Sensus Healthcare, Inc. - Quarter Report: 2023 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the transition period from to
Commission File Number: 001-37714
Sensus Healthcare, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 27-1647271 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 851 Broken Sound Pkwy., NW #215, Boca Raton, | ||
| Florida | 33487 | |
| (Address of principal executive offices) | (Zip Code) |
(561) 922-5808
(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 | ||
| Common Stock, par value $0.01 per share | SRTS | NASDAQ Stock Market, LLC |
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. Yes ☒ No ☐
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). Yes ☒ No ☐
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 ☐ | Non-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 3, 2023, 16,382,404 shares of the Registrant’s Common Stock, $0.01 par value, were outstanding.
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. 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. 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 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; concentration of our customers in the U.S. and China, including the concentration of sales to one particular customer in the U.S; 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; the performance of the Company’s information technology systems and its ability to maintain data security; 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; and other risks described from time to time in our filings with the Securities and Exchange Commission.
To date, the Russian invasion of Ukraine, conditions in the Middle East, and other global geopolitical uncertainty have not had significant impacts on our business, but we continue to monitor developments and will address them in future disclosures, if applicable.
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) | 2023 | 2022 | ||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 20,487 | $ | 25,520 | ||||
| Accounts receivable, net | 6,883 | 17,299 | ||||||
| Inventories | 13,202 | 3,501 | ||||||
| Prepaid inventory | 3,946 | 6,261 | ||||||
| Other current assets | 1,340 | 660 | ||||||
| Total current assets | 45,858 | 53,241 | ||||||
| Property and equipment, net | 421 | 243 | ||||||
| Intangibles, net | 1 | 50 | ||||||
| Deposits | 24 | 24 | ||||||
| Deferred tax asset | 3,141 | 1,713 | ||||||
| Operating lease right-of-use asset, net | 820 | 996 | ||||||
| Other noncurrent asset | 281 | 468 | ||||||
| Total assets | $ | 50,546 | $ | 56,735 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 3,999 | $ | 5,521 | ||||
| Product warranties | 341 | 403 | ||||||
| Operating lease liabilities, current portion | 183 | 190 | ||||||
| Income tax payable | 890 | |||||||
| Deferred revenue, current portion | 708 | 693 | ||||||
| Total current liabilities | 5,231 | 7,697 | ||||||
| Operating lease liabilities | 648 | 830 | ||||||
| Deferred revenue, net of current portion | 80 | 139 | ||||||
| Total liabilities | 5,959 | 8,666 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, 5,000,000 shares authorized and issued and outstanding | ||||||||
| Common stock, $0.01 par value – 50,000,000 authorized; 16,912,595 issued and 16,382,404 outstanding at September 30, 2023; 16,902,761 issued and 16,390,419 outstanding at December 31, 2022 | 169 | 169 | ||||||
| Additional paid-in capital | 45,353 | 45,031 | ||||||
| Treasury stock, 530,191 and 512,342 shares at cost, at September 30, 2023 and December 31, 2022, respectively | (3,512 | ) | (3,433 | ) | ||||
| Retained earnings | 2,577 | 6,302 | ||||||
| Total stockholders’ equity | 44,587 | 48,069 | ||||||
| Total liabilities and stockholders’ equity | $ | 50,546 | $ | 56,735 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
1
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| (in thousands, except shares and per share data) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Revenues | $ | 3,898 | $ | 9,010 | $ | 11,838 | $ | 31,428 | ||||||||
| Cost of sales | 1,909 | 3,136 | 5,609 | 10,150 | ||||||||||||
| Gross profit | 1,989 | 5,874 | 6,229 | 21,278 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 1,290 | 1,807 | 4,983 | 4,753 | ||||||||||||
| General and administrative | 1,511 | 1,160 | 4,204 | 3,564 | ||||||||||||
| Research and development | 1,083 | 746 | 3,001 | 2,302 | ||||||||||||
| Total operating expenses | 3,884 | 3,713 | 12,188 | 10,619 | ||||||||||||
| Income (loss) from operations | (1,895 | ) | 2,161 | (5,959 | ) | 10,659 | ||||||||||
| Other income (expense): | ||||||||||||||||
| Gain on sale of assets | 42 | 42 | 12,779 | |||||||||||||
| Interest income | 277 | 119 | 764 | 147 | ||||||||||||
| Interest expense | (1 | ) | (2 | ) | ||||||||||||
| Other income, net | 319 | 118 | 806 | 12,924 | ||||||||||||
| Income (loss) before income tax | (1,576 | ) | 2,279 | (5,153 | ) | 23,583 | ||||||||||
| Provision for (benefit from) income taxes | (125 | ) | 450 | (1,428 | ) | 2,168 | ||||||||||
| Net income (loss) | $ | (1,451 | ) | $ | 1,829 | $ | (3,725 | ) | $ | 21,415 | ||||||
| Net income (loss) per share – basic | $ | (0.09 | ) | $ | 0.11 | $ | (0.23 | ) | $ | 1.30 | ||||||
| diluted | $ | (0.09 | ) | $ | 0.11 | $ | (0.23 | ) | $ | 1.28 | ||||||
| Weighted average number of shares used in computing net income (loss) per share – basic | 16,270,403 | 16,478,742 | 16,255,263 | 16,498,557 | ||||||||||||
