January 2022, the Company’s agreement with its master distributor expired. The Company has signed distributor contracts by year as follows: 2019 – Korea, 2020 – Japan, 2021 – China, Israel, Saudi Arabia, Kuwait, Oman, Qatar, Bahrain, UAE, Jordan, Iraq and 2023 – Mexico, India.

COVID-19 Pandemic

In late 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”) which became a global pandemic. Since March 2020, the COVID-19 pandemic has negatively impacted business conditions in the industry in which the Company operates, disrupted global supply chains, constrained workforce participation and created significant volatility and disruption of financial markets. The pandemic led to the suspension of elective procedures in the U.S. and to the temporary closure of many physician practices, which are the Company’s primary customers. While most offices have reopened, some physician practices closed and never reopened, and the impact of the COVID-19 pandemic and its variants on the Company’s operational and financial performance, including its ability to execute its business strategies and initiatives in the expected time frames, will depend on future developments, including, but not limited to, impact on supply chains and transport, and governmental and customer responses, including staffing issues, all of which are uncertain and cannot be predicted.
Russia-Ukraine War
Prior to the outbreak of the Russia-Ukraine War, Ukraine was the largest exporter of noble gases including neon, krypton, and xenon. Historically, Ukraine has been the source of a significant amount of gas supplied to the Company by its contract suppliers. Neon gas is essential to the proper functioning of the Company’s lasers. The Company’s suppliers have been resourceful in continuing to supply gases to the Company but cannot assure the Company that the supply will not remain uninterrupted. The reduced supply and ongoing conflict have raised the price of gas significantly worldwide. Additionally, the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 has led to a further tightening of rare gas supplies as semiconductor chip manufacturers reconfigure their supply chains to address the need to secure their own supplies of rare gases for use in the manufacture of computer chips.
See Note 2, Liquidity for discussion on Company liquidity.

6

STRATA Skin Sciences, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts and number of lasers)
(unaudited)
Basis of Presentation:

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

Unaudited Interim Condensed Consolidated Financial Statements
The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial reporting. These condensed consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to fairly present the results of the interim periods. The condensed consolidated balance sheet at December 31, 2022 has been derived from the audited consolidated financial statements at that date. Operating results and cash flows for the six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023 or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted in accordance with the rules and regulations for interim reporting of the SEC. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”), and other forms filed with the SEC from time to time. Dollar amounts included herein are in thousands, except share and per share amounts and number of lasers.

Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in the Company’s 2022 Form 10-K, and there have been no changes to the Company’s significant accounting policies during the six months ended June 30, 2023.

Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates and judgments include revenue recognition with respect to deferred revenues and the contract term and valuation allowances of accounts receivable, inputs used when evaluating goodwill for impairment, inputs used in the valuation of contingent consideration, state sales and use tax accruals, the estimated useful lives of intangible assets, and the valuation allowance related to deferred tax assets.

Fair Value Measurements
The Company measures financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires the use of observable inputs and minimizes the use of unobservable inputs. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

 
Level 1 – quoted market prices in active markets for identical assets or liabilities.
 
Level 2 – observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3 – inputs that are generally unobservable and typically reflect the Company’s estimate of assumptions that market participants would use in pricing the asset or liability.

The fair values of cash and cash equivalents and restricted cash are based on their respective demand values, which are equal to the carrying values. The carrying values of all short-term monetary assets and liabilities are estimated to approximate their fair values due to the short-term nature of these instruments. As of June 30, 2023 and December 31, 2022, the carrying value of the Company’s long-term debt approximated its fair value due to its variable interest rate.

