Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
As of
June 30,
|
|
|
As of
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,414,542
|
|
|
$
|
8,100,288
|
|
Investment in debt securities
|
|
|
459,295
|
|
|
|
7,389,407
|
|
Accounts receivable, net
|
|
|
1,086,258
|
|
|
|
14,011,180
|
|
Inventories
|
|
|
5,462,996
|
|
|
|
2,997,120
|
|
Prepaid and other current assets
|
|
|
1,683,976
|
|
|
|
1,505,175
|
|
Total Current Assets
|
|
|
27,107,067
|
|
|
|
34,003,170
|
|
Property and Equipment, Net
|
|
|
979,022
|
|
|
|
1,082,428
|
|
Patent Rights, Net
|
|
|
289,158
|
|
|
|
337,351
|
|
Deposits
|
|
|
101,988
|
|
|
|
101,561
|
|
Operating Lease Right-of-Use Assets, Net
|
|
|
1,232,568
|
|
|
|
1,400,037
|
|
Total Assets
|
|
$
|
29,709,803
|
|
|
$
|
36,924,547
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,860,885
|
|
|
$
|
4,779,435
|
|
Deferred revenue, current portion
|
|
|
1,518,255
|
|
|
|
1,191,898
|
|
Operating lease liabilities, current portion
|
|
|
301,217
|
|
|
|
309,524
|
|
Product warranties
|
|
|
119,692
|
|
|
|
187,454
|
|
Total Current Liabilities
|
|
|
4,800,049
|
|
|
|
6,468,311
|
|
Loan Payable
|
|
|
1,022,785
|
|
|
|
—
|
|
Operating Lease Liabilities
|
|
|
965,718
|
|
|
|
1,115,529
|
|
Deferred Revenue, Net of Current Portion
|
|
|
851,515
|
|
|
|
1,339,285
|
|
Total Liabilities
|
|
|
7,640,067
|
|
|
|
8,923,125
|
|
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; 16,575,561 issued and 16,502,353 outstanding at June 30, 2020; 16,540,478 issued and 16,485,780 outstanding at December 31, 2019
|
|
|
165,755
|
|
|
|
165,404
|
|
Additional paid-in capital
|
|
|
43,601,105
|
|
|
|
43,314,123
|
|
Treasury stock, 73,208 and 54,698 shares at cost, at June 30, 2020 and December 31, 2019, respectively
|
|
|
(309,901
|
)
|
|
|
(252,570
|
)
|
Accumulated deficit
|
|
|
(21,387,223
|
)
|
|
|
(15,225,535
|
)
|
Total Stockholders’ Equity
|
|
|
22,069,736
|
|
|
|
28,001,422
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
29,709,803
|
|
|
$
|
36,924,547
|
|
See accompanying notes to the unaudited
condensed consolidated financial statements.
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,182,948
|
|
|
$
|
7,476,296
|
|
|
$
|
2,862,394
|
|
|
$
|
12,912,895
|
|
Cost of Sales
|
|
|
543,294
|
|
|
|
2,537,102
|
|
|
|
1,514,238
|
|
|
|
4,657,723
|
|
Gross Profit
|
|
|
639,654
|
|
|
|
4,939,194
|
|
|
|
1,348,156
|
|
|
|
8,255,172
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
1,161,845
|
|
|
|
1,995,263
|
|
|
|
2,952,815
|
|
|
|
4,525,608
|
|
General and administrative
|
|
|
904,103
|
|
|
|
963,641
|
|
|
|
2,233,660
|
|
|
|
1,976,803
|
|
Research and development
|
|
|
1,148,328
|
|
|
|
1,934,807
|
|
|
|
2,373,510
|
|
|
|
3,900,314
|
|
Total Operating Expenses
|
|
|
3,214,276
|
|
|
|
4,893,711
|
|
|
|
7,559,985
|
|
|
|
10,402,725
|
|
Income (Loss) From Operations
|
|
|
(2,574,622
|
)
|
|
|
45,483
|
|
|
|
(6,211,829
|
)
|
|
|
(2,147,553
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
14,485
|
|
|
|
66,825
|
|
|
|
64,586
|
|
|
|
138,843
|
|
Interest expense
|
|
|
(14,445
|
)
|
|
|
—
|
|
|
|
(14,445
|
)
|
|
|
—
|
|
Other Income (Expense), net
|
|
|
40
|
|
|
|
66,825
|
|
|
|
50,141
|
|
|
|
138,843
|
|
Net Income (Loss)
|
|
$
|
(2,574,582
|
)
|
|
$
|
112,308
|
|
|
$
|
(6,161,688
|
)
|
|
$
|
(2,008,710
|
)
|
Net Income (Loss) per share –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.16
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.12
|
)
|
Diluted
|
|
$
|
(0.16
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.12
|
)
|
Weighted average number of shares used in computing net loss per share –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,421,928
|
|
|
|
16,368,171
|
|
|
|
16,414,341
|
|
|
|
16,244,635
|
|
Diluted
|
|
|
16,421,928
|
|
|
|
16,382,918
|
|
|
|
16,414,341
|
|
|
|
16,244,635
|
|
See accompanying notes to the unaudited
condensed consolidated financial statements.
