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SRTS Sensus Healthcare

Filed: 14 May 21, 12:19pm

 

 

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 March 31, 2021

 

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
incorporation or organization)
 (I.R.S. Employer
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”, and “smaller reporting company” and an “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 April 30, 2021, 16,489,619 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

 

  Page
PART I – Financial Information 
   
Item 1.Condensed Consolidated Financial Statements (unaudited)1
 Condensed Consolidated Balance Sheets1
 Condensed Consolidated Statements of Operations2
 Condensed Consolidated Statements of Stockholders’ Equity3
 Condensed Consolidated Statements of Cash Flows4
 Notes to the Condensed Consolidated Financial Statements5
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations12
   
Item 3.Quantitative and Qualitative Disclosures about Market Risk14
   
Item 4.Controls and Procedures15
   
PART II – Other Information 
   
Item 1.Legal Proceedings15
   
Item 1A.Risk Factors15
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds15
   
Item 3.Defaults Upon Senior Securities15
   
Item 4.Mine Safety Disclosure15
   
Item 5.Other Information15
   
Item 6.Exhibits16
   
Signatures17

 

i

 

 

INTRODUCTORY NOTE

 

Caution Concerning Forward-Looking Statements

 

This quarterly report on Form 10-Q includes statements that are, or may be deemed, “forward-looking statements.” In some cases, these statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “approximately,” “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 than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, forward-looking statements are not guarantees of future performance, and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward looking statements contained in this press release, as a result of the following factors, among others: the continuation and severity of the COVID-19 pandemic, including its impact on sales and marketing; our ability to achieve profitability; our ability to obtain and maintain the intellectual property needed to adequately protect our products, 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 our international operations; legislation, regulation, or other governmental action, that affects our products, taxes, international trade regulation, or other aspects of our business; concentration of our customers in the U.S. and China, including the concentration of sales to one particular customer in the U.S., the performance of the Company’s information technology systems and its ability to maintain data security; and other risks and uncertainties discussed under “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 Annual Report”) and under Item 1A, “Risk Factors” of Part II of this Form 10-Q below, as updated from time to time in our filings with the Securities and Exchange Commission.

 

In addition, even if future events, developments, and circumstances are consistent with the forward-looking statements contained in this report, they may not be predictive of results or developments in future periods. Any forward-looking statements that we make in this report speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this report, except as may be required by applicable law.

 

ii

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

 

  As of
March 31,
  As of 
December 31,
 
  2021  2020 
(in thousands, except shares and per share data) (unaudited)    
Assets      
Current assets      
Cash and cash equivalents $13,652  $14,907 
Accounts receivable, net  4,056   3,776 
Inventories  4,298   4,427 
Prepaid and other current assets  1,909   2,061 
Total current assets  23,915   25,171 
Property and equipment, net  1,193   1,356 
Intangibles, net  307   338 
Deposits  68   69 
Operating lease right-of-use assets, net  999   1,076 
Total assets $26,482  $28,010 
Liabilities and stockholders’ equity        
Current liabilities        
Accounts payable and accrued expenses $2,828  $2,874 
Deferred revenue, current portion  1,362   1,492 
Operating lease liabilities, current portion  307   303 
Product warranties  185   187 
Total current liabilities  4,682   4,856 
Loan payable  213   267 
Operating lease liabilities  734   812 
Deferred revenue, net of current portion  418   579 
Total liabilities  6,047   6,514 
Commitments and contingencies        
Stockholders’ equity        
Preferred stock, 5,000,000 shares authorized and none issued and outstanding      - 
Common stock, $0.01 par value – 50,000,000 authorized; 16,564,311 issued and 16,489,619 outstanding at March 31, 2021; 16,564,311 issued and 16,491,103 outstanding at December 31, 2020  166   166 
Additional paid-in capital  43,761   43,701 
Treasury stock, 74,692 and 73,208 shares at cost, at March 31, 2021 and December 31, 2020, respectively  (316)  (310)
Accumulated deficit  (23,176)  (22,061)
Total stockholders’ equity  20,435   21,496 
Total liabilities and stockholders’ equity $26,482  $28,010 

  