7

STRATA Skin Sciences, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts and number of lasers)
(unaudited)
Accrued Warranty Costs
The Company offers a standard warranty on product sales generally for a one to two-year period, however, the Company has offered longer warranty periods, ranging from three to four years, in order to meet competition or meet customer demands. The Company provides for the estimated cost of the future warranty claims on the date the product is sold. The activity in the warranty accrual during the three and six months ended June 30, 2023 and 2022 is summarized as follows:

 
 
Three Months Ended June 30,
 
 
 
2023
   
2022
 
Balance, beginning of period
 
$
229
   
$
99
 
Additions
   
93
     
60
 
Expirations and claims satisfied
   
(53
)
   
(26
)
Total
   
269
     
133
 
Less current portion within accrued expenses and other current liabilities
   
(163
)
   
(98
)
Balance within deferred revenues and other liabilities
 
$
106
   
$
231
 

   
Six Months Ended June 30,
 
   
2023
   
2022
 
Balance, beginning of period
 
$
207
   
$
79
 
Additions
   
120
     
94
 
Expirations and claims satisfied
   
(58
)
   
(40
)
Total
   
269
     
133
 
Less current portion within accrued expenses and other current liabilities
   
(163
)
   
(98
)
Balance within deferred revenues and other liabilities
 
$
106
   
$
231
 

Net Loss Per Share
Basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during each period. Diluted loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities such as unvested restricted stock awards, stock options and warrants for common stock which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same as for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive:
 
    June 30,
 
 
  2023     2022  
Restricted stock units
    119,597       75,540  
Stock options
    5,369,714       4,544,714  
Common stock warrants
    800,000       373,626  
Total
    6,289,311       4,993,880  

Accounting Pronouncements Recently Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended subsequently by ASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11 and 2020-03. The guidance in the ASUs requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used. The standard also establishes additional disclosures related to credit risks. This standard is effective for fiscal years beginning after December 15, 2022. The adoption of this guidance on January 1, 2023 did not have a material effect on the condensed consolidated financial statements.

8

STRATA Skin Sciences, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts and number of lasers)
(unaudited)
Recent Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and in January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. These pronouncements provide temporary optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The transition period for adopting these ASUs is March 2020 through December 31, 2024, as further amended by ASU 2022-06. The adoption of this guidance is not expected to have a material effect on the condensed consolidated financial statements as the Company does not have any hedging activities.

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivative and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s own Equity. The pronouncement simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Specifically, the ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. In addition, the ASU removes certain settlement conditions that are required for equity contracts to qualify for it and simplifies the diluted earnings per share (EPS) calculations in certain areas. The guidance is effective for annual periods, including interim periods, beginning after December 15, 2023 and early adoption is permitted. The Company does not currently engage in contracts covered by this guidance and does not believe it will have a material effect on the Company’s condensed consolidated financial statements, but it could in the future.
Note 2
Liquidity:

The Company has been negatively impacted by the COVID-19 pandemic, has historically experienced recurring losses, and has been dependent on raising capital from the sale of securities in order to continue to operate and has been required to restrict cash for potential sales tax liabilities (see Note 14, Commitments and Contingencies). In October 2021, the Company entered into an equity distribution agreement with an investment bank under which the Company may sell up to $11,000 of its common stock in registered “at-the-market” offerings. In June 2023, the Company amended its credit facility with MidCap Financial Trust to: (i) refinance its existing $8,000 term loan, (ii) borrow an additional $7,000, and (iii) provide for an additional $5,000 tranche that can be drawn under certain conditions in 2024. Management believes that the Company’s cash and cash equivalents, combined with the anticipated revenues from the sale or use of its products and operating expense management, will be sufficient to satisfy the Company’s working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with its existing operations for at least the next 12 months following the date of the issuance of these condensed consolidated financial statements. However, market conditions, including the negative impact of the COVID-19 pandemic and the Russia-Ukraine War on the financial markets, supply chain disruptions, customer behavior, and rising interest rates, could interfere with the Company’s ability to access financing and on favorable terms.

