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Income (Unaudited)
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Equity (Unaudited)
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(Registrant's telephone number, including area code)
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 ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,"“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes ¨ No ý
The number of shares outstanding of the issuer's common stock as of August 14, 2012 was 21,881,182 shares.
Accounts receivable, net of allowance for doubtful accounts of $4,664 and $3,196, respectively
23,933
12,393
Inventories, net
21,113
19,208
Deferred tax asset
10,103
10,079
Prepaid expenses and other current assets
11,774
3,611
Total current assets
119,809
61,840
Property and equipment, net
5,344
5,324
Patents and licensed technologies, net
13,513
14,435
Other intangible assets
11,350
11,950
Goodwill, net
26,704
26,704
Deferred tax asset
25,966
24,751
Funds in respect of employee rights upon retirement and other assets
739
559
Total assets
$
203,425
$
145,563
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable
$
101
$
504
Current portion of long-term debt
24
1,720
Accounts payable
11,494
8,111
Accrued compensation and related expenses
2,862
3,800
Other accrued liabilities
19,909
14,989
Deferred revenues
3,602
1,948
Total current liabilities
37,992
31,072
Long-term liabilities:
Long-term debt, net of current maturities
-
8
Deferred revenues
2,532
1,381
Other liabilities
326
504
Liability for employee rights upon retirement
583
520
Total liabilities
41,433
33,485
Stockholders’ equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2012 and December 31, 2011
-
-
Common stock, $.01 par value, 50,000,000 shares authorized; 21,881,182 and 18,821,728 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively
219
188
Treasury stock at cost, 16,056 shares of common stock
(250
)
(250
)
Additional paid-in capital
140,233
99,325
Retained earnings
21,883
12,813
Accumulated other comprehensive income (loss)
(93
)
2
Total stockholders’ equity
161,992
112,078
Total liabilities and stockholders’ equity
$
203,425
$
145,563
The accompanying notes are an integral part of these condensed consolidated financial statements.
PhotoMedex, Inc. (and its subsidiaries) (the “Company”) is a Global Skin Health company providing integrated disease management and aesthetic solutions to dermatologists, professional aestheticians and consumers. The Company provides proprietary products and services that address skin diseases and conditions including psoriasis, vitiligo, acne, actinic keratosis (a precursor to certain types of skin cancer) and photo damage.
On December 13, 2011, the Company closed the merger with Radiancy, Inc. As of December 13, 2011, immediately after giving effect to the acquisition and the issuance of PhotoMedex, Inc.’s common stock to the former shareholders of Radiancy, Inc., the Company had 18,820,852 shares of common stock issued and outstanding. Immediately following the reverse merger, the pre-reverse merger shareholders of PhotoMedex, Inc. (“Pre-merged PhotoMedex”) collectively owned approximately 20% of the Company’s outstanding common stock, and the former Radiancy, Inc. stockholders owning
approximately 80% of the Company’s outstanding common stock.
The merger was accounted for as a reverse acquisition with Radiancy treated for accounting purposes as the acquirer. As such, the financial statements of Radiancy, Inc. are treated as the historical financial statements of the Company, with the results of Pre-merged PhotoMedex, Inc. being included from December 14, 2011 and thereafter. For periods prior to the closing of the reverse acquisition, therefore, our discussion below relates to the historical business and operations of Radiancy, Inc.
As a result of the acquisition, the Company implemented a revised business plan focused on three key components – skilled direct sales force to target Physician and Professional Segments; expertise in global consumer marketing; and a full product-life-cycle model representing the ability to develop and commercialize innovative products from concept through regulatory, physician acceptance, and ultimately marketed directly to the consumer as dictated by normal product-life-cycle evolution. The Company reorganized its business into three operating units to better align its organization based upon the Company’s management structure, products and services offered, markets served
and types of customers.
Based upon this strategic focus, effective December 13, 2011, management updated the segments that the Company now currently operates. There are now three distinct business units or segments (as described in Note 13): Consumer, Physician Recurring and Professional. The segments are distinguished by the Company’s management structure and the markets or customers served.
The Consumer segment, the Company’s largest business unit, generates revenues by bringing professional technologies into the home-use arena, through the no!no!® product line. The Physician Recurring segment generates revenues from two product lines: (A) the XTRAC®, a noninvasive, FDA-cleared solution for psoriasis and vitiligo, and (B) NEOVA®, a topical therapy combining DNA repair enzymes and copper peptide complexes to prevent premature skin aging. The Professional segment generates revenues from capital equipment, such as the XTRAC lasers, LHE® brand products and the Omnilux® and Lumière Light Therapy systems.
Basis of Presentation:
The accompanying condensed consolidated financial statements and related notes should be read in conjunction with our consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (“fiscal 2011”). The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) related to interim financial statements. As permitted under those rules, certain information and footnote disclosures normally required or included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. The financial information contained herein is unaudited; however, management believes all adjustments have been
made that are considered necessary to present fairly the results of the Company’s financial position and operating results for the interim periods. All such adjustments are of a normal recurring nature. Certain reclassifications from the prior year presentation have been made to conform to the current year presentation.
- 8 -
The results for the three months ended June 30, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012 or for any other interim period or for any future period.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and the wholly- and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The financial statements include the results from the entities defined as Pre-merged PhotoMedex from December 14, 2011 (the day following the closing date of the reverse acquisition) forward. As such there are no corresponding activities for the three and six months ended June 30, 2011.
Revenue Recognition
The Company recognizes revenues from product sales when the following four criteria have been met: (i) the product has been delivered and the Company has no significant remaining obligations; (ii) persuasive evidence of an arrangement exists; (iii) the price to the buyer is fixed or determinable; and (iv) collection is reasonably assured. Revenues from product sales are recorded net of provisions for estimated chargebacks, rebates, expected returns and cash discounts.
The Company ships most of its products FOB shipping point, although from time to time certain customers, for example governmental customers, will insist upon FOB destination. Among the factors the Company takes into account when determining the proper time at which to recognize revenue are when title to the goods transfers and when the risk of loss transfers. Shipments to distributors or physicians that do not fully satisfy the collection criteria are recognized when invoiced amounts are fully paid or fully assured.
For revenue arrangements with multiple deliverables within a single, contractually binding arrangement (usually sales of products with separately priced extended warranty), each element of the contract is accounted for as a separate unit of accounting when it provides the customer value on a stand-alone basis and there is objective evidence of the fair value of the related unit.
With respect to sales arrangements under which the buyer has a right to return the related product, revenue is recognized only if all the following are met: the price is fixed or determinable at the date of sale; the buyer has paid, or is obligated to pay and the obligation is not contingent on resale of the product; the buyer's obligation would not be changed in the event of theft or physical destruction or damage of the product; the buyer has economic substance; the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer; and the amount of future returns can be reasonably estimated.
The Company provides a provision for product returns based on the experience with historical sales returns, in accordance with ASC Topic 605-15 with respect to sales of product when a right of return exists. Reported revenues are shown net of the returns provision. Such allowance for sales returns is included in Other Accrued Liabilities. (See Note 8).
Deferred revenue includes amounts received with respect to extended warranty maintenance, repairs and other billable services and amounts not yet recognized as revenues. Revenues with respect to such activities are recognized over the duration of the warranty period, the service period or when service is provided, as applicable to each service.
The Company has two distribution channels for its phototherapy treatment equipment. The Company either (i) sells its lasers through a distributor or directly to a physician or (ii) 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. In some cases, the Company and the customer stipulate to a quarterly or other periodic target of procedures to be performed, and accordingly revenue is recognized ratably over the period.
When the Company places a laser in a physician’s office, it generally recognizes service revenue based on the number of patient treatments performed, or purchased under a periodic commitment, by the physician. Treatments to be performed through random laser-access codes that are sold to physicians free of a periodic commitment, but not yet used, are deferred and recognized as a liability until the physician performs the treatment. Unused treatments remain an obligation of the Company because the treatments can only be performed on Company-owned equipment. Once the treatments are delivered to a patient, this obligation has been satisfied.
