Item
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SENSUS
HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
As of
March 31,
|
|
|
As of
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,251,884
|
|
|
$
|
12,484,256
|
|
Accounts receivable, net
|
|
|
16,881,672
|
|
|
|
13,145,934
|
|
Inventories
|
|
|
1,551,419
|
|
|
|
1,628,817
|
|
Investment in debt securities
|
|
|
4,699,954
|
|
|
|
2,892,190
|
|
Prepaid and other current assets
|
|
|
2,252,755
|
|
|
|
1,750,994
|
|
Total Current Assets
|
|
|
31,637,684
|
|
|
|
31,902,191
|
|
Property and Equipment, Net
|
|
|
899,792
|
|
|
|
891,029
|
|
Patent Rights, Net
|
|
|
409,640
|
|
|
|
433,737
|
|
Deposits
|
|
|
24,272
|
|
|
|
24,272
|
|
Operating Lease Right-of-Use Assets, Net
|
|
|
749,114
|
|
|
|
—
|
|
Total Assets
|
|
$
|
33,720,502
|
|
|
$
|
33,251,229
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
4,075,214
|
|
|
$
|
5,166,239
|
|
Deferred revenue, current portion
|
|
|
744,996
|
|
|
|
722,025
|
|
Operating lease liabilities, current portion
|
|
|
240,972
|
|
|
|
—
|
|
Product warranties
|
|
|
137,942
|
|
|
|
136,217
|
|
Total Current Liabilities
|
|
|
5,199,124
|
|
|
|
6,024,481
|
|
Operating Lease Liabilities
|
|
|
510,784
|
|
|
|
—
|
|
Deferred Revenue, Net of Current Portion
|
|
|
815,164
|
|
|
|
766,732
|
|
Total Liabilities
|
|
|
6,525,072
|
|
|
|
6,791,213
|
|
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; 16,546,196 issued and 16,512,742 outstanding at March 31, 2019; 16,145,915 issued and 16,112,461 outstanding at December 31, 2018
|
|
|
165,461
|
|
|
|
161,459
|
|
Additional paid-in capital
|
|
|
42,810,335
|
|
|
|
39,957,905
|
|
Treasury stock, 33,454 shares at cost, at March 31, 2019 and December 31, 2018, respectively
|
|
|
(133,816
|
)
|
|
|
(133,816
|
)
|
Accumulated deficit
|
|
|
(15,646,550
|
)
|
|
|
(13,525,532
|
)
|
Total Stockholders’ Equity
|
|
|
27,195,430
|
|
|
|
26,460,016
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
33,720,502
|
|
|
$
|
33,251,229
|
|
See
accompanying notes to the unaudited condensed consolidated financial statements.
SENSUS
HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
For the Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
5,436,599
|
|
|
$
|
5,955,462
|
|
Cost of Sales
|
|
|
2,120,621
|
|
|
|
2,015,200
|
|
Gross Profit
|
|
|
3,315,978
|
|
|
|
3,940,262
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
2,530,346
|
|
|
|
2,214,911
|
|
General and administrative
|
|
|
1,013,162
|
|
|
|
1,342,253
|
|
Research and development
|
|
|
1,965,507
|
|
|
|
1,497,618
|
|
Total Operating Expenses
|
|
|
5,509,015
|
|
|
|
5,054,782
|
|
Loss From Operations
|
|
|
(2,193,037
|
)
|
|
|
(1,114,520
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
72,020
|
|
|
|
22,022
|
|
Interest expense
|
|
|
—
|
|
|
|
(33,415
|
)
|
Other Income (Expense), net
|
|
|
72,020
|
|
|
|
(11,393
|
)
|
Net Loss
|
|
$
|
(2,121,018
|
)
|
|
$
|
(1,125,913
|
)
|
Net Loss per share – basic and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.08
|
)
|
Weighted average number of shares used in computing net loss per share – basic and diluted
|
|
|
16,119,726
|
|
|
|
13,331,553
|
|
See
accompanying notes to the unaudited condensed consolidated financial statements.
