SEC Form 10-Q filed by Strata Skin Sciences Inc.

Delaware		13-3986004
(State or Other Jurisdiction of incorporation or Organization)		(I.R.S. Employer Identification No.)

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

Title of Each Class		Trading Symbol(s)		Name Of Each Exchange On Which Registered
Common Stock, $0.001 Par Value		SSKN		The Nasdaq Stock Market LLC

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒
			Emerging growth company ☐

		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of June 30, 2025 (unaudited) and December 31, 2024	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2025 and 2024 (unaudited)	2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2025 and 2024 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2025 and 2024 (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	30
Item 4.	Controls and Procedures	30
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
	Signatures	33
	Certifications

		June 30, 2025				December 31, 2024
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	5,966			$	7,261
Restricted cash			—				1,334
Accounts receivable, net of allowance for credit losses of $604 and $433 at June 30, 2025 and December 31, 2024, respectively			4,022				5,253
Inventories			3,236				2,246
Prepaid expenses and other current assets			550				501
Total current assets			13,774				16,595
Property and equipment, net			8,604				10,061
Operating lease right-of-use assets			1,092				1,264
Intangible assets, net			4,363				5,348
Goodwill			2,658				2,658
Other assets			231				231
Total assets		$	30,722			$	36,157
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	2,945			$	2,433
Accrued expenses and other current liabilities			7,401				8,593
Deferred revenues			2,372				2,241
Current portion of operating lease liabilities			303				328
Current portion of contingent consideration			983				1,030
Total current liabilities			14,004				14,625
Long-term debt, net			15,270				15,192
Deferred revenues and other liabilities			264				353
Operating lease liabilities, net of current portion			780				919
Contingent consideration, net of current portion			96				96
Total liabilities			30,414				31,185
Commitments and contingencies (Note 13)
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;  4,171,161 shares issued and outstanding at both June 30, 2025 and December 31, 2024			4				4
Additional paid-in capital			253,369				253,112
Accumulated deficit			(253,065	)			(248,144	)
Total stockholders’ equity			308				4,972
Total liabilities and stockholders’ equity		$	30,722			$	36,157

		Three Months Ended June 30,								Six Months Ended June 30,
		2025				2024				2025				2024
Revenues, net		$	7,663			$	8,435			$	14,475			$	15,189
Cost of revenues			3,357				3,458				6,392				7,016
Gross profit			4,306				4,977				8,083				8,173
Operating expenses:
Engineering and product development			86				199				182				440
Selling and marketing			3,533				3,054				6,656				6,188
General and administrative			2,911				2,210				5,484				4,920
Total operating expenses			6,530				5,463				12,322				11,548
Loss from operations			(2,224	)			(486	)			(4,239	)			(3,375	)
Other income (expense):
Interest expense			(491	)			(531	)			(977	)			(1,055	)
Interest income			226				54				295				99
Other income			—				864				—				864
Total other (expense) income			(265	)			387				(682	)			(92	)
Net loss		$	(2,489	)		$	(99	)		$	(4,921	)		$	(3,467	)
Net loss per share of common stock, basic and diluted		$	(0.60	)		$	(0.03	)		$	(1.18	)		$	(0.99	)
Weighted average shares of common stock outstanding, basic and diluted			4,171,161				3,506,025				4,171,161				3,506,025

		Common Stock								Additional Paid-in-Capital				Accumulated Deficit				Total Stockholders’ Equity
		Shares				Amount
Balance at January 1, 2025			4,171,161			$	4			$	253,112			$	(248,144	)		$	4,972
Stock-based compensation expense			—				—				129				—				129
Net loss			—				—				—				(2,432	)			(2,432	)
Balance at March 31, 2025			4,171,161				4				253,241				(250,576	)			2,669
Stock-based compensation expense			—				—				128				—				128
Net loss			—				—				—				(2,489	)			(2,489	)
Balance at June 30, 2025			4,171,161			$	4			$	253,369			$	(253,065	)		$	308

		Common Stock								Additional Paid-in-Capital				Accumulated Deficit				Total Stockholders’ Equity
		Shares				Amount
Balance at January 1, 2024			3,506,025			$	4			$	250,742			$	(238,058	)		$	12,688
Stock-based compensation expense			—				—				112				—				112
Net loss			—				—				—				(3,368	)			(3,368	)
Balance at March 31, 2024			3,506,025				4				250,854				(241,426	)			9,432
Stock-based compensation expense			—				—				163				—				163
Net loss			—				—				—				(99	)			(99	)
Balance at June 30, 2024			3,506,025			$	4			$	251,017			$	(241,525	)		$	9,496

		Six Months Ended June 30,
		2025				2024
Cash flows from operating activities:
Net loss		$	(4,921	)		$	(3,467	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			2,438				2,499
Amortization of operating lease right-of-use assets			172				174
Amortization of deferred financing costs and debt discount			78				70
Provision for credit losses			166				30
Stock-based compensation expense			257				275
Loss on disposal of property and equipment			63				19
Inventory write-off			—				141
Changes in operating assets and liabilities:
Accounts receivable			1,065				431
Inventories			(912	)			6
Prepaid expenses and other assets			(49	)			(119	)
Accounts payable			465				(466	)
Accrued expenses and other liabilities			(1,201	)			290
Deferred revenues			52				74
Operating lease liabilities			(164	)			(170	)
Net cash used in operating activities			(2,491	)			(213	)
Cash flows from investing activities:
Purchase of property and equipment			(138	)			(1,070	)
Net cash used in investing activities			(138	)			(1,070	)
Cash flows from financing activities:
Payment of contingent consideration			—				(18	)
Net cash used in financing activities			—				(18	)
Net decrease in cash, cash equivalents and restricted cash			(2,629	)			(1,301	)
Cash, cash equivalents and restricted cash at beginning of period			8,595				8,118
Cash, cash equivalents and restricted cash at end of period		$	5,966			$	6,817
Cash and cash equivalents		$	5,966			$	5,483
Restricted cash			—				1,334
Total cash, cash equivalents and restricted cash		$	5,966			$	6,817
Supplemental disclosure of cash flow information:
Cash paid during the year for interest		$	907			$	990
Supplemental schedule of non-cash operating, investing and financing activities:
Operating lease right-of-use assets obtained in exchange for operating lease liabilities		$	—			$	977
Transfer of property and equipment to inventories		$	78			$	166
Accrued payment of contingent consideration		$	47			$	9