- 9 -
The Company defers substantially all sales of treatment codes ordered by and delivered to its customers within the last two weeks of the period in determining the amount of procedures performed by its physician-customers. Management believes this approach closely approximates the actual amount of unused treatments that existed at the end of a period.
Revenue from maintenance service agreements is deferred and recognized on a straight-line basis over the term of the agreements. Revenue from billable services, including repair activity, is recognized when the service is provided.
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 non-financial asset or liability and only used when there is little, if any, market activity for the non-financial 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 is based on its demand value, which is equal to its carrying value. The fair values of notes payable and long-term debt are based on borrowing rates that are available to the Company for loans with similar terms, collateral and maturity. The estimated fair values of notes payable and long-term debt approximate the carrying values. The fair value of the amounts funded in insurance policies in respect of employee liability for employee rights upon retirement is usually identical or close to their carrying value. Additionally, the carrying value of all other monetary assets and liabilities is estimated to be equal to their fair value due to the short-term nature of these instruments.
Accrued Warranty Costs
The Company offers a standard warranty on product sales generally for a one to two-year period. In the case of domestic sales of XTRAC lasers, 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 future warranty claims on the date the product is sold. Total accrued warranty is included in Other Accrued Liabilities on the balance sheet. The activity in the warranty accrual during the six months ended June 30, 2012 and 2011
is summarized as follows:
For extended warranty on the consumer products, see Revenue Recognition above.
Earnings Per Share
Due to the reverse merger on December 13, 2011, the earnings per share for each period before the acquisition date presented in these financial statements were computed based on Radiancy’s historical weighted-average number of shares outstanding, multiplied by the exchange ratio that was established in the reverse merger. Therefore, unless otherwise noted, all share and per-share amounts for all periods before the acquisition date have been retroactively adjusted to give effect to the exchange ratio.
Basic and diluted earnings per common share were calculated using the following weighted-average shares outstanding:
Weighted-average number of common and common equivalent shares outstanding:
Basic number of common shares outstanding
20,547,244
10,256,364
19,454,775
10,256,364
Dilutive effect of stock options and warrants
487,570
-
487,570
-
Diluted number of common and common stock equivalent shares outstanding
21,034,814
10,256,364
19,942,345
10,256,364
Diluted earnings per share for the three and six months ended June 30, 2012, exclude the impact of common stock options and warrants, totaling 1,975,530 shares, as the effect of their inclusion would be anti-dilutive.
Adoption of New Accounting Standards
In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2011-04, which amends Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures. This ASU clarifies among other things, the FASB’s intent with respect to the application of existing fair value requirements, including those related to highest and best use concepts, and also expands the disclosure requirements for fair value measurements categorized within Level 3 of the fair value hierarchy. This ASU clarifies that a reporting entity should disclose quantitative information about significant unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy. Additionally, this ASU expands the disclosures for fair value measurements categorized within Level 3 where a reporting entity is required
to include a description of the valuation processes used and the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any. Additional disclosure is also required for any transfers between Level 1 and Level 2 of the fair value hierarchy of fair value measurements on a gross basis as well as additional disclosure of the level in the fair value hierarchy of assets and liabilities that are not recorded at fair value. For many of the requirements, the FASB does not intend for this ASU to result in a change in the application of the requirements in FASB ASC Topic 820. This update became effective during interim and annual periods beginning after December 15, 2011.
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In June 2011, the FASB issued ASU No. 2011-05, which amends FASB ASC Topic 220, Comprehensive Income. This ASU is intended to increase the prominence of items reported in other comprehensive income in the financial statements by presenting the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. This ASU does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This update became effective during interim and annual periods beginning after December
15, 2011.
In September 2011, the FASB issued ASU No. 2011-08, which amends FASB ASC Topic 350, Intangibles-Goodwill and Other. This ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. This update became effective during interim and annual periods beginning after December 15, 2011.
Note 2
Reverse Acquisition:
On December 13, 2011, PhotoMedex closed the merger acquisition with Radiancy, Inc. in a transaction that was accounted for as a reverse acquisition, with Radiancy treated as the accounting acquirer. Radiancy was considered the accounting acquirer even though PhotoMedex was the issuer of common stock in the transaction, such that upon completion of the merger, the Company had 18,820,852 shares of common stock issued and outstanding, with the Pre-merged PhotoMedex, Inc. stockholders collectively owning approximately 20%, and the former Radiancy, Inc. stockholders owning approximately 80%, of the outstanding common stock of the Company. The 80%/20% ratio reflects the fact that warrants or options are not treated
as equivalent outstanding common stock. As such, the financial statements of Radiancy, Inc. are treated as the historical financial statements of the Company, with the results of the entities defined as Pre-merged PhotoMedex, Inc. included only from December 14, 2011 and thereafter.
The consideration transferred was $83,915, included $1,842 of assumed debt, for the Pre-merged PhotoMedex assets. This amount was determined based on the amount of equity interest (shares, options and warrants) that Radiancy would have had to issue to PhotoMedex shareholders in order to provide as agreed upon in the merger document a 75%/25% ownership ratio on a fully converted basis. Consistent with this formula all warrants and options were treated as equivalent, share for share, with outstanding common stock. The fair value of the consideration effectively transferred by Radiancy was based on the market price of Pre-merged PhotoMedex shares which was $15.60 per-share (closing price) on December 13, 2011, the day on which the reverse acquisition became effective. This consideration transferred also included $20 million in cash, which Pre-merged PhotoMedex, used to liquidate
its convertible debt, prior to the acquisition. The fair value of the assets acquired and liabilities assumed were based on management estimates and values derived from an outside independent appraisal. However, as of June 30, 2012, the Company is still in the process of assessing the acquired entity’s tax positions and the amount of net loss carryforwards that are expected to be utilized in future periods based on the facts and circumstances that existed at the acquisition date. Accordingly, the deferred taxes and, therefore, the goodwill allocations might be subject to adjustments upon completion of assessment. The Company expects that the allocation will be finalized within twelve months after the merger as allowed by GAAP. Based on the provisional
purchase price allocation, the following table summarizes the estimated provisional fair value amounts of the assets acquired and liabilities assumed at the date of acquisition:
- 12 -
Cash and cash equivalents
$
1,271
Accounts receivable
1,873
Inventories
7,136
Prepaid expenses and other current assets
639
Property and equipment
4,543
Patents and licensed technologies
13,500
Other intangible assets
12,000
Other assets
41
Deferred tax assets
27,122
Total assets acquired at fair value
68,125
Accounts payable
(6,333
)
Accrued compensation and related expenses
(1,554
)
Other accrued liabilities
(2,471
)
Deferred revenues
(556
)
Total liabilities assumed
(10,914
)
Net assets acquired
$
57,211
The purchase price exceeded the fair value of the net assets acquired by $26,704, which was recorded as goodwill. The consolidated results of operations do not include any revenues or expenses related to the Pre-merged PhotoMedex business on or prior to December 13, 2011, the consummation date of the reverse acquisition. The Company’s unaudited pro-forma results for the three and six months ended June 30, 2012 and 2011 summarize the combined results of the Radiancy and PhotoMedex in the following table, assuming the reverse acquisition had occurred on January 1, 2011 and after giving effect to the reverse acquisition adjustments, including amortization
of the tangible and intangible assets which were acquired in the transaction:
These unaudited pro-forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually resulted had the reverse acquisition occurred on January 1, 2011, nor to be indicative of future results of operations.
- 13 -
Note 3
Inventories:
Set forth below is a detailed listing of inventories:
Depreciation and related amortization expense was $1,155 and $129 for the six months ended June 30, 2012 and 2011, respectively. At June 30, 2012 and December 31, 2011, net property and equipment included $70 and $61, respectively, of assets recorded under capitalized lease arrangements, of which $24 and $30 was included in current portion of long-term debt at June 30, 2012 and December 31, 2011, respectively. See Note 9, Long-Term Debt.
Related amortization expense was $1,015 and $55 for the six months ended June 30, 2012 and 2011, respectively. An amount of $13,500, included in Patents, represents product and core technologies recorded as part of the purchase price allocation done in connection with the reverse acquisition in order to set the Pre-merged PhotoMedex assets to their respective fair values.