| diluted | 16,270,403 | 16,595,029 | 16,255,263 | 16,671,620 | ||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
2
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
| Retained | ||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In | Treasury Stock | Earnings (Accumulated | |||||||||||||||||||||||||
| (in thousands, except shares) | Shares | Amount | Capital | Shares | Amount | Deficit) | Total | |||||||||||||||||||||
| December 31, 2021 | 16,694,311 | $ | 167 | $ | 44,115 | (77,037 | ) | $ | (325 | ) | $ | (17,942 | ) | $ | 26,015 | |||||||||||||
| Stock-based compensation | - | 57 | - | 57 | ||||||||||||||||||||||||
| Exercise of stock options | 62,500 | 1 | 346 | 347 | ||||||||||||||||||||||||
| Surrender of shares for tax withholding on stock-based compensation | (2,226 | ) | (23 | ) | (23 | ) | ||||||||||||||||||||||
| Net income | - | - | 16,062 | 16,062 | ||||||||||||||||||||||||
| March 31, 2022 (unaudited) | 16,756,811 | $ | 168 | $ | 44,518 | (79,263 | ) | $ | (348 | ) | $ | (1,880 | ) | $ | 42,458 | |||||||||||||
| Stock-based compensation | - | 40 | - | 40 | ||||||||||||||||||||||||
| Exercise of stock options | 5,000 | 28 | 28 | |||||||||||||||||||||||||
| Stock repurchase | (126,523 | ) | (1,005 | ) | (1,005 | ) | ||||||||||||||||||||||
| Net income | - | - | 3,524 | 3,524 | ||||||||||||||||||||||||
| June 30, 2022 (unaudited) | 16,761,811 | $ | 168 | $ | 44,586 | (205,786 | ) | $ | (1,353 | ) | $ | 1,644 | $ | 45,045 | ||||||||||||||
| Stock-based compensation | - | 40 | - | 40 | ||||||||||||||||||||||||
| Exercise of stock options | 53,200 | 1 | 295 | 296 | ||||||||||||||||||||||||
| Surrender of shares for tax withholding on stock-based compensation | (7,870 | ) | (86 | ) | (86 | ) | ||||||||||||||||||||||
| Net income | - | - | 1,829 | 1,829 | ||||||||||||||||||||||||
| September 30, 2022 (unaudited) | 16,815,011 | $ | 169 | $ | 44,921 | (213,656 | ) | $ | (1,439 | ) | $ | 3,473 | $ | 47,124 | ||||||||||||||
| December 31, 2022 | 16,902,761 | $ | 169 | $ | 45,031 | (512,342 | ) | $ | (3,433 | ) | $ | 6,302 | $ | 48,069 | ||||||||||||||
| Stock-based compensation | 10,000 | 161 | 161 | |||||||||||||||||||||||||
| Exercise of stock options | 8,334 | 46 | 46 | |||||||||||||||||||||||||
| Forfeiture of restricted stock units | (7,500 | ) | (18 | ) | (18 | ) | ||||||||||||||||||||||
| Surrender of shares for tax withholding on stock-based compensation | (4,487 | ) | (40 | ) | (40 | ) | ||||||||||||||||||||||
| Net loss | - | - | (1,894 | ) | (1,894 | ) | ||||||||||||||||||||||
| March 31, 2023 (unaudited) | 16,913,595 | $ | 169 | $ | 45,220 | (516,829 | ) | $ | (3,473 | ) | $ | 4,408 | $ | 46,324 | ||||||||||||||
| Stock-based compensation | - | 67 | - | 67 | ||||||||||||||||||||||||
| Forfeiture of restricted stock units | (1,000 | ) | (1 | ) | (1 | ) | ||||||||||||||||||||||
| Net loss | - | - | (380 | ) | (380 | ) | ||||||||||||||||||||||
| June 30, 2023 (unaudited) | 16,912,595 | $ | 169 | $ | 45,286 | (516,829 | ) | $ | (3,473 | ) | $ | 4,028 | $ | 46,010 | ||||||||||||||
| Stock-based compensation | - | 67 | - | 67 | ||||||||||||||||||||||||
| Surrender of shares for tax withholding on stock-based compensation | (3,935 | ) | (12 | ) | (12 | ) | ||||||||||||||||||||||
| Stock repurchase | (9,427 | ) | (27 | ) | (27 | ) | ||||||||||||||||||||||
| Net loss | - | - | (1,451 | ) | (1,451 | ) | ||||||||||||||||||||||
| September 30, 2023 (unaudited) | 16,912,595 | $ | 169 | $ | 45,353 | (530,191 | ) | $ | (3,512 | ) | $ | 2,577 | $ | 44,587 | ||||||||||||||
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) | 2023 | 2022 | ||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | (3,725 | ) | $ | 21,415 | |||
| Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 216 | 241 | ||||||
| Gain on sale of property and equipment | (42 | ) | (12,779 | ) | ||||
| Amortization of right-of-use asset | 139 | 147 | ||||||
| Provision for product warranties | 325 | 252 | ||||||
| Stock-based compensation | 276 | 137 | ||||||
| Deferred income taxes | (1,428 | ) | (1,602 | ) | ||||
| Decrease (increase) in: | ||||||||
| Accounts receivable | 10,416 | 4,734 | ||||||
| Inventories | (9,818 | ) | (2,036 | ) | ||||
| Deposits | 40 | |||||||
| Prepaid inventory | 2,315 | (1,734 | ) | |||||
| Other current assets | (680 | ) | 387 | |||||
| Other noncurrent asset | 187 | |||||||
| Increase (decrease) in: | ||||||||
| Accounts payable and accrued expenses | (1,522 | ) | 161 | |||||
| Operating lease liability | (152 | ) | (154 | ) | ||||
| Income tax payable | (890 | ) | 233 | |||||
| Deferred revenue | (44 | ) | (283 | ) | ||||
| Product warranties | (386 | ) | (458 | ) | ||||
| Total adjustments | (1,088 | ) | (12,714 | ) | ||||
| Net cash provided by (used in) operating activities | (4,813 | ) | 8,701 | |||||
| Cash flows from investing activities | ||||||||
| Acquisition of property and equipment | (229 | ) | (149 | ) | ||||
| Proceeds from sale of assets | 42 | 15,000 | ||||||
| Net cash provided by (used in) investing activities | (187 | ) | 14,851 | |||||
| Cash flows from financing activities | ||||||||
| Repurchase of common stock | (27 | ) | (1,005 | ) | ||||
| Withholding taxes on stock-based compensation | (52 | ) | (109 | ) | ||||
| Repayment of loan payable | (51 | ) | ||||||
| Exercise of stock options | 46 | 671 | ||||||
| Net cash used in financing activities | (33 | ) | (494 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | (5,033 | ) | 23,058 | |||||