Note 1

The Company:

Background

STRATA Skin Sciences, Inc. (the “Company”) is a medical technology company 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, 2025, there were 844 XTRAC systems placed in dermatologists’ offices in the United States and 49 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 (“TheraClear”) combines intense pulsed light with vacuum (suction) for the treatment of mild to moderate inflammatory acne (including acne vulgaris), comedonal acne and pustular acne.

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 and Iraq, and 2023 – Mexico and India. The Company has renewed and/or amended several of these agreements as required to keep their terms current.

Post-COVID-19 Pandemic

Since March 2020, the global pandemic related to a new strain of coronavirus (“COVID-19”) has negatively impacted business conditions in the industry in which 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 physician offices have reopened, some of the Company’s partner physician practices closed permanently. Accordingly, the COVID-19 pandemic and its variants have negatively impacted the Company’s operational and financial performance, including its ability to execute its business strategies and initiatives in the expected time frames and those of its primary customers. It has also negatively impacted the Company’s supply chains and transport, customer behavior and staffing.

Impact of Russia-Ukraine War

Prior to the outbreak of the Russia-Ukraine War, Ukraine was the largest exporter of noble gases including neon, krypton, and xenon and has historically been the source of a significant amount of gas supplied to 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 remain uninterrupted. The reduced supply and ongoing conflict have also impacted the price of gas 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.

Impact of Middle East Conflict

The Company has not seen an impact on its distributors’ businesses in the Middle East due to the Middle East conflict, but cannot predict the impact should the conflict continue or develop into a larger war.

Impact of Tariffs

In 2025, the U.S. introduced trade policy actions that have increased import tariffs across a wide range of countries at various rates, with certain exemptions. To the extent that trade tariffs and other restrictions imposed by the U.S. or other countries increase the price of, or limit the amount of, the Company’s products or components or materials used in its products imported into the U.S., or create adverse tax consequences, the revenues, costs, or gross profit of the Company’s products and services, primarily in the Dermatology Procedures Equipment segment, may be adversely affected and the demand from its customers may be diminished. Uncertainty surrounding international trade policy and regulations as well as disputes and protectionist measures could also have an adverse effect on consumer confidence and spending and may impact the Company’s results of operations.

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, 2024 has been derived from the audited consolidated financial statements at that date. Operating results and cash flows for the six months ended June 30, 2025 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2025 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, 2024 (the “2024 Form 10-K”), and other forms filed with the SEC from time to time.

Reclassifications

Certain prior period amounts, as well as amounts in the six months ended June 30, 2025 and the three and six months ended June 30, 2024, have been reclassified to conform to the current period presentation, including the presentation of foreign revenues within the Company’s business and geographical reporting segment disclosures and the classification of certain international service fees between cost of revenues and selling and marketing expenses. These reclassifications had no impact on the previously reported total foreign revenues or loss from operations by reporting segment in the condensed consolidated financial statements.

Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in the Company’s 2024 Form 10-K, and there have been no changes to the Company’s significant accounting policies during the six months ended June 30, 2025.

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. 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. Actual results could differ from those estimates.

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, 2025 and December 31, 2024, the carrying value of the Company’s long-term debt approximated its fair value due to its variable interest rate.

Restricted Cash

As discussed more fully in Note 13, Commitments and Contingencies, as the result of an adverse decision received by the Company in May 2022, the State of New York required the Company to post an appellate bond for $1.3 million in the form of cash collateral with respect to a sales tax determination by the State of New York Tax Appeals Tribunal (“Tribunal”). During the three months ended June 30, 2025, the State of New York executed on the appellate bond. There is no restricted cash as of June 30, 2025.

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 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 is summarized as follows (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2025				2024				2025				2024
Balance, beginning of period		$	290			$	278			$	315			$	303
Additions			19				76				51				115
Expirations and claims satisfied			(29	)			(61	)			(86	)			(125	)
Total			280				293				280				293
Less current portion within accrued expenses and other current liabilities			(189	)			(182	)			(189	)			(182	)
Balance within deferred revenues and other liabilities		$	91			$	111			$	91			$	111

Employee Retention Credit

The Employee Retention Credit (“ERC”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) is a refundable tax credit which encouraged businesses to keep employees on the payroll during the COVID-19 pandemic. Eligible employers could qualify for up to $7.0 thousand of credit for each employee based on qualified wages paid after December 31, 2020 and before January 1, 2022. Qualified wages are any wages paid to an employee (for employers that averaged fewer than 100 full-time employees in 2019) or the wages paid to an employee for the time that the employee is providing and not providing services (for employers that averaged more than 500 full-time employees in 2019) due to an economic hardship, specifically, either (1) a full or partial suspension of operations by order of a governmental authority due to COVID-19, or (2) a significant decline in gross receipts. The Company recognized $0.9 million of ERC as other income in the condensed consolidated statement of operations for the three and six months ended June 30, 2024. No such activity existed for the three and six months ended June 30, 2025.