SENSUS
HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
FOR
THE THREE MONTHS ENDED MARCH 31, 2018 AND 2019
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Treasury Stock
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Total
|
|
December 31, 2017
|
|
|
13,522,168
|
|
|
$
|
135,221
|
|
|
$
|
23,181,641
|
|
|
|
(33,454
|
)
|
|
$
|
(133,816
|
)
|
|
$
|
(11,502,771
|
)
|
|
$
|
11,680,275
|
|
Stock based compensation
|
|
|
50,000
|
|
|
|
500
|
|
|
|
541,108
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
541,608
|
|
Exercise of warrants
|
|
|
29,288
|
|
|
|
293
|
|
|
|
90,574
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
90,867
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,125,913
|
)
|
|
|
(1,125,913
|
)
|
March 31, 2018
|
|
|
13,601,456
|
|
|
|
136,014
|
|
|
$
|
23,813,323
|
|
|
|
(33,454
|
)
|
|
$
|
(133,816
|
)
|
|
$
|
(12,628,684
|
)
|
|
$
|
11,186,837
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
16,145,915
|
|
|
$
|
161,459
|
|
|
$
|
39,957,905
|
|
|
|
(33,454
|
)
|
|
$
|
(133,816
|
)
|
|
$
|
(13,525,532
|
)
|
|
$
|
26,460,016
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
154,535
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
154,535
|
|
Exercise of warrants
|
|
|
400,281
|
|
|
|
4,002
|
|
|
|
2,697,895
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,701,897
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,121,018
|
)
|
|
|
(2,121,018
|
)
|
March 31, 2019
|
|
|
16,546,196
|
|
|
$
|
165,461
|
|
|
$
|
42,810,335
|
|
|
|
(33,454
|
)
|
|
$
|
(133,816
|
)
|
|
$
|
(15,646,550
|
)
|
|
$
|
27,195,430
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the unaudited condensed consolidated financial statements.
SENSUS
HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
For the Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,121,018
|
)
|
|
$
|
(1,125,913
|
)
|
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:
|
|
|
|
|
|
|
|
|
Bad debt expense (recovery)
|
|
|
—
|
|
|
|
2,345
|
|
Depreciation and amortization
|
|
|
128,435
|
|
|
|
100,534
|
|
Provision for product warranties
|
|
|
59,638
|
|
|
|
36,790
|
|
Stock based compensation
|
|
|
154,535
|
|
|
|
541,608
|
|
Decrease (increase) in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,735,738
|
)
|
|
|
(3,107,036
|
)
|
Inventories
|
|
|
(26,299
|
)
|
|
|
(62,071
|
)
|
Prepaid and other current assets
|
|
|
(445,874
|
)
|
|
|
86,775
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(1,144,269
|
)
|
|
|
87,870
|
|
Deferred revenue
|
|
|
71,402
|
|
|
|
5,005
|
|
Product warranties
|
|
|
(57,913
|
)
|
|
|
(43,467
|
)
|
Total Adjustments
|
|
|
(4,996,083
|
)
|
|
|
(2,351,647
|
)
|
Net Cash Used In Operating Activities
|
|
|
(7,117,101
|
)
|
|
|
(3,477,560
|
)
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
|
(9,404
|
)
|
|
|
(287,594
|
)
|
Investment in debt securities - held to maturity
|
|
|
(3,007,764
|
)
|
|
|
—
|
|
Investments matured
|
|
|
1,200,000
|
|
|
|
1,104,635
|
|
Net Cash Provided By (Used) In Investing Activities
|
|
|
(1,817,168
|
)
|
|
|
817,041
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Revolving credit facility, net
|
|
|
—
|
|
|
|
2,000,663
|
|
Exercise of warrants
|
|
|
2,701,897
|
|
|
|
90,867
|
|
Net Cash Provided By Financing Activities
|
|
|
2,701,897
|
|
|
|
2,091,530
|
|
Net Decrease in Cash and Cash Equivalents
|
|
|
(6,232,372
|
)
|
|
|
(568,991
|
)
|
Cash and Cash Equivalents – Beginning
|
|
|
12,484,256
|
|
|
|
10,085,468
|
|
Cash and Cash Equivalents – Ending
|
|
$
|
6,251,884
|
|
|
$
|
9,516,479
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Interest Paid
|
|
$
|
—
|
|
|
$
|
33,415
|
|
Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
Transfer of inventory to property and equipment
|
|
$
|
103,697
|
|
|
|
—
|
|
Lease liabilities arising from obtaining right-of-use-assets
|
|
$
|
805,000
|
|
|
$
|
—
|
|
See
accompanying notes to the unaudited condensed consolidated financial statements.
SENSUS HEALTHCARE, INC.
NOTES TO THE FINANCIAL STATEMENTS
(unaudited)
Note 1 — Organization
and Summary of Significant Accounting Policies
Description of
the Business
Sensus Healthcare, Inc. (the “Company”) is a manufacturer
of radiation therapy devices and has established a distribution and marketing network to sell the devices to healthcare providers
globally. The Company was organized on May 7, 2010 as a limited liability corporation. On January 1, 2016, the Company completed
a corporate conversion pursuant to which Sensus Healthcare, Inc. succeeded to the business of Sensus Healthcare, LLC. In February
2018, the Company opened a subsidiary in Israel. The Company operates as one segment from its corporate headquarters located in
Boca Raton, Florida.
Basis of Presentation
The accompanying unaudited condensed financial statements in
this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United
States of America, or GAAP, and the rules and regulations of the U.S. Securities and Exchange Commission, or SEC. Accordingly,
they do not include certain footnotes and financial presentations normally required under accounting principles generally accepted
in the United States of America for complete financial statements. The interim financial information is unaudited, but reflects
all normal adjustments and accruals which are, in the opinion of management, considered necessary to provide a fair presentation
for the interim periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with
the Company’s audited financial statements and notes thereto for the year ended December 31, 2018 included in the Company’s
Form 10-K, filed with the SEC. The results for the three months ended March 31, 2019 are not necessarily indicative of results
to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period.