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 
March 31,
 
  2021  2020 
(in thousands, except shares and per share data)      
Revenues $3,070  $1,679 
Cost of sales  1,484   970 
Gross profit  1,586   709 
Operating expenses        
Selling and marketing  1,068   1,791 
General and administrative  972   1,330 
Research and development  661   1,225 
Total operating expenses  2,701   4,346 
Loss from operations  (1,115)  (3,637)
Other income (expense)        
Interest income  -   50 
Other income (expense), net  -   50 
Net loss $(1,115) $(3,587)
Net loss per share – basic and diluted $(0.07) $(0.22)
Weighted-average number of shares used in computing net loss per share – basic and diluted  16,461,311   16,407,102 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

2

 

 

SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

     Additional          
  Common Stock  Paid-In  Treasury Stock  Accumulated    
  Shares  Amount  Capital  Shares  Amount  Deficit  Total 
(in thousands, except shares)                     
December 31, 2019  16,540,478  $165  $43,315   (54,698) $(253) $(15,226) $28,001 
Stock based compensation  30,000      155            155 
Surrender of Shares for tax withholding on stock compensation  -   -   -   (742)  (3)     (3)
Net loss                 (3,587)  (3,587)
March 31, 2020 (unaudited)  16,570,478  $165  $43,470   (55,440) $(256) $(18,813) $24,566 
                             
December 31, 2020  16,564,311  $166  $43,701   (73,208) $(310) $(22,061) $21,496 
Stock based compensation  -   -   60   -   -   -   60 
Surrender of Shares for tax withholding on stock compensation  -   -   -   (1,484)  (6)  -   (6)
Net loss  -   -   -   -   -   (1,115)  (1,115)
March 31, 2021 (unaudited)  16,564,311  $166  $43,761   (74,692) $(316) $(23,176) $20,435 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3

 

 

SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

  For the Three Months Ended 
March 31,
 
(in thousands) 2021  2020 
Cash Flows from operating activities      
Net loss $(1,115) $(3,587)
Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in) operating activities:        
Depreciation and amortization  208   153 
Provision for product warranties  26   24 
Stock-based compensation  60   155 
Changes in operating assets (decrease (increase)):        
Accounts receivable  (280)  6,173 
Inventories  196   (963)
Prepaid and other current assets  230   (362)
Changes in operating liabilities (increase (decrease)):        
Accounts payable and accrued expenses  (121)  (938)
Deferred revenue  (291)  (148)
Product warranties  (28)  (73)
Total adjustments  -   4,021 
Net cash provided by (used in) operating activities  (1,115)  434 
Cash flows from investing activities        
Acquisition of property and equipment  (80)  (135)
Investments matured  -   3,702 
Net cash provided by (used in) investing activities  (80)  3,567 
Cash flows from financing activities        
Withholding taxes on stock-based compensation  (6)  (3)
Loan payable  (54)  - 
Net cash provided by (used in) financing activities  (60)  (3)
Net increase (decrease) in cash and cash equivalents  (1,255)  3,998 
Cash and cash equivalents – beginning of period  14,907   8,100 
Cash and cash equivalents – end of period $13,652  $12,098 
Supplemental disclosure of cash flow information:        
Supplemental schedule of noncash investing and financing transactions:        
Transfer of property and equipment to inventory $66  $ 

  

See accompanying notes to 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 a manufacturer of radiation therapy devices and sells the devices to healthcare providers globally through its distribution and marketing network. The Company operates as one segment from its corporate headquarters located in Boca Raton, Florida.

 

Basis of Presentation

 

These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its controlled subsidiaries.

 

Accounts and transactions between consolidated entities have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates.

 

Certain financial information that normally is included in annual financial statements, including certain financial statement footnotes, is not required for interim reporting purposes and has been condensed or omitted herein. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission (“SEC”) on March 5, 2021 (“2020 Form 10-K”).

 

The interim financial information at March 31, 2021 and for the three months ended March 31, 2021 and 2020 is unaudited. However, in the opinion of management, the interim information includes all normal recurring adjustments necessary for the fair presentation of the Company’s results for the periods presented. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

 

Revenue Recognition

 

Revenue is recognized upon transfer of control of promised goods or services to customers in an amount to which the Company expects to be entitled in exchange for those goods or services. The Company enters into contracts that can include multiple services, which are accounted for separately if they are determined to be distinct.