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 net 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,
		2025				2024
Stock options			727,726				530,350
Common stock warrants			80,000				80,000
Restricted stock units			2,265				851
			809,991				611,201

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to improve income tax disclosure requirements by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) the disaggregation of income taxes paid by jurisdiction. The guidance makes several other changes to the income tax disclosure requirements. The guidance in this ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the effect this ASU will have on its condensed consolidated financial statements and footnote disclosures.

 

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, as subsequently amended by ASU 2025-01 to clarify the effective date, which is intended to provide more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation and amortization) included in certain expense captions presented on the consolidated statement of operations. The guidance in this ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the consolidated financial statements. The Company is currently evaluating the effect this ASU will have on its condensed consolidated financial statements and footnote disclosures.

 

In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which simplifies the estimation of credit losses on current accounts receivable and contract assets by allowing the election of a practical expedient to assume that the current conditions as of the consolidated balance sheet date will remain unchanged for the remaining life of the asset when developing a reasonable and supportable forecast as part of estimating expected credit losses on these assets. The guidance in this ASU is effective for fiscal years beginning after December 15, 2025 and for interim periods within those fiscal years. Early adoption is permitted. If adopted in an interim period, entities are required to apply the new guidance as of the beginning of the annual reporting period that includes such interim period. The Company does not expect this ASU to have a material impact on its condensed consolidated financial statements.

Note 2

Liquidity:

The Company has historically experienced recurring losses, 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 13, 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 an additional $8.9 million of its common stock in registered “at-the-market” offerings, subject to certain limitations. Management believes that the Company’s cash and cash equivalents, 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 potential future pandemics, the Russia-Ukraine War, the Middle East conflict and changes in U.S. trade policies, 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 laser products 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 laser products at physician locations represents embedded leases which are accounted for as operating leases. For the lasers placed-in service under these arrangements, the terms of the domestic arrangements are generally 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 ratably over a 30 or 60 day period. Sales of access codes for a specified period of time are recognized as revenue on a straight-line basis as the lasers are being used over the term 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 revenue 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.

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, where 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 is 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 international dermatology recurring procedures, the Company’s only long-term arrangements, as of June 30, 2025 (in thousands):

Remaining 2025		$	912
2026			1,698
2027			1,447
2028			913
2029			47
Total		$	5,017

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 and service contracts but exclude any dermatology procedures equipment accounted for as leases. As of June 30, 2025, the aggregate amount of the transaction price allocated to remaining performance obligations was $0.4 million and the Company expects to recognize $0.2 million of the remaining performance obligations within one year and the remainder 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.

Contract liabilities primarily relate to extended warranties and service contracts 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 standalone 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, 2025, the $0.2 million of short-term contract liabilities is presented as deferred revenues and the $0.2 million of long-term contract liabilities is presented within deferred revenues and other liabilities on the condensed consolidated balance sheet. For each of the three months ended June 30, 2025 and 2024, the Company recognized 0.1 million, as revenue from amounts classified as contract liabilities (i.e. deferred revenues) as of December 31, 2024 and 2023. For the six months ended June 30, 2025 and 2024, the Company recognized $0.1 million and $0.2 million, respectively, as revenue from amounts classified as contract liabilities (i.e. deferred revenues) as of December 31, 2024 and 2023.

With respect to contract acquisition costs, the Company applies the practical expedient and expenses these costs immediately.

Note 4

Inventories:

Inventories consist of the following (in thousands):

		June 30, 2025				December 31, 2024
Raw materials and work-in-process		$	3,173			$	2,041
Finished goods			63				205
		$	3,236			$	2,246

Work-in-process inventories are immaterial, given the Company’s typically short manufacturing cycle, and are included with raw materials inventories.

Due to the expiration of extended warranty service contracts that were assumed in August 2021 in connection with the acquisition of Pharos laser system products, the Company wrote off $0.1 million of inventories that will no longer be needed for warranty purposes during the six months ended June 30, 2024, which is included in cost of revenues in the condensed consolidated statement of operations.

Note 5

Property and Equipment, net:

Property and equipment consist of the following (in thousands):

		June 30, 2025				December 31, 2024
Lasers placed-in-service		$	33,990			$	33,489
Equipment, computer hardware and software			300				300
Furniture and fixtures			240				240
Leasehold improvements			199				87
Lasers-in-process			1,268				2,093
			35,997				36,209
Less: accumulated depreciation and amortization			(27,393	)			(26,148	)
		$	8,604			$	10,061

The Company recorded depreciation and amortization expense of $0.7 million and $0.8 million during the three months ended June 30, 2025 and 2024, respectively. The Company recorded depreciation and amortization expense of $1.5 million during each of the six months ended June 30, 2025 and 2024.

Note 6

Intangible Assets, net:

Intangible assets consist of the following (in thousands):

June 30, 2025		Gross Carrying Value				Accumulated Amortization				Net Book Value
Core technology		$	5,700			$	(5,700	)		$	—
Product technology			4,808				(4,043	)			765
Customer relationships			6,900				(6,900	)			—
Tradenames			1,500				(1,500	)			—
Pharos customer lists			5,314				(1,716	)			3,598
		$	24,222			$	(19,859	)		$	4,363

December 31, 2024		Gross Carrying Value				Accumulated Amortization				Net Book Value
Core technology		$	5,700			$	(5,415	)		$	285
Product technology			4,808				(3,984	)			824
Customer relationships			6,900				(6,555	)			345
Tradenames			1,500				(1,425	)			75
Pharos customer lists			5,314				(1,495	)			3,819
		$	24,222			$	(18,874	)		$	5,348

The Company recorded amortization expense of $0.6 million and $0.5 million during the three months ended June 30, 2025 and 2024, respectively. The Company recorded amortization expense of $1.0 million during each of the six months ended June 30, 2025 and 2024.