| Cash and cash equivalents – beginning of period | 25,520 | 14,519 | ||||||
| Cash and cash equivalents – end of period | $ | 20,487 | $ | 37,577 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest paid | $ | $ | 2 | |||||
| Income tax paid | $ | 1,440 | $ | 3,477 | ||||
| Supplemental schedule of noncash investing and financing transactions: | ||||||||
| Operating lease right-of-use asset and lease liability increase from lease modification | $ | $ | 1,045 | |||||
| Transfer of inventory to property and equipment | $ | 117 | $ | 44 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
4
SENSUS HEALTHCARE, INC.
NOTES TO THE CONDENSED 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 primarily a manufacturer of radiation therapy devices sold 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 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.
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, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or for any other period.
The condensed consolidated balance sheet as of December 31, 2022 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, 2022 (the “2022 Annual Report”).
Revenue Recognition
The Company’s revenue derives primarily 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 sales 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, only 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 a 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.
To determine the transaction price for contracts under which a customer promises consideration in a form other than cash, the Company measures the estimated fair value of the noncash consideration at contract inception. If the Company cannot reasonably estimate the fair value of the noncash consideration, it measures the consideration indirectly by reference to the standalone selling price of the products promised to the customer or class of customer in exchange for the consideration.
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.
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, 2023 and 2022 was as follows:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Product Revenue - recognized at a point in time | $ | 2,896 | $ | 7,901 | $ | 8,889 | $ | 28,101 | ||||||||
| Service Revenue - recognized at a point in time | 286 | 486 | 932 | 1,010 | ||||||||||||
| Service Revenue - recognized over time | 716 | 623 | 2,017 | 2,317 | ||||||||||||
| Total Revenue | $ | 3,898 | $ | 9,010 | $ | 11,838 | $ | 31,428 | ||||||||
5
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, 2023 was as follows:
| (in thousands) | Product | Service | Total | |||||||||
| December 31, 2022 | $ | 45 | $ | 787 | $ | 832 | ||||||
| Revenue recognized | (9 | ) | (2,017 | ) | (2,026 | ) | ||||||
| Amounts invoiced | 1,982 | 1,982 | ||||||||||
| September 30, 2023 | $ | 36 | $ | 752 | $ | 788 | ||||||
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, 2023 is as follows:
| Year | Service Revenue | |||
| 2023 (October 1 - December 31, 2023) | $ | 266 | ||
| 2024 | 426 | |||
| 2025 | 40 | |||
| 2026 | 20 | |||
| Total | $ | 752 | ||
The Company pays commissions for equipment sales. Because the recovery of commissions is expected to occur from product revenue within one year, the Company charges commissions to expense as incurred.
Shipping and handling costs are expensed as incurred and are included in cost of sales.
Concentration
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable.
One customer in the U.S. accounted for approximately 52% and 63% of revenue for the three months ended September 30, 2023 and 2022, respectively, approximately 52% and 73% of revenue for the nine months ended September 30, 2023 and 2022, respectively, and 86% and 91% of the accounts receivable as of September 30, 2023 and December 31, 2022, respectively.
Segment and Geographical Information
The following table illustrates total revenue for the three and nine months ended September 30, 2023 and 2022 by geographic region.
| For the Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||||
| United States | $ | 3,438 | 88 | % | $ | 8,407 | 93 | % | ||||||||
| China | 450 | 12 | % | 594 | 7 | % | ||||||||||
| Other | 10 | 0 | % | 9 | 0 | % | ||||||||||
| Total Revenue | $ | 3,898 | 100 | % | $ | 9,010 | 100 | % | ||||||||
| For the Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||||
| United States | $ | 10,603 | 90 | % | $ | 29,904 | 95 | % | ||||||||
| China | 880 | 7 | % | 1,484 | 5 | % | ||||||||||
| Guatemala | 190 | 2 | % | 0 | % | |||||||||||
| Ireland | 135 | 1 | % | 0 | % | |||||||||||
| Other | 30 | 0 | % | 40 | 0 | % | ||||||||||
| Total Revenue | $ | 11,838 | 100 | % | $ | 31,428 | 100 | % | ||||||||
6
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
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 estimates future credit losses based on the age of customer receivable balances, collection history and forecasted economic trends. Future collections can be significantly different from historical collection trends or current estimates. The allowance for expected credit losses was $2 thousand and $107 thousand as of September 30, 2023 and December 31, 2022, respectively. Bad debt expense was $2 thousand and $0 for the three months ended September 30, 2023 and 2022, respectively, and $7 thousand and $0 for the nine months ended September 30, 2023 and 2022, respectively.
