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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from ____________ to ____________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) 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 (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emerging growth company”. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Smaller reporting company | |
| Emerging growth company ☒ |
If an emerging
growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of October
31, 2021,
SENSUS HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
i
INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements
This quarterly report on Form 10-Q includes statements that are, or may be deemed, “forward-looking statements.” In some cases, these statements can be identified by the use of terminology such as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” or “potential” or negative or other variations of those terms or comparable terminology, although not all forward-looking statements contain these or similar words or terminology.
Forward-looking statements involve risks and uncertainties because they relate to events, developments, and circumstances relating to Sensus Healthcare, Inc., our industry, and/or general economic or other conditions that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, forward-looking statements are not guarantees of future performance, and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward looking statements contained in this press release, as a result of the following factors, among others: the continuation and severity of the COVID-19 pandemic, including its impact on sales and marketing; our ability to achieve profitability; our ability to obtain and maintain the intellectual property needed to adequately protect our products; the level and availability of government and/or third party payor reimbursement for clinical procedures using our products, and the willingness of healthcare providers to purchase our products if the level of reimbursement declines; the risks arising from our international activities; the regulatory requirements applicable to us and our competitors; our ability to efficiently manage our manufacturing processes and costs; legislation, regulation, or other governmental action that affects our products, taxes, international trade regulation, or other aspects of our business; concentration of our customers in the U.S. and China, including the concentration of sales to one particular customer in the U.S.; the performance of the Company’s information technology systems and its ability to maintain data security; and other risks and uncertainties discussed under “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 Annual Report”), as updated from time to time in our filings with the Securities and Exchange Commission.
In addition, even if future events, developments, and circumstances are consistent with the forward-looking statements contained in this report, they may not be predictive of results or developments in future periods. Any forward-looking statements that we make in this report speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this report, except as may be required by applicable law.
ii
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SENSUS
HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| As of September 30, | As of December 31, | |||||||
| (in thousands, except shares and per share data) | 2021 | 2020 | ||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangibles, net | ||||||||
| Deposits | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Deferred revenue, current portion | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Loan payable | - | |||||||
| Product warranties | ||||||||
| Total current liabilities | ||||||||
| Loan payable | ||||||||
| Operating lease liabilities | ||||||||
| Deferred revenue, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
1
SENSUS
HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For
the Three Months Ended September 30, | For
the Nine Months Ended September 30, | |||||||||||||||
| (in thousands, except shares and per share data) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income (expense): | ||||||||||||||||
| Gain on acquisition | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income (expense), net | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net income (loss) per share – basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| diluted | ( | ) | ( | ) | ( | ) | ||||||||||
| Weighted average number of shares used in computing net income (loss) per share – basic | ||||||||||||||||
| diluted | ||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
2
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Common Stock | Additional Paid-In | Treasury Stock | Accumulated | |||||||||||||||||||||||||
| (in thousands, except shares) | Shares | Amount | Capital | Shares | Amount | Deficit | Total | |||||||||||||||||||||
| December 31, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Surrender of shares for tax withholding on stock compensation | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| March 31, 2020 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Surrender of shares for tax withholding on stock compensation | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Exercise of warrants | - | |||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| June 30, 2020 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| September 30, 2020 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
| December 31, 2020 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Surrender of shares for tax withholding on stock compensation | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| March 31, 2021 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| June 30, 2021 (unaudited) | $ | ( | ) | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Surrender of shares for tax withholding on stock compensation | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| September 30, 2021 (unaudited) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
3
SENSUS
HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For
the Nine Months Ended September 30, | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in) operating activities: | ||||||||
| Bad debts (recovery) | ||||||||
| Depreciation and amortization | ||||||||
| Loss on sale of property and equipment | - | |||||||
| Gain resulting from termination of lease | ( | ) | ||||||
| Provision for product warranties | ||||||||
| Stock-based compensation | ||||||||
| Impairment of intangible assets | ||||||||
| Gain on bargain purchase | ( | ) | ||||||
| Changes in operating assets decrease (increase): | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepaid and other current assets | ( | ) | ||||||
| Changes in operating liabilities increase (decrease): | ||||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Product warranties | ( | ) | ( | ) | ||||
| Total adjustments | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities | ||||||||
| Acquisition of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from the sale of property and equipment | ||||||||
| Investments matured | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities | ||||||||
| Loan proceeds | ||||||||
| Principal repayment of loan payable | ( | ) | ||||||
| Withholding taxes on stock-based compensation | ( | ) | ( | ) | ||||
| Exercise of warrants | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents – beginning of period | ||||||||
| Cash and cash equivalents – end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Supplemental schedule of noncash investing and financing transactions: | ||||||||
| Transfer of inventory to property and equipment | $ | $ | ||||||
| Decrease in operating lease right-of-use assets and operating lease liabilities resulting from early termination of lease | ( | ) | - | |||||
See accompanying notes to the unaudited condensed consolidated financial statements.