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, 2025 or 2024.

The following table summarizes the estimated future amortization expense for the above intangible assets for the next five years (in thousands):

Remaining 2025		$	281
2026		$	561
2027		$	561
2028		$	561
2029		$	561

Note 7

Accrued Expenses and Other Current Liabilities:

Accrued expenses and other current liabilities consist of the following (in thousands):

		June 30, 2025				December 31, 2024
Warranty obligations		$	189			$	213
Compensation and related benefits			1,796				1,781
State sales, use and other taxes			5,144				6,371
Professional fees and other			272				228
		$	7,401			$	8,593

Note 8

Long-Term Debt:

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 original terms provided for an $8.0 million senior term loan. Borrowings under the senior term loan originally 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. The credit and security agreement was amended on January 10, 2022 to provide MidCap’s consent to the TheraClear asset acquisition. On September 6, 2022, the Company amended the facility to transition, upon the cessation of LIBOR, to bear interest at one-month Secured Overnight Financing Rate (“SOFR”), or such other applicable period, plus 0.10%, with a floor of 0.50%.

On June 30, 2023, the Company entered into (a) Amendment No. 3 to the credit and security agreement (the “Third Amendment”); (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.

On February 20, 2024, the Company entered into (a) Amendment No. 4 to the credit and security agreement (the “Fourth Amendment”), which amended the credit and security agreement, and (b) a second amended and restated letter agreement (“Amended Fee Letter Agreement”) with MidCap, as agent.

On March 27, 2024, the Company entered into Amendment No. 5 to the credit and security agreement (the “Fifth Amendment”), which further amended the credit and security agreement (as amended to date, the “Senior Term Facility”) to clarify certain provisions related to the maintenance of cash collateral accounts.

The Senior Term Facility provides for a senior secured term loan facility of $20.0 million, of which $8.0 million was drawn by the Company on September 30, 2021 (“Credit Facility #1”), $7.0 million was drawn by the Company on June 30, 2023 (“Credit Facility #2”), and an additional $5.0 million (“Credit Facility #3”) was available to be drawn by the Company if its Dermatology Recurring Procedures Revenue (as defined in the Senior Term Facility) for the preceding 12 calendar months (ending on the last day of the calendar month for which a compliance certificate is delivered) was greater than or equal to $30.0 million (such condition, the “Applicable Funding Condition”). The Company did not meet the Applicable Funding Condition and, accordingly, Credit Facility #3 is no longer available to the Company. 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, 2025 was 12.93%. The Company is obligated to make interest-only 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 in an amount of at least $5.0 million, at any time upon 30 days’ written notice. Upon prepayment, the Company will be required to pay a prepayment fee equal to (i) 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 February 20, 2024, (ii) 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 February 20, 2024, or (iii) 1.00% of the outstanding principal prepaid or required to be prepaid (whichever is greater), if the prepayment is made 36 months or more after February 20, 2024 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 $31.0 million of net revenue (raised to $33.0 million by December 31, 2026 and, for periods ending after December 31, 2026, 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 $33.0 million) for the trailing 12-month period as of June 30, 2025, and (b) a minimum of unrestricted cash (as defined in the Senior Term Facility), at all times, of not less than $3.0 million. At June 30, 2025, 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’s 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, 2025, 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 were remote.

Pursuant to the Amended 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) 4.00% 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; and (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 4.00% 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”).

The Prior Warrant allowed the Warrantholder, an affiliate of the lender, to purchase 37,362 shares of the Company’s common stock at an exercise price equal to $18.20 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 80,000 shares of the Company’s common stock at an exercise price equal to $8.80 per share for a 10-year period ending on June 30, 2033. Pursuant to the A&R Registration Rights Agreement, the Company registered the shares underlying the A&R Warrant effective August 18, 2023. 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 Fourth Amendment was accounted for as a debt modification, as the new loan is not considered substantially different from the existing loan. In connection with the Fourth Amendment, the Company increased the accrued exit fee, which is recorded as both a debt discount and an increase to the principal amount of debt, to $0.6 million. The debt discount, which also includes third party costs incurred in connection with the Third Amendment of $13.0 thousand, is being recognized as interest expense over the term of the Senior Term Facility using the effective-interest method. The unamortized debt discount was $0.3 million as of June 30, 2025. The Company recognized interest expense of $0.5 million for each of the three months ended June 30, 2025 and 2024, of which $39.0 thousand was related to the amortization of the debt discount for each of the three months ended June 30, 2025 and 2024. The Company recognized interest expense of $1.0 million and $1.1 million, respectively, during the six months ended June 30, 2025 and 2024, of which $0.1 million was related to the amortization of the debt discount for each of the six months ended June 30, 2025 and 2024.

Future minimum principal payments at June 30, 2025 are as follows (in thousands):

2026		$	3,750
2027			7,500
2028			3,750
			15,000
Exit fee			600
			15,600
Less: unamortized debt discount			(330	)
Long-term debt, net		$	15,270

Note 9

Stock-Based Compensation:

The Company’s 2016 Omnibus Incentive Stock Plan (“2016 Plan”), as amended, has reserved up to 783,265 shares of common stock for future issuance. As of June 30, 2025, there were 14,826 shares of common stock remaining available for issuance for awards under the 2016 Plan.

