STRATA Skin Sciences Annual Report 2020

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FY2020 Annual Report · STRATA Skin Sciences

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

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

[ ]
For the transition period from ______________ to _____________
Commission file number: 0-11635

STRATA SKIN SCIENCES, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation or organization)

13-3986004
(I.R.S. Employer
Identification No.)

5 Walnut Grove Drive, Suite 140, Horsham, Pennsylvania 19044
(Address of principal executive offices, including zip code)
(215) 619-3200
(Issuer’s telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:

Title of each class
Common Stock, $0.001 par value per share

Trading
Symbol(s)
SSKN

Name of each exchange on which registered
The NASDAQ Stock Market LLC

Securities registered under Section 12(g) of the Exchange Act:
None
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act.

Yes [ ] No [X]

Indicate by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (ii) has been subject to such filing requirements for the past 90 days.

Yes [_X _] No [__]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such  les).

Yes [_X _] No [__]

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

Large accelerated filer [__]

Accelerated filer [__]

Non-accelerated filer [X]

Smaller reporting company [X]

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 has filed a report on and attestation to its management’s assessment of the
effectiveness of internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by
the registered public accounting firm that prepared or issued its audit report. [__ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes [ ] No [X]

The number of shares outstanding of our common stock as of June 30, 2020, was 33,754,909 shares. The aggregate market value
of the voting and non-voting common equity held by non-affiliates of the registrant was $23,624,112, computed by reference to
the closing market price $1.15 of the common stock as of June 30, 2020, and 20,542,706 shares held by non-affiliates.

As of March 17, 2021, the number of shares outstanding of our common stock was 33,801,045.

Documents Incorporated by Reference
None

Table of Contents

Page

Part I

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4

Part II

Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.

Part III

Item 10.
Item 11.
Item 12.
Item 13.
Item 14.

Part IV

Item 15.
Item 16.

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services

Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures

1
11
31
32
32
32

33
33
34
45
46
46
46
46

47
53
58
60
60

62
67
68

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K, or this Report, are "forward-looking statements." These
forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions
of STRATA Skin Sciences, Inc., a Delaware corporation, (referred to in this Report as “we,” “us,” “our”, “registrant” or “the
Company”) and other statements contained in this Report that are not historical facts. The Private Securities Litigation
Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of the
Company. Forward-looking statements in this Report or hereafter included in other publicly available documents filed with
the Securities and Exchange Commission, or the Commission, reports to our stockholders and other publicly available
statements issued or released by us involve known and unknown risks, uncertainties and other factors which could cause our
actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial
or operating) or achievements expressed or implied by such forward-looking statements. Such future results are based upon
management's best estimates based upon current conditions and the most recent results of operations. When used in this
Report, the words "will, " "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate" or the negative of such
terms and similar expressions identify statements that constitute “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come
within the safe harbor protection provided by those sections. Forward-looking statements involve risks, assumptions and
uncertainties. There are important factors that could cause actual results to differ materially from those expressed or implied
by these forward-looking statements, including our plans, objectives, expectations and intentions and other risks set forth
throughout this Annual Report, including under “Item 1, Business,” “Item 1A, Risk Factors,” and “Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements include, but
are not limited to, statements about:

•
•
•
•
•
•

•
•
•
•
•

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 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;
Our ability to grow an at-home phototherapy business
health emergencies, the spread of infectious disease or pandemics; and
descriptions or assumptions underlying or related to any of the above items.

In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking
statements contained in this Report might not occur. Investors are cautioned not to place undue reliance on the forward-
looking statements, which speak only as of the date of this Report, even if subsequently made available by us on our website or
otherwise. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking
statements, whether as a result of new information, future events or otherwise. You should not regard these statements as a
representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame,
or at all. All subsequent forward-looking statements attributable to us or to any person acting on our behalf are expressly
qualified in their entirety by the cautionary statements contained or referred to in this section.

Item 1.

Business

Our Company

Overview

PART I

We are a medical technology company in Dermatology and Plastic Surgery dedicated to developing, commercializing and
marketing innovative products for the treatment of dermatologic conditions. Our primary products include the XTRAC® excimer
laser and VTRAC® lamp systems utilized in the treatment of psoriasis, vitiligo and various other skin conditions.

Corporate Information

We were incorporated in the State of New York in 1989 under the name Electro-Optical Sciences, Inc. and subsequently
reincorporated under the laws of the State of Delaware in 1997. In April 2010, we changed our name to MELA Sciences, Inc. On
January 5, 2016, we changed our name to STRATA Skin Sciences, Inc.

In June 2015, we completed the acquisition of the XTRAC® Excimer Laser and the VTRAC® excimer lamp businesses
from PhotoMedex, Inc. (the “Acquisition”). Prior to the Acquisition, the Company’s only product was the MelaFind® system, or
MelaFind, a device for aiding dermatologists in the evaluation of clinically atypical pigmented skin lesions. We have
discontinued the MelaFind business.

Impact of COVID-19 Pandemic

In late 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”) which became a global pandemic. The
COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, constrained work force
participation and created significant volatility and disruption of financial markets. In addition, the pandemic has led to the
suspension of elective procedures in the U.S. and to the temporary closure of many physician practices, which are our primary
customers. We do not know the full impact on our customers including their potential for permanent closure. While many offices
have reopened, the on-going impact of the COVID-19 pandemic 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 the duration and spread of the COVID-19 outbreak, continued restrictions on business operations and
transport and the continued impact on worldwide economic and geopolitical conditions, all of which are uncertain and cannot be
predicted.

Domestically, as the procedures in which the Company’s devices are used are elective in nature and as social distancing,
travel restrictions, quarantines and other restrictions became prevalent in the United States, this had a negative impact on the
Company’s recurring revenue model and its financial position and cash flow. The virus has disrupted the supply chain from China
and other countries and the Company depends upon its supply chain to provide a steady source of components to manufacture
and repair our devices.

To mitigate the impact of COVID-19 the Company has taken a variety of measures to ensure the availability and
functioning of its critical infrastructure by implementing business continuity plans, and to promote the safety and security of its
employees while complying with various government mandates, including work-from-home arrangements and social-distancing
initiatives to reduce the transmission of COVID-19, such as providing face masks for employees at facilities significantly
impacted and requiring on-site body temperature monitoring before entering facilities. In addition, the Company created and
executed programs utilizing its direct to consumer advertising and call center to contact patients and partner clinics to restart the
Company’s partners’ businesses. To conserve its cash, in order to mitigate the on-going impact of the COVID-19 pandemic, in
the second quarter the Company furloughed employees, who returned to work after the Company received proceeds from the
Paycheck Protection Program (“PPP Loan)”. The Company also reduced discretionary spending, reduced all inventory purchases
and delayed payments to vendors. Delayed payments to vendors were approximately $678,000 as of December 31, 2020. See
Note 2, included in the consolidated financial statements, Liquidity for discussion on Company liquidity.

XTRAC Systems and VTRAC Systems

The XTRAC excimer laser technology emits highly concentrated UV light targeted primarily towards autoimmune
dermatological skin disorders such as psoriasis, vitiligo, atopic dermatitis, and eczema, among others. It received U.S. Food and
Drug Administration (“FDA”) clearance in 2000 and has since become a widely recognized treatment for psoriasis, vitiligo and
other skin diseases. Psoriasis and vitiligo alone, affect up to 13 million people in the U.S. and 190 million people worldwide.
VTRAC is a UV light lamp system that works in much the same way as the XTRAC. It received FDA clearance in August 2005
and Conformité Européenne (“CE”) mark approval in January 2006 and has been marketed exclusively in international markets.

Present in natural sunlight, ultraviolet B (“UVB”) is an accepted psoriasis treatment that penetrates the skin to slow the
growth of damaged skin cells thereby placing the disease into remission for a period of time. Studies have shown that the
remission time can last 3 to 6 months or longer. In our XTRAC system, our targeted therapy approach delivers optimum amounts
of UVB light directly to skin lesions, sparing healthy tissue. Many peer reviewed studies have proven that the XTRAC excimer
laser can clear psoriasis faster and produce longer remissions than other UVB modalities, resulting in fewer treatments to produce
the desired result.

We currently market four XTRAC excimer models. In October 2018 we announced the launch of XTRAC S3®, which, as
compared to previous XTRAC generations, is smaller, faster and has a new user interface. In January 2020, we announced the
FDA granted clearance for our XTRAC Momentum Excimer Laser System platform. This clearance is the first full platform
clearance since 2008. Momentum has an increased power range to improve patient safety and treatment efficiency; a new and
exclusive proprietary short-hair tip, providing ease of use in difficult-to-treat scalp psoriasis; and an enhanced user interface and
database. We continue to market the XTRAC Velocity, our third-generation laser and the XTRAC Ultra Plus, which is also a
highly effective model marketed primarily in certain international markets. The Momentum, S3, Velocity and the Ultra Plus are
capable of treating mild, moderate and severe psoriasis, vitiligo, atopic dermatitis and leukoderma.

The XTRAC excimer laser is marketed in the U.S. mainly under a recurring revenue model in which we place the system
in the physician’s office for no upfront charge and generate our revenue on a per-use basis. We estimate that there are over 1,000
XTRAC lasers in use in the U.S., of which 832 systems were, as of December 31, 2020, included in our recurring revenue model.
The target U.S. audience for XTRAC lasers comprises approximately 3,500 dermatologists who perform disease management.
Until 2019, in markets outside the U.S. the XTRAC laser had been marketed primarily as a capital sale through a master
international distributor to distributors in over twenty-five countries. The VTRAC is marketed exclusively in international
markets through the same master international distributor.

Since 2019, we have been transitioning our international equipment sales through our master distributor to a direct
distribution model for equipment sales and recurring revenue on a country by country basis. We have signed contracts in Korea
(in 2019), Japan (in 2020), and China (in January 2021).

Studies have concluded that XTRAC treatment leads to significant improvement in psoriasis plaques and severity scores
in as few as 6 to 10 treatments. Treatment protocols recommend that patients receive two treatments per week with a minimum of
48 hours between treatments. Our data shows that treatment with XTRAC excimer lasers has an 89% efficacy rate and produces
only minimal side effects. In support of its clinical effect, the XTRAC excimer lasers have been cited in over 45 clinical studies
and research programs, with findings published in peer-reviewed medical journals around the world. The XTRAC excimer laser
has also been endorsed by the National Psoriasis Foundation, and its use for psoriasis is covered by nearly all major insurance
companies, including Medicare. XTRAC treatment is a reimbursable procedure for psoriasis under three Current Procedural
Terminology ("CPT") codes. There are three applicable CPT codes that differ based on the total skin surface area being treated.
Insurance Reimbursement to physicians varies based upon insurance company and location. The national CPT code
reimbursement established by the Center for Medicaid Services (“CMS”), which forms the basis for most insurance companies’
reimbursement levels, ranges for the three codes between $160 per treatment to $250 per treatment. (See “Third Party
Reimbursement” below.)

Psoriasis, the disease

The World Health Organization describes psoriasis as a chronic, noncommunicable, painful, disfiguring and disabling
disease for which there is no cure, which generates a great negative impact on patients’ quality of life. It manifests itself in many
forms and typically causes raised, red, scaly patches that appear on the skin and may cause itchiness, burning or stinging.
Psoriasis is also associated with other serious health conditions such as diabetes, heart disease and depression.

Psoriasis Treatment Options

There are essentially three main types of psoriasis treatments, as listed below:

Topical therapies:

These can include corticosteroids, vitamin D3 derivatives, coal tar, anthralin and retinoids, among others, that are sold
as a cream, gel, liquid, spray, or ointment. The efficacy of topical agents varies from person to person, although these
products are commonly associated with a loss of potency over time as people develop resistance.

Phototherapy:

This is the area in which we operate. Our XTRAC Excimer Systems are FDA-cleared, reimbursed by insurance, and
exhibit none of the significant side-effects associated with some alternative therapies.

Systemic medications:

There are a number of prescription medications available for psoriasis, which are given either by mouth or as an
injection. The popularity and use of these medications are growing significantly, notwithstanding their cost and their
potentially severe side-effects.

XTRAC excimer lasers are particularly significant and beneficial for mild to moderate psoriasis patients who prefer a
noninvasive treatment approach without the side effects of invasive, systemic agents, or to patients who have developed a
resistance to topical agents. In many cases, patients treated with topical or systemic therapies are also candidates for
phototherapy.

Using the XTRAC Excimer Lasers to Treat Vitiligo and Other Skin Diseases

UV light therapy is considered to be an effective and safe treatment for many skin disorders beyond psoriasis. To this
effect, the XTRAC technology is FDA cleared for the treatment of not only psoriasis but also vitiligo (a skin pigment deficiency),
atopic dermatitis (eczema) and leukoderma, which is a localized loss of skin pigmentation that occurs after an inflammatory skin
condition such as a burn, intralesional steroid injection, or post dermabrasion.

XTRAC technology for vitiligo patients typically requires more therapy sessions than for psoriasis but is dependent on the
severity of the disease. In the treatment of vitiligo, we believe the XTRAC functions to reactivate the skin's melanocytes (the
cells that produce melanin), which causes pigment to return. To date, there is not sufficient data to confirm how long patients can
expect their vitiligo to be in remission after XTRAC therapy. Based on anecdotal reports, we believe that re-pigmentation may
last for several years. Historically, vitiligo treatments had been considered cosmetic procedures by insurance companies, and as
such were not reimbursed. However, over the past several years, there has been a significant increase in insurance coverage for
these procedures and we estimate that currently approximately 76% of insurers consider XTRAC treatments to be medically
necessary for the treatment of vitiligo and therefore provide coverage.

We believe that several factors have limited the growth of the use of XTRAC treatments from those who suffer from
psoriasis and vitiligo. Specifically, we believe that awareness of the positive effects of XTRAC treatments has not been high
enough among both sufferers and providers; and that the treatment regimen requiring sometimes up to 12 or more treatments has
limited XTRAC use to certain patient populations. Addressing the lack of knowledge issue, we have a direct to patient
advertising campaign aimed at motivating psoriasis and vitiligo patients to seek out XTRAC treatments from our physician
partners. Specific advertisements encourage prospective patients to contact our patient advocacy center via telephone or web site,
wherein we provide information on the treatment and insurance coverage, and ultimately we can schedule an appointment for the
prospective patient to be evaluated by a physician within our customer network, convenient to their location, to determine if they
would benefit from XTRAC treatments.

Home by XTRAC

In January 2021, we announced the introduction of Home by XTRAC™ business, leveraging in-house resources
including DTC advertising, in-house call center and its insurance reimbursement team to provide an at-home, insurance-
reimbursed treatment option for patients with certain skin diseases that do not qualify for in-office treatments.

STRATAPEN

In January 2017, we entered into an OEM agreement with Esthetic Education, LLC to private label the STRATAPEN
device. STRATAPEN® MicroSystems is a micropigmentation device that provides advanced technology offering exceptional
results. This contract expired in January 2020, but we continue to sell this product on a purchase order basis.

Competition

Our XTRAC product line competes with pharmaceutical compounds and methodologies used to treat an array of skin
conditions. Such alternative treatments may be in the form of topical products, systemic medications, and phototherapies from
both large pharmaceutical and smaller devices companies. Our major competitors for dermatological solutions include The
Daavlin Company, National Biologic Corporation, RA Medical and pharmaceutical companies producing topical products and
systemic and biologic medications. Currently, our XTRAC system is believed to be a competitive therapy to alternative
treatments on the basis of its recognized clinical effect, minimal side effect profile, cost-effectiveness and reimbursement.

Manufacturing

We manufacture our XTRAC products at our 17,000 sq. ft. facility in Carlsbad, California. Our California facility is
certified as ISO 13485 compliant. ISO 13485 is an International standardization written by the International Organization for
Standardization, which publishes requirements for a comprehensive quality management system for the design and manufacture
of medical devices. Certification to the standard is awarded by accredited third parties. We believe that our present manufacturing
capacity at these facilities is sufficient to meet foreseeable demand for our products.

Research and Development Efforts

Our research and development team, including engineers, consists of approximately four employees. We conduct research
and development activities at our facility located in Carlsbad, California. Currently, our research and development efforts are
focused on the application of our XTRAC system for the treatment of inflammatory skin disorders.

Intellectual Property

Our policy is to protect our intellectual property by obtaining U.S. and foreign patents to protect technology, inventions
and improvements important to the development of our business. As of December 31, 2020, 26 issued U.S. patents are in force,
and many of these patents have foreign counterparts issued and pending. Of those issued, 10 U.S. patents and one German patent
relate to the XTRAC and VTRAC product lines and eighteen U.S. patents. Additionally, the Company maintains 16 patents from
Mela Sciences, Inc. related to the MelaFind product.

We also rely on trade secrets and technical know-how in the manufacture and marketing of our products. We require our

employees, consultants and contractors to execute confidentiality agreements with respect to our proprietary information.

In February 2021, the license for the exclusive rights for patents related to the delivery of treatment to vitiligo with the

Icahan School of Medicine at Mount Sinai expired. We do not believe that this will have a material impact on our business.

We believe that our patented methods and apparatus, together with proprietary trade-secret technology and registered
trademarks, give us a competitive advantage; however, whether a patent is infringed or is valid, or whether or not a patent
application should be granted, are all complex matters of science and law, and therefore, we cannot be certain that, if challenged,
our patented methods and apparatus and/or trade-secret technology would be upheld. If one or more of our patented methods,
patented apparatus or trade-secret technology rights, or our trademark rights, are invalidated, rejected or found unenforceable,
that could reduce or eliminate any competitive advantage we might otherwise have had.

Government Regulation

Regulations Relating to Products and Manufacturing

Our products and research and development activities are regulated by numerous governmental authorities, principally the
FDA and corresponding state and foreign regulatory agencies. Any medical device or cosmetic we manufacture and/or distribute
will be subject to pervasive and continuing regulation by the FDA. The U.S. Food, Drug and Cosmetics Act, or FD&C Act, and
other federal and state laws and regulations govern the pre-clinical and clinical testing, design, manufacture, use, labeling and
promotion of medical devices, including our XTRAC, VTRAC, STRATAPEN and Home by XTRAC devices. Product
development and approval for medical devices within this regulatory framework takes a number of years and involves the
expenditure of substantial resources.

In the U.S., medical devices are classified into three different classes, Class I, II and III, on the basis of controls deemed
necessary to provide a reasonable assurance of the safety and effectiveness of the device. Class I devices are subject to general
controls, such as facility registration, medical device listing, labeling requirements, premarket notification (unless the medical
device has been specifically exempted from this requirement), adherence to the FDA’s Quality System Regulation, and
requirements concerning the submission of device-related adverse event reports to the FDA. Class II devices are subject to
general and special controls, such as performance standards, premarket notification (510(k) clearance), post-market surveillance,
and FDA Quality System Regulations. Generally, Class III devices are those that must receive premarket approval by the FDA to
provide a reasonable assurance of their safety and effectiveness, such as life-sustaining, life-supporting and implantable devices,
or new devices that have been found not to be substantially equivalent to existing legally marketed devices.

With limited exceptions, before a new medical device can be distributed in the U.S., marketing authorization typically
must be obtained from the FDA through a premarket notification under Section 510(k) of the FD&C Act, or through a premarket
approval application under Section 515 of the FD&C Act. The FDA will typically grant a 510(k) clearance if it can be established
that the device is substantially equivalent to a predicate device that is a legally marketed Class I or II device (or to pre-
amendments Class III devices for which the FDA has yet to call for premarket approvals). We have received FDA 510(k)
clearance to market our XTRAC and VTRAC systems for the treatment of psoriasis, vitiligo, atopic dermatitis and leukoderma.
The FDA granted these clearances under Section 510(k) on the basis of substantial equivalence to other technologies that had
received prior clearances.

For any devices that are cleared through the 510(k) process, modifications or enhancements that could significantly affect
the safety or effectiveness of the device, or that constitute a major change in the intended use of the device, will require a new
510(k) submission. In August 2003 the FDA granted 510(k) clearance for a significantly modified version of our XTRAC laser,
which we have marketed as the XTRAC XL Plus Excimer Laser System. In October 2004 the FDA granted clearance for the
XTRAC Ultra (AL 8000) Excimer Laser System and, in March 2008 we received 510(k) clearance for the XTRAC Velocity (AL
10000) Excimer Laser System. These approvals were originally granted to PhotoMedex, Inc. and acquired by us in the June 2015
Acquisition described above. In January 2020, we announced the FDA granted clearance of our XTRAC Momentum Excimer
Laser platform

We are subject to routine inspection by the FDA and, as noted above, must comply with a number of regulatory
requirements applicable to firms that manufacture medical devices and other FDA-regulated products for distribution within the
U.S., including requirements related to device labeling (including prohibitions against promoting products for unapproved or off-
label uses), facility registration, medical device listing, adherence to the FDA’s Quality System Regulation, good manufacturing
processes and requirements for the submission of reports regarding certain device-related adverse events to the FDA.

We are also subject to the radiological health provisions of the FD&C Act and the general and laser-specific radiation
safety regulations administered by the Center for Devices and Radiological Health, or CDRH, of the FDA. These regulations
require laser manufacturers to file initial, new product, supplemental and annual reports, to maintain quality control, product
testing and sales records, to incorporate certain design and operating features (depending on the class of product) in lasers sold to
end users pursuant to a performance standard and to certify and appropriately label each laser sold as belonging to one of four
classes, based on the level of radiation from the laser that is accessible to users. Moreover, we are obligated to repair, replace, or
refund the cost of certain electronic products that are found to fail to comply with applicable federal standards or otherwise are
found to be defective. The CDRH is empowered to seek fines and other remedies for violations of the regulatory requirements.
To date, we have filed the documentation with the CDRH for our laser products requiring such filing and have not experienced
any difficulties or incurred significant costs in complying with such regulations.

We are approved by the European Union to affix the CE mark to our XTRAC laser and VTRAC lamp systems. This
certification is a mandatory conformity mark for products placed on the market in the European Economic Area, which is
evidence that they meet all European Community, or EC, quality assurance standards and compliance with applicable European
medical device directives for the production of medical devices. This will enable us to market our approved products in all of the
member countries that accept the CE mark. We also are required to comply with additional individual national requirements that
are in addition to those required by these nations. Our products have also met the requirements for marketing in various other
countries.

We purchase our Home by XTRAC and STRATAPEN devices from third parties, who are subject to the same regulations.

We rely on these third parties to ensure compliance with the regulations.

Failure to comply with applicable regulatory requirements can result in fines, injunctions, civil penalties, recalls or
seizures of products, total or partial suspensions of production, refusals by the U.S. and foreign governments to permit product
sales and criminal prosecution.

We are, or may become, subject to various other federal, state, local and foreign laws, regulations and policies relating to,
among other things, safe working conditions, good laboratory practices and the use and disposal of hazardous or potentially
hazardous substances used in connection with research and development.

Fraud and Abuse Laws

Because of the significant federal funding involved in Medicare and Medicaid, Congress and the states have enacted, and
actively enforce, a number of laws whose purpose is to eliminate fraud and abuse in federal health care programs. Our business is
subject to compliance with these laws.

Anti-Kickback Laws

In the U.S., there are federal and state anti-kickback laws that generally prohibit the payment or receipt of kickbacks,
bribes or other remuneration in exchange for the referral of patients or other health-related business. The U.S. federal healthcare
programs’ Anti-Kickback Statute makes it unlawful for individuals or entities knowingly and willfully to solicit, offer, receive or
pay any kickback, bribe or other remuneration, directly or indirectly, in exchange for or to induce the purchase, lease or order, or
arranging for or recommending purchasing, leasing, or ordering, any good, facility, service, or item for which payment may be
made in whole or in part under a federal healthcare program such as Medicare or Medicaid. The Anti-Kickback Statute covers
“any remuneration,” which has been broadly interpreted to include anything of value, including for example gifts, certain
discounts, the furnishing of free supplies, equipment or services, credit arrangements, payments of cash and waivers of payments.
Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving
remuneration is to induce referrals of federal healthcare covered business, the arrangement can be found to violate the statute.
Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from
Medicare, Medicaid and other federal healthcare programs. In addition, several courts have permitted kickback cases brought
under the Federal False Claims Act to proceed, as discussed in more detail below.

The reach of the Anti-Kickback Statute was broadened by the Patient Protection and Affordable Care Act of 2010 (the
“ACA”), which, among other things, amends the intent requirement of the federal Anti-Kickback Statute. Pursuant to the
statutory amendment, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in
order to have committed a violation. In addition, the ACA provides that the government may assert that a claim including items
or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of
the civil False Claims Act (discussed below) or the civil monetary penalties statute, which imposes penalties against any person
who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or
should know is for an item or service that was not provided as claimed or is false or fraudulent.

Because the Anti-Kickback Statute is broadly written and encompasses many harmless or efficient arrangements,
Congress authorized the Office of Inspector General of the U.S. Department of Health and Human Services, or OIG, to issue a
series of regulations, known as “safe harbors.” For example, there are regulatory safe harbors for payments to bona fide
employees, properly reported discounts and rebates, and for certain investment interests. Although an arrangement that fits into
one or more of these exceptions or safe harbors is immune from prosecution, arrangements that do not fit squarely within an
exception or safe harbor do not necessarily violate the statute. The failure of a transaction or arrangement to fit precisely within
one or more of the exceptions or safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued.
However, conduct and business arrangements that arguably implicate the Anti-Kickback Statute but do not fully satisfy all the
elements of an exception or safe harbor may be subject to increased scrutiny by government enforcement authorities such as the
OIG.

Many states have laws that implicate anti-kickback restrictions similar to the Anti-Kickback Statute. Some of these state
prohibitions apply, regardless of whether federal health care program business is involved, to arrangements such as for self-pay or
private-pay patients.

Government officials have focused their enforcement efforts on marketing of healthcare services and products, among
other activities, and recently have brought cases against companies, and certain sales, marketing and executive personnel, for
allegedly offering unlawful inducements to potential or existing customers in an attempt to procure their business.

Federal Civil False Claims Act and State False Claims Laws

The federal civil False Claims Act imposes liability on any person or entity who, among other things, knowingly and
willfully presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program, including
Medicare and Medicaid. The “qui tam,” or “whistleblower” provisions of the False Claims Act allow a private individual to bring
actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government, and
to share in any monetary recovery. In recent years, the number of suits brought against healthcare providers by private individuals
has increased dramatically. Medical device companies, like us, can be held liable under false claims laws, even if they do not
submit claims to the government, when they are deemed to have caused submission of false claims by, among other things,
providing incorrect coding or billing advice about their products to customers that file claims, or by engaging in kickback
arrangements with customers that file claims.

The False Claims Act also has been used to assert liability on the basis of misrepresentations with respect to the services
rendered and in connection with alleged off-label promotion of products. Our future activities relating to the manner in which we
sell our products and document our prices, such as the reporting of discount and rebate information and other information
affecting federal, state and third-party reimbursement of our products, and the sale and marketing of our products, may be subject
to scrutiny under these laws.

When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual
damages sustained by the government, plus civil penalties of $5,500 to $11,000 for each separate false claim. There are many
potential basis for liability under the False Claims Act. A number of states have enacted false claim laws analogous to the federal
civil False Claims Act and many of these state laws apply where a claim is submitted to any state or private third-party payer. In
this environment, our engagement of physician consultants in product development and product training and education could
subject us to similar scrutiny. We are unable to predict whether we would be subject to actions under the False Claims Act or a
similar state law, or the impact of such actions. However, the costs of defending such claims, as well as any sanctions imposed,
could significantly affect our financial performance.

HIPAA Fraud and Other Regulations

The Health Insurance Portability and Accountability Act of 1996, or HIPAA, created a class of federal crimes known as
the “federal health care offenses,” including healthcare fraud and false statements relating to healthcare matters. The HIPAA
health care fraud statute prohibits, among other things, knowingly and willfully executing, or attempting to execute, a scheme or
artifice to defraud any healthcare benefit program, or to obtain by means of false or fraudulent pretenses, any money under the
control of any health care benefit program, including private payers. A violation of this statute is a felony and may result in fines,
imprisonment and/or exclusion from government-sponsored programs. The HIPAA false statements statute prohibits, among
other things, knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false,
fictitious or fraudulent statement or representation in connection with the delivery of or payment for healthcare benefits, items or
services. A violation of this statute is a felony and may result in fines and/or imprisonment. Entities that are found to have aided
or abetted in a violation of the HIPAA federal health care offenses are deemed by statute to have committed the offense and are
punishable as a principal.

We are also subject to the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws applicable in non-U.S.
jurisdictions that generally prohibit companies and their intermediaries from making improper payments to non-U.S. government
officials for the purpose of obtaining or retaining business. Because of the predominance of government-sponsored healthcare
systems around the world, most of our customer relationships outside of the U.S. will be with governmental entities and therefore
subject to such anti-bribery laws.

Effective January 1, 2020, The California Consumer Privacy Act (CCPA) became effective. The CCPA provides certain
privacy protections for California residents not generally available to citizens of any other state. The law provides California
residents with the right to know that their personal data is being collected; know whether that data is being sold or disclosed; to
prevent the sale of their personal information; to access their personal data; to request that a business delete their personal
information; and to not be discriminated against for exercising these rights.

HIPAA and Other Privacy Regulations

The regulations that implement HIPAA also establish uniform standards governing the conduct of certain electronic
healthcare transactions and protecting the security and privacy of individually identifiable health information maintained or
transmitted by healthcare providers, health plans and healthcare clearinghouses, which are referred to as “covered entities.”
Several regulations have been promulgated under HIPAA’s regulations including: the Standards for Privacy of Individually
Identifiable Health Information, or the Privacy Rule, which restricts the use and disclosure of certain individually identifiable
health information; the Standards for Electronic Transactions, or the Transactions Rule, which establishes standards for common
healthcare transactions, such as claims information, plan eligibility, payment information and the use of electronic signatures; and
the Security Standards for the Protection of Electronic Protected Health Information, or the Security Rule, which requires
covered entities to implement and maintain certain security measures to safeguard certain electronic health information. Although
we do not believe we are a covered entity and therefore are not currently directly subject to these standards, we expect that our
customers generally will be covered entities and may ask us to contractually comply with certain aspects of these standards by
entering into requisite business associate agreements. While the government intended this legislation to reduce administrative
expenses and burdens for the healthcare industry, our compliance with certain provisions of these standards entails significant
costs for us.

The Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, which was enacted in
February 2009 strengthens and expands the HIPAA Privacy and Security Rules and the restrictions on use and disclosure of
patient identifiable health information. HITECH also fundamentally changed a business associate’s obligations by imposing a
number of Privacy Rule requirements and a majority of Security Rule provisions directly on business associates that were
previously only directly applicable to covered entities. HITECH includes, but is not limited to, prohibitions on exchanging patient
identifiable health information for remuneration, restrictions on marketing to individuals, and obligations to agree to provide
individuals an accounting of virtually all disclosures of their health information. Moreover, HITECH requires covered entities to
report any unauthorized use or disclosure of patient identifiable health information, known as a breach, to the affected
individuals, the United States Department of Health and Human Services, or HHS, and, depending on the size of any such
breach, the media for the affected market. Business associates are similarly required to notify covered entities of a breach. Most
of the HITECH provisions became effective in February 2010. HHS had already issued regulations governing breach notification
which were effective in September 2009.

HITECH has increased civil penalty amounts for violations of HIPAA by either covered entities or business associates up
to an annual maximum of $1.5 million for uncorrected violations based on willful neglect. Imposition of these penalties is more
likely now because HITECH significantly strengthens enforcement. It requires HHS to conduct periodic audits to confirm
compliance and to investigate any violation that involves willful neglect which carries mandatory penalties. Additionally, state
attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations of HIPAA
Privacy and Security Rules that threaten the privacy of state residents.

In addition to federal regulations issued under HIPAA, some states have enacted privacy and security statutes or
regulations that, in some cases, are more stringent than those issued under HIPAA. In those cases, it may be necessary to modify
our planned operations and procedures to comply with the more stringent state laws. If we fail to comply with applicable state
laws and regulations, we could be subject to additional sanctions.

Federal and state consumer protection laws are being applied increasingly by the United States Federal Trade
Commission, or FTC, and state attorneys general to regulate the collection, use, storage and disclosure of personal or patient
information, through websites or otherwise, and to regulate the presentation of web site content. Courts may also adopt the
standards for fair information practices promulgated by the FTC, which concern consumer notice, choice, security and access.
Numerous other countries have or are developing laws governing the collection, use, disclosure and transmission of personal or
patient information.

HIPAA as well as other federal and state laws apply to our receipt of patient identifiable health information in connection
with research and clinical trials. We collaborate with other individuals and entities in conducting research and all involved parties
must comply with applicable laws. Therefore, the compliance of the physicians, hospitals or other providers or entities with
whom we collaborate also impacts our business.

Third-Party Reimbursement

Our ability to market our phototherapy products successfully depends in large part on the extent to which various third
parties are willing to reimburse patients or providers for the cost of medical procedures utilizing our treatment products. These
third parties include government authorities, private health insurers and other organizations, such as health maintenance
organizations. Third-party payers are systematically challenging the prices charged for medical products and services. They may
deny reimbursement if they determine that a prescribed device is not used in accordance with cost-effective treatment methods as
determined by the payer, or is experimental, unnecessary or inappropriate. Accordingly, if less costly drugs or other treatments
are available, third-party payers may not authorize, or may limit, reimbursement for the use of our products, even if our products
are safer or more effective than the alternatives. Additionally, they may require changes to our pricing structure and revenue
model before authorizing reimbursement.

Reimbursement systems in international markets vary significantly by country and by region within some countries, and
reimbursement approvals must be obtained on a country-by-country basis. Many international markets have government-
managed healthcare systems that control reimbursement for new devices and procedures. In most markets, there are private
insurance systems, as well as government-managed systems. Our XTRAC products remain substantially without approval for
reimbursement in many international markets under either government or private reimbursement systems.