4
SENSUS
HEALTHCARE, INC.
NOTES TO THE FINANCIAL STATEMENTS
(unaudited)
Note 1 — Organization and Summary of Significant Accounting Policies
Description of the Business
Sensus Healthcare, Inc. (together, with its subsidiary, unless the context otherwise indicates, “Sensus” or the “Company”) is a manufacturer of radiation therapy devices and sells the devices to healthcare providers globally through its distribution and marketing network. The Company operates in one segment from its corporate headquarters located in Boca Raton, Florida.
Basis of Presentation
These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its subsidiary. Accounts and transactions between consolidated entities have been eliminated.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates.
Certain financial information that normally is included in annual financial statements, including certain financial statement footnotes, is not required for interim reporting purposes and has been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission (“SEC”) on March 5, 2021 (the “2020 Annual Report”).
The interim financial information at September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020 is unaudited. However, in the opinion of management, the interim information includes all normal recurring adjustments necessary for the fair presentation of the Company’s results for the periods presented. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.
Revenue Recognition
Revenue is recognized upon the transfer of control of promised goods or services to customers for an amount to which the Company expects to be entitled in exchange for those goods or services. The Company enters into contracts that can include multiple services, which are accounted for separately if they are determined to be distinct.
The Company’s revenue consists of sales of the Company’s devices and services related to maintaining and repairing the devices. The agreement for the sale of the devices and the service contract are usually signed at the same time, and in some instances a service contract is signed on a stand-alone basis. Revenue for service contracts is recognized over the service contract period on a straight-line basis. The Company has determined that in practice no significant discount is given on the service contract when it is offered with the device purchase as compared to when it is sold on a stand-alone basis. The service level provided is identical when the service contract is on a purchased stand-alone basis or together with the device. There is no termination provision in the service contract nor any penalties in practice for cancellation of the service contract.
5
Disaggregated revenue for the three and nine months ended September 30, 2021 and 2020 was as follows:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Product Revenue | $ | $ | $ | $ | ||||||||||||
| Service Revenue | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
The Company operates in a highly regulated environment, primarily in the U.S. dermatology market, in which state regulatory approval is sometimes required prior to the customer being able to use the product. In cases where such regulatory approval is pending, revenue is deferred until such time as regulatory approval is obtained.
Deferred revenue as of September 30, 2021 was as follows:
| (in thousands) | Product | Service | Total | |||||||||
| Balance, beginning of period | $ | $ | $ | |||||||||
| Revenue recognized | ( | ) | ( | ) | ( | ) | ||||||
| Amounts refunded | ( | ) | ( | ) | ||||||||
| Amounts invoiced | ||||||||||||
| Balance, end of period | $ | $ | $ | |||||||||
The Company does not disclose information about remaining performance obligations with original expected durations of one year or less in connection with deposits for products. Estimated service revenue to be recognized in the future related to the performance obligations that are fully or partially unsatisfied as of September 30, 2021 is as follows:
(in thousands)
| Year | Service Revenue | |||
| 2021 (October 1 – December 31, 2021) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total | $ | |||
The Company provides warranties, generally for one year, in conjunction with the sale of its products. These warranties entitle the customer to repair, replacement, or modification of the defective product subject to the terms of the relevant warranty. The Company records an estimate of future warranty claims at the time it recognizes revenue from the sale of the device based upon management’s estimate of the future claims rate.
Shipping and handling costs are expensed as incurred and are included in cost of sales.
6
Segment and Geographical Information
The following table illustrates total revenue for the three and nine months ended September 30, 2021 and 2020 by geographic region.
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||
| United States | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| China | % | % | % | % | ||||||||||||||||||||||||||||
| Israel | % | % | % | % | ||||||||||||||||||||||||||||
| Total Revenue | $ | % | $ | % | % | $ | % | |||||||||||||||||||||||||
One customer
in the U.S. accounted for approximately
Fair Value of Financial Instruments
Carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value due to their relative short maturities.