- 14 -
Estimated amortization expense for amortizable patents and licensed technologies assets for the next five years is as follows:
Last six months of 2012
$
1,046
2013
2,035
2014
2,035
2015
2,028
2016
1,980
Thereafter
4,389
Total
$
13,513
Note 6
Goodwill and Other Intangible Assets:
As part of the purchase price allocation for the reverse acquisition, as further discussed in Note 2, the Company recorded goodwill in the amount of $26,704 and definite-lived intangibles in the amount of $12,000. Goodwill reflects the value or premium of the acquisition price in excess of the fair values assigned to specific tangible and intangible assets. Goodwill has an indefinite useful life and therefore is not amortized as an expense, but is reviewed annually for impairment of its fair value to the Company. The purchase price intrinsically recognizes the benefits of the broadened depth of the management team and the addition of a sizeable direct sales force creating greater access to the physician community with branded products and technologies. Furthermore,
the purchase price paid by Radiancy, Inc, a private company includes, among other things, other benefits such as the intrinsic value of being a Nasdaq-listed issuer post merger and now having access to capital markets and stockholder liquidity. During 2012, after the completion of the purchase price allocation, the goodwill will be allocated to the current reportable segments.
Related amortization expense was $600 and $0 for the periods ended June 30, 2012 and 2011. Customer Relationships embody the value to the Company of relationships that pre-merged PhotoMedex had formed with its customers. Trademarks include the tradenames and various trademarks associated with Pre-merged PhotoMedex products (e.g. “XTRAC”, “Neova”“Omnilux” and “Lumiere”).
Estimated amortization expense for the above amortizable intangible assets for the next five years is as follows:
Term note, net of unamortized debt discount of $0 and $302, respectively
$
-
$
1,698
Capital lease obligations
24
30
Sub-total
24
1,728
Less: current portion
(24
)
(1,720
)
Total long-term debt
$
-
$
8
Term Note
On March 19, 2010, Pre-merged PhotoMedex entered a Term Loan and Security Agreement with Clutterbuck Funds for a principal amount of $2.5 million, with interest accruing at a rate of 12% per annum. On March 28, 2011, Clutterbuck Funds agreed to extend the maturity date of the secured term loan to December 1, 2012. Starting in
- 16 -
August 2011, Pre-merged PhotoMedex began monthly installments of principal such that the final payment at maturity will be $75,000. The collateral securing the first-position security interest of Clutterbuck Funds remained in place. On June 11, 2012, the Company paid off this loan and was relieved of all related obligations.
Capital Leases
The obligation under the Company’s capital lease is at a fixed interest rate and is collateralized by the related property and equipment (see Note 4, Property and Equipment).
The following table summarizes the future minimum payments that the Company expects to make for long-term debt and capital lease obligations:
Six months of 2012
$
15
2013
10
Total minimum payments
25
Less: interest
(1
)
Present value of total minimum obligations
$
24
Note 10
Commitments and Contingencies:
During the six month period ended June 30, 2012, the Company has entered into a settlement agreement with TRIA Beauty, Inc. (“TRIA”). All matters of pending litigation between Radiancy and TRIA have been dismissed with prejudice, including: (i) TRIA Beauty, Inc. v. Radiancy, Inc., Case No. CV-10-5030 (NJV) USDC District of Northern California; and (ii) Radiancy, Inc. v. TRIA Beauty, Inc, Index No. 650025/2011 Supreme Court of the State of New York. The terms of the settlement agreement were reduced to a written agreement dated June 29, 2012; such terms are confidential to the parties. The settlement is deemed to have no material effect on the Company’s
consolidated financial statements.
Note 11
Income Taxes:
The Company's effective tax rate is dependent upon the geographic distribution of its earnings or losses (mainly between US and Israel).
The difference between the Company's effective tax rates for three and six month periods ended June 30, 2012 and the U.S. Federal statutory rate (34%) resulted primarily from Pre-merged PhotoMedex current operations which have generated losses, which reduced the overall corporate tax expense and which will have effect on current tax expense when the Company elects to file a U.S. consolidated income tax return. In addition, the Company recorded a receivable for federal taxes paid in 2010 due to the expected carry back of the Company’s 2011 net
operating loss for a refund of the 2010 taxes paid by our subsidiary Radiancy, Inc. The receivable is net of alternative minimum tax that is residual to 2010. In addition, the Israeli and UK subsidiaries’ earnings are taxed at rates lower than the federal statutory rate (generally 16% to 26%, respectively).
The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and can be ambiguous and the Company is required to make many subjective assumptions and judgments regarding the application of such laws and regulations to its facts and circumstances. In addition, interpretations of and guidance surrounding income tax laws and regulations are subject to change over time. Any changes in the Company's subjective assumptions and judgments could materially affect amounts recognized in its consolidated balance sheets and statements of income.
The Company continues to examine the utilization of the loss carryforwards from Pre-merged PhotoMedex and the effect of income taxes on the recording of the reverse acquisition on December 13, 2011.
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Note 12
Employee Stock Benefit Plans:
Post-Reverse Merger
Following the closing of the reverse acquisition, the previous Non-Employee Director Stock Option Plan of PhotoMedex (the acquired entity) was adopted by the group. This plan has authorized 120,000 shares; of which 7,000 shares had been issued or were reserved for issuance as awards of shares of common stock, and 18,951 shares were reserved for outstanding stock options. The directors who were elected to our Board in connection with the reverse merger, each received a one-time stock award of 5,000 shares of the Company’s common stock.
In addition, following the closing of the reverse acquisition, the previous 2005 Equity Compensation Plan (“2005 Equity Plan”) of Pre-merged PhotoMedex (the acquired entity) was also adopted for use by the group. The 2005 Equity Plan has authorized 3,000,000 shares, of which 753,095 shares had been issued or were reserved for issuance as awards of shares of common stock, and 890,170 shares were reserved for outstanding options.
Stock option activity under all of the Company’s share-based compensation plans for the six months ended June 30, 2012 was as follows:
At June 30, 2012, there was $11,637 of total unrecognized compensation cost related to non-vested option grants and stock awards that is expected to be recognized over a weighted-average period of 3.8 years. The intrinsic value of options outstanding and exercisable at June 30, 2012 was not significant.
The Company calculates expected volatility for a share-based grant based on historic daily stock price observations of its common stock. For estimating the expected term of share-based grants made in the six months ended June 30, 2012, the Company has adopted the simplified method. The Company has used historical data to estimate expected employee behaviors related to option exercises and forfeitures and included these expected forfeitures as a part of the estimate of expense as of the grant date.
The Company uses the Black-Scholes option-pricing model to estimate fair value of grants of stock options with the following weighted-average assumptions:
With respect to grants of options, the risk-free rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the grant or award.
On January 26, 2012, the Company issued 30,000 shares of common stock to the six non-employee directors for an aggregate fair value of $405.
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On March 18, 2012, the Company granted an aggregate of 509,000 options to purchase common stock to a number of employees and consultants with a strike price of $14, which was higher than the quoted market value of our stock at the date of grants. The options vest over five years and expire ten years from the date of grant. Also on March 18, 2012, the Company granted an aggregate of 230,000 non-qualified options to purchase common stock to two executive employees with a strike price of $20, which was set to match the exercise price of the warrants issued in the reverse merger and was higher than the quoted market value of our stock at the date of grant. The aggregate
fair value of the options granted was$6,652. The options vest over five years and expire ten years from the date of grant.
On December 13, 2011, as part of the reverse merger, the Company issued 380,000 shares of restricted common stock to two executives of Pre-merged PhotoMedex. These restricted shares have a purchase price of $0.01 per share and vest, and cease to be subject to the Company’s right of repurchase, over a three-year period. The Company determined the fair value of the awards to be the fair value of the Company’s common stock on the date of issuance less the value paid for the award.
