STRATA SKIN SCIENCES, INC. The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes to condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q (this "Report"). This discussion contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions ofSTRATA Skin Sciences, Inc. , aDelaware corporation (referred to in this Report as "we," "us," "our," "STRATA," "STRATA Skin Sciences" or "registrant") and other statements contained in this Report that are not historical facts. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business including the scope and duration of the COVID-19 outbreak and its impact on global economic systems. In particular, we encourage you to review the risks and uncertainties described in Part II-Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations and statements - see "Cautionary Note Regarding Forward-Looking Statements" that appears at the end of this discussion. These statements, like all statements in this Report, speak only as of their date (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments.
The following financial data, in this narrative, are expressed in thousands, except for the earnings per share and prices per treatment.
Introduction, Outlook and Overview of Business Operations
STRATA Skin Sciences is a medical technology company in dermatology dedicated to developing, commercializing and marketing innovative products for the treatment of dermatologic conditions. Its products include the XTRAC® and now Pharos® excimer lasers and VTRAC® lamp systems utilized in the treatment of psoriasis, vitiligo and various other skin conditions. The XTRAC ultraviolet light excimer laser system utilized to treat psoriasis, vitiligo and other skin diseases. The XTRAC excimer laser system received clearance from theUnited States Food and Drug Administration in 2000 and has since become a widely recognized treatment among dermatologists. The system delivers targeted 308nm ultraviolet light to affected areas of skin, leading to psoriasis clearing and vitiligo repigmentation, following a series of treatments. As ofSeptember 30, 2021 , there were 880 XTRAC systems placed in dermatologists' offices inthe United States under our dermatology recurring procedure model, an increase from 832 at the end ofDecember 31, 2020 . 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. We believe there are approximately 7.5 million people inthe United States and up to 125 million people worldwide suffering from psoriasis, and 1% to 2% of the world's population suffers from vitiligo. InSeptember 2020 , we signed a direct distribution agreement with our Japanese distributor for a combination of direct capital sales and recurring revenue for the country ofJapan .
In
The Pharos excimer laser system holds FDA clearance to treat chronic skin diseases, including psoriasis, vitiligo, atopic dermatitis and leukoderma.
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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 impact of the ongoing COVID-19 pandemic and its variants on our
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 ongoing spread of the COVID-19
outbreak and its variants, continued or renewed restrictions on business
operations and transport, any governmental and societal responses thereto,
including legislative or regulatory as well as the distribution of vaccines and
effectiveness of COVID-19 vaccines 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 became prevalent in the United States , this had a negative impact
on our recurring revenue model and its financial position and cash flow. The
virus has disrupted the supply chain from China and other countries that we
depend upon to provide a steady source of components to manufacture and repair
our devices.
To mitigate the impact of COVID-19, we have taken a variety of measures to
ensure the availability and functioning of our critical infrastructure by
implementing business continuity plans to promote the safety and security of our
employees, while complying with various government mandates, including
work-from-home arrangements and social-distancing initiatives to reduce the
transmission of COVID-19, we are providing face masks for employees at
facilities significantly impacted and requiring on-site body temperature
monitoring before entering facilities. The Company implemented a policy whereby
all Company employees are required to be vaccinated or complete weekly COVID-19
testing. In addition, we created and executed programs utilizing our direct to
consumer advertising and call center to contact patients and partner clinics to
restart our partners' businesses.
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.
Supply chain disruptions which began during the pandemic have continued and may
continue for the foreseeable future. While the Company's operations have not
been materially impacted by the general trends in supply chain problems, the
Company continues to monitor and assess potential risks.
The ongoing COVID-19 pandemic has had a negative impact on our results of
operations and financial performance for the first three-quarters of fiscal
2021, and we expect it will continue to have a negative impact on revenues,
earnings and cash flows in fiscal 2021. Some physician offices continue to
experience staffing issues, and we believe these shortages of trained personnel
have negatively impacted our business. Accordingly, current results and
financial conditions discussed herein may not be indicative of future operating
results and trends.