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 for obsolescence based on its assessment of market conditions and writes down any obsolete inventory to its net realizable value through a charge to costs of sales. The provision for inventory obsolescence was $18 thousand as of both September 30, 2023 and December 31, 2022.
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, | |||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Stock Options | 89,550 | 89,550 | ||||||||||||||
| Restricted Stock | 113,500 | 113,500 | ||||||||||||||
| Total | 203,050 | 203,050 | ||||||||||||||
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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) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Basic | ||||||||||||||||
| Net income (loss) | $ | (1,451 | ) | $ | 1,829 | $ | (3,725 | ) | $ | 21,415 | ||||||
| Weighted average common shares outstanding | 16,270 | 16,479 | 16,255 | 16,499 | ||||||||||||
| Basic earnings (loss) per share | $ | (0.09 | ) | $ | 0.11 | $ | (0.23 | ) | $ | 1.30 | ||||||
| Diluted | ||||||||||||||||
| Net income (loss) | $ | (1,451 | ) | $ | 1,829 | $ | (3,725 | ) | $ | 21,415 | ||||||
| Weighted average common shares outstanding | 16,270 | 16,479 | 16,255 | 16,499 | ||||||||||||
| Dilutive effects of: | ||||||||||||||||
| Assumed exercise of stock options | 58 | 103 | ||||||||||||||
| Unvested restricted stock awards | 58 | 70 | ||||||||||||||
| Dilutive shares | 16,270 | 16,595 | 16,255 | 16,672 | ||||||||||||
| Diluted earnings (loss) per share | $ | (0.09 | ) | $ | 0.11 | $ | (0.23 | ) | $ | 1.28 | ||||||
Leases
The Company evaluates arrangements at inception to determine if an arrangement is or contains a lease. The operating lease right-of-use asset (the “ROU asset”) represents 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. The ROU asset and operating lease 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 asset may include lease incentives, and stated rent increases are recognized in the ROU asset in the Company’s condensed consolidated balance sheets. The ROU asset is amortized to rent expense over the lease term and included in operating expenses in the condensed consolidated statements of income (loss).
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 Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the incurred loss model for recognition of credit losses with a methodology that reflects expected credit losses over the life of the loan and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. In November 2019, the FASB issued ASU 2019-10, which provides a one-year deferral of the effective dates of ASU No. 2016-13. Accordingly, the guidance is effective for fiscal years beginning after December 15, 2022. The Company adopted this update in January 2023. This update did not have a significant impact on the Company’s condensed consolidated financial statements.
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.
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Note 2 — Property and Equipment
| (in thousands) | As of September 30, 2023 | As of December 31, 2022 | Estimated Useful Lives | ||||||||
| Operations equipment | $ | 1,119 | $ | 1,222 | 3 years | ||||||
| Tradeshow and demo equipment | 1,278 | 990 | 3 years | ||||||||
| Computer equipment | 183 | 162 | 3 years | ||||||||
| Subtotal | 2,580 | 2,374 | |||||||||
| Less accumulated depreciation | (2,159 | ) | (2,131 | ) | |||||||
| Property and Equipment, Net | $ | 421 | $ | 243 | |||||||
Depreciation expense was $60 thousand and $51 thousand for the three months ended September 30, 2023 and 2022, respectively, and $167 thousand and $169 thousand for the nine months ended September 30, 2023 and 2022, respectively.
Note 3 — Intangibles
| (in thousands) | Patent Rights | Customer Relationships | Total | |||||||||
| December 31, 2022 | $ | 49 | $ | 1 | $ | 50 | ||||||
| Amortization expense | (49 | ) | (49 | ) | ||||||||
| September 30, 2023 | $ | $ | 1 | $ | 1 | |||||||
Accumulated amortization was $1,273 thousand and $1,224 thousand as of September 30, 2023 and December 31, 2022, respectively.
Note 4 — Debt
As of December 31, 2022, the Company had a revolving credit facility with Silicon Valley Bank (“SVB”) that provided for maximum borrowings equal to the lesser of (a) the $15 million commitment amount or (b) the borrowing base plus a $7.5 million non-formula sublimit. On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (the “FDIC”) was appointed receiver. On March 13, 2023, the FDIC transferred all deposits, both insured and uninsured, and substantially all assets of SVB to a newly created, full-service FDIC-operated “bridge bank”, Silicon Valley Bridge Bank, N.A. (“SVBB”), chartered by the Office of the Comptroller of the Currency as a national bank. Subsequently, on March 27, 2023, the FDIC entered into a purchase and assumption agreement for all deposits and loans, as well as certain other assets, of SVBB, with First-Citizens Bank & Trust Company (“FCB”), a subsidiary of First Citizens BancShares, Inc. (“First Citizens”). As a result of this transaction, SVB became a wholly owned subsidiary of FCB.