As part of the reverse acquisition, the Company assumed 164,000 unvested restricted stock awards that were issued on March 30, 2011. Pre-merged PhotoMedex had awarded 200,000 shares of restricted stock to two of its senior executives. The awards were amended on July 4, 2011 and on August 11, 2011 with respect to the vesting provisions such that upon the closing of the reverse merger, each executive would vest in that number of shares that could be vested without causing excise taxes under Sec. 4999 of the Internal Revenue Code to be imposed on the executive or the loss in any material respect of a deduction under Section 162(m) of
the Internal Revenue Code, and any remaining shares would vest in substantially equal monthly installments over a 3-year period, on each month end, so long as the executive continues to be employed by the Company on each such date. If the executive’s employment is terminated by the Company without cause, due to his resignation for good reason, or as the result of his death or disability, the vesting of the shares shall be accelerated. 36,000 of the restricted stock awards were vested as of December 13, 2011, the date of the reverse merger, for the one executive who opted to be so vested.
Out of the total options exercised into shares of common stock during 2011, the Company shall have the right to repurchase 354,791 shares of common stock at a price equal to the par value of such shares ($0.005 per share) in the event of either the resignation or the termination for cause according to the employment agreement of the employees with the Company or its subsidiary. The repurchase right will be subject to the same vesting periods as the option grants themselves. The Company accounted for the replacement of the options with an exercise price of $0.01, with 354,791 restricted shares, with similar vesting terms, as a modification of an award and determined that the
fair value of the replaced award equals the new award and therefore no incremental costs should be recorded. As a result, the original stock based compensation of $1,177 continues to be expensed over the original vesting period.
Total stock based compensation expense was $3,288 and $14,836 for the six months ended June 30, 2012 and 2011.
Note 13
Business Segments and Geographic Data:
Effective December 13, 2011, the Company reorganized its business into three operating units 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 Consumer segment derives its revenues from the design, development, manufacturing and selling of long-term hair reduction and acne consumer products. The Physician Recurring segment derives its revenues from the XTRAC procedures performed by dermatologists, the sales of skincare products, the sales of surgical disposables and accessories to hospitals and surgery centers and on the repair, maintenance and replacement parts on our various products. The Professional
segment, in comparison, generates revenues from the sale of equipment, such as lasers, medical and aesthetic light and heat-based products and LED 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.
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The following tables reflect results of operations from our business segments for the periods indicated below:
No other customer was more than 10% of total company revenues for the three and six months ended June 30, 2012 and 2011.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 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 of PhotoMedex, Inc., a Nevada corporation (referred to in this Report as “we,”“us,”“our,”“PhotoMedex,” 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. In particular, we encourage you to review the risks and uncertainties
described in Item 1A “Risk Factors” included elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2011. 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.
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The following financial data, in this narrative, are expressed in thousands, except for the earnings per share.
Introduction, Outlook and Overview of Business Operations
Our current strategic focus is built upon three key components – skilled direct sales force to target Physician and Professional Segments; expertise in global consumer marketing and a full product-life-cycle model representing the ability to develop and commercialize innovative products from concept thru regulatory and physician acceptance, and ultimately marketed directly to the consumer as dictated by normal product life-cycle evolution.
We believe that we are one of only a few aesthetic dermatology companies to have succeeded in taking professional technologies geared toward physicians and med spas and adapting them for the home-use market. Our professional- and consumer-use products are listed below, noting that this is not an exhaustive listing of our product portfolio but represents our current key areas of focus.
Key Technology Platforms
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Thermicon® brand Heat Transfer Technology. In this technique, a patented thermodynamic wire gently singes and burns off the hair above the skin’s surface. It conducts heat pulses, which enable longer-lasting hair removal. This technology drives our home-use no!no! Hair Removal 8800™ device, which is designed to reduce hair growth. Product variations include devices designed for men and for sensitive, small areas such as the face, among other versions.
•
LHE® brand Technology. LHE® combines direct heat and a full-spectrum light source to give a greater treatment advantage for psoriasis and acne care, skin tightening, skin rejuvenation, wrinkle reduction, collagen renewal, vascular and pigmented lesion treatments, and hair removal. Using LHE®, the Mistral intelligent phototherapy medical device can treat a larger spot size than a laser with less discomfort. In addition, our research finds that LHE offers meaningful results for thin, light hair. The technology is also used in the no!no! Skin™, a handheld consumer product sold worldwide under the no!no!® brand. The no!no! Skin™ is a 510(k)-cleared product that has been clinically shown to reduce acne by 81% over 24 hours.
•
XTRAC® Excimer Laser. XTRAC received FDA clearance in 2000 and has since become a widely recognized treatment among dermatologists for psoriasis and other skin conditions for which there are no cures. The machine delivers narrow ultraviolet B (“UVB”) light to affected areas of skin, leading to psoriasis remission in an average of 8 to 12 treatments and of vitiligo after 48 treatments. XTRAC is endorsed by the National Psoriasis Foundation, and its use for psoriasis is covered by nearly all major insurance companies, including Medicare. Nearly 65% of companies now offer reimbursement for vitiligo as well, a figure that is increasing.
•
NEOVA®. This line of topical formulations is designed to prevent premature skin aging due to UV-induced DNA damage. The therapy seeks to repair photo-damaged skin using a novel combination of two key ingredients: DNA repair enzymes and our Copper Peptide Complex®. The NEOVA line includes DNA Damage Control SILC SHEER SPF 45, an award-winning tinted sunscreen. The DNA repair enzymes of this sunscreen are clinically shown to reduce UV damage by 45% and increase UV protection by 300% in one hour.
•
Light-emitting Diode (LED) Technology. Our LED technology is used in both its Omnilux™ and Lumière™ Light Therapy systems. Omnilux is FDA cleared to treat wrinkles, acne, minor muscle pain and pigmented lesions, and is applicable to all skin types. Lumière is designed for use in non-medical applications and combines the LED light with a line of topical lotions to improve the appearance of fine lines, wrinkles, skin tone and blemishes, giving aesthetic professionals a complete non-invasive skin care solution.
Our revenue generation is categorized as either consumer, physician-recurring or professional. Each segment benefits from the combination of our proprietary global consumer marketing engine with our direct sales force for U.S. physicians.
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Consumer
The global consumer market is our largest business unit due to our success at bringing professional technologies into the home-use arena. Cumulatively, we have sold more than 3.0 million no!no!® products to consumers, the majority of whom have been in Japan and North America.
Even at this level of sales, we believe we have ample opportunity for further expansion, as Japan’s 2010 population was over 127 million people and North America’s was approximately 400 million people—far greater than the more than three million who have already purchased our products.
Our consumer marketing platform is built upon a proprietary direct-to-consumer sales engine and creative marketing programs that drive brand awareness.
Sales Channels
Our multi-channel marketing and distribution model consists of television, online, print and radio direct-response advertising, as well as high-end retailers. We believe that this marketing and distribution model, through which each channel complements and supports the others, provides:
•
greater brand awareness across channels;
•
cost-effective consumer acquisition and education;
•
premium brand building; and
•
improved convenience for consumers.
Direct to Consumer. Our direct-to-consumer channel consists of sales generated through infomercials, websites and call centers. We utilize several forms of advertising to drive our direct-to-consumer sales and brand awareness, including print, online, television and radio.
Retailers and Home Shopping Channels. Our retailers and home shopping channels enable us to provide additional points of contact to educate consumers about our solutions, expand our presence beyond our direct to consumer activity and further strengthen and enhance our brand image.
Distributors. In some territories, we operate through exclusive distribution agreements with leading distribution companies that are dominant in their respective market and have the ability to promote our products through their existing retail and home shopping networks.
Markets
North America. Our consumer distribution segment in North America had sales of approximately $38.1 million and $22.7 million for the three months ended June 30, 2012 and 2011, respectively. Our consumer distribution segment in North America had sales of approximately $71.0 million and $46.8 million for the six months ended June 30, 2012 and 2011, respectively. We use a mix of direct-to-consumer advertising that includes infomercials, commercials, catalog and internet-based marketing campaigns, coupled with select retail resellers, such as Neiman Marcus, Henri Bendel, Planet Beauty and others; home shopping channels such as HSN; and online retailers such as Amazon, Dermadoctor.com and Drugstore.com. We
believe these channels complement each other, as consumers that have seen our direct-to-consumer advertising may purchase at our retailers, and those who have seen our solutions demonstrated at our retailers may purchase solutions through our websites or call centers.