Many private plans key their reimbursement rates to rates set by the CMS under three distinct CPT codes based on the

total skin surface area being treated.

As of December 31, 2020, the national rates were as follows:

•
•
•

96920 - designated for: the total area less than 250 square centimeters. CMS assigned a 2020 national payment of $166.37 per treatment;
96921 - designated for: the total area 250 to 500 square centimeters. CMS assigned a 2020 national payment of $182.25 per treatment; and
96922 - designated for: the total area over 500 square centimeters. CMS assigned a 2020 national payment of $248.66 per treatment.

The national rates are adjusted by overhead factors applicable to each state.

Employees

As of December 31, 2020, we had 109 full-time employees, which consisted of two executive officers, two vice
presidents, 56 sales and marketing staff, 20 people engaged in manufacturing of lasers, 14 customer-field service personnel, 4
engaged in research and development and 11 finance and administration staff.

Customers

Domestically, our customers consist of dermatologists and dermatological group clinics who partner with us in our

recurring revenue model. As of December 31, 2020, we have 832 partner clinics throughout the United States.

Internationally, we have been transitioning our international equipment sales through our master distributor to a direct
distribution model for equipment sales and recurring revenue on a country by country basis. We have signed contracts in Korea
(in 2019), Japan (in 2020) and China (in January 2021). The change from equipment sales to a recurring revenue business model,
internationally, will decrease sales in the short term, but will increase overall sales in the long term.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the Commission. These filings

are available to the public on the Internet at the Commission's website at http://www.sec.gov.

Our Internet address is http://www.strataskinsciences.com (this website address is not intended to function as a hyperlink
and the information contained on our website is not intended to be a part of this Report). We make available free of charge on
https://strataskinsciencesinc.gcs-web.com/sec-filings our annual, quarterly and current reports, and amendments to those reports,
as soon as reasonably practical after we electronically file such material with, or furnish it to, the Commission. We may from
time to time provide important disclosures to investors by posting them in the Investor Relations section of our website, as
allowed by the Commission's rules. The information on the website listed above is not and should not be considered part of this
Report and is intended to be an inactive textual reference only.

Item 1A.

Risk Factors

In addition to the other information contained in this Report and the exhibits hereto, the following risk factors should be
considered carefully in evaluating our business. Our business, financial condition, cash flows or results of operations could be
materially adversely affected by any of these risks. Additional risks not presently known to us or that we currently deem
immaterial may also adversely affect our business, financial condition, cash flows or results of operations. The following
discussion of risk factors contains forward-looking statements as discussed on page 1. Our business routinely encounters and
addresses risks, some of which may cause our future results to be different – sometimes materially different – than we presently
anticipate.

Risk Factor Summary
Risks Relating to Our Business Operations

• We have incurred losses for a number of years and anticipate that we will incur continued losses for the foreseeable future.
•

The current outbreak of the novel coronavirus, or COVID-19, or the future outbreak of any other highly infectious or contagious diseases,
could materially and adversely affect our results of operations, financial condition and cash flows.
There is a high degree of uncertainty regarding the implementation and impact of the PPP. There can be no assurance as to whether we will
receive full forgiveness of the loan.

•

• We may acquire other assets or businesses, or form collaborations or make investments in other companies or technologies that could harm

our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.

• We may not be able to successfully integrate newly acquired businesses, joint ventures and other partnerships into our operations or achieve

•

expected profitability from our acquisitions.
Our laser treatments of psoriasis, vitiligo, atopic dermatitis and leukoderma and/or any of our future products or services may fail to gain
market acceptance or be impacted by competitive products, services or therapies which could adversely affect our competitive position.

• We have introduced a new business, branded “Home by XTRAC,” with which we have little experience and may not be successful in

•

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•
•

•

launching or may need more resources than anticipated.
The success of our products depends on third-party reimbursement of patients' costs, which could result in potentially reduced prices or
reduced demand and adversely affect our revenues and business operations.
The continuing development of our products depends upon our developing and maintaining strong working relationships with physicians.
Any failure in our customer education efforts could have a material adverse effect on our revenue and cash flow.
If revenue from a significant customer declines, we may have difficulty replacing the lost revenue, which would negatively affect our results
and operations.
If we fail to execute our recurring revenue strategy outside the United States, we may have difficulty replacing the lost revenue from
equipment sales, which would negatively affect our results and operations.
If we fail to manage our sales and marketing force or to market and distribute our products effectively, we may experience diminished
revenues and profits.

• We are reliant on a limited number of suppliers for production of our products.
•

Our failure to respond to rapid changes in technology and other applications in the medical devices industry or the development of a cure for
skin conditions treated by our products could make our treatment system obsolete.
Our customers, or physicians and technicians, as the case may be, may misuse certain of our products, and product liability lawsuits and other
damages imposed on us may exceed our insurance coverage, or we may be subject to claims that are not covered by insurance.

•

• We must comply with complex statutes prohibiting fraud and abuse, and both we and physicians utilizing our products could be subject to

significant penalties for noncompliance.

• We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and regulations and could face substantial

•

penalties if we are unable to fully comply with such laws.
If the effectiveness and safety of our devices are not supported by long-term data, and the level of acceptance of our products by dermatologists
does not increase or is not maintained, our revenues could decline.
Our failure to obtain or maintain necessary FDA clearances and approvals, or to maintain continued clearances, or equivalents thereof in the
U.S. and relevant foreign markets, could hurt our ability to distribute and market our products.
If required, clinical trials necessary to support a 510(k) notice or PMA application, for new or modified products, will be expensive and will
require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit.
Our medical device operations are subject to FDA regulatory requirements

•
• Healthcare policy changes may have a material adverse effect on us.
• Our market acceptance in international markets requires regulatory approvals from foreign governments and may depend on third party

reimbursement of participants' cost

• We face substantial competition, which may result in others discovering, developing or commercializing products more successfully than us.
•
• We actively employ social media as part of our marketing strategy, which could give rise to regulatory violations, liability, breaches of data

Consolidation in the medical device industry could have an adverse effect on our revenue and results of operations.

security or reputational damage.

•

• We may become subject to claims of infringement or misappropriation of the intellectual property rights of others, which could prohibit us
from shipping affected products, require us to obtain licenses from third parties or to develop non-infringing alternatives, and subject us to
substantial monetary damages and injunctive relief. Our patents may also be subject to challenge on validity grounds, and our patent
applications may be rejected.
If we or our third-party manufacturers or suppliers fail to comply with the FDA’s Quality System Regulation or any applicable state
equivalent, our manufacturing operations could be interrupted and our potential product sales and operating results could suffer.
If we fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with products, these products could be
subject to restrictions or withdrawal from the market.
Our medical products may in the future be subject to product recalls that could harm our reputation, business and financial results.
If any of our medical products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical
device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.

•
•

•

• We may have a need for additional funds in the future and there is no guarantee that we will be able to generate those funds from our

•
•

business.
If we do not have enough capital to fund operations, then we will have to cut costs or raise funds.
If our actual liability for state sales and use taxes is higher than our accrued liability, it could have a material impact on our financial
condition.

• We may be subject to disruptions or failures in our information technology systems and network infrastructures, including through cyber-

attacks or other third-party breaches that could have a material adverse effect on our business.
Environmental and health safety laws may result in liabilities, expenses and restrictions on our operations.

•

Risks Relating to Our Common Stock

•

•
•

In the event of certain contingencies, the investors in the May 2018 Equity Financing may receive additional shares issued pursuant to the
Retained Risk Provisions as defined in the purchase agreements.
Our stock price may be volatile, meaning purchasers of our common stock could incur substantial losses.
Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable and could also limit the market price of
our stock.

Risks Relating to Our Business Operations

We have incurred losses for a number of years and anticipate that we will incur continued losses for the foreseeable future.

Since 2015, we have devoted substantially all of our resources in the commercialization and sales of the XTRAC
products. Our net loss for the year ended December 31, 2020, was approximately $4.4 million, and as of December 31, 2020, we
had an accumulated deficit of approximately $219.0 million. Our losses, among other things, have had and may continue to have
an adverse effect on the adequacy of our capitalization and cash flow. We believe that our cash and cash equivalents as of
December 31, 2020, combined with the anticipated revenues from the sale of our products, will be sufficient to satisfy our
working capital needs, lasers placed-in-service, capital asset purchases, outstanding commitments and other liquidity
requirements associated with our existing operations through the next 12 months following the filing of this Report.

The current outbreak of the novel coronavirus, or COVID-19, or the future outbreak of any other highly infectious or
contagious diseases, could materially and adversely affect our results of operations, financial condition and cash flows.
Further, the spread of the COVID-19 outbreak has caused severe disruptions in the U.S. and global economy and financial
markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration.

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19
has since spread to over 100 countries, including every state in the United States. On March 11, 2020 the World Health
Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with
respect to COVID-19. In the last twelve months, the United States and the world have experienced various levels of government
shutdowns, closures and quarantines.

The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative
pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the
United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. This
outbreak has triggered a period of global economic slowdown or a global recession which could continue for some time which
cannot be predicted. COVID-19 or another pandemic has or could have material and adverse effects on our ability to successfully
operate our business due to, among other factors:

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•

•

•
•

a general decline in business activity;
the destabilization of the markets and negative impacts on the healthcare system globally could negatively impact our ability to market and sell our
products, including through the disruption of health care activities in general and elective health care procedures in particular, the inability of our
sales team to contact and/or visit doctors in person, patients’ interest in starting or continuing procedures involving our products and our ability to
support patients that presently use our products;
difficulty accessing the capital and credit markets on favorable terms, or at all, and a severe disruption and instability in the global financial
markets, or deteriorations in credit and financing conditions which could affect our access to capital necessary to fund business operations;
the potential negative impact on the health of our employees, especially if a significant number of them are impacted;
the impact of the pandemic on the Company’s customers, which may result in an increase in past due accounts receivable, write-offs and customer
bankruptcies;

•

a shut-down of suppliers within the Company’s supply chain has severely disrupted our ability to sell, place and repair our products, which has
had a material impact on the Company’s financial position and cash flow, and the continuation will likely have a material impact on the
Company’s financial position and cash flow in future periods; and
a deterioration in our ability to ensure business continuity during a disruption.

There is a high degree of uncertainty regarding the implementation and impact of the PPP. There can be no assurance as to
whether we will receive full forgiveness of the loan.

In April 2020, we closed on a loan of $2.0 million under the PPP of the CARES Act, or the PPP loan, all or a portion of
which may be forgiven dependent on our use of proceeds. The PPP loan matures on May 1, 2022 and bears interest at a rate of
1.0% per annum. We are required to pay the lender equal monthly payments of principal and interest as required to fully amortize
by May 1, 2022 on any principal amount outstanding on the PPP loan that has not been forgiven in accordance with the terms and
conditions of the PPP loan. All or a portion of the PPP loan may be forgiven by the SBA upon application by us beginning 60
days, but not later than 120 days, after loan approval and upon documentation of expenditures in accordance with the SBA's
requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent
payments, covered mortgage interest and covered utilities during the eight-week period beginning on the date of loan approval.
Not more than 25% of the forgiven amount may be for non-payroll costs. The amount of the PPP loan eligible to be forgiven will
be reduced if our full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually
are reduced by more than 25%. We will be required to repay any portion of the outstanding principal that is not forgiven, along
with accrued interest, in accordance with the amortization schedule described above, and we cannot provide any assurance that
we will be eligible for loan forgiveness, that we will ultimately apply for forgiveness, or that any amount of the PPP loan will
ultimately be forgiven by the SBA. Furthermore, on April 28, 2020, the Secretary of the U.S. Department of the Treasury stated
that the SBA will perform a full review of any PPP loan over $2.0 million before forgiving the loan.

The PPP loan application required us to certify, among other things, that the current economic uncertainty made the PPP
loan request necessary to support our ongoing operations. While we made this certification in good faith after analyzing, among
other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria
for the PPP loan and that our receipt of the PPP loan is consistent with the broad objectives of the PPP and the CARES Act, the
certification described above does not contain any objective criteria as of this date and is subject to interpretation. In addition, the
SBA has stated that it is unlikely that a public company with substantial market value and access to capital markets will be able
to make the required certification in good faith. The SBA intends to provide further clarification by May 14, 2020. The lack of
clarity as of the date of this Report regarding loan eligibility under the PPP has resulted in significant media coverage and
controversy with respect to public companies applying for and receiving loans. If, despite our good faith belief that we satisfied
all eligibility requirements for the PPP loan, we are found to have been ineligible to receive the PPP loan or in violation of any of
the laws or governmental regulations that apply to us in connection with the PPP loan, including the False Claims Act, we may be
subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP loan.
We have submitted our application for forgiveness of all of the PPP loan, in which we made certain certifications which will be
subject to audit and review by governmental entities and could subject us to significant penalties and liabilities if found to be
inaccurate, including under the False Claims Act. In addition, our receipt of the PPP loan may result in adverse publicity and
damage to our reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act
could consume significant financial and management resources. Any of these events could harm our business, results of
operations and financial condition.

We may acquire other assets or businesses, or form collaborations or make investments in other companies or technologies
that could harm our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant
expense.

As part of our business strategy, we may pursue acquisitions of assets, including preclinical, clinical or commercial stage
products or product candidates, or businesses, or strategic alliances and collaborations, to expand our existing technologies and
operations. We may not identify or complete these transactions in a timely manner, on a cost-effective basis, or at all, and we may
not realize the anticipated benefits of any such transaction, any of which could have a detrimental effect on our financial
condition, results of operations and cash flows. We have limited experience with acquiring other companies, products or product
candidates, and limited experience with forming strategic alliances and collaborations. We may not be able to find suitable
acquisition candidates, and if we make any acquisitions, we may not be able to integrate these acquisitions successfully into our
existing business and we may incur additional debt or assume unknown or contingent liabilities in connection therewith.
Integration of an acquired company or assets may also disrupt ongoing operations, require the hiring of additional personnel and
the implementation of additional internal systems and infrastructure, especially the acquisition of commercial assets, and require
management resources that would otherwise focus on developing our existing business. We may not be able to find suitable
strategic alliances or collaboration partners or identify other investment opportunities, and we may experience losses related to
any such investments.

To finance any acquisitions or collaborations, we may choose to issue debt or equity securities as consideration. Any such
issuance of shares would dilute the ownership of our stockholders. If the price of our common stock is low or volatile, we may
not be able to acquire other assets or companies or fund a transaction using our stock as consideration. Alternatively, it may be
necessary for us to raise additional funds for acquisitions through public or private financings. Additional funds may not be
available on terms that are favorable to us, or at all.

We may not be able to successfully integrate newly acquired businesses, joint ventures and other partnerships into our
operations or achieve expected profitability from our acquisitions.

If we cannot successfully integrate acquisitions, joint ventures and other partnerships on a timely basis, we may be unable
to generate sufficient revenue to offset acquisition costs, we may incur costs in excess of what we anticipate, and our expectations
of future results of operations, including certain cost savings and synergies, may not be achieved. Acquisitions involve substantial
risks, including:

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•
•
•
•

unforeseen difficulties in integrating operations, technologies, services, accounting and personnel;
diversion of financial and management resources from existing operations;
unforeseen difficulties related to entering geographic regions where we do not have prior experience;
risks relating to obtaining sufficient equity or debt financing; and
potential loss of customers.

In addition, if we finance acquisitions by issuing equity securities or securities convertible into equity securities, our
existing stockholders’ interests would be diluted, which, in turn, could adversely impact the market price of our stock. Moreover,
we could finance an acquisition with debt, resulting in higher leverage and interest costs and could increase losses and losses per
share which could impact the price of our stock.

Our laser treatments of psoriasis, vitiligo, atopic dermatitis and leukoderma and/or any of our future products or services may
fail to gain market acceptance or be impacted by competitive products, services or therapies which could adversely affect our
competitive position.

We have generated limited worldwide commercial distribution for our products. In the United States, our XTRAC
systems are placed at physician offices at no upfront charge to the physician and we are generally paid on a per-usage method
where we retain ownership of the system. We cannot assure you that our products and services will find sufficient acceptance in
the marketplace under our sales strategies.

We also face a risk that other companies in the market for dermatological products and services may be able to provide
dermatologists a higher overall financial return and therefore compromise our ability to increase our installed base of users and
ensure they engage in optimal usage of our products. If, for example, such other companies have products or medical devices that
require less time commitment from the dermatologist and yield an attractive return on a dermatologist’s time and investment, we
may find that our efforts to increase our base of users are hindered.

We also face a risk that the overall cost of systemic or biologic medications or treatment modalities become less
expensive through the development of generics or other means. We may be faced with pressure to reduce our costs to be
competitive which may negatively impact our business. In addition, our business could be negatively impacted if these
medications are prescribed for less severe cases of the diseases or if new, more effective or less expensive medications are
developed.

CPT codes for all procedures are subject to continued reevaluation. Should CMS reduce reimbursement for the CPT codes
for XTRAC treatment or raise reimbursement for competitive products we may see a decline in our recurring revenue business as
well as a decline in new XTRAC installations.

Whether a treatment may be delegated to non-physician staff members and, if so, to whom and to what extent, are matters
that may vary state by state, as these matters are within the province of the state medical boards. In states that may be more
restrictive in such delegation, a physician may decline to adopt the XTRAC system into his or her practice, deeming it to be
fraught with too many constraints and finding other outlets for the physician’s time and staff’s time to be more remunerative.
There can be no assurance that we will be successful in persuading such medical boards that a liberal standard for delegation is
appropriate for the XTRAC system, based on its design for ease and safety of use. If we are not successful, we may find that even
if a geographic region has wide insurance reimbursement, the region’s physicians may decline to adopt the XTRAC system into
their practices.

We therefore cannot assure you that the marketplace will be receptive to our excimer laser technology over competing
products, services and therapies or that a cure will not be found for the underlying diseases we are focused on treating. Failure of
our products to achieve market acceptance could have a material adverse effect on our business, financial condition and results of
operations.

We have introduced a new business, branded “Home by XTRAC,” with which we have little experience and may not be
successful in launching or may need more resources than anticipated.

We have introduced a new business which provides an at-home, insurance reimbursed treatment option for patients with
skin diseases that might not be able to avail themselves of in-office treatments. We do not have experience with at-home therapies
and we may not be successful at launching this business. The business relies on providers to prescribe our products to their
patients, which we do not control. As a company selling durable medical equipment, we do not have contracts with insurance
companies, therefore we sell our products through a third party. And, as previously discussed, insurance companies’ and
Medicare reimbursements, as well as patients’ deductibles can impact and delay payment for our products, which could make the
business unprofitable. While we believe we will be able to leverage internal resources, we may find that additional resources are
necessary and those resources may negatively impact our cash flows and financial position.

In addition, while this introduction is specifically for those patients that might not be able to avail themselves of in-office
treatments, it may be viewed by our partner clinics as a channel conflict and cause a deterioration in our relationships with our
current partners or negatively impact our ability to grow the number of partner clinics.

The success of our products depends on third-party reimbursement of patients' costs, which could result in potentially reduced
prices or reduced demand and adversely affect our revenues and business operations.

Our ability to market our products successfully, especially XTRAC treatments, depends in large part on the extent to
which various third parties are willing to reimburse patients or providers for the costs of medical procedures utilizing such
products. These third parties include government authorities, private health insurers and other organizations, such as health
maintenance organizations, whose patterns of reimbursement may change as a result of new standards for reimbursement
determined by these third parties or because of the programs and policies enacted under the ACA.

Third-party payers are systematically challenging the prices charged for medical products and services. They may deny
reimbursement if they determine that a prescribed device is not used in accordance with cost-effective treatment methods as
determined by the payer, or is experimental, unnecessary or inappropriate. Further, although third parties may approve
reimbursement, such approvals may be under terms and conditions that discourage use of

the XTRAC system. Accordingly, if less costly drugs or other treatments are available, third-party payers may not authorize or
may limit reimbursement for the use of our products, even if our products are safer or more effective than the alternatives.

In addition, medical insurance policies and treatment coverage have been and may be affected by the parameters of the
ACA or successor policies enacted by the current or any new administration. While the ACA's stated purpose is to expand access
to coverage, it also mandates certain requirements regarding the types and limitations of insurance coverage. There can be no
guarantee that the changes in coverage under the ACA will not affect the type and level of reimbursement for our products.

Although we have received reimbursement approvals from a majority of private healthcare plans for the XTRAC system,
we cannot give assurance that these private plans will continue to adopt or maintain favorable reimbursement policies or accept
the XTRAC system in its clinical role as a second-line therapy in the treatment of psoriasis. Additionally, third-party payers may
require further clinical studies or changes to our pricing structure and revenue model before authorizing or continuing
reimbursement.

As of March 10, 2020, we estimate, based on published coverage policies and on payment practices of private and
Medicare insurance plans, that more than 86% of the insured population in the U.S. is covered by insurance coverage or payment
policies that reimburse physicians for using the XTRAC system for treatment of psoriasis. We can give no assurance that health
insurers will not adversely modify their reimbursement policies for the use of the XTRAC system in the future.

The continuing development of our products depends upon our developing and maintaining strong working relationships with
physicians.

The research, development, marketing and sale of our current products and any potential new and improved products or
future product indications for which we receive regulatory clearance or approval depend upon our maintaining working
relationships with physicians. We rely on these professionals to provide us with considerable knowledge and experience
regarding the development, marketing and sale of our products. Physicians assist us as researchers, marketing and product
consultants and public speakers. If we cannot maintain our strong working relationships with these professionals and continue to
receive their advice and input, the development and marketing of our products could suffer, which could have a material adverse
effect on our business, financial condition, and results of operations. At the same time, companies in the medical device industry
are under increasing scrutiny by the U.S. Department of Health and Human Services Office of Inspector General, or OIG, and the
U.S. Department of Justice, or DOJ for improper relationships with physicians. Our failure to comply with requirements
governing the industry’s relationships with physicians, including the reporting of certain payments to physicians under the
National Physician Payment Transparency Program (Open Payments) or an investigation into our compliance by the OIG or the
DOJ, could have a material adverse effect on our business, financial condition, and results of operations.

Any failure in our customer education efforts could have a material adverse effect on our revenue and cash flow.

It is important to the success of our marketing efforts to educate physicians and technicians how to properly use our
products. We rely on physicians to spend their time and money to participate in our pre-installation educational sessions.
Moreover, if physicians and technicians use our products improperly, they may have unsatisfactory patient outcomes or, in the
case of the XTRAC system, cause patient injury, which may give rise to negative publicity or lawsuits against us, any of which
could have a material adverse effect on our reputation, revenues and profitability.

If revenue from a significant customer declines, we may have difficulty replacing the lost revenue, which would negatively
affect our results and operations.

In our international business, we depend for a material portion of our sales in the international arena on several key sub-
distributors. Historically, we relied on a single master distributor, GlobalMed, for international sales of our XTRAC and VTRAC
products. We have recently entered into direct relationships with in-country distributors and have retained GlobalMed’s services
to facilitate the relationships and management of those parties. If we lose GlobalMed or one of these distributors, our sales of
phototherapy products are likely to suffer in the short term, which could have a negative effect on our revenues and profitability.

If we fail to execute our recurring revenue strategy outside the United States, we may have difficulty replacing the lost
revenue from equipment sales, which would negatively affect our results and operations.

As we begin to transition our international business from capital sales to the recurring revenue model, we will reduce our
capital sales in the short term for higher recurring revenue in the long term. If we and our in-country distributors fail to obtain
recurring customers timely, it could have a negative impact on our revenues and profitability.

If we fail to manage our sales and marketing force or to market and distribute our products effectively, we may experience
diminished revenues and profits.

There are significant risks involved in managing our sales and marketing force and marketing our products, including our

ability:

•

to hire, as needed, a sufficient number of qualified sales and marketing personnel with the aptitude, skills and understanding to market our
products;
to adequately train our sales and marketing force in the use and benefits of all our products and services, thereby making them more effective
promoters;
to manage our sales and marketing force and our ancillary channels (e.g., telesales) such that variable and semi-fixed expenses grow at a lesser
rate than our revenues; and
to set the prices and other terms and conditions for treatments using the XTRAC system in a complex legal environment so that treatments will be
accepted as attractive skin health and appropriate alternatives to conventional modalities and treatments.

To increase acceptance and utilization of our products, we may expand our sales and marketing programs in the U.S.
While we may be able to draw on currently available personnel within our organization to meet this need, we also expect that we
will have to increase the number of representatives devoted to the sales and marketing programs and to broaden, through such
representatives, the talents we have at our disposal. In some cases, we may look outside our organization for assistance in
marketing our products.

We are reliant on a limited number of suppliers for production of our products.

Production of our products requires specific component parts obtained from our suppliers. While we believe that we could
find alternate suppliers, in the event that our current suppliers fail to meet our needs, a change in suppliers or any significant
delay in our ability to have access to such resources could have a material adverse effect on our delivery schedules, business,
operating results and financial condition. Moreover, in the event we can no longer utilize this supplier or acquire this resource and
must identify a new supplier or substitute a different resource, such change may trigger an obligation for us to comply with
additional FDA regulatory requirements including, but not limited to, premarketing authorization and Quality System
Requirements (“QSR”).

The medical device industry is subject to rapid and substantial technological development and product innovations. To be
successful, we must respond to new developments in technology, new applications of existing technology and new treatment
methods. Our financial condition and operating results could be adversely affected if we fail to be responsive on a timely and
effective basis to competitors' new devices, applications, treatments or price strategies. For example, the development of a cure
for psoriasis, vitiligo, atopic dermatitis or leukoderma would eliminate the need for our XTRAC system for these diseases and
would require us to focus on other uses of our technology, which could have a material adverse effect on our business and
prospects.

As we develop new products or improve our existing products, we may accelerate the economic obsolescence of the
existing, unimproved products and their components. The obsolete products and related components may have little to no resale
value, leading to an increase in the reserves we have against our inventory. Likewise, there is a risk that the new products or
improved existing products may not achieve market acceptance and therefore may also lead to an increase in the reserves against
our inventory.

Our customers, or physicians and technicians, as the case may be, may misuse certain of our products, and product liability
lawsuits and other damages imposed on us may exceed our insurance coverage, or we may be subject to claims that are not
covered by insurance.

We face an inherent risk of product liability as a result of the marketing and sale of our products. For example, we may be
sued if our products cause or are perceived to cause injury or are found to be otherwise unsuitable during manufacturing,
marketing or sale. Any such product liability claim may include allegations of defects in manufacturing, defects in design, a
failure to warn of dangers inherent in the product, negligence, strict liability or breach of warranty. Our products are highly
complex, and some are used to treat delicate skin conditions on and near a patient's face. In addition, the clinical testing,
manufacturing, marketing and use of certain of our products and procedures may also expose us to product liability, FDA
regulatory and/or legal actions, or other claims. If a physician elects to apply an off-label use and the use leads to injury, we may
be involved in costly litigation. In addition, the fact that we train technicians whom we do not supervise in the use of our XTRAC
system during patient treatment may expose us to third-party claims if we are accused of providing inadequate training. We may
also be subject to claims against us even if the apparent injury is due to the actions of others or the pre-existing health of the
patient. For example, we rely on physicians in connection with the use of our products on patients. If these physicians are not
properly trained or are negligent, the capabilities and safety features of our products may be diminished or the patient may suffer
critical injury. We may also be subject to claims that are caused by the actions of our suppliers, such as those who provide us with
components and sub-assemblies.

We presently maintain liability insurance with coverage limits of at least $5.0 million per occurrence and overall
aggregate, which we believe is an adequate level of product liability insurance, but product liability insurance is expensive and
we might not be able to obtain product liability insurance in the future on acceptable terms or in sufficient amounts to protect us,
if at all. Our insurance policy contains various exclusions, and we may be subject to a product liability claim for which we have
no coverage. A successful claim brought against us in excess of our insurance coverage could have a material adverse effect on
our business, results of operations and financial condition. Even successful defense would require significant financial and
management resources. In addition, continuing insurance coverage may also not be available at an acceptable cost, if at all.
Therefore, we may not be able to obtain insurance coverage that will be adequate to satisfy a liability that may arise. Regardless
of merit or eventual outcome, product liability claims may result in decreased demand for a product, harm to our reputation,
withdrawal of clinical trial volunteers, initiation of investigations by regulators, costs to defend the related litigation, diversion of
management’s time and our resources, monetary awards to trial participants or patients, product recalls, withdrawals or labeling,
marketing or promotional restrictions, exhaustion of any available insurance and our capital resources, a resulting decline in the
price of our common stock and loss of revenues. As a result, regardless of whether we are insured, a product liability claim or
product recall may result in losses that could result in the FDA taking legal or regulatory enforcement action against us and/or
our products including recall, and could have a material adverse effect upon our business, financial condition and results of
operations.

We must comply with complex statutes prohibiting fraud and abuse, and both we and physicians utilizing our products could
be subject to significant penalties for noncompliance.

There are extensive federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can

result in significant criminal and civil penalties. These federal laws include:

•

•
•

•

the anti-kickback statute which prohibits certain business practices and relationships, including the payment or receipt of remuneration for the
referral of patients whose care will be paid by Medicare or other federal healthcare programs, as modified by the ACA;
the physician self-referral prohibition, commonly referred to as the Stark Law;
the anti-inducement law, which prohibits providers from offering anything to a Medicare or Medicaid beneficiary to induce that beneficiary to use
items or services covered by either program; the Civil False Claims Act, which prohibits any person from knowingly presenting or causing to be
presented false or fraudulent claims for payment by the federal government, including the Medicare and Medicaid programs; and
the Civil Monetary Penalties Law, which authorizes HHS to impose civil penalties administratively for fraudulent or abusive acts. Sanctions for
violating these federal laws include criminal and civil penalties that range from punitive sanctions, damage assessments, monetary penalties, and
imprisonment, denial of Medicare and Medicaid payments, or exclusion from the Medicare and Medicaid programs, or both.

As federal and state budget pressures continue, federal and state administrative agencies may also continue to escalate
investigation and enforcement efforts to root out waste and to control fraud and abuse in governmental healthcare programs.
Private enforcement of healthcare fraud has also increased, due in large part to amendments to the Civil False Claims Act in 1986
that were designed to encourage private persons to sue on behalf of the government. A violation of any of these federal and state
fraud and abuse laws and regulations could have a material adverse effect on our liquidity and financial condition. An
investigation into the use of our products by physicians may dissuade physicians from either purchasing or using our products
and could have a material adverse effect on our revenues.

We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and regulations and could face
substantial penalties if we are unable to fully comply with such laws.

While we do not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payers,
many healthcare laws and regulations apply to our business. For example, we could be subject to healthcare fraud and abuse and
patient privacy regulation and enforcement by both the federal government and the states in which we conduct our business. The
healthcare laws and regulations that may affect our ability to operate include:

•

the federal healthcare programs’ anti-kickback laws, as modified by the ACA, which prohibits, among other things, persons or entities from
soliciting, receiving, offering or providing remuneration, directly or indirectly, in return for or to induce either the referral of an individual for, or
the purchase order or recommendation of, any item or service for which payment may be made under a federal healthcare program such as the
Medicare and Medicaid programs;
federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims
for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, or are for items or services not provided as claimed
and which may apply to entities like us to the extent that our interactions with customers may affect their billing or coding practices;
HIPAA, which established new federal crimes for knowingly and willfully executing a scheme to defraud any healthcare benefit program or
making false statements in connection with the delivery of or payment for healthcare benefits, items or services, as well as leading to regulations
imposing certain requirements relating to the privacy, security and transmission of individually identifiable health information; and
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services
reimbursed by any third-party payer, including commercial insurers, and state laws governing the privacy of health information in certain
circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance
efforts.

The medical device industry has been under heightened scrutiny as the subject of government investigations and
regulatory or legal enforcement actions involving manufacturers who allegedly offered unlawful inducements to potential or
existing customers in an attempt to procure their business, including arrangements with physician consultants. If our operations
or arrangements are found to be in violation of any of the laws described above or any other governmental regulations that apply
to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from the Medicare and
Medicaid programs and the curtailment or restructuring of its operations. Any penalties, damages, fines, exclusions, curtailment
or restructuring of our operations could adversely affect our ability to operate our business and our financial results. The risk of
us being found in violation of these laws is increased by the fact that many of these laws are broad and their provisions are open
to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against that action
and the underlying alleged violations, could cause us to incur significant legal expenses and divert our management’s attention
from the operation of our business. If the physicians or other providers or entities with whom we do business are found to be non-
compliant with applicable laws, they may be subject to sanctions, which could also have a negative impact on our business.

If the effectiveness and safety of our devices are not supported by long-term data, and the level of acceptance of our products
by dermatologists does not increase or is not maintained, our revenues could decline.

Our products may not be accepted in the market if we do not produce clinical data supported by the independent efforts of
clinicians. We received clearance from the FDA for the use of the XTRAC system to treat psoriasis based upon our study of a
limited number of patients. Safety and efficacy data presented to the FDA for the XTRAC system was based on studies on these
patients. For the treatment of vitiligo, atopic dermatitis and leukoderma, we have received clearance from the FDA for the use of
the XTRAC system based primarily on a showing of substantial equivalence to other previously cleared predicate devices.
However, we may discover that physicians will expect clinical data on such treatments with the XTRAC system. We also may
find that data from longer-term psoriasis patient follow-up studies may be inconsistent with those indicated by our relatively
short-term data. If longer-term patient studies or clinical experience indicate that treatment with the XTRAC system does not
provide patients with sustained benefits or that treatment with our product is less effective or less safe than our current data
suggests, our revenues could decline. In addition, the FDA could then bring legal or regulatory enforcement actions against us
and/or our products including, but not limited to, recalls or requirements for premarket 510(k) authorizations. We can give no
assurance that our data will be substantiated in studies involving more patients. In such a case, we may never achieve significant
revenues or profitability.