Fair Value Measurements
The Company uses a fair value hierarchy that prioritizes inputs to valuation approaches used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:
Level 1 Inputs:
Quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.
| ● | Level 1 assets may include listed mutual funds, ETFs and listed equities |
Level 2 Inputs:
Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; quotes from pricing services or brokers for which the Company can determine that orderly transactions took place at the quoted price or that the inputs used to arrive at the price are observable; and inputs other than quoted prices that are observable, such as models or other valuation methodologies.
| ● | Level 2 assets may include debt securities and foreign currency exchange contracts that have inputs to the valuations that generally can be corroborated by observable market data. |
Level 3 Inputs:
Unobservable inputs for the valuation of the asset or liability, which may include nonbinding broker quotes. Level 3 assets include investments for which there is little, if any, market activity. These inputs require significant management judgment or estimation.
7
Significance of Inputs: The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of cash, money market funds and short-term, highly liquid investments with original maturities of three months or less.
For purposes of the statements of cash flows, the Company considers all highly liquid financial instruments with a maturity of three months or less when purchased to be cash equivalents.
Accounts Receivable
The Company does business and extends credit based on an evaluation
of each customer’s financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to
vary by customer, primarily due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains
allowances for anticipated losses considered necessary under the circumstances. The allowance for doubtful accounts was approximately
$
Inventories
Inventories consist of finished product and components and are stated at the lower of cost or net realizable value, determined using the first-in-first-out method.
Earnings Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed by giving effect to all potential dilutive common share equivalents outstanding for the period, using the treasury stock method for options and warrants, as well as unvested restricted shares. In periods when the Company has incurred a net loss, options, warrants and unvested shares are considered common share equivalents but have been excluded from the calculation of diluted net loss per share as their effect is antidilutive. Shares excluded were as follows:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Shares | ||||||||||||||||
Leases
The Company evaluates arrangements at inception to determine if an arrangement is or contains a lease. Operating lease assets represent the Company’s right to use an underlying asset for the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the options. To determine the present value of the lease payment the Company uses an incremental borrowing rate that the Company would expect to incur for a fully collateralized loan over a similar term under similar economic conditions.
The lease payments used to determine the Company’s operating lease assets may include lease incentives and stated rent increases and are recognized in the Company’s operating lease assets in the Company’s condensed consolidated balance sheets. Operating lease assets are amortized to rent expense over the lease term and included in operating expenses in the condensed consolidated statements of operations.
8
Note 2 — Acquisitions
On August 3, 2020, the Company acquired two mobile aesthetic laser companies, now known as Sensus Laser Aesthetic Solutions (“SLAS”), to complement and expand the Company’s offerings.
The aggregate purchase price of $
In April 2021, the Company sold certain property and equipment acquired
in one of the acquisitions for approximately $
The Company does not expect to incur any additional impairment charges related to the acquisitions.
Note 3 — Property and Equipment
| (in thousands) | As of September 30, 2021 | As of December 31, 2020 | Estimated Useful Lives | |||||||
| (unaudited) | ||||||||||
| Operations equipment | $ | $ | ||||||||
| Tradeshow and demo equipment | ||||||||||
| Computer equipment | ||||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||||
| Property and Equipment, Net | $ | $ | ||||||||
Depreciation expense was approximately $
Note 4 — Intangibles
| (in thousands) | Patent Rights | Customer Relationships | Trade Names | Total | ||||||||||||
| December 31, 2020 | $ | $ | $ | $ | ||||||||||||
| Impairment charges | ( | ) | ( | ) | ( | ) | ||||||||||
| Amortization expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| September 30, 2021 | $ | |||||||||||||||
Note 5 — Debt
The outstanding balance at September 30, 2021 and December 31, 2020 of the Small Business Administration loan to the Company under the Paycheck Protection Program enabled by the CARES Act of 2020 are reflected in Loan Payable in the condensed consolidated balance sheets.
Note 6 — Product Warranties
Changes in product warranty liability were as follows for the nine months ended September 30, 2021:
| (in thousands) | ||||
| Balance, December 31, 2020 | $ | |||
| Warranties accrued during the period | ||||
| Payments on warranty claims | ( | ) | ||
| Balance, September 30, 2021 | $ | |||
9
Note 7 — Leases
Operating Lease Agreements
The Company leases its headquarters office from an unrelated third party. The lease was last renewed in 2016 and expires in September 2022 with an option to extend with prior notice upon terms to be negotiated.
