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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”, “smaller reporting company” and “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 ☐ No
As of November 4, 2022,
SENSUS HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
i
INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements
This report includes statements that are, or may be deemed, “forward-looking statements.” In some cases, these statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “approximately,” or “potential,” or negative or other variations of those terms or comparable terminology, although not all forward-looking statements contain these words.
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 or to a greater or lesser degree 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 report 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 maintain profitability; our ability to obtain and maintain the intellectual property needed to adequately protect our products, and our ability to avoid infringing or otherwise violating the intellectual property rights of third parties; 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 regulatory requirements applicable to us and our competitors; our ability to efficiently manage our manufacturing processes and costs; the risks arising from doing business in China and other foreign countries; 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 described from time to time in our filings with the Securities and Exchange Commission.
At the present time, we do not expect that the Russian invasion of Ukraine and global geopolitical uncertainty will have any significant impact on our business, but we continue to monitor developments and will address them in future disclosures, if applicable.
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 | As of | |||||||
| September 30, | December 31, | |||||||
| (in thousands, except shares and per share data) | 2022 | 2021 | ||||||
| (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 | ||||||||
| Deferred tax asset | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Product warranties | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Loan payable | - | |||||||
| Income tax payable | ||||||||
| Deferred revenue, current portion | ||||||||
| Total current liabilities | ||||||||
| 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, | ( | ) | ( | ) | ||||
| Retained earnings (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 | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands, except shares and per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| 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 sale of assets | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income, net | ||||||||||||||||
| Income (loss) before income tax | ( | ) | ||||||||||||||
| Provision for income taxes | ||||||||||||||||
| 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
(unaudited)
| Additional | Retained Earnings | |||||||||||||||||||||||||||
| Common Stock | Paid-In | Treasury Stock | (Accumulated | |||||||||||||||||||||||||
| (in thousands, except shares) | Shares | Amount | Capital | Shares | Amount | Deficit) | Total | |||||||||||||||||||||
| 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) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
| December 31, 2021 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||
| Surrender of shares for tax withholding on stock compensation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| March 31, 2022 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||
| Stock repurchase | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| June 30, 2022 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Exercise of stock options | - | - | - | |||||||||||||||||||||||||
| Surrender of shares for tax withholding on stock compensation | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| September 30, 2022 (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) | 2022 | 2021 | ||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Loss on sale of property and equipment | ||||||||
| Gain on sale of assets | ( | ) | ||||||
| Gain resulting from termination of lease | ( | ) | ||||||
| Provision for product warranties | ||||||||
| Stock-based compensation | ||||||||
| Impairment of intangible assets | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Decrease (increase) in: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Deposits | ||||||||
| Prepaid and other current assets | ( | ) | ||||||
| Increase (decrease) in: | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Operating lease liability | ( | ) | ||||||
| Income tax payable | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Product warranties | ( | ) | ( | ) | ||||
| Total adjustments | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities | ||||||||
| Acquisition of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of asset | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities | ||||||||
| Repurchase of common stock | ( | ) | ||||||
| Withholding taxes on stock-based compensation | ( | ) | ( | ) | ||||
| Repayment of loan payable | ( | ) | ( | ) | ||||
| Exercise of stock options | ||||||||
| Net cash 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 | $ | $ | ||||||
| Income tax paid | $ | $ | ||||||
| Supplemental schedule of noncash investing and financing transactions: | ||||||||
| Operating lease right-of-use asset and lease liability increase from lease modification | $ | $ | ||||||
| Decrease in operating lease right-of-use asset and operating lease liabilities from early termination of lease | $ | $ | ( | ) | ||||
| Transfer of inventory to property and equipment | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
4
SENSUS HEALTHCARE, INC.
NOTES TO THE CONSOLIDATED 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 and distributors globally through its distribution network. The Company operates in one segment from its corporate headquarters located in Boca Raton, Florida.
Basis of Presentation and Principles of Consolidation
These 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.
These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of the results have been included. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other period.
The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”).
Revenue Recognition
The Company’s revenue derives from sales of the Company’s devices and services related to maintaining and repairing the devices as part of a service contract or on an ad-hoc basis without a service contract.
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 has determined that these warranties do not represent separate performance obligations, as the customer does not have the option to purchase the warranty separately and the warranty does not provide the customer with a service in addition to the assurance that the product complies with agreed-upon specifications. 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.
