Note 3

Revenue:

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

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

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

In the Dermatology Procedures Equipment segment the Company sells its products internationally through a distributor and as of the third quarter of 2019 the Company also sells its products through its Korean distributor, and domestically directly to a physician. For the product sales, the Company recognizes revenues when control of the promised products is transferred to either the Company's distributors or end-user customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products (the transaction price). Control transfers to the customer at a point in time. To indicate the transfer of control, the Company must have a present right to payment and legal title must have passed to the customer. The Company ships most of its products FOB shipping point, and as such, the Company primarily transfers control and records revenue upon shipment. From time to time the Company will grant certain customers, for example governmental customers, FOB destination terms, and the transfer of control for revenue recognition occurs upon receipt. The Company has elected to recognize the cost of freight and shipping activities as fulfillment costs. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of the underlying goods are transferred to the customer. The related shipping and freight charges incurred by the Company are included in cost of revenues.

Remaining performance obligations related to ASC 606 represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year, which are fully or partially unsatisfied at the end of the period. Remaining performance obligations include the potential obligation to perform under extended warranties but excludes any equipment accounted for as leases. As of September 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $373, and the Company expects to recognize $211 of the remaining performance obligations within one year and the remainder over one to three years. Contract assets primarily relate to the Company’s rights to consideration for work completed in relation to its services performed but not billed at the reporting date. The contract assets are transferred to receivables when the rights become unconditional. Currently, the Company does not have any contract assets which have not transferred to a receivable. Contract liabilities primarily relate to extended warranties where we have received payments, but we have not yet satisfied the related performance obligations. The advance consideration received from customers for the services is a contract liability until services are provided to the customer. The $211 of short-term contract liabilities is presented as deferred revenues and the $162 of long-term contract liabilities is presented within Other Liabilities on the September 30, 2019 Condensed Consolidated Balance Sheet. For the three and nine months ended September 30, 2019, the Company recognized $55 and $130, respectively, as revenue from amounts classified as contract liabilities (i.e. deferred revenues) as of December 31, 2018.

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

The Company records co-pay reimbursements made to patients receiving laser treatments as a reduction of revenue. For the three and nine months ended September 30, 2019 and 2018, the Company recorded such reimbursements in the amounts of $213 and $545, and $167 and $467, respectively.

The following tables present the Company’s revenue disaggregated by geographical region for the three and nine months ended September 30, 2019 and 2018, respectively. Domestic refers to revenue from customers based in the United States, and substantially all foreign revenue is derived from dermatology procedures equipment sales to the Company’s international master distributor for physicians based primarily in Asia.

	Three Months Ended September 30, 2019
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	5,991	$	241	$	6,232
Foreign		-		1,248		1,248
Total	$	5,991	$	1,489	$	7,480

	Nine Months Ended September 30, 2019
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	17,142	$	943	$	18,085
Foreign		-		4,603		4,603
Total	$	17,142	$	5,546	$	22,688

	Three Months Ended September 30, 2018
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	5,393	$	366	$	5,759
Foreign		-		1,970		1,970
Total	$	5,393	$	2,336	$	7,729

	Nine Months Ended September 30, 2018
	Dermatology Recurring Procedures		Dermatology Procedures Equipment		TOTAL
Domestic	$	15,186	$	1,337	$	16,523
Foreign		-		5,333		5,333
Total	$	15,186	$	6,670	$	21,856