 

The Company’s revenue consists of sales of the Company’s devices and services related to maintaining and repairing the devices. The agreement for the sale of the devices and the service contract are usually signed at the same time and in some instances a service contract is signed on a stand-alone basis. Revenue for service contracts is recognized over the service contract period on a straight-line basis. The Company determined that in practice no significant discount is given on the service contract when it is offered with the device purchase as compared to when it is sold on a stand-alone basis. The service level provided is identical when the service contract is on a purchased stand-alone basis or together with the device. There is no termination provision in the service contract nor any penalties in practice for cancellation of the service contract.

 

Disaggregated revenue for the three months ended March 31, 2021 and 2020 was as follows:

 

  For the Three Months Ended 
March 31,
 
 (in thousands) 2021  2020 
Product Revenue $1,674  $1,076 
Service Revenue  1,396   603 
Total Revenue $3,070  $1,679 

 

The Company operates in a highly regulated environment, primarily in the U.S. dermatology market, in which state regulatory approval is sometimes required prior to the customer being able to use the product. In cases where such regulatory approval is pending, revenue is deferred until such time as regulatory approval is obtained.

 

5

 

 

Deferred revenue as of March 31, 2021 was as follows:

 

(in thousands) Product  Service  Total 
Balance, beginning of period $23  $2,048  $2,071 
Revenue recognized  (20)  (790)  (810)
Amounts refunded  (3)  -   (3)
Amounts invoiced  10   512   52 
Balance, end of period $10  $1,770  $1,780 

 

The Company does not disclose information about remaining performance obligations of deposits for products that have original expected durations of one year or less. Estimated service revenue to be recognized in the future related to the performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2021 is as follows:

 

(in thousands) 

Year Service Revenue 
2021 (April 1 – December 31, 2021) $1,161 
2022  476 
2023  82 
2024  51 
Total $1,770 

 

The Company provides warranties, generally for one year, in conjunction with the sale of its product. These warranties entitle the customer to repair, replacement, or modification of the defective product subject to the terms of the respective warranty. The Company records an estimate of future warranty claims at the time the Company recognizes revenue from the sale of the device based upon management’s estimate of the future claims rate.

 

Shipping and handling costs are expensed as incurred and are included in cost of sales.

 

Segment and Geographical Information

 

The Company’s revenue is generated primarily from customers in the U.S., which represented approximately 95% and 99% of revenue for the three months ended March 31, 2021 and 2020, respectively. One customer in the U.S. accounted for approximately 7% and 11% of revenue for the three months ended March 31, 2021 and 2020, respectively, and 57% and 56% of the accounts receivable as of March 31, 2021 and December 31, 2020, respectively.

 

Fair Value of Financial Instruments

 

Carrying amounts of cash equivalents, accounts receivable, accounts payable and revolving credit facility approximate fair value due to their relative short maturities.

 

Fair Value Measurements

 

The Company uses a fair value hierarchy that prioritizes inputs to valuation approaches used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:

 

Level 1 Inputs:

 

Quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.

 

 Level 1 assets may include listed mutual funds, ETFs and listed equities

 

Level 2 Inputs:

 

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; quotes from pricing services or brokers for which the Company can determine that orderly transactions took place at the quoted price or that the inputs used to arrive at the price are observable; and inputs other than quoted prices that are observable, such as models or other valuation methodologies.

 

 

Level 2 assets may include debt securities and foreign currency exchange contracts that have inputs to the valuations that generally can be corroborated by observable market data.

 

6

 

 

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 consists of cash, money market funds and short-term, highly liquid investments with original maturities of three months or less.

 

For purposes of the statements of cash flows, the Company considers all highly liquid financial instruments with a maturity of three months or less when purchased to be a cash equivalent.

 

Accounts Receivable

 

The Company does business and extends credit based on an evaluation of each customer’s financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The allowance for doubtful accounts was approximately $24 thousand as of March 31, 2021 and December 31, 2020.

  

Inventories

 

Inventories consist of finished product and components and are stated at the lower of cost or net realizable value, determined using the first-in-first-out method.

 

Earnings Per Share

 

Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of common shares outstanding for the period. The diluted net income per share is computed by giving effect to all potential dilutive common share equivalents outstanding for the period, using the treasury stock method for options and warrants, as well as unvested restricted shares. In periods when the Company has incurred a net loss, options, warrants and unvested shares are considered common share equivalents but have been excluded from the calculation of diluted net loss per share as their effect is antidilutive. Shares were excluded as follows:

 

  For the Three Months Ended 
March 31,
 
  2021  2020 
Shares     36,048 

 

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 that option. 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 to determine the present value of the lease payments.

