UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended June 30, 2023
OR
For the transition period from _________ to ___________
Commission File Number 0-51481
(Exact name of registrant as specified in its charter)
|
|
(State or other jurisdiction
of incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
(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
|
|
|
|
|
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.
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).
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 ☐
|
|||
|
|
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.
|
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
(in thousands, except share and per share amounts)
|
June 30, 2023
|
December 31, 2022
|
|||||||
| (unaudited) | ||||||||
|
Assets
|
|
|||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Restricted cash
|
||||||||
|
Accounts receivable, net of allowance for credit losses of $
|
|
|
||||||
|
Inventories
|
|
|
||||||
|
Prepaid expenses and other current assets
|
|
|
||||||
|
Total current assets
|
|
|
||||||
|
Property and equipment, net
|
|
|
||||||
|
Operating lease right-of-use assets
|
|
|
||||||
|
Intangible assets, net
|
|
|
||||||
|
Goodwill
|
|
|
||||||
|
Other assets
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$
|
|
$
|
|
||||
|
Accrued expenses and other current liabilities
|
|
|
||||||
|
Deferred revenues
|
||||||||
|
Current portion of operating lease liabilities
|
|
|
||||||
|
Current portion of contingent consideration
|
|
|
||||||
|
Total current liabilities
|
|
|
||||||
|
Long-term debt, net
|
|
|
||||||
| Deferred revenues and other liabilities |
||||||||
|
Deferred tax liability
|
|
|
||||||
|
Operating lease liabilities, net of current portion
|
|
|
||||||
| Contingent consideration, net of current portion |
|
|
||||||
|
Total liabilities
|
|
|
||||||
|
Commitments and contingencies (Note 14)
|
||||||||
|
Stockholders’ equity:
|
||||||||
|
Series C convertible preferred stock, $
|
||||||||
|
Common stock, $
|
|
|
||||||
|
Additional paid-in capital
|
|
|
||||||
|
Accumulated deficit
|
(
|
)
|
(
|
)
|
||||
|
Total stockholders’ equity
|
|
|
||||||
|
Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
STRATA Skin Sciences, Inc. and Subsidiary
(in thousands, except share and per share amounts)
(unaudited)
|
Three Months Ended June 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Revenues, net
|
$
|
|
$
|
|
||||
|
Cost of revenues
|
|
|
||||||
|
Gross profit
|
|
|
||||||
|
Operating expenses:
|
||||||||
|
Engineering and product development
|
|
|
||||||
|
Selling and marketing
|
|
|
||||||
|
General and administrative
|
|
|
||||||
|
|
|
|||||||
|
Loss from operations
|
(
|
)
|
(
|
)
|
||||
|
Other (expense) income:
|
||||||||
|
Loss on debt extinguishment
|
( |
) | ||||||
|
Interest expense
|
(
|
)
|
(
|
)
|
||||
|
Interest income
|
||||||||
| ( |
) | ( |
) | |||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Net loss per share of common stock, basic and diluted
|
$ | ( |
) | $ | ( |
) | ||
|
Weighted average shares of common stock outstanding, basic and diluted
|
||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
STRATA Skin Sciences, Inc. and Subsidiary
(in thousands, except share and per share amounts)
(unaudited)
|
Six Months Ended June 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Revenues, net
|
$
|
|
$
|
|
||||
|
Cost of revenues
|
|
|
||||||
|
Gross profit
|
|
|
||||||
|
Operating expenses:
|
||||||||
|
Engineering and product development
|
|
|
||||||
|
Selling and marketing
|
|
|
||||||
|
General and administrative
|
|
|
||||||
|
|
|
|||||||
|
Loss from operations
|
(
|
)
|
(
|
)
|
||||
|
Other (expense) income:
|
||||||||
|
Loss on debt extinguishment
|
( |
) | ||||||
|
Interest expense
|
( |
) | ( |
) | ||||
|
Interest income
|
||||||||
| ( |
) | ( |
) | |||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Net loss per share of common stock, basic and diluted
|
$ | ( |
) | $ | ( |
) | ||
| Weighted average shares of common stock outstanding, basic and diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
STRATA Skin Sciences, Inc. and Subsidiary
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
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||