Our failure to obtain or maintain necessary FDA clearances and approvals, or to maintain continued clearances, or
equivalents thereof in the U.S. and relevant foreign markets, could hurt our ability to distribute and market our products.

In both our U.S. and foreign markets, we are affected by extensive laws, governmental regulations, administrative
determinations, court decisions and similar constraints. Such laws, regulations and other constraints may exist at the federal, state
or local levels in the U.S. and at analogous levels of government in foreign jurisdictions. In addition, the formulation,
manufacturing, packaging, labeling, distribution, importation, sale and storage of our products are subject to extensive regulation
by various federal agencies, including, but not limited to, the FDA and the FTC, State Attorneys General in the U.S., as well as
by various other federal, state, local and international regulatory authorities in the countries in which our products are
manufactured, distributed or sold. If we or our manufacturers fail to comply with those regulations, we could become subject to
significant penalties or claims, which could harm our results of operations or our ability to conduct our business. In addition, the
adoption of new regulations or changes in the interpretations of existing regulations may result in significant compliance costs or
discontinuation of product sales and may impair the marketing of our products, resulting in significant loss of net sales. Our
failure to comply with federal or state regulations, or with regulations in foreign markets that cover our product claims and
advertising, including direct claims and advertising by us, may result in enforcement actions and imposition of penalties or
otherwise harm the distribution and sale of its products. Further, our businesses are subject to laws governing our accounting, tax
and import and export activities. Failure to comply with these requirements could result in legal and/or financial consequences
that might adversely affect our sales and profitability. Each medical device that we wish to market in the U.S. must first receive
either 510(k) clearance or PMA from the FDA unless an exemption applies. Either process can be lengthy and expensive. The
FDA's 510(k) clearance process may take from three to twelve months, or longer, and may or may not require human clinical
data. The PMA process is much more costly and lengthy. It may take from eleven months to three years, or even longer, and will
likely require significant supporting human clinical data. Delays in obtaining regulatory clearance or approval could adversely
affect our revenues and profitability. Although we have obtained 510(k) clearances for our XTRAC system for use in treating
psoriasis, vitiligo, atopic dermatitis and leukoderma, these approvals and clearances may be subject to revocation if post-
marketing data demonstrates safety issues or lack of effectiveness.

Many medical devices, such as medical lasers, are also regulated by the FDA as “electronic products.” In general,
manufacturers and marketers of “electronic products” are subject to certain FDA regulatory requirements intended to ensure the
radiological safety of the products. These requirements include, but are not limited to, filing certain reports with the FDA about
the products and defects/safety issues related to the products as well as complying with radiological performance standards.

The medical device industry is now experiencing greater scrutiny and regulation by federal, state and foreign
governmental authorities. Companies in our industry are subject to more frequent and more intensive reviews and investigations,
often involving the marketing, business practices, and product quality management. Such reviews and investigations may result
in civil and criminal proceedings; the imposition of substantial fines and penalties; the receipt of warning letters, untitled letters,
demands for recalls or the seizure of our products; the requirement to enter into corporate integrity agreements, stipulated
judgments or other administrative remedies, and result in our incurring substantial unanticipated costs and the diversion of key
personnel and management’s attention from their regular duties, any of which may have an adverse effect on our financial
condition, results of operations and liquidity, and may result in greater and continuing governmental scrutiny of our business in
the future.

Additionally, federal, state and foreign governments and entities have enacted laws and issued regulations and other
standards requiring increased visibility and transparency of our interactions with healthcare providers. For example, the U.S.
Physician Payment Sunshine Act, now known as Open Payments, requires us to report to the Centers for Medicare & Medicaid
Services, or CMS, payments and other transfers of value to all U.S. physicians and U.S. teaching hospitals, with the reported
information made publicly available on a searchable website. Effective January 2022 we will also be required to collect and
report information on payments or transfers of value to physician assistants, nurse practitioners, clinical nurse specialists,
certified registered nurse anesthetists and certified nurse-midwives. Failure to comply with these legal and regulatory
requirements could impact our business, and we have had and will continue to spend substantial time and financial resources to
develop and implement enhanced structures, policies, systems and processes to comply with these legal and regulatory
requirements, which may also impact our business and which could have a material adverse effect on our business, financial
condition, and results of operations.

International regulatory approval processes may take more or less time than the FDA clearance or approval process. If we
fail to comply with applicable FDA and comparable non-U.S. regulatory requirements, we may not receive regulatory clearances
or approvals or may be subject to FDA or comparable non-U.S. enforcement actions. We may be unable to obtain future
regulatory clearance or approval in a timely manner, or at all, especially if existing regulations are changed or new regulations are
adopted. For example, the FDA clearance or approval process can take longer than anticipated due to requests for additional
clinical data and changes in regulatory requirements. A failure or delay in obtaining necessary regulatory clearances or approvals
would materially adversely affect our business, financial condition, and results of operations.

Further, more stringent regulatory requirements or safety and quality standards may be issued in the future with an
adverse effect on our business. We have ceased manufacturing and marketing MelaFind but must still maintain records for FDA
and foreign regulatory purposes.

If required, clinical trials necessary to support a 510(k) notice or PMA application, for new or modified products, will be
expensive and will require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and
recruit. Delays or failures in our clinical trials will prevent us from commercializing any modified or new products and will
adversely affect our business, operating results and prospects.

Initiating and completing clinical trials necessary to support a 510(k) notice or a PMA application will be time-consuming
and expensive and the outcome uncertain. Moreover, the results of early clinical trials are not necessarily predictive of future
results, and any product we advance into clinical trials may not have favorable results in early or later clinical trials.

Conducting successful clinical studies will require the enrollment of large numbers of patients, and suitable patients may
be difficult to identify and recruit. Patient enrollment in clinical trials and completion of patient participation and follow-up
depend on many factors, including the size of the patient population, the nature of the trial protocol, the attractiveness of, or the
discomforts and risks associated with, the treatments received by patients enrolled as subjects, the availability of appropriate
clinical trial investigators, support staff, and proximity of patients to clinical sites and ability to comply with the eligibility and
exclusion criteria for participation in the clinical trial and patient compliance. For example, patients may be discouraged from
enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to
assess the safety and effectiveness of our products or if they determine that the treatments received under the trial protocols are
not attractive or involve unacceptable risks or discomforts. Patients may also not participate in our clinical trials if they choose to
participate in contemporaneous clinical trials of competitive products. In addition, patients participating in clinical trials may die
before completion of the trial or suffer adverse medical events unrelated to investigational products.

Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy may be required and we
may not adequately develop such protocols to support clearance and approval. Further, the FDA may require us to submit data on
a greater number of patients than we originally anticipated and/or for a longer follow-up period or change the data collection
requirements or data analysis for any clinical trials. Delays in patient enrollment or failure of patients to continue to participate in
a clinical trial may cause an increase in costs and delays in the approval and attempted commercialization of our products or
result in the failure of the clinical trial. The FDA may not consider our data adequate to demonstrate safety and efficacy. Such
increased costs and delays or failures could adversely affect our business, operating results and prospects.

Our medical device operations are subject to FDA regulatory requirements.

Medical devices regulated by the FDA are subject to “general controls” which include: registration with the FDA; listing
commercially distributed products with the FDA; complying with good manufacturing practices under the quality system
regulations; filing reports with the FDA and keeping records relative to certain types of adverse events associated with devices
under the medical device reporting regulation; assuring that device labeling complies with device labeling requirements;
reporting certain device field removals and corrections to the FDA; and obtaining premarket notification 510(k) clearance for
devices prior to marketing. Some devices known as “510(k)-exempt” can be marketed without prior marketing clearance or
approval from the FDA. In addition to the “general controls,” some Class II medical devices are also subject to “special
controls,” including adherence to a particular guidance document and compliance with the performance standard. Instead of
obtaining 510(k) clearance, some Class III devices are subject to PMA. In general, obtaining PMA to achieve marketing
authorization from the FDA is a more onerous process than seeking 510(k) clearance.

The medical device industry is now experiencing greater scrutiny and regulation by federal, state and foreign
governmental authorities. Companies in our industry are subject to more frequent and more intensive reviews and investigations,
often involving the marketing, business practices, and product quality management including standards for device recalls and
product labeling. Such reviews and investigations may result in civil and criminal proceedings; the imposition of substantial fines
and penalties; the receipt of warning letters, untitled letters, demands for recalls or the seizure of our products; the requirement to
enter into corporate integrity agreements, stipulated judgments or other administrative remedies, and result in our incurring
substantial unanticipated costs and the diversion of key personnel and management’s attention from their regular duties, any of
which may have an adverse effect on our financial condition, results of operations and liquidity, and may result in greater and
continuing governmental scrutiny of our business in the future.

We must also have the appropriate FDA clearances and/or approvals from other governmental entities in order to lawfully
market devices and/or drugs. The FDA, federal, state or foreign governments and agencies may disagree that we have such
clearance and/or approvals for all of our products and may take action to prevent the marketing and sale of such devices until
such disagreements have been resolved.

Healthcare policy changes may have a material adverse effect on us.

Healthcare costs have risen significantly over the past decade. As a result, there have been and continue to be proposals
by federal, state and foreign governments and regulators as well as third-party insurance providers to limit the growth of these
costs. Among these proposals are regulations that could impose limitations on the prices we will be able to charge for our
products, the amounts of reimbursement available for our products from governmental agencies or third-party payers,
requirements regarding the usage of comparative studies, technology assessments and healthcare delivery structure reforms to
determine the effectiveness and select the products and therapies used for treatment of patients. While we believe our products
provide favorable clinical outcomes, value and cost efficiency, the resources necessary to demonstrate this value to our
customers, patients, payers, and regulators is significant and may require longer periods of time and effort in which to obtain
acceptance of our products. There is no assurance that our efforts will be successful, and these limitations could have a material
adverse effect on our financial position and results of operations.

These changes and additional proposed changes in the future could adversely affect the demand for our products as well
as the way in which we conduct our business. For example, the ACA was enacted into law in the U.S. in March 2010. They
imposed, on medical device manufacturers, a requirement to research into the effectiveness of treatment modalities and institute
changes to the reimbursement and payment systems for patient treatments. In addition, governments and regulatory agencies
continue to study and propose changes to the laws governing the clearance or approval, manufacture and marketing of medical
devices, which could adversely affect our business and results of operations.

FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our
business and our products. The FDA is currently exploring ways to modify its 510(k) clearance process. In addition, due to
changes at the FDA in general, it has become increasingly more difficult to obtain 510(k) clearance as data requirements have
increased. It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations
changed, and what the impact of such changes, if any, may be. However, any changes could make it more difficult for us to
maintain or attain clearance or approval to develop and commercialize our products and technologies.

Various healthcare reform proposals have also emerged at the state level. We cannot predict what healthcare initiatives, if
any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on us.
Furthermore, an expansion in government’s role in the U.S. healthcare industry may lower reimbursements for our products,
reduce medical procedure volumes and adversely affect our business, possibly materially. In addition, if the excise taxes
contained in the House or Senate health reform bills are enacted into law, our loss from continuing operations resulting from such
an excise tax and results of operations would be materially and adversely affected.

Our market acceptance in international markets requires regulatory approvals from foreign governments and may depend on
third party reimbursement of participants' cost.

We have introduced our XTRAC and VTRAC products into markets in more than 30 countries in Europe, the Middle
East, Asia, Australia, South Africa and parts of Central and South America through distributors. We cannot be certain that our
salesforce and distributor network will be successful in marketing our products in these or other countries or that our distributors
will purchase XTRAC or VTRAC systems beyond their current contractual obligations or in accordance with our expectations.

Even if we obtain and maintain the necessary foreign regulatory registrations or approvals, market acceptance of our
products in international markets may be dependent, in part, upon the availability of reimbursement within applicable healthcare
payment systems. Reimbursement and healthcare payment systems in international markets vary significantly by country, and
include both government-sponsored healthcare and private insurance. We may seek international reimbursement approvals for
our products, but we cannot assure you that any such approvals will be obtained in a timely manner, if at all. Failure to receive
international reimbursement approvals in any given market could have a material adverse effect on the acceptance or growth of
our products in that market or others.

We face substantial competition, which may result in others discovering, developing or commercializing products more
successfully than us.

The medical device industry is intensely competitive and subject to rapid and significant technological change. Many of
our competitors have significantly greater financial, technical and human resources. Smaller and early-stage companies may also
prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

Our competitors in medical device or pharmaceutical industries may also develop products that are more effective, more
convenient, more widely used, less costly, or have a better safety profile than our products and these competitors may also be
more successful than us in manufacturing and marketing their products.

Our competitors also compete with us in recruiting and retaining qualified scientific, management and commercial
personnel, as well as in acquiring technologies complementary to, or necessary for, our programs. Competition for these people in
the medical device industry is intense and we may face challenges in retaining and recruiting such individuals if, for example,
other companies may provide more generous compensation and benefits, more diverse opportunities, and better chances for
career advancement than we do. Some of these advantages may be more appealing to high-quality candidates and employees than
those we have to offer. In addition, the decline in our stock price has created additional challenges by reducing the retention value
of our equity awards. Because of the complex and technical nature of our systems and the dynamic market in which we compete,
any failure to attract and retain a sufficient number of qualified employees could materially harm our ability to develop and
commercialize our technology, which would have a material adverse effect on our business, financial condition, and results of
operations.

Consolidation in the medical device industry could have an adverse effect on our revenue and results of operations.

Many medical device industry companies are consolidating to create new companies with greater market power. As the
medical device industry consolidates, competition to provide goods and services to industry participants will become more
intense. These industry participants may try to use their market power to bundle the sale of more products to our customers in
return for lower prices. If we reduce our prices because of consolidation in the healthcare industry, our revenue would decrease
and our earnings, financial condition, or cash flows would suffer, which would have a material adverse effect on our business,
financial condition, and results of operations.

We actively employ social media as part of our marketing strategy, which could give rise to regulatory violations, liability,
breaches of data security or reputational damage.

Despite our efforts to monitor evolving social media communication guidelines and comply with applicable rules, there is
risk that the use of social media by us, our employees or our customers to communicate about our products or business may cause
us to be found in violation of applicable requirements, including requirements of regulatory bodies such as the FDA and Federal
Trade Commission. For example, promotional communications and endorsements on social media that, among other things,
promote our products for uses or in patient populations that are not described in the product’s approved labeling (known as “off-
label uses”), do not contain a fair balance of information about risks associated with using our products, make comparative or
other claims about our products that are not supported by sufficient evidence, and/or do not contain required disclosures could
result in enforcement actions against us. In addition, adverse events, product complaints, off-label usage by physicians,
unapproved marketing or other unintended messages posted on social media could require an active response from us, which may
not be completed in a timely manner and could result in regulatory action by a governing body. Further, our employees may
knowingly or inadvertently make use of social media in ways that may not comply with our corporate policies or other legal or
contractual requirements, which may give rise to liability, lead to the loss of trade secrets or other intellectual property, or result
in public exposure of personal information of our employees, clinical trial patients, customers and others. Furthermore, negative
posts or comments about us or our products in social media could seriously damage our reputation, brand image and goodwill,
which would have a material adverse effect on our business, financial condition, and results of operations.

We may become subject to claims of infringement or misappropriation of the intellectual property rights of others, which
could prohibit us from shipping affected products, require us to obtain licenses from third parties or to develop non-infringing
alternatives, and subject us to substantial monetary damages and injunctive relief. Our patents may also be subject to
challenge on validity grounds, and our patent applications may be rejected.

Third parties could, in the future, assert infringement or misappropriation claims against us with respect to our current or
future products. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is
often uncertain. Therefore, we cannot be certain that we have not infringed the intellectual property rights of such third parties.
Our potential competitors may assert that some aspect of our products infringes their patents. There also may be existing patents
of which we are unaware that one or more components of our products may inadvertently infringe.

Any infringement or misappropriation claim could cause us to incur significant costs, could place significant strain on our
financial resources, divert management’s attention from our business and harm our reputation. If the relevant patents were upheld
as valid and enforceable and we were found to infringe, we could be prohibited from selling our product unless we could obtain
licenses to use the technology covered by the patent or are able to design around the patent. We may be unable to obtain a license
on terms acceptable to us, if at all, and we may not be able to redesign the affected product to avoid infringement.

A court could order us to pay compensatory damages for such infringement, plus prejudgment interest and could, in
addition, treble the compensatory damages and award attorney fees. These damages could be substantial and could harm our
reputation, business, financial condition and operating results. A court also could enter orders that temporarily, preliminarily or
permanently enjoin us and our customers from making, using, selling, offering to sell or importing our products, and/or could
enter an order mandating that we undertake certain remedial activities. Depending on the nature of the relief ordered by the court,
we could become liable for additional damages to third parties.

We rely on our patents, patent applications and other intellectual property rights to give us a competitive advantage.
Whether a patent is valid, or whether a patent application should be granted, is a complex matter of science and law. Therefore,
we cannot be certain that, if challenged, our patents, patent applications and/or other intellectual property rights would be upheld.
If one or more of those patents, patent applications and other intellectual property rights are invalidated, rejected or found
unenforceable, those outcomes could reduce or eliminate any competitive advantage we might otherwise have had.

If we or our third-party manufacturers or suppliers fail to comply with the FDA’s Quality System Regulation or any applicable
state equivalent, our manufacturing operations could be interrupted and our potential product sales and operating results
could suffer.

We and some of our third-party manufacturers and suppliers are required to comply with some or all of the FDA’s Good
Manufacturing Practices or its QSR, which delineates the design controls, document controls, purchasing controls, identification
and traceability, production and process controls, acceptance activities, nonconforming product requirements, corrective and
preventive action requirements, labeling and packaging controls, handling, storage, distribution and installation requirements,
records requirements, servicing requirements, and statistical techniques potentially applicable to the production of our medical
devices. We and our manufacturers and suppliers are also subject to the regulations of foreign jurisdictions regarding the
manufacturing process if we market its products overseas. The FDA enforces the QSR through periodic and announced or
unannounced inspections of manufacturing facilities. Our facilities have been inspected by the FDA and other regulatory
authorities, and we anticipate that we and certain of our third-party manufacturers and suppliers will be subject to additional
future inspections. If our facilities or those of our manufacturers or suppliers are found to be in non-compliance or fail to take
satisfactory corrective action in response to adverse QSR inspectional findings, FDA could take legal or regulatory enforcement
actions against us and/or our products, including but not limited to the cessation of sales or the recall of distributed products,
which could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’
demands. We may also be required to bear other costs or take other actions that may have a negative impact on our future sales
and our ability to generate profits.

Current regulations depend heavily on administrative interpretation. If the FDA does not believe that we are in substantial
compliance with applicable FDA regulations, the agency could take legal or regulatory enforcement actions against us and/or our
products. We are also subject to periodic inspections by the FDA, other governmental regulatory agencies, as well as certain
third-party regulatory groups. Future interpretations made by the FDA or other regulatory bodies made during the course of these
inspections may vary from current interpretations and may adversely affect our business and prospects. The FDA’s and foreign
regulatory agencies’ statutes, regulations, or policies may change, and additional government regulation or statutes may be
enacted, which could increase post-approval regulatory requirements, or delay, suspend, prevent marketing of any
cleared/approved products or necessitate the recall of distributed products. We cannot predict the likelihood, nature or extent of
adverse governmental regulation that might arise from future legislative or administrative action, either in the U.S. or abroad.

The medical device industry has been under heightened FDA scrutiny as the subject of government investigations and
enforcement actions. If our operations and activities are found to be in violation of any FDA laws or any other governmental
regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and other legal
and/or agency enforcement actions. Any penalties, damages, fines, or curtailment or restructuring of our operations or activities
could adversely affect our ability to operate our business and our financial results. The risk of us being found in violation of FDA
laws is increased by the fact that many of these laws are broad and their provisions are open to a variety of interpretations. Any
action against us for violation of these laws, even if we successfully defend ourselves against that action and its underlying
allegations, could cause us to incur significant legal expenses and divert management’s attention from the operation of our
business. Where there is a dispute with a federal or state governmental agency that cannot be resolved to the mutual satisfaction
of all relevant parties, we may determine that the costs, both real and contingent, are not justified by the commercial returns to us
from maintaining the dispute or the product.

Various claims, design features or performance characteristics of our medical devices, that we regarded as permitted by
the FDA without marketing clearance or approval, may be challenged by the FDA or state regulators. The FDA or state
regulatory authorities may find that certain claims, design features or performance characteristics, in order to be made or included
in the products, may have to be supported by further studies and marketing clearances or approvals, which could be lengthy,
costly and possibly unobtainable.

If we fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with products, these
products could be subject to restrictions or withdrawal from the market.

We are also subject to similar state requirements and licenses. Failure by us to comply with statutes and regulations
administered by the FDA and other regulatory bodies, discovery of previously unknown problems with our products (including
unanticipated adverse events or adverse events of unanticipated severity or frequency), manufacturing problems, or failure to
comply with regulatory requirements, or failure to adequately respond to any FDA observations concerning these issues, could
result in, among other things, any of the following actions:

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warning letters or untitled letters issued by the FDA;
fines, civil penalties, injunctions and criminal prosecution;
unanticipated expenditures to address or defend such actions;
delays in clearing or approving, or refusal to clear or approve, our products;
withdrawal or suspension of clearance or approval of our products by the FDA or other regulatory bodies;
product recall or seizure;
orders for physician or customer notification or device repair, replacement or refund;
interruption of production; and
operating restrictions.

If any of these actions were to occur, it would harm our reputation and adversely affect our business, financial condition

and results of operations.

Our medical products may in the future be subject to product recalls that could harm our reputation, business and financial
results.

The FDA has the authority to require the recall of commercialized medical device products in the event of material
deficiencies or defects in design or manufacture. In the case of the FDA, the authority to require a recall must be based on an
FDA finding that there is a reasonable probability that the device would cause serious injury or death. Manufacturers may, under
their own initiative, recall a product if any material deficiency in a device is found. A government-mandated or voluntary recall
by us or one of our distributors could occur as a result of component failures, manufacturing errors, design or labeling defects or
other deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and have an adverse
effect on our financial condition and results of operations. The FDA requires that certain classifications of recalls be reported to
the FDA within ten working days after the recall is initiated. Companies are required to maintain certain records of recalls, even
if they are not reportable to the FDA. We may initiate voluntary recalls involving our products in the future that we determine do
not require notification of the FDA. If the FDA disagrees with our determinations, they could require us to report those actions as
recalls. A future recall announcement could harm our reputation with customers and negatively affect sales. In addition, the FDA
could take enforcement action for failing to report the recalls when they were conducted.

If any of our medical products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be
subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement
actions.

Under the FDA medical device reporting regulations, medical device manufacturers are required to report to the FDA
information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that
would likely cause or contribute to death or serious injury if the malfunction of the device or one of our similar devices were to
recur. If we fail to report these events to the FDA within the required timeframes, or at all, the FDA could take enforcement
action against us. Any such adverse event involving our products also could result in future voluntary corrective actions, such as
recalls or customer notifications, or agency action, such as inspection or enforcement action. Any corrective action, whether
voluntary or involuntary, as well as defending ourselves in a lawsuit, will require our time and capital, distract management from
operating our business, and may harm our reputation and financial results.

We may have a need for additional funds in the future and there is no guarantee that we will be able to generate those funds
from our business.

Our existing cash position and ability to borrow funds and future revenue may not be sufficient to support the expenses of
our operations in the near term, although based upon our cash and cash equivalents, current budgeting and projected cash flow
models, we believe that we will be able to support our operations for at least the next twelve months following the filing of this
Report. We plan to fund operations by the recurring revenue generated by the use of the XTRAC lasers in the U.S. and
international markets, as well as domestic and international sales of our products. If revenues from the sale and use of our
existing products are inadequate to fund our operations, we may need to raise additional financing. We cannot assure you that we
will be able to raise additional capital or secure alternate financing to fund operations, if necessary, or that we will be able to raise
additional capital under terms that are favorable to us. Further, we cannot assure that an acquisition will in any way negate or
mitigate our need for future capital. Any additional financing may dilute the ownership interest of our existing stockholders and
could adversely affect the market price of our common stock.

If we do not have enough capital to fund operations, then we will have to cut costs or raise funds.

If we are unable to raise additional funds, if necessary, under terms acceptable to us and in the interests of our

stockholders, then we will have to take measures to cut operating costs or obtain funds using alternative methods, such as:

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Sell or license some of our technologies that we would not otherwise sell or license if we were in a stronger financial position;
Sell or license some of our technologies under terms that are less favorable than they otherwise might have been if we were in a stronger financial
position; and
Consider further business combination transactions with other companies or positioning ourselves to be acquired by another company.

If it became necessary to take one or more of the above-listed actions, then our perceived valuation may be lower, which
could impact the market price of our stock. Further, the effects on our operations, financial performance and stock price may be
significant if we do not or cannot take one or more of the above-listed actions in a timely manner and when needed, and our
ability to do so may be limited significantly due to the instability of the global financial markets and the resulting limitations on
available financing to us and to potential licensees, buyers and investors. Additionally, these options may not be available to us as
all of our assets have been pledged as security for the various financings.

If our actual liability for state sales and use taxes is higher than our accrued liability, it could have a material impact on our
financial condition.

Included in accrued state sales and use taxes are certain known and estimated sales and use taxes and related penalties and
interest to taxing authorities. In our recurring revenue model, we place the XTRAC system in the physician’s office under an
arrangement for no upfront charge and generate our revenue on a per-use basis.

In the ordinary course of business, we are, from time to time, subject to audits performed by state taxing authorities.
These actions and proceedings are generally based on the state’s position that the arrangements entered into by the Company are
subject to state sales and use tax rather than exempt from applicable law. We are currently under audit by two taxing jurisdictions
as it pertains to state sales and/or use tax. One jurisdiction has assessed us, in two assessments, an aggregate amount of
$1,484,000 for the period from March 2014 through February 2020 including penalties and interest. We have declined an
informal offer to settle at a substantially lower amount and are currently in that jurisdiction’s administrative process of appeal. In
January 2021, we received notification that the administrative judge in this jurisdiction had issued an opinion finding in favor of
us that the sale of XTRAC treatment codes were not taxable as sales tax with respect to the first assessment. The jurisdiction has
30 days plus extensions to file an appeal and on March 25th we received an advisory from the jurisdiction that it would file an
appeal. The second jurisdiction has made an assessment of $720 from June 2015 through March 2018 plus interest of $171
through April 2020. We are in the administrative appeal process in this jurisdiction as well and the timing has been impacted by
the COVID-19 pandemic. In the event there is a determination that the true object of the delivery of phototherapy under the
recurring revenue model is a sale or lease of property and it is not a prescription medication or we do not have other defenses
where we prevail, we may be subject to state sales taxes in those particular states for previous years and in the future, plus
interest and penalties for failure to pay such taxes. If it was determined that our recurring revenue model was not exempt from
sales taxes in all states where we do business, and taxes and penalties were imposed in each of those states for the entire period
through the expiration of each state’s statute of limitations, state sales and use tax, penalties and interest for such period would
have a material negative impact on our financial condition and cash flow.

As of December 31, 2020, and 2019, we have estimated our sales and use tax liability to be approximately $3.1 million
and $3.2 million, respectively. We believe our sales and use tax accruals have properly recognized that if our arrangements with
customers are deemed more likely than not that we would not be exempt from sales tax in a particular state are the basis for
measurement of the state sales and use tax is calculated in accordance with ASC 405, Liabilities as a transaction tax. While we
believe we have strong positions that our recurring revenue is exempt from sales tax, if it is found that we are subject to sales tax
in those particular states where we believe it is more likely than not that we would be exempt from sales tax, then potential tax
liabilities including interest and penalties would be higher than accrued amounts. If and when we are successful in defending
ourselves 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 settlements remain uncertain.

We may be subject to disruptions or failures in our information technology systems and network infrastructures, including
through cyber-attacks or other third-party breaches that could have a material adverse effect on our business.

We rely on efficient and uninterrupted operation of complex information technology systems and network infrastructures
to operate our business. We also hold data in various data center facilities upon which our business depends. A disruption,
infiltration or failure of our information technology systems or any of our data centers as a result of software or hardware
malfunctions, system implementations or upgrades, computer viruses, third-party security breaches, employee error, theft or
misuse, malfeasance, power disruptions, natural disasters or accidents could cause breaches of data security, loss of intellectual
property and critical data and the release and misappropriation of sensitive competitive information.

While we have implemented a number of protective measures, including firewalls, antivirus, patches, data encryption, log
monitors, routine back-ups with offsite retention of storage media, system audits, data partitioning, routine password
modifications and disaster recovery procedures, such measures may not be adequate or implemented properly to prevent or fully
address the adverse effect of such events. If our systems were to fail or we are unable to successfully expand the capacity of these
systems, or we are unable to integrate new technologies into our existing systems, our operations and financial results could
suffer.

We have also outsourced significant elements of our information technology infrastructure and as a result we depend on
third parties who are responsible for maintaining significant elements of our information technology systems and infrastructure
and who may or could have access to our confidential information. The size and complexity of our information technology
systems, and those of our third-party vendors, make such systems potentially vulnerable to service interruptions and security
breaches from inadvertent or intentional actions by its employees, partners or vendors. These systems are also vulnerable to
attacks by malicious third parties, and may be susceptible to intentional or accidental physical damage to the infrastructure
maintained by us or by third parties. A breach of our security measures or the accidental loss, inadvertent disclosure, unapproved
dissemination, misappropriation or misuse of trade secrets, proprietary information, or other confidential information, whether as
a result of theft, hacking, fraud, trickery or other forms of deception, or for any other cause, could enable others to produce
competing products, use our proprietary technology or information, and/or adversely affect our business. Further, any such
interruption, security breach, loss or disclosure of confidential information could result in financial, legal, business, and
reputational harm to us and could have a material adverse effect on our business, results of operations and financial condition.

Environmental and health safety laws may result in liabilities, expenses and restrictions on our operations.

Federal, state, local and foreign laws regarding environmental protection, hazardous substances and human health and
safety may adversely affect our business. Using hazardous substances in our operations exposes us to the risk of accidental injury,
contamination or other liability from the use, storage, importation, handling, or disposal of hazardous materials. If our or our
suppliers’ operations result in the contamination of the environment or expose individuals to hazardous substances, we could be
liable for damages and fines, and any liability could significantly exceed our insurance coverage and have a material adverse
effect on our business, financial condition, and results of operations. Future changes to environmental and health and safety laws
could cause us to incur additional expenses or restrict our operations, which could have a material adverse effect on our business,
financial condition, and results of operations.

Risks Relating to Our Common Stock

In the event of certain contingencies, the investors in the May 2018 equity financing may receive additional shares issued
pursuant to the Retained Risk Provisions as defined in the Stock Purchase Agreements. At the closing, the Company determined
certain contingencies had been met and, in July 2018, the Company issued 153,004 shares associated with those contingencies.
There are additional contingencies included in the SPAs that the Company has determined are not probable or estimable and/or
contractually obligated in order to issue shares at this time.

Our stock price may be volatile, meaning purchasers of our common stock could incur substantial losses.

Our stock price has been and is likely to continue to be volatile. The stock market in general and the market for medical
technology companies in particular have experienced extreme volatility that has often been unrelated to the operating
performance of particular companies. The following factors, in addition to other risk factors described in this section and general
market and economic conditions, may have a significant impact on the market price of our common stock:

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failure of any of our products to achieve or continue to have commercial success;
the timing of regulatory approval for our future products;
adverse regulatory determinations with respect to our existing products;

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results of our research and development efforts and our clinical trials;
the announcement of new products or product enhancements by us or our competitors;
regulatory developments in the U.S. and foreign countries;
our ability to manufacture our products to commercial standards;
developments concerning our clinical collaborators, suppliers or marketing partners;
changes in financial estimates or recommendations by securities analysts;
public concern over our products;
developments or disputes concerning patents or other intellectual property rights;
product liability claims and litigation against us or our competitors;
the departure of key personnel;
the strength of our balance sheet and any perceived need to raise additional funds;
variations in our financial results from expected financial results or those of companies that are perceived to be similar to us;
changes in the structure of third-party reimbursement in the U.S. and other countries;
changes in accounting principles or practices;
general economic, industry and market conditions; and
future sales of our common stock.

A decline in the market price of our common stock could cause you to lose some or all of your investment, limit your
ability to sell your shares of stock and may adversely impact our ability to attract and retain employees and raise capital. In
addition, stockholders have, and may in the future, initiate securities class action lawsuits if the market price of our stock drops
significantly. Whether or not meritorious, litigation brought against us could result in substantial costs and could divert the time
and attention of our management. Our insurance to cover claims of this sort may not be adequate.

Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable and could also limit the
market price of our stock.

Provisions of our restated certificate of incorporation and bylaws and applicable provisions of Delaware law may make it
more difficult for or prevent a third party from acquiring control of us without the approval of our board of directors. These
provisions:

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limit who may call a special meeting of stockholders;
establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon at
stockholder meetings;
do not permit cumulative voting in the election of our directors, which would otherwise permit less than a majority of stockholders to elect
directors;
prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; and
provide our board of directors the ability to designate the terms of and issue a new series of preferred stock without stockholder approval.

In addition, Section 203 of the Delaware General Corporation Law generally limits our ability to engage in any business
combination with certain persons who own 15% or more of our outstanding voting stock or any of our associates or affiliates who
at any time in the past three years have owned 15% or more of our outstanding voting stock. In connection with the financing in
May 2018, our board of directors exempted AGP SPVI, L.P. from the application of this provision in connection with its
investment.

These provisions may have the effect of entrenching our management team and may deprive you of the opportunity to sell
your shares to potential acquirers at a premium over prevailing prices. This potential inability to obtain a control premium could
reduce the price of our common stock.

Item 1B.

Unresolved Staff Comments

Not applicable.

Item 2.

Properties

We lease an 8,513 sq. ft. facility in Horsham, Pennsylvania that houses our executive offices and marketing. The term of

the lease runs through January, 2023.