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of September 30, 2021.
(in thousands)
| Maturity of Operating Lease Liabilities | Amount | |||
| 2021 (October 1 – December 31, 2021) | $ | |||
| 2022 | ||||
| Total undiscounted operating leases payments | $ | |||
| Less: Imputed interest | ( | ) | ||
| Present Value of Operating Lease Liabilities | $ | |||
| Other Information | ||||
| Weighted-average remaining lease term | ||||
| Weighted-average discount rate | % | |||
The right of use asset was reduced by approximately $
Note 8 — Commitments and Contingencies
Manufacturing Agreement
In 2010, the Company entered into a three-year contract manufacturing agreement with an unrelated third party for the production and manufacture of the SRT-100 (and subsequently the SRT-100 Vision and the SRT-100 Plus), in accordance with the Company’s product specifications. The agreement renews for successive one-year periods unless either party notifies the other party in writing, at least 60 days prior to the anniversary date of the agreement, that it will not renew the agreement. The Company or the manufacturer may also terminate the agreement upon 90 days’ prior written notice.
Purchases from this manufacturer totaled approximately $
Legal contingencies
The Company is party to certain legal proceedings in the ordinary course of business. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and related contingencies.
In 2015, the Company learned that the Department of Justice (the “Department”) had commenced an investigation of the billing to Medicare by a physician who had treated patients with the Company’s SRT-100. The Department subsequently advised the Company that it was considering expanding the investigation to determine whether the Company had any involvements in physician’s use of certain reimbursements codes. The Company has received two Civil Investigative Demands from the Department seeking documents and written responses in connection with its investigation. The Company has fully cooperated with the Department. The Company disputes that it has engaged in any wrongdoing with respect to such reimbursement claims; among other things, the Company does not submit claims for reimbursement or provide coding or billing advice to physicians. To the Company’s knowledge, the Department has made no determination as to whether the Company engaged in any wrongdoing, or whether to pursue any legal action against the Company. Should the Department decide to pursue legal action, the Company believes it has strong and meritorious defenses and will vigorously defend itself. At this time, the Company is unable to estimate the cost associated with this matter.
10
Note 9 — STOCK-BASED COMPENSATION
Warrants
The following table summarizes the Company’s warrant activity:
| Warrants | ||||||||||||
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (In Years) | ||||||||||
| Outstanding – December 31, 2020 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Expired | ( | ) | ||||||||||
| Outstanding and exercisable – September 30, 2021 | $ | |||||||||||
The intrinsic value of the common stock warrants was approximately
$
2016 and 2017 Equity Incentive Plans
Awards for up to
On July 21, 2021, a total of
Restricted stock activity for the nine months ended September 30, 2021 is summarized below:
| Outstanding at | Restricted Stock | Weighted- Average Grant Date Fair Value | ||||||
| December 31, 2020 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| September 30, 2021 | $ | |||||||
The Company recognizes forfeitures as they occur rather than estimating
a forfeiture rate. The reduction of stock compensation expense related to the forfeitures was $
Unrecognized stock compensation expense was approximately $
11
The following table summarizes the Company’s stock option activity:
| Outstanding at | Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (In Years) | |||||||||
| December 31, 2020 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Expired | ||||||||||||
| September 30, 2021 | $ | |||||||||||
| Exercisable – September 30, 2021 | $ | |||||||||||
The stock options had an intrinsic value of $
Note 10 — Income Taxes
Book income before taxes was negative for the nine months ended September
30, 2021. Tax expense for the nine months ended September 30, 2021 and 2020 was $
There are no uncertain tax positions that would require recognition in the consolidated financial statements. If the Company incurs an income tax liability in the future, interest on any income tax liability would be reported as interest expense, and penalties on any income tax liability would be reported as income taxes. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analyses of tax laws, regulations and interpretations as well as other factors.
The Company accounts for income taxes in accordance with ASC 740, Income Taxes, (“ASC 740”) which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
As of September 30, 2021, the Company has U.S. federal and certain state tax returns subject to examination, beginning with those filed for the year ended December 31, 2017.
Note 11 — Subsequent Events
The Company has evaluated subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements were issued for potential recognition or disclosure and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the information set forth within the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2020 Annual Report.