Principles of consolidation
The accompanying condensed consolidated
financial statements include the financial statements of the Company and its wholly-owned subsidiary in Israel. All inter-company
balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 revenues and expenses during the reporting period. Significant estimates to which it is reasonably possible
that a change could occur in the near term include, inventory reserves, receivable allowances, recoverability of long-lived assets
and estimation of the Company’s product warranties. Actual results could differ from those estimates.
Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards
Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” using the modified retrospective
method for all contracts as of the date of adoption. The adoption of this standard did not result in a significant change to the
Company’s historical revenue recognition policies and there were no necessary adjustments required to retained earnings upon
adoption.
Under ASC 606, a performance obligation is a promise within
a contract to transfer a distinct good or service, or a series of distinct goods and services, to a customer. Revenue is recognized
when performance obligations are satisfied and the customer obtains control of promised goods or services, which is generally upon
shipment of the goods and performance of the service. The amount of revenue recognized reflects the consideration to which the
Company expects to be entitled to receive in exchange for goods or services. Under the standard, a contract’s transaction
price is allocated to each distinct performance obligation. To determine revenue recognition for arrangements that the Company
determines are within the scope of ASC 606, the Company performs the following five steps: (i) identifies the contracts with a
customer; (ii) identifies the performance obligations within the contract, including whether they are distinct and capable of being
distinct in the context of the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance
obligations in the contract; and (v) recognizes revenue when, or as, the Company satisfies each performance obligation.
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, by comparing the median selling price of the service contract as stand-alone and the median selling
price of the service contract when sold together with the device. The service level provided is identical when the service contract
is purchased stand-alone 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. The service contract is not considered a performance obligation until it
is paid, and it does not provide a material right for a significant discount when purchased with the device. The service portion
of a sales contract or a stand-alone service contract is accounted for over the period of time of the service contract only when
the customer exercises the option by paying for the service contract.
Disaggregated revenue for the three months ended March 31, 2019
and 2018 was as follows:
|
|
For the Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Product Revenue
|
|
$
|
4,930,924
|
|
|
$
|
5,532,647
|
|
Service Revenue
|
|
|
505,675
|
|
|
|
422,815
|
|
Total Revenue
|
|
$
|
5,436,599
|
|
|
$
|
5,955,462
|
|
The Company operates in a highly regulated environment in which
state regulatory approval is sometimes required prior to the customer being able to use the product, primarily in the U.S. dermatology
market. In these cases, where regulatory approval is pending, revenue is deferred until such time as regulatory approval is obtained.
Deferred revenue as of March 31, 2019 was as follows:
|
|
Service
|
|
|
Product
|
|
|
Total Deferred Revenue
|
|
Balance, beginning of period
|
|
$
|
1,455,757
|
|
|
$
|
33,000
|
|
|
$
|
1,488,757
|
|
Revenue recognized
|
|
|
(368,956
|
)
|
|
|
(33,000
|
)
|
|
|
(401,956
|
)
|
Amounts invoiced
|
|
|
473,359
|
|
|
|
—
|
|
|
|
473,359
|
|
Balance, end of period
|
|
$
|
1,560,160
|
|
|
$
|
—
|
|
|
$
|
1,560,160
|
|
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,
2019 is as follows:
Year
|
|
Service Revenue
|
|
2019 (April 1 – December 31, 2019)
|
|
$
|
579,785
|
|
2020
|
|
|
539,914
|
|
2021
|
|
|
405,892
|
|
2022
|
|
|
34,569
|
|
Total
|
|
$
|
1,560,160
|
|
The Company provides warranties in conjunction with the sale
of its products. These warranties entitle the customer to repair, replacement, or modification of the defective product subject
to the terms of the respective warranty. The Company records an estimate of future warranty claims at the time the Company recognizes
revenue from the sale of the product 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 United States, which represented approximately 81% and 100% for the three months ended March 31, 2019 and 2018, respectively.
A single customer in the US accounted for approximately 53% and 75% of revenues for the three months ended March 31, 2019 and 2018,
respectively, and approximately 87% of the accounts receivable as of March 31, 2019 and December 31, 2018, respectively.
Cash and Cash Equivalents
The Company maintains its cash and cash equivalents with financial
institutions which balances exceed the federally insured limits. Federally insured limits are $250,000 for deposits. As of March
31, 2019 and December 31, 2018, the Company had approximately $5,679,000 and $11,726,000, respectively in excess of federally insured
limits.
For purposes of the statement 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.