We lease a 17,000 sq. ft. facility consisting of office, manufacturing and warehousing space in Carlsbad, California. The
lease was set to expire on September 30, 2019. On May 1, 2019, we entered into the Fifth Amendment to the lease. The term of
the lease commenced on October 1, 2019 and expires on September 30, 2024. Our Carlsbad facility houses the manufacturing
and development operations for our excimer laser business, as well as the patient call center and reimbursement center.

Item 3.

Legal Proceedings

From time to time in the ordinary course of our business, we may be a party to certain legal proceedings, incidental to the
normal course of our business. These may include controversies relating to contract claims and employment related matters,
some of which claims may be material, in which case, we will make separate disclosure as required.

We are currently under audit by two taxing jurisdictions, pertaining to sales and/or use tax. One jurisdiction has assessed
us an amount of $1,484,000, in two assessments, for the period from March 2014 through February 2020. We have declined an
informal offer to settle the first assessment at a substantially lower amount and are currently in that jurisdiction’s administrative
process of appeal.

In January 2021, we received notification that the administrative law judge had issued an opinion finding in favor of us
that the sale of XTRAC treatment codes are not taxable as sales tax with respect to the first assessment. The jurisdiction has 30
days plus potential extensions to file an appeal and on March 25th we received an advisory from the jurisdiction that it would file
an appeal.

A second jurisdiction has made an assessment of $720,000 from June 2015 through March 2018 plus interest of $171
through April 2020. We are in this jurisdiction’s administrative process of appeal as well and the timing of the process has been
impacted by the COVID-19 pandemic. If it is found we are not exempt from sales tax in these or other states then potential tax
liabilities including interest and penalties would be higher than accrued amounts.

Effective August 10, 2020, we entered into a Settlement Agreement and Release (“Settlement Agreement”) with Ra
Medical Systems, Inc. (“Ra Medical”), under which the Company and Ra Medical agreed that within five business days of final
execution of the Settlement Agreement, the parties are to file stipulations and/or documentation necessary to cause each of the
pending lawsuits between them and with other third-parties to be dismissed with prejudice, with each party to bear its own
attorneys’ fees and costs. The pending lawsuits were: Strata Skin Sciences, Inc. and Uri Geiger v. Ra Medical Systems, Inc., civil
action no. 18-21421, Court of Common Pleas, Montgomery County, Pennsylvania; and Ra Medical Systems, Inc. v. Uri Geiger,
Strata Skin Sciences, Inc., and Accelmed Growth Partners, L.P., civil action no. 3:19-cv-00920, United States District Court for
the Southern District of California.

Pursuant to the terms of the Settlement Agreement, each party agreed to release the opposing parties from any and all
claims, demands, and causes of action of any kind whatsoever, whether known or unknown, fixed or contingent, asserted or
unasserted, arising in contract, tort, statute, or operation of law, which they now have or ever had against any of the Ra Medical
Releases, from the beginning of time to the date of the Settlement Agreement, in any way arising from or relating to the
allegations, claims, causes of action, allegations and/or assertions set forth in the pending lawsuits.

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.
Securities

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

As of March 17, 2021, we had 33,801,045 shares of common stock issued and outstanding. This did not include (i)
options to purchase 6,925,478 shares of common stock, of which 4,243,387 were vested as of March 17, 2021 or (ii) vested,
unissued restricted stock units of 88,194.

Dividend Policy

We have not declared or paid any dividend on our common stock, since our inception. We do not anticipate that any
dividends on our common stock will be declared or paid in the future. Any future determination relating to our dividend policy
will be made at the discretion of our board of directors and will depend on then existing conditions, including our earnings,
financial condition, results of operations, level of indebtedness, contractual restrictions, capital requirements, business prospects
and other factors our board of directors may deem relevant. Our board of directors’ ability to declare a dividend is also subject to
limits imposed by Delaware law and our credit facility.

Securities Authorized for Issuance Under Equity Compensation Plans

The following is a summary of all of our equity compensation plans, including plans that were assumed through
acquisitions and individual arrangements that provide for the issuance of equity securities as compensation, as of December 31,
2020. See Notes 1 and 14 to the consolidated financial statements for additional discussion.

Number of
Securities
Remaining
Available
Under Equity
Compensation
Plans
(excluding
securities
reflected in
column (A))
(C)

Number of
Securities to be
issued Upon
Exercise of
Outstanding
Options
(A)

Weighted
Average
Exercise Price
of
Outstanding
Options
(B)

Equity compensation plans approved by security holders

5,292,888 $

1.87

41,774

Equity compensation plans not approved by security holders

-
5,292,888 $

-
1.87

-
41,774

Recent Issuances of Unregistered Securities

None.

Purchases of Equity Securities

None.

Item 6.

Selected Financial Data

Not applicable.

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and related
notes included elsewhere in this Report. Dollar amounts are reported in thousands, except per share and per treatment data.

Introduction, Outlook and Overview of Business Operations

STRATA Skin Sciences is a medical technology company in Dermatology and Plastic Surgery dedicated to developing,
commercializing and marketing innovative products for the treatment of dermatologic conditions. Its products include the
XTRAC® excimer laser and VTRAC® lamp systems utilized in the treatment of psoriasis, vitiligo and various other skin
conditions.

The XTRAC device is utilized to treat psoriasis, vitiligo and other skin diseases. The XTRAC device received FDA
clearance in 2000 and has since become a widely recognized treatment among dermatologists. The system delivers targeted
308um ultraviolet light to affected areas of skin, leading to psoriasis clearing and vitiligo repigmentation, following a series of
treatments. As of December 31, 2020, there were 832 XTRAC systems placed in dermatologists’ offices in the United States
under our dermatology recurring procedure model, up from 820 at the end of December 31, 2019. Under the dermatology
recurring procedure model, the XTRAC system is placed in a physician's office and fees are charged on a per procedure basis or a
fee is charged on a periodic basis not to exceed an agreed upon number of procedures. The XTRAC system’s use for psoriasis is
covered by nearly all major insurance companies, including Medicare. The VTRAC Excimer Lamp system, offered
internationally in addition to the XTRAC, provides targeted therapeutic efficacy demonstrated by excimer technology with the
simplicity of design and reliability of a lamp system. There are approximately 7.5 million people in the United States and up to
125 million people worldwide suffering from psoriasis, and 1% to 2% of the world’s population suffers from vitiligo. In 2020,
domestically, we estimate over 241,000 XTRAC laser treatments were performed.

Effective February 1, 2017, we entered into an exclusive OEM distribution agreement with Esthetic Education, LLC to be
the exclusive marketer and seller of private label versions of the SkinStylus® MicroSystem and associated parts under the name
of STRATAPEN. This three-year agreement has minimum annual sales requirements for renewal. The agreement expired in
January 2020, but we continue to sell the product on a purchase order basis.

These agreements are expected to increase recurring revenues over time, but will have an initial impact of reducing sales
of dermatology procedures equipment in the near term as the contract is to apply a similar recurring revenue model as we have in
the United States.

In late 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”) which became a global pandemic. The
COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, constrained work force
participation and created significant volatility and disruption of financial markets. In addition, the pandemic led to the suspension
of elective procedures in the U.S. and to the temporary closure of many physician practices which are our primary customers. We
do not know the extent of the impact on our customers and their potential for permanent closure. While many offices have been
reopening, the on-going impact of the COVID-19 pandemic 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 the duration and spread of the COVID-19 outbreak, continued restrictions on business operations and transport and the
continued impact on worldwide economic and geopolitical conditions, all of which are uncertain and cannot be predicted.

Domestically, as the procedures in which our devices are used are elective in nature; and as social distancing, travel
restrictions, quarantines and other restrictions have become prevalent in the United States, this has had a negative impact on our
recurring revenue model and our financial position and cash flow. The impact to the Company’s customers may also result in an
increase in past due accounts receivable or customer bankruptcies. The virus has disrupted the supply chain from China and other
countries and may continue to do so. We depend upon our supply chain to provide a steady source of components to manufacture
and repair our devices. A shut-down of suppliers within our supply chain would severely disrupt our ability to sell, place and
repair our products, and this would have a material impact on our financial position and cash flow.

To mitigate the impact of COVID-19, the Company has taken a variety of measures to ensure the availability and
functioning of its critical infrastructure by implementing business continuity plans and to promote the safety and security of its
employees while complying with various government mandates, including work-from-home arrangements and social-distancing
initiatives to reduce the transmission of COVID-19, such as providing face masks for employees at facilities significantly
impacted and requiring on-site body temperature monitoring before entering facilities. In addition, we have created programs
utilizing its direct to consumer advertising and call center contact to patients and partner clinics to restart our partners’
businesses. In order to conserve its cash during this time period, the Company furloughed employees, reduced all discretionary
spending, reduced all inventory purchases and delayed payments to vendors. We continue to manage our expenses and cash
disbursements. Delayed payments to vendors were cumulatively, approximately $678 as of December 31, 2020. With the receipt
of the PPP loan, we brought back most of our employees on a leave of absence. In December 2020, we submitted an application
for loan forgiveness to the SBA and subject to the SBA’s approval, of 100% of the loan proceeds.

In the event our own employees are impacted through direct or ancillary contact with a person who has the virus, we may
need to devise other methods of transacting business in our offices by working from home and or potentially ceasing operations
for a period of time.

The COVID-19 pandemic has had a negative impact on the Company’s results of operations and financial performance
for the first three quarters of fiscal 2020, and the Company expects it will continue to have a negative impact on its revenue,
earnings and cash flows in the next quarter and as long as the pandemic continues. Accordingly, current results and financial
condition discussed herein may not be indicative of future operating results and trends.

Key Technology

•

•
•

XTRAC® Excimer Laser. XTRAC originally received FDA clearance in 2000 and has since become a widely recognized treatment among
dermatologists for psoriasis and other skin diseases. The XTRAC excimer laser 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, a
figure that is increasing.
In the third quarter of 2018 we announced the FDA granted clearance for our Multi Micro Dose (MMD) tip for our XTRAC excimer laser. 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 the third quarter of 2018 we announced the launch of our S3, the next generation XTRAC. The S3 is smaller, faster and has a smart user
interface.
In January 2020, we announced the FDA granted clearance of our XTRAC Momentum Excimer Laser platform.
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.

Recent Developments

Home by XTRAC™

In January 2020, we introduced Home by XTRAC business, leveraging in-house resources including an at-home
insurance reimbursed treatment option for patients with certain skin diseases that do not qualify for in-office treatments.

Chinese Distribution Agreement

In February 2021, the Company signed an agreement with our Chinese distributor for a combination of direct capital sales

and recurring revenues for the country of China. The initial term ends December 2024 and thereafter automatically renews for a
period of twelve months subject to certain conditions.

Japanese Distribution Agreement

In September 2020, we signed a direct distribution agreement with our Japanese distributor for a combination of direct
capital sales and recurring revenue for the Country of Japan. This agreement is expected to increase recurring revenues over time,
but will have an initial impact of reducing sales of dermatology procedures equipment in the near term as the contract is to apply
a similar recurring revenue model as we have in the United States. The term ended December 2020 and is automatically renewed
for twelve months, subject to certain conditions.

Korean Distribution Agreement

In the third quarter of 2019, we signed a direct distribution agreement with our Korean distributor for a combination of
direct capital sales and recurring revenues for the country of South Korea. This agreement is expected to increase recurring
revenues over time, but will have an initial impact of reducing sales of dermatology procedures equipment in the near term as the
contract is to apply a similar recurring revenue model as we have in the United States. The current term is until July 2021 with up
to three additional twelve-month terms, subject to certain conditions.

MidCap Credit Facility Extinguishment and Fixed Rate-Term Promissory Note

On May 29, 2018, we entered into a Fourth Amendment to Credit Agreement (the “Amendment”), pursuant to which the
Company repaid $3.0 million in principal of the existing $10.6 million credit facility established with MidCap Financial Trust in
2015. The terms of the credit facility were amended to impose less restrictive covenants and lower prepayment fees for the
Company and extended the maturity date to May 2022. The Amendment modified the principal payments payable under the
Credit Agreement including a period of 18 months where there were no principal payments due. Principal payments beginning
December 2019 were $252 plus interest per month. The interest rate on the credit facility was one-month LIBOR plus 7.25%.

On December 30, 2019, we closed on a $7.3 million loan with a commercial bank pursuant to a one-year Fixed Rate –
Term Promissory Note (the “Note”). Our obligations under the Note are secured by an Assignment and Pledge of Time Deposit,
under which we have pledged, to the commercial bank, the proceeds of a time deposit account in the amount of the Note. We
concurrently fully repaid (including payment of termination and exit fees) our existing long-term debt credit facility with MidCap
Financial Trust. The Note was renewed through December 30, 2021.

Paycheck Protection Program

On April 22, 2020, we closed on a loan of $2.0 million (the “PPP loan”) from a commercial bank, pursuant to the
Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP
loan matures on May 1, 2022 and bears an interest rate of 1% per annum. Payments of principal and interest of any unforgiven
balance was scheduled to commence on December 1, 2020 but is deferred until the SBA approves of the forgiveness amount.
Under the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”), (i) the first payment date for the PPP
loan will be the earlier of (a) 10 months after the end of the “covered period” (as determined under the PPP) or (b) the date the
bank receives a remittance of the forgiven amount from the SBA, and (ii) the PPP loan’s maturity is extended to five years (from
2 years).

All or a portion of the PPP loan may be forgiven by the lender upon application by US beginning 60 days after loan
approval and upon documentation of expenditures in accordance with the requirements set forth by the Small Business
Administration (the “SBA”) pursuant to the CARES Act. Under the CARES Act, loan forgiveness is available for the sum of
documented payroll costs, covered rent payments, covered mortgage interest and covered utilities at either; our discretion, the
eight-week period or twenty-four week period beginning on the date of disbursement of proceeds from the PPP loan. For
purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100, prorated annually.
Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced under certain circumstances if
full-time headcount declines or if salaries and wages for employees with salaries of $100 or less annually are reduced. In the
event the PPP loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding
principal. In December 2020, we submitted for forgiveness to the SBA, and subject to the SBA’s approval, of 100% of the loan
proceeds.

Economic Injury Disaster Loan

On May 22, 2020, we executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the
SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on
the Company’s business. The principal amount of the EIDL Loan is up to $500, with proceeds to be used for working capital
purposes. On June 12, 2020, we received these funds from the SBA. Interest accrues at the rate of 3.75% per annum. Installment
payments, including principal and interest, are due monthly beginning March 26, 2021 (twelve months from the date of the
promissory note) in the amount of $2. The balance of principal and interest is payable over the next thirty years from the date of
the promissory note. There are no penalties for prepayment. Based upon guidance issued by the SBA on June 19, 2020, the EIDL
Loan is not required to be refinanced by the PPP loan.

Sales and Marketing

As of December 31, 2020, our sales and marketing personnel consisted of 57 full-time employees, inclusive of a vice
president of sales, a direct sales organization, as well as an in-house call center staffed with patient advocates and a
reimbursement group that provides necessary insurance information to our physician partners and their patients.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations in this Report are based upon our
consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”). The preparation of financial statements requires management to make estimates and
judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures at the date of the
financial statements. On an on-going basis, we evaluate our estimates, including, but not limited to, those related to revenue
recognition, accounts receivable, deferred revenues, inventories, useful lives and impairment of property and equipment and of
intangibles and goodwill, fair value of equity-based awards, sales and use tax, deferred taxes, financial instruments (derivative
instruments and warrants) and accruals for warranty claims. We use authoritative pronouncements, historical experience and
other assumptions as the basis for making estimates. Actual results could differ from those estimates.

Management believes that the following critical accounting policies affect our more significant judgments and estimates

in the preparation of our consolidated financial statements.

Revenue Recognition

In the Dermatology Recurring Procedures Segment we have two types of arrangements for our phototherapy treatment
equipment as follows: (i) we place our lasers in a physician’s office at no charge to the physician, and generally charge the
physician a fee for an agreed upon number of treatments; or (ii) we place our lasers in a physician’s office and charge the
physician a fixed fee for a specified period of time not to exceed an agreed upon number of treatments; if that number is
exceeded additional fees will have to be paid.

For the purposes of U.S. GAAP only, these two types of arrangements are treated under the guidance of ASC 842, Leases.
While these arrangements are not contractually operating leases, since we sell the physician access codes in order to operate the
treatment equipment, these are similar to operating leases for accounting purposes since we provide the customers limited
arrangement rights to use the treatment equipment and the treatment equipment resides in the physician’s office and we may
exercise the right to remove the equipment upon notice, under certain circumstances, while the physician controls the utility and
output of such equipment during the term of the arrangement as it pertains to the use of access codes to treat the patients. The
terms of the domestic arrangements are generally 36 months with automatic one-year renewals and include a termination clause
that can be affected at any time by either party with 30 to 60 day notice. Amounts paid are generally non-refundable. For the first
type of arrangement, sales of access codes are considered variable treatment code payments and are recognized as revenue over
the estimated usage period of the agreed upon number of treatments. For the second type of arrangement, customers purchase
access codes and revenue is recognized ratably on a straight-line basis as the lasers 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, through our Korean, Japanese
and, in 2021, Chinese distributors, we sell access codes for a fixed amount on a monthly basis to end user customers and the
terms are generally 48 months, with termination in the event of the customers’ failure to remit payments timely, and includes a
potential buy-out at the end of the term of the contract. Pre-paid amounts are recorded in deferred revenue and recognized as
revenue over the lease term in the patterns described above. Under both methods, pricing is fixed with the customer.

With respect to lease and non-lease components, we adopted the practical expedient to account for the arrangement as a

single lease component.

In the Dermatology Procedures Equipment segment we sell our products internationally through distributors and
domestically, directly to a physician. For the product sales, we recognize revenues when control of the promised products is
transferred to either our distributors or end-user customers, in an amount that reflects the consideration we expect 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, we must have a present right to payment and legal title must have passed to the customer. We ship most of our
products FOB shipping point, and as such, we primarily transfer control and record revenue upon shipment. From time to time
we will grant certain customers, for example governmental customers, FOB destination terms, and the transfer of control for
revenue recognition occurs upon receipt. We have 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.

Remaining performance obligations related to ASC 606 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 excludes any
equipment accounted for as leases. 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 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.

With respect to contract acquisition costs, we applied the practical expedient and expense these costs immediately.

Inventory

We account for inventory at the lower of cost or net realizable value. Cost is determined to be the purchased cost for raw
materials and the production cost (labor and indirect manufacturing cost) for work-in-process and finished goods. The cost is
determined on the first-in, first-out method. Throughout the laser manufacturing process, the related production costs are
recorded within inventory. Work-in-process is immaterial, given the typically short manufacturing cycle, and is therefore
included in raw materials. We perform full physical inventory counts for XTRAC and cycle counts on the other inventory to
maintain controls and obtain accurate data.

Our XTRAC laser is either (i) sold to distributors or physicians directly or (ii) placed in a physician's office and remains
our property. The cost to build a laser, whether for sale or for placement, is accumulated in inventory. When a laser is placed in a
physician’s office, the cost is transferred from inventory to “lasers in service” within property and equipment. At times, units are
shipped to distributors but revenue is not recognized until all of the revenue recognition criteria has been met and, until that time,
the unit is included in inventory.

Reserves for slow-moving, excess and obsolete inventories, reduce the historical carrying value of our inventories, and
are provided based on historical experience and product demand. Management evaluates the adequacy of these reserves
periodically based on forecasted sales and market trends.

Allowance for Doubtful Accounts

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. From time to
time, our customers dispute the amounts due to us, and, in other cases, our customers experience financial difficulties and cannot
pay on a timely basis. In certain instances, these factors ultimately result in uncollectible accounts. The determination of the
appropriate reserve needed for uncollectible accounts involves significant judgment. Such factors include changes in the financial
condition of our customers as a result of industry, economic or customer-specific factors. A change in the factors used to evaluate
collectability could result in a significant change in the allowance needed. As of December 31, 2020, and 2019, allowance for
doubtful accounts was $274 and $184, respectively.

Property and Equipment

As of December 31, 2020, and 2019, we had net property and equipment of $5,529 and $5,369, respectively. The most
significant component relates to the XTRAC lasers placed by us in physicians’ offices. We own the equipment and charge the
physician for access codes for an agreed upon number of treatments. The recoverability of the net carrying value of the lasers is
predicated on continuing revenues from the recurring revenue business model. If the physician does not generate sufficient
treatments, then we may remove the laser from the physician’s office and redeploy it elsewhere. XTRAC lasers placed in service
are depreciated on a straight-line basis over the estimated useful life of five-years. For other property and equipment, depreciation
is calculated on a straight-line basis over the estimated useful lives of the assets, primarily three to seven years for computer
hardware and software, furniture and fixtures, and machinery and equipment. Leasehold improvements are amortized over the
lesser of the useful lives or lease terms. Useful lives are determined based upon an estimate of either physical or economic
obsolescence, or both.

Goodwill

Our balance sheet includes goodwill which is subject to an annual assessment for impairment under FASB ASC Topic
350, “Goodwill and Other Intangibles” and is not amortizable. Management’s judgments regarding the existence of impairment
indicators, on an interim or annual basis, are based on various factors, including market conditions and operational performance
of our business. As of December 31, 2020, and 2019, we had $8,803 of goodwill accounting for 18.8% and 18.6% of our total
assets, respectively. The acquisition of the XTRAC and VTRAC businesses that gave rise to the recorded goodwill closed on
June 22, 2015. The determination of the fair value of the reporting units to which the goodwill relates requires management to
make estimates and assumptions. We test our goodwill for impairment at least annually. This test is conducted in December of
each year in connection with the annual budgeting and forecast process. Also, on a quarterly basis, we evaluate whether events or
changes in circumstances have occurred that would negatively impact the realizable value of our intangibles or goodwill.

We organized our business into two operating segments, which also serve as our goodwill reporting units and are defined
as Dermatology Recurring Procedures and Dermatology Procedures Equipment. The balance of our goodwill for each of our
segments as of December 31, 2020, is as follows: Dermatology Recurring Procedures $7,958 and Dermatology Procedures
Equipment $845. We completed our annual goodwill impairment analysis as of December 31, 2020, for our reporting units. Our
assessment concluded that there was no impairment of goodwill. Our analysis employed the use of both a market and income
approach, with each method given equal weighting. Significant assumptions used in the income approach include growth and
discount rates, profit margins and our weighted average cost of capital. We used historical performance and management
estimates of future performance to determine profit margins and growth rates. Discount rates selected for each reporting unit
varied. Our weighted average cost of capital included a review and assessment of market and capital structure assumptions. For
both reporting units the fair value was in excess of its carrying value. Considerable management judgment is necessary to
evaluate the impact of operating changes and to estimate future cash flows. Changes in our actual results and/or estimates or any
of our other assumptions used in our analysis could result in a different conclusion.

Intangibles

All of our intangibles are definite lived assets, with amortization recorded over the estimated useful life on a straight-line
basis. As of December 31, 2020, and 2019, we had $6,345 and $7,955 of intangible assets accounting for approximately 13.6%
and 16.8% of our total assets, respectively. The definite lived assets are tested for impairment when events or changes in
circumstances indicate that the carrying value of the asset group may not be recoverable. Our intangible assets are grouped into
five categories: core technology, product technology, customer relationships, and trade names. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset group to the undiscounted cash flows attributable to the
asset group. If the carrying amount of an asset group exceeds its undiscounted cash flows, an impairment charge is recognized in
the amount by which the carrying amount of the asset group exceeds its fair value of the asset group.

Considerable management judgment is necessary to assess recoverable amounts of intangible assets and measure fair
value of the intangible assets that were impaired as such measurements involve estimation of future revenues, royalty rates, profit
margins and other cash flows. Changes in our actual results and/or estimates or any of our other assumptions used in our analysis
could result in a different conclusion.

Income taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in
each of the jurisdictions in which we operate. This process requires us to estimate our actual current tax exposure and make an
assessment of temporary differences resulting from differing treatment of items, for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then
assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that
recovery is not more likely than not, we establish a valuation allowance. To the extent we establish a valuation allowance or
increase this allowance in a period, we must include an expense within the tax provision in the consolidated statement of
operations. Significant management judgment is required in determining any valuation allowance recorded against our deferred
tax assets. In the event that we generate taxable income in the jurisdictions in which we operate and in which we have net
operating loss carry forwards, we may be required to adjust our valuation allowance.

ASC Topic 740-10 requires that we recognize in our financial statements the impact of a tax position, if that position will
more likely than not be sustained upon examination, based on the technical merits of the position, without regard to the likelihood
that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest
amount of tax benefit, that is greater than 50%, likely to be recognized upon ultimate settlement with the taxing authority is
recorded. We do not have any uncertain tax positions or accrued penalties and interest. If such matters were to arise, we would
recognize interest and penalties related to income tax matters in income tax expense.

Stock-based Compensation

We account for stock-based compensation to employees in accordance with the “Share-Based Payment” accounting
standard. The standard requires estimating the fair value of equity-based payment awards on the date of grant using an option-
pricing model. The value of the award is recognized as an expense over the requisite service periods in our consolidated
statements of operations. For performance-based awards, we recognize the expense only if we deem it probable that the vesting
condition will occur. There were no performance awards granted in 2020 or 2019.

The fair value of employee stock options is estimated using a Black-Scholes valuation model. Compensation costs are
recognized over the requisite service period. Total stock-based compensation expense was $1,633 and $1,195 for the years ended
December 31, 2020, and 2019, respectively.

Fair Value Measurements

We measure fair value in accordance with Financial Accounting Standards Board Accounting Standards Codification 820,
Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework and
gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. Fair
value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a market-based measurement that should be determined based on
assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions there
exists a three-tier fair-value hierarchy, which prioritizes the inputs used in measuring fair value.

Results of Operations

The following financial data, in this narrative, are expressed in thousands, except for the earnings per share and per

treatment data.

Revenues

The following table presents revenues from our two segments for the periods indicated below:

Dermatology Recurring Procedures
Dermatology Procedures Equipment
Total Revenues

Dermatology Recurring Procedures

For the Year Ended December 31,

2020

2019

17,409 $
5,681
23,090 $

23,713
7,873
31,586

Revenues from Dermatology Recurring Procedures for the year ended December 31, 2020 was $17,409 which
approximates 249,000 treatments, with prices ranging from $65 to $95 per treatment. Revenues from Dermatology Recurring
Procedures for the year ended December 31, 2019 was $23,713 which approximates 337,000 treatments, with prices ranging
from $65 to $95 per treatment.

Increases in procedures are dependent upon building market acceptance through marketing programs with our physician
partners and their patients to show that the XTRAC procedures will be of clinical benefit and will be generally reimbursed by
insurers. We believe that several factors had an impact on the prescribed use of XTRAC treatments for psoriasis and vitiligo
patients. Specifically, we believe that there is a lack of awareness of the positive effects of XTRAC treatments among both
sufferers and providers; and the treatment regimen which can sometimes require up to 12 or more treatments has limited XTRAC
use to certain patient populations. Therefore, we use a direct to patient awareness program for XTRAC advertising in the United
States, targeting psoriasis and vitiligo patients through a variety of media including television and radio; and through our use of
social media such as Facebook and Twitter. We monitor the results of our advertising expenditures in this area to reach the more
than 10 million patients in the United States afflicted with these diseases. We have and expect to continue to increase spending in

the direct to patient programs to drive patients to our partner clinics to increase recurring revenue. The increase in these programs
precedes any increase in the recurring revenue as there is a lag between advertising and patients then receiving treatment, which
we estimated to be three to nine months.

During 2020, our recurring procedures revenue was negatively impacted by the COVID-19 pandemic. The pandemic led
to the suspension of elective procedures, such as XTRAC procedures and to the temporary closure of many physician practices
which are our primary customers. We do not know the full extent of the impact on our customers including the potential of
permanent closure.

Revenues from Dermatology Recurring Procedures are recognized over the estimated usage period of the agreed upon
number of treatments, as the treatments are being used. As of December 31, 2020, and 2019, we deferred net revenues of $1,765
and $2,286, respectively, which will be recognized as revenue over the remaining usage period.

Dermatology Procedures Equipment

For the year ended December 31, 2020, dermatology equipment revenues were $5,681. Internationally, we sold 36
systems for the year ended December 31, 2020, 22 of which were VTRAC systems. Domestically, we sold 2 systems for the year
ended December 31, 2020. For the year ended December 31, 2019, dermatology equipment revenues were $7,873.
Internationally, we sold 74 systems for the year ended December 31, 2019, 7 of which were VTRAC systems. Domestically, we
sold 6 systems for the year ended December 31, 2019.

Additionally, included in the year ended December 31, 2019, was $185 in revenues for 5 Nordlys units (and accessories).

Cost of Revenues
The following table illustrates cost of revenues from our two business segments for the periods listed below:

Dermatology Recurring Procedures
Dermatology Procedures Equipment
Total Cost of Revenues

Gross Profit Analysis

For the Year Ended December 31

2020

2019

5,832 $
3,124
8,956 $

7,033
4,283
11,316

Gross profit decreased to $14,134 for the year ended December 31, 2020, from $20,270 during the same period in 2019.
As a percentage of revenues, the gross margin was 61.2% for the year ended December 31, 2020, versus 64.2% during the same
period in 2019. The following tables analyze changes in our gross margin, by segment, for the periods presented below:

Revenues

Percent (decrease)

Cost of revenues

Percent (decrease)

Gross profit

Gross profit percentage

Dermatology Recurring Procedures

Revenues

Percent (decrease)

Cost of revenues

Percent (decrease)

Gross profit

Gross profit percentage

Company Profit Analysis

For the Year Ended December 31,

2020

2019

23,090

$
(26.9%)
8,956
(20.9%)
$

14,134

61.2%

31,586

11,316

20,270

64.2%

For the Year Ended December 31,

2020

2019

17,409

$
(26.6%)
5,832
(17.1%)
$

11,577

66.5%

23,713

7,033

16,680

70.3%

The primary reasons for the decrease in gross profit were the result of lower revenues as a result of the COVID-19
pandemic and unapplied costs partially offset by lower depreciation expense on lasers placed in the field. Decreases in utilization
of lasers placed in the field will result in lower margins as we have certain fixed costs in the business.

Dermatology Procedures Equipment

Revenues

Percent (decrease)

Cost of revenues

Percent (decrease)

Gross profit

Gross profit percentage

For the Year Ended December 31,

2020

2019

5,681
$
(27.8%)
3,124
(27.1%)
$
2,557

45.0%

7,873

4,283

3,590

45.6%

The primary reason for the decrease in gross profit for the year ended December 31, 2020, compared to the same period in

2019, was primarily the result of lower sales and unapplied costs.

Engineering and Product Development

Engineering and product development expenses for the year ended December 31, 2020, increased to $1,274 from $1,002
for the year ended December 31, 2019. The increase was due to higher consulting costs associated with certain engineering
projects.

Selling and Marketing Expenses

For the year ended December 31, 2020, selling and marketing expenses decreased to $9,038 from $12,003 for the year
ended December 31, 2019. The decrease was primarily due to the downturn in business as a result of the COVID-19 pandemic.
We managed our costs with lower tradeshow costs, travel costs, direct to consumer advertising and compensation.

General and Administrative Expenses

For the year ended December 31, 2020, general and administrative expenses decreased to $7,898 from $10,275 for the
year ended December 31, 2019. The decrease was primarily the result of approximately $2.0 million in accounting and legal costs
associated with our restatement of our financial statements as disclosed in our Annual Report on Form 10-K in 2019. We did not
incur these costs in 2020.

Interest Expense, net

Interest expense for the year ended December 31, 2020 was $61 compared to $515 for the year ended December 31, 2019.
The decrease was due to higher interest income on the higher cash equivalent balance in 2020 and lower interest expense, in
connection with our refinancing.

Other (Expense) Income, net

In connection with our pay-off of the MidCap debt in December 2019, we incurred a loss on debt extinguishment of

$414.

Income Taxes

Income tax expense for the year ended December 31, 2020, was $275 compared to a benefit of $149 for the year ended
December 31, 2019. The activity was the result of the change in the Tax Cut and Jobs Act (the “Tax Act”) in the accounting for
the net operating losses.

Net Loss

The factors described above resulted in net loss of $4,412 during the year ended December 31, 2020, as compared to a

net loss of $3,790 during the year ended December 31, 2019.

Non-GAAP adjusted EBITDA

We have determined to supplement our consolidated financial statements, prepared in accordance with U.S. GAAP,
presented elsewhere within this Report, with certain non-GAAP measures of financial performance. These non-GAAP measures
include non-GAAP adjusted EBITDA.

This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for Net Earnings
(Loss) determined in accordance with U.S. GAAP, and should not be considered in isolation or as a substitute for analysis of the
Company's results as reported under U.S. GAAP, nor is it necessarily comparable to non-GAAP performance measures that may
be presented by other companies. We consider these non-GAAP measures in addition to our results prepared under current
accounting standards, but they are not a substitute for, nor superior to, U.S. GAAP measures. These non-GAAP measures are
provided to enhance readers’ overall understanding of our current financial performance and to provide further information for
comparative purposes. This supplemental presentation should not be construed as an inference that the Company's future results
will be unaffected by similar adjustments to Net Earnings (Loss) determined in accordance with U.S. GAAP.

Specifically, we believe the non-GAAP measures provide useful information to management and investors by isolating
certain expenses, gains and losses that may not be indicative of our core operating results and business outlook. In addition, we
believe non-GAAP measures enhance the comparability of results against prior periods. Reconciliation to the most directly
comparable GAAP measure of all non-GAAP measures included in this Report is as follows:

Net loss

Adjustments:

Income taxes
Depreciation and amortization *
Interest expense, net

Non-GAAP EBITDA

Stock-based compensation expense
Impairment of lasers placed-in-service
Loss on extinguishment of debt

Non-GAAP adjusted EBITDA

For the Year Ended December 31,

2020

2019

(4,412) $

(3,790)

275
3,911
61
(165)

1,633
24
-
1,492 $

(149)
4,821
515
1,397

1,195
30
414
3,036

* Includes depreciation on lasers placed-in-service of $1,930 and $2,660 for the years ended December 31, 2020, and 2019,
respectively.