Note 3 
Revenue Recognition:
 
Revenues from the Company’s dermatology recurring procedures customers are earned by providing physicians with its dermatology devices and charging the physicians a fee for a fixed number of treatment sessions or a fixed fee for a specified period of time not to exceed an agreed upon number of treatments; if that number is exceeded additional fees will have to be paid. The placement of the dermatology devices at physician locations represents embedded leases which are accounted for as operating leases. For the dermatology devices placed-in service under these arrangements, the terms of the domestic arrangements are generally up to 36 months with automatic one-year renewals and include a termination clause that can be effected at any time by either party with 30 to 60 day notice. Amounts paid are generally non-refundable. Sales of access codes for a fixed number of treatment sessions are considered variable treatment code payments and are recognized as revenue over the estimated usage period of the agreed upon number of treatments. Sales of access codes for a specified period of time and monthly rental fees are recognized as revenue on a straight-line basis as the dermatology devices are being used over the term period specified in the agreement. Variable treatment code payments that will be paid only if the customer exceeds the agreed upon number of treatments are recognized only when such treatments are being exceeded and used. Internationally, the Company generally sells access codes for a fixed amount on a monthly basis to its distributors and the terms are generally 48 months, with termination in the event of the customers’ failure to remit payments timely and include a potential buy-out at the end of the term of the contract. Currently, this is the only foreign recurring revenue. Prepaid amounts recorded in deferred revenues and customer deposits recorded in accounts payable are recognized as revenue over the lease term in the patterns described above. Pricing is fixed with the customer. With respect to lease and non-lease components, the Company adopted the practical expedient to account for the arrangement as a single lease component.

9

STRATA Skin Sciences, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts and number of lasers)
(unaudited)
Revenues from the Company’s dermatology procedures equipment are recognized when control of the promised goods or services is transferred to its customers or distributors, in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. Accordingly, the Company determines revenue recognition through the following steps:

 
identification of the contract, or contracts, with a customer;
 
identification of the performance obligations in the contract;
 
determination of the transaction price;
 
allocation of the transaction price to the performance obligations in the contract; and
 
recognition of revenue when, or as, performance obligations are satisfied.

Accounting for the Company’s contracts involves the use of significant judgments and estimates including determining the separate performance obligations, allocating the transaction price to the different performance obligations and determining the method to measure the entity’s performance toward satisfaction of performance obligations that most faithfully depicts when control is transferred to the customer. The Company allocates the contract’s transaction price to each performance obligation using the Company’s best estimate of the standalone selling price for each distinct good or service in the contract. The Company maximizes the use of observable inputs by beginning with average historical contractual selling prices and adjusting as necessary and on a consistent and rational basis for other inputs such as pricing trends, customer types, volumes and changing cost and margins.

Revenues from dermatology procedures equipment are recognized when control of the promised products is transferred to either the Company’s distributors or end-user customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products (the transaction price). Control transfers to the customer at a point in time. To indicate the transfer of control, the Company must have a present right to payment and legal title must have passed to the customer. The Company ships most of its products FOB shipping point, and as such, the Company primarily transfers control and records revenue upon shipment. From time to time the Company will grant certain customers, for example governmental customers, FOB destination terms, and the transfer of control for revenue recognition occurs upon receipt. The Company has elected to recognize the cost of freight and shipping activities as fulfillment costs. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of the underlying goods are transferred to the customer. The related shipping and freight charges incurred by the Company are included in cost of revenues.

The following table summarizes the Company’s expected future undiscounted fixed treatment code payments from dermatology recurring procedures as of June 30, 2023 :

Remaining 2023
 
$
641
 
2024
   
1,103
 
2025
   
530
 
2026
   
312
 
2027
   
90
 
Total
 
$
2,676
 

Remaining performance obligations related to Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year, which are fully or partially unsatisfied at the end of the period. Remaining performance obligations include the potential obligation to perform under extended warranties but exclude any equipment accounted for as leases. As of June 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $725, and the Company expects to recognize $235 of the remaining performance obligations within one year and the balance over one to three years. Contract assets primarily relate to the Company’s rights to consideration for work completed in relation to its services performed but not billed at the reporting date. The contract assets are transferred to receivables when the rights become unconditional. Currently, the Company does not have any contract assets which have not transferred to a receivable.
 