Investments
Short-term investments consist
of investments which the Company expects to convert into cash within one year and long-term investments after one year. The Company
classifies its investments in debt securities at the time of purchase as h
eld-to-maturity and reevaluates such classification
on a quarterly basis. Held-to-maturity investments consist of securities that the Company has the intent and ability to retain
until maturity. These securities ar
e carried at amortized cost plus accrued interest and consist of
the following:
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gain
|
|
|
Gross
Unrealized
Loss
|
|
|
Fair
Value
|
|
Short-Term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
2,892,190
|
|
|
$
|
—
|
|
|
$
|
623
|
|
|
$
|
2,891,567
|
|
Total Short Term:
|
|
|
2,892,190
|
|
|
|
—
|
|
|
|
623
|
|
|
|
2,891,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments December 31, 2018
|
|
$
|
2,892,190
|
|
|
$
|
—
|
|
|
$
|
623
|
|
|
$
|
2,891,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
4,699,954
|
|
|
$
|
1,226
|
|
|
$
|
—
|
|
|
$
|
4,701,180
|
|
Total Short Term:
|
|
|
4,699,954
|
|
|
|
1,226
|
|
|
|
—
|
|
|
|
4,701,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments March 31, 2019
|
|
$
|
4,699,954
|
|
|
$
|
1,226
|
|
|
$
|
—
|
|
|
$
|
4,701,180
|
|
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 $0 as of
March 31, 2019 and December 31, 2018. Bad debt expense for the three months ended March 31, 2019 and 2018 was approximately $0
and $2,000, 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.
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,
|
|
|
|
2019
|
|
|
2018
|
|
Warrants
|
|
|
256,035
|
|
|
|
—
|
|
Stock options
|
|
|
64,463
|
|
|
|
3,660
|
|
Shares
|
|
|
70,951
|
|
|
|
—
|
|
Advertising Costs
Advertising and promotion expenses are charged to expense as
incurred. Advertising and promotion expense included in selling expense in the accompanying statements of operations amounted to
approximately $539,000 and $522,000 for the three months ended March 31, 2019 and 2018, respectively.
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.
Recently issued
and Adopted accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, “Leases
(Topic 842).” The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13).
The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease
liability on the balance sheet for leases with terms longer than 12 months. Leases will be classified as either finance or operating,
with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal
years beginning after December 1, 2018, including interim periods within those fiscal years, with early adoption permitted. A modified
retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the financial statements. Early adoption of the amendments in the
update is permitted. The Company adopted this standard in the first quarter of 2019 using the modified retrospective approach.
The adoption of this standard resulted in the recognition of operating lease right-of-use assets and associated lease liabilities
on our balance sheet of approximately $805,000 and $805,000, respectively, as of January 1, 2019. Additional required disclosures
have been included within Note 6 - Leases. Such adoption did not have a material impact on our liquidity, results of operations
or our compliance with the revolving credit facility covenants.
Note 2 — Property
and Equipment
|
|
As of March 31, 2019
|
|
|
As of December 31, 2018
|
|
|
Estimated Useful Lives
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Operations equipment
|
|
$
|
854,302
|
|
|
$
|
852,273
|
|
|
3 years
|
|
Tradeshow and demo equipment
|
|
|
890,929
|
|
|
|
784,244
|
|
|
3 years
|
|
Computer equipment
|
|
|
117,666
|
|
|
|
112,521
|
|
|
3 years
|
|
|
|
|
1,862,897
|
|
|
|
1,749,038
|
|
|
|
|
Less accumulated depreciation
|
|
|
(963,105
|
)
|
|
|
(858,009
|
)
|
|
|
|
Property and Equipment, Net
|
|
$
|
899,792
|
|
|
$
|
891,029
|
|
|
|
|
Depreciation expense was approximately $104,000 and $76,000,
for the three months ended March 31, 2019 and 2018, respectively.
Note 3 — Patent
Rights
|
|
As of March 31,
|
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
1,253,018
|
|
|
$
|
1,253,018
|
|
Less accumulated amortization
|
|
|
(843,378
|
)
|
|
|
(819,281
|
)
|
Patent Rights, Net
|
|
$
|
409,640
|
|
|
$
|
433,737
|
|
Amortization expense was approximately $24,000 for the three
months ended March 31, 2019 and 2018. As of March 31, 2019, future remaining amortization expense is as follows:
Year
|
|
|
|
2019 (April 1 – December 31, 2019)
|
|
$
|
72,290
|
|
2020
|
|
|
96,386
|
|
2021
|
|
|
96,386
|
|
2022
|
|
|
96,386
|
|
2023
|
|
|
48,192
|
|
Total
|
|
$
|
409,640
|
|
Note 4 — Revolving
Credit Facility
On October 31, 2017, the Company amended its revolving credit
facility to extend the maturity to October 31, 2019 and to amend the financial covenants. The availability under the amended facility
will equal the lesser of the $5 million commitment amount or the borrowing base plus the $2.5 million non-formula sublimit. The
borrowing base consists of 80% of eligible accounts receivable, as defined in the agreement.