Overview
Sensus Healthcare, Inc. (together, with its subsidiary, unless the context otherwise indicates, “Sensus” or the “Company”) is a medical device company committed to providing highly effective, non-invasive and cost-effective treatments for both oncological and non-oncological skin conditions. The Company uses a proprietary low-energy X-ray technology known as superficial radiation therapy (“SRT”), which is based on over a decade of dedicated research and development and has successfully incorporated SRT into a portfolio of treatment devices: the SRT-100TM, SRT-100+TM and SRT-100 VisionTM. To date, SRT technology has been used to effectively and safely treat oncological and non-oncological skin conditions in hundreds of thousands of patients around the world. With the introduction of Sculptura™, the Company has branched out into cancer treatment that goes beyond skin cancers and may, if successful, provide an alternative treatment option for cancer patients around the world, although we can give no assurance that it will do so.
Impact of COVID-19
The outbreak of COVID-19, which was declared a pandemic by the World Health Organization in March 2020, has adversely impacted, and continues to impact, the U.S. and global economies, as well as the Company’s employees, operations, and customer demand. The Company has been able to continue to operate and service its customers throughout the pandemic. However, the pandemic has significantly impacted the Company’s sales throughout 2020 and into 2021, as social distancing forced physicians to temporarily close their practices and could further impact the Company’s operations and the operations of the Company’s customers, suppliers and vendors. The extent to which the COVID-19 pandemic continues to impact the Company’s business, results of operations and financial condition will depend on future developments. The Company cannot reasonably estimate the impact at this time. Sensus continues to service customers amid uncertainty and disruption linked to COVID-19 and is actively managing its business to respond to the impact.
Segment Information
The Company manages its business globally within one reportable segment, which is consistent with how our management reviews
Results of Operations
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| (in thousands, except shares and per share data) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Revenues | $ | 5,525 | $ | 1,620 | $ | 14,017 | $ | 4,483 | ||||||||
| Cost of sales | 2,324 | 948 | 5,885 | 2,462 | ||||||||||||
| Gross profit | 3,201 | 672 | 8,132 | 2,021 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 1,180 | 1,034 | 3,502 | 3,987 | ||||||||||||
| General and administrative | 1,082 | 976 | 3,499 | 3,210 | ||||||||||||
| Research and development | 744 | 941 | 2,330 | 3,315 | ||||||||||||
| Total operating expenses | 3,006 | 2,951 | 9,331 | 10,512 | ||||||||||||
| Income (loss) from operations | 195 | (2,279 | ) | (1,199 | ) | (8,491 | ) | |||||||||
| Other income (expense): | ||||||||||||||||
| Gain on acquisition | - | 588 | - | 588 | ||||||||||||
| Interest income | - | 2 | 1 | 66 | ||||||||||||
| Interest expense | - | (3 | ) | (1 | ) | (17 | ) | |||||||||
| Other income (expense), net | - | 587 | - | 637 | ||||||||||||
| Net income (loss) | $ | 195 | $ | (1,692 | ) | (1,199 | ) | $ | (7,854 | ) | ||||||
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Three months ended September 30, 2021 compared to the three months ended September 30, 2020
Revenues were $5.5 million for the three months ended September 30, 2021 compared to $1.6 million for the three months ended September 30, 2020, an increase of $3.9 million or 241%. The increase was primarily driven by the higher number of units sold in 2021, service revenue on installed units and the impact of COVID-19 in the three months ended September 30, 2020.
Cost of sales was $2.3 million for the three months ended September 30, 2021 compared to $0.9 million for the three months ended September 30, 2020, an increase of $1.4 million, or 145%. The increase in cost of sales was commensurate with the increase in sales in the three months ended September 30, 2021.
Gross profit was $3.2 million for the three months ended September 30, 2021 compared to $0.7 million for the three months ended September 30, 2020, an increase of $2.5 million, or 376%. Our overall gross profit percentage was 57.9% in the three months ended September 30, 2021 compared to 41.5% in the corresponding period in 2020. The increase in gross profit was primarily driven by the higher number of units sold in 2021, service revenue on installed units and the impact of COVID-19 in the three months ended September 30, 2020.
Selling and marketing expense was $1.2 million for the three months ended September 30, 2021 compared to $1.0 million for the three months ended September 30, 2020, an increase of $0.1 million, or 14%. The net increase in selling and marketing expense was primarily due to higher commission expense.