|
Stock-based compensation expense
|
—
|
|
|
|
|
|||||||||||||||
|
Issuance of restricted stock
|
|
|
|
|||||||||||||||||
|
Net loss
|
—
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Balance at March 31, 2023
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Stock-based compensation expense
|
— |
|
|
|
||||||||||||||||
| Modification of common stock warrants |
— | |||||||||||||||||||
|
Net loss
|
—
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Balance at June 30, 2023
|
|
$ |
|
$ |
|
$ |
(
|
)
|
$ |
|
||||||||||
| Additional |
Total |
|||||||||||||||||||
|
Common Stock
|
Paid-In
|
Accumulated
|
Stockholders’
|
|||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity
|
||||||||||||||||
|
Balance at January 1, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||
|
Stock-based compensation expense
|
—
|
|
|
|
|
|||||||||||||||
|
Issuance of common
stock for acquisition
|
|
|
|
|
|
|||||||||||||||
|
Net loss
|
—
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Balance at March 31, 2022
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Stock-based compensation expense
|
—
|
|
|
|
||||||||||||||||
|
Net loss
|
—
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Balance at June 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
STRATA Skin Sciences, Inc. and Subsidiary
(in thousands)
(unaudited)
|
For the Six Months Ended June 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
|
Depreciation and amortization
|
|
|
||||||
|
Amortization of operating lease right-of-use assets
|
|
|
||||||
|
Amortization of intangible assets
|
||||||||
| Amortization of deferred financing costs and debt discount | ||||||||
|
Change in allowance for credit
losses
|
(
|
)
|
(
|
)
|
||||
|
Stock-based compensation expense
|
|
|
||||||
|
Loss on disposal of property and equipment
|
||||||||
|
Loss on debt extinguishment
|
||||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
|
|
||||||
|
Inventories
|
(
|
)
|
(
|
)
|
||||
|
Prepaid expenses and other assets
|
|
(
|
)
|
|||||
|
Accounts payable
|
|
|
||||||
|
Accrued expenses and other liabilities
|
|
(
|
)
|
|||||
|
Deferred revenues
|
(
|
)
|
(
|
)
|
||||
|
Operating lease liabilities
|
(
|
)
|
(
|
)
|
||||
|
Net cash used in operating activities
|
(
|
)
|
(
|
)
|
||||
| Cash flows from investing activities: | ||||||||
|
Purchase of property and equipment
|
( |
) | ( |
) | ||||
|
Cash paid in connection with TheraClear asset acquisition
|
( |
) | ||||||
|
Net cash used in investing activities
|
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
||||||||
|
Proceeds from long-term debt
|
||||||||
|
Payment of deferred financing costs
|
( |
) | ||||||
|
Net cash provided by financing activities
|
||||||||
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
(
|
)
|
|||||
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
|
||||||
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
|
$
|
|
||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Restricted cash
|
|
|
||||||
|
$
|
|
$
|
|
|||||
|
Supplemental disclosure of cash flow information:
|
||||||||
|
Cash paid for interest
|
$
|
|
$
|
|
||||
|
Supplemental disclosure of non-cash operating, investing and financing activities:
|
||||||||
|
Inventories acquired in connection with TheraClear asset acquisition
|
$ | $ | ||||||
|
Intangible assets acquired in connection with TheraClear asset acquisition
|
$ | $ | ||||||
|
Contingent consideration issued in connection with TheraClear asset acquisition
|
$ | $ | ||||||
|
Common stock issued in connection with TheraClear asset acquisition
|
$ | $ | ||||||
|
Modification of common stock warrants
|
$ |
$ |
||||||
| Transfer of property and equipment to inventories | $ | $ | ||||||
| Accrued payment of contingent consideration | $ | $ | ||||||
|
Accrued exit fee recorded as debt discount
|
$ |
$ |
||||||
| Deferred financing costs in accounts payable |
$ |
$ |
||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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
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
Accrued Warranty Costs
The Company offers a standard warranty on product sales generally for a to two-year period, however, the Company has offered longer warranty periods, ranging from to four years , in order to meet competition or meet customer demands. The Company