Interest, at Prime plus 0.75% (6.25% at March 31, 2019) and
Prime plus 1.50% on non-formula borrowings (7.00% at March 31, 2019), is payable monthly, and the outstanding principal and interest
are due on the maturity date. The facility is secured by all of the Company’s assets and limits the amount of additional
indebtedness, restricts the sale, disposition or transfer of assets of the Company and requires the maintenance of a certain monthly
adjusted quick ratio restrictive covenant, as defined in the agreement. The Company was in compliance with its financial covenants
as of March 31, 2019 and December 31, 2018. There were no borrowings outstanding under the revolving credit facility at March 31,
2019 and December 31, 2018. The Company pays commitment fees of 0.25% per annum on the average unused portion of the line of credit.
Note 5 — Product
Warranties
Changes in product warranty liability were as follows for the
nine months ended March 31, 2019:
Balance, beginning of period
|
|
$
|
136,217
|
|
Warranties accrued during the period
|
|
|
59,638
|
|
Payments on warranty claims
|
|
|
(57,913
|
)
|
Balance, end of period
|
|
$
|
137,942
|
|
Note 6 — Leases
Operating Lease
Agreements
In July 2016, the Company renewed its lease with an unrelated
third party for its headquarters office. The renewal was effective September 1, 2016 and expanded the office space being occupied.
The lease expires in September 2022 and lease payments increase by 3% annually. In February 2017 and January 2018, the Company
signed amendments to expand further the leased office space. The Company’s Israeli subsidiary entered into a two-year lease
for office space starting in September 2018. The leases include an option to extend with prior notice and with terms to be negotiated.
The Company currently does not have any lease with a term under 12 months.
On March 19, 2019, the Company’s Israeli subsidiary signed
a 10-year lease for a manufacturing facility, effective April 1, for approximately 5,800 square feet. The landlord has provided
a four-month grace period rent free from April to July 2019, after which the 10 year lease will begin. The monthly rental payment
starts at approximately $5,300 and will be subject to periodic escalations at amounts specified in the lease plus the consumer
price index. In addition, the Company is responsible for maintenance fees covering its portion of the expenses of common areas.
After 2, 4, 6 and 8 years, and with 180 days prior notice, the Company has the right to terminate the lease at its sole discretion
with no penalty.
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, 2019.
Maturity of Operating Lease Liabilities
|
|
Amount
|
|
2019 (April 1 – December 31, 2019)
|
|
$
|
187,420
|
|
2020
|
|
|
245,237
|
|
2021
|
|
|
230,674
|
|
2022
|
|
|
176,866
|
|
Total undiscounted operating leases payments
|
|
$
|
840,197
|
|
Less: Imputed interest
|
|
|
(88,441
|
)
|
Present Value of Operating Lease Liabilities
|
|
$
|
751,756
|
|
|
|
|
|
|
Other Information
|
|
|
|
|
Weighted-average remaining lease term
|
|
|
3.3 years
|
|
Weighted-average discount rate
|
|
|
5.0
|
%
|
An initial ROU asset of approximately $805,000 was recognized
as a non-cash assets addition with the adoption of the new lease accounting standard. The ROU asset was reduced by approximately
$56,000 during the three months ended March 31, 2019. Cash paid for amounts included in the present value of operating lease liabilities
was approximately $62,000 for the three months ended March 31, 2019 and is included in operating cash flows. Operating lease cost
was approximately $65,000 for the three months ended March 31, 2019.
Note 7 — Commitments
and Contingencies
Manufacturing Agreement
In July 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, the Company’s main
product 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 this agreement that it will
not renew the agreement. The Company or the manufacturer has the option to terminate the agreement upon 90 days written notice.
Any change in the relationship with the manufacturer could have an adverse effect on the Company’s business.
Purchases from this manufacturer totaled approximately $1,911,000
and $1,137,000 for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, and December 31, 2018 approximately
$663,000 and $1,041,000, 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 November 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 received a Civil Investigative Demand 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.
Note 8 — Employee
Benefit Plans
We sponsor a 401(k) defined contribution retirement plan that
allows eligible employees to contribute a portion of their compensation through payroll deductions in accordance with specified
plan guidelines. We make contributions to the plans that include matching a percentage of the employees’ contributions up
to certain limits. Expenses related to this plan totaled approximately $28,000 and $24,000 for the three months ended March 31,
2019 and 2018, respectively.
Note 9 — Stockholders’
Equity
The Company has authorized 50,000,000 shares of common stock,
of which 16,546,196 were issued and 16,512,742 outstanding at March 31, 2019; 16,145,915 shares were issued and 16,112,461 were
outstanding as of December 31, 2018.
Warrants
In April 2013, the closing date of the Company’s second
common offering, the Company’s placement agent received investor rights to 5 year warrants to purchase 86,376 common shares
of the Company at an exercise price of $4.55 per unit, which was equal to 110% of the offering price. During the first quarter
of 2018, 73,309 of the warrants were exercised, and 13,067 warrants expired.