General and administrative expense was $1.1 million for the three months ended September 30, 2021 compared to $1.0 million for the three months ended September 30, 2020, an increase of $0.1 million, or 11%. The net increase in general and administrative expense was primarily due to higher stock compensation expense.
Research and development expense was $0.7 million for the three months ended September 30, 2021 compared to $0.9 million for the three months ended September 30, 2020, a decrease of $0.2 million, or 21%. The decrease in research and development spending reflected lower spending as the SculpturaTM project entered production phase during 2020.
Other income (expense). Other income was $0.6 million for the three months ended September 30, 2020 attributable to a bargain purchase gain recorded as a result of an acquisition.
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
Revenues were $14.0 million for the nine months ended September 30, 2021 compared to $4.5 million for the nine months ended September 30, 2020, an increase of $9.5 million or 213%. The increase was primarily driven by the higher number of units sold in 2021, service revenue on installed units and the impact of COVID-19 in the nine months of 2020.
Cost of sales was $5.9 million for the nine months ended September 30, 2021 compared to $2.5 million for the nine months ended September 30, 2020, an increase of $3.4 million, or 139%. The increase in cost of sales was commensurate with the increase in sales in the nine months ended September 30, 2021.
Gross profit was $8.1 million for the nine months ended September 30, 2021 compared to $2.0 million for the nine months ended September 30, 2020, an increase of $6.1 million, or 303%. Our overall gross profit percentage was 58.0% in the nine months ended September 30, 2021 compared to 45.1% in the corresponding period in 2020. The increase in gross profit was primarily driven by the higher number of units sold in 2021, service revenue on installed units and the impact of COVID-19 in the nine months ended September 30, 2020.
Selling and marketing expense was $3.5 million for the nine months ended September 30, 2021 compared to $4.0 million for the nine months ended September 30, 2020, a decrease of $0.5 million, or 12%. The decrease was primarily attributable to a decrease in tradeshow expense due to cancellations related to COVID-19, reduced marketing activities including travel and salary, and benefit expenses due to reduced headcount offset by an increase in commission expense.
General and administrative expense was $3.5 million for the nine months ended September 30, 2021 compared to $3.2 million for the nine months ended September 30, 2020, an increase of $0.3 million, or 9%. The net increase in general and administrative expense was primarily due to higher legal and professional fees, public company expenses and insurance premium costs.
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Research and development expense was $2.3 million for the nine months ended September 30, 2021 compared to $3.3 million for the nine months ended September 30, 2020, a decrease of $1.0 million, or 30%. The decrease in research and development spending reflected lower spending as the SculpturaTM project entered production phase during 2020.
Other income (expense). Other income was $0.6 million for the nine months ended September 30, 2020 attributable to a bargain purchase gain recorded as a result of an acquisition.
Financial Condition
The following discussion summarizes the significant changes in assets and liabilities. Please see the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020 contained in Part I, Item 1 of this filing.
Assets
Cash and cash equivalents at September 30, 2021 increased $1.5 million, see Cash Flows for details on the change in cash and cash equivalents during the nine months ended September 30, 2021.
Accounts receivable at September 30, 2021 increased $293 thousand from December 31, 2020, primarily due to receivables for increase in sales of units in the nine months ended September 30, 2021.
Inventories at September 30, 2021 decreased $2.4 million from December 31, 2020, primarily due to increased shipments of units sold in the nine months ended September 30, 2021.
Prepaid and other current assets at September 30, 2021 decreased $93 thousand primarily due to the amortization of prepaid expenses.
Liabilities
There were no borrowings under the revolving line of credit at September 30, 2021 or December 31, 2020.
Liquidity and Capital Resources
The Company’s liquidity position and capital requirements may be impacted by a number of factors, including the following:
| ● | ability to generate and increase revenue; |
| ● | fluctuations in gross margins, operating expenses and net results; and |
| ● | fluctuations in working capital. |
The Company’s primary short-term capital needs, which are subject to change, include expenditures related to:
| ● | expansion of sales and marketing activities; and |
| ● | expansion of research and development activities. |
Sensus management regularly evaluates cash requirements for current operations, commitments, capital requirements and business development transactions. Given our ability to borrow under our revolving credit facility and other factors, management anticipates that the Company will be able to satisfy its cash requirements for these purposes; however, it may seek to raise additional funds for these or other purposes in the future.