10

STRATA Skin Sciences, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts and number of lasers)
(unaudited)
Contract liabilities primarily relate to extended warranties where the Company has received payments but has not yet satisfied the related performance obligations. The allocations of the transaction price are based on the price of stand-alone warranty contracts sold in the ordinary course of business. The advance consideration received from customers for the warranty services is a contract liability that is recognized ratably over the warranty period. As of June 30, 2023, the $235 of short-term contract liabilities is presented as deferred revenues and the $490 of long-term contract liabilities is presented within deferred revenues and other liabilities on the condensed consolidated balance sheet. For the three months ended June 30, 2023 and 2022, the Company recognized $104 and $255, respectively, as revenue from amounts classified as contract liabilities (i.e. deferred revenues) as of December 31, 2022 and 2021. For the six months ended June 30, 2023 and 2022, the Company recognized $236 and $683, respectively, as revenue from amounts classified as contract liabilities (i.e. deferred revenues) as of December 31, 2022 and 2021.
 
With respect to contract acquisition costs, the Company applies the practical expedient and expenses these costs immediately.

Note 4
TheraClear Asset Acquisition:

In January 2022, the Company acquired certain assets related to the TheraClear devices from Theravant Corporation (“Theravant”). The TheraClear asset acquisition allows the Company to further develop, commercialize and market the TheraClear devices that are used for acne treatment, as well as advance the TheraClear technology into multiple other devices that can be used to treat a range of additional indications.

The Company made an upfront cash payment of $500 and issued to Theravant 358,367 shares of common stock with an aggregate value of $500 as of the closing date in connection with the TheraClear asset acquisition. During the fourth quarter of 2022, the Company also made a $500 milestone payment upon the launch of the TheraClear Acne Therapy System, one of the development-related targets. Theravant is eligible to receive up to $3,000 in future earnout payments upon the achievement of certain annual net revenue milestones, up to $20,000 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 $500 in future milestone payments upon the achievement of certain development and commercialization related targets. The Company owes Theravant $28 and $42, respectively, based on gross profit from domestic and international sales during the three and six months ended June 30, 2023, which is included in accounts payable as of June 30, 2023.

The Company determined this transaction represented an asset acquisition as substantially all of the value was in the TheraClear technology intangible asset as defined by ASC 805, Business Combinations.

The purchase price was allocated, on a relative fair basis, to the technology intangible asset and acquired inventories as follows:

Consideration:
     
Cash payment
 
$
500
 
Common stock issued
    500
 
Transaction costs
   
131
 
Contingent consideration     9,122
 
Total consideration
 
$
10,253
 
         
Assets acquired:
       
Technology intangible asset
  $
10,182
 
Inventories
 
71
 
Total assets acquired
 
$
10,253
 

The technology intangible asset is being amortized on a straight-line basis over a period of ten years, to be updated for subsequent changes in the contingent consideration that is allocated to its carrying value. The intangible asset was valued using the relief from royalty method. Significant assumptions used in the relief from royalty method include a 14.5% weighted average cost of capital and 15.0% of revenues for the royalty rate. The net book value of acquired inventories approximated its fair value. To calculate the fair value of the earnout using Monte Carlo simulations, Company projections were utilized to develop expected revenues and gross profits based on the risk inherent in the projections using the Geometric-Brownian motion for the earnout periods and related earnout payments. Significant assumptions used in the Geometric-Brownian motion analysis include projected revenues, projected gross profit, risk free rate of return of 1.6%, revenue volatility of 45.0%, and a cost of equity of 10.5%. Due to uncertainties associated with the development of a new product line and the use of estimates and assumptions to determine the fair value of the contingent consideration, the amount ultimately paid in connection with the earnout may differ from the estimated fair value at the acquisition date. A revaluation of the contingent consideration would only be required if there is a significant change to the underlying valuation assumptions. The contingent consideration will be adjusted when the contingency is resolved and the consideration is paid or becomes payable. Any difference between the cash payment and the amount accrued for contingent consideration will result in an adjustment to the technology intangible asset. Contingent consideration expected to be paid within the next year is classified as current on the condensed consolidated balance sheet.