On September 11, 2023, the Company entered into a new revolving credit facility (the “Credit Facility”) with Comerica Bank (“Comerica”), replacing the prior facility with SVB, that provides for maximum borrowings of $10 million. The Credit Facility may be terminated by the Company or Comerica at any time without penalty. At September 30, 2023, the available borrowings under this facility were $10 million. Any borrowings bear interest at the Secured Overnight Financing Rate (“SOFR”) plus 2.50% (or 7.81% at September 30, 2023), and would be due upon demand by Comerica. The Credit Facility is secured by all of the Company’s assets. The Credit Facility contains a financial covenant requiring that the Company maintain unencumbered liquid assets having a minimum value of $3,500,000 in a Comerica account.
The Company was in compliance with its financial covenants under the respective facilities as of September 30, 2023 and December 31, 2022. There were no borrowings outstanding under either facility at September 30, 2023 or December 31, 2022.
Note 5 — Product Warranties
Changes in product warranty liability were as follows for the nine months ended September 30, 2023:
| (in thousands) | ||||
| Balance, December 31, 2022 | $ | 403 | ||
| Warranties accrued during the period | 325 | |||
| Payments on warranty claims | (387 | ) | ||
| Balance, September 30, 2023 | $ | 341 | ||
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Note 6 — Leases
Operating Lease Agreements
The Company leases its headquarters office from an unrelated third party under a lease expiring in September 2027. The amortization of the ROU asset was $48 thousand and $44 thousand for the three months ended September 30, 2023 and 2022, respectively, and $139 thousand and $147 thousand for the nine months ended September 30, 2023 and 2022, respectively.
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, 2023.
| Maturity of Operating Lease Liabilities | Amount | |||
| 2023 (October 1 - December 31, 2023) | $ | 55 | ||
| 2024 | 223 | |||
| 2025 | 229 | |||
| 2026 | 236 | |||
| 2027 | 181 | |||
| Total undiscounted operating leases payments | $ | 924 | ||
| Less: Imputed interest | (93 | ) | ||
| Present Value of Operating Lease Liabilities | $ | 831 | ||
| Other Information | ||||
| Weighted-average remaining lease term | 4 years | |||
| Weighted-average discount rate | 5 | % | ||
Cash paid for amounts included in the measurement of operating lease liabilities was $152 thousand and $170 thousand for the nine months ended September 30, 2023 and 2022, respectively, and is included in cash flows from operating activities in the accompanying condensed consolidated statement of cash flows.
Operating lease cost recognized as expense was $57 thousand and $60 thousand for the three months ended September 30, 2023 and 2022, respectively, and $171 thousand and $177 thousand for the nine months ended September 30, 2023 and 2022, respectively. The financing component for operating lease obligations represents the effect of discounting the operating lease payments to their present value.
Note 7 — 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.
The Company pays this manufacturer for finished goods in advance of the inventory being received. The Company paid this manufacturer approximately $1.3 million and $1.8 million for finished goods for the three months ended September 30, 2023 and 2022, respectively, and $9.2 million and $7.5 million for the nine months ended September 30, 2023 and 2022, respectively. Approximately $3.5 million and $2.7 million of finished goods was received from this manufacturer for the three months ended September 30, 2023 and 2022, respectively, and $11.2 million and $7.5 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023 and December 31, 2022, a prepayment related to these finished goods of approximately $3.9 million and $6.3 million, respectively, was presented in prepaid inventory in the accompanying condensed consolidated balance sheets.
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 considerations, 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, 2023, the Company is unable to estimate the cost associated with this matter.
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Note 8 — Stockholders’ Equity
Preferred Stock
The Company has authorized 5 million shares of preferred stock. No shares of preferred stock were issued or outstanding at September 30, 2023 or December 31, 2022.
Treasury stock
Treasury stock includes shares surrendered by employees for tax withholding on the vesting of restricted stock awards and shares repurchased in open market transactions. 3,935 and 8,422 shares were surrendered by employees for tax withholding for the three months and nine months ended September 30, 2023, respectively. During the third quarter of 2023, the Company repurchased 9,427 shares in open market transactions.
Note 9 – Stock-Based Compensation
2016 and 2017 Equity Incentive Plans
The Company’s 2016 Equity Incentive Plan and the 2017 Incentive Plan, as amended in June 2023 (collectively, the “Plans”), provide for the issuance of up to 397,473 shares and 750,000 shares, respectively. Unless the Compensation Committee specifically determines otherwise, the maximum number of shares available under the Plans and the awards granted under them are subject to appropriate adjustment in the case of any stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, exchanges or other changes in capitalization affecting the Company’s common stock. The awards may be made in the form of restricted stock awards or stock options, among other forms. As of September 30, 2023, 307,473 shares are available for grant under the Plans.
On February 1, 2020, a total of 35,000 shares of restricted stock were issued to employees. The restricted shares vest 25% per year over a four-year period. The grant date fair value of $4.11 per share is being recognized as expense on a straight-line basis over the vesting period. During the first quarter of 2023, 5,000 shares of common stock vested, and 7,500 shares of unvested common stock were forfeited due to the termination of employment for two employees with the Company.
On July 21, 2021, a total of 130,000 shares of restricted stock were issued to employees and board members. The restricted shares vest 25% at grant date and 25% per year over a three-year period. The grant date fair value of $3.84 per share is being recognized as expense on a straight-line basis over the vesting period. During the third quarter of 2023, 32,500 shares of common stock vested.