The Company measures share‑based awards at their grant‑date fair values and records compensation expense on a straight‑line basis over the requisite service period of the awards. The Company recorded share‑based compensation expense (for all awards and modifications, if any) in the accompanying condensed consolidated statements of operations as follows (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2025				2024				2025				2024
Selling and marketing*		$	12			$	13			$	27			$	(24	)
General and administrative			116				150				230				299
		$	128			$	163			$	257			$	275

*Selling and marketing expense was negative during the six months ended June 30, 2024 due to the forfeiture of awards during the period.

Stock Options

The following table summarizes stock option activity for the six months ended June 30, 2025:

		Number of Shares Under Option Plan				Weighted-Average Exercise Price per Option				Weighted-Average Remaining Contractual Term (in years)
Outstanding at January 1, 2025			521,726			$	8.16
Granted			238,000				2.55
Forfeited and expired			(32,000	)			12.44
Outstanding at June 30, 2025			727,726			$	6.14				8.4
Exercisable at June 30, 2025			227,638			$	11.00				6.7
Vested and expected to vest at June 30, 2025			727,726			$	6.14				8.4

As of June 30, 2025, the total unrecognized compensation expense related to unvested stock option awards was $1.2 million, which the Company expects to recognize over a weighted average period of approximately 2.8 years. The options outstanding and exercisable at June 30, 2025 and 2024 had no intrinsic value.

For the six months ended June 30, 2025, the grant date fair value of all option grants was estimated at the time of grant using the Black-Scholes option-pricing model using the following weighted average assumptions:

Expected volatility			77.58	%
Risk-free rate			4.26	%
Expected term (in years)			6.50
Dividend rate			0.0	%

Restricted Stock Units

Restricted stock units (“RSUs”) have historically been issued to certain board members. As of both June 30, 2025 and January 1, 2025, there were no unvested RSUs. No RSUs were granted, vested or forfeited during the six months ended June 30, 2025.

Note 10

Income Taxes:

The Company accounts for income taxes using the asset and liability method. The provision for income taxes includes federal, state, and local income taxes currently payable and deferred taxes resulting from temporary differences between the financial statement and tax bases of assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

No income tax expense was incurred for the three and six months ended June 30, 2025 and 2024.

On July 4, 2025, the U.S. enacted the One Big Beautiful Bill Act (the “Act”), which contains a broad range of tax reform provisions affecting businesses, including extending or reinstating certain provisions of the 2017 Tax Cuts and Jobs Act, tax relief measures, modifications of certain energy tax credits granted under the Inflation Reduction Act and limits on various tax deductions, among other key provisions. The Company is currently evaluating the full effects of the Act and does not anticipate a material impact on its condensed consolidated financial statements. As the Act was signed into law after the close of the second quarter, the impacts are not included in the Company’s operating results for the six months ended June 30, 2025.

Note 11

Business and Geographical Reporting Segments:

The Company has organized its business into two operating segments to better align its organization based upon the Company’s management structure, products and services offered, markets served and types of customers. The Dermatology Recurring Procedures segment derives its revenues from the usage of its equipment by dermatologists to perform XTRAC and TheraClear procedures. The Dermatology Procedures Equipment segment generates revenues from the sale of equipment, such as lasers and lamp products. The Company’s chief operating decision maker (“CODM”) is the chief executive officer. The CODM reviews financial information presented on an operating segment basis for the purposes of making certain operating decisions and assessing financial performance.

Unallocated operating expenses include costs that are not specific to a particular segment but are general to the group; included are expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses. Interest and other financing income (expense) is also not allocated to the operating segments.

The following tables present results of operations from the Company’s business segments for the periods indicated below (in thousands, except gross profit %):

		Three Months Ended June 30, 2025												Six Months Ended June 30, 2025
		Dermatology Recurring Procedures				Dermatology Procedures Equipment				Total				Dermatology Recurring Procedures				Dermatology Procedures Equipment				Total
Revenues, net		$	5,119			$	2,544			$	7,663			$	9,846			$	4,629			$	14,475
Cost of revenues			1,911				1,446				3,357				3,873				2,519				6,392
Gross profit			3,208				1,098				4,306				5,973				2,110				8,083
Gross profit %			62.7	%			43.2	%			56.2	%			60.7	%			45.6	%			55.8	%
Allocated expenses:
Engineering and product development			57				29				86				123				59				182
Selling and marketing			2,361				1,172				3,533				4,525				2,131				6,656
Unallocated expenses			—				—				2,911				—				—				5,484
Total allocated and unallocated expenses			2,418				1,201				6,530				4,648				2,190				12,322
Income (loss) from operations			790				(103	)			(2,224	)			1,325				(80	)			(4,239	)
Interest expense			—				—				(491	)			—				—				(977	)
Interest income			—				—				226				—				—				295
Net income (loss)		$	790			$	(103	)		$	(2,489	)		$	1,325			$	(80	)		$	(4,921	)

		Three Months Ended June 30, 2024												Six Months Ended June 30, 2024
		Dermatology Recurring Procedures				Dermatology Procedures Equipment				Total				Dermatology Recurring Procedures				Dermatology Procedures Equipment				Total
Revenues, net		$	5,339			$	3,096			$	8,435			$	10,035			$	5,154			$	15,189
Cost of revenues			1,827				1,631				3,458				3,945				3,071				7,016
Gross profit			3,512				1,465				4,977				6,090				2,083				8,173
Gross profit %			65.8	%			47.3	%			59.0	%			60.7	%			40.4	%			53.8	%
Allocated expenses:
Engineering and product development			145				54				199				341				99				440
Selling and marketing			2,602				452				3,054				5,432				756				6,188
Unallocated expenses			—				—				2,210				—				—				4,920
Total allocated and unallocated expenses			2,747				506				5,463				5,773				855				11,548
Income (loss) from operations			765				959				(486	)			317				1,228				(3,375	)
Interest expense			—				—				(531	)			—				—				(1,055	)
Interest income			—				—				54				—				—				99
Other income			—				—				864				—				—				864
Net income (loss)		$	765			$	959			$	(99	)		$	317			$	1,228			$	(3,467	)