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Key Technology
• XTRAC® Excimer Laser. XTRAC received FDA clearance in 2000 and has since become
a widely recognized treatment among dermatologists for psoriasis and other skin
diseases. The XTRAC System delivers ultra-narrowband ultraviolet B ("UVB")
light to affected areas of skin. Following a series of treatments typically
performed twice weekly, psoriasis remission can be achieved, and vitiligo
patches can be re-pigmented. XTRAC is endorsed by the National Psoriasis
Foundation, and its use for psoriasis is covered by nearly all major insurance
companies, including Medicare. We estimate that more than half of all major
insurance companies now offer reimbursement for vitiligo as well, a figure that
is increasing.
• In the third quarter of 2018, we announced the FDA granted clearance for our
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
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
Acquisition of theU.S. dermatology Pharos net assets of Ra Medical Systems OnAugust 16, 2021 , we acquired certain net assets of Pharos dermatology from Ra Medical Systems, Inc. for a cash payment of$3,757 , inclusive of transaction costs of$57 , for certain assets and the assumption of estimated existing customer warranty and service agreement liabilities and certain other assumed liabilities. We also signed a services agreement under which Ra Medical Systems will provide certain services for the Company as it integrates the acquired assets into the Company. Ra Medical's Pharos excimer laser system holds FDA clearance to treat chronic skin diseases, including psoriasis, vitiligo, atopic dermatitis and leukoderma. The acquisition of these assets and liabilities allows the Company to market its full business solutions to Ra Medical's existing customer base comprised of 400 dermatology practices offering opportunities to increase its recurring revenue base and a pathway to gain additional placements for the Company's XTRAC excimer laser system. Senior Term Facility withMidCap Financial Trust OnSeptember 30, 2021 , we entered into a credit and security agreement withMidCap Financial Trust , also acting as the administrative agent, and the lenders identified therein and borrowed$8.0 million in the form of a senior term loan. The term loan bears interest at LIBOR (with a LIBOR floor rate of 0.50%) plus 7.50% and matures onSeptember 1, 2026 , unless terminated earlier. We are obligated to make monthly interest-only payments throughSeptember 30, 2024 . FromOctober 1, 2024 to the date of maturity, we will make 24 equal monthly principal payments plus interest and all borrowings are secured by substantially all of our assets. We may, at our option, prepay the outstanding term loan, with such prepayment at least$5.0 million , at any time upon 30 days' written notice. Upon prepayment, we will be required to pay a prepayment fee equal to (i) 4.00% of the outstanding principal prepaid or required to be prepaid (whichever is greater), if the prepayment is made within twelve months ofSeptember 30, 2021 , (ii) 3.00% of the outstanding principal prepaid or required to be prepaid (whichever is greater), if the prepayment is made between twelve months and twenty-four months afterSeptember 30, 2021 , (iii) 2.00% of the outstanding principal prepaid or required to be prepaid (whichever is greater), if the prepayment is made between twenty-four months and thirty-six months afterSeptember 30, 2021 , or (iv) 1.00% of the outstanding principal prepaid or required to be prepaid (whichever is greater), if the prepayment is made after thirty-six months afterSeptember 30, 2021 and prior to the maturity date. We are subject to customary affirmative and negative covenant requirements and also subject to a trailing twelve-month net revenue financial covenant requirement. In the event of default, including covenant violations, the lenders could request that all principal and unpaid interest and penalties be due upon demand. 27 -------------------------------------------------------------------------------- Table of Contents In connection with entering into the credit facility, the Company issued an affiliate of MidCap a warrant to purchase 373,626 shares of the Company's common stock for an exercise price of$1.82 . The warrant is exercisable at any time on or prior to the tenth anniversary of its issue date. Paycheck Protection Program OnApril 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 would have matured onMay 1, 2022 and bore an interest rate of 1% per annum. Payments of principal and interest of any unforgiven balance was scheduled to commenceDecember 1, 2020 , but was deferred until the SBA approves of the forgiveness amount. In the second quarter of 2021, we received notification the PPP loan had been forgiven and recorded a gain on forgiveness of debt in the amount of the loan of$2,028 . Economic Injury Disaster Loan OnMay 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 our 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 of our assets. OnJune 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, were originally due monthly beginningMarch 26, 2021 (twelve months from the date of the promissory note) in the amount of$2 . InMarch 2021 , the SBA deferred payments on the EIDL loans by an additional 12 months. The balance of principal and interest was 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 onJune 19, 2020 , the EIDL Loan was not required to be refinanced by the PPP loan. OnSeptember 30, 2021 , we repaid the loan. Note Payable OnDecember 30, 2020 , the Company had renewed its$7,275 loan with a commercial bank pursuant to a one-year Fixed Rate - Term Promissory Note (the "Note"). OnSeptember 30, 2021 , we repaid our$7,275 loan with a commercial bank with the proceeds from with the proceeds of a pledged time deposit held by this commercial bank. Equity Distribution Agreement InOctober 2021 , we entered into an equity distribution agreement under which we may sell up to$11.0 million of our shares of common stock in registered "at-the-market" offerings. The shares will be offered at prevailing market prices, and we will pay commissions of up to 3.0% of the gross proceeds from the sale of shares sold through our agent, which may act as an agent and/or principal. We have no obligation to sell any shares under this agreement and may, at any time, suspend solicitations under this agreement.