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Treasury Stock
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Total
|
|
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 (unaudited)
|
|
|
16,546,196
|
|
|
$
|
165,461
|
|
|
$
|
42,810,335
|
|
|
|
(33,454
|
)
|
|
$
|
(133,816
|
)
|
|
$
|
(15,646,550
|
)
|
|
$
|
27,195,430
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
158,145
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
158,145
|
|
Surrender of Shares for tax withholding on stock compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(21,244
|
)
|
|
|
(118,754
|
)
|
|
|
-
|
|
|
|
(118,754
|
)
|
Exercise of warrants
|
|
|
5,532
|
|
|
|
56
|
|
|
|
37,285
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,341
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
112,308
|
|
|
|
112,308
|
|
June 30, 2019 (unaudited)
|
|
|
16,551,728
|
|
|
$
|
165,517
|
|
|
$
|
43,005,765
|
|
|
|
(54,698
|
)
|
|
$
|
(252,570
|
)
|
|
$
|
(15,534,242
|
)
|
|
$
|
27,384,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
16,540,478
|
|
|
$
|
165,404
|
|
|
$
|
43,314,123
|
|
|
|
(54,698
|
)
|
|
$
|
(252,570
|
)
|
|
$
|
(15,225,535
|
)
|
|
$
|
28,001,422
|
|
Stock based compensation
|
|
|
30,000
|
|
|
|
300
|
|
|
|
155,479
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
155,779
|
|
Surrender of Shares for tax withholding on stock compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(742
|
)
|
|
|
(3,139
|
)
|
|
|
-
|
|
|
|
(3,139
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,587,106
|
)
|
|
|
(3,587,106
|
)
|
March 31, 2020 (unaudited)
|
|
|
16,570,478
|
|
|
$
|
165,704
|
|
|
$
|
43,469,602
|
|
|
|
(55,440
|
)
|
|
$
|
(255,709
|
)
|
|
$
|
(18,812,641
|
)
|
|
$
|
24,566,956
|
|
Stock based compensation
|
|
|
5,000
|
|
|
|
50
|
|
|
|
130,944
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130,994
|
|
Surrender of Shares for tax withholding on stock compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17,768
|
)
|
|
|
(54,192
|
)
|
|
|
-
|
|
|
|
(54,192
|
)
|
Exercise of warrants
|
|
|
83
|
|
|
|
1
|
|
|
|
559
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
560
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,574,582
|
)
|
|
|
(2,574,582
|
)
|
June 30, 2020 (unaudited)
|
|
|
16,575,561
|
|
|
$
|
165,755
|
|
|
$
|
43,601,105
|
|
|
|
(73,208
|
)
|
|
$
|
(309,901
|
)
|
|
$
|
(21,387,223
|
)
|
|
$
|
22,069,736
|
|
See accompanying notes to the unaudited
condensed consolidated financial statements.