The following table presents depreciation and amortization by reportable segment for the periods indicated below (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2025				2024				2025				2024
Dermatology recurring procedures		$	1,109			$	1,080			$	2,229			$	2,194
Dermatology procedures equipment			108				166				208				298
Unallocated expenses			1				4				1				7
Total		$	1,218			$	1,250			$	2,438			$	2,499

The following tables present the Company’s revenue disaggregated by geographical region for the periods indicated below (in thousands). Domestic refers to revenue from customers based in the United States, and foreign revenue is derived from the Company’s distributors primarily in Asia.

		Three Months Ended June 30, 2025												Six Months Ended June 30, 2025
		Dermatology Recurring Procedures				Dermatology Procedures Equipment				Total				Dermatology Recurring Procedures				Dermatology Procedures Equipment				Total
Domestic		$	4,663			$	397			$	5,060			$	8,911			$	546			$	9,457
China			—				1,659				1,659				—				2,493				2,493
Middle East			—				307				307				—				1,018				1,018
Other foreign			456				181				637				935				572				1,507
Total		$	5,119			$	2,544			$	7,663			$	9,846			$	4,629			$	14,475

		Three Months Ended June 30, 2024												Six Months Ended June 30, 2024
		Dermatology Recurring Procedures				Dermatology Procedures Equipment				Total				Dermatology Recurring Procedures				Dermatology Procedures Equipment				Total
Domestic		$	4,923			$	458			$	5,381			$	9,243			$	598			$	9,841
China			—				1,018				1,018				—				2,120				2,120
Middle East			—				284				284				—				714				714
Other foreign			416				1,336				1,752				792				1,722				2,514
Total		$	5,339			$	3,096			$	8,435			$	10,035			$	5,154			$	15,189

The following table presents total assets by reportable segment (in thousands):

		June 30, 2025				December 31, 2024
Dermatology recurring procedures		$	17,803			$	21,750
Dermatology procedures equipment			6,306				5,081
Other unallocated assets			6,613				9,326
Total		$	30,722			$	36,157

Long-lived assets of $1.2 million and $1.3 million were located in international markets, primarily Korea and Japan, as of June 30, 2025 and December 31, 2024, respectively, with the remainder located in domestic markets.

Note 12

Significant Customer Concentrations:

The Company had one customer, an international distributor from which the Company primarily earns dermatology procedures equipment revenues, that accounted for 10% or more of the Company’s net revenues for the three and six months ended June 30, 2025. Revenues from this customer were $1.7 million and $2.5 million, or 21.6% and 17.2% for the three and six months ended June 30, 2025, respectively. Accounts receivable associated with this customer were $0.3 million, or 7.1%, of net accounts receivable as of June 30, 2025. This customer had no accounts receivable at December 31, 2024. Accounts receivable associated with one other customer which accounted for 10% or more of the Company’s net accounts receivable as of June 30, 2025 and December 31, 2024 was $0.5 million, or 11.5%, and $0.5 million, or 8.7%, of net accounts receivable, respectively.

The Company had two customers, international distributors from which the Company primarily earns dermatology procedures equipment revenues, that accounted for 10% or more of the Company’s net revenues for the three and six months ended June 30, 2024. Revenues from these customers were $2.3 million, or 27.0%, and $3.7 million, or 24.6%, for the three and six months ended June 30, 2024, respectively.

Note 13

Commitments and Contingencies:

Leases

The Company recognizes right-of-use assets (“ROU assets”) and operating lease liabilities when it obtains the right to control an asset under a leasing arrangement with an initial term greater than 12 months. The Company adopted the short-term accounting election for leases with a duration of less than one year. The Company leases its facilities and certain IT and office equipment under non-cancellable operating leases. All of the Company’s leasing arrangements are classified as operating leases with remaining lease terms ranging from one to five years.

In March 2024, the Company terminated the existing lease for its California facility and concurrently executed a new lease that effectively extended the term of the lease for five years, which has been accounted for as a lease modification. The ROU asset and operating lease liability were remeasured at the modification date, resulting in an increase to both balances of $1.0 million during the six months ended June 30, 2024. There were no lease modifications during the six months ended June 30, 2025.

Operating lease costs were $0.1 million during each of the three months ended June 30, 2025 and 2024. Operating lease costs were $0.2 million during each of the six months ended June 30, 2025 and 2024. Cash paid for amounts included in the measurement of operating lease liabilities was $0.1 million during each of the three months ended June 30, 2025 and 2024. Cash paid for amounts included in the measurement of operating lease liabilities was $0.2 million during each of the six months ended June 30, 2025 and 2024. As of June 30, 2025, the weighted average incremental borrowing rate was 12.41% and the weighted average remaining lease term was 3.8 years.

The following table summarizes the Company’s operating lease maturities as of June 30, 2025 (in thousands):

Remaining 2025		$	228
2026			334
2027			290
2028			301
2029			232
Total remaining lease payments			1,385
Less: imputed interest			(302	)
Total lease liabilities		$	1,083

Accrued State Sales and Use Tax Matters

The Company records state sales tax collected and remitted for its customers on dermatology procedures equipment sales on a net basis, excluded from revenue. The Company’s sales tax expense that is not presently being collected and remitted for the recurring revenue business is recorded in general and administrative expenses within the condensed consolidated statements of operations.