In June 2016, from the Company’s IPO, the investors received
three-year warrants to purchase 2,300,000 shares of common stock at an exercise price of $6.75 per share; the warrants are exercisable
through June 2, 2019. Following the first anniversary of the date of issuance, if certain conditions are met, the Company may redeem
any and all of the outstanding warrants at a price equal to $0.01 per warrant. During the first quarter of 2019, warrants for 400,281
shares were exercised.
In addition, the underwriter’s representatives for the
IPO received four-year warrants to purchase up to 138,000 units, consisting of one share of common stock and one warrant to purchase
one share of common stock. The warrants for the units are exercisable between June 2, 2017 and June 2, 2021 at an exercise price
of $6.75 per unit.
The following table summarizes the Company’s warrant activity:
|
|
Common Unit Warrants
|
|
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (In Years)
|
|
Outstanding – December 31, 2018
|
|
|
2,438,000
|
|
|
$
|
6.75
|
|
|
|
0.55
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(400,281
|
)
|
|
|
6.75
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding – March 31, 2019
|
|
|
2,037,719
|
|
|
$
|
6.75
|
|
|
|
0.32
|
|
Exercisable – March 31, 2019
|
|
|
2,037,719
|
|
|
$
|
6.75
|
|
|
|
0.32
|
|
The intrinsic value of the common stock warrants was approximately
$550,000 and $1,609,000 as of March 31, 2019, and December 31, 2018, 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 and no more than 397,473 shares of common stock in the
aggregate 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 and no more than 500,000 shares of common stock
in the aggregate 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.
On June 2, 2016, 307,666 shares of restricted stock were issued
to employees and were recorded at the fair value of $5.25 as per the initial offering price. In addition, on January 20, 2017,
10,000 shares of restricted stock were issued to one employee and were recorded at the fair value of $4.99 per share and on October
1, 2018, 30,000 shares of restricted stock were issued to employees and were recorded at the fair value of $8.58 per share. The
restricted shares vest 25% per year over a four-year vesting period and are being recognized as expense on a straight-line basis
over the vesting period of the awards.
On January 25, 2018, 80,000 fully vested shares were granted
to the nonemployee directors, and 229,334 stock options with a four-year vesting period were granted to certain employees. The
shares were recorded at the fair value of $5.55 per share for a total of $444,000 and the stock options were valued using a Black
Scholes model at $3.52 per option using the assumptions noted in the following table:
|
|
|
|
Expected volatility
|
|
|
67.8
|
%
|
Risk-free interest rate
|
|
|
2.5
|
%
|
Expected life
|
|
|
6.25 years
|
|
Dividend yield
|
|
|
0.0
|
%
|
Expected Volatility
. Expected volatility is a measure
of the amount by which the Company’s stock price is expected to fluctuate. Expected volatility is based on the historical
daily volatility of the price of our common shares. The Company estimated the expected volatility of the stock options at grant
date.
Risk-Free Interest Rate
. The risk-free interest rate
is based on the implied yield on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of our stock-based
awards.
Expected Term or Life
. The expected term or life of stock
options granted issued represents the expected weighted average period of time from the date of grant to the estimated date that
the stock option would be fully exercised. The weighted average expected option term was determined using the “simplified
method” for plain vanilla options as allowed by the accounting guidance. The “simplified method” calculates the
expected term as the average of the vesting term and original contractual term of the options.
The stock options had an intrinsic value of approximately $337,000
and $427,000 as of March 31, 2019 and December 31, 2018, 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 approximately $0 and $39,000
for the three months ended March 31, 2019 and 2018, respectively.
Unrecognized stock compensation expense was approximately $1,233,000
as of March 31, 2019, which will be recognized over the remaining vesting period.
A summary of the restricted stock activity is presented as follows:
|
|
Shares
|
|
|
Weighted
Average
Grant Date Fair
Value
|
|
Unvested balance at December 31, 2018
|
|
|
165,834
|
|
|
$
|
5.84
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(2,500
|
)
|
|
|
4.99
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Unvested balance at March 31, 2019
|
|
|
163,334
|
|
|
$
|
5.85
|
|
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, 2018
|
|
|
229,334
|
|
|
$
|
5.55
|
|
|
|
9.08
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding – March 31, 2019
|
|
|
229,334
|
|
|
$
|
5.55
|
|
|
|
8.83
|
|
Exercisable – March 31, 2019
|
|
|
57,334
|
|
|
$
|
5.55
|
|
|
|
8.83
|
|
Treasury Stock
The Company accounts for purchases of treasury stock under the
cost method with the cost of such share purchases reflected in treasury stock in the accompanying condensed balance sheet. As of
March 31, 2019 and December 31, 2018, the Company had 33,454 treasury shares.
Note 10 — Income
Taxes
Book income before taxes was negative for the three months ended
March 31, 2019. Tax expense for the three months ended March 31, 2019 and 2018 was $0.