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
For the Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,161,688
|
)
|
|
$
|
(2,008,710
|
)
|
Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Bad debts (recovery)
|
|
|
24,000
|
|
|
|
(7,253
|
)
|
Depreciation and amortization
|
|
|
300,151
|
|
|
|
281,162
|
|
Provision for product warranties
|
|
|
139,909
|
|
|
|
116,402
|
|
Stock based compensation
|
|
|
286,773
|
|
|
|
312,680
|
|
Decrease (increase) in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
12,900,922
|
|
|
|
936,353
|
|
Inventories
|
|
|
(2,465,876
|
)
|
|
|
(523,902
|
)
|
Prepaid and other current assets
|
|
|
(11,756
|
)
|
|
|
109,114
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(2,076,671
|
)
|
|
|
(731,195
|
)
|
Deferred revenue
|
|
|
(161,413
|
)
|
|
|
677,396
|
|
Product warranties
|
|
|
(207,671
|
)
|
|
|
(103,643
|
)
|
Total Adjustments
|
|
|
8,728,368
|
|
|
|
1,067,114
|
|
Net Cash Provided By (Used In) Operating Activities
|
|
|
2,566,680
|
|
|
|
(941,596
|
)
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
|
(148,552
|
)
|
|
|
(229,426
|
)
|
Investment in debt securities - held to maturity
|
|
|
—
|
|
|
|
(3,699,718
|
)
|
Investments matured
|
|
|
6,930,112
|
|
|
|
1,200,000
|
|
Net Cash Provided By (Used In) Investing Activities
|
|
|
6,781,560
|
|
|
|
(2,729,144
|
)
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Loan proceeds
|
|
|
1,022,785
|
|
|
|
—
|
|
Withholding taxes on stock compensation
|
|
|
(57,331
|
)
|
|
|
(118,754
|
)
|
Exercise of warrants
|
|
|
560
|
|
|
|
2,739,238
|
|
Net Cash Provided By Financing Activities
|
|
|
966,014
|
|
|
|
2,620,484
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
10,314,254
|
|
|
|
(1,050,256
|
)
|
Cash and Cash Equivalents – Beginning
|
|
|
8,100,288
|
|
|
|
12,484,256
|
|
Cash and Cash Equivalents – Ending
|
|
$
|
18,414,542
|
|
|
$
|
11,434,000
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
12,456
|
|
|
$
|
—
|
|
Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
Transfer of inventory to property and equipment
|
|
$
|
—
|
|
|
$
|
51,234
|
|
Lease liabilities arising from obtaining right-of-use-assets
|
|
$
|
—
|
|
|
$
|
1,714,814
|
|
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 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 GAAP 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, 2019 included in the Company’s Form 10-K, filed with the SEC. The results for the six months
ended June 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, 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 GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities including 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 as 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 the Company’s product warranties.
Actual results could differ from those estimates.
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 and created uncertainty
regarding potential impacts to the Company’s employees, operations, and customer demand. The Company, which provides medical
devices, is considered an “essential business” and has been able to continue to operate and service its customers.
However, the COVID-19 pandemic has significantly impacted the Company’s sales in the first half of 2020, 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 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, which are highly uncertain and cannot be predicted, including, but not limited to
the duration, spread, severity, and impact of the COVID-19 pandemic, the effects of the COVID-19 pandemic on the Company’s
customers, suppliers, and vendors and the remedial actions and stimulus measures adopted by local, state and federal governments,
and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, the Company
may continue to experience adverse impacts to its business as a result of any economic recession or depression that has occurred
or may occur in the future. Therefore, the Company cannot reasonably estimate the impact at this time.
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 services. 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. The service level provided is identical whether 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 and six months ended June
30, 2020 and 2019 was as follows:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Product Revenue
|
|
$
|
69,579
|
|
|
$
|
6,969,527
|
|
|
$
|
1,145,581
|
|
|
$
|
11,900,452
|
|
Service Revenue
|
|
|
1,113,369
|
|
|
|
506,769
|
|
|
|
1,716,813
|
|
|
|
1,012,443
|
|
Total Revenue
|
|
$
|
1,182,948
|
|
|
$
|
7,476,296
|
|
|
$
|
2,862,394
|
|
|
$
|
12,912,895
|
|
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 these cases, where regulatory approval is pending, revenue is deferred until such time as regulatory approval is
obtained.