Liquidity and Capital Resources

As of December 31, 2020, we had $5,993 of working capital compared to $6,121 as of December 31, 2019. Cash and
cash equivalents and restricted cash were $18,112 as of December 31, 2020, as compared to $15,629, as of December 31, 2019.
The increase to our cash was the result of the receipt of proceeds from the PPP and EIDL loans and management of payables.
Delayed payment to vendors totaled $678 at December 31, 2020.

On December 30, 2019, the Company closed on a $7,275 loan with a commercial bank pursuant to a one-year Fixed Rate
– Term Promissory Note (the “Note”), which was renewed effective December 30, 2020 primarily to extend the term of the Note
one-year. The Company's obligations under the Note are secured by an Assignment and Pledge of Time Deposit (the
“Agreement”), under which the Company has pledged the proceeds of a time deposit account in the amount of the loan to the
commercial bank. The Company fully repaid (including payment of termination and exit fees) its existing long-term debt credit
facility with Midcap Financial Trust. The transaction was accounted for as a debt extinguishment and the Company recorded a
loss of $414. The Note was renewed for another year through December 30, 2021.

We have been negatively impacted by the COVID-19 pandemic, have historically experienced recurring losses and have
been dependent on raising capital from the sale of securities in order to continue to operate and meet our obligations in the
ordinary course of business. Since the equity financing in May 2018 and a change in management, and prior to COVID, we had
improved revenues, gross profit, generated positive cash flow from operations, refinanced our debt at a lower interest rate and
received cash proceeds from the PPP loan and the EIDL loan. We believe that our cash and cash equivalents, combined with the
anticipated revenues from the sale or use of our products and the proceeds from the PPP loan and the EIDL loan, will be
sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements
associated with our existing operations through the next 12 months following the date of the issuance of these consolidated
financial statements. However, the negative impact of the COVID-19 outbreak on the financial markets could interfere with our
ability to access financing and to access it on favorable terms, if at all.

Net cash provided by operating activities was $2,096 for the year ended December 31, 2020, compared to cash provided
by operating activities of $2,229 for the year ended December 31, 2019. The cash flows provided by operating activities for the
year ended December 31, 2020, were unfavorably impacted by lower accrued expenses, lower deferred revenue and net loss,
lower depreciation and higher inventory partially offset by collection of accounts receivable, higher accounts payables as we are
managing our payments to vendors and the non-cash impact of higher stock-based compensation.

Net cash used in investing activities was $2,159 for the year ended December 31, 2020, compared to cash used in
investing activities of $2,791 for the year ended December 31, 2019. The primary reason for the decrease in cash used was our
investment in lasers placed in service in the dermatology recurring procedures business segment due to the impact of COVID-19.

Net cash provided by financing activities was $2,546 for the year ended December 31, 2020, compared to cash used in
financing activities of $296 for the year ended December 31, 2019 due to the receipt of the proceeds from the PPP and EIDL
loans in 2020 and the payoff of the MidCap debt in 2019.

Off-Balance Sheet Arrangements

At December 31, 2020, we had no off-balance sheet arrangements.

Impact of Inflation

We have not operated in a highly inflationary period, and we do not believe that inflation has had a material effect on our

revenues or expenses. If we enter an inflationary period, it could have a material impact on our expenses.

Item 7A.

Quantitative and Qualitative Disclosure about Market Risk

Not applicable.

Item 8.

Financial Statements and Supplementary Data

The financial statements required by this Item 8 are included in this Report and begin on page F-1.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

Limitations of Internal Control System

Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial
reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and
instances of fraud, if any, within our company have been detected. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement preparation and presentation. Management does not expect
that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all
fraud.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the design and operation of our disclosure controls and procedures, (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), as of December 31, 2020. Based on that
evaluation, management has concluded that, as of such date, our disclosure controls and procedures were effective at the
reasonable assurance level.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us
in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.

In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and
procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives
of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management
necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions.

Management's Report on Internal Control over Financial Reporting

Our Management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness
of our internal control over financial reporting based on the framework established in the 2013 Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this
assessment, our management has determined that our internal control over financial reporting was effective as of December 31,
2020.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting in our most recent fiscal quarter that has

materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.

Other Information

None.

Item 10.

Directors, Executive Officers and Corporate Governance

PART III

Our directors currently have terms which will end at our next annual meeting of the stockholders or until their successors
are elected and qualify, subject to their prior death, resignation or removal. Officers serve at the discretion of the Board of
Directors. There are no family relationships among any of our directors and executive officers. Members of our Board of
Directors are encouraged to attend meetings of the Board of Directors and the Annual Meeting of Stockholders. The Board of
Directors held nine meetings during 2020.

The following sets forth certain biographical information concerning our current directors and our executive officers as of

March 17, 2021.

Name

Dr. Uri Geiger
Robert J. Moccia
Samuel E. Navarro
Samuel Rubinstein
Nachum Shamir
LuAnn Via

Position
Chairperson of the Board
President, Chief Executive Officer and Director
Director
Director
Director
Vice Chairperson of the Board

Age
53
62
65
81
68
67

Dr. Uri Geiger became our Chairperson of the Board of Directors of the Company in May 2018. Dr. Geiger is a co-
founder and Managing Partner of Accelmed, a private equity investment firm he co-founded in 2009 focused on medical device
companies. Prior to founding Accelmed, Dr. Geiger served as the CEO of Exalenz Bioscience Ltd., a medical technology
company, from May 2006 until December 2008. Prior to that, Dr. Geiger co-founded and was the CEO of GalayOr Networks, a
developer of optical components from 2001 until 2003. Dr. Geiger was also the founding partner of Dragon Variation Fund in
2000, one of Israel’s first hedge funds, which was sold to Migdal in 2007. Dr. Geiger worked on Wall Street during the 1990s,
where he gained a broad understanding of and significant experience in capital markets. Dr. Geiger was formerly an adjunct
professor at Tel Aviv University’s Recanati School of Business where he lectured on private equity and venture capital and
authored the books “Startup Companies and Venture Capital” and “From Concept to Wall Street.” Dr. Geiger served as the
Chairman of the Board of Directors of Cogentix Medical from November 2016 until its sale in April 2018 and he is currently on
the board of a number of public and private medical device companies. We believe Dr. Geiger's qualifications to serve on our
Board of Directors includes his extensive entrepreneurial, management and investment know-how having created and built many
successful medical device enterprises.

Robert J. Moccia was appointed the Company’s Chief Executive Officer effective March 1, 2021. Mr. Moccia has more
than 20 years of executive management experience as President, COO, and CEO of small to mid-sized specialty pharmaceutical
companies and over 35 years of global pharmaceutical experience with expertise in general management, operations, strategic
planning, business development, product development, sales, marketing, and building customer focused organizations. Most
recently, Mr. Moccia co-founded Encore Dermatology and since April 2015 until February 2021, served as its President and
CEO. Prior to founding Encore, Mr. Moccia was CEO of Precision Dermatology Inc., which was sold to Valeant in 2014. Mr.
Moccia has marketed and/or launched over 30 dermatological products in the US and created over $1.2 billion in exit
transactions. He has completed multiple licenses, acquisitions and partnerships in the dermatology space. Mr. Moccia has held
executive management positions at Medicis Pharmaceuticals (Sr. VP of Corporate Development), Graceway Pharmaceuticals
(President & COO), and Bioglan Pharmaceuticals (President). He also spent time at Dermik and Stiefel Laboratories in sales,
marketing, and business development. Mr. Moccia holds a B.S. in Biology from Stonehill College. We believe Mr. Moccia’s
qualifications to serve on our Board of Directors includes his extensive entrepreneurial and management experience including
those focused on the dermatology space.

Samuel Navarro became a director of the Company in March 2014 and serves as a member of the Audit Committee. Since
October 2008, Mr. Navarro has been Managing Partner at Gravitas Healthcare, LLC, which provides strategic advisory services
to medical technology companies. From September 2005 to October 2008, Mr. Navarro was Managing Director of Cowen & Co.
in New York City and head of their Medical Technology Investment Banking initiatives, leading a team of senior people, and was
responsible for building the franchise across all product categories, including M&A/Advisory and financing services and
products. From 2001 to 2005, Mr. Navarro was at The Galleon Group running the Galleon Healthcare Fund as a Senior Portfolio
Manager. He was responsible for all health care investments across all sectors, including pharmaceutical/biopharmaceutical
industries, medical technology and hospital supplies, and all areas of healthcare services. From July 1998 to February 2001,
Mr. Navarro was Global Head of Healthcare Investment Banking at ING Barings. Mr. Navarro has also served or serves on the
boards of Arstasis, BioSig Technologies, Derma Sciences, Dextera Surgical, MicroTherapeutics, Jomed, Strata Skin Sciences and
Pixelux Entertainment. Mr. Navarro received an MBA in Finance from The Wharton School at the University of Pennsylvania, a
Master of Science in Engineering from Stanford University and a Bachelor of Science in Engineering from The University of
Texas at Austin. We believe Mr. Navarro's qualifications to serve on the Board of Directors include his wealth of knowledge and
industry expertise in finance, investment banking, mergers and acquisitions, equity research and investment management
experience in the medical device industry.

Shmuel (Milky) Rubinstein became a director of the Company in May 2018 and serves on the Audit Committee and on
the Compensation, Nominating and Governance Committee. Mr. Rubinstein has served for over 20 years as the Chief Executive
Officer and General Manager of Taro Pharmaceuticals Industries, a NASDAQ traded dermatology company. Under his
management, Taro grew to become a multinational company with over 1,000 employees worldwide and turnover of close to
$450 million. In 2003, Mr. Rubinstein received the Exceptional Industrialist award. During these years he also finished an
International Marketing Course at the Wharton School of the University of Pennsylvania. Mr. Rubinstein is the Chairman of
Trima Pharma’s Board and serves, or has served, as a board member in Keystone Dental, Clal Biotechnology Industries, Exalenz,
Medison Biotech, Kamada, and as consultant to BDO and Sol-Gel Pharma. Milky is also a director at the Medical Research Fund
near The Tel Aviv Sourasky Medical Center and The National Authority for Yiddish Culture. We believe Mr. Rubinstein's
qualifications to serve on the Board of Directors include his wealth of knowledge and industry expertise in finance, investment
banking, mergers and acquisitions, equity research and investment management experience in the dermatology industry.

Nachum (Homi) Shamir became a director of the Company in May 2018 and chairs our Compensation, /Nominating and
Governance Committee. Mr. Shamir has been the President and Chief Executive Officer of Luminex Corporation. He also
became Chairman of the Board in September 2020. Luminex develops, manufactures, and markets biological testing technologies
in the clinical diagnostic and life science industries, since October 2014. Mr. Shamir previously served, from 2006 to 2014, as
President and CEO of Given Imaging, a developer, manufacturer, and marketer of diagnostic products for the visualization and
detection of disorders of the gastrointestinal tract. Prior to joining Given Imaging, Mr. Shamir was Corporate Vice President of
Eastman Kodak Company and President of Eastman Kodak´s Transaction and Industrial Solutions Group. Additionally, he served
over 10 years at Scitex Corporation in positions of increasing responsibility, including President and CEO from 2003 to 2004.
Prior to Scitex Corporation, Mr. Shamir held senior management positions at various international companies mainly in the Asia
Pacific regions. Mr. Shamir currently serves as a director in Luminex Corp (LMNX) and previously served in Given Imaging
(GIVN), Cogentix Medical (CGNT) and Invendo Medical GMBH. Mr. Shamir holds a Bachelor of Science from the Hebrew
University of Jerusalem and a Masters of Public Administration from Harvard University. We believe Mr. Shamir's qualifications
to serve on the Board of Directors include his wealth of knowledge and industry expertise in finance, investment banking,
mergers and acquisitions, equity research and investment management experience in the life science industry.

LuAnn Via has served as a member of the Board of Directors since April 2012, was named Vice Chairperson in March
of 2021 and is the Chair of the Audit Committee. She has also served as a member of the Compensation, Nominating and
Governance Committee. Ms. Via is currently an Independent Public and Private Board Director and a Retail/Manufacturing
Advisor. Prior to this from November 2012 through January 2017, Ms. Via was President, CEO and Executive Board Member of
Christopher & Banks Corporation, a women’s specialty retailer; a company operating more than 500 retail stores. Ms. Via served
as the President and Chief Executive Officer of Payless ShoeSource, a unit of Collective Brands, Inc., with over 4,000 stores in
50 countries from July 2008 to October 2012 when the company was acquired and taken private. Before joining Payless from
January 2006 Ms. Via served as group divisional President of Lane Bryant and Cacique store chains and as President of
Catherines stores, both divisions of Charming Shoppes, Inc. Prior to this, and for more than 20 years, Ms. Via held several senior
leadership positions with a number of top retailers. Ms. Via is a member of Women Corporate Directors, the only global
membership organization of women directors of corporate and large privately held companies, and The Committee of 200, an
invitation only membership organization of the world’s most successful women entrepreneurs and corporate leaders. We believe
Ms. Via's qualifications to serve on the Board of Directors include her experience in retail/wholesale sales, manufacturing,
marketing, ecommerce and her extensive experience as a CEO and senior executive of several publicly-listed companies.

With respect to the incumbent members of the Board of Directors, none of the members has, in the past 10 years, been
subject to a federal or state judicial or administrative order, judgment, decree or finding, not subsequently reversed, suspended or
vacated, relating to any legal proceedings, which include judicial or administrative proceedings resulting from involvement in
mail or wire fraud or fraud in connection with any business entity or based on violations of federal or state securities,
commodities, banking, or insurance laws and regulations, or any settlement to such actions, and any disciplinary sanction or order
imposed by a stock, commodities or derivatives exchange other self-regulatory organization.

Board Leadership Structure

Our Board of Directors administers its risk oversight function as a whole by making risk oversight a matter of collective
consideration. While management is responsible for identifying risks, our Board of Directors has charged the Audit Committee of
the Board of Directors with evaluating financial and accounting risk, the Compensation, Nominating & Governance Committee
of the Board of Directors with evaluating risks associated with employees and compensation. Investor-related risks are usually
addressed by the Board as a whole.

Compensation, Nominating and Corporate Governance and Audit Committees

General

Our Board of Directors maintains charters for its committees. In addition, our Board of Directors has adopted a written set
of corporate governance guidelines and a code of business conduct and ethics and a code of conduct for our chief executive and
senior financial officers that generally formalize practices that we already had in place. We have adopted a Code of Ethics, an
Anti-Fraud Program and a policy for compliance with the Foreign Corrupt Practices Act. To view the charters of our Audit and
Compensation, Nominating and Corporate Governance Committees, Code of Ethics, corporate governance guidelines, codes of
conduct and whistle blower policy, please visit our website at www.strataskinsciences.com, under the Corporate Governance
section of the Investor Relations page (this website address is not intended to function as a hyperlink and the information
contained on our website is not intended to be a part of this Report). In compliance with Nasdaq rules, the majority of our Board
of Directors is comprised of independent directors. The Board of Directors determined in 2020 that, except for Dr. Geiger, who is
our Chairman and Dr. Rafaeli, who was our Chief Executive Officer until his separation on February 28, 2021, all other current
members of the Board of Directors are independent under the revised listing standards of Nasdaq.

Compensation, Nominating and Governance Committee.

In 2018, the Board determined that the role of the Nominating and Governance Committee should be assumed by the
Compensation Committee, and the committee was renamed the Compensation, Nominating and Governance Committee (the
“Compensation, Nominating Committee”). Our Compensation, Nominating Committee discharges the Board of Directors’
responsibilities relating to compensation of our Chief Executive Officer and other executive officers, produces an annual report
on executive compensation for inclusion in our annual proxy statement and this Report and provides general oversight of
compensation structure. Other specific duties and responsibilities of the Compensation, Nominating Committee include:

•
•

•
•
•
•
•

reviewing and approving objectives relevant to executive officer compensation;
evaluating performance and recommending to the Board of Directors the compensation, including any incentive compensation, of our Chief
Executive Officer and other executive officers in accordance with such objectives;
reviewing employment agreements for executive officers;
recommending to the Board of Directors the compensation for our directors;
administering our equity compensation plans and other employee benefit plans;
evaluating human resources and compensation strategies, as needed; and
evaluating periodically the committee charter.

The Compensation, Nominating and Governance Committee reviews executive compensation from time to time and
reports to the Board of Directors, which makes all final decisions with respect to executive compensation. The Compensation,
Nominating Committee adheres to several guidelines in carrying out its responsibilities, including performance by the employees,
our performance, enhancement of stockholder value, growth of new businesses and new markets and competitive levels of fixed
and variable compensation. The report of the Compensation, Nominating and Governance Committee for 2020 is presented
below.

In absorbing the duties and responsibilities of the Nominating and Governance Committee, except where the Company is
legally required by contract, bylaw or otherwise to provide third parties with the right to nominate directors, the Compensation,
Nominating Committee is responsible for recommending to the Board the nominees for election as directors at the annual
meeting of stockholders and the persons to be elected by the Board to fill any vacancies on the Board. In making such
recommendations, the Compensation, Nominating Committee will consider candidates proposed by stockholders. The Committee
will review and evaluate information available to it regarding candidates proposed by stockholders and shall apply the same
criteria, and will follow substantially the same process in considering them, as it does in considering other candidates. The
Compensation, Nominating Committee is charged with developing and periodically assessing and making recommendations to
the Board concerning appropriate corporate governance policies. The Compensation, Nominating Committee also has oversight
over the Company’s corporate governance guidelines and policies governing the full Board. Other specific duties of the
Compensation, Nominating Committee in its role of overseeing corporate governance and succession planning are:

reviewing and evaluating succession planning for our Chief Executive Officer and other executive officers;

developing and overseeing the corporate governance principles applicable to members of our Board of Directors, officers and employees;
reviewing and approving director compensation and administering the Non-Employee Director Plan;

•
• monitoring the independence of our directors;
•
•
• monitoring the continuing education for our directors; and
•

evaluating annually the committee charter.

Our Board of Directors has adopted a written charter for the Compensation, Nominating and Governance Committee. The
Compensation, Nominating and Governance Committee is currently composed of Nachum Shamir, LuAnn Via and Samuel
Rubinstein. Our Board of Directors determined that each member of the Compensation, Nominating and Governance Committee
as of December 31, 2020, satisfies the independence requirements of Nasdaq. The Compensation, Nominating and Governance
Committee held two formal meetings and several informal during 2020.

REPORT OF THE COMPENSATION, NOMINATING AND GOVERANANCE COMMITTEE OF THE BOARD OF
DIRECTORS

The Compensation, Nominating and Governance Committee which is composed solely of independent directors of the
Board of Directors, assists the Board in fulfilling its responsibilities with regard to compensation matters, and is responsible
under its charter for determining the compensation of the Company’s executive officers. The Committee has reviewed and
discussed the “Executive Compensation” section of this annual report statement with management and recommended to the
Board that the section be included in the Annual Report.

The Compensation, Nominating and Governance Committee:
Nachum Shamir, Chair
LuAnn Via
Samuel Rubinstein

Audit Committee

Our Board of Directors has established an Audit Committee to assist it in fulfilling its responsibilities for general
oversight of the integrity of our consolidated financial statements, compliance with legal and regulatory requirements, the
independent auditors’ qualifications and independence, the performance of our independent auditors and an internal audit
function and risk assessment and risk management. The duties of our Audit Committee include:

•
•
•

•
•
•
•
•

appointing, evaluating and determining the compensation of our independent auditors;
reviewing and approving the scope of the annual audit, the audit fee and the financial statements;
reviewing disclosure controls and procedures, internal control over financial reporting, any internal audit function and corporate policies with
respect to financial information;
reviewing other risks that may have a significant impact on our financial statements;
preparing the Audit Committee report for inclusion in the annual proxy statement;
establishing procedures for the receipt, retention and treatment of complaints regarding accounting and auditing matters;
approving all related party transactions, as defined by applicable Nasdaq Rules, to which we are a party; and
evaluating annually the Audit Committee charter.

The Audit Committee works closely with management as well as our independent auditors. The Audit Committee has the
authority to obtain advice and assistance from, and receive appropriate funding from us for, outside legal, accounting or other
advisors as the Audit Committee deems necessary to carry out its duties.

Our Board of Directors has adopted a written charter for the Audit Committee that meets the applicable standards of the
Commission and Nasdaq. The Audit Committee members are LuAnn Via, Chair, Samuel Rubinstein and Samuel Navarro. The
Audit Committee meets regularly and held six meetings during 2020.

The Board of Directors determined in 2020 that each member of the Audit Committee satisfies the independence and
other composition requirements of the Commission and Nasdaq. Our Board has determined that each member of the Audit
Committee qualifies as an “audit committee financial expert” under Item 407(d)(5) of Regulation S-K and has the requisite
accounting or related financial expertise required by applicable Nasdaq rules.

Stockholder Communications with the Board of Directors

Our Board of Directors has established a process for stockholders to communicate with the Board of Directors or with
individual directors. Stockholders who wish to communicate with our Board of Directors or with individual directors should
direct written correspondence to Jay Sturm, General Counsel at jsturm@strataskin.com or to the following address (our principal
executive offices): Board of Directors, c/o Corporate Secretary, 5 Walnut Grove Drive, Suite 140, Horsham, Pennsylvania 19044.
Any such communication must contain:

•
•
•

a representation that the stockholder is a holder of record of our capital stock;
the name and address, as they appear on our books, of the stockholder sending such communication; and
the class and number of shares of our capital stock that are beneficially owned by such stockholder.

Mr. Sturm, as the Corporate Secretary will forward such communications to our Board of Directors or the specified
individual director to whom the communication is directed unless such communication is unduly hostile, threatening, illegal or
similarly inappropriate, in which case the Corporate Secretary has the authority to discard the communication or to take
appropriate legal action regarding such communication

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors.
Management has the primary responsibility for the financial statements and the reporting process, including the systems of
internal control over financial reporting and disclosure controls and procedures. In fulfilling its oversight responsibilities, the
Audit Committee reviewed the audited financial statements included in this Annual Report on Form 10-K for the year ended
December 31, 2020, with management, including a discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.

The Audit Committee is responsible for reviewing, approving and managing the engagement of the Company’s
independent registered public accounting firm, including the scope, extent and procedures of the annual audit and compensation
to be paid therefore, and all other matters the Audit Committee deems appropriate, including the Company’s independent
registered public accounting firm’s accountability to the Board of Directors and the Audit Committee. The Audit Committee
reviewed with the Company’s independent registered public accounting firm, which is responsible for expressing an opinion on
the conformity of audited financial statements with generally accepted accounting principles, its judgment as to the quality, not
just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the
Audit Committee by the Standards of the Public Company Accounting Oversight Board (“PCAOB”), including PCAOB
Auditing Standard No. 1301, Communications With Audit Committees, the rules of the Securities and Exchange Commission
(SEC) and other applicable regulations, and discussed and reviewed the results of the Company’s independent registered public
accounting firm’s examination of the financial statements. In addition, the Audit Committee discussed with the Company’s
independent registered public accounting firm the independent registered public accounting firm’s independence from
management and the Company, including the matters in the written disclosures and the letter regarding its independence by Rule
3526 of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee
concerning independence. The Audit Committee also considered whether the provision of non-audit services was compatible
with maintaining the independent registered public accounting firm’s independence.

The Audit Committee discussed with the Company’s independent registered public accounting firm the overall scope and
plans for its audit, and received from them written disclosures and letter regarding their independence. The Audit Committee
meets with the Company’s independent registered public accounting firm, with and without management present, to discuss the
results of its examinations, its evaluations of the Company’s internal control over financial reporting and the overall quality of the
Company’s financial reporting. The Audit Committee held six meetings during the fiscal year ended December 31, 2020.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of
Directors (and the Board of Directors has approved) that the audited financial statements be included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2020, for filing with the Commission.

AUDIT COMMITTEE:

LuAnn Via, chair
Samuel Rubinstein
Samuel Navarro

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors and executive officers and beneficial holders of more than 10%
of our common stock to file with the Commission initial reports of ownership and reports of changes in ownership of our equity
securities. As of March 17, 2021, we believe, based solely on a review of the copies of such reports furnished to us and
representations of these persons that all Section 16(a) filing requirements applicable to directors and officers were timely met
during the year ended December 31, 2020.

Item 11.

Executive Compensation

Executive Officers

During the year ended December 31, 2020, our named executive officers were:

• Dolev Rafaeli, President and Chief Executive Officer (until his separation on February 28, 2021);

• Matthew C. Hill, Chief Financial Officer;

The biographical information for our current executive officers (other than Dr. Rafaeli, which is included above) are

below:

Matthew C. Hill (age 52) assumed the duties of Chief Financial Officer on May 15, 2018. Prior to joining the Company,
he was the chief financial officer with operational responsibilities with SS White Dental, a privately held medical device
company in the dental space, from 2010. Prior to SS White, Matt served as CFO at Velcera and EP Medsystems, both publicly
traded companies, where he was also responsible for public company compliance and participated in capital raising for the
companies. Mr. Hill has over 20 years of experience in various capacities in public and private companies, and in public
accounting with Grant Thornton LLP. Mr. Hill graduated with a B.S. in accounting from Lehigh University in 1991.

Components of Executive Compensation during 2020

Dr. Rafaeli, had an opportunity to earn an annual bonus based upon the performance of the Company’s business during
the relevant quarters in which he is employed of each fiscal year. Such bonus during 2020 is achieved, on a quarterly basis, but
paid annually, if (a) the Company achieved positive adjusted EBITDA of $5 million and (b) with such bonus amount determined
as a percentage of the average aggregate collected revenue during such quarter from all installed laser machines (pro-rated for
machines installed during a quarter) (“Average Revenue per Machine”) based upon the following schedule:

Average Revenue per Machine per

Bonus (as a percentage of total company revenue for the relevant

quarter

Up to $8,100
$8,101 to $9,600
$9,601 to $11,000
Above $11,001

quarter)

0.50%
0.80%
1.20%
1.50%

The Average Revenue per Machine and positive adjusted EBITDA of $5 million results achieved on a quarterly basis

resulted in no payout for 2020.

Mr. Hill had a target bonus of $95,000 in 2020, with 75% of such bonus based on achieving certain revenue goals. The
balance of the bonus was based on achieving personal goals as agreed with the Chief Executive Officer and approved by the
Compensation, Nominating and Governance Committee, which resulted in a total discretionary bonus payout of $47,500.

The stock option grant was granted on November 13, 2020, and were made under the following terms:

Shares
Underlying
Option Grant

Exercise Price
per share

Option Term

Matthew C. Hill

150,000 $

1.46

10 years

Vesting Period
1/3 on each anniversary of the date of
grant

The following table includes information for the years ended December 31, 2020, and 2019 concerning compensation for

our named executive officers.

SUMMARY COMPENSATION TABLE

Name and Principal Position
Dolev Rafaeli (1), Director, President
and Chief Executive Officer

Matthew C. Hill , Chief Financial Officer

Year
2020
2019

2020
2019

Salary ($)

400,000
400,000

246,941
240,000

Non-Equity
Incentive Plan
Compensation
($) (3)
-
277,930

47,500
149,287

Option Awards
($) (2)

All Other
Compensation
($) (4)

-
466,500

166,200
233,250

23,400
23,200

16,200
16,000

Total ($)

423,400
1,167,630

476,841
638,537

(1) Dolev Rafaeli separated from the Company on February 28, 2021.
(2)

These amounts are equal to the aggregate grant-date fair value with respect to the awards made in the respective year, computed in accordance with
FASB ASC Topic 718, before amortization and without giving effect to estimated forfeitures. See the “Stock-based compensation” Note to our
consolidated financial statements set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, for the assumptions
made in calculating these amounts.

(3) Represents annual bonus amounts paid to the named individuals under the bonus plans in their respective employment agreements, and a special
bonus awarded in connection with the resolution of matters related to managing the Company’s efforts to become compliant with all of the
Company’s reporting requirements in 2019. We discuss these bonus plans in further detail in the section entitled “Components of Executive
Compensation during 2020.”
“All Other Compensation” includes a car allowance for Dr. Rafaeli of $12,000 and $12,000 in 2020, and 2019, respectively, and a 401(k) match of
$11,400 in 2020 and $11,200 in 2019; and for Mr. Hill includes a car allowance of $4,800 in 2020 and 2019, respectively, and a 401(k) match of
$11,400 and $11,200 in 2020 and 2019, respectively.

(4)

Overview of Executive Employment Agreements and Payments upon Termination or Change of Control

Employment Agreement with Robert Moccia

On March 1, 2021, the Company entered into an employment agreement with Robert Moccia to become the Company’s
Chief Executive Officer, (the “Employment Agreement”), which provides for, among other things, (i) a three-year term
commencing on March 1, 2021, which renews for successive one year additional terms unless a party gives the other party a
notice of non-renewal at least 90 days prior to the end of the then applicable employment term, (ii) an annual base salary of
$500,000, (iii) an incentive bonus opportunity equal to at least 65% of his base salary for such year, (iii) an initial option (the
“Option”) to purchase 1,632,590 shares of common stock, with a strike price as of the close of trading on March 1, 2021 which
was $1.73, vesting over a three year period, with 544,198 options vesting on the first anniversary of the date of grant and 136,049
options vesting every three months thereafter and subject to acceleration under certain conditions, (iv) participation in long-term
incentive plans and employee benefit plans, including health and 401(k) plans, (v) 20 days of annual vacation, plus 10 established
holiday days, per full calendar year of employment, (vi) an automobile allowance of $1,250 per month, and (vi) his appointment
to the Company’s board of directors as of March 1, 2021, and nomination and recommendation for election as a director
thereafter at annual meetings of stockholders during his employment term when his election is to be considered. The Option is
intended to constitute an employment inducement grant under Nasdaq Listing Rule 5635(c)(5). The Company will also pay
Mr. Moccia a bonus equal to two times his then base salary if, during the term of his employment, (a) a “Change in Control” (as
defined in the Company’s 2016 Omnibus Incentive Plan, as amended from time to time) occurs and (b) as of such Change in
Control, the price per share of the Company’s common stock is two times or more than the price of the Company’s common
stock as of March 1, 2021.

The Employment Agreement provides Mr. Moccia with severance benefits in the event that his employment is terminated
under certain circumstances, including by Mr. Moccia for “Good Reason” and by the Company without “Cause” (each as defined
in the Employment Agreement). Upon the termination of Mr. Moccia’s employment, he will automatically resign as a member of
the Company’s board of directors. Pursuant to the Employment Agreement, Mr. Moccia is subject to confidentiality, assignment
of intellectual property, and restricted activities covenants, the latter of which continues for 12 months after his separation from
employment.

Employment Agreement with Dr. Dolev Rafaeli

On March 30, 2018, the Company executed an employment agreement with Dr. Rafaeli. On February 24, 2020, the
Company and Dr. Rafaeli entered into a Separation Agreement and Release terminating Dr. Rafaeli’s employment. The term of
his original employment agreement commenced on April 10, 2018 until the third anniversary of the closing under the Accelmed-
led investment, which term provided for automatic renewal for one year unless either party provides 60 days' notice prior to the
end of the then current term. Dr. Rafaeli's employment with the Company would have terminated if the Accelmed-led investment
had terminated prior to closing for any reason.

Dr. Rafaeli's base salary was $400 thousand per year, and he is entitled to bonus compensation based upon the
achievement of earnings targets. Dr. Rafaeli was awarded stock options under the Company's 2016 Omnibus Incentive Plan equal
to 7.5% of the Company's equity on a fully diluted basis as of immediately following the closing of the Accelmed-led investment.
The options were awarded as follows: (i) stock options exercisable for 1,557,628 shares of the Company's common stock were
granted on March 30, 2018, at an exercise price of $1.12; and (ii) the balance of the stock options were awarded upon approval
by the Company's stockholders of the Accelmed-led investment and the transactions contemplated thereby at the special meeting
of stockholders, and the exercise price was equal to the closing trading price of the Company's shares of common stock on
Nasdaq on the day of the special meeting. The shares of common stock purchasable upon exercise of the stock options are subject
to certain transferability restrictions under the employment agreement and fully vest upon a change of control. The employment
agreement also contains provisions for fringe benefits, reimbursement of expenses, nomination for election to the Board,
indemnification, vacation, confidentiality, assignment of certain inventions and other intellectual property, covenant not to
compete and payments of a lump sum payment equal to base salary over the initial term upon termination, depending upon the
type of termination.

Separation Agreement with Dr. Dolev Rafaeli

On February 24, 2021, the Company and Dr. Rafaeli entered into an employment separation agreement and release (the
“Separation Agreement”), pursuant to which, among other things, Dr. Rafaeli resigned as the Company’s Chief Executive Officer
and President and as a member of the Company’s board of directors on February 28, 2021. In connection with Dr. Rafaeli’s
separation, upon the expiration of the revocation of a general release delivered by Dr. Rafaeli to the Company, the Company will
(i) pay Dr. Rafaeli (a) his base salary, less applicable legal deductions, through May 29, 2021 consistent with normal payroll
procedures, (b) a lump sum amount equal to 12 weeks of pay as a payout of his accrued but unused vacation days,
(c) reimbursements of his monthly COBRA premium payments for up to 18 months following February 28, 2021, and (d) an
amount up to $10,000 to reimburse Dr. Rafaeli for reasonable attorneys’ fees in connection with the negotiation of the Separation
Agreement, and (ii) vest all outstanding options held by Dr. Rafaeli (to the extent not then vested) and have them remain
exercisable until August 22, 2021. Subject to the foregoing restrictions and the Company’s insider trading policies, Dr. Rafaeli
will be permitted to exercise the options as permitted under the Company’s equity incentive plan, including cashless exercises,
until August 22, 2021. Certain provisions contained in DR. Rafaeli’s employment agreement, dated as of March 30, 2018 with
the Company survive and continue to apply under the Separation Agreement, including, but not limited to, covenants related to
confidentiality, assignment of developments, and covenant not to compete. The Company and Dr. Rafaeli also agreed to
mutual non-disparagement and communication restriction provisions and granted customary general releases to each other. Until
May 29, 2021, Dr. Rafaeli agreed to cooperate in good faith with the Company in transitioning his duties to one or more persons
as determined by the Company’s board of directors.