  

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.

 

7

 

 

Note 2 — Property and Equipment

 

  As of
March 31,
2021
  As of
December 31,
2020
  Estimated
Useful Lives
(in thousands) (unaudited)      
Operations equipment $2,135  $2,178  3 years
Tradeshow and demo equipment  919   923  3 years
Computer equipment  122   119  3 years
   3,176   3,220   
Less accumulated depreciation  (1,983)  (1,864)  
Property and Equipment, Net $1,193  $1,356   

 

Depreciation expense was approximately $177 thousand and $129 thousand, for the three months ended March 31, 2021 and 2020, respectively.

 

Note 3 — INTANGIBLES

 

  Patent
Rights
  Customer
Relationships
  Trade
Names
  Total 
(in thousands)            
December 31, 2020 $241  $84  $13  $338 
Amortization expense  (23)  (2)  (6)  (31)
March 31, 2021 $218  $82  $7  $307 

 

Note 4 — DEBT

 

The Company has a revolving credit facility that, through March 2022, provided for maximum borrowings equal to the lesser of (a) the $10 million commitment amount or (b) the borrowing base plus a $3 million non-formula sublimit. The Company was in compliance with its financial covenants as of March 31, 2021 and December 31, 2020. There were no borrowings outstanding under the revolving credit facility at March 31, 2021 and December 31, 2020.  

 

The outstanding balances at March 31, 2021 and December 31, 2020 of the Small Business Administration loan to the Company under the Paycheck Protection Program enabled by the CARES Act of 2020 are reflected in Loan Payable in the condensed consolidated balance sheets.

 

Note 5 — Product Warranties

 

Changes in product warranty liability were as follows for the three months ended March 31, 2021:

 

(in thousands)

Balance, December 31, 2020 $187 
Warranties accrued during the period  26 
Payments on warranty claims  (28)
Balance, March 31, 2021 $185 

 

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Note 6 — Leases

 

Operating Lease Agreements

 

The Company leases its headquarters office from an unrelated third party. The lease was last renewed in 2016 and expires in September 2022 with an option to extend with prior notice upon terms to be negotiated.  

 

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of March 31, 2021.

 

(in thousands)

Maturity of Operating Lease Liabilities Amount 
2021 (April 1 – December 31, 2021) $262 
2022  285 
2023  104 
2024  105 
2025  108 
Thereafter  387 
Total undiscounted operating leases payments $1,251 
Less: Imputed interest  (210)
Present Value of Operating Lease Liabilities $1,041 
     
Other Information    
Weighted-average remaining lease term  6.0 years 
Weighted-average discount rate  5.0%

 

An initial Right of Use (“ROU”) asset of approximately $805 thousand was recognized as a non-cash assets addition with the adoption of the new lease accounting standard. The value of the ROU assets was reduced by approximately $76 thousand and $324 thousand during the three months ended March 31, 2021 and the year ended December 31, 2020, respectively. Cash paid for amounts included in the present value of operating lease liabilities was approximately $86 thousand and $359 thousand for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively, and is included in cash flows from operating activities in the accompanying consolidated statement of cash flows. Operating lease costs were approximately $88 thousand and $373 thousand for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively. 

 

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-years 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 terminate the agreement upon 90 days’ prior written notice.

 

Purchases from this manufacturer totaled approximately $312 thousand and $1,578 thousand for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, and December 31, 2020 approximately $724 thousand and $697thousand, respectively, was due to this manufacturer, which is presented in accounts payable and accrued expenses in the accompanying balance sheets.

  

Legal contingencies

 

The Company is party to certain legal proceedings in the ordinary course of business. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and related contingencies.

 

In 2015, the Company learned that the Department of Justice (the “Department”) had commenced an investigation of the billing to Medicare by a physician who had treated patients with the Company’s SRT-100. The Company has received two Civil Investigative Demands from the Department seeking documents and written responses in connection with that investigation. The Company has fully cooperated with the investigation. The Department has advised the Company that it was considering expanding the investigation to determine whether the Company had any involvement in the physician’s use of certain reimbursement codes. The Company disputes that it has engaged in any wrongdoing with respect to such reimbursement claims; among other things, the Company does not submit claims for reimbursement or provide coding or billing advice to physicians. To the Company’s knowledge, the Department has made no determination as to whether the Company engaged in any wrongdoing, or whether to pursue any legal action against the Company. Should the Department decide to pursue legal action, the Company believes it has strong and meritorious defenses and will vigorously defend itself. At this time, the Company is unable to estimate the cost associated with this matter.