International (excluding North America). In the international consumer segment, sales were approximately $12.3 million and $9.8 million for the three months ended June 30, 2012 and 2011, respectively. In the international consumer segment, sales were approximately $21.5 million and $19.3 million for the six months ended June 30, 2012 and 2011, respectively. We utilize various sales and marketing methods including sales by direct-to-consumer, sales to retailers and home shopping channels. Our main international markets are Japan, United Kingdom, Argentina and Australia. Our distribution has become geographically diverse over the past year; for example, as revenues have increased, our Japanese distributor,
Ya-Man, Ltd., accounted for approximately 11% and 8% of our
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total revenues for the three and six months ended June 30, 2012, compared to 22% and 23% of total revenues for the three and six months ended June 30, 2011.
Physician Recurring
Physician recurring sales entail those generated under two of our product lines: (1) the XTRAC, a noninvasive, FDA-cleared solution for psoriasis and vitiligo, and (2) the NEOVA, a topical therapy combining DNA repair enzymes and copper peptide complexes to prevent premature skin aging. Both XTRAC® and NEOVA® represent recurring revenue streams with significant market opportunities. In addition, our expertise in direct-to-consumer advertising and innovative marketing programs is anticipated to drive greater brand awareness and adoption for both XTRAC and NEOVA products.
XTRAC®
The XTRAC business is considered a recurring revenue stream given its pay-per-use model, where the machines are provided to professionals who then pay us based on the number of treatments administered with the device.
NEOVA®
Sales of the NEOVA skin care products at present are driven by physicians, who act as spokespersons to their patients in support of the NEOVA line. We have historically marketed to physicians in the dermatology and plastic surgery field, but plan to supplement these efforts with a direct-to-consumer approach to lead patients into those practices. NEOVA addresses a sizeable global market for anti-aging skin care products.
Professional
Sales under the professional business segment are mainly generated from capital equipment, such as our Velocity and VTRAC equipment, our LHE® brand products and our Omnilux and Lumière Light Therapy systems.
This segment is an area of opportunity for us since the reverse acquisition with Radiancy, Inc., or Radiancy, completed on December 13, 2011. We now possess a greatly expanded product offering for the physician community. In addition, following the December 2011 reverse acquisition, we inherited from Pre-merged PhotoMedex a 48-person, experienced direct sales force that already reaches a network of approximately 3,000 physician locations in the U.S. We are now also distributing through this direct sales force the LHE-based professional products in addition to our other equipment to physicians, dermatologists, salons, spas, and other aesthetic practitioners. We view this fully trained sales staff as a significant opportunity.
Sales and Marketing
As of June 30, 2012, our sales and marketing personnel consisted of 64 full-time positions.
Critical Accounting Policies and Estimates
There have been no changes to our critical accounting policies and estimates in the three and six months ended June 30, 2012. Critical accounting policies and the significant estimates made in accordance with them 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 of our Annual Report on Form 10-K for the year ended December 31, 2011.
Results of Operations (The following financial data, in this narrative, are expressed in thousands, except for the earnings per share.)
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Revenues
The following table presents revenues from our three business segments for the periods indicated below:
We completed the reverse acquisition on December 13, 2011 and as such, our Pre-merged PhotoMedex revenues are included only from the completion date forward. There were no corresponding revenues for the periods ended June 30, 2011.
Consumer Segment
The following table illustrates the key changes in the revenues of the Consumer segment, by sales channel, for the periods reflected below:
For the three months ended June 30, 2012, consumer products revenues were $50,464 compared to $32,459 in the three months ended June 30, 2011. For the six months ended June 30, 2012, consumer products revenues were $92,665 compared to $66,086 in the six months ended June 30, 2011. The increases of 55.5% and 40.2%, respectively, during the periods were mainly due to the following reasons:
•
Direct to Consumer. Revenues for the three months ended June 30, 2012 were $33,696 compared to $19,268 for the same period in 2011. Revenues for the six months ended June 30, 2012 were $65,212 compared to $39,331 for the same period in 2011. The increase of 75% and 66%, respectively, were mainly due to our successful marketing programs which have led to rapid year-over-year revenue growth. Additionally, in May 2011, we launched marketing programs in the United Kingdom (“UK”), resulting in approximately $3,644 and $6,966 in revenues for the three and six months ended June 30, 2012, respectively, compared to $643 for the three and six months ended June 30, 2011.
•
Retailers and Home Shopping Channels. Revenues for the three months ended June 30, 2012 were $9,761 compared to $4,845 for the same period in 2011. Revenues for the six months ended June 30, 2012 were $15,753 compared to $9,421 for the same period in 2011. The increases of 101% and 67%, respectively, were also mainly due to our successful marketing programs to the various home shopping channel customers, mainly in the United States (“US”) and the UK.
•
Distributors Channels. Revenues for the three months ended June 30, 2012 were $7,007 compared to $8,346 for the same period in 2011. Revenues for the six months ended June 30, 2012 were $11,700 compared to $17,334 for the same period in 2011. The decreases of 16% and 33%, respectively, were mainly attributed to a key partner’s desire to reduce their inventory levels on all product lines carried over from 2011 and into 2012.
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The following table illustrates the key changes in the revenues of the Consumer segment, by markets, for the periods reflected below:
All revenues in this segment are generated through the Pre-merged PhotoMedex products. We completed the reverse acquisition on December 13, 2011. In accordance with generally accepted accounting principles, these revenues are included only from the completion date forward. There were no corresponding revenues for the periods ended June 30, 2011.
XTRAC Treatments
Recognized treatment revenue for the three months ended June 30, 2012 was $1,977. Recognized treatment revenue for the six months ended June 30, 2012 was $3,656. 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 be generally reimbursed.
We have a program to support certain physicians who may be denied reimbursement by private insurance carriers for XTRAC treatments. We recognize service revenue during this program from the sale of XTRAC procedures or equivalent treatments to physicians participating in this program only to the extent the physician has been reimbursed for the treatments. In addition, we defer substantially all sales of treatment codes ordered by and delivered to the customer within the last two weeks of the period in determining the amount of procedures performed by our physician-customers. Management believes this approach closely approximates the actual amount of unused treatments that existed at the end of a period. For the three and six months ended June 30, 2012, we deferred net revenues of $72 and $217, respectively, under
this approach.
NEOVA skincare
For the three and six months ended June 30, 2012, revenues were $2,135 and $4,300, respectively. These revenues are generated from the sale of various skin, hair care and wound products to physicians in both the domestic and international markets.
Surgical products
For the three and six months ended June 30, 2012, revenues were $472 and $1,012, respectively. These revenues are generated from the sale of various related laser fibers and laser disposables in both the domestic and international markets.
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The following table illustrates the key changes in the revenues of the Physicians Recurring segment, by markets, for the periods reflected below:
The Dermatology equipment, Omnilux/Lumiere equipment and Surgical lasers revenues in this segment are all generated through the Pre-merged PhotoMedex products. As we completed the reverse acquisition, in accordance with generally accepted accounting principles on December 13, 2011, these revenues are included only from the completion date forward. There were no corresponding revenues for the periods ended June 30, 2011.
Dermatology equipment
For the three months ended June 30, 2012, dermatology equipment revenues were $1,294. Included in this amount were domestic XTRAC laser sales of $326 on 7 lasers sold. For the six months ended June 30, 2012, dermatology equipment revenues were $2,652. Included in this amount were domestic XTRAC laser sales of $794 on 17 lasers sold. We sell the laser directly to the customer for certain reasons, including the costs of logistical support and customer preference as well as a means of addressing under-performing accounts while preserving the vendor-customer relationship. We believe that we are able to reach, at reasonable margins, a sector of the laser market that is better suited to a sale model than a per-procedure, or consignment, model. The international sales
of our XTRAC and VTRAC systems were $968 for the three months ended June 30, 2012. We sold 38 systems for the three months ended June 30, 2012, 27 of which were VTRAC systems, a lamp-based alternative UVB light source that has a wholesale sales price that is below our competitors’ international dermatology equipment and below our XTRAC laser. The international sales of our XTRAC and VTRAC systems were $1,858 for the six months ended June 30, 2012. We sold 67 systems for the six months ended June 30, 2012, 44 of which were VTRAC systems, a lamp-based alternative UVB light source that has a wholesale sales price that is below our competitors’ international dermatology equipment and below our XTRAC laser.