The Company believes its state sales and use tax accruals have been properly recognized such that, if the Company’s arrangements with customers are deemed more likely than not that the Company would not be exempt from sales tax in a particular state, the basis for measurement of the state sales and use tax is calculated in accordance with ASC 405, Liabilities, as a transaction tax. If and when the Company is successful in defending itself or in settling the sales tax obligation for a lesser amount, the reversal of this liability is to be recorded in the period the settlement is reached. However, the precise scope, timing, and time period at issue, as well as the final outcome of any audit and actual settlement, remains uncertain.

In the ordinary course of business, the Company is, from time to time, subject to audits performed by state taxing authorities. These actions and proceedings are generally based on the position that the arrangements entered into by the Company are subject to sales and use tax rather than exempt from tax under applicable law. The Company has outstanding assessments from the states of New York and California aggregating to $4.9 million including penalties and interest. The audits cover the period from August 2017 through February 2025.

In January 2021, the Company received notification that an administrative state judge in New York issued an opinion finding in favor of the Company that the sale of XTRAC treatment codes was not taxable as sales tax with respect to that state’s first assessment. The relevant taxing authority filed an appeal of the administrative law judge’s finding and, following the submission of legal briefs by both sides and oral argument held in January 2022, on May 6, 2022, the Company received a written decision from the Tribunal overturning the favorable sales tax determination of the administrative law judge. The Company appealed the Tribunal’s decision to the New York State Appellate Division (“Appellate Division”), and posted the required appellate bond in the form of cash collateral in the amount of $1.3 million. Oral argument was held by the Appellate Division on January 18, 2024.

On March 8, 2024, the Company received a decision from the Appellate Division ruling against it in the matter of its sales tax appeal, affirming the Tribunal’s ruling that the Company’s sale of XTRAC treatment codes is subject to sales tax. The Appellate Division concluded that, through the usage arrangements, the Company’s customers had possession of the laser devices and had a license and ability to use the laser devices. The Appellate Division also agreed with the Tribunal that the primary function analysis was not applicable in this matter. On April 11, 2024, the Company filed a motion for leave to appeal the Appellate Division’s decision to the New York State Court of Appeals (“Court of Appeals”). On October 22, 2024, in an unsigned one-line decision, the Court of Appeals denied the Company’s motion to appeal the Appellate Division ruling. Therefore, the adverse decision stands and, during the three months ended June 30, 2025, New York executed on the appellate bond the Company posted for $1.3 million. As of June 30, 2025, the Company has a remaining accrual of $0.6 million including penalties and interest as a result of the Appellate Division ruling. The Company is in the administrative process of appeal with respect to the remaining $1.9 million of assessments in the State of New York. The Company believes that the Appellate Division ruling provides an avenue for challenging the pending audit periods and subsequent periods, provided the Company can show that the value of the equipment provided to customers is incidental to the overall value of the non-taxable services that are provided, or should be treated similarly to pharmaceutical treatments, which are generally exempt from sales tax.

The State of California has made aggregate assessments of $2.4 million including penalties and interest. The audits cover the period from June 2018 through June 2022. The Company is in the administrative process of appeal in this jurisdiction as well.

In those states where the Company did not or may not prevail with the defenses it has proposed, and in the event there is a determination that the true object of the Company’s recurring revenue model is not exempt from sales taxes and is not a prescription medicine, or the Company does not have other defenses where the Company prevails, the Company may be subject to sales taxes in those particular states for previous years and in the future, plus potential interest and penalties. The precise scope, timing and time periods at issue, as well as the final outcomes of the investigations and judicial proceedings, remain uncertain. Accordingly, the Company’s estimate may change from time to time, and actual losses could vary.

Contingent Consideration

In connection with the Company’s acquisition of certain assets related to the TheraClear devices in 2022, Theravant Corporation (“Theravant”) is eligible to receive from the Company up to $3.0 million in future earnout payments upon the achievement of certain annual net revenue milestones ($1.0 million of which was due upon the earlier of achieving a revenue target or July 2025), up to $20.0 million in future royalty payments based upon a percentage of gross profit from future domestic sales ranging from 10-20%, 25% of gross profit from international sales over the subsequent four-year period, and up to $0.5 million in future milestone payments upon the achievement of certain commercialization related targets. The Company has notified Theravant that it believes the earnout payments are not due and will not be due in the future. Theravant has disputed the Company’s position, and the matter is under discussion among the signatories to the purchase agreement. As such, no amount has been paid to Theravant for earnout payments. Through June 30, 2025, the Company has incurred an aggregate of $0.2 million of royalty and gross profit payments based on gross profit from domestic and international sales.

Legal Matters

In the ordinary course of business, the Company is routinely a defendant in or party to pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. These actions and proceedings are generally based on alleged violations of employment, contract, and other laws. In some of these actions and proceedings, claims for substantial monetary damages are asserted against the Company. In the ordinary course of business, the Company is also subject to regulatory and governmental examinations, information gathering requests, inquiries, investigations, and threatened legal actions and proceedings. In connection with formal and informal inquiries by federal, state, local and foreign agencies, the Company receives numerous requests, subpoenas and orders for documents, testimony, and information in connection with various aspects of its activities.