On December 19, 2022, a total of 77,000 shares of restricted stock were issued to employees. The restricted shares vest 25% per year over a four-year period. The fair value of $6.40 per share, the stock price on grant date, is being recognized as expense on a straight-line basis over the vesting period. During the second quarter of 2023, 1,000 shares of unvested common stock were forfeited due to the termination of employment for one employee with the Company.
On January 26, 2023, 10,000 shares of common stock were issued to an employee and were recorded at the fair value of $8.96 per share, the stock price on the grant date. The shares were fully vested at the grant date.
Restricted Stock
Restricted stock activity for the nine months ended September 30, 2023 is summarized below:
| Outstanding at | Restricted Stock | Weighted- Average Grant Date Fair Value | ||||||
| December 31, 2022 | 159,500 | $ | 5.11 | |||||
| Granted | 10,000 | 8.96 | ||||||
| Vested | (47,500 | ) | 4.95 | |||||
| Forfeited | (8,500 | ) | $ | 4.38 | ||||
| September 30, 2023 | 113,500 | $ | 5.57 | |||||
The Company recognizes forfeitures as they occur rather than estimating a forfeiture rate. The reduction of stock compensation expense related to the forfeitures was $19 thousand and $0 for the nine months ended September 30, 2023 and 2022, respectively.
Unrecognized stock compensation expense was $488 thousand as of September 30, 2023, which will be recognized over a weighted average period of 3 years.
Stock Options
Stock options expire 10 years after the grant date. Options that have been granted are exercisable and vest based on the terms on the related agreements.
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The following table summarizes the Company’s stock option activity:
| Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (In Years) | ||||||||||
| Outstanding - December 31, 2022 | 97,884 | $ | 5.55 | 5.08 | ||||||||
| Granted | ||||||||||||
| Exercised | (8,334 | ) | 5.55 | |||||||||
| Expired | ||||||||||||
| Outstanding - September 30, 2023 | 89,550 | $ | 5.55 | 4.33 | ||||||||
| Exercisable – September 30, 2023 | 89,550 | $ | 5.55 | 4.33 | ||||||||
The stock options outstanding had an intrinsic value of $0 and $183 thousand as of September 30, 2023 and December 31, 2022, respectively.
Stock compensation expense related to restricted stock, excluding the recognition of forfeitures, was $67 thousand and $40 thousand for the three months ended September 30, 2023 and 2022, respectively, and $295 thousand and $137 thousand for the nine months ended September 30, 2023 and 2022, respectively
In the first quarter of 2023, the Company issued 8,334 shares of common stock upon the exercise of stock options with an exercise price of $5.55 per share.
Note 10 — 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.
Effective income tax rates for interim periods are based upon the Company’s current estimated annual tax rate, which varies based upon the Company’s estimate of taxable earnings or loss and the mix of taxable earnings or loss in the various states in which the Company operates. In addition, the Company recognizes taxes related to unusual or infrequent items or resulting from a change in judgment regarding a position taken in a prior period as discrete items in the interim period in which the event occurs.
For the quarter ended March 31, 2022, the Company recorded a net valuation allowance release of $3.7 million on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of September 30, 2023, management determined there continues to be sufficient positive evidence that it is more likely than not that the net deferred tax asset (other than foreign net operation losses) is realizable.
Income tax (benefit) expense was ($125) thousand and $450 thousand for the three months ended September 30, 2023 and 2022, respectively. Income tax (benefit) expense was ($1,428) thousand and $2,168 thousand for the nine months ended September 30, 2023 and 2022, respectively.
The effective tax rates for the three months ended September 30, 2023 and 2022 were 7.9% and 19.7%, respectively. The effective tax rates for the nine months ended September 30, 2023 and 2022 were 27.7% and 9.2%, respectively. The decrease in our effective tax rate for the three months ended September 30, 2023 compared to the prior year was primarily due to a decrease in the proportion of non-deductible expenses to pretax book loss. The increase in our effective tax rate for the nine months ended September 30, 2023 compared to the prior year was primarily due to the valuation allowance release in the first quarter of 2022.
Our effective tax rate differs from the U.S. federal statutory rate for the three and nine months ended September 30, 2023, primarily due to nondeductible expenses and state income taxes. Our effective tax rate differs from the U.S. federal statutory rate for the three and nine months ended September 30, 2022, primarily due to state income taxes and the valuation allowance release, respectively.
As of September 30, 2023, 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, 2017.
Note 11 — 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 2022 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.
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.