LHE® brand products
For the three and six months ended June 30, 2012, LHE® brand products revenues were $1,418 and $2,409, respectively. These revenues are generated from the sale of mainly Mistral™, Kona™, FTD™, SpaTouch Elite™ and accessories. These devices are sold to physicians, spas and beauty salons.
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Omnilux/Lumiere equipment
For the three and six months ended June 30, 2012, Omnilux/Lumiere equipment revenues were $336 and $928, respectively. These revenues are generated from the sale of LED devices. The Omnilux units are sold for medical applications and the Lumière is a sister technology to Omnilux with the same patent protection, but it is designed for use in non-medical applications, especially at salons and spas.
Surgical lasers
Surgical lasers revenues include revenues derived from the sales of surgical laser systems. For the three and six months ended June 30, 2012, surgical laser revenues were $120, representing three laser systems and $178, representing four laser systems, respectively.
The following table illustrates the key changes in the revenues of the Professional segment, by markets, for the periods reflected below:
Overall, cost of revenues has increased in all segments due to the related increases in revenues for each of the three segments. As we completed the reverse acquisition on December 13, 2011 the Pre-merged PhotoMedex cost of revenues are included only from the completion date forward. There were no corresponding cost of revenues for the periods ended June 30, 2011.
Gross Profit Analysis
Gross profit increased to $46,551 for the three months ended June 30, 2012 from $28,157 during the same period in 2011. As a percentage of revenues, the gross margin decreased to 79.0% for the three months ended June 30, 2012 from 83.2% for the same period in 2011. Gross profit increased to $85,590 for the six months ended June 30, 2012 from $56,676 during the same period in 2011. As a percentage of revenues, the gross margin decreased to 78.4% for the three months ended June 30, 2012 from 82.6% for the same period in 2011.
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The following table analyzes changes in our gross margin for the periods presented below:
The primary reasons for the changes in gross profit and the gross margin percentage for the three and six months ended Jun 30, 2012, compared to the same period in 2011, were due to a change in the sales mix. Both the Physician Recurring and Professional segments, which have lower gross margins than the Consumer segment, had increases in revenues over the comparable prior year periods and therefore represent a higher percentage of the sales mix. As a result of purchase accounting rules, the operating results of the pre-merged PhotoMedex, which are mainly attributable to the Physician recurring and Professional segments for the three-month and six-month periods ended June 30, 2011 are not included in the above table for the periods ended June 30, 2011.
The following table analyzes the gross profit for our Consumer segment for the periods presented below:
Gross profit for the three months ended June 30, 2012 increased by $15,042 from the comparable period in 2011. Gross profit for the six months ended June 30, 2012 increased by $22,640 from the comparable period in 2011. The key factor for these increases was an increase in revenues as the gross margin percentage is consistent between the comparable periods.
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The following table analyzes the gross profit for our Physician Recurring segment for the periods presented below:
All revenues/costs for this segment are generated through the Pre-merged PhotoMedex products. As we completed the reverse acquisition on December 13, 2011, these revenues are included only from the completion date forward. There were no corresponding revenues/costs for the periods ended June 30, 2011.
The following table analyzes the gross profit for our Professional segment for the periods presented below:
Gross profit for the three months ended June 30, 2012 increased by $683 from the comparable period in 2011. Gross profit for the six months ended June 30, 2012 increased by $1,211 from the comparable period in 2011. The key factor for the increases was the increase in revenues. For the three months ended June 30, 2012, the gross margin percentage was 50.1% compared to 65.1% for the three months ended June 30, 2011. For the six months ended June 30, 2012, the gross margin percentage was 45.4% compared to 63.6% for the six months ended June 30, 2011. The decrease was due to the addition of the Pre-merged PhotoMedex products. The
Dermatology equipment, Omnilux/Lumiere equipment and Surgical laser revenues in this segment are all generated through the Pre-merged PhotoMedex products. As we completed the reverse acquisition on December 13, 2011 these revenues/costs are included only from the completion date forward. There were no corresponding revenues/costs for the periods ended June 30, 2011.
Engineering and Product Development
Engineering and product development expenses for the three months ended June 30, 2012 increased to $760 from $249 for the three months ended June 30, 2011. Engineering and product development expenses for the six months ended June 30, 2012 increased to $1,518 from $419 for the six months ended June 30, 2011. $487 and $987, respectively, of the increases is directly related to engineering and product development expenses related to the Pre-merged PhotoMedex products. The reverse merger occurred on December 13, 2011; therefore, only expenses from the completion date forward are included. There were no corresponding engineering and product development expenses related to Pre-merged
PhotoMedex, for the periods ended June 30, 2011. The remaining increase was related to the engineering and product development expenses for the development of additional products.
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Selling and Marketing Expenses
For the three months ended June 30, 2012, selling and marketing expenses increased to $31,068 from $15,390 for the three months ended June 30, 2011. For the six months ended June 30, 2012, selling and marketing expenses increased to $56,903 from $30,037 for the six months ended June 30, 2011. These increases were primarily for the following reasons:
•
We increased no!no! Hair Removal 8800™ direct to consumer activities in North America and the UK via infomercial, online campaigns, radio and print media, which resulted in an increase in advertising, media buying, and other related selling and marketing expenses. There was a 75% and 66% increase in direct to consumer revenues between the comparable three-month and six-month periods, respectively, which was the result of an increase in the consumer advertising and selling activities (media buying, advertisement, public relations, production of commercials and relevant marketing materials).
•
There were increases of approximately $2,749 and $5,728 in costs related to our Pre-merged PhotoMedex expenses for the three and six months ended June 30, 2012, respectively. As we completed the reverse acquisition on December 13, 2011, these expenses were included only from the completion date forward. Consequently, there were no corresponding sales and marketing expenses related to Pre-merged PhotoMedex, for the periods ended June 30, 2011.
General and Administrative Expenses
For the three months ended June 30, 2012, general and administrative expenses decreased to $9,243 from $28,926 for the three months ended June 30, 2011. For the six months ended June 30, 2012, general and administrative expenses decreased to $16,362 from $31,739 for the six months ended June 30, 2011. The decreases were due to the following reasons:
•
These decreases were mainly due to a stock based compensation expense of $ 27.1 million including the cash bonus of $12.3 million for the three and six months ended June 30, 2011. On June 30, 2011, the Radiancy board of directors awarded its Chief Executive Officer (i) a stock award of up to 1,017,065 shares of the Radiancy's common stock and (ii) a $12.3 million cash bonus as a "gross-up" for reimbursement of tax payments (tax obligations, withholdings and other tax-related liabilities in connection with the stock bonus and cash award).
•
Offsetting the above decreases, in part, were increases of $3,671 and $4,797 in legal expense due to the completion of major litigation.
•
There were increases of approximately $2,371 and $5,738 in the three and six months ended June 30, 2012, respectively, in costs related to our Pre-merged PhotoMedex expenses. As we completed the reverse acquisition on December 13, 2011, these expenses were included only from the completion date forward. Consequently, there were no corresponding general and administrative expenses, related to Pre-merged PhotoMedex, for the periods ended June 30, 2011.