 

9

 

 

Note 8 — STOCK-BASED COMPENSATION

 

Warrants

 

The following table summarizes the Company’s warrant activity:

 

  Warrants 
  Number of
Warrants
  Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Term
(In Years)
 
Outstanding – December 31, 2020  138,000  $6.75   0.44 
Granted         
Exercised         
Expired         
Outstanding and exercisable – March 31, 2021  138,000  $6.75   0.19 

 

The intrinsic value of the common stock warrants was approximately $0 as of March 31, 2021, and December 31, 2020, respectively.

 

2016 and 2017 Equity Incentive Plans

 

The Company has limited the aggregate number of shares of common stock to be awarded under the 2016 Equity Incentive Plan to 397,473 shares which may be granted in connection with incentive stock options. The Company has limited the aggregate number of shares of common stock to be awarded under the 2017 Equity Incentive Plan to 500,000 shares which may be granted in connection with incentive stock options. In addition, unless the Compensation Committee specifically determines otherwise, the maximum number of shares available under the 2016 and 2017 Plans and the awards granted under those plans will be subject to appropriate adjustment in the case of any stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, exchanges or other changes in capitalization affecting our common stock.

  

The stock options had an intrinsic value of $0 as of March 31, 2021 and December 31, 2020, respectively.

 

The Company recognizes forfeitures as they occur rather than estimating a forfeiture rate. The reduction of stock compensation expense related to the forfeitures was $0 for the three months ended March 31, 2021 and 2020, respectively.

 

Unrecognized stock compensation expense was approximately $270 thousand as of March 31, 2021, which will be recognized over a weighted-average period of 1.50 years.

  

Restricted stock activity for the three months ended March 31, 2021 is summarized below:

 

Outstanding at Restricted Stock  Weighted- 
Average
Grant Date Fair
Value
 
December 31, 2020  37,500  $4.17 
Granted  -   - 
Vested  (8,750)  4.11 
Forfeited  -   - 
March 31, 2021  28,750  $4.19 

  

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The following table summarizes the Company’s stock option activity:

 

Outstanding at Number of
Options
  Weighted-
Average
Exercise
Price
  Weighted-
Average
Remaining
Contractual
Term 
(In Years)
 
December 31, 2020  229,334  $5.55   7.07 
Granted         
Exercised         
Expired         
March 31, 2021  229,334  $5.55   6.82 
Exercisable – March 31, 2021  229,334  $5.55   6.82 

 

Note 9 — Income Taxes

 

Book income before taxes was negative for the three months ended March 31, 2021. Tax expense for the three months ended March 31, 2021 and 2020 was $0.

 

There are no uncertain tax positions that would require recognition in the consolidated financial statements. If the Company incurs an income tax liability in the future, interest on any income tax liability would be reported as interest expense and penalties on any income tax liability would be reported as income taxes. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analyses of tax laws, regulations and interpretations thereof as well as other factors.

 

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, (“ASC 740”) which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition.

 

As of March 31, 2021, the Company has U.S. federal and certain state tax returns subject to examination, beginning with those filed for the year ended December 31, 2015.

 

Note 10 — Subsequent Events

 

The Company has evaluated subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements were issued for potential recognition or disclosure and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements.

 

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis in conjunction with the information set forth within the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020 (“Annual Report”).

 

Overview

 

Sensus Healthcare, Inc. (together, with its subsidiary, unless the context otherwise indicates, “Sensus” or the “Company”) is a medical device company committed to providing highly effective, non-invasive and cost-effective treatments for both oncological and non-oncological skin conditions. The Company uses a proprietary low-energy X-ray technology known as superficial radiation therapy (“SRT”), which is based on over a decade of dedicated research and development and has successfully incorporated SRT into a portfolio of treatment devices: the SRT-100TM, SRT-100+TM and SRT-100 VisionTM. To date, SRT technology has been used to effectively and safely treat oncological and non-oncological skin conditions in hundreds of thousands of patients around the world. With the introduction of Sculptura™, the Company has branched out into cancer treatment that goes far beyond skin and may provide a revolutionary treatment option for patients around the world.