Deferred revenue as of June 30, 2020 was as follows:
|
|
Service
|
|
Balance, beginning of period
|
|
$
|
2,531,183
|
|
Revenue recognized
|
|
|
(1,378,925
|
)
|
Amounts invoiced
|
|
|
1,217,512
|
|
Balance, end of period
|
|
$
|
2,369,770
|
|
The Company does not disclose information about remaining performance
obligations with respect to 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 June 30, 2020 was as follows:
Year
|
|
Service
Revenue
|
|
2020 (July 1 – December 31, 2020)
|
|
$
|
837,120
|
|
2021
|
|
|
1,083,914
|
|
2022
|
|
|
389,235
|
|
2023
|
|
|
39,667
|
|
2024
|
|
|
19,834
|
|
Total
|
|
$
|
2,369,770
|
|
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 100% and 91% for the three months ended June 30, 2020 and 2019, respectively,
and approximately 99% and 86% for the six months ended June 30, 2020 and 2019, respectively. A customer in the U.S. accounted for
approximately 30% and 70% of revenues for the three months ended June 30, 2020 and 2019, respectively; approximately 19% and 64%
for the six months ended June 30, 2020 and 2019, respectively; and approximately 3% and 74% of the accounts receivable as of June
30, 2020 and December 31, 2019, respectively. Another customer in the U.S. accounted for more than 10% of revenues for the six
months ended June 30, 2020 and 0% of the accounts receivable as of June 30, 2020.
Cash and Cash Equivalents
The Company maintains its cash and cash equivalents with financial
institutions which balances exceed federally insured limits ($250,000 for deposits). As of June 30, 2020 and December 31, 2019,
the Company had approximately $18,125,000 and $7,740,000, respectively in excess of federally insured limits.
For purposes of the statement of cash flows, the Company considers
all highly liquid financial instruments with maturities of three months or less when purchased to be cash equivalents.
Investments
Short-term investments consist of investments which the Company
expects to convert into cash within one year and long-term investments are those that the Company expects to convert to cash after
one year. The Company classifies its investments in debt securities at the time of purchase as held-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 are 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
|
|
$
|
6,690,678
|
|
|
$
|
4,251
|
|
|
$
|
—
|
|
|
$
|
6,694,929
|
|
United States Treasury bonds
|
|
|
698,729
|
|
|
|
1,302
|
|
|
|
—
|
|
|
|
700,031
|
|
Total Short Term:
|
|
|
7,389,407
|
|
|
|
5,553
|
|
|
|
—
|
|
|
|
7,394,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments December 31, 2019
|
|
$
|
7,389,407
|
|
|
$
|
5,553
|
|
|
$
|
—
|
|
|
$
|
7,394,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
459,295
|
|
|
$
|
404
|
|
|
$
|
—
|
|
|
$
|
459,699
|
|
Total Short Term:
|
|
|
459,295
|
|
|
|
404
|
|
|
|
—
|
|
|
|
459,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments June 30, 2020
|
|
$
|
459,295
|
|
|
$
|
404
|
|
|
$
|
—
|
|
|
$
|
459,699
|
|
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
$24,000 and $80,000 as of June 30, 2020 and December 31, 2019.
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. 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
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Shares
|
|
|
—
|
|
|
|
21,494
|
|
|
|
—
|
|
|
|
4,890
|
|
Warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,992
|
|
Stock options
|
|
|
—
|
|
|
|
33,962
|
|
|
|
—
|
|
|
|
41,605
|
|
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 $75,000 and $188,000 for the three months ended June 30, 2020 and 2019, respectively, and $344,000 and $728,000 for
the six months ended June 30, 2020 and 2019, 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 the 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.
Note 2 — Property
and Equipment
|
|
As of
June 30,
2020
|
|
|
As of
December 31,
2019
|
|
|
Estimated
Useful Lives
|
|
|
(unaudited)
|
|
|
|
|
|
|
Operations equipment
|
|
$
|
1,420,422
|
|
|
$
|
1,280,209
|
|
|
3 years
|
Tradeshow and demo equipment
|
|
|
918,701
|
|
|
|
914,891
|
|
|
3 years
|
Computer equipment
|
|
|
122,213
|
|
|
|
117,596
|
|
|
3 years
|
|
|
|
2,461,336
|
|
|
|
2,312,696
|
|
|
|
Less accumulated depreciation
|
|
|
(1,482,314
|
)
|
|
|
(1,230,268
|
)
|
|
|
Property and Equipment, Net
|
|
$
|
979,022
|
|
|
$
|
1,082,428
|
|
|
|
Depreciation expense was approximately $123,000 and $129,000,
for the three months ended June 30, 2020 and 2019, respectively, and approximately $252,000 and $233,000, for the six months ended
June 30, 2020 and 2019, respectively.