Critical Accounting Policies and Estimates
There have been no changes to our critical accounting policies in the nine months endedSeptember 30, 2021 . Critical accounting policies and the significant estimates made in accordance with such policies are regularly discussed with our Audit Committee. Those policies are discussed under "Critical Accounting Policies" in our "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7, as well as in our consolidated financial statements and the footnotes thereto for the fiscal year endedDecember 31, 2020 , of our Annual Report on Form 10-K as filed with theSEC onMarch 25, 2021 . 28 -------------------------------------------------------------------------------- Table of Contents Results of Operations
Revenues
The following table presents revenues from our segments for the periods indicated below:
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Dermatology Recurring Procedures $ 5,710 $ 3,835 $ 15,841 $ 12,332
Dermatology Procedures Equipment 2,001 1,778 5,079 4,041
Total Revenues $ 7,711 $ 5,613 $ 20,920 $ 16,373
Dermatology Recurring Procedures
The ongoing COVID-19 pandemic has had a negative impact on our results for the
third quarter of 2021 and 2020, and we expect it will have a negative impact on
its revenue for as long as the pandemic continues. Recognized recurring
treatment revenue for the three months ended September 30, 2021 , was $5,710 ,
which we estimate is approximately 81,000 treatments, with prices between $65 to
$95 per treatment compared to recognized recurring treatment revenue for the
three months ended September 30, 2020 of $3,835 , which we estimate is
approximately 55,000 treatments, with prices between $65 to $95 per treatment.
Recognized treatment revenue for the nine months ending September 30, 2021 , was
$15,841 , which we estimate is approximately 226,000 treatments with prices
between $65 and $95 per treatment compared to recognized treatment revenue for
the nine months ended September 30, 2020 , of $12,332 , which is approximately
177,000 treatments with prices between $65 and $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 have 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, our strategy is to
continue to execute a direct-to-patient 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 we
believe are afflicted with these diseases. During 2020, we reduced our direct to
consumer advertising spend, however as the country began to adapt to COVID-19
and vaccines became available during 2021, we increased spending in the
direct-to-patient programs to drive patients to our partner clinics to increase
recurring revenue and increase spend in marketing activities as well. The
increase in spending on these programs usually precedes the recurring revenue in
our past experience as there is a lag between our advertising and patients then
receiving treatment, which we estimate to be three to nine months. Subject to
governmental responses to variants of COVID-19 we may curtail spending again in
certain areas or redirect spending to less impacted areas.
Revenues from Dermatology Recurring Procedures are recognized as revenue over
the estimated usage period of the agreed upon number of treatments, as the
treatments are being used. As of September 30, 2021 , and 2020, we deferred net
revenues of $2,107 and $1,391 , respectively, which will be recognized as revenue
over the remaining usage period for domestic placements. Lower deferred revenue
from the fourth quarter 2020 negatively impacted the first half of 2021 as
compared to the first half of 2020 when higher deferred revenue favorable
impacted that period.
We have recently signed direct distribution contracts with our international
distributors for a combination of direct capital sales and recurring revenue. If
the recurring model is accepted in these countries and the business model can be
executed by these distributors, these agreements are expected to increase
recurring revenue over time, but will have an initial impact of reducing sales
of dermatology procedures equipment.
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Dermatology Procedures Equipment
The ongoing COVID-19 pandemic has had a negative impact on our results for the
first nine months of 2021 and 2020, and we expect it will have a negative impact
on its revenue for as long as the pandemic continues. For the three months ended
September 30, 2021 , dermatology equipment revenues were $2,001 . Internationally,
we sold 11 systems (3 XTRAC and 8 VTRAC). Domestically, there were no systems
sold during the three months ended September 30, 2021 .