 

Impact of COVID-19

 

The outbreak of COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies, as well as on the Company’s and its employees, operations, and customer demand. The Company has been able to continue to operate and service its customers throughout the pandemic. However, the pandemic significantly impacted the Company’s sales throughout 2020 and into 2021, as social distancing forced physicians to temporarily close their practices and could further impact the Company’s operations and the operations of the Company’s customers, suppliers and vendors 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. Sensus continues to service customers amid uncertainty and disruption linked to COVID-19 and is actively managing its business to respond to the impact.

 

Segment Information

 

The Company manages its business globally within one reportable segment, which is consistent with how our management reviews our business, prioritizes investment and resource allocation decisions and assesses operating performance.

 

Results of Operations

 

  For the Three Months Ended
March 31,
 
  2021  2020 
(in thousands)      
Revenues $3,070  $1,679 
Cost of sales  1,484   970 
Gross profit  1,586   709 
Operating expenses        
Selling and marketing  1,068   1,791 
General and administrative  972   1,330 
Research and development  661   1,225 
Total operating expenses  2,701   4,346 
Loss from operations  (1,115)  (3,637)
Other income (expense)        
Interest income  -   50 
Other income (expense), net  -   50 
Net Loss $(1,115) $(3,587)

 

Three months ended March 31, 2021 compared to the three months ended March 31, 2020

 

Revenues were $3.1 million for the three months ended March 31, 2021 compared to $1.7 million for the three months ended March 31, 2020, increased 82.8% or $1.4 million. The increase was primarily driven by the higher number of units sold in 2021, service revenue on installed units and the impact of COVID-19 in the first three months of 2020.

 

Cost of sales. Cost of sales was $1.5 million for the three months ended March 31, 2021 compared to $1.0 million for the three months ended March 31, 2020, an increase of $0.5 million, or 52.9%. The increase in cost of sales was commensurate with the increase in sales in the three months ended March 31, 2021.

 

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Gross profit. Gross profit was $1.6 million for the three months ended March 31, 2021 compared to $0.7 million for the three months ended March 31, 2020, an increase of $0.9 million, or 123.8%. Our overall gross profit percentage was 51.6% in the three months ended March 31, 2021 compared to 42.2% in the corresponding period in 2020. The increase in gross profit was primarily driven by the higher number of units sold in 2021, service revenue on installed units and the impact of COVID-19 in the first three months of 2020.

 

Selling and marketing. Selling and marketing expense was $1.1 million for the three months ended March 31, 2021 compared to $1.8 million for the three months ended March 31, 2020, a decrease of $0.7 million, or 40.4%. The decrease was primarily attributable to a decrease in tradeshows expense due to cancellations related to COVID-19, reduced marketing activities including travel and salary and benefit expenses due to reduced headcount.

 

General and administrative. General and administrative expense was $1.0 million for the three months ended March 31, 2021 compared to $1.3 million for the three months ended March 31, 2020, a decrease of $0.3 million, or 26.9%. The net decrease in general and administrative expense was primarily due to salary and benefit expenses due to reduced headcount, partially offset by higher insurance premium costs.

 

Research and development. Research and development expense was $0.7 million for the three months ended March 31, 2021 compared to $1.2 million for the three months ended March 31, 2020, a decrease of $0.5 million, or 46.0%. The decrease in research and development spending reflected lower spending as the SculpturaTM project entered production phase during 2020.

 

Financial Condition

 

The Company’s cash, cash equivalent and investment balance decreased to $13.7 million at March 31, 2021 from $14.9 million at December 31, 2020, primarily due to cash used in operating activities including the timing of collections on the receivables for units sold in the first three months ended March 31, 2021.

 

There were no borrowings under the revolving line of credit at March 31, 2021 and December 31, 2020.

 

Liquidity and Capital Resources

 

The Company’s liquidity position and capital requirements may be impacted by a number of factors, including the following:

 

 ability to generate and increase revenue;

 

 fluctuations in gross margins, operating expenses and net results; and

 

 fluctuations in working capital.

   

The Company’s primary short-term capital needs, which are subject to change, include expenditures related to:

 

 expansion of sales and marketing activities; and

 

 expansion of research and development activities.

   

Sensus’ management regularly evaluates cash requirements for current operations, commitments, capital requirements and business development transactions, and may seek to raise additional funds for these purposes in the future.