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) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Revenues | $ | 3,898 | $ | 9,010 | $ | 11,838 | $ | 31,428 | ||||||||
| Cost of sales | 1,909 | 3,136 | 5,609 | 10,150 | ||||||||||||
| Gross profit | 1,989 | 5,874 | 6,229 | 21,278 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 1,290 | 1,807 | 4,983 | 4,753 | ||||||||||||
| General and administrative | 1,511 | 1,160 | 4,204 | 3,564 | ||||||||||||
| Research and development | 1,083 | 746 | 3,001 | 2,302 | ||||||||||||
| Total operating expenses | 3,884 | 3,713 | 12,188 | 10,619 | ||||||||||||
| Income (loss) from operations | (1,895 | ) | 2,161 | (5,959 | ) | 10,659 | ||||||||||
| Other income (expense): | ||||||||||||||||
| Gain on sale of assets | 42 | - | 42 | 12,779 | ||||||||||||
| Interest income | 277 | 119 | 764 | 147 | ||||||||||||
| Interest expense | - | (1 | ) | - | (2 | ) | ||||||||||
| Other income, net | 319 | 118 | 806 | 12,924 | ||||||||||||
| Income (loss) before income tax | (1,576 | ) | 2,279 | (5,153 | ) | 23,583 | ||||||||||
| Provision for (benefit from) income taxes | (125 | ) | 450 | (1,428 | ) | 2,168 | ||||||||||
| Net income (loss) | $ | (1,451 | ) | $ | 1,829 | $ | (3,725 | ) | $ | 21,415 | ||||||
Three months ended September 30, 2023 compared to the three months ended September 30, 2022
Revenues. Revenues were $3.9 million for the three months ended September 30, 2023 compared to $9.0 million for the three months ended September 30, 2022, a decrease of $5.1 million, or 56.7%. The decrease was primarily driven by the lower number of SRT units sold, as customers continued to defer purchases of our product and lower sales to a large customer in the three months ended September 30, 2023.
Cost of sales. Cost of sales was $1.9 million for the three months ended September 30, 2023 compared to $3.1 million for the three months ended September 30, 2022, a decrease of $1.2 million, or 38.7%. The decrease in cost of sales was primarily related to the decrease in sales in the three months ended September 30, 2023.
Gross profit. Gross profit was $2.0 million for the three months ended September 30, 2023 compared to $5.9 million for the three months ended September 30, 2022, a decrease of $3.9 million, or 66.1%. Our overall gross profit percentage was 51.3% in the three months ended September 30, 2023 compared to 65.6% in the corresponding period in 2022. The decrease in gross profit was primarily driven by the lower number of units sold and higher costs charged by vendors in the three months ended September 30, 2023.
Selling and marketing. Selling and marketing expense was $1.3 million for the three months ended September 30, 2023 compared to $1.8 million for the three months ended September 30, 2022, a decrease of $0.5 million, or 27.8%. The decrease was primarily attributable to the decrease in marketing initiatives, decrease in tradeshow costs and commission expense.
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General and administrative. General and administrative expense was $1.5 million for the three months ended September 30, 2023 compared to $1.2 million for the three months ended September 30, 2022, an increase of $0.3 million, or 25.0%. The net increase in general and administrative expense was primarily due to higher professional fees and bank fees.
Research and development. Research and development expense was $1.1 million for the three months ended September 30, 2023 compared to $0.7 million for the three months ended September 30, 2022, an increase of $0.4 million, or 57.1%. The increase was primarily due to expenses related to a project to develop a drug delivery system for an aesthetic project. The Company expects the completion of this project by the end of 2023.
Other income. Other income of $0.3 million for the three months ended September 30, 2023 and $0.1 million for the three months ended September 30, 2022 relate primarily to interest income.
Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022
Revenues. Revenues were $11.8 million for the nine months ended September 30, 2023 compared to $31.4 million for the nine months ended September 30, 2022, a decrease of $19.6 million, or 62.4%. The decrease was primarily driven by the lower number of SRT units sold, as customers continued to defer purchases of our product and lower sales to a large customer in the nine months ended September 30, 2023.
Cost of sales. Cost of sales was $5.6 million for the nine months ended September 30, 2023 compared to $10.2 million for the nine months ended September 30, 2022, a decrease of $4.6 million, or 45.1%. The decrease in cost of sales was primarily related to the decrease in sales in the nine months ended September 30, 2023.
Gross profit. Gross profit was $6.2 million for the nine months ended September 30, 2023 compared to $21.3 million for the nine months ended September 30, 2022, a decrease of $15.1 million, or 70.9%. Our overall gross profit percentage was 52.5% in the nine months ended September 30, 2023 compared to 67.8% in the corresponding period in 2022. The decrease in gross profit was primarily driven by the lower number of units sold and higher costs charged by vendors in the nine months ended September 30, 2023.
Selling and marketing. Selling and marketing expense was $5.0 million for the nine months ended September 30, 2023 compared to $4.8 million for the nine months ended September 30, 2022, an increase of $0.2 million, or 4.2%. The increase was primarily attributable to the increase in tradeshow expenses and an increase in headcount, offset by reduction in commission and advertising expenses.
General and administrative. General and administrative expense was $4.2 million for the nine months ended September 30, 2023 compared to $3.6 million for the nine months ended September 30, 2022, an increase of $0.6 million, or 16.7%. The net increase in general and administrative expense was primarily due to higher professional fees and bank fees.
Research and development. Research and development expense was $3.0 million for the nine months ended September 30, 2023 compared to $2.3 million for the nine months ended September 30, 2022, an increase of $0.7 million, or 30.4%. The increase was primarily due to expenses related to a project to develop a drug delivery system for an aesthetic project. The Company expects the completion of this project by the end of 2023.
Other income. Other income of $0.8 million for the nine months ended September 30, 2023 and $12.9 million for the nine months ended September 30, 2022, a decrease of $12.1 million, or 93.8%. The decrease relates to the sale of the Sculptura assets during the nine months ended September 30, 2022.
Financial Condition
The following discussion summarizes significant changes in assets and liabilities. Please see the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 contained in Part I, Item 1 of this filing.