11

STRATA Skin Sciences, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts and number of lasers)
(unaudited)
Note 5
Inventories:
 
Inventories consist of the following:
 
   
June 30, 2023
   
December 31, 2022
 
Raw materials and work-in-process
 
$
5,622
   
$
5,418
 
Finished goods
   
299
     
129
 
Total inventories
 
$
5,921
   
$
5,547
 

Work-in-process is immaterial, given the Company’s typically short manufacturing cycle and therefore, is included with raw materials.
 
Note 6
Property and Equipment, net:
 
Property and equipment consist of the following:
 
   
June 30, 2023
   
December 31, 2022
 
Dermatology devices placed-in-service
 
$
30,767
   
$
28,790
 
Equipment, computer hardware and software
   
293
     
293
 
Furniture and fixtures
   
235
     
235
 
Leasehold improvements
   
96
     
136
 
     
31,391
     
29,454
 
Accumulated depreciation and amortization
   
(23,072
)
   
(21,956
)
Property and equipment, net
 
$
8,319
   
$
7,498
 

Depreciation and amortization expense was $713 and $599 for the three months ended June 30, 2023 and 2022, respectively. Depreciation and amortization expense was $1,390 and $1,224 for the six months ended June 30, 2023 and 2022, respectively.
 
Note 7
Intangible Assets, net:
 
Intangible assets consist of the following as of June 30, 2023 and December 31, 2022:
 
 
 
Balance
   
Accumulated
Amortization
   
Intangible
Assets, net
 
June 30, 2023
                 
Core technology
 
$
5,700
   
$
(4,560
)
 
$
1,140
 
Product technology
   
12,182
     
(3,527
)
   
8,655
 
Customer relationships
   
6,900
     
(5,520
)
   
1,380
 
Tradenames
   
1,500
     
(1,200
)
   
300
 
Pharos customer lists
   
5,314
     
(830
)
   
4,484
 
   
$
31,596
   
$
(15,637
)
 
$
15,959
 
                         
December 31, 2022
                       
Core technology
 
$
5,700
   
$
(4,275
)
 
$
1,425
 
Product technology
   
12,182
     
(3,018
)
   
9,164
 
Customer relationships
   
6,900
     
(5,175
)
   
1,725
 
Tradenames
   
1,500
     
(1,125
)
   
375
 
Pharos customer lists
   
5,314
     
(609
)
   
4,705
 
   
$
31,596
   
$
(14,202
)
 
$
17,394
 

12

STRATA Skin Sciences, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts and number of lasers)
(unaudited)
Amortization expense was $715 and $740 for the three months ended June 30, 2023 and 2022, respectively. Amortization expense was $1,435 and $1,436 for the six months ended June 30, 2023 and 2022, respectively.
 
Finite-lived intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying value of the asset group may not be recoverable. The Company recognizes an impairment loss when and to the extent that the recoverable amount of an asset group is less than its carrying value. There were no impairment charges for the three and six months ended June 30, 2023 or 2022.

The following table summarizes the estimated future amortization expense for the above intangible assets for the next five years:
 
Remaining 2023
 
$
1,436
 
2024
   
2,871
 
2025
   
2,166
 
2026
   
1,461
 
2027
   
1,461
 

Note 8
Accrued Expenses and Other Current Liabilities:

Accrued expenses and other current liabilities consist of the following:

    June 30, 2023     December 31, 2022  
Warranty obligations
 
$
163
   
$
136
 
Compensation and related benefits
   
2,145
     
1,997
 
State sales, use and other taxes
   
4,203
     
3,986
 
Professional fees and other
   
220
     
436
 
Total accrued expenses and other current liabilities
 
$
6,731
   
$
6,555
 

Note 9
Long-term Debt:


Senior Term Facility
On September 30, 2021, the Company entered into a credit and security agreement with MidCap Financial Trust (“MidCap”), also acting as the administrative agent, and the lenders identified therein. The credit and security agreement was amended on June 30, 2023. The original terms provided for an $8,000 senior term loan that was drawn upon by the Company upon executing the agreement. Borrowings under the senior term loan bore interest at LIBOR (with a LIBOR floor rate of 0.50%) plus 7.50% per year and were scheduled to mature on September 1, 2026, unless terminated earlier. The Company was obligated to make monthly interest-only payments through September 30, 2024. All borrowings were secured by substantially all of the Company’s assets. The credit and security agreement was amended on January 10, 2022 to provide MidCap’s consent to the acquisition of TheraClear (Note 4). In September 2022, the Company amended the facility to transition, upon the cessation of LIBOR, to one-month Secured Overnight Financing Rate (“SOFR”), or such other applicable period, plus 0.10%, with a floor of 0.50%.

13

STRATA Skin Sciences, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts and number of lasers)
(unaudited)
On June 30, 2023, the Company entered into (a) the Amendment No. 3 to Credit and Security Agreement (the “Amendment”) among MidCap, as administrative agent, and the lenders identified therein, which amended the credit and security agreement, dated as of September 30, 2021, as amended January 10, 2022 and September 6, 2022 (as amended by the Amendment, the “Senior Term Facility”); (b) the Amended and Restated Warrant Agreement (the “A&R Warrant”) with MidCap Funding XXVII Trust (together with any registered holder from time to time or any holder of the shares issuable or issued upon the exercise or conversion of the warrant, the “Warrantholder”), which amended and restated the warrant agreement to purchase shares of the common stock of the Company, dated as of September 30, 2021 (the “Prior Warrant”), with the Warrantholder; (c) the Amended and Restated Registration Rights Agreement (the “A&R Registration Rights Agreement”) with the Warrantholder, which amended and restated the registration rights agreement, dated as of September 30, 2021, with the Warrantholder; and (d) a letter agreement (the “Fee Letter Agreement”) with MidCap, as agent.


In connection with the Amendment, the Senior Term Facility provides for a senior secured term loan facility of $20,000, of which $8,000 was drawn by the Company on September 30, 2021 (“Credit Facility #1”), $7,000 was drawn by the Company on June 30, 2023 (“Credit Facility #2”), and an additional $5,000 tranche (“Credit Facility #3”) is available to be drawn by the Company if its Dermatology Recurring Procedures Revenue (as defined in the Senior Term Facility) for the preceding twelve calendar months (ending on the last day of the calendar month for which a compliance certificate is delivered) is greater than or equal to $30,000 (such condition, the “Applicable Funding Condition”).  Credit Facility #3 can be drawn beginning on the later of the satisfaction of the Applicable Funding Condition and January 1, 2024, with such commitment terminating on the earlier to occur of December 31, 2024 and the delivery of a written notice by MidCap to the Company terminating the applicable commitments following an Event of Default (as defined in the Senior Term Facility) that has not been waived or cured at the time such notice is delivered. All borrowings are secured by substantially all of the Company’s assets.


Borrowings under the Senior Term 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%.  The effective interest rate of the Senior Term Facility as of June 30, 2023 was 13.48%. The Company is obligated to make only interest payments (payable monthly in arrears) through June 1, 2026. Commencing on July 1, 2026 and continuing for the remaining 24 months of the facility, the Company will be required to make monthly interest payments and monthly principal payments based on a straight-line amortization schedule set forth in the Senior Term Facility, subject to certain adjustments as described in the Senior Term Facility.  The final maturity date under the Senior Term Facility is June 1, 2028, unless earlier terminated.  The Senior Term Facility requires the Company to dedicate 100% of certain insurance proceeds to the prepayment of the outstanding term loan, subject to certain exceptions and net of certain expenses and repayments.