Interest and Other Financing Expense, Net
Net interest and other financing expense for the three months ended June 30, 2012 increased to $401, as compared to income of $161 for the three months ended June 30, 2011. The increase of $562 is mainly due to an increase in interest expense of $223. Net interest and other financing expense for the six months ended June 30, 2012 increased to $631, as compared to income of $192 for the six months ended June 30, 2011. The increase of $631 is mainly due to an increase in interest expense of $412. The interest expense related to the term note that was assumed in the reverse merger. There was no corresponding expense in the three and six months ended June 30, 2011. The remaining change
was due to currency fluctuation of the U.S. Dollar versus the New Israeli Shekel, the Euro, the GBP and the Australian Dollar. The functional currency of all members of the group is the U.S. Dollar, except for Photo Therapeutics, Ltd, which has a functional currency of GBP.
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Taxes on Income (Loss), Net
For the three months ended June 30, 2012, the net taxes on income amounted to $866 as compared to a benefit of $6,202 for the three months ended June 30, 2011. For the six months ended June 30, 2012, the net taxes on income amounted to $1,106 as compared to a benefit of $3,367 for the six months ended June 30, 2011. These changes were mainly due the net losses for the three and six months ended June 30, 2011. Partially offsetting the tax expense for the six months ended June 30, 2012, was a receivable we recorded, for federal taxes paid in 2010 due to the expected carry back of our 2011 net operating loss from Radiancy, Inc. for
a refund of the 2010 taxes paid. The receivable is net of alternative minimum tax that is residual to 2010.
Net Income (Loss)
The factors described above resulted in net income of $4,213 during the three months ended June 30, 2012, as compared to a net loss of $10,045 during the three months ended June 30, 2011, an increase of 141.9%. The factors described above resulted in net income of $9,070 during the six months ended June 30, 2012, as compared to a net loss of $1,960 during the six months ended June 30, 2011, an increase of 562.8%.
Management utilizes certain non-GAAP financial measures to monitor our performance.
We present a computation of non-GAAP adjusted income and non-GAAP adjusted income per share. We define non-GAAP adjusted income as income before depreciation and amortization, income tax expense, stock-based compensation expense, severance costs, interest expense - net, transaction-related expense and major litigation expense. We believe that non-GAAP adjusted income is a meaningful measure which may be used when making period-to-period comparisons. Non-GAAP adjusted income is considered to be a non-GAAP financial measure and should be viewed in conjunction with net income on the Consolidated Statement of Comprehensive Income.
We also present non-GAAP adjusted income per share which is derived by dividing non-GAAP adjusted income by the shares used in computing basic and diluted net income per share. Non-GAAP adjusted income per share is considered to be a non-GAAP financial measure and should be viewed in conjunction with basic and diluted net income per share on the Condensed Consolidated Statement of Comprehensive Income.
There are limitations in using these non-GAAP financial measures because they are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. Our reference to these non-GAAP measures should be considered in addition to results prepared under current accounting standards, but are not a substitute for, nor superior to, GAAP results. These non-GAAP measures are provided to enhance investors’ overall understanding of our current financial performance and to provide further information for comparative purposes.
Specifically, management believes the non-GAAP measures provide useful information to both 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.
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The following table illustrates the impact of major expenses, in particular depreciation, amortization and stock option expense, between the periods (in thousands, except earnings per share data):
On April 27, 2012, we closed on a two-tranche registered offering in which we sold an aggregate of 3,023,432 shares of its common stock at an offering price of $13.23 per share. The sale resulted in net proceeds of approximately $37.8 million. The net proceeds will be used for general corporate purposes, including capital expenditures, continued product development, sales and marketing initiatives and working capital.
We believe our existing balances of cash and cash equivalents will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations through and beyond the third quarter of 2013.
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Net cash and cash equivalents used in operating activities was $2,346 for the six months ended June 30, 2012 compared to $14,607 for the six months ended June 30, 2011. The decrease was primarily due to increases in accounts receivables, inventory and prepaid assets.
Net cash and cash equivalents used in investing activities was $1,230 for the six months ended June 30, 2012 compared to cash provided by of $8,335 for the six months ended June 30, 2011. This was primarily due to the proceeds from short term deposits of $8,500 for the six months ended June 30, 2011. This was partially offset by an increase in the placement of lasers into service.
When we retire a laser from service that is no longer useable, we write off the net book value of the laser, which is typically negligible. Over the last few years, such retirements of lasers from service have been immaterial.
Net cash and cash equivalents provided by financing activities was $35,302 for the six months ended June 30, 2012 compared to $0 for the six months ended June 30, 2011. In the six months ended June 30, 2012, we had proceeds from issuance of common stock, net of $37,515, which was partially offset by repayments of $2,000 on long-term debt and $351 for certain notes payable.
Commitments and Contingencies
There were no items that significantly impacted our commitments and contingencies as discussed in the notes to our 2011 annual financial statements included in our Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
At June 30, 2012, 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 sales or expenses.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “may,”“will,”“should,”“could,”“would,”“expect,”“plan,”“anticipate,”“believe,”“estimate,”“project,”“predict,”“intend,”“potential” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results,
performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in our Annual Report on Form 10-K for the year ended December 31, 2011, and in this Quarterly Report on Form 10-Q in greater detail under Item 1A. “Risk Factors.” Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by our cautionary statements. Except as required
by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
Foreign Exchange Risk
During the six months ended June 30, 2012, there were no material changes to our market risk disclosures as set forth in Part II Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in the Annual Report on Form 10-K that we filed for the year ended December 31, 2011.
We have performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act). Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of June 30, 2012.
Limitations on the Effectiveness of Controls.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our CEO and CFO have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.
Change in Internal Control and Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Exchange Act rules 13a-15(f) and 15d-15(f) as a process designed by, or under the supervision of, our principal executive and financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, 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. Our independent registered public accounting firm has not been engaged to express, nor has it expressed, an opinion on the effectiveness of our internal control over financial reporting.
There was a change in our internal control over financial reporting that occurred during the quarter ended December 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting in current periods. As discussed more fully in Note 2 to our Consolidated Financial Statements, on December 13, 2011, Pre-merged PhotoMedex, a Nevada public company, acquired Radiancy, a privately held company, in a purchase business combination that was accounted for as a reverse acquisition. Because the financial statements and information relating to Radiancy now constitute the financial statements and information of the “Company” and the operations of Pre-merged PhotoMedex were approximately
20% based on consolidated revenues, prior to and subsequent to the business combination compared to those of the post-combination consolidated entity, meaningful evaluation of the effectiveness of internal control over financial reporting as of June 30, 2012 would need to focus on the internal controls of Radiancy. Prior to the transaction, Radiancy was a privately held company, and therefore its controls were not required to be designed or maintained in accordance with Exchange Act Rule 13a-15. The design of public company internal controls over financial reporting for Radiancy and the implementation of internal controls over financial reporting for the post-combination consolidated entities, have required and will continue to require significant time and resources from our management and other personnel.
We have entered into a settlement agreement with TRIA Beauty, Inc. (“TRIA”). All matters of pending litigation between Radiancy and TRIA have been dismissed with prejudice, including: (i) TRIA Beauty, Inc. v. Radiancy, Inc., Case No. CV-10-5030 (NJV) USDC District of Northern California; and (ii) Radiancy, Inc. v. TRIA Beauty, Inc, Index No. 650025/2011 Supreme Court of the State of New York. The terms of the settlement agreement were reduced to a written agreement dated June 29, 2012; the terms of the foregoing settlement are confidential to the parties thereto.
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Individual and class action litigations
From time to time, we are also threatened with individual and class action litigations involving our business, products, advertisements, packaging, labeling, consumer claims, contracts, agreements, intellectual property, or FDA matters, licenses and other areas involving us and our business. The outcome or effect on us or our business, the market price of our common stock, cash flows, prospects, revenues, profitability, capital expenditures, reputation, demand for products, results of operations, financial condition, or liquidity of any future litigation cannot be predicted.
Other
We are involved in certain other legal actions and claims arising in the ordinary course of business. We believe, based on discussions with legal counsel, that these other litigations and claims will likely be resolved without a material effect on our consolidated financial position, results of operations or liquidity.
As of June 30, 2012, our risk factors have not changed materially from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 22, 2012, we entered into a renewal of our lease with FR National Life LLC (the “FR National Life Lease”) on our Carlsbad, California facility. The lease renewal is for three years.