Note 3 — Patent
Rights
|
|
As of
June 30,
|
|
|
As of
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
|
|
Gross carrying amount
|
|
$
|
1,253,018
|
|
|
$
|
1,253,018
|
|
Less accumulated amortization
|
|
|
(963,860
|
)
|
|
|
(915,667
|
)
|
Patent Rights, Net
|
|
$
|
289,158
|
|
|
$
|
337,351
|
|
Amortization expense was approximately $24,000 for the three
months ended June 30, 2020 and 2019, and approximately $48,000 for the six months ended June 30, 2020 and 2019. As of June 30,
2020, future remaining amortization expense is as follows:
Year
|
|
|
|
2020 (July 1 – December 31, 2020)
|
|
$
|
48,193
|
|
2021
|
|
|
96,386
|
|
2022
|
|
|
96,386
|
|
2023
|
|
|
48,193
|
|
Total
|
|
$
|
289,158
|
|
Note 4 — Debt
The Company has a revolving credit facility that, through April
2020, provided for maximum borrowings equal to the lesser of (a) the $5 million commitment amount or (b) a borrowing base equal
to 80% of eligible accounts receivable plus a $2.5 million non-formula sublimit. In October 2019, the term of the facility was
extended through January 29, 2020; in January 2020, the term was further extended through April 28, 2020; and in April 2020, the
term was further extended to April 1, 2022 and the maximum borrowings were increased to the lesser of (a) the $10 million commitment
amount or (b) the borrowing base plus a $3 million non-formula sublimit. Interest on any borrowings, at Prime plus 0.75% (4.00%
at June 30, 2020) and Prime plus 1.50% on non-formula borrowings (4.75% at June 30, 2020), 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 monthly adjusted quick ratio restrictive covenant, as defined in the agreement. The Company was in compliance with its financial
covenants as of June 30, 2020 and December 31, 2019. There were no borrowings outstanding under the revolving credit facility at
June 30, 2020 and December 31, 2019. The Company pays commitment fees of 0.25% per annum on the average unused portion of the line
of credit.
On April 20, 2020, the Company received a loan under the Small
Business Administration Paycheck Protection Program enabled by the CARES Act of 2020, in the amount of $1,022,785 to be used for
employee compensation and facilities costs. The loan has a six-month deferral period during which no payments will be due; however,
interest will accrue. The loan matures in April 2022 and provides for interest at the rate of 1% per annum. The loan is subject
to forgiveness for principal that is used for the limited purposes that expressly qualify for forgiveness under SBA requirements;
however, the Company has no assurance that the loan will be forgiven.
Note 5 — Product
Warranties
Changes in product warranty liability were as follows for the
six months ended June 30, 2020:
Balance, beginning of period
|
|
$
|
187,454
|
|
Warranties accrued during the period
|
|
|
139,909
|
|
Payments on warranty claims
|
|
|
(207,671
|
)
|
Balance, end of period
|
|
$
|
119,692
|
|
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. The Company’s Israeli subsidiary entered
into a two-year lease for office space starting in September 2018. Both 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.
In March 2019, the Company’s Israeli subsidiary signed
a 10-year lease for a 5,800 square foot manufacturing facility. The landlord provided a rent-free grace period from April to July
2019, after which the 10-year lease term began. The initial monthly rental payment was 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 without penalty.
The following table presents information about the amount, timing
and uncertainty of cash flows arising from the Company’s operating leases as of June 30, 2020.