The Company may voluntarily prepay the outstanding term loan under the Senior Term Facility, with such prepayment at least $5,000, at any time upon 30 days’ written notice.  Upon prepayment, the Company will be required to pay a prepayment fee equal to (i) 4.00% of the outstanding principal prepaid or required to be prepaid (whichever is greater), if the prepayment is made within 12 months of June 30, 2023, (ii) 3.00% of the outstanding principal prepaid or required to be prepaid (whichever is greater), if the prepayment is made between 12 months and 24 months after June 30, 2023, (iii) 2.00% of the outstanding principal prepaid or required to be prepaid (whichever is greater), if the prepayment is made between 24 months and 36 months after June 30, 2023, or (iv) 1.00% of the outstanding principal prepaid or required to be prepaid (whichever is greater), if the prepayment is made after 36 months after June 30, 2023 and prior to the maturity date.


The Senior Term Facility contains certain customary representations and warranties, affirmative covenants and conditions, as well as various negative covenants.  Further, the Senior Term Facility contains (a) a quarterly financial covenant that requires the Company to not have less than $29,000 of net revenue (raised to $40,000 by December 31, 2025 and, for periods ending after December 31, 2025, such net revenue as determined in good faith by MidCap, which shall not be less than the applicable minimum net revenue amount for the immediately preceding period and $40,000) for the trailing 12-month period as of June 30, 2023, and (b) a minimum of unrestricted cash (as defined in the Senior Term Facility), at all times, of not less than $3,000. At June 30, 2023, the Company was in compliance with all financial covenants within the Senior Term Facility.


Upon the occurrence and during the continuance of an event of default, MidCap may, and at the direction of a requisite percentage of the lenders must, (i) suspend or terminate the term loan commitment and Midcap and the other lenders’ obligations with respect thereto, and (ii) by notice to the Company, declare all or any portion of the obligations under the Senior Term Facility to be immediately due and payable.  In addition to MidCap’s other rights and available remedies, but subject to applicable cure periods, upon the occurrence and during the continuance of an event of default, MidCap may, and at the direction of a requisite percentage of the lenders must, terminate the Senior Term Facility.  At June 30, 2023, no event of default had occurred, and the Company believed that events or conditions having a material adverse effect, giving rise to an acceleration of any amounts outstanding under the Senior Term Facility, had not occurred and was remote.


14

STRATA Skin Sciences, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts and number of lasers)
(unaudited)

Pursuant to the Fee Letter Agreement, the Company agreed to pay MidCap, as administrative agent, the following fees: (a) an origination fee on June 30, 2023 in an amount equal to (i) the Credit Extensions (as defined in the Senior Term Facility) in respect of Credit Facility #2, multiplied by (ii) 0.50%; (b) on the maturity date of the Senior Term Facility or any earlier date on which the obligations thereunder become due and payable in full or are otherwise paid in full (such date, the “Full Exit Fee Payment Date”), the Company shall pay an exit fee equal to (i) 3.00% of the total aggregate principal amount of Credit Extensions (as defined in the Senior Term Facility) made pursuant to the Senior Term Facility (regardless of any repayment or prepayment thereof) as of the Full Exit Fee Payment Date (such aggregate amount, the “Exit Fee Base Amount”), less (ii) any Partial Exit Fee (as defined below) previously paid; (c) on the date of any voluntary or mandatory partial prepayment of the borrowings under the Senior Term Facility (or on the date such mandatory prepayment becomes due and payable) (each such date, a “Partial Exit Fee Payment Date”), the Company shall pay an exit fee equal to 3.00% of the principal amount of the credit facilities paid or prepaid (or required to be paid in the case of a mandatory prepayment) as of the Partial Exit Fee Payment Date (such amount, the “Partial Exit Fee”); and (d) an origination fee payable contemporaneously with funding Credit Facility #3 in an amount equal to (i) the Credit Extensions (as defined in the Senior Term Facility) in respect of Credit Facility #3, multiplied by (ii) 0.50%.