The foregoing description of the material terms of the FR National Life Lease does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to the FR National Life Lease that is filed as an exhibit to this quarterly report on Form 10-Q for the period ending June 30, 2012.
Amended and Restated Agreement and Plan of Merger, dated as of October 31, 2011, by and among Radiancy, Inc., PhotoMedex, Inc. and PHMD Merger Sub, Inc., including the Form of Warrant. (23)
3.1
Amended and Restated Articles of Incorporation of PhotoMedex, Inc. a Nevada corporation, filed on December 12, 2011 with the Secretary of State for the State of Nevada. (23)
Form of Warrant to Purchase Shares of Common Stock of PhotoMedex (19)
4.2
Term Loan and Security Agreement, dated as of March 19, 2010 between PhotoMedex, Inc. and Clutterbuck Funds LLC (26) (Exhibit 4.12 therein)
4.3
Term Note, dated March 19, 2010, between PhotoMedex, Inc. and Clutterbuck Funds, LLC (26) (Exhibit 4.13 therein)
4.4
Amendment No. 1 to Term Loan and Security Agreement, dated April 30, 2010 (27) (Exhibit 4.20 therein)
4.5
Amendment No. 2 to Term Loan and Security Agreement, dated March 28, 2011 (27) (Exhibit 4.21 therein)
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10.1
Lease Agreement dated May 29, 1996, between Surgical Laser Technologies, Inc. and Nappen & Associates (Montgomeryville, Pennsylvania) (2)
10.2
Lease Renewal Agreement, dated January 18, 2001, between Surgical Laser Technologies, Inc. and Nappen & Associates (2)
10.3
Lease Agreement, dated July 10, 2006, PhotoMedex, Inc. and Nappen & Associates (3)
10.4
Standard Industrial/Commercial Multi-Tenant Lease - Net, dated July 30, 2008 (additional facility at Carlsbad, California) (15)
10.5
Standard Industrial/Commercial Multi-Tenant Lease Net, dated March 17, 2005 (Carlsbad, California) (5)
10.6
License and Development Agreement, dated May 22, 2002, between Surgical Laser Technologies, Inc. and Reliant Technologies, Inc. (2)
10.7
Settlement Agreement and Release, dated November 11, 2008, by and among Allergan, Inc., Murray A. Johnstone, MD, PhotoMedex, Inc. and ProCyte Corporation. (15)
10.8
Master Asset Purchase Agreement, dated September 7, 2004, between PhotoMedex, Inc. and Stern Laser, srl (6)
10.9
License Agreement, dated March 31, 2006, and effective April 1, 2006, between the Mount Sinai School of Medicine and PhotoMedex, Inc. (7)
Restricted Stock Agreement of Michael R. Stewart, dated March 30, 2011 (18)
10.31
Restricted Stock Agreement of Christina L. Allgeier, dated March 30, 2011 (18)
10.32
Amended and Restated Employment agreement, entered into by and between PhotoMedex, Inc. and Dennis McGrath on July 4, 2011. (19)
10.33
Amended and Restated Restricted Stock Agreement, entered into as of August 11, 2011, by and between PhotoMedex, Inc. and Dennis McGrath. (20)
10.34
Restricted Stock Agreement, entered into as of July 4, 2011, by and between PhotoMedex, Inc. and Dennis McGrath. (19)
10.35
Non-Qualified Stock Option Agreement, entered into as of July 4, 2011, by and between PhotoMedex, Inc. and Dennis McGrath. (19)
10.36
Amended and Restated Employment agreement, entered into by and between PhotoMedex, Inc. and Michael Stewart on July 4, 2011. (19)
10.37
Amended and Restated Restricted Stock Agreement, entered into as of August 11, 2011, by and between PhotoMedex, Inc. and Michael Stewart. (20)
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10.38
Amended and Restated Restricted Stock Agreement, entered into as of July 4, 2011, by and between PhotoMedex, Inc. and Michael Stewart. (19)
10.39
Non-Qualified Stock Option Agreement, entered into as of July 4, 2011, by and between PhotoMedex, Inc. and Michael Stewart. (19)
10.40
Amended and Restated Employment Agreement entered into by and between PhotoMedex, Inc. and Dolev Rafaeli on August 9, 2011. (21)
10.41
Distribution Agreement by and between Radiancy, Inc. and Ya-Man Ltd., dated October 17, 2008. (21)
10.42
Distribution Agreement Extension by and between Radiancy, Inc. and Ya-Man Ltd., dated August 12, 2010. (21)
10.43
First Amendment to the Nonqualified Stock Option Agreement, dated as of October 31, 2011, by and between PhotoMedex, Inc. and Dennis McGrath (22)
10.44
First Amendment to the Nonqualified Stock Option Agreement, dated as of October 31, 2011, by and between PhotoMedex, Inc. and Michael R. Stewart (22)
10.45
Lease Renewal Agreement, dated February 22, 2012, PhotoMedex, Inc. and FR National Life LLC (28)
10.46
Lease Agreement dated September 1, 2010, by and between 30 Ramland Road, LLC and Radiancy, Inc. (Orangeburg). (25)
10.47
Unprotected Tenancy Agreement dated September 7, 2008 by and between S.A.I. Yarak Buildings and Investments Ltd. and Radiancy (Israel) Ltd. (Hod Hasharon) (25)
10.48
Annex to S.A.I. Radiancy Unprotected Tenancy Lease, dated as of January 20, 2008, by and between S.A.I. Yarak Buildings and Investments Ltd. and Radiancy (Israel) Ltd. (25)
10.49
Exclusive License Agreement for Methods of Treating Diseased Tissue, dated April 1, 2012, by and between the Regents of the University of California and PhotoMedex, Inc. (25)
Non-Qualified Stock Option Agreement dated March 18, 2012 between PhotoMedex, Inc. and Dennis McGrath (25)
10.52
Warrant issued March 1, 2012 to Crystal Research Associates LLC. (29)
31.1
Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended
31.2
Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended
32.1
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
101.INS†
XBRL Instance Document
101.SCH†
XBRL Taxonomy Schema
101.CAL†
XBRL Taxonomy Calculation Linkbase
101.DEF†
XBRL Taxonomy Definition Linkbase
101.LAB†
XBRL Taxonomy Label Linkbase
101.PRE†
XBRL Taxonomy Presentation Linkbase
(1)
Filed as part of our Registration Statement on Form S-4, on October 18, 2002, and as amended.
(2)
Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2002.
(3)
Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2006.
(4)
Filed as part of our Registration Statement on Form S-1/A, on August 5, 1999.
(5)
Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2005.
Filed as part of our Current Report on Form 8-K, on April 10, 2006.
(8)
Filed as part of our Definitive Proxy Statement on Schedule 14A, on November 15, 2005.
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(9)
Filed as part of our Registration Statement on Form S-8, on April 13, 2005.
(10)
Filed as part of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.
(11)
Filed as part of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.
(12)
Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2007.
(13)
Filed as part of our Current Report on Form 8-K on March 5, 2009.
(14)
Filed as part of our Definitive Proxy Statement on Schedule 14A on December 18, 2008.
(15)
Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2008.
(16)
Filed as part of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.
(17)
Filed as part of our Current Report on Form 8-K on January 11, 2010.
(18)
Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2010.
(19)
Filed as part of our Current Report on Form 8-K on July 8, 2011.
(20)
Filed as part of our Registration Statement on Form S-4, on August 12, 2011.
(21)
Filed as part of our Registration Statement on Form S-4/A, on October 5, 2011.
(22)
Filed as part of our Registration Statement on Form S-4/A, on November 2, 2011.
(23)
Filed as part of our Current Report on Form 8-K on December 16, 2011.
(24)
Filed as part of our Current Report on Form 8-K on July 2, 2007.
(25)
Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2011.
(26)
Filed as part of our Current Report on form 8-K on March 23, 2010.
(27)
Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2010.
(28)
Filed with this Form 10-Q.
(29)
Filed as part of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.
*
The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q 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.
†
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended (the “Securities Act”), are deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise not subject to liability under those sections. This exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates this exhibit by reference.
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