Maturity of Operating Lease Liabilities
|
|
Amount
|
|
2020 (July 1 – December 31, 2020)
|
|
$
|
176,032
|
|
2021
|
|
|
348,122
|
|
2022
|
|
|
284,578
|
|
2023
|
|
|
104,343
|
|
2024
|
|
|
105,843
|
|
Thereafter
|
|
|
494,731
|
|
Total undiscounted operating leases payments
|
|
$
|
1,513,649
|
|
Less: Imputed interest
|
|
|
(246,714
|
)
|
Present Value of Operating Lease Liabilities
|
|
$
|
1,266,935
|
|
|
|
|
|
|
Other Information
|
|
|
|
|
Weighted-average remaining lease term
|
|
|
6.2 years
|
|
Weighted-average discount rate
|
|
|
5.0
|
%
|
An initial Right of Use (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 $168,000 and $330,000 for the six months ended June 30, 2020 and the year ended December 31, 2019, respectively.
Cash paid for amounts included in the present value of operating lease liabilities was approximately $183,000 and $310,000 for
the six months ended June 30, 2020 and the year ended December 31, 2019, respectively, is included in operating cash flows. Operating
lease cost was approximately $192,000 and $159,000 for the six months ended June 30, 2020 and 2019, 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-year
periods unless either party notifies the other party in writing, at least 60 days prior to the anniversary date of the agreement,
that it will not renew the agreement. The Company or the manufacturer has the option to terminate the agreement upon 90 days’
written notice.
Purchases from this manufacturer totaled approximately $230,000
and $1,819,000 for the three months ended June 30, 2020 and 2019, respectively, and approximately $1,808,000 and $3,730,000 for
the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, and December 31, 2019 approximately $822,000 and
$1,104,000, 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 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.
Note 8 — Employee
Benefit Plans
The Company 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. The Company makes contributions to the plans that include matching a percentage of the employees’
contributions up to certain limits. Expenses related to this plan totaled approximately $31,000 and $28,000 for the three months
ended June 30, 2020 and 2019, respectively, and approximately $63,000 and $55,000 for the six months ended June 30, 2020 and 2019,
respectively.
Note 9 — Stockholders’
Equity
The Company has authorized 50,000,000 shares of common stock,
of which 16,575,561 were issued and 16,502,353 outstanding at June 30, 2020; 16,540,478 shares were issued and 16,485,780 were
outstanding as of December 31, 2019.
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, 2019
|
|
|
2,032,187
|
|
|
$
|
6.75
|
|
|
|
0.51
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(83
|
)
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(1,894,104
|
)
|
|
|
—
|
|
|
|
—
|
|
Outstanding – June 30, 2020
|
|
|
138,000
|
|
|
$
|
6.75
|
|
|
|
0.94
|
|
Exercisable – June 30, 2020
|
|
|
138,000
|
|
|
$
|
6.75
|
|
|
|
0.94
|
|
The intrinsic value of the common stock warrants was approximately
$0 as of June 30, 2020, and December 31, 2019, respectively.
2016 and 2017 Equity
Incentive Plans
On January 25, 2018, 80,000 fully vested shares were granted
to the Company’s nonemployee directors, and stock options covering 229,334 shares 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
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 represents the expected weighted average period of time from the date of grant to the estimated date that the stock
option will be fully exercised. The weighted average expected option term is determined using the “simplified method”
for 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 $0 as of June 30,
2020 and December 31, 2019, 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 six months
ended June 30, 2020 and 2019, respectively.
Unrecognized stock compensation expense was approximately $528,000
as of June 30, 2020, which will be recognized over the remaining vesting period.
A summary of restricted stock activity is presented as follows:
|
|
Shares
|
|
|
Weighted
Average
Grant Date Fair
Value
|
|
Unvested balance at December 31, 2019
|
|
|
80,417
|
|
|
$
|
5.70
|
|
Granted
|
|
|
35,000
|
|
|
|
4.11
|
|
Vested
|
|
|
(66,667
|
)
|
|
|
5.24
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Unvested balance at June 30, 2020
|
|
|
48,750
|
|
|
$
|
5.19
|
|
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, 2019
|
|
|
229,334
|
|
|
$
|
5.55
|
|
|
|
8.07
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding – June 30, 2020
|
|
|
229,334
|
|
|
$
|
5.55
|
|
|
|
7.57
|
|
Exercisable – June 30, 2020
|
|
|
229,334
|
|
|
$
|
5.55
|
|
|
|
7.57
|
|
Treasury Stock
The Company accounts for purchases of treasury stock under the
cost method, with the cost of such purchases reflected in treasury stock in the accompanying condensed balance sheet. As of June
30, 2020 and December 31, 2019, the Company had 73,208 and 54,698 treasury shares, respectively.