Employment Agreement with Matthew C. Hill

On May 15, 2018, Matthew Hill began employment as the Company's Chief Financial Officer. The Company and Mr. Hill
executed an employment agreement dated May 15, 2018, in connection with the appointment to the Chief Financial Officer
position. Under the terms of the agreement, Mr. Hill receives a base salary of $249,500 and is eligible to receive an annual bonus
based on the Company achieving certain goals. The target bonus is set annually. In the event Mr. Hill's employment is terminated,
in conjunction with a change of control, he will be entitled to severance equal to 12 months of his base salary, payable subject to
execution of a general release in favor of the Company. The agreement also contains non-compete and non-solicitation periods.

Outstanding Equity Awards Value at Fiscal Year-End Table

The following table includes certain information with respect to the value of all unexercised options and unvested shares

of restricted stock previously awarded to the executive officers named above at the fiscal year end, December 31, 2020.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE

Equity
Incentive Plan
Awards
Number of
Securities
Underlying
Unexercised
Unvested
Options (#)

Option Awards

Option
Exercise
Price ($)

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(1)
100,000
942,166
1,427,825
-
50,000
166,666

Name
Dolev Rafaeli

Matthew Hill

Grant Date
11/22/2019
5/23/2018
3/30/2018
11/13/2020
11/22/2019
5/23/2018

200,000 $
471,083 $
129,803 $
150,000 $
100,000 $
83,334 $

2.46
1.66
1.12
1.46
2.46
1.66

Option Expiration Date
11/22/2029
5/23/2028
3/30/2028
11/13/2030
11/22/2029
5/23/2028

(1) Options granted were under the 2016 Omnibus Incentive Plan and options. Dr. Rafaeli’s options granted on March 30, 2018 contractually vested
quarterly over three years, all others had vested annually over three years. Upon Dr. Rafaeli’s separation on February 28, 2021, all options vested
(see Separation Agreement above). Mr. Hill’s options vest annually over three years.

Director Compensation

During 2020, non-management directors shall receive the following compensation as applicable to each particular

director.

1. $70,000 base compensation

2. $80,000 base compensation for the Chairman of the Board

3. $10,000 for the Chairman of the Compensation, Nominating Committee.

4. $20,000 for the Chairman of the Audit Committee

5. $5,000 for membership on each committee (not to be paid to the Chair of the committees)

6. New independent Board members shall receive a one-time grant of $20,000 in the form of restricted stock units.

Except for the Chairman, whose company rules prevent accepting equity, base compensation is to be paid generally no

more than 50% in cash; no Director is to receive more than $50,000 in cash; that non-cash payments will be in the form of
restricted stock units vesting equally in quarterly tranches over 12 months; and that payment will be made for each quarter in
advance.

The table below sets forth our non-employee directors’ compensation for the year ended December 31, 2020.

DIRECTOR COMPENSATION TABLE

Name

Fees Earned ($)

Stock Awards ($) (3)

All Other Compensation ($)

Total ($)

Uri Geiger (1)
David N. Gill (2)
Samuel E. Navarro
Samuel Rubinstein
Nachum Shamir
LuAnn Via

-
19,231
35,000
45,000
40,000
52,100

-
-
-
-
-
-

-
19,231
35,000
45,000
40,000
52,100

(1)

(2)
(3)

Fees of $140,000 paid on behalf of Dr. Geiger were paid to Accelmed as a result of the fact that Accelmed’s partnership agreement precludes the
receipt of any equity.
Resigned from the board on May 22, 2020.
The Company has accrued the compensation for unissued stock awards.

Limitation on Directors' Liabilities; Indemnification of Officers and Directors

Our Fifth Amended and Restated Certificate of Incorporation, as amended (“Certificate of Incorporation”) and bylaws
designate the relative duties and responsibilities of our officers, establish procedures for actions by directors and stockholders and
other items. Our Certificate of Incorporation and bylaws also contain extensive indemnification provisions, which will permit us
to indemnify our officers and directors to the maximum extent provided by Delaware law. Pursuant to our Certificate of
Incorporation and under Delaware law, our directors are not liable to us or our stockholders for monetary damages for breach of
fiduciary duty, except for (i) any breach of the director’s duty of loyalty; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; breach of duty with respect to dividends and other distributions; or (iv) any
transaction from which the director derived an improper personal benefit. We have also entered into indemnity agreements with
each director which provides for advancement of expenses and indemnification under certain circumstances.

Directors' and Officers' Liability Insurance

We have obtained directors' and officers' liability insurance, which expires on May 29, 2021. We are required under our

indemnification agreements to maintain such insurance for the officers and members of our Board of Directors.

Item 12.
Matters

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

The information set forth in Item 5 of this Report under the heading “Securities Authorized for Issuance Under Equity

Compensation Plans” is hereby incorporated by reference.

The following table reflects, as of March 17, 2021, the beneficial common stock ownership of: (a) each of our directors,
(b) each executive officer, (c) each person known by us to be a beneficial holder of five percent (5%) or more of our common
stock, and (d) all of our executive officers and directors as a group. Unless otherwise provided in the accompanying footnotes, the
information used in the table below was obtained from the referenced beneficial owner.

Name and Address of Beneficial Owner (1)

Uri Geiger (8)
Robert J. Moccia(2)
Matthew Hill (3)
Samuel E. Navarro (4)
Samuel Rubinstein (5)
Nachum Shamir (6)
LuAnn Via (7)
All directors and officers as a group (seven persons)

Accelmed Growth Partners LP (8)
Kent Lake Partners LP(9)
Nantahala Capital Management, LLC (10)

* Less than 1%.

Number of Shares
Beneficially Owned

Percentage of Shares
Beneficially Owned (1)

12,112,627

226,666
211,412
52,098
74,075
132,702
12,809,580

12,112,627
1,658,043
4,683,908

35.84%
*
*
*
*
*
*
37.33%

35.84%
4.91%
13.86%

(1)

Beneficial ownership is determined in accordance with the rules of the Commission. Shares of common stock subject to delivery, or subject to
options or warrants currently exercisable, or exercisable within 60 days of March 17, 2021 are deemed outstanding for computing the percentage
ownership of the stockholder holding the options or warrants, but are not deemed outstanding for computing the percentage ownership of any other
stockholder. Unless otherwise indicated in the footnotes to this table, we believe stockholders named in the table have sole voting and sole
investment power with respect to the shares set forth opposite such stockholder’s name. Unless otherwise indicated, the listed officers, directors and
stockholders can be reached at our principal offices. Percentage of ownership is based on 33,801,045 shares of common stock outstanding as of
March 17, 2021.

(2)

Robert Moccia joined the Company on March 1, 2021.

(3)

Includes 10,000 shares of common stock and vested options to purchase 216,666 shares of common stock.

(4)

Includes 66,136 shares, 145,276 vested options to purchase shares of common stock.

(5)

Includes 11,300 shares of common stock and vested restricted stock units for 40,798 shares of common stock.

(6)

Includes 57,815 shares of common stock and vested restricted stock units for 16,260 shares of common stock.

(7)

(8)

(9)

Includes 40,571 shares, 60,995 vested options to purchase shares of common stock and vested restricted stock units of 31,136 shares of common
stock.

The business address of Accelmed Growth Partners L.P. ("Accelmed") is 6 Hachochlim Street, 6th floor, Herzliya Pituach L3 46120 Israel.
Accelmed Growth Partners GP ("Accelmed GP"), the General Partner of Accelmed, and Uri Geiger, the Managing Director of Accelmed Growth
Partners Management Ltd., which is the management company of Accelmed, each have voting and investment control of the securities held by
Accelmed. Dr. Geiger is the Co-Founder and Managing Partner of Accelmed. Each of Accelmed GP and Uri Geiger disclaim beneficial ownership
over the securities owned by Accelmed except to the extent of their respective pecuniary interest therein. Accelmed holds 12,112,627 shares of
common stock. Dr. Geiger disclaims beneficial ownership of the 12,112,627 shares owned by Accelmed.

The business address of Kent Lake Partners LP (“Kent Lake”) is 591 Redwood Highway, Suite 3260 Mill Valley, California 94941. Kent Lake may
be deemed to be the beneficial owner of 1,658 shares of common stock held by funds and separately managed accounts under its control, and as the
managing member Benjamin Natter may be deemed to be the beneficial owner of those shares. The foregoing has been derived from a Schedule 13G
filed by Kent Lake on February 16, 2021.

(10)

The business address of Nantahala Capital Management, LLC ("Nantahala ") is 19 Old Kings Highway S, Suite 200, Darien, CT 06820. Nantahala
may be deemed to be the beneficial owner of 4,683,098 shares of common stock held by funds and separately managed accounts under its control,
and as the managing members of Nantahala, each of Wilmot B. Harkey and Daniel Mack may be deemed to be a beneficial owner of those shares.
The foregoing has been derived from a Schedule 13G filed by Nantahala on February 12, 2021.

Item 13.

Certain Relationships and Related Transactions, Director Independence

Related Person Transactions

None

Director Independence

As required under the Nasdaq, listing standards, a majority of the members of a listed Company’s board of directors must
qualify as “independent,” as affirmatively determined by the board of directors. Our board of directors consults with internal
counsel to ensure that the board’s determinations are consistent with relevant securities and other laws and regulations regarding
the definition of “independent,” including those set forth in pertinent Nasdaq listing standards, as in effect from time to time.
Consistent with these considerations, after review of all relevant transactions or relationships between each director, or any of his
or her family members, and our company, our senior management and our independent registered public accounting firm, the
board of directors has affirmatively determined that The Board of Directors determined in 2020 that, except for Dr. Geiger, who
is our Chairman and Dr. Rafaeli, who was our Chief Executive Officer, all other current members of the Board of Directors are
independent under the revised listing standards of Nasdaq.

Review, Approval or Ratification of Transactions with Related Persons

In accordance with its charter, the Audit Committee is responsible for reviewing all "related party transactions" (defined
as such transactions required to be disclosed pursuant to Item 404 of Regulation S-K) on an on-going basis. All such related party
transactions must be approved by the Audit Committee.

Item 14.

Principal Accounting Fees and Services

The following table shows the fees paid or accrued by us for the audit and other services provided by Marcum LLP for

2020, and 2019:

Audit Fees (1)
Audit-Related Fees (2)
Tax Fees (3)
All Other Fees (4)
Total

2020

2019

276,500 $
-
-
-
276,500 $

266,500
-
-
-
266,500

(1)

(2)

(3)

(4)

Consists of fees billed for the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-
Q and services that are normally provided by the auditors in connection with statutory and regulatory filings or engagements.

Consists of assurance and related services that are reasonably related to the performance of the audit and reviews of our financial statements and are
not included in “audit fees” in this table.

Consists of all tax related services.

There were no other fees billed by Marcum LLP for the years ended December 31, 2020, and 2019.

Engagement of the Independent Auditor

The Audit Committee is responsible for approving every engagement of Marcum LLP to perform audit or non-audit
services for us before Marcum LLP is engaged to provide those services. Under applicable Commission rules, the Audit
Committee is required to pre-approve the audit and non-audit services performed by the independent auditors in order to ensure
that they do not impair the auditors’ independence. The Commission’s rules specify the types of non-audit services that an
independent auditor may not provide to its audit client and establish the Audit Committee’s responsibility for administration of
the engagement of the independent auditors.

Consistent with the Commission’s rules, the Audit Committee Charter requires that the Audit Committee review and pre-
approve all audit services and permitted non-audit services provided by the independent auditors to us or any of our subsidiaries.
The Audit Committee may delegate pre-approval authority to a member of the Audit Committee and if it does, the decisions of
that member must be presented to the full Audit Committee at its next scheduled meeting.

The Audit Committee’s pre-approval policy provides as follows:

•

First, once a year when the base audit engagement is reviewed and approved, management will identify all other services (including fee
ranges) for which management knows it will engage Marcum LLP for the next 12 months. Those services typically include quarterly
reviews, specified tax matters, certifications to the lenders as required by financing documents, consultation on new accounting and
disclosure standards and, in future years, reporting on management’s internal controls assessment.

•

Second, if any new “unlisted” proposed engagement arises during the year, the engagement will require approval of the Audit Committee.

All fees to our independent accounting firms were approved by the Audit Committee.

Auditor Selection for Fiscal 2021

The Audit Committee has selected Marcum LLP to serve as our independent auditors for the year ending December 31,

2021.

Item 15.

Exhibits and Financial Statement Schedules

(a)(1)

Financial Statements

PART IV

Consolidated balance sheets of STRATA Skin Sciences, Inc. and subsidiary as of December 31, 2020, and 2019, and the
related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years ended
December 31, 2020, and 2019.

(a)(2)

Financial Statement Schedules

All schedules have been omitted because they are not required, not applicable, or the information is otherwise set forth in

the consolidated financial statements or notes thereto.

(a)(3)

Exhibits

The exhibits listed under subsections (b) of this Item 15 are hereby incorporated by reference.

(b)

Exhibits

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9

3.10

4.1

4.2

4.3

Fifth Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 contained in our
Registration Statement on Form S-3 (File No. 333-167113), as filed on May 26, 2010).
Fourth Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.2 contained in our Form 8-K current
report as filed on January 8, 2016).
Certificate of Amendment to Fifth Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to
Exhibit 3.1 contained in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 filed on August 7, 2013).
Certificate of Amendment to Fifth Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to
Exhibit 3.1 contained in our Current Report on Form 8-K, filed on July 10, 2014).
Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (Incorporated by reference to
Exhibit 3.1 contained in our Current Report on Form 8-K, filed on February 3, 2014).
Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (Incorporated by reference to
Exhibit 3.1 contained in our Current Report on Form 8-K, filed on July 23, 2014).
Certificate of Amendment to Fifth Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to
Exhibit 3.1 contained in our Current Report on Form 8-K, as filed on September 30, 2015).
Certificate of Amendment to Fifth Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to
Exhibit 3.1 contained in our Current Report on Form 8-K, as filed on January 8, 2016).
Certificate of Designations of Series C Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 contained in our Current
Report on Form 8-K, as filed on September 25, 2017).
Certificate of Amendment to Fifth Amended and Restated Certificate of Incorporation of STRATA Skin Sciences, Inc., dated December
30, 2020 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on January 4, 2021)
Specimen Stock Certificate Incorporated by reference to our Registration Statement on Form S-1, as amended (File No. 333-125517),
as filed on August 8, 2005).
Warrant dated May 7, 2009 issued by Electro-Optical Sciences, Inc. to Kingsbridge Capital Limited (Incorporated by reference to our
Current Report on Form 8-K filed on May 8, 2009).
Warrant Agreement, dated as of April 26, 2013, by and between MELA Sciences, Inc. and Hercules Technology Growth Capital, Inc.
(Incorporated by reference to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 filed on April 30,
2013).

4.4
4.5
4.6
4.7

4.8

4.9

4.10

4.11

4.12

4.13

4.14*

4.15*

10.1*

10.2*

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

Form of Series A Warrant (Incorporated by reference to our Current Report on Form 8-K filed on October 30, 2013).
Form of Series B Prefunded Warrant (Incorporated by reference to our Current Report on Form 8-K filed on October 30, 2013).
Form of Common Stock Purchase Warrant (Incorporated by reference to our Current Report on Form 8-K filed on February 3, 2014).
Form of Series [A/B] Common Stock Purchase Warrant (Incorporated by reference to our Current Report on Form 8-K filed on July 23,
2014).
Form of 4% Senior Secured Convertible Debenture Due July 24, 2019 (Incorporated by reference to our Current Report on Form 8-K
filed on July 23, 2014).
Form of Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.1 contained in our Form 8-K current report, filed on
June 23, 2015).
Form of 9.0% Senior Secured Notes (Incorporated by reference to Exhibit 4.2 contained in our Form 8-K current report, filed on June
23, 2015).
Form of 2.25% Series A Senior Secured Convertible Debenture (Incorporated by reference to Exhibit 4.3 contained in our Form 10-Q
quarterly report for the quarter ended June 30, 2015 filed on August 14, 2015).
Form of 2.25% Series B Senior Unsecured Convertible Debenture (Incorporated by reference to Exhibit 4.4 contained in our Form 10-Q
quarterly report for the quarter ended June 30, 2015 filed on August 14, 2015).
Form of Warrant Amendment Agreement (Incorporated by reference to Exhibit 4.1 contained in our Current Report on Form 8-K, filed
on January 22, 2016).
Form of Incentive Stock Option Agreement. (Incorporated by reference to our Annual Report on Form 10-K for the year ended
December 31, 2015 filed on March 15, 2016)
Form of Nonqualified Stock Option Agreement. (Incorporated by reference to our Annual Report on Form 10-K for the year ended
December 31, 2015 filed on March 15, 2016)
Form of Indemnification Agreement for directors and executive officers. (Incorporated by reference to our Annual Report on Form 10-
K for the year ended December 31, 2013 filed on March 17, 2014).
2005 Stock Incentive Plan (Incorporated by reference to our Registration Statement on Form S-1, as amended (File No. 333-125517),
filed on August 8, 2005.
Form of Securities Purchase Agreement dated as of June 22, 2015 by and among the company and the purchasers (Incorporated by
reference to our Form 8-K current report, as filed on June 23, 2015).
Registration Rights Agreement dated as of June 22, 2015 by and among the Company and the purchasers (Incorporated by reference to
our Form 8-K current report, as filed on June 23, 2015).
Security Agreement dated as of June 22, 2015 by and among the Company and parties thereto (Incorporated by reference to our Form 8-
K current report, as filed on June 23, 2015).
Licensing Agreement between the Registrant and KaVo Dental GmbH, dated as of December 5, 2006. (Incorporated by reference to our
Current Report on Form 8-K filed on December 11, 2006).
Securities Purchase Agreement dated as of July 21, 2014 between MELA Sciences, Inc. and the purchasers identified on the signature
pages thereto (Incorporated by reference to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014 filed
on November 14, 2014).
Registration Rights Agreement dated as of July 21, 2014 between MELA Sciences, Inc. and the purchasers identified on the signature
pages thereto (Incorporated by reference to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014 filed
on November 14, 2014).
Security Agreement dated as of July 21, 2014 among MELA Sciences, Inc., all of the Subsidiaries of the Registrant and the holders of
the Registrant’s 4% Senior Secured Convertible Debentures (Incorporated by reference to our Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2014 filed on November 14, 2014).
Agreement of Lease, dated as of July 14, 2009, by and between Stanford Bridge LLC and Electro-Optical Sciences, Inc. (Incorporated
by reference to our Current Report on Form 8-K filed on July 14, 2009).
Supply Agreement with Arrow Electronics, Inc., dated April 8, 2011 (Incorporated by reference to our Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2011 filed on August 5, 2011).
Production Agreement, dated as of January 6, 2012, by and between MELA Sciences, Inc. and Askion GmbH (Incorporated by
reference to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012 filed on May 3, 2012).

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

10.22

10.23
10.24

10.25*

10.26*

10.27*

10.28*

10.31

10.32

10.33

Service Agreement, dated March 21, 2012, by and between MELA Sciences, Inc. and QUINTILES Commercial Germany GmbH
(Incorporated by reference to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012 filed on May 3, 2012).
Asset Purchase Agreement dated as of June 22, 2015 by and among the Company and parties identified on the signature pages thereto.
(Incorporated by reference to our Form 8-K current report, as filed on June 23, 2015.)
Amended and Restated Security Agreement dated as of August 3, 2015 by and among the Company and the parties thereto. (Included in
Exhibit 10.8 filed incorporated by reference to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, filed
on August 14, 2015).
MELA Sciences, Inc. Amended and Restated 2013 Stock Incentive Plan (Incorporated by reference to the Registrant’s Proxy Statement
on Schedule 14A filed on August 24, 2015).
Loan and Security Agreement, dated as of March 15, 2013, by and between MELA Sciences, Inc. and Hercules Technology Growth
Capital, Inc. (Incorporated by reference to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 filed on
April 30, 2013).
Amended and Restated Security Agreement dated as of August 3, 2015 by and among the Company and the parties thereto. (Included in
Exhibit 10.8 filed incorporated by reference to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, filed
on August 14, 2015.).
Form of Securities Purchase Agreement, dated as of October 29, 2013, by and among MELA Sciences, Inc. and the purchasers
identified on the signature pages thereto (Incorporated by reference to our Current Report on Form 8-K filed on October 30, 2013).
Omnibus Amendment to 2014 Transaction Documents dated as of August 3, 2015 by and among the Company and the purchases
identified therein. (Incorporated by reference to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, filed
on August 14, 2015.).
Form of Securities Purchase Agreement, dated as of January 31, 2014, by and among MELA Sciences, Inc. and the purchasers
identified on the signature pages thereto (Incorporated by reference to our Current Report on Form 8-K filed on February 3, 2014).
Form of Registration Rights Agreement, dated as of February 5, 2014, by and among MELA Sciences, Inc. and the purchasers
identified on the signature pages thereto (Incorporated by reference to our Current Report on Form 8-K filed on February 3, 2014).
Intentionally omitted.
Warrant Amendment Agreement dated as of June 22, 2015 (effective September 30, 2015) by and among the Company and parties
identified on the signature pages thereto (Incorporated by reference to Exhibit 10.5 contained in our Form 8-K current report filed on
June 23, 2015).
Consulting Agreement, dated as of November 4, 2015 between the Company and Jeffrey F. O’Donnell, Sr. (Incorporated by reference to
our Form 10-Q quarterly report for the quarter ended September 30, 2015 filed on November 16, 2015).
Consulting Agreement, dated as of November 4, 2015 between the Company and Samuel E. Navarro (Incorporated by reference to our
Form 10-Q quarterly report for the quarter ended September 30, 2015 filed on November 16, 2015).
Transition Agreement and Release dated as of November 9, 2015 between the Company and Robert W. Cook (Incorporated by
reference to our Form 10-Q quarterly report for the quarter ended September 30, 2015 filed on November 16, 2015).
Employment Agreement dated as of November 9, 2015 between the Company and Christina L. Allgeier (Incorporated by reference to
our Form 10-Q quarterly report for the quarter ended September 30, 2015 filed on November 16, 2015).
Amended and Restated Employment Agreement, dated as of December 15, 2015 by and between the Company and Michael R. Stewart
(Incorporated by reference to Exhibit 10.1 contained in our Current Report on Form 8-K, as filed on December 15, 2015).
Restricted Stock Award Agreement, dated as of December 15, 2015 by and between the Company and Michael R. Stewart (Incorporated
by reference to Exhibit 10.2 contained in our Current Report on Form 8-K, as filed on December 15, 2015).
Warrant to purchase shares of the Company's common stock issued December 30, 2015 to Lender under the Credit Agreement.
(Incorporated by reference to Exhibit 10.3 contained in our Current Report on Form 8-K, as filed on January 5, 2016).

10.34

10.35

10.36

10.37

10.38

10.39

10.40*

10.41*

10.42

10.43

10.44*

10.45*

10.46*

10.50*

10.51

10.52

10.53

Subordination Agreements dated as of December 30, 2015 among subordinated lenders, the Company and Midcap. (Incorporated by
reference to Exhibit 10.4 contained in our Current Report on Form 8-K, as filed on January 5, 2016).
Omnibus Amendment to 2014 Transaction Documents and 2015 Transaction Documents dated as of December 30, 2015 among the
Company and the holders of outstanding debentures under the 2014 and 2015 security purchase agreements. (Incorporated by reference
to Exhibit 10.5 contained in our Current Report on Form 8-K, as filed on January 5, 2016).
Warrant to purchase shares of the Company's common stock issued January 29, 2016 to Lenders under the Credit Agreement.
(Incorporated by reference to Exhibit 10.1 contained in our Current Report on Form 8-K, as filed on February 1, 2016).
Omnibus Amendment to 2015 Transaction Documents dated as of August 3, 2015 by and among the Company and the purchases
identified therein. (Incorporated by reference to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, filed
on August 14, 2015.).
Amended and Restated Intellectual Property Security Agreement dated as of August 3, 2015 by and among the Company and the parties
thereto. (Included in Exhibit 10.8 filed incorporated by reference to our Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2015, filed on August 14, 2015.).
Intercreditor Agreement dated as of August 3, 2015 by and among the Company and the parties thereto. (Incorporated by reference to
our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, filed on August 14, 2015.).
Extension Agreement dated as of July 20, 2016 between Strata Skin Sciences, Inc. and Jeffrey F. O'Donnell, Sr. (Incorporated by
reference to Exhibit 10.1 contained in our Current Report on Form 8-K, as filed on July 22, 2016).
Extension Agreement dated as of July 20, 2016 between Strata Skin Sciences, Inc. and Samuel E. Navarro. (Incorporated by reference to
Exhibit 10.2 contained in our Current Report on Form 8-K, as filed on July 22, 2016).
First Amendment to Credit and Security Agreement dated as of August 9, 2016 among MidCap Financial Trust, as administrative agent,
the Lenders as listed on the signature pages thereto and the Company. (Incorporated by reference to our Form 10-Q quarterly report for
the quarter ended September 30, 2015 filed on August 12, 2016).
Amended and Restated Fee Letter Agreement dated as of August 9, 2016, by and between Midcap Financial Trust as Agent and the
Company. (Incorporated by reference to our Form 10-Q quarterly report for the quarter ended September 30, 2015 filed on August 12,
2016).
STRATA Skin Sciences 2016 Omnibus Option Plan. (Incorporated by reference to our Form 10-Q quarterly report for the quarter ended
September 30, 2015 filed on November 14, 2016).
Employment Agreement between the Company and Frank J. McCaney dated as of October 31, 2016. . (Incorporated by reference to our
Form 10-Q quarterly report for the quarter ended September 30, 2015 filed on November 14, 2016).
Stock Option Agreement between the Company and Frank J. McCaney dated as of October 31, 2016. (Incorporated by reference to our
Form 10-Q quarterly report for the quarter ended September 30, 2015 filed on November 14, 2016).
Severance and Release Agreement between the Company and Michael R. Stewart dated as of October 31, 2016. (Incorporated by
reference to our Form 10-Q quarterly report for the quarter ended September 30, 2015 filed on November 14, 2016).
Second Amendment to Credit and Security Agreement dated as of November 10, 2017, among MidCap Financial Trust, as
administrative agent, the Lenders as listed on the signature pages thereto and the Company. Second Amendment to Credit and Security
Agreement dated as of November 10, 2017, among MidCap Company (Incorporated by reference to our Form 10-Q quarterly report for
the quarter ended September 30, 2017, filed on November 14, 2017).
Amended and Restated Fee Letter Agreement dated as of November 10, 2017, by and between MidCap Financial Trust as Agent and the
Company. (Incorporated by reference to our Form 10-Q quarterly report for the quarter ended September 30, 2017 filed on November
14, 2017).
Securities Purchase Agreement dated as of March 30, 2018, between the Company and Accelmed (Incorporated by reference to Exhibit
10.1 contained in our Current Report on Form 8-K, as filed on April 2, 2018)

10.54

10.55

10.56

10.57

10.58

10.59

10.60*

10.61

10.62*

10.63*

10.64

10.65

10.66

10.67

10.68

10.69

10.70

10.71

10.72

Securities Purchase Agreement dated as of March 30, 2018, between the Company and Broadfin (Incorporated by reference to Exhibit
10.2 contained in our Current Report on Form 8-K, as filed on April 2, 2018).
Securities Purchase Agreement dated as of March 30, 2018, between the Company and Sabby (Incorporated by reference to Exhibit
10.3 contained in our Current Report on Form 8-K, as filed on April 2, 2018).
Form of Registration Rights Agreement (Incorporated by reference to Exhibit 10.4 contained in our Current Report on Form 8-K, as
filed on April 2, 2018).
Form of Leak-Out Agreement (Incorporated by reference to Exhibit 10.5 contained in our Current Report on Form 8-K, as filed on
April 2, 2018).
Form of Voting Undertaking (Incorporated by reference to Exhibit 10.6 contained in our Current Report on Form 8-K, as filed on
April 2, 2018).
Form of Subscription Agreement (Incorporated by reference to Exhibit 10.7 contained in our Current Report on Form 8-K, as filed on
April 2, 2018).
Employment Agreement dated March 30, 2018, between the Company and Dr. Dolev Rafaeli (Incorporated by reference to Exhibit 10.8
contained in our Current Report on Form 8-K, as filed on April 2, 2018).
Third Amendment to Credit and Security Agreement, dated as of March 26, 2018, among the Company, MidCap Financial Trust and the
lenders signatory thereto (Incorporated by reference to Exhibit 10.1 contained in our Current Report on Form 8-K, as filed on April 2,
2018).
Employment Agreement effective as of May 15, 2018, between the Company and Matthew C. Hill (Incorporated
by reference to Exhibit 10.1 contained in our Current Report on Form 8-K, as filed on May 15, 2018).
Amended and Restated Strata Skin Sciences, Inc. 2016 Omnibus Incentive Plan (Incorporated by reference to Appendix B to our
Definitive Proxy Statement on Schedule 14A, as filed on April 27, 2018).
Fourth Amendment to Credit and Security Agreement, dated as of May 29, 2018, among the Company, MidCap Financial Trust and the
lenders signatory thereto (Incorporated by reference to Exhibit 10.1 contained in our Current Report on Form 8-K, as filed on May 29,
2018).
Sublease Agreement between Luigi Bormioli Corporation and the Company for office space at 5 Walnut Grove Drive, Horsham, PA
19044 (Incorporated by reference to Exhibit 10.1 contained in our Current Report on Form 8-K, as filed on October 3, 2018).
Fixed Rate – Term Promissory Note with Israel Discount Bank of New York as of December 31, 2019 (Incorporated by reference to
Exhibit 10.1 contained in our Current Report on Form 8-K, as filed on January 6, 2019).
Promissory Note Fixed Rate-Term Note, dated December 30, 2019, by STRATA Skin Sciences, Inc. in favor of Israel Discount Bank of
New York (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 6, 2020)
Assignment and Pledge of Time Deposit, dated December 30, 2019, by STRATA Skin Sciences, Inc., as assignor, and Israel Discount
Bank of New York, as assignee (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on January 6, 2020)
Paycheck Protection Program Term Note, Disbursement Request & Authorization, and Errors and Omissions Agreement, dated April
22, 2020, between STRATA Skin Sciences, Inc. and Republic First Bank D/B/A Republic Bank (incorporated by reference to Exhibit
10.1 to our Current Report on Form 8-K filed on April 27, 2020)
U.S. Small Business Administration Loan Authorization and Agreement, dated as of March 26, 2020 and executed May 22, 2020,
between the Small Business Administration and STRATA Skin Sciences, Inc. (incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed on May 26, 2020)
U.S. Small Business Administration Note (Secured Disaster Loans), dated as of March 26, 2020 and executed May 22, 2020, by
STRATA Skin Sciences, Inc. for the benefit of the Small Business Administration (incorporated by reference to Exhibit 10.2 to our
Current Report on Form 8-K filed on May 26, 2020)
U.S. Small Business Administration Security Agreement, dated as of March 26, 2020 and executed May 22, 2020, between the Small
Business Administration and STRATA Skin Sciences, Inc. (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-
K filed on May 26, 2020)

10.73

10.74

10.75

10.76

10.77

23.1
31.1
31.2
32.1**

101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE

Settlement Agreement and Release, dated as of August 10, 2020, between STRATA Skin Sciences, Inc. and Ra Medical Systems, Inc.
(incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 11, 2020)
First Amendment to Promissory Note, dated as of December 21, 2020, between STRATA Skin Sciences, Inc. and Israel Discount Bank
of New York (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 28, 2020)
Employment Separation Agreement and Release, dated as of February 24, 2021, between Dolev Rafaeli and STRATA Skin Sciences,
Inc. (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on March 1, 2021)
Employment Agreement, dated as of March 1, 2021, between Robert Moccia and STRATA Skin Sciences, Inc. (incorporated by
reference to Exhibit 10.3 to our Current Report on Form 8-K filed on March 1, 2021)
Form of Stock Option Agreement, dated as of March 1, 2021, between Robert Moccia and STRATA Skin Sciences, Inc. (incorporated
by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on March 1, 2021)
Consent of Marcum, LLP
Rule 13a-14(a) Certificate of Chief Executive Officer
Rule 13a-14(a) Certificate of Chief Financial Officer
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
XBRL Instance Document
XBRL Taxonomy Schema
XBRL Taxonomy Calculation Linkbase
XBRL Taxonomy Definition Linkbase
XBRL Taxonomy Label Linkbase
XBRL Taxonomy Presentation Linkbase

*
**

Indicates management contract or compensatory plan.
The certifications attached as Exhibit 32.1 accompany this Annual Report on Form 10-K pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended.

Item 16.

Form 10-K Summary

None.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant

has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

March 25, 2021

STRATA SKIN SCIENCES, INC.