For the three months ended September 30, 2020 , dermatology equipment revenues
were $1,778 . Internationally, we sold 19 systems (8 XTRAC and 11 VTRAC).
Domestically, we sold one XTRAC system during the three months ended September
30, 2020 .
For the nine months ended September 30, 2021 , dermatology equipment revenues
were $5,079 . Internationally, we sold 27 systems (19 XTRAC and 8 VTRAC).
Domestically, we sold 5 XTRAC systems during the nine months ended September 30,
2021 .
For the nine months ended September 30, 2020 , dermatology equipment revenues
were $4,041 . Internationally, we sold 29 systems (10 XTRAC and 19 VTRAC).
Domestically, we sold 2 XTRAC systems for the nine months ended September 30,
2020 .
Cost of Revenues
The following table illustrates cost of revenues from our two business segments
for the periods listed below:
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Dermatology Recurring Procedures $ 1,512 $ 1,368 $ 4,648 $ 4,534
Dermatology Procedures Equipment 823 1,015 2,422 2,246
Total Cost of Revenues $ 2,335 $ 2,383 $ 7,070 $ 6,780 Gross Profit Analysis The following tables present changes in our gross margin for the periods presented below:
For the Three Months Ended For the Nine Months Ended
Company Profit Analysis September 30, September 30,
2021 2020 2021 2020
Revenues $ 7,711 $ 5,613 $ 20,920 $ 16,373
Cost of revenues 2,335 2,383 7,070 6,780
Gross profit $ 5,376 $ 3,230 $ 13,850 $ 9,593
Gross profit percentage 69.7 % 57.5 % 66.2 % 58.6 %
Gross profit increased to $5,376 for the three months ended September 30, 2021
from $3,230 during the same period in 2020. As a percent of revenue, the gross
margin was 69.7% for the three months ended September 30, 2021 , as compared to
57.5% for the same period in 2020.
Gross profit increased to $13,850 for the nine months ended September 30, 2021
from $9,593 during the same period in 2020. As a percent of revenue, the gross
margin was 66.2% for the nine months ended September 30, 2021 , as compared to
58.6% for the same period in 2020 and the increase was primarily the result of
higher sales due to a reduction of cases in the COVID-19 pandemic as well as the
recognition of deferred service contract revenue assumed in connection with the
asset acquisition of RA Medical.
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The following tables present changes in our gross margin, by segment for the
periods presented below:
For the Three Months Ended For the Nine Months Ended
Dermatology Recurring Procedures September 30, September 30,
2021 2020 2021 2020
Revenues $ 5,710 $ 3,835 $ 15,841 $ 12,332
Cost of revenues 1,512 1,368 4,648 4,534
Gross profit $ 4,198 $ 2,467 $ 11,193 $ 7,798
Gross profit percentage 73.5 % 64.3 % 70.7 % 63.2 %
The primary reasons for the increase in gross profit for the three and nine
months ended
For the Three Months Ended For the Nine Months Ended
Dermatology Procedures Equipment September 30, September 30,
2021 2020 2021 2020
Revenues $ 2,001 $ 1,778 $ 5,079 $ 4,041
Cost of revenues 823 1,015 2,422 2,246
Gross profit $ 1,178 $ 763 $ 2,657 $ 1,795
Gross profit percentage 58.9 % 42.9 % 52.3 % 44.4 %
The primary reason for the change in gross margin percent for the three and nine
months ended September 30, 2021 as compared to the same period in 2020 was the
result of product mix and higher sales margins and the recognition of deferred
service revenue associated with assumed service contracts from RA Medical.
Engineering and Product Development
For the three months ended September 30, 2021 , engineering and product
development expenses were $371 as compared to $411 for the three months ended
September 30, 2020 . Engineering and product development costs for the nine
months ending September 30, 2021 were $1,158 , compared to $950 for the nine
months ended September 30, 2020 . Engineering and product development costs
during the nine-month period were higher primarily as a result of consulting
costs associated with certain development projects.
Selling and Marketing Expenses
As of September 30, 2021 , our sales and marketing personnel consisted of 61
full-time positions, inclusive of a vice president of sales, direct sales
organization as well as an in-house call center staffed with patient advocates
and a reimbursement group that provides necessary insurance information to our
physician partners and their patients.