Revenue is recognized upon transfer of control of promised goods or services to customers when the product is shipped or the service is rendered, based on the amount the Company expects to receive 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 revenues from service contracts are recognized over the service contract period on a straight-line basis. In the event that a customer does not sign a service contract, but requests maintenance or repair services after the warranty expires, the Company recognizes revenue when the service is rendered.
5
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 whether the service contract is purchased on a stand-alone basis or together with the device. There is no termination provision in the service contract or any penalties in practice for cancellation of the service contract.
Disaggregated revenue for the three and nine months ended September 30, 2022 and 2021 was as follows:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Product Revenue - recognized at a point in time | $ | $ | $ | $ | ||||||||||||
| Service Revenue - recognized at a point in time | ||||||||||||||||
| Service Revenue - recognized over time | ||||||||||||||||
| 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 before the customer is 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, 2022 was as follows:
| (in thousands) | Product | Service | Total | |||||||||
| Balance, beginning of period | $ | $ | $ | |||||||||
| Revenue recognized | ( | ) | ( | ) | ( | ) | ||||||
| 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 performance obligations fully or partially unsatisfied as of September 30, 2022 is as follows:
| (in thousands) Year | Service Revenue | |||
| 2022 (October 1 – December 31, 2022) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | $ | |||
Shipping and handling costs are expensed as incurred and are included in cost of sales.
Segment and Geographical Information
The following table illustrates total revenue for the three and nine months ended September 30, 2022 and 2021 by geographic region.
| For the Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||||
| United States | $ | % | $ | % | ||||||||||||
| China | % | % | ||||||||||||||
| Other | % | % | ||||||||||||||
| Total Revenue | $ | % | $ | % | ||||||||||||
6
| For the Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||||
| United States | % | % | ||||||||||||||
| China | % | % | ||||||||||||||
| Other | % | % | ||||||||||||||
| Total Revenue | $ | % | $ | % | ||||||||||||
One customer in the U.S. accounted
for
Fair Value of Financial Instruments
Carrying amounts of cash equivalents, accounts receivable, and accounts payable approximate fair value due to their relatively 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 when 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.
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.
7
For purposes of the statements of cash flows, the Company considers all highly liquid financial instruments with maturities 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 varies by customer, primarily due to the customer’s financial condition. The Company monitors exposure to
credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The allowance for doubtful
accounts was $
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. The
Company periodically reviews the value of items in inventory and reserves for inventory based on its assessment of market conditions.
The reserve is charged to cost of goods sold. The reserve for inventory obsolescence was $
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 unvested restricted shares. In periods when the Company has incurred a net loss, options 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 | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Shares | ||||||||||||||||
The factors used in the earnings per share computation are as follows:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Basic | ||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | ) | |||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ( | ) | ||||||||||
| Diluted | ||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | ) | |||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Dilutive effects of: | ||||||||||||||||
| Assumed exercise of stock options | ||||||||||||||||
| Restricted stock awards | ||||||||||||||||
| Dilutive shares | ||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ( | ) | ||||||||||
8
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. In addition, the Company has elected available practical expedients to not separate lease and non-lease components for all leased assets and to exclude leases with initial terms of 12 months or less.
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.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax bases of the assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance against deferred tax assets is recorded if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Uncertain tax positions are recognized in the financial statements only if that position is more likely than not to be sustained upon examination by taxing authorities, based on the technical merits of the position. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
Recent Accounting Pronouncement
In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, to provide temporary optional expedients and exceptions to U.S. GAAP guidance on contract modifications to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate, or LIBOR, to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. The guidance is effective prospectively as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years. This update is not expected to have a significant impact on the Company’s financial statements.
Note 2 — Disposition
On February 25, 2022, the Company sold its Sculptura assets for $
| Book Value | ||||
| Cash | $ | |||
| Inventory | ( | ) | ||
| Property and equipment | ( | ) | ||
| Other liabilities | ( | ) | ||
| Gain on asset sale | $ | |||
9
Note 3 — Property and Equipment
| As of | As of | |||||||||
| September 30, | December 31, | Estimated | ||||||||
| (in thousands) | 2022 | 2021 | Useful Lives | |||||||
| (unaudited) | ||||||||||
| Operations equipment | $ | $ | ||||||||
| Tradeshow and demo equipment | ||||||||||
| Computer equipment | ||||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||||
| Property and Equipment, Net | $ | $ | ||||||||
Depreciation expense was $
Note 4 — Intangibles
| (in thousands) | Patent Rights | Customer Relationships | Total | |||||||||
| December 31, 2021, net | $ | $ | | $ | ||||||||
| Amortization expense | ( | ) | ( | ) | ||||||||
| September 30, 2022, net | $ | $ | $ | |||||||||
Accumulated amortization was
$
Note 5 — Debt
Note 6 — Product Warranties
Changes in product warranty liability were as follows for the nine months ended September 30, 2022:
| (in thousands) | ||||
| Balance, December 31, 2021 | $ | |||
| Warranties accrued during the period | ||||
| Payments on warranty claims | ( | ) | ||
| Balance, September 30, 2022 | $ | |||
10
Note 7 — Leases
Operating Lease Agreements
The Company leases its headquarters office from an unrelated third party. Previously, the lease was last renewed in 2016 and was to expire in September 2022. In April 2022, the Company renewed the headquarters office lease through September 2027.