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Cash flows
The following table provides a summary of cash flows for the periods indicated:
| For the Nine Months Ended September 30, | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | 1,494 | $ | (74 | ) | |||
| Investing activities | 167 | 7,134 | ||||||
| Financing activities | (177 | ) | 967 | |||||
| Total | $ | 1,484 | $ | 8,027 | ||||
Net cash provided in operating activities was $1.5 million for the nine months ended September 30, 2021, consisting of a net loss of $1.2 million, an increase in net operating assets of $1.5 million and non-cash charges of $1.2 million. Cash flows used in operating activities primarily include the receipt of revenues offset by the payment of operating expenses incurred in the normal course of business, including year-end incentive compensation accrued for in the prior year. Net cash used in operating activities was $0.1 million for the nine months ended September 30, 2020, consisting of a net loss of $7.9 million, partially offset by a decrease in net operating assets of $7.4 million and by non-cash charges of $0.4 million. The decrease in net operating assets was primarily due to a decrease in accounts receivable, partially offset by an increase in inventories, accounts payable and accrued expenses, warranties and deferred revenue. Non-cash charges consisted of a gain on bargain purchase (See Note 2, Acquisitions, for more information), allowance for bad debt, stock compensation expense, depreciation and amortization, and a warranty provision.
Net cash provided by investing activities for the nine months ended September 30, 2021 reflected $0.2 million of proceeds from the sale of property and equipment, partially offset by purchases of property and equipment. Net cash provided by investing activities was $7.1 million, mostly due to matured investments during the nine months ended September 30, 2020.
Net cash used in financing activities for the nine months ended September 30, 2021 primarily reflected $0.2 million of loan repayments and withholding taxes on stock compensation. Net cash provided by financing activities was $1.0 million during the nine months ended September 30, 2020 mostly from a loan under the Small Business Administration Paycheck Protection Program.
Indebtedness
Please see Note 4, Debt, to the financial statements.
Contractual Obligations and Commitments
Please see Note 8, Commitments and Contingencies, to the financial statements.
Off-Balance Sheet Arrangements
The Company did not have during the periods presented, and does not currently have, any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting periods. Actual results could differ significantly from those estimates. For a summary of these and additional accounting policies see Note 1, Organization and Summary of Significant Accounting Policies, to the financial statements. In addition, see Critical Accounting Policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1, Organization and Summary of Significant Accounting Policies, in the 2020 Annual Report for further information
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JOBS Act
Sensus is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act. As such, the Company can take advantage of exemptions from various reporting requirements that are applicable to other public companies but not to “emerging growth companies,” including, but not limited to:
| ● | being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; | |
| ● | not being required to comply with the auditor attestation requirements in the assessment of the Company’s internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act; | |
| ● | reduced disclosure obligations regarding executive compensation in the Company’s periodic reports and proxy statements; and | |
| ● | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
Sensus is expected to remain an emerging growth company until December 31, 2021, following which it is expected to continue to be a “smaller reporting company,” which will enable it to continue to take advantage of many of these exemptions, as discussed below. Investors may find Sensus’ common stock less attractive if the Company chooses to rely on these exemptions. If some investors find Sensus’ common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for the Company’s common stock and the price of its common stock may be more volatile.
In addition, an emerging growth company can delay its adoption of certain accounting standards until those standards would otherwise apply to private companies. However, the Company has chosen to “opt out” of such extended transition period, and as a result, plans to comply with any new or revised accounting standards on the relevant dates on which non-emerging growth companies must adopt such standards. Section 107 of the JOBS Act provides that the decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Control and Procedures
As of September 30, 2021, the end of the period covered by this Form 10-Q, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of September 30, 2021, the end of the period covered by this Form 10-Q, we maintained effective disclosure controls and procedures.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to certain legal proceedings in the ordinary course of business. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and related contingencies. See Note 8, Commitments and Contingencies.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our 2020 Annual Report, as updated in our subsequent quarterly reports. The risks described in our 2020 Annual Report and our subsequent quarterly reports are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Sales of Unregistered Securities
There were no unregistered sales of securities during the three months ended September 30, 2021.
(b) Use of Proceeds from the Sale of Registered Securities
None.
(c) Purchases of Equity Securities by the Registrant and Affiliated Purchases.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SENSUS HEALTHCARE, INC. | |
| Date: November 10, 2021 | /s/ Joseph C. Sardano |
| Joseph C. Sardano | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| Date: November 10, 2021 | /s/ Javier Rampolla |
| Javier Rampolla | |
| Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) |
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