There are no uncertain tax positions that would require recognition
in the 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, 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, 2019, the Company has U.S. federal and certain
state tax returns subject to examination, beginning with those filed for the year 2015.
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.
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, 2018 (“Annual Report”). The statements in this discussion
regarding our expectations of our future performance, liquidity and capital resources, our plans, estimates, beliefs and expectations
that involve risks and uncertainties, and other non-historical statements in this discussion, are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The words “may,” “could,” “should,”
“would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,”
“plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the
risks and uncertainties described under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Our actual
results may differ materially from those contained in or implied by any forward-looking statements. Please see the Introductory
Note and Item 1A. Risk Factors of our Annual Report, as updated in our subsequent quarterly reports filed on Form 10-Q, and in
our other filings made from time to time with the SEC after the date of this report.
Overview
We are a medical device company that is committed to providing
highly effective, non-invasive and cost-effective treatments for both oncological and non-oncological skin conditions. We use a
proprietary low-energy X-ray technology known as superficial radiation therapy (“SRT”), which is a result of over a
decade of dedicated research and development. We have successfully incorporated SRT into our portfolio of treatment devices: the
SRT-100
TM
, SRT-100+
TM
and SRT-100 Vision
TM
. In February 2019, we received FDA clearance of
our Sculptura™, a robotic radiation oncology system that provides targeted intraoperative triple-modulated radiotherapy (IORT)
and Brachytherapy utilizing our proprietary, state-of-the-art 3D Beam Sculpting™ to treat patients undergoing cancer treatment
during surgery, or at the tumor site, with a single dose.
Components of our results of operations
We manage our 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,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
5,436,599
|
|
|
$
|
5,955,462
|
|
Cost of Sales
|
|
|
2,120,621
|
|
|
|
2,015,200
|
|
Gross Profit
|
|
|
3,315,978
|
|
|
|
3,940,262
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
2,530,346
|
|
|
|
2,214,911
|
|
General and administrative
|
|
|
1,013,162
|
|
|
|
1,342,253
|
|
Research and development
|
|
|
1,965,507
|
|
|
|
1,497,618
|
|
Total Operating Expenses
|
|
|
5,509,015
|
|
|
|
5,054,782
|
|
Loss From Operations
|
|
|
(2,193,037
|
)
|
|
|
(1,114,520
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
72,020
|
|
|
|
22,022
|
|
Interest expense
|
|
|
—
|
|
|
|
(33,415
|
)
|
Other Income (Expense), net
|
|
|
72,020
|
|
|
|
(11,393
|
)
|
Net Loss
|
|
$
|
(2,121,018
|
)
|
|
$
|
(1,125,913
|
)
|
Three months ended March 31, 2019 compared to the three months
ended March 31, 2018
Revenue.
Revenue was $5,436,599 for the three months
ended March 31, 2019 compared to $5,955,462 for the three months ended March 31, 2018, a decrease of $518,863, or 8.7%. The decline
in revenue was primarily attributable to a decrease in sales of the higher priced SRT-100 Vision product in the current quarter.
Cost of sales
. Cost of sales was $2,120,621 for the three
months ended March 31, 2019 compared to $2,015,200 for the three months ended March 31, 2018, an increase of $105,421, or 5.2%.
The increase in cost was due to changes in the mix of products sold.
Gross profit.
Gross profit was $3,315,978 for the
three months ended March 31, 2019 compared to $3,940,262 for the three months ended March 31, 2018, a decrease of $624,284, or
15.8%. Our overall gross profit percentage was 61.0% in the three months ended March 31, 2019 compared to 66.2% in the corresponding
period in 2018. The decrease in gross margin percentage was primarily due to changes in the mix of products sold.
Selling and marketing.
Selling and marketing expense
was $2,530,346 for the three months ended March 31, 2019 compared to $2,214,911 for the three months ended March 31, 2018, an increase
of $315,435, or 14.2%. The increase was primarily attributable to an increase in headcount.
General and administrative.
General and administrative
expense was $1,013,162 for the three months ended March 31, 2019 compared to $1,342,253 for the three months ended March 31, 2018,
a decrease of $329,091, or 24.5%. The net decrease in general and administrative was primarily due to stock compensation expense
for shares granted in the first quarter of 2018, partially offset by other increases.
Research and development.
Research and development
expense was $1,965,507 for the three months ended March 31, 2019 compared to $1,497,618 for the three months ended March 31, 2018,
an increase of $467,889, or 31.2%. The increase in research and development spending was primarily attributable to the FDA clearance
of Sculptura
TM
as well as ramp to production.
Other income (expense).
We incur interest expense
in connection with our secured credit facility with Silicon Valley Bank and interest income from our cash and investments. Interest
expense decreased in 2019 with the decrease in borrowings on the line of credit.