With the
renewal, the present value of the right of use lease assets (“ROU”) and operating lease liability at the renewal of the lease
was $
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, 2022.
(in thousands)
| Maturity of Operating Lease Liabilities | Amount | |||
| 2022 (October 1 – December 31, 2022) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| 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 | % | |||
Cash paid for amounts included
in the measurement of operating lease liabilities was $
Operating lease cost was $
Note 8 — Stockholders’ Equity
Preferred Stock
The Company has authorized
Common Stock
During the nine months ended
September 30, 2022, the Company issued
11
Treasury stock
Treasury stock includes shares
surrendered by employees for tax withholding on the vesting of restricted stock awards. In the second quarter of 2022, the Company repurchased
Note 9 — 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. As of September 30, 2022, the agreement is still in effect.
Purchases from this manufacturer
totaled approximately $
Legal Contingencies
The Company is a 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. As of September 30, 2022, the Company is unable to estimate the cost associated with this matter.
Note 10 — STOCK-BASED COMPENSATION
2016 and 2017 Equity Incentive Plans
Awards for up to
12
Restricted Stock
On February 1, 2020, a total
of
On July 21, 2021, a total of
Restricted stock activity for the nine months ended September 30, 2022 is summarized below:
| Weighted- | ||||||||
| Average | ||||||||
| Grant | ||||||||
| Restricted | Date Fair | |||||||
| Outstanding at | Stock | Value | ||||||
| December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ||||||||
| September 30, 2022 | $ | |||||||
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 $
Stock Options
Stock options expire
| Weighted- | ||||||||||||
| Average | ||||||||||||
| Weighted- | Remaining | |||||||||||
| Average | Contractual | |||||||||||
| Number of | Exercise | Term | ||||||||||
| Outstanding at | Options | Price | (In Years) | |||||||||
| December 31, 2021 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | ||||||||||
| Expired | ||||||||||||
| September 30, 2022 | $ | |||||||||||
| Exercisable – September 30, 2022 | $ | |||||||||||
The stock options outstanding
had an intrinsic value of $
13
Stock compensation expense related
to restricted stock and stock options was $
Note 11 — Income Taxes
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 periods, disclosure and transition.
ASC 740-270 requires entities to determine the year-to-date (YTD) income tax expense or benefit by applying an estimated annual effective tax rate (AETR) to YTD ordinary income. Because of the inherent disconnect between the year-end balance sheet approach of ASC 740-10 and the interim income statement approach of ASC 740-270, questions have arisen about how to reflect the YTD expense or benefit on the balance sheet. An entity should generally adjust its income tax balance sheet accounts as of interim reporting periods in a manner that is representationally faithful to either the balance sheet approach of ASC 740-10, with respect to the measurement of current and deferred taxes, or the income statement approach of ASC 740-270. The method used in the interim financial statements was to calculate current taxes and derive the adjustment to deferred taxes as it appears representationally faithful to the balance sheet approach of ASC 740-10.
As of December 31, 2021, deferred
tax assets were primarily the result of U.S. net operating loss and tax credit carryforwards. A valuation allowance of
For the quarter ended March 31,
2022, the Company recorded a net valuation allowance release of
Income tax expense was $
The effective tax rates for the
three and nine months ended September 30, 2022 were
As of September 30, 2022, the Company’s U.S. federal and certain state tax returns remain subject to examination, beginning with those filed for the year ended December 31, 2018.
Note 12 — Subsequent Events
The Company evaluates 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. The Company did not identify any subsequent events that would have required adjustment or disclosure in the 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 2021 Annual Report.
Overview
Sensus is a medical device company committed to providing highly effective, non-invasive, and cost-effective treatments for both oncological and non-oncological skin conditions.