For the three months ended September 30, 2021 , selling and marketing expenses
were $3,295 compared to $2,051 for the three months ended September 30, 2020 .
For the nine months ended September 30, 2021 selling and marketing costs were
$9,387 as compared to $6,446 for the nine months ended September 30, 2020 . Sales
and marketing expenses for the three and nine months ended September 30, 2021
were higher, as compared to the same periods in 2020, as we made investments in
sales and marketing and direct to consumer advertising, while in 2020 we managed
our costs due to the downturn in business as a result of the COVID-19 pandemic,
with lower tradeshow costs, compensation costs, commissions, travel and
direct-to-consumer advertising costs.
General and Administrative Expenses
For the three months ended September 30, 2021 , general and administrative
expenses increased to $2,175 from $1,929 for the three months ended September
30, 2020 . For the nine months ended September 30, 2021 general and
administration costs were $7,085 compared to $5,921 for the nine months ended
September 30, 2020 . General and administrative expenses were higher for the
three and nine months ended September 30, 2021 , as compared to the same periods
in 2020. The increase is primarily due to higher compensation, severance and
stock option costs as a result of the CEO transition in the first quarter of
2021.
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Gain on Forgiveness of Debt
During the nine months ended September 30, 2021 , we received notification our
PPP loan had been forgiven and we recorded a gain on forgiveness of debt of
$2,028 .
Interest Expense, net
Interest expense is primarily attributable to our debt obligations offset by the
interest income we receive on our cash, cash equivalents and restricted cash
held with financial institutions. Interest expense, net of interest income, was
not material during the three and nine months ended September 30, 2021 , and
2020.
Income Taxes
We recognized income tax expense of $4 for the three months ended September 30,
2021 as compared to $72 for the three months ended September 30, 2020 , all of
which were comprised primarily of changes in deferred tax liability related to
goodwill. There are no federal and state taxes on the PPP loan forgiveness so
therefore there was no impact on our income taxes. We recognized an income tax
expense of $12 for the nine months ended September 30, 2021 as compared to $207
for the nine months ended September 30, 2020 all of which were comprised
primarily of changes in deferred tax liability related to goodwill.
Non-GAAP adjusted EBITDA
We have determined to supplement our condensed consolidated financial
statements, prepared in accordance with accounting principles generally accepted
in the United States of America ("U.S. GAAP"), presented elsewhere within this
report, with certain non-GAAP measures of financial performance. These non-GAAP
measures include non-GAAP adjusted EBITDA, "Earnings Before Interest, Taxes,
Depreciation, and Amortization."
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 U.S. GAAP measure of all non-GAAP
measures included in this report is as follows:
For the Three Months Ended September For the Nine Months Ended
30, September 30,
2021 2020 2021 2020
Net loss $ (521 ) $ (1,254 ) $ (1,857 ) $ (3,969 )
Adjustments:
Depreciation and amortization 983 807 2,689 2,793
Amortization of right-of-use-asset 87 83 261 242
Loss (gain) on disposal of property and equipment 10 4 73 23
Income taxes 4 72 12 207
Gain on forgiveness of debt - - (2,028 ) -
Interest expense, net 52 21 93 38
Non-GAAP EBITDA 615 (267 ) (757 ) (666 )
Stock compensation 320 403 1,563 1,243
Non-GAAP adjusted EBITDA $ 935 $ 136 $ 806 $ 577
32-------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources As ofSeptember 30, 2021 , we had$7,892 of working capital compared to$5,993 as ofDecember 31, 2020 . The change in working capital was primarily the result of an increase in cash and cash equivalents and the settlement of current debt obligations that were offset by increases in other accrued liabilities and deferred revenue assumed in connection with our asset acquisition with RA Medical. Cash, cash equivalents and restricted cash were$13,047 as ofSeptember 30, 2021 , as compared to$18,112 as ofDecember 31, 2020 . OnApril 22, 2020 , we closed on the PPP loan of$2.0 million from a commercial bank, pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The PPP loan would have matured onMay 1, 2022 and bore an interest rate of 1% per annum. Payments of principal and interest of any unforgiven balance was scheduled to commenceDecember 1, 2020 , but was deferred until the SBA approves of the forgiveness amount. In the second quarter of 2021, we received notification the PPP loan had been forgiven. We recorded a gain on forgiveness of debt in the amount of the loan of$2,028 . InJune 2020 , we obtained an EIDL loan with principal amount of$500 . Interest accrues at the rate of 3.75% per annum. Installment payments, including principal and interest, were originally due monthly beginningMarch 26, 2021 (twelve months from the date of the promissory note) in the amount of$2 . In March of 2021, the SBA deferred payments on the EIDL loans by an additional 12 months. 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 onJune 19, 2020 , the EIDL Loan was not required to be refinanced by the PPP loan. OnSeptember 30, 2021 , we repaid the loan.