Financial Condition
Our cash, cash equivalent and investment balance decreased from
$15.4 million at December 31, 2018 to $11.0 million at March 31, 2019, primarily as a result of an operating loss of $2.1 million
during the three months ended in March 31, 2019 as well as the $3.7 million increase in accounts receivable as a result of higher
sales and longer payment terms to certain customers.
There were no borrowings under the revolving line of credit
at March 31, 2019 or December 31, 2018.
Liquidity and Capital Resources
Overview
Our liquidity position and capital requirements may be impacted
by a number of factors, including the following:
|
●
|
our ability to generate and increase revenue;
|
|
●
|
fluctuations in gross margins, operating expenses and net results; and
|
|
●
|
fluctuations in working capital.
|
Our primary short-term capital needs, which are subject to change,
include expenditures related to:
|
●
|
expansion of our sales, marketing and distribution activities; and
|
|
●
|
expansion of our research and development activities.
|
We regularly evaluate our cash requirements for current operations,
commitments, capital requirements and business development transactions, and we may elect 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)
|
|
|
|
2019
|
|
|
2018
|
|
Net Cash Provided by (Used In):
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
$
|
(7,117,101
|
)
|
|
$
|
(3,477,560
|
)
|
Investing Activities
|
|
|
(1,817,168
|
)
|
|
|
817,041
|
|
Financing Activities
|
|
|
2,701,897
|
|
|
|
2,091,530
|
|
Total
|
|
$
|
(6,232,372
|
)
|
|
$
|
(568,989
|
)
|
Cash flows from operating activities
Net cash used in operating activities was $7,117,101 for the
three months ended March 31, 2019, consisting of a net loss of $2,121,018 and an increase in net operating assets of $5,338,691,
partially offset by non-cash charges of $342,608. The increase in net operating assets was primarily due to the increase in accounts
receivable from longer payment terms to a key customer, and the increase in prepaid and other current assets, offset by a decrease
in accounts payables and accrued expenses. Non-cash charges consisted of stock compensation expense, depreciation and amortizations
and warranty provision. Net cash used in operating activities was $3,477,560 for the three months ended March 31, 2018, primarily
due to the operating loss and the increase in accounts receivable.
Cash flows from investing activities
Net cash used by investing activities was $1,817,168 mostly
due to net investments in debt securities held-to-maturity for $1,807,764 during the three months ended March 31, 2019. Net cash
provided by investing activities was $817,041 for the three months ended March 31, 2018 due to the maturity of debt securities
held-to-maturity of $1,104,635, offset by $287,594 for acquisition of property and equipment.
Cash flows from financing activities
Net cash provided by financing activities was $2,701,897 during
the three months ended March 31, 2019 from the exercise of 400,281 investor warrants. Net cash provided by financing activities
was $2,091,530 during the three months ended March 31, 2018, mainly from $2,000,663 in borrowing from our revolving credit facility.
Capital resources
On November 6, 2017, we filed a universal shelf registration
statement to offer up to $20 million of our securities. In September 2018, we issued and sold 2,536,764 shares of our common stock
in a follow-on public offering at a price of $6.80 per share, for an aggregate offering price of $17.25 million. We were previously
limited in the amount of securities we were able to offer under a shelf registration statement pursuant to the SEC’s “baby
shelf” rules. These rules previously restricted our issuance of securities under a shelf registration statement to one-third
of our public float within a 12-month period. Because our public float exceeded $75 million within 60 days prior to the filing
of our 2018 annual report on Form 10-K, we are not presently subject to this limitation with regard to our existing shelf registration
statement. However, we must re-determine the applicability of the limitation at the time of filing another shelf registration statement
and at the time of filing an annual report on Form 10-K (with respect to any shelf registration on file with the SEC at the time
of filing). Depending on our public float in the future, we may become subject to this limitation again.
Indebtedness
Please see Note 4 to the financial statements.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and do not currently
have, any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results
of operations are based on our financial statements, which have been prepared in accordance with generally accepted accounting
principles in the U.S., or GAAP. We have identified certain accounting policies as critical to understanding our financial condition
and results of our operations. For a detailed discussion on the application of these and other accounting policies, see the notes
to our financial statements and our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, for the
year ended December 31, 2018.
JOBS Act
We qualify as an “emerging growth company” pursuant
to the provisions of the JOBS Act. For as long as we are an “emerging growth company,” we may take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth
companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section
404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements, reduced disclosure obligations relating to the presentation of financial statements in Management’s Discussion
and Analysis of Financial Condition and Results of Operations, exemptions from the requirements of holding advisory “say-on-pay”
votes on executive compensation and shareholder advisory votes on golden parachute compensation. We have availed ourselves of the
reduced reporting obligations in this Quarterly Report on Form 10-Q, and expect to continue to avail ourselves of the reduced reporting
obligations available to emerging growth companies in future filings.
In addition, an emerging growth company can delay its adoption
of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to “opt
out” of such extended transition period, and as a result, we plan 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
our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.