•

forecasts of future business performance, consumer trends and macro-economic conditions;

•

descriptions of market, competitive conditions, and competitive product introductions;

•

descriptions of plans or objectives of management for future operations, products or services;

•

actions by the U.S. Food and Drug Administration (“FDA”) or other regulatory agencies with respect to our products or product candidates;

•

changes to third-party reimbursement of laser treatments using our devices;

•

our estimates regarding the sufficiency of our cash resources, expenses, capital requirements and needs for additional financing and our ability to obtain additional financing;

•

our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;

•

anticipated results of existing or future litigation or government actions;

•

health emergencies, the spread of infectious disease or pandemics; and

•

descriptions or assumptions underlying or related to any of the above items.

•

XTRAC® Excimer Laser. XTRAC received FDA clearance in 2000 and has since become a widely recognized treatment among dermatologists for psoriasis and other skin diseases. The XTRAC System delivers ultra-narrowband ultraviolet B (“UVB”) light to affected areas of skin. Following a series of treatments typically performed twice weekly, psoriasis remission can be achieved, and vitiligo patches can be re-pigmented. XTRAC is endorsed by the National Psoriasis Foundation, and its use for psoriasis is covered by nearly all major insurance companies, including Medicare. We estimate that more than half of all major insurance companies now offer reimbursement for vitiligo as well.

•

In the third quarter of 2018, we announced the FDA granted clearance for our Multi Micro Dose (MMD) tip for our XTRAC excimer laser. The MMD Tip accessory is indicated for use in conjunction with the XTRAC laser system to filter the Narrow Band UVB (“NB-UVB”) light at delivery in order to calculate and individualize the maximum non-blistering dose for a particular patient.

•

In January 2020, we announced the FDA granted clearance of our XTRAC Momentum Excimer Laser Platform. In February 2022, we announced the commercial launch, with the first installation in the U.S. market, of our next generation excimer laser system, XTRAC Momentum® 1.0.

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VTRAC® Lamp. VTRAC received FDA clearance in 2005 and provides targeted therapeutic efficacy demonstrated by excimer technology with the simplicity of design and reliability of a lamp system.

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TheraClear® X Acne Treatment Device. The TheraClear® Acne Therapy System combines intense pulsed light with vacuum (suction) for the treatment of mild to moderate inflammatory acne (including acne vulgaris), comedonal acne and pustular acne.

		Three Months Ended June 30,								Six Months Ended June 30,
		2025				2024				2025				2024
Dermatology recurring procedures		$	5,119			$	5,339			$	9,846			$	10,035
Dermatology procedures equipment			2,544				3,096				4,629				5,154
Total revenues		$	7,663			$	8,435			$	14,475			$	15,189

		Three Months Ended June 30,								Six Months Ended June 30,
		2025				2024				2025				2024
Dermatology recurring procedures		$	1,911			$	1,827			$	3,873			$	3,945
Dermatology procedures equipment			1,446				1,631				2,519				3,071
Total cost of revenues		$	3,357			$	3,458			$	6,392			$	7,016

		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except percentages)		2025				2024				2025				2024
Revenues, net		$	7,663			$	8,435			$	14,475			$	15,189
Cost of revenues			3,357				3,458				6,392				7,016
Gross profit		$	4,306			$	4,977			$	8,083			$	8,173
Gross profit percentage			56.2	%			59.0	%			55.8	%			53.8	%

		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except percentages)		2025				2024				2025				2024
Revenues, net		$	5,119			$	5,339			$	9,846			$	10,035
Cost of revenues			1,911				1,827				3,873				3,945
Gross profit		$	3,208			$	3,512			$	5,973			$	6,090
Gross profit percentage			62.7	%			65.8	%			60.7	%			60.7	%

		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except percentages)		2025				2024				2025				2024
Revenues, net		$	2,544			$	3,096			$	4,629			$	5,154
Cost of revenues			1,446				1,631				2,519				3,071
Gross profit		$	1,098			$	1,465			$	2,110			$	2,083
Gross profit percentage			43.2	%			47.3	%			45.6	%			40.4	%

		Three Months Ended June 30,								Six Months Ended June 30,
		2025				2024				2025				2024
Net loss		$	(2,489	)		$	(99	)		$	(4,921	)		$	(3,467	)
Adjustments:
Depreciation and amortization			1,218				1,250				2,438				2,499
Amortization of operating lease right-of-use assets			87				79				172				174
Loss on disposal of property and equipment			29				6				63				19
Interest expense, net			265				477				682				956
Non-GAAP EBITDA			(890	)			1,713				(1,566	)			181
Employee retention credit			—				(864	)			—				(864	)
Stock-based compensation expense			128				163				257				275
Inventory write-off			—				—				—				141
Non-GAAP adjusted EBITDA		$	(762	)		$	1,012			$	(1,309	)		$	(267	)

ITEM 1.

Legal Proceedings

ITEM 1A.

Risk Factors

ITEM 5.

Other Information

ITEM 6.

EXHIBITS

16.1		Letter from Marcum LLP to the Securities and Exchange Commission dated April 25, 2025 (incorporated by reference to Exhibit 16.1 in our Form 8-K filed on April 25, 2025).
31.1		Rule 13a-14(a) Certificate of Chief Executive Officer
31.2		Rule 13a-14(a) Certificate of Chief Accounting Officer
32.1*		Certifications of Chief Executive Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

		STRATA SKIN SCIENCES, INC.
Date	August 13, 2025	By:	/s/ Dolev Rafaeli
			Name:	Dolev Rafaeli
			Title:	President & Chief Executive Officer (Principal Executive Officer)
Date	August 13, 2025	By:	/s/ John Gillings
			Name:	John Gillings
			Title:	Chief Accounting Officer (Principal Financial Officer)