On February 25, 2022, the Company sold its Sculptura assets for $15 million in cash. Additional information regarding this transaction can be found in Note 2 and in the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 3, 2022.
Impact of COVID-19
The outbreak of COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has materially and adversely impacted the U.S. and global economies, as well as the Company, and its employees and operations, as well as customer demand. Although we have been able to continue to operate and service customers throughout the pandemic, it significantly impacted the Company’s sales throughout 2020, as social distancing forced physicians to temporarily close their practices. In 2021 and in the first three quarters of 2022, the Company was able to increase sales significantly. However, the ongoing COVID-19 pandemic, including the possible emergence of new variants, could further impact the Company’s operations and the operations of the Company’s customers, suppliers and vendors as a result of ongoing quarantines, facility closures, and travel and logistics restrictions. The extent to which the COVID-19 pandemic impacts 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.
Segment Information
The Company manages its business globally within one reportable segment, which is consistent with how our management reviews the business, prioritizes investment and resource allocation decisions, and assesses operating performance.
15
Results of Operations
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands, except shares and per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Revenues | $ | 9,010 | $ | 5,525 | $ | 31,428 | $ | 14,017 | ||||||||
| Cost of sales | 3,136 | 2,324 | 10,150 | 5,885 | ||||||||||||
| Gross profit | 5,874 | 3,201 | 21,278 | 8,132 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 1,807 | 1,180 | 4,753 | 3,502 | ||||||||||||
| General and administrative | 1,160 | 1,082 | 3,564 | 3,499 | ||||||||||||
| Research and development | 746 | 744 | 2,302 | 2,330 | ||||||||||||
| Total operating expenses | 3,713 | 3,006 | 10,619 | 9,331 | ||||||||||||
| Income (loss) from operations | 2,161 | 195 | 10,659 | (1,199 | ) | |||||||||||
| Other income (expense): | ||||||||||||||||
| Gain on sale of assets | - | - | 12,779 | - | ||||||||||||
| Interest income | 119 | - | 147 | 1 | ||||||||||||
| Interest expense | (1 | ) | - | (2 | ) | (1 | ) | |||||||||
| Other income, net | 118 | - | 12,924 | - | ||||||||||||
| Net Income (loss) before income tax | 2,279 | 195 | 23,583 | (1,199 | ) | |||||||||||
| Provision for income taxes | 450 | - | 2,168 | - | ||||||||||||
| Net income (loss) | $ | 1,829 | $ | 195 | $ | 21,415 | $ | (1,199 | ) | |||||||
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Three months ended September 30, 2022 compared to the three months ended September 30, 2021
Revenues. Revenues were $9.0 million for the three months ended September 30, 2022 compared to $5.5 million for the three months ended September 30, 2021, an increase of $3.5 million, or 63.6%. The increase was primarily driven by the higher number of units sold in the 2022 quarter, service revenue on installed units, and the impact of COVID-19 in the three months ended September 30, 2021.
Cost of sales. Cost of sales was $3.1 million for the three months ended September 30, 2022 compared to $2.3 million for the three months ended September 30, 2021, an increase of $0.8 million, or 34.8%. The increase in cost of sales was primarily related to the increase in sales in the three months ended September 30, 2022.
Gross profit. Gross profit was $5.9 million for the three months ended September 30, 2022 compared to $3.2 million for the three months ended September 30, 2021, an increase of $2.7 million, or 84.4%. Our overall gross profit percentage was 65.6% in the three months ended September 30, 2022 compared to 57.9% in the corresponding period in 2021. The increase in gross profit was primarily driven by the higher number of units sold in 2022, customer mix, service revenue on installed units, and the impact of COVID-19 in the three months ended September 30, 2021.
Selling and marketing. Selling and marketing expense was $1.8 million for the three months ended September 30, 2022 compared to $1.2 million for the three months ended September 30, 2021, an increase of $0.6 million, or 50.0%. The increase was primarily attributable to an increase in tradeshow, advertising and commission expense.
General and administrative. General and administrative expense was $1.2 million for the three months ended September 30, 2022 compared to $1.1 million for the three months ended September 30, 2021, an increase of $0.1 million, or 9.1%. The net increase in general and administrative expense was primarily due to higher professional fees.
Research and development. Research and development expense remained unchanged at $0.7 million for the three months ended September 30, 2022 and September 30, 2021.
Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021
Revenues. Revenues were $31.4 million for the nine months ended September 30, 2022 compared to $14.0 million for the nine months ended September 30, 2021, an increase of $17.4 million, or 124.3%. The increase was primarily driven by the higher number of units sold in 2022, service revenue on installed units and the impact of COVID-19 in the first nine months of 2021.
Cost of sales. Cost of sales was $10.2 million for the nine months ended September 30, 2022 compared to $5.9 million for the nine months ended September 30, 2021, an increase of $4.3 million, or 72.9%. The increase in cost of sales was commensurate with the increase in sales in the nine months ended September 30, 2022.
Gross profit. Gross profit was $21.3 million for the nine months ended September 30, 2022 compared to $8.1 million for the nine months ended September 30, 2021, an increase of $13.2 million, or 163.0%. Our overall gross profit percentage was 67.83% in the nine months ended September 30, 2022 compared to 58.0% in the corresponding period in 2021. The increase in gross profit was primarily driven by the higher number of units sold in 2022, customer mix, service revenue on installed units, and the impact of COVID-19 in the nine months ended September 30, 2021.
Selling and marketing. Selling and marketing expense was $4.8 million for the nine months ended September 30, 2022 compared to $3.5 million for the nine months ended September 30, 2021, an increase of $1.3 million, or 37.1%. The increase was primarily attributable to an increase in tradeshow, advertising, and commission expense.
General and administrative. General and administrative expense was $3.6 million for the nine months ended September 30, 2022 compared to $3.5 million for the nine months ended September 30, 2021, an increase of $0.1 million, or 2.9%. The net increase in general and administrative expense was primarily due to higher professional fees.
17
Research and development. Research and development expense remained unchanged at $2.3 million for the nine months ended September 30, 2022 and September 30, 2021.
Other income. Other income of $12.8 million is related to the gain on the sale of the Sculptura assets.
Financial Condition
The following discussion summarizes significant changes in assets and liabilities. Please see the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 contained in Part I, Item 1 of this filing.
Assets
Cash and cash equivalents at September 30, 2022 increased $23.1 million from December 31, 2021. See Cash Flows for details on the change in cash and cash equivalents during the nine months ended September 30, 2022.
Accounts receivable at September 30, 2022 decreased $4.7 million from December 31, 2021, primarily due to collection of receivables offset by an increase in sales of units in the nine months ended September 30, 2022.
Inventories at September 30, 2022 increased $591 thousand from December 31, 2021, primarily due to increase in purchases of finished goods offset by shipments of units sold in the nine months ended September 30, 2022.
Liabilities
There were no borrowings under our revolving line of credit at September 30, 2022 or December 31, 2021.
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.
18
Cash flows
The following table provides a summary of cash flows for the periods indicated:
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| (in thousands) | 2022 | 2021 | ||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | 8,701 | $ | 1,494 | ||||
| Investing activities | 14,851 | 167 | ||||||
| Financing activities | (494 | ) | (177 | ) | ||||
| Total | $ | 23,058 | $ | 1,484 | ||||
Net cash provided by operating activities was approximately $8.7 million for the nine months ended September 30, 2022, consisting of net income of approximately $21.4 million and an increase in net operating assets of approximately $1.0 million, offset by non-cash charges of approximately $13.7 million. Cash flows provided by operating activities primarily include the receipt of revenues offset by the payment of operating expenses incurred in the normal course of business. Non-cash items consisted of a gain on asset sale (see Note 2, Dispositions, for more information), deferred income taxes, stock compensation expense, depreciation and amortization, and a warranty provision. 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 provided by investing activities for the nine months ended September 30, 2022 reflected $14.9 million of proceeds from the sale of assets, partially offset by purchases of property and equipment. 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 used in financing activities for the nine months ended September 30, 2022 primarily reflected $1.2 million to repurchase common stock, withholding taxes on stock-based compensation, and loan payable, offset by approximately $0.7 million of exercised stock options. 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.
Indebtedness
Please see Note 5, Debt, to the financial statements.
Contractual Obligations and Commitments
Please see Note 9, Commitments and Contingencies, to the financial statements.
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 2021 Annual
Report for further information.
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, 2022, 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, 2022, 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.
19
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 2021 Annual Report, as updated in our subsequent quarterly reports. The risks described in our 2021 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 nine months ended September 30, 2022.
(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.
Item 6. Exhibits
20
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, 2022 | /s/ Joseph C. Sardano |
| Joseph C. Sardano | |
| Chief Executive Officer (Principal Executive Officer) | |
| Date: November 10, 2022 | /s/ Javier Rampolla |
| Javier Rampolla | |
| Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) |
21