 

Cash flows

 

The following table provides a summary of our cash flows for the periods indicated:

 

  

For the Three Months

Ended
March 31,

 
  (unaudited) 
(in thousands) 2021  2020 
Net Cash Provided by (Used In):        
Operating Activities $(1,115) $434 
Investing Activities  (80)  3,566 
Financing Activities  (60)  (3)
Total $(1,255) $3,997 

 

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Net cash used in operating activities was $1.1 million for the three months ended March 31, 2021, consisting of a net loss of $1.1 million and a decrease in net operating assets of $0.3 million, partially offset by non-cash charges of $0.3 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 operating activities was $0.4 million for the three months ended March 31, 2020, primarily due to the operating loss of $3.6 million, partially offset by a decrease in net operating assets of $3.7 million and by non-cash charges of $0.4 million.

 

Net cash used in investing activities for the three months ended March 31, 2021 reflected $0.1 million of purchases of property and equipment. Net cash provided by investing activities was $3.6 million, mostly due to matured investments during the three months ended March 31, 2020.

 

Net cash used in financing activities for the three months ended March 31, 2021 primarily reflected $0.1 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 8, Commitments and Contingencies, to the financial statements.

 

Off-Balance Sheet Arrangements

 

The Company did not have during the periods presented, and does not currently have, any off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting periods. Actual results could differ significantly from those estimates. For a summary of these and additional accounting policies see Note 2, Significant Accounting Policies, in the notes to the condensed consolidated financial statements. In addition, see Critical Accounting Policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2, Significant Accounting Policies, in the 2020 Form 10-K for further information

 

JOBS Act

 

Sensus is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act. As such, the Company can take advantage of exemptions from various reporting requirements that are applicable to other public companies but not to “emerging growth companies,” including, but not limited to:

 

 being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
   
 not being required to comply with the auditor attestation requirements in the assessment of the Company’s internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act;
   
 reduced disclosure obligations regarding executive compensation in the Company’s periodic reports and proxy statements; and
   
 exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

Sensus is expected to remain an emerging growth company until December 31, 2021, following which it is expected to continue to be a “smaller reporting company,” which will enable it to continue to take advantage of many of these exemptions, as discussed below. Investors may find Sensus’ common stock less attractive if the Company chooses to rely on these exemptions. If some investors find Sensus’ common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for the Company’s common stock and the price of its common stock may be more volatile. 

 

In addition, an emerging growth company can delay its adoption of certain accounting standards until those standards would otherwise apply to private companies. However, the Company has chosen to “opt out” of such extended transition period, and as a result, plans to comply with any new or revised accounting standards on the relevant dates on which non-emerging growth companies must adopt such standards. Section 107 of the JOBS Act provides that the decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

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Item 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Control and Procedures

 

As of March 31, 2021, the end of the period covered by this Form 10-Q, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of March 31, 2021, the end of the period covered by this Form 10-Q, we maintained effective disclosure controls and procedures.

 

Changes in Internal Control over Financial Reporting

 

There have been no significant changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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 Annual Report on Form 10-K, as updated in our subsequent quarterly reports. The risks described in our Annual Report on Form 10-K and our subsequent quarterly reports are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

(a) Sales of Unregistered Securities

 

There were no unregistered sales of securities during the three months ended March 31, 2021.

 

(b) Use of Proceeds from the Sale of Registered Securities

 

None.

 

(c) Purchases of Equity Securities by the Registrant and Affiliated Purchases.

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosure

 

Not applicable.

 

Item 5. Other Information

 

None.

 

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Item 6. Exhibits

 

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 Certification of Joseph C. Sardano, Chairman and Chief Executive Officer of Sensus Healthcare, Inc., Pursuant to 18 U.S.C. Section 1350.
   
32.2 Certification of Javier Rampolla, Chief Financial Officer of Sensus Healthcare, Inc., Pursuant to 18 U.S.C. Section 1350.
   
101.INS XBRL Instance Document
   
101.SCH XBRL Taxonomy Extension Schema Document
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
   
101.LAB XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
   
101.DEF XBRL Taxonomy Extension Definition Linkbase Document

 

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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: May 14, 2021/s/ Joseph C. Sardano
 Joseph C. Sardano
 Chief Executive Officer
 (Principal Executive Officer)
  
Date: May 14, 2021/s/ Javier Rampolla
 Javier Rampolla
 Chief Financial Officer
 (Principal Financial Officer and
Principal Accounting Officer)

 

 

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