By: /s/ Robert J. Moccia
Robert J. Moccia
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following

persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Capacity in Which Signed

Date

/s/ Robert J. Moccia
Robert J. Moccia

/s/ Matthew Hill
Matthew Hill

/s/ Uri Geiger
Uri Geiger

/s/ Samuel Navarro
Samuel Navarro

/s/ Shmuel Rubinstein
Shmuel Rubinstein

/s/ Nachum Shamir
Nachum Shamir

/s/ LuAnn Via
LuAnn Via

President, Chief Executive Officer (Principal Executive Officer),
and Director

March 25, 2021

Chief Financial Officer (Principal Financial and Accounting
Officer)

Director, Chairperson of the Board

Director

Director, Vice Chairperson of the Board

March 25, 2021

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, December 31, 2020 and 2019
Consolidated Statements of Operations, for the Years ended December 31, 2020 and 2019
Consolidated Statements of Changes in Stockholders’ Equity, for the Years ended December 31, 2020 and 2019
Consolidated Statements of Cash Flows, for the Years ended December 31, 2020 and 2019
Notes to Consolidated Financial Statements

Page
F-2
F-5
F-6
F-7
F-8
F-10

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

STRATA Skin Sciences, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of STRATA Skin Sciences, Inc. and Subsidiary (the “Company”)
as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity and cash
flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial
position of the Company as of December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for
each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the
United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.

F-2

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.

Sales and Use Tax Liabilities:

As discussed in Note 8 to the consolidated financial statements, the Company recognizes sales tax liabilities, including interest
and penalties, for its domestic recurring revenue in those states which management determines are more-likely-than-not
(“MLTN”) non-exempt from sales tax. Such amounts are accounted for as transaction tax liabilities that are extinguished upon
payment or settlement. The Company recognizes use tax liabilities, including interest and penalties, for those states that
management determines are MLTN to be exempt from sales tax obligations. The Company’s sales tax expense that is not
presently being collected and remitted for its domestic recurring revenue are recorded as general and administrative expenses.
The Company is currently undergoing sales tax audits in two state jurisdictions which are each in the administrative process of
appeal.

We identified the accounting for sales and use tax liabilities as a critical audit matter due to the audit effort relating to the
following:

• Management utilized specialists in current and prior years to assist in determining MLTN conclusions.
• Complexity in the interpretation of relevant tax laws in various states requires significant management and auditor

judgment.

• The extent of specialized skill and knowledge and consultation outside of the engagement team required to assess the

appropriateness of management’s determinations.

Our principal audit procedures related to the Company's accounting for sales and use tax liabilities included the following:

• We evaluated management's significant accounting policies related to accounting for sales and use tax liabilities for

reasonableness.

• We involved our firm’s tax professionals and subject-matter-experts, with specialized skills and knowledge, who assisted

in assessing the Company’s interpretation of the relevant tax laws.

• We inspected correspondence and determinations from relevant state taxing authorities for those states undergoing sales

tax audits.

F-3

• We tested the underlying data of management’s calculations and analyzed the expiration of statutes of limitations and tax

rates.

Goodwill:

As discussed in Note 7 to the consolidated financial statements, goodwill represents the excess of the purchase price over the fair
value of the net tangible and identifiable intangible assets acquired and liabilities assumed in a business combination. Goodwill is
tested for impairment at least annually at the reporting unit level. Management bypassed the qualitative impairment assessment
(step zero) and performed a quantitative impairment assessment. The Company used a combination of the market and income
approaches to determine the estimated fair value of its reporting units as of December 31, 2020.

We identified the annual goodwill impairment test as a critical audit matter due to the audit effort relating to the following:

• The determination of the fair value of the reporting unit requires management to make significant estimates and
assumptions related to forecasted revenue growth rates, estimated expenses and discount rates. Such estimates and
assumptions were challenging to test as they required forward looking assumptions with a high degree of subjectivity
under the COVID-19 environment.

• The extent of specialized skill and knowledge and consultation outside of the engagement team required to assess the

appropriateness of management’s valuation assumptions.

Our principal audit procedures related to the Company's goodwill impairment test included the following:

• We evaluated management's significant accounting policies related to goodwill impairment for reasonableness. This
included controls related to the Company’s goodwill impairment assessment process and development of valuation
assumptions.

• We obtained an understanding and evaluated the reasonableness of management’s forecasts of future revenue and
estimated expenses by comparing these forecasts to historical operating results of the Company by applying procedures to
test the financial inputs used in the income approach, including sensitizing management’s cash flow forecasts.

• We involved our firm’s valuation professionals, with specialized skills and knowledge, who assisted in assessing
assumptions utilized under the income and market approaches. Such assumptions that were evaluated included the
discount rate, selected comparable companies, market multiples, control premium and market capitalization
reconciliation.

/s/ Marcum LLP

Marcum LLP
We have served as the Company’s auditor since 2019.

Philadelphia, Pennsylvania
March 25, 2021

F-4

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

ASSETS
Current assets:

Cash and cash equivalents
Restricted cash
Accounts receivable, net
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:
Note payable
Current portion of long-term debt
Accounts payable
Other accrued liabilities
Deferred revenues
Current portion of operating lease liabilities

Total current liabilities

Long-term liabilities:
Long-term debt, net
Long-term operating lease liabilities; net
Deferred tax liability
Other liabilities

Total liabilities

Commitments and contingencies (see Note 11)

Stockholders' equity:

December 31,
2020

December 31,
2019

10,604 $
7,508
2,944
3,444
331
24,831

5,529
988
6,345
8,803
282
46,778 $

7,275 $
1,478
2,764
4,690
2,262
369
18,838

1,050
710
254
34
20,886

8,129
7,500
4,386
3,027
513
23,555

5,369
1,314
7,955
8,803
347
47,343

7,275
-
1,880
5,134
2,832
313
17,434

-
1,078
-
178
18,690

Series C Convertible Preferred Stock, $.10 par value, 10,000,000 shares authorized; 0 and 2,103 shares issued and
outstanding as of December 31, 2020 and 2019, respectively
Common Stock, $.001 par value, 150,000,000 shares authorized; 33,801,045 and 32,932,273 shares issued and
outstanding as of December 31, 2020 and 2019, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders' equity

Total liabilities and stockholders’ equity

34
244,831
(218,973)
25,892
46,778 $

33
243,180
(214,561)
28,653
47,343

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

F-5

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)

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, net:

Interest expense, net
Loss on extinguishment of debt

Loss before income taxes
Income tax (expense) benefit
Net loss

Loss attributable to common shares
Loss attributable to Preferred Series C shares
Loss per common share:

Basic

Diluted

Shares used in computing loss per common share:

Basic

Diluted

Loss per Preferred Series C share - basic and diluted

Shares used in computing loss per basic and diluted Preferred Series C shares

For the Year Ended December 31,

2020

2019

$
$

23,090 $
8,956
14,134

1,274
9,038
7,898
18,210
(4,076)

(61)
-
(61)
(4,137)
(275)
(4,412) $

(4,394) $
(18) $

(0.13) $

31,586
11,316
20,270

1,002
12,003
10,275
23,280
(3,010)

(515)
(414)
(929)
(3,939)
149
(3,790)

(3,597)
(193)

(0.11)

33,609,922

31,978,665

33,609,922

31,978,665

(48.59) $

368

(42.24)

4,577

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

F-6

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(In thousands, except share amounts)

BALANCE, JANUARY 1,
2019

Stock-based compensation
Conversion of convertible
preferred stock into common
stock
Exercise of stock options

Issuance of restricted stock

Net loss

BALANCE, DECEMBER 31,
2019

Stock-based compensation
Conversion of grantable
preferred stock into common
stock
Exercise of stock options

Issuance of restricted stock

Net loss

BALANCE, DECEMBER 31,
2020

Convertible Preferred Stock – Series C

Common Stock

Amount

Additional Paid-
In Capital

Accumulated

Deficit

Total

9,968 $
-

(7,865)
-
-
-

2,103 $
-

(2,103)
-
-
-

- $

1
-

-
-
-
-

1
-

(1)
-
-
-

29,943,086 $
-

2,923,791
36,410
28,986
-

32,932,273 $
-

782,089
15,000
71,683
-

30 $
-

3
-
-
-

33 $
-

1
-
-
-

241,988 $
1,195

(210,771) $
-

(3)
-
-
-

-
-
-
(3,790)

243,180 $
1,633

(214,561) $
-

-
18
-
-

-
-
-
(4,412)

33,801,045 $

34 $

244,831 $

(218,973) $

31,248
1,195

-
-
-
(3,790)

28,653
1,633

-
18
-
(4,412)

25,892

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

F-7

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Cash Flows From Operating Activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
Amortization of right-of-use assets
Provision for doubtful accounts
Impairment of lasers placed-in-service
Stock-based compensation
Deferred taxes
Amortization of deferred financing costs and debt discount
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Other accrued liabilities
Other liabilities
Operating lease liabilities
Deferred revenues

Net cash provided by operating activities

Cash Flows From Investing Activities:

Lasers placed-in-service
Purchases of property and equipment

Net cash used in investing activities

For the Year Ended December 31,

2020

2019

(4,412) $

(3,790)

3,585
326
90
24
1,633
254
-

1,352
(417)
247
884
(444)
(144)
(312)
(570)
2,096

(2,133)
(26)
(2,159)

4,503
318
43
30
1,195
(111)
174

(1,036)
(233)
104
116
634
(210)
(241)
733
2,229

(2,676)
(115)
(2,791)

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

F-8

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(In thousands)

Cash Flows From Financing Activities:
Proceeds from exercise of stock options
Repayments of long-term debt
Proceeds on notes payable

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash, beginning of period
Cash and cash equivalents and restricted cash, end of period

Cash and cash equivalents
Restricted cash

Supplemental information:

Cash paid for interest
Cash paid for income taxes
Lease liabilities from obtaining right of use assets

For the Year Ended December 31,

2020

2019

$
$

18 $
-
2,528
2,546

2,483
15,629
18,112 $

10,604 $
7,508
18,112 $

211 $
- $
-

-
(7,571)
7,275
(296)

(858)
16,487
15,629

8,129
7,500
15,629

766
-
1,632

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

F-9

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

Note 1
The Company:

Background
STRATA Skin Sciences (the “Company”) is a medical technology company in Dermatology and Plastic Surgery dedicated to
developing, commercializing and marketing innovative products for the treatment of dermatologic conditions. Its products
include the XTRAC® excimer laser and VTRAC® lamp systems utilized in the treatment of psoriasis, vitiligo and various other
skin conditions.

The XTRAC is an ultraviolet light excimer laser system utilized to treat psoriasis, vitiligo and other skin diseases. The XTRAC
excimer laser system first received clearance from the United States Food and Drug Administration (the “FDA”) in 2000. As of
December 31, 2020, there were 832 XTRAC systems placed in dermatologists' offices in the United States and 28 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, domestically, 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.

In July 2019, the Company signed a direct distribution agreement with its Korean distributor for a combination of direct capital
sales and recurring revenues for the country of South Korea.

In September 2020, the Company signed a direct distribution agreement with our Japanese distributor for a combination of direct
capital sales and recurring revenue for the Country of Japan.

The Company has now introduced its Home by XTRAC™ business leveraging in-house resources including DTC advertising, in-
house call center and its insurance reimbursement team to provide an at-home, insurance-reimbursed treatment option for patients
with certain skin diseases that do not qualify for in-office treatments.

In February 2021, the Company signed an agreement with our Chinese distributor for a combination of direct capital sales and
recurring revenues for the country of China.

In late 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”) which became a global pandemic. The COVID-
19 pandemic has negatively impacted the global economy, disrupted global supply chains, constrained work force participation
and created significant volatility and disruption of financial markets. In addition, the pandemic lead to the suspension of elective
procedures in the U.S. and to the temporary closure of many physician practices which are our primary customers. We do not
know the extent of the impact on our customers including their potential for permanent closure. While many offices have
reopened, the on-going impact of the COVID-19 pandemic 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 the duration and spread of the COVID-19 outbreak, continued restrictions on business operations and transport and the
continued impact on worldwide economic and geopolitical conditions, all of which are uncertain and cannot be predicted.

Domestically, as the procedures in which the Company’s devices are used are elective in nature; and as social distancing, travel
restrictions, quarantines and other restrictions became prevalent in the United States, this had a negative impact on the
Company’s recurring revenue model and its financial position and cash flow. The virus has disrupted the supply chain from China
and other countries and the Company depends upon its supply chain to provide a steady source of components to manufacture
and repair our devices.

F-10

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

To mitigate the impact of COVID-19 the Company has taken a variety of measures to ensure the availability and functioning of
its critical infrastructure by implementing business continuity plans, and to promote the safety and security of its employees
while complying with various government mandates, including work-from-home arrangements and social-distancing initiatives
to reduce the transmission of COVID-19, such as providing face masks for employees at facilities significantly impacted and
requiring on-site body temperature monitoring before entering facilities. In addition, the Company created and executed
programs utilizing its direct to consumer advertising and call center to contact patients and partner clinics to restart the
Company’s partners’ businesses. To conserve its cash in order to mitigate the on-going impact of the COVID-19 pandemic, in the
second quarter, the Company furloughed employees who returned to work after the Company received proceeds from the PPP
Loan. The Company also reduced discretionary spending, reduced all inventory purchases and delayed payments to vendors.
Delayed payments to vendors were approximately $678 as of December 31, 2020. See Note 2, Liquidity for discussion on
Company liquidity.

Basis of Presentation:

Accounting Principles
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”).

Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary in India. All
significant intercompany balances and transactions have been eliminated in consolidation. In 2020 and 2019, there are no
operations in the subsidiary in India.

Reclassification
Certain reclassifications from the prior year presentation have been made to conform to the current year presentation.

Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates and be based on
events different from those assumptions. The more significant estimates include (1) revenue recognition, in regard to deferred
revenues and the contract term and valuation allowances of accounts receivable, (2) the inputs used in the impairment analyses of
goodwill, (3) the estimated useful lives of intangible assets and property and equipment, (4) the inputs used in determining the
fair value of equity-based awards, (5) the valuation allowance related to deferred tax assets (6) the fair value of financial
instruments, including derivative instruments and warrants, (7) the inventory reserves, (8) state sales and use tax accruals and (9)
warranty claims.

Revenue Recognition
In the Dermatology Recurring Procedures Segment the Company has two types of arrangements for its phototherapy treatment
equipment as follows: (i) the Company places its lasers in a physician’s office at no charge to the physician, and generally
charges the physician a fee for an agreed upon number of treatments; or (ii) the Company places its lasers in a physician’s office
and charges the physician a fixed fee for a specified period of time not to exceed an agreed upon number of treatments; if that
number is exceeded additional fees will have to be paid.

F-11

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

For the purposes of U.S. GAAP only, these two types of arrangements are treated under the guidance of ASC 842, Leases. While
these arrangements are not contractually operating leases, since the Company sells the physician access codes in order to operate
the treatment equipment, these arrangements are similar to operating leases for accounting purposes since the Company provides
the customers limited rights to use the treatment equipment and the treatment equipment resides in the physician’s office and the
Company may exercise the right to remove the equipment upon notice, under certain circumstances, while the physician controls
the utility and output of such equipment during the term of the arrangement as it pertains to the use of access codes to treat the
patients. 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 affected at any time by either party with 30
to 60 day notice. Amounts paid are generally non-refundable. For the first type of arrangement, sales of access codes are
considered variable treatment code payments and are recognized as revenue over the estimated usage period of the agreed upon
number of treatments. For the second type of arrangement, customers purchase access codes and revenue is recognized ratably on
a straight-line basis as the lasers 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, through its Korean, Japanese and, in 2021, Chinese distributors, the
Company generally sells access codes for a fixed amount on a monthly basis to end user customers 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. Pre-paid amounts are recorded in deferred
revenue and recognized as revenue over the lease term in the patterns described above. Under both methods, 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.

In the Dermatology Procedures Equipment segment the Company sells its products internationally through distributors and
domestically, directly to a physician. For the product sales, the Company recognizes revenues 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.

Remaining performance obligations related to ASC 606 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 excludes any
equipment accounted for as leases. As of December 31, 2020, and 2019, the aggregate amount of the transaction price allocated
to remaining performance obligations was $115 and $324, respectively, and the Company expects to recognize $108 and $209,
respectively, 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 where the Company has received payments, but has not yet satisfied the related performance obligations.
The

F-12

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

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 December 31, 2020, and 2019, the $108 and $209 of short-term contract liabilities,
respectively, is presented as deferred revenues and the $7 and $115 of long-term contract liabilities, respectively, is presented
within Other Liabilities on the Consolidated Balance Sheet, respectively. For the year ended December 31, 2020, and 2019, the
Company recognized $209 and $155, respectively, as revenue from amounts classified as contract liabilities (i.e. deferred
revenues) as of December 31, 2019, and 2018.

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

The Company records co-pay reimbursements made to patients receiving laser treatments as a reduction of revenue. For the years
ended December 31, 2020, and 2019, the Company recorded such reimbursements in the amounts of $485 and $779, respectively.

Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents consisted of cash and money market accounts at December 31, 2020, and 2019. The Company invests
its cash in highly liquid short-term investments and credit card transactions with settlement terms of less than five days. The
Company considers short-term investments that are purchased with an original maturity of three months or less to be cash
equivalents. Proceeds due from credit card transactions were $10 and $21 as of December 31, 2020, and 2019, respectively. In
connection with the Company’s note payable, the Company pledged the proceeds of a time-deposit account in the amount of the
loan and interest and recorded the cash security as restricted cash.

Accounts Receivable, net
The majority of the Company’s accounts receivable are due from physicians, distributors (international) and other entities in the
medical field. Accounts receivable are most often due within 30 to 90 days and are stated at amounts due from customers net of
an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due.
The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time
trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to
the Company and available information about their credit risk, and the condition of the general economy and the industry as a
whole. The Company writes off accounts receivable when they are considered uncollectible, and payments subsequently received
on such receivables are credited to the bad debt expense. The Company does not recognize interest accruing on accounts
receivable past due. The allowance for doubtful accounts was $274 and $184 at December 31, 2020, and 2019, respectively.

Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined based on purchased cost for raw materials
and all production cost related to the laser manufacturing process (labor and indirect manufacturing cost, including sub-
contracted work components) for work-in-process and finished goods is classified as inventory. For the Company’s products, cost
is determined on the first-in, first-out method. Work-in-process is immaterial, given the typically short manufacturing cycle, and
therefore is disclosed in conjunction with raw materials.

The Company's equipment for the treatment of skin disorders (e.g. the XTRAC) will either (i) be placed in a physician's office
and remain the property of the Company (at which date such equipment is transferred to property and equipment) or (ii) be sold
to distributors or physicians directly. The cost to build a laser, whether for sale or for placement, is accumulated in inventory.

Reserves for slow moving and obsolete inventories are provided based on historical experience and product demand.
Management evaluates the adequacy of these reserves periodically based on forecasted sales and market trends. As of December
31, 2020, and 2019, reserves on inventory were $225 at each date, respectively.

F-13

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

Property, Equipment and Depreciation
Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Excimer lasers-in-service are
depreciated on a straight-line basis over the estimated useful life of five years. For other property and equipment, depreciation is
calculated on a straight-line basis over the estimated useful lives of the assets, primarily three to seven years for computer
hardware and software, furniture and fixtures, and machinery and equipment. Leasehold improvements are amortized over the
lesser of the useful lives or lease terms. Expenditures for major renewals and betterments to property and equipment are
capitalized, while expenditures for maintenance and repairs are charged as an expense as incurred. Upon retirement or
disposition, the applicable property amounts are deducted from the accounts and any gain or loss is recorded in the consolidated
statements of operations. Useful lives are determined based upon an estimate of either physical or economic obsolescence or
both.

Intangible Assets
Intangible assets consist of core technology, product technology, customer relationships, trademarks and distribution rights.
Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives
ranging from three to ten years.

Accounting for the Impairment of Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets
acquired and liabilities assumed in a business combination. The Company evaluates the carrying value of goodwill annually in
December of each year in connection with the annual budgeting and forecast process and also between annual evaluations if
events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit to which
goodwill was allocated to below its carrying amount. Such circumstances could include, but are not limited to: (1) a significant
adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a
regulator. When evaluating goodwill for impairment, the Company may first perform an assessment qualitatively whether it is
more likely than not that a reporting unit's carrying amount exceeds its fair value. Under Accounting Standards Update (“ASU”)
2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” Step 2 from the
goodwill impairment test has been eliminated and goodwill impairment is measured as the excess of the carrying amount of the
reporting unit over its fair value. As the Company has not identified a goodwill impairment loss, currently this guidance does not
have an impact on the Company’s financial statements but could have an effect in the event of a goodwill impairment. The
Company bypassed the qualitative assessment and did a quantitative assessment by comparing the fair value of a reporting unit
with its carrying amount. No goodwill impairment was identified in the years ended December 31, 2020, and 2019.

Impairment of Long-Lived Assets and Intangibles
Long-lived assets, such as property and equipment, right-of-use assets and definite-lived intangibles subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may
not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset
group to the undiscounted cash flows attributable to the asset group. If the carrying amount of an asset group exceeds its
undiscounted cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset group
exceeds its fair value.

Functional Currency
The currency of the primary economic environment in which the operations of the Company are conducted is the U.S. dollar ("$"
or "dollars"). Substantially all of the Company's revenues are derived in dollars or in other currencies linked to the dollar.
Purchases of most materials and components are carried out in, or linked to the dollar.

For foreign currency transactions, the exchange rates applicable to the relevant transaction dates are used. Transaction gains or
losses arising from changes in the exchange rates are recorded in financing income or expenses.

F-14

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

Fair Value Measurements
The Company measures and discloses fair value in accordance with Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value,
establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about
fair value measurements. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-
based measurement that should be determined based on assumptions that market participants would use in pricing an asset or
liability. As a basis for considering such assumptions there exists a three-tier fair-value hierarchy, which prioritizes the inputs
used in measuring fair value as follows:

•

Level 1 – unadjusted quoted prices are available in active markets for identical assets or liabilities that the Company has the ability to access as of
the measurement date.
Level 2 – pricing inputs are other than quoted prices in active markets that are directly observable for the asset or liability or indirectly observable
through corroboration with observable market data.
Level 3 – pricing inputs are unobservable for the asset or liability and only used when there is little, if any, market activity for the asset or liability
at the measurement date. The inputs into the determination of fair value require significant management judgment or estimation. Fair value is
determined using comparable market transactions and other valuation methodologies, adjusted as appropriate for liquidity, credit, market and/or
other risk factors.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable
inputs when determining fair value.

The fair value of cash and cash equivalents and restricted cash are based on their respective demand value, which are equal to the
carrying value. The fair value of derivative warrant liability was estimated using option pricing models that was based on the fair
value of the Company’s common stock as well as assumptions for volatility, remaining expected life, and the risk-free interest
rate. The derivative warrant liability was the only recurring Level 3 fair value measure which expired in 2019. The carrying value
of all other short-term monetary assets and liabilities is estimated to be approximate to their fair value due to the short-term
nature of these instruments. At December 31, 2019, the Company repaid its long-term debt and now has a short-term note
payable that was renewed through December 30, 2021. The carrying value of this note and the Company's long tem debt are
estimated to approximate fair value.

The Company’s warrant liabilities were recorded at their fair value using binomial and Black-Scholes methods and continued- to
be recorded at their respective fair value at each subsequent balance sheet date until such terms expired in February and April,
2019. (See Note 12, Warrants, for additional discussion).

Accrued Warranty Costs
The Company offers a standard warranty on product sales generally for a one to two-year period, however, the Company has
offered longer warranty periods, ranging from three to four years, in order to meet competition or meet customer demands. The
Company provides for the estimated cost of the future warranty claims on the date the product is sold. Total accrued warranty is
included in Other Accrued Liabilities and Other liabilities on the consolidated balance sheets. The activity in the warranty
accrual during the years ended December 31, 2020, and 2019, is summarized as follows:

F-15

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

Accrual at beginning of year
Additions charged to warranty expense
Expiring warranties/claims satisfied
Total
Less: current portion
Total long-term accrued warranty costs

December 31,

2020

2019

232 $
67
(186)
113
(87)
26 $

238
222
(228)
232
(170)
62

Product Development Costs
Costs of research, new product development and product redesign are charged to expenses as incurred in engineering and product
development in the accompanying consolidated statements of operations. The Company incurred $1,274 and $1,002 in
engineering and product development costs for the years ended December 31, 2020, and 2019, respectively.

Advertising Costs
Advertising costs are charged to expenses as incurred. Advertising expenses amounted to approximately $697 and $1,936 for the
years ended December 31, 2020, and 2019, respectively.

Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities, as well as on
net operating loss carryforwards, and are measured using enacted tax rates and laws that are expected to be in effect when the
differences reverse. Any resulting net deferred tax assets are evaluated for recoverability and, accordingly, a valuation allowance
is provided when it is not more likely than not that all or some portion of the deferred tax asset will be realized.

The Company accounts for uncertain tax positions in accordance with an amendment to ASC Topic 740-10, Income Taxes
(Accounting for Uncertainty in Income Taxes), which clarified the accounting for uncertainty in tax positions. This amendment
provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is
"more-likely-than-not" to be sustained were it to be challenged by a taxing authority. The assessment of the tax position is based
solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an
uncertain tax position meets the "more-likely-than-not" threshold, the largest amount of tax benefit that is more than 50% likely
to be recognized upon ultimate settlement with the taxing authority is recorded. The Company has no uncertain tax positions.

Concentration of Credit Risks
Financial instruments which subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents,
restricted cash and accounts receivable. The Company deposits cash and cash equivalents and restricted cash in major financial
institutions in the US which, at times exceeds Federal Deposit Insurance Corporation and Securities Investor Protection
Corporation limits. The Company performs periodic evaluations of the relative credit standing of these institutions. The Company
is of the opinion that the credit risk in respect of these balances is immaterial. In addition, the Company performs periodic credit
evaluation and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of customers. (See
also Accounts receivable above).

F-16

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

With the exception of the Company’s international distributor, as described in Note 18, Significant Customer Concentrations,
the balance of the Company’s trade receivables does not represent a substantial concentration of credit risk. Most of the
Company’s sales are generated in North America, to a large number of customers.

Management periodically evaluates the collectability of the trade receivables to determine the amounts that are doubtful of
collection and determine a proper allowance for doubtful accounts.

Earnings Per Share
The Company calculates loss per common share and Preferred Series C share in accordance with ASC 260, Earnings per Share.
Under ASC 260, basic loss per common share and Preferred Series C share is calculated by dividing net loss attributable to
common shares and Preferred Series C shares by the weighted-average number of common shares and Preferred Series C shares
outstanding during the reporting period and excludes dilution for potentially dilutive securities. Diluted loss per common share
and Preferred Series C share gives effect to dilutive options, warrants and other potential common shares outstanding during the
period.

Shares of Company's Series C Convertible Preferred Stock are subordinate to all other securities at the same subordination level
as common stock and they participate in all dividends and distributions declared or paid with respect to common stock of the
Company, on an as-converted basis. Therefore, the Series C Convertible Preferred Stock meet the definition of common stock
under ASC 260. Earnings per share is presented for each class of security meeting the definition of common stock. The loss is
allocated to each class of security meeting the definition of common stock based on their contractual terms.

The following table presents the calculation of basic and diluted loss per share by each class of security for the years ended
December 31, 2020, and 2019:

Year ended
December 31, 2020

Year ended
December 31, 2019

Common Stock

Series C
Convertible
Preferred Stock

Common
Stock

Series C
Convertible
Preferred
Stock

Loss attributable to each class

(4,394) $

(18) $

(3,597) $

(193)

Weighted average number of shares outstanding during the period

33,609,922

368

31,978,665

4,577

Basic and Diluted loss per share

(0.13) $

(48.59) $

(0.11) $

(42.24)

The Company considered Series C Preferred Stock and 403,090 warrants issued on October 31, 2013 and February 14, 2014, to
be participating securities in the presentation of earnings per share. However, the warrants are excluded from the calculation of
earnings per share in periods of losses as the warrant holders do not have an obligation to fund such losses. The above referenced
warrants expired on April 30, 2019 and February 14, 2019.

For the years ended December 31, 2020, and 2019, diluted loss per common share and Series C Convertible Preferred Stock
share is equal to the basic loss per common share and Series C Convertible Preferred Stock share, respectively, since all
potentially dilutive securities are anti-dilutive. All Series C Convertible Preferred Stock was converted to common stock during
the year ended December 31, 2020.

F-17

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

The following common stock equivalents outstanding during the years ended December 31, 2020, and 2019, have been excluded
from the loss per share calculation as their inclusion would have been anti-dilutive:

Common stock purchase warrants
Restricted stock units
Common stock options
Total

Year Ended December 31,

2020

2019

434,791
131,247
4,957,288
5,523,326

1,517,528
128,417
4,235,451
5,881,396

Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation.
Under the fair value recognition provision of this statement, share-based compensation cost is measured at the grant date based
on the fair value of the award and is recognized as an expense over the requisite service period of the stock award on a straight-
line basis. Forfeitures are recognized when they occur. Performance-based awards are recognized only when it is probable that
the vesting conditions will be met. There were no performance awards granted in 2020 or 2019.

Accounting Pronouncements Recently Adopted
In February 2016 the FASB issued ASU 2016-02, “Leases” (Topic 842) (“ASU 2016-02”), which will require lessees to
recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current U.S. GAAP, the
recognition, measurement and presentation of expenses and cash flows arising from a lease primarily will depend on its
classification as a finance or operating lease. However, unlike current U.S. GAAP, which requires only capital leases to be
recognized on the balance sheet, the new guidance requires both types of leases to be recognized on the balance sheet. The ASU
is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. In August 2018 the
FASB issued ASU No. 2018-11, “Leases (Topic 842: Targeted Improvements”) which permits adoption of the guidance in ASU
2016-02 using either a modified retrospective transition, requiring application at the beginning of the earliest comparative period
presented or a transition method whereby companies could continue to apply existing lease guidance during the comparative
periods and apply the new lease requirements through a cumulative-effect adjustment in the period of adoption rather than in the
earliest period presented without adjusting historical financial statements.

The Company used the modified retrospective transition approach to ASU No. 2018-11 and applied the new lease requirements
through a cumulative-effect adjustment in the period of adoption. The new standard provides a number of optional practical
expedients in transition. We elected the package of practical expedients, which permits us not to reassess, under the new standard,
our prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-
hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. This accounting standard
did not have a material impact on our debt covenants. The Company has completed an evaluation of ASU 2016-02, including a
review of our leases and other contracts for potential embedded leasing arrangements and has recognized approximately $848 in
right-of-use assets and lease liabilities in the balance sheet as of January 1, 2019. There was no impact on the Company’s revenue
recognition under ASC 842.

In June 2018 the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting,” with the objective of simplifying several aspects of the accounting for
nonemployee share-based payment transactions resulting from expanding the scope of Topic 718 to include share-based payment
transactions for acquiring goods and services from nonemployees. The provisions of this update are effective for fiscal years
beginning after December 15, 2018, including interim periods within that year. The adoption of ASU No. 2018-07 on January 1,
2019, did not have a material effect on the Company’s consolidated financial statements.

F-18

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to
the Disclosure Requirements for Fair Value Measurement. The new guidance improves and clarifies the fair value measurement
disclosure requirement of ASC 820. The new disclosure requirements include the changes in unrealized gains or losses included
in other comprehensive income for recurring Level 3 fair value measurement held at the end of the reporting period and the
explicit requirement to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair
value measurements. The other provisions of ASU 2018-13 also include eliminated and modified disclosure requirements. The
guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted, including in an interim
period for which financial statements have not been issued or made available for issuance. The adoption of ASU No. 2018-13 did
not have a material effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment. The new guidance eliminated Step 2 from the goodwill impairment test which was required in computing
the implied fair value of goodwill. Instead, under the new amendments, an entity should recognize an impairment charge for the
amount by which the carrying amount exceeds the reporting unit’s fair value, however, the loss recognized should not exceed the
total amount of goodwill allocated to that reporting unit. If applicable, an entity should consider income tax effects from any tax-
deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The amendments
in this guidance are effective for public business entities for annual and interim goodwill impairment tests performed in fiscal
years beginning after December 15, 2019 with early adoption permitted after January 1, 2017. The adoption of ASU No. 2017-04
on January 1, 2020, did not have a material effect on the Company’s consolidated financial statements.

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 Statements. This pronouncement provides temporary optional expedients and exceptions for applying U.S.
GAAP principles 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 guidance is effective upon
issuance in March 2020, and will apply through December 31, 2022. We continue to evaluate the temporary expedients and
options available under this guidance, and the effects of these pronouncements and as the Company does not have any hedging
activities does not believe this will have a material effect on the Company’s consolidated financial statements.

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 on 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 beginning after December 15, 2021 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 consolidated financial statements, but could in the future.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes. ASU 2019-12 eliminated certain exceptions and changed guidance on other matters. The exceptions relate to the allocation
of income taxes in separate company financial statements, tax accounting for equity method investments and accounting for
income taxes when the interim period year-to-date loss exceeds the anticipated full year loss. Changes relate to the accounting for
franchise taxes that are income-based and non-income-based, determining if a step up in tax basis is part of a business
combination or if it is a separate transaction, when enacted tax law changes should be included in the annual effective tax rate
computation, and the allocation of taxes in separate company financial statements to a legal entity that is not subject to income
tax. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December15,
2020, with early adoption permitted.

F-19

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

The Company is currently evaluating the potential impact but does not believe there will be an impact of the adoption of this
standard on its results of operations, financial position and cash flows and related disclosures.

Note 2
Liquidity

The Company has been negatively impacted by the COVID-19 pandemic, and has historically experienced recurring losses and
has been dependent on raising capital from the sale of securities in order to continue to operate and meet the Company’s
obligations in the ordinary course of business. Since the equity financing in May 2018 and a change in management, and prior to
COVID, the Company had improved revenues, gross profit, generated positive cash flow from operations, refinanced its debt at a
lower interest rate and received cash proceeds from the Paycheck Protection Program loan (the “PPP loan”) and the EIDL loan
(defined in Note 9 below). Management believes that the Company’s cash and cash equivalents, combined with the anticipated
revenues from the sale or use of the Company’s products and the proceeds from the PPP loan and the EIDL loan, will be
sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements
associated with our existing operations through the next 12 months following the date of the issuance of these consolidated
financial statements. However, the negative impact of the COVID-19 outbreak on the financial markets could interfere with our
ability to access financing and to access it on favorable terms, if at all.