The Prior Warrant allowed the Warrantholder, an affiliate of the lender, to purchase 373,626 shares of the Company’s common stock at an exercise price equal to $1.82 per share for a 10-year period ending September 30, 2031. Pursuant to, and in accordance with, the terms and conditions of the A&R Warrant, which amended and restated the Prior Warrant, the Warrantholder can purchase 800,000 shares of the Company’s common stock at an exercise price equal to $0.88 for a 10-year period ending on June 30, 2033.  Pursuant to the A&R Registration Rights Agreement, the Company shall register the shares underlying the A&R Warrant, with an initial filing due no later than the 45th day following the date of the A&R Registration Rights Agreement.  The amendment of the warrant resulted in an increase in the fair value of the warrant, which has been accounted for as a lender fee.


The June 2023 amendment to the Senior Term Facility has been accounted for as a debt extinguishment, as the new loan is considered substantially different from the original loan. The Company recorded a loss on debt extinguishment of $909 for the three and six months ended June 30, 2023, which includes unamortized debt discount on the original loan of $441, an increase in the fair value of the warrant of $384 and lender fees of $84. In connection with the Amendment, the Company has recorded the $450 exit fee as both a debt discount and an increase to the principal amount of the debt. The debt discount, which also includes third party costs incurred in connection with the Amendment of $13, is being recognized as interest expense over the term of the Senior Term Facility using the effective-interest method. The unamortized debt discount was $463 as of June 30, 2023. The Company recognized interest expense of $298 and $584 during the three and six months ended June 30, 2023, respectively, of which $42 and $83 was related to the amortization of the debt discount for the three and six months ended June 30, 2023. The Company recognized interest expense of $208 and $407 during the three and six months ended June 30, 2022, of which $39 and $76 was related to the amortization of the debt discount for the three and six months ended June 30, 2022.

Future minimum principal payments at June 30, 2023 are as follows:

2026
 
$
3,750
 
2027
    7,500  
2028
    3,750  

 

15,000
 
Exit fee
    450  
 
    15,450  
Less: unamortized debt discount
    (463 )
Long-term debt, net
  $
14,987  

15

STRATA Skin Sciences, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts and number of lasers)
(unaudited)
Note 10
Stock-based Compensation:

The Company’s 2016 Omnibus Incentive Stock Plan (“2016 Plan”), as amended, has reserved up to 7,832,651 shares of common stock for future issuance. As of June 30, 2023, there were 2,298,706 shares of common stock remaining available for issuance for awards under the 2016 Plan.
 
The Company measures stock‑based awards at their grant‑date fair value and records compensation expense on a straight‑line basis over the requisite service period of the awards. The Company recorded stock‑based compensation expense of $296 and $452 for the three months ended June 30, 2023 and 2022, respectively, and $578 and $820 for the six months ended June 30, 2023 and 2022, respectively, within general and administrative expenses in the accompanying condensed consolidated statements of operations. During the three and six months ended June 30, 2023, the Company also recorded share-based compensation expense of $56 and $99, respectively, within selling and marketing expenses in the accompanying condensed consolidated statement of operations.

On April 3, 2023 and March 30, 2022, the Company granted 150,000 and 160,000 stock-based options, respectively, to the Chief Executive Officer. The vesting of these awards is contingent upon meeting one or more financial goals (a performance condition) or a common stock share price (a market condition). The fair value of stock-based awards is determined at the date of grant. Stock-based compensation expense is recorded ratably for market condition awards during the requisite service period and is not reversed, except for forfeitures, at the vesting date regardless of whether the market condition is met. The market condition was not met for the 2022 awards and 60,000 of the stock-based options were forfeited during 2022. Stock-based compensation expense for performance condition awards is re-evaluated at each reporting period based on the probability of the achievement of the goal.
Stock Options

The following table summarizes stock option activity for the six months ended June 30, 2023:

   
Number of
Shares
   
Weighted Average
Exercise Price
per Share
   
Weighted Average
Remaining
Contractual Term
(in years)
 
Outstanding at January 1, 2023
   
4,474,714
   
$
1.72
       
Granted
   
905,000
   
$
1.06
       
Exercised
   
 
$
       
Forfeited and expired
   
(