Assets
Cash and cash equivalents at September 30, 2023 decreased $5.0 million from December 31, 2022. See Cash Flows for details on the change in cash and cash equivalents during the nine months ended September 30, 2023.
Accounts receivable at September 30, 2023 decreased $10.4 million from December 31, 2022, primarily due to collections of receivables and the decrease in sales in the nine months ended September 30, 2023.
Inventories at September 30, 2023 increased $9.7 million from December 31, 2022, primarily due to an increase in completion of finished goods offset by shipments of units sold in the nine months ended September 30, 2023.
Prepaid inventory at September 30, 2023 decreased $2.3 million from December 31, 2022, primarily due to the completion of finished goods from inventory deposits paid to a manufacturer in the nine months ended September 30, 2023.
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Liabilities
There were no borrowings under our revolving lines of credit at September 30, 2023 or December 31, 2022.
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 |
| ● | financial market instability or disruptions to the banking system due to bank failures |
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’s management regularly evaluates cash requirements for current operations, commitments, capital requirements and business development transactions, and may seek to raise additional funds for these purposes in the future. However, there can be no assurance that it will be able to raise such funds or the terms on which such funds may be raised, if at all.
Cash flows
The following table provides a summary of cash flows for the periods indicated:
| For the Nine Months Ended September 30, | ||||||||
| (in thousands) | 2023 | 2022 | ||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (4,813 | ) | $ | 8,701 | |||
| Investing activities | (187 | ) | 14,851 | |||||
| Financing activities | (33 | ) | (494 | ) | ||||
| Total | $ | (5,033 | ) | $ | 23,058 | |||
Net cash used in operating activities was approximately $4.8 million for the nine months ended September 30, 2023, consisting of net loss of approximately $3.7 million, a decrease in net working capital of approximately $0.6 million, and non-cash charges of approximately $0.5 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 deferred income taxes, stock compensation expense, provision for product warranties, gain on sale of assets and depreciation and amortization. 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 charges consisted of a gain on asset sale, deferred income taxes, stock compensation expense, depreciation and amortization, and a provision for product warranties.
Net cash used in investing activities for the nine months ended September 30, 2023 reflected $0.2 million of purchases of property and equipment, partially offset by $42 thousand of proceeds from the sale of assets. 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 in financing activities for the nine months ended September 30, 2023 primarily reflected $46 thousand of exercised stock options, offset by $79 thousand used for the repurchase of common stock and withholding taxes on stock-based compensation. Net cash used in financing activities for the nine months ended September 30, 2022 primarily reflected $1.2 million for actions including the repurchase of common stock, the withholding of taxes on stock-based compensation, and the prepayment of a loan payable, offset by approximately $0.7 million provided by exercised stock options.
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Indebtedness
As discussed in Note 4, Debt, to the financial statements, in September 2023, the Company entered into the new Credit Facility with Comerica, replacing the prior facility with SVB. Additional information regarding the Credit Facility, including the amounts that may be borrowed under the Credit Facility and the covenants included in and other terms of the Credit Facility, is included in the Company’s Report on Form 8-K, filed with the Securities and Exchange Commission on September 14, 2023.
Contractual Obligations and Commitments
Please see Note 7, 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 2022 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, 2023, 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, 2023, 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 7, 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 2022 Annual Report, as updated in our subsequent quarterly reports. The risks described in our 2022 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, 2023.
(b) Use of Proceeds from the Sale of Registered Securities
None.
(c) Purchases of Equity Securities by the Registrant and Affiliated Purchasers.
In August 2023, the Company announced that its Board of Directors had authorized a program to purchase up to $3 million of shares of its common stock. Purchases may be made in a variety of methods, including open market, from time to time, depending upon market conditions, including the market price of the common stock, and other factors. The program has no time limit and may be modified, suspended or discontinued at any time.
During the three months ended September 30, 2023, the following repurchases were made:
| Total number of shares repurchased | Average price paid per share | Total number of shares (or units) purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs | |||||||||||||
| July 1, 2023 to July 31, 2023 | - | $ | - | - | $ | - | ||||||||||
| August 1, 2023 to August 31, 2023 | - | $ | - | - | $ | 3,000,000 | ||||||||||
| September 1, 2023 to September 30, 2023 | 9,427 | $ | 2.82 | 9,427 | $ | 2,972,812 | ||||||||||
| Total | 9,427 | $ | 2.82 | 9,427 | ||||||||||||
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
(c) Rule 10b5-1 Trading Plans
During the three months ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K. None.
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Item 6. Exhibits
| Exhibit No. | Description | |
| 31.1 | Certification of Joseph C. Sardano, Chairman and Chief Executive Officer of Sensus Healthcare, Inc., Pursuant to Rule 13a- 14(a) of the Securities Exchange Act of 1934. | |
| 31.2 | Certification of Javier Rampolla, Chief Financial Officer of Sensus Healthcare, Inc., Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. | |
| 32.1 | ||
| 32.2 | Certification of Javier Rampolla, Chief Financial Officer of Sensus Healthcare, Inc., Pursuant to 18 U.S.C. Section 1350. | |
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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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 13, 2023 | /s/ Joseph C. Sardano |
| Joseph C. Sardano Chief Executive Officer | |
| (Principal Executive Officer) | |
| Date: November 13, 2023 | /s/ Javier Rampolla |
| Javier Rampolla | |
| Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
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