provides for the estimated cost of the future warranty claims on the date the product is sold. The activity in the warranty accrual during the 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
|
$
|
|
$
|
|
||||
|
Additions
|
|
|
||||||
|
Expirations and claims satisfied
|
(
|
)
|
(
|
)
|
||||
|
Total
|
|
|
||||||
|
Less current portion within accrued expenses
and other current liabilities
|
(
|
)
|
(
|
)
|
||||
|
Balance within deferred revenues and other
liabilities
|
$
|
|
$
|
|
||||
|
Six Months Ended June 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Balance, beginning of period
|
$
|
|
$
|
|
||||
|
Additions
|
|
|
||||||
|
Expirations and claims satisfied
|
(
|
)
|
(
|
)
|
||||
|
Total
|
|
|
||||||
|
Less current portion within accrued expenses and other current liabilities
|
(
|
)
|
(
|
)
|
||||
|
Balance within deferred revenues and other liabilities
|
$
|
|
$
|
|
||||
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
|
||||||||
|
Stock options
|
||||||||
|
Common stock warrants
|
||||||||
|
Total
|
||||||||
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
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
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
|
$
|
|
||
|
|
|
|||
|
|
|
|||
|
|
|
|||
|
|
|
|||
|
Total
|
$
|
|
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 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
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
|
$
|
|
||
| Common stock issued |
||||
|
Transaction costs
|
|
|||
| Contingent consideration | ||||
|
Total consideration
|
$
|
|
||
|
Assets acquired:
|
||||
| Technology intangible asset |
$ |
|||
|
Inventories
|
|
|
||
|
Total assets acquired
|
$
|
|
||
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
Note 5
Inventories:
Inventories consist of the following:
|
June 30, 2023
|
December 31, 2022
|
|||||||
|
Raw materials and work-in-process
|
$
|
|
$
|
|
||||
|
Finished goods
|
|
|
||||||
|
Total inventories
|
$
|
|
$
|
|
||||
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
|
$
|
|
$
|
|
||||
|
Equipment,
computer hardware and software
|
|
|
||||||
|
Furniture and
fixtures
|
|
|
||||||
|
Leasehold
improvements
|
|
|
||||||
|
|
|
|||||||
|
Accumulated depreciation and
amortization
|
(
|
)
|
(
|
)
|
||||
|
Property and equipment, net
|
$
|
|
$
|
|
||||
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
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
|
Product technology
|
|
(
|
)
|
|
||||||||
|
Customer relationships
|
|
(
|
)
|
|
||||||||
|
Tradenames
|
|
(
|
)
|
|
||||||||
|
Pharos customer lists
|
|
(
|
)
|
|
||||||||
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||
|
December 31, 2022
|
||||||||||||
|
Core technology
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
|
Product technology
|
|
(
|
)
|
|
||||||||
|
Customer relationships
|
|
(
|
)
|
|
||||||||
|
Tradenames
|
|
(
|
)
|
|
||||||||
|
Pharos customer lists
|
|
(
|
)
|
|
||||||||
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||
12
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
The following table summarizes the estimated future
amortization expense for the above intangible assets for the next five years:
|
Remaining 2023
|
$
|
|
||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
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
|
$
|
|
$
|
|
||||
|
Compensation and related benefits
|
|
|
||||||
|
State sales, use and other taxes
|
|
|
||||||
|
Professional fees and other
|
|
|
||||||
|
Total accrued expenses and other current liabilities
|
$
|
|
$
|
|
||||
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
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
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 $909 441 , 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
|
$
|
|
||
| 2027 |
||||
| 2028 |
||||
|
|
|
|
||
|
Exit fee
|
||||
|
|
||||
|
Less: unamortized debt discount
|
( |
) | ||
|
Long-term debt, net
|
$ |
15
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
|
|
$
|
|
|||||||||
|
Granted
|
|
$
|
|
|||||||||
|
Exercised
|
|
$
|
|
|||||||||
|
Forfeited and expired
|
(
|
)
|
$
|
|
||||||||
| Outstanding at June 30, 2023 | ||||||||||||