Note 3
Revenue:

The following table presents the Company’s revenue disaggregated by geographical region for the years ended December 31,
2020, and 2019. Domestic refers to revenue from customers based in the United States, and foreign recurring revenue is derived
from the Company’s distributor for physicians based in Korea and dermatology procedures equipment revenue is derived from
sales to the Company’s international master distributors for physicians based in primarily Asia.

Domestic
Foreign
Total

F-20

Year Ended December 31, 2020
Dermatology
Procedures
Equipment

Dermatology
Recurring
Procedures

TOTAL

16,848 $
561
17,409 $

956 $
4,725
5,681 $

17,804
5,286
23,090

Year Ended December 31, 2019
Dermatology
Procedures
Equipment

Dermatology
Recurring
Procedures

TOTAL

23,645 $
68
23,713 $

1,243 $
6,630
7,837 $

24,888
6,698
31,586

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

The following table summarizes the Company’s expected future undiscounted fixed treatment code payments from international
recurring revenue customers as of December 31,

948
954
867
440
35
3,244

2021
2022
2023
2024
2025
Total

Note 4
Inventories:

Raw materials and work in process
Finished goods

December 31,
2020

December 31,
2019

2,949 $
495
3,444 $

2,651
376
3,027

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

Note 5
Property and Equipment, net:

Lasers placed-in-service
Equipment, computer hardware and software
Furniture and fixtures
Leasehold improvements

Accumulated depreciation and amortization
Property and equipment, net

December 31,
2020

December 31,
2019

22,942 $
146
243
43
23,374
(17,845)
5,529 $

20,925
146
234
26
21,331
(15,962)
5,369

Depreciation and related amortization expense was $1,975 and $2,693 for the years ended December 31, 2020, and 2019,
respectively.

F-21

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

Note 6
Intangible Assets, net:

Set forth below is a detailed listing of definite-lived intangible assets as of:

Core technology
Product technology
Customer relationships
Tradenames

December 31,

2020
Accumulated
Amortization

Intangible
assets, net

2019
Intangible
assets, net

Balance

5,700 $
2,000
6,900
1,500
16,100 $

(3,135) $
(2,000)
(3,795)
(825)
(9,755) $

2,565 $
-
3,105
675
6,345 $

3,135
200
3,795
825
7,955

Related amortization expense was $1,610 and $1,810 for the years ended December 31, 2020, and 2019, respectively. Total
accumulated amortization at December 31, 2019 was $8,145. Intangible assets consist of core technology, product technology,
customer relationships, trademark and distribution rights. Intangible assets are amortized over the period of estimated benefit
using the straight-line method and estimated useful lives ranging from three to ten years.

Estimated amortization expense for the above amortizable intangible assets for the future periods is as follows:

2021
2022
2023
2024
2025
Total

Note 7
Goodwill:

1,410
1,410
1,410
1,410
705
6,345

Goodwill reflects the amount of the acquisition price in excess of the fair values assigned to identifiable tangible and intangible
assets and assumed liabilities. Goodwill is not amortized, but is reviewed annually for impairment. Goodwill was recorded on the
acquisition of the XTRAC and VTRAC businesses on June 22, 2015, as the purchase price exceeded the fair value of the
identifiable net assets of the business. The balance of goodwill at December 31, 2020, and 2019 consisted of the following:

Dermatology Recurring Procedures segment
Dermatology Procedures Equipment segment
Total

7,958
845
8,803

The Company has incurred no impairment of goodwill as of December 31, 2020 and 2019.

F-22

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

Note 8
Other Accrued Liabilities:

Accrued warranty, current, see Note 1
Accrued compensation, including commissions and vacation
Accrued state sales use and other taxes
Accrued professional fees and other accrued liabilities
Total other accrued liabilities

December 31,
2020

December 31,
2019

87 $
891
3,105
607
4,690 $

170
1,193
3,193
578
5,134

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 uses estimates when accruing its sales and
use tax liability. All of the Company’s tax positions are subject to audit. One state has assessed the Company, in two assessments,
an aggregate amount of $1,484 for the period from March 2014 through February 2020 including penalties and interest. The
Company has declined an informal offer to settle at a substantially lower amount and the Company appealed in that jurisdiction’s
administrative process of appeal.

In January 2021, the Company received notification that the administrative judge from the respective state had issued an opinion
finding in favor of the Company that the sale of XTRAC treatment codes were not taxable as sales tax with respect to the first
assessment. The jurisdiction has 30 days plus extensions to file an appeal and on March 25th the Company received an advisory
from the jurisdiction that it would file an appeal.

A second jurisdiction has made an assessment of $720 from June 2015 through March 2018 plus interest of $171 through April
2020. The Company is also in that jurisdiction’s administrative process of appeal and the timing of the process has been impacted
by the COVID-19 pandemic. If 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
does not prevail, the Company may be subject to sales taxes in those particular states for previous years and in the future, plus
potential interest and penalties for failure to pay such taxes.

The Company believes its state sales and use tax accruals have 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 are 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.

The Company records state sales tax collected and remitted for its customers on 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
are recorded in general and administrative expenses on the consolidated statements of operations.

F-23

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

Note 9
Note Payable

On December 30, 2019, the Company closed on a $7,275 loan with a commercial bank pursuant to a one-year Fixed Rate – Term
Promissory Note (the “Note”), which was renewed effective December 30, 2020 at an interest rate of 1.40% and a rate of 0.40%
on the time deposit. For the year ended December 31, 2019 the Note had an interest rate of 2.79% and a rate of 1.79% on the time
deposit. The Company's obligations under the Note are secured by an Assignment and Pledge of Time Deposit (the
“Agreement”), under which the Company has pledged to the commercial bank the proceeds of a time deposit account in the
amount of the loan and recorded the time deposit and interest as restricted cash on the balance sheet. The principal is due on
December 30, 2021 with no penalties for prepayments. In 2019, the Company fully repaid (including payment of termination and
exit fees) its then existing long-term debt credit facility with Midcap Financial Trust (“MidCap”). The transaction was accounted
for as a debt extinguishment. See Note 10 Long-term Debt for further discussion on the extinguishment.

Note 10
Long-term Debt:

Term-Note Credit Facility
On December 30, 2015, the Company entered into a $12,000 credit facility pursuant to a Credit and Security Agreement (the
"Credit Agreement") and related financing documents with MidCap and the lenders listed therein. Under the Credit Agreement,
the credit facility could be drawn down in two tranches, the first of which was drawn for $10,500 on December 30, 2015. The
second tranche was drawn for $1,500 on January 29, 2016. The maturity date of the credit facility was December 1, 2020. The
Company's obligations under the credit facility were secured by a first priority lien on all the Company's assets. This credit
facility had an interest rate of one-month LIBOR plus 8.25% and included both financial and non-financial covenants, including a
minimum net revenue covenant. On November 10, 2017, the minimum net revenue covenant was amended prospectively and
there was an increase in the exit fee. Additionally, on November 10, 2017, the Company entered into an amendment to modify
the principal payments, including a period of six months where there were no principal payments due.

On March 26, 2018, the Company entered into a Third Amendment to the Credit Agreement with MidCap. For the period
beginning on the closing date of the loan and ending on January 31, 2018, the gross revenue in accordance with U.S. GAAP for
the twelve-month period ending on the last day of the most recently completed calendar month was amended to be less than the
minimum amount on the Covenant Schedule, as defined in the Credit Agreement. This amendment waived the event of default
related to the revenue covenant for the period ending February 2018. This amendment also amended the monthly net revenue
covenant.

On May 29, 2018, the Company entered into a Fourth Amendment to Credit Agreement (the “Amendment”), pursuant to which
the Company repaid $3,000 in principal of then existing $10,571 credit facility. The terms of the credit facility were amended to
impose less restrictive covenants and lower prepayment fees for the Company and extended the maturity date to May 2022. The
Amendment modified the principal payments including a period of 18 months where there were no principal payments due.
Principal payments beginning December 2019 were $252 plus interest per month. The interest rate on the credit facility was one-
month LIBOR plus 7.25%. On April 30, July 15, August 26, and October 15, 2019 the Company received waivers from MidCap,
as administrative agent for the lenders who were party to the Credit Agreement, wherein the lenders waived the Company’s
compliance with the obligation to deliver audited financial statements within 120 days of year-end, pursuant to the Credit
Agreement. The waivers were effective through November 7, 2019. The Company delivered the audited financial statements on
or about October 29, 2019 to cure the event of default.

These amendments had been accounted for as debt modifications, as the present value of the cash flows changed by less than
10%.

F-24

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

All borrowings under the Credit Agreement were fully repaid in connection with the proceeds from a Fixed Rate-Promissory
Note on December 30, 2019. The Company accounted for the repayment as an extinguishment of debt and recorded a loss of
$414 in the consolidated statements operations for the year ended December 31, 2019.

Paycheck Protection Program Loan
On April 22, 2020, the Company closed a loan of $2,028 (the “PPP loan”) from a commercial bank, pursuant to the Paycheck
Protection Program (“PPP”) administered by the Small Business Administration (the “SBA”) pursuant to the CARES Act. The
PPP loan matures on May 1, 2022 and bears an interest rate of 1% per annum. Payments of principal and interest of any
unforgiven balance was scheduled to commence December 1, 2020, but is deferred until the SBA approves of the forgiveness
amount. Under the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”), (i) the first payment date for
the PPP loan will be the earlier of (a) 10 months after the end of the “covered period” (as determined under the PPP) or (b) the
date the bank receives a remittance of the forgiven amount from the SBA, and (ii) the PPP loan’s maturity is extended to five
years (from 2 years).

All or a portion of the PPP loan may be forgiven by the lender upon application by the Company beginning 60 days after loan
approval and upon documentation of expenditures in accordance with the requirements set forth by the SBA pursuant to the
CARES Act. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent
payments, covered mortgage interest and covered utilities at either; the Company’s election, the eight-week period or twenty-four
week period beginning on the date of disbursement of proceeds from the PPP loan. For purposes of the CARES Act, payroll costs
exclude compensation of an individual employee in excess of $100, prorated annually. Not more than 40% of the forgiven
amount may be for non-payroll costs. Forgiveness is reduced, under certain circumstances, if full-time headcount declines or if
salaries and wages for employees with salaries of $100 or less annually are reduced. In the event the PPP loan, or any portion
thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. In December 2020, the Company
has submitted for forgiveness to the SBA, and subject to the SBA’s approval, of 100% of the loan proceeds. The balance of the
loan at December 31, 2020 was $2,028.

Economic Injury Disaster Loan
On May 22, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the
SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on
the Company’s business. The principal amount of the EIDL Loan is up to $500, with proceeds to be used for working capital
purposes and is collateralized by all the Company’s assets. On June 12, 2020, the Company received these funds from the SBA.
Interest accrues at the rate of 3.75% per annum. Installment payments, including principal and interest, are due monthly
beginning March 26, 2021 (twelve months from the date of the promissory note) in the amount of $2. The balance of principal
and interest is payable over the next thirty years from the date of the promissory note. There are no penalties for prepayment.
Based upon guidance issued by the SBA on June 19, 2020, the EIDL Loan is not required to be refinanced by the PPP loan. The
balance of the loan at December 31, 2020 was $500.

F-25

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

The following summarizes the Company’s long term debt:

Term notes
Less: current portion
Total long-term debt

2,528
(1,478)
1,050

The following table summarizes the future payments that the Company is obligated to make for long-term debt for the future
period as to the stated terms of the loans:

2021
2022
2023
2024
2025
Thereafter
Total

Note 11
Commitments and Contingencies:

1,478
568
10
10
10
452
2,528

Leases
The Company recognizes right-of-use assets (“ROU Assets”) and operating lease liabilities (“Lease Liabilities”) when it obtains
the right to control an asset under a leasing arrangement with an initial term greater than twelve 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 1 to 4
years, and one facility lease has a renewal option for two years. Renewal options have been excluded from the determination of
the lease term as they are not reasonably certain of exercise. On May 1, 2019, the Company entered into an addendum with FR
National Life, LLC for the Carlsbad facility for five years which began on October 1, 2019.

Operating lease costs were $448 for each of the years ended December 31, 2020 and 2019. Cash paid for amounts included in the
measurement of operating lease liabilities was $436 and $371 for the years ended December 31, 2020 and 2019, respectively. As
of December 31, 2020, and 2019, the incremental borrowing rate was 9.76% and the weighted average remaining lease term was
3.1 and 4.1 years, respectively. The following table summarizes the Company’s operating lease maturities as of December 31,
2020:

For the year ending December 31,
2021
2022
2023
2024

Total remaining lease payments

Less: imputed interest

Total lease liabilities

456
371
242
186
1,255
(176)
1,079

With respect to lease and non-lease components, the Company adopted the practical expedient to account for the lessee
arrangement as a single lease component.

F-26

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

Contingent Shares
In the event of certain contingencies, the investors in the an equity financing in May 2018 may receive additional shares issued
pursuant to the Retained Risk Provisions as defined in the Stock Purchase Agreements. There are additional contingencies
included in the SPAs that the Company has determined are not probable or estimable and/or contractually obligated in order to
issue shares at this time.

For contingencies related to sales and use taxes, see Note 8.

Litigation
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.

Note 12
Warrants:

The Company accounts for warrants that require net cash settlement upon change of control of the Company as liabilities instead
of equity. There were 403,090 of such warrants with an exercise price of $3.75 per share which expired on February 5, 2019 and
April 30, 2019.

Note 13
Stockholders’ Equity:

Preferred Stock
The Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.10 per share with such
designation, rights and preferences as may be determined from time to time by the Company’s Board of Directors.

Other than the limitations on conversions to keep each such holder’s beneficial ownership below 9.99%, the terms of the Series C
Convertible Preferred Stock generally bestow the same rights to each holder as such holder would receive if they were common
stock shareholders and are not redeemable by the holders, except that the Series C Convertible Preferred Stock shares do not have
voting rights. The Series C Convertible Preferred Stock have the same level of subordination as common stock. Each share of
Series C Convertible Preferred Stock has a stated value of $1,000 and is convertible into shares of common stock at a conversion
price equal to $2.69 for a total of approximately 15,049,000 shares of common stock. There were 0 and 2,103 shares of Series C
Convertible Preferred Stock issued and outstanding on December 31, 2020, and 2019, respectively. For the years ended
December 31, 2020, and 2019, investors converted shares of Series C Preferred Stock into 782,089 and 2,923,791 shares of
common stock, respectively.

Common Stock and Warrants
The Company is authorized to issue 150,000,000 shares of common stock with a par value of $0.001 per share. There were
33,801,045 and 32,932,273 shares of common stock issued and outstanding at December 31, 2020, and 2019, respectively.

At December 31, 2020, the Company had 19,812 outstanding common stock warrants with an exercise price of $5.30. These
warrants expired on January 29, 2021.

F-27

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

Note 14
Stock-based compensation:

Stock Options
On October 27, 2016, the Company’s stockholders approved the Company’s adoption of the new 2016 Omnibus Incentive Stock
Plan (“2016 Plan”) having 2,058,880 shares available for issuance in respect of awards made thereunder. The Company
terminated the 2013 Stock Incentive Plan in October 2016. On May 29, 2018, the Company’s stockholders approved the
Company’s amendment to the 2016 Plan to increase the number of the Company’s common stock available for grants under the
plan by 3,134,365. As of December 31, 2020, the aggregate number of shares of common stock remaining available for issuance
for awards under the 2016 Plan totaled 41,774.

A summary of option transactions for all of the Company’s stock options during the years ended December 31, 2020, and 2019
follows:

Outstanding at January 1, 2019

Granted
Exercised
Expired/forfeited

Outstanding at December 31, 2019

Granted
Exercised
Expired/forfeited

Outstanding at December 31, 2020

Exercisable at December 31, 2020

Options expected to vest at December 31, 2020

Number of

Stock Options

Weighted
Average
Exercise Price
2.02
2.46
1.74
6.43
1.90
1.46
1.29
170.00
1.87

4,342,765 $
875,000
(86,250)
(223,477)
4,908,038
400,000
(15,000)
(150)
5,292,888 $

3,442,501 $

1,850,387 $

1.87

1.86

The outstanding options at December 31, 2020, have a range of exercise prices and associated weighted remaining contractual
life and weighted average exercise price, as follows:

Options Range of
Exercise Prices

Outstanding Number
of Shares

1.11 - $2.00
2.01 - $5.00
5.01 - $181.00

$
$
$
Total

4,185,877
941,000
166,011
5,292,888

Weighted Average
Remaining
Contractual Life
(years)

Weighted Average
Exercise Price

Exercisable Number
of Shares

Exercisable Weighted
Average Exercise
Price

7.59
8.67
4.54
7.69

1.47
2.52
8.07
1.87

2,918,323
358,267
165,911
3,442,501

1.43
2.61
8.03
1.87

The weighted average remaining contractual life of exercisable options was 7.30 years and 8.03 years at December 31, 2020, and
2019, respectively.

The share price as of December 31, 2020, was $1.50 and the aggregate intrinsic value for options outstanding and exercisable
was $611 and $546, respectively. The intrinsic value of the options that were exercised was $3 during the year ended December
31, 2020. The share price for December 31, 2019, was $2.08 and the intrinsic value for options outstanding and exercisable was
$2,300 and $1,156, respectively.

F-28

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

Stock awards under the Company’s stock option plans have been granted with exercise prices that are no less than the market
value of the stock on the date of the grant. Options granted under the plans are generally time-based or performance-based
options and vesting varies accordingly (see below for specific vesting conditions). There were no performance-based options
granted in 2020 or 2019. Options under the plans expire up to a maximum of ten years from the date of grant. The fair value of
each option award granted during the period is estimated on the date of grant using the Black-Scholes option valuation model and
assumptions as noted in the following table:

Risk-free interest rate
Volatility
Expected dividend yield
Expected life

Years Ended December 31,

2020
.53%
94%
0%
6.0 years

2019
1.66%
71%
0%
6.0 years

The expected life of the options is based on the observed and expected time to full-vesting, forfeiture and exercise. Groups of
employees that have similar historical exercise behavior are considered separately for valuation purposes. Volatility is based on
Company historical volatility and comparable companies’ historical stock prices matching the expected term of the award. The
risk-free rate is based on rates provided by the U.S. Treasury with a term equal to the expected life of the option. The Company
has never paid dividends and does not currently anticipate paying any in the foreseeable future.

For the year ended December 31, 2019, 86,250 of options were exercised in a cashless exercise at a weighted average exercise
price of $1.74 which resulted in the issuance of 36,410 of shares of common stock. For the year ended December 31, 2020,
15,000 of options were exercised at a weighted average exercise price of $1.29.

On November 21, 2019, the Company granted options to purchase 300,000 shares of common stock to its Chief Executive
Officer, 150,000 shares of common stock to its Chief Financial Officer and 425,000 in additional grants to management at a strike
price of $2.46. The options vest over three years and expire ten years from the date of grant. The aggregate fair value of the
options granted was $1,361.

On November 13, 2020, the Company granted options to purchase 150,000 shares of common stock to its Chief Financial Officer
and 250,000 in additional grants to management at a strike price of $1.46. The options vest over three years and expire ten years
from the date of grant. The aggregate fair value of the options granted was $443.

The following table summarizes the Company’s unvested stock option activity:

Unvested balance as of January 1, 2019
Granted
Vested
Forfeited/expired
Unvested balance as of December 31, 2019
Granted
Vested
Forfeited/expired
Unvested balance at December 31, 2020

F-29

Weighted
Average Grant
Date Fair
Value

Options

3,394,468 $
875,000
(1,265,956)
-
3,003,512 $
400,000
(1,553,125)
-
1,850,387 $

0.82
1.56
0.78
-
1.05
1.11
0.96
-
1.15

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

Restricted Stock Units
In connection with the closing of an equity financing in May 2018, there were changes to the board of directors and the Company
issued initial grants to new members as well as grants to all members as compensation. In total, the Company granted 140,097
restricted stock units to the board members at a fair value of $2.07. The restricted stock units vest quarterly over twelve months.
The aggregate fair value of the restricted stock units granted was $290. Restricted stock units issued to the Chairman were
cancelled in January 2019.

On November 21, 2019, the Company granted 77,237 restricted stock units to certain board members at a fair value of $2.46. The
restricted stock units vest quarterly over twelve months. The aggregate fair value of the restricted stock units granted was $190.

Stock-based compensation expense, which is included in general and administrative expense, for the years ended December 31,
2020, and 2019, was $1,633 and $1,195, respectively. As of December 31, 2020, there was $1,715 in unrecognized compensation
expense, which will be recognized over a weighted average period of 1.05 years.

Restricted stock unit unvested are summarized in the following table:

Unvested balance at January 1, 2019
Granted
Vested/settled
Forfeited/expired
Unvested balance at December 31, 2019
Granted
Vested/settled
Forfeited/expired
Unvested balance at December 31, 2020

Number of
restricted stock
units

Weighted
Average Grant
Date Fair
Value

70,049 $
77,237
(60,387)
(9,662)
77,237 $
-
(68,091)
(9,146)
- $

2.07
2.46
2.07
2.07
2.46
-
2.46
2.46
-

At December 31, 2020 and 2019, restricted stock units vested but not issued were 88,194 and 91,787, respectively.

Note 15
Income Taxes:

Current:
Federal
State

Deferred:
Federal
State

Income tax expense (benefit)

Years Ended December 31,

2020

2019

- $
21
21

129
125
254
275 $

(58)
20
(38)

(86)
(25)
(111)
(149)

The provision for income taxes includes federal, state and local income taxes currently payable and deferred taxes resulting from
net operating loss carryforwards and 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 not more likely than not that a tax benefit will be
realized.

F-30

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

The CARES ACT, among other things contains numerous income tax provisions. Some of these tax provisions are effective
retroactively for the years ending before the date of enactment. The Company analyzed the impact of the CARES ACT and does
not foresee a significant impact on its consolidated financial position, results of operations, effective tax rate and cash flows.

The difference between the actual income tax expense (benefit) and that computed by applying the U.S. federal income tax rate to
pretax loss from continuing operations is summarized below:

Computed expected tax expense (benefit)
State tax (benefit)expense, net of federal effect
Other
Net increase (decrease) in valuation allowance
Provision for income taxes

For the Years Ended December 31,

2020

2019

(869) $
(272)
221
1,195
275 $

(827)
(106)
377
407
(149)

The computed expected tax benefit was calculated using the U.S. federal income tax rates of 21% for the years ended December
31, 2020, and 2019, respectively.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of
December 31, 2020, and 2019 are as follows:

Deferred tax assets/(liabilities):
Net operating loss carryforward
Intangible assets
Inventory
Reserves & accrued expenses
Property & equipment
Non-cash compensation
Goodwill
Right of use asset
Lease liability
Total net deferred tax assets
Less: valuation allowance
Net deferred tax assets/(liabilities)

December 31,

2020

2019

45,819 $
1,450
51
896
(178)
808
(815)
(249)
272
48,054
(48,308)
(254) $

43,433
2,046
51
992
389
850
(667)
(331)
350
47,113
(47,113)
-

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Based on the Company’s historical net losses, management does not
believe that it is more-likely-than not that the Company will realize the benefits of these deferred tax assets and, accordingly,
nearly a full valuation allowance has been recorded against the deferred tax assets as of December 31, 2020 and 2019. The
Company’s valuation allowance against its deferred tax assets increased by $1,195 for the year ended December 31, 2020 and
increased by $407 for the year ended December 31, 2019.

F-31

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

At December 31, 2020, and 2019, the Company has federal net operating loss carryforwards of approximately $200,976 to offset
future taxable income. Net operating loss carryforwards prior to 2019 begin to expire in 2021 through 2036. The Company has
experienced certain ownership changes which, under the provisions of Section 382 of the Internal Revenue Code of 1986, as
amended, result in annual limitations on the Company’s ability to utilize its net operating losses in the future. The February 2014,
July 2014, June 2015 and May 2018 equity raises by the Company will limit the annual use of these net operating loss
carryforwards. Although the Company has not performed a Section 382 study, any limitation of its pre-change net operating loss
carryforwards that would result in a reduction of its deferred tax asset would also have an equal and offsetting adjustment to the
valuation allowance.

FASB ASC 740 “Income Taxes” contains guidance with respect to uncertain tax positions which applies to all tax positions and
clarifies the recognition of tax benefits in the financial statements by providing for a two-step approach of recognition and
measurement. The first step involves assessing whether the tax position is more-likely-than-not to be sustained upon examination
based upon its technical merits. The second step involves measurement of the amount to recognize. Tax positions that meet the
more-likely-than-not threshold are measured at the largest amount of tax benefit that is, greater than 50%, likely of being realized
upon ultimate finalization with the taxing authority.

The Company does not have any uncertain income tax positions or accrued penalties and interest. If such matters were to arise,
the Company would recognize interest and penalties related to income tax matters in income tax expense. The Company files tax
returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is
subject to examination by federal, state, and foreign jurisdictions, where applicable. The Company’s tax years are still under open
status from 2016 to present. All open years may be examined to the extent that net operating loss carryforward are used in future
periods.

Note 16
Business Segments:

The Company 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, as follows: The Dermatology
Recurring Procedures segment derives its revenues from the usage of its equipment by dermatologists to perform XTRAC
procedures. The Dermatology Procedures Equipment segment generates revenues from the sale of equipment, such as lasers and
lamp products. Management 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), net, is also not allocated to the operating segments.

The following tables reflect results of operations from our business segments for the periods indicated below:

F-32

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

Year Ended December 31, 2020

Revenues
Costs of revenues
Gross profit
Gross profit %

Allocated operating expenses:
Engineering and product development
Selling and marketing expenses
Unallocated operating expenses

Income (loss) from operations
Interest expense, net
Income (loss) before income taxes

Year Ended December 31, 2019

Revenues
Costs of revenues
Gross profit
Gross profit %

Allocated operating expenses:
Engineering and product development
Selling and marketing expenses
Unallocated operating expenses

Income (loss) from operations
Interest expense, net
Loss on extinguishment of debt
Income (loss) before income taxes

Dermatology
Recurring
Procedures

Dermatology
Procedures
Equipment

17,409
5,832
11,577

5,681
3,124
2,557

TOTAL

23,090
8,956
14,134

66.5%

45.0%

61.2%

1,101
8,437
-
9,538
2,039
-
2,039

173
601
-
774
1,783
-
1,783

1,274
9,038
7,898
18,210
(4,076)
(61)
(4,137)

Dermatology
Recurring
Procedures

Dermatology
Procedures
Equipment

23,713
7,033
16,680

7,873
4,283
3,590

TOTAL

31,586
11,316
20,270

70.3%

45.6%

64.2%

845
11,191
-
12,036
4,644
-
-
4,644

157
812
-
969
2,621
-
-
2,621

1,002
12,003
10,275
23,280
(3,010)
(515)
(414)
(3,939)

As of December 31, 2020, and 2019, total assets by reportable segment were as follows:

Assets:
Dermatology Recurring Procedures
Dermatology Procedures Equipment
Other unallocated assets
Consolidated total

December 31,

2020

2019

25,112 $
3,052
18,614
46,778 $

27,620
3,382
16,341
47,343

Substantially all long-lived assets were located in domestic markets for both of the years ended December 31, 2020, and 2019.

F-33

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

Note 17
Related Parties:

In connection with the certain litigation, the Company has agreed to indemnify Uri Geiger and Accelmed Growth Partners, L.P.
for their out of pocket costs. As of December 31, 2019, the Company has reimbursed Accelmed Growth Partners, L.P.
approximately $25.

Note 18
Significant Customer Concentration:

For the year ended December 31, 2020, revenue from sales to GlobalMed, the Company’s international master distributor, were
$2,679, or 11.6%, of total revenues. At December 31, 2020, the accounts receivable from GlobalMed was less than 10% of total
accounts receivable. For the year ended December 31, 2019, revenues from sales to the Company’s international master
distributor were $6,133, or 19.4% of total revenues for such year. At December 31, 2019, the accounts receivable balance from
GlobalMed was $661, or 15.1%, of total net accounts receivable. No other customer accounted for more than 10% of the
Company’s revenues or accounts receivable.

Note 19
Employee 401(k) Savings Plan:

The Company sponsors a 401(k) defined contribution retirement savings plan that covers all eligible employees who have met the
minimum age and service requirements. Under the plan, eligible employees may contribute a portion of their annual
compensation into the plan up to IRS annual limits. The Company has elected to make matching contributions to the plan based
on percentage of the employee’s contribution. For the years ended December 31, 2020, and 2019, the Company’s contributions to
the plan were $240 and $248, respectively. On January 1, 2019, the Company elected a safe harbor match to the 401(k) defined
contribution plan.

Note 20
Subsequent Events:

On January 29, 2021, 19,812 outstanding common stock warrants expired.

On February 24, 2021, the Company and Dr. Dolev Rafaeli entered into an employment separation agreement and release (the
“Separation Agreement”), pursuant to which, among other things, Dr. Rafaeli resigned as the Company’s Chief Executive Officer
and President and as a member of the Company’s board of directors on February 28, 2021. In connection with Dr. Rafaeli’s
separation, upon the expiration of the revocation of a general release delivered by Dr. Rafaeli to the Company, the Company will
(i) pay Dr. Rafaeli (a) his base salary, less applicable legal deductions, through May 29, 2021 consistent with normal payroll
procedures, (b) a lump sum amount equal to 12 weeks of pay as a payout of his accrued but unused vacation days, (c)
reimbursements of his monthly COBRA premium payments for up to 18 months following February 28, 2021, and (d) an amount
up to $10,000 to reimburse Dr. Rafaeli for reasonable attorneys’ fees in connection with the negotiation of the Separation
Agreement, and (ii) vest all outstanding options held by Dr. Rafaeli (to the extent not then vested) and have them remain
exercisable until August 22, 2021. Subject to the foregoing restrictions and the Company’s insider trading policies, Dr. Rafaeli
will be permitted to exercise the options as permitted under the Company’s equity incentive plan, including cashless exercises,
until August 22, 2021. Certain provisions contained in the employment agreement, dated as of March 30, 2018 (the “Rafaeli
Employment Agreement”), between the Company and Dr. Rafaeli survive and continue to apply under the Separation Agreement,
including, but not limited to, covenants related to confidentiality, assignment of developments, and covenant not to compete. The
Company and Dr. Rafaeli also agreed to mutual non-disparagement and communication restriction provisions and granted
customary general releases to each other. Until May 29, 2021, Dr. Rafaeli agreed to cooperate in good faith with the Company in
transitioning his duties to one or more persons as determined by the Company’s board of directors.

F-34

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share amounts and number of lasers)

On February 28, 2021, in connection with the separation of the Company’s Chief Executive Officer, the Company accelerated the
vesting of options to purchase 800,886 shares of common stock.

On March 1, 2021, the Company granted an options to purchase 1,632,590 shares of common stock to its incoming Chief
Executive Officer with a strike price of $1.73 vesting over a three year period, with 544,198 options vesting on the first
anniversary of the date of the grant and 136,049 vesting every three months thereafter, subject to acceleration of vesting under
certain circumstances.

F-35

EXHIBIT 23.1

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT

We consent to the incorporation by reference in the Registration Statement of STRATA Skin Sciences, Inc. and Subsidiary on
Amendment No. 1 to Form S-3 on Form S-1 (File No.’s 333-205797 and 333-226296) and Form S-8 (File No.’s 333-136183,
333-161286, 333-189119, 333-208397, 333-216712 and 333-226298) of our report dated March 25, 2021, with respect to our
audits of the consolidated financial statements of STRATA Skin Sciences, Inc. and Subsidiary as of December 31, 2020 and 2019
and for the years ended December 31, 2020 and 2019, which report is included in this Annual Report on Form 10-K of STRATA
Skin Sciences, Inc. for the year ended December 31, 2020.

/s/ Marcum LLP

Marcum LLP
Philadelphia, Pennsylvania
March 25, 2021

E-23.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Robert Moccia, certify that:

(1)

(2)

(3)

(4)

I have reviewed this annual report on Form 10-K of STRATA Skin Sciences, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

(b)

(c)

(d)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;

designed such internal control over financial reporting or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent
functions):

(a)

(b)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information;
and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.

Dated: March 25, 2021

STRATA SKIN SCIENCES, INC.

By: /s/ Robert J. Moccia
Robert J. Moccia
President & Chief Executive Officer

E-31.1

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Matthew C. Hill, certify that:

(1)

(2)

(3)

(4)

I have reviewed this annual report on Form 10-K of STRATA Skin Sciences, Inc.;

(a)

(b)

(c)

(d)

(5)

(a)

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.

Dated: March 25, 2021

STRATA SKIN SCIENCES, INC.

By: /s/ Matthew C. Hill
Matthew C. Hill
Chief Financial Officer

E-31.2

SECTION 906 CERTIFICATION

CERTIFICATION (1)

Exhibit 32.1

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted), Robert Moccia, the President
and Chief Executive Officer of STRATA Skin Sciences, Inc. (the “Company”), and Matthew C. Hill, the Chief Financial Officer
of the Company, each hereby certifies that, to the best of his knowledge:

The Company’s Annual Report on Form 10-K for the year ended December 31, 2020, to which this Certification is attached as
Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934, as amended, and

The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.

Dated: March 25, 2021

/s/ Robert J. Moccia
Robert Moccia
President & Chief Executive Officer

/s/ Matthew C. Hill
Matthew C. Hill
Chief Financial Officer

(1)

This certification accompanies the Annual Report on Form 10-K to which it relates, is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any filing of STRATA Skin Sciences, Inc. under the Securities Act of 1933, as
amended, or the Exchange Act (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language
contained in such filing. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided
to STRATA Skin Sciences, Inc. and will be retained by STRATA Skin Sciences, Inc. and furnished to the Securities and Exchange Commission or
its staff upon request.

E-32.1