On
Senior Term Facility withMidCap Financial Trust InSeptember 2021 , we entered into a credit and security agreement withMidCap Financial Trust , also acting as the administrative agent, and the lenders identified therein and borrowed$8.0 million in the form of a senior term loan. The term loan bears interest at LIBOR (with a LIBOR floor rate of 0.50%) plus 7.50% and matures onSeptember 1, 2026 , unless terminated earlier. We are obligated to make monthly interest-only payments throughSeptember 30, 2024 . FromOctober 1, 2024 to the date of maturity, we will make 24 equal monthly principal payments plus interest and all borrowings are secured by substantially all of our assets. We may, at our option, prepay the outstanding term loan, with such prepayment at least$5.0 million , at any time upon 30 days' written notice. Upon prepayment, we will be required to pay a prepayment fee equal to (i) 4.00% of the outstanding principal prepaid or required to be prepaid (whichever is greater), if the prepayment is made within twelve months ofSeptember 30, 2021 , (ii) 3.00% of the outstanding principal prepaid or required to be prepaid (whichever is greater), if the prepayment is made between twelve months and twenty-four months afterSeptember 30, 2021 , (iii) 2.00% of the outstanding principal prepaid or required to be prepaid (whichever is greater), if the prepayment is made between twenty-four months and thirty-six months afterSeptember 30, 2021 , or (iv) 1.00% of the outstanding principal prepaid or required to be prepaid (whichever is greater), if the prepayment is made after thirty-six months afterSeptember 30, 2021 and prior to the maturity date. We are subject to customary affirmative and negative covenant requirements and also subject to a trailing twelve-month net revenue financial covenant requirement. In the event of default, including covenant violations, the lenders could request that all principal and unpaid interest and penalties be due upon demand. COVID-19 We have been negatively impacted by the ongoing 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. During the COVID-19 pandemic, we received cash proceeds from the PPP loan, which was forgiven, and the EIDL loan which has been repaid. Additionally, inOctober 2021 , the Company entered into an equity distribution agreement with an investment bank under which the Company may sell up to$11,000 of its common stock in registered "at-the-market" offerings. 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, will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with its existing operations through the next 12 months following the date of the issuance of these unaudited interim condensed consolidated financial statements. However, the negative impact of the ongoing COVID-19 outbreak and its variants on the financial markets could interfere with our ability to access financing and on favorable terms. 33
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Table of Contents Net cash and cash equivalents and restricted cash provided by operating activities was$839 for the nine months endedSeptember 30, 2021 , compared to cash provided by operating activities of$1,750 for the nine months endedSeptember 30, 2020 . The decrease in cash flows provided by operating activities for the nine months endedSeptember 30, 2021 was the result of a lower change in our net assets of$992 and primarily attributable to COVID-19 and its impact on billings and delayed vendor payments. Net cash and cash equivalents and restricted cash used in investing activities was$5,996 for the nine months endedSeptember 30, 2021 , compared to cash used in investing activities of$1,447 for the nine months endedSeptember 30, 2020 . The increase is the result of the cost of lasers placed in service in 2021 as compared to 2020, and the asset purchase of Ra Medical. During the nine months endedSeptember 30, 2021 , we received net proceeds of$7,867 from our senior term facility with MidCap offset by debt repayments of$7,775 associated with our note payable and EIDL loan. For the nine months endedSeptember 30, 2020 , we received$2,528 in proceeds from borrowings under our PPP loan and EIDL loan. Commitments and Contingencies There were no items, except as described above, that significantly impacted our commitments and contingencies as discussed in the notes to our 2020 annual financial statements included in our Annual Report on Form 10-K. Off-Balance Sheet Arrangements AtSeptember 30, 2021 , we had no off-balance sheet arrangements.
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