Note 10 — Income
Taxes
Book income before taxes was negative for the six months ended
June 30, 2020. Tax expense for the six months ended June 30, 2020 and 2019 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 June 30, 2020, the Company has U.S. federal and certain
state tax returns subject to examination, beginning with those filed for the year 2016.
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 are issued for potential recognition or disclosure.
Other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure
in the financial statements.
On August 3, 2020, the Company acquired the business and assets
of two mobile aesthetic laser companies in the state of Florida with the intention to establish a new line of business, add recurring
revenue stream and gain access to dermatology practices across the state. These all-cash acquisitions are not significant, individually
or in the aggregate, and do not provide for any earn-outs or contingency payments.
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, 2019 (“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 Report on Form 10-Q for the quarter ended March 31, 2020,
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-100TM, SRT-100+TM and SRT-100 VisionTM. In February 2019, we received FDA clearance of
Sculptura™, a robotic radiation oncology system that provides targeted intraoperative triple-modulated radiotherapy 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.
Significant Developments
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 and created uncertainty
regarding potential impacts to our employees, operations, and customer demand. We provide medical devices and are considered an
“essential business” and have been able to continue to operate. However, the COVID-19 pandemic has significantly impacted
our sales and could further impact our operations and the operations of our customers, suppliers and vendors as a result of quarantines,
facility closures, and travel and logistics restrictions. The extent to which the COVID-19 pandemic impacts our business, results
of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including,
but not limited to, the duration, spread, severity, and impact of the COVID-19 pandemic, the effects of the COVID-19 pandemic on
our customers, suppliers, and vendors, the remedial actions and stimulus measures adopted by local, state and federal governments,
and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic subsides, we may continue
to experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur
in the future. Therefore, we cannot reasonably estimate the impact at this time.
Results of Operations
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,182,948
|
|
|
$
|
7,476,296
|
|
|
$
|
2,862,394
|
|
|
$
|
12,912,895
|
|
Cost of Sales
|
|
|
543,294
|
|
|
|
2,537,102
|
|
|
|
1,514,238
|
|
|
|
4,657,723
|
|
Gross Profit
|
|
|
639,654
|
|
|
|
4,939,194
|
|
|
|
1,348,156
|
|
|
|
8,255,172
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
1,161,845
|
|
|
|
1,995,263
|
|
|
|
2,952,815
|
|
|
|
4,525,608
|
|
General and administrative
|
|
|
904,103
|
|
|
|
963,641
|
|
|
|
2,233,660
|
|
|
|
1,976,803
|
|
Research and development
|
|
|
1,148,328
|
|
|
|
1,934,807
|
|
|
|
2,373,510
|
|
|
|
3,900,314
|
|
Total Operating Expenses
|
|
|
3,214,276
|
|
|
|
4,893,711
|
|
|
|
7,559,985
|
|
|
|
10,402,725
|
|
Income (Loss) From Operations
|
|
|
(2,574,622
|
)
|
|
|
45,483
|
|
|
|
(6,211,829
|
)
|
|
|
(2,147,553
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
14,485
|
|
|
|
66,825
|
|
|
|
64,586
|
|
|
|
138,843
|
|
Interest expense
|
|
|
(14,445
|
)
|
|
|
—
|
|
|
|
(14,445
|
)
|
|
|
—
|
|
Other Income (Expense), net
|
|
|
40
|
|
|
|
66,825
|
|
|
|
50,141
|
|
|
|
138,843
|
|
Net Income (Loss)
|
|
$
|
(2,574,582
|
)
|
|
$
|
112,308
|
|
|
$
|
(6,161,688
|
)
|
|
$
|
(2,008,710
|
)
|
Three months ended June 30, 2020 compared to the three months
ended June 30, 2019
Revenue. Revenue was $1,182,948 for the three months
ended June 30, 2020 compared to $7,476,296 for the three months ended June 30, 2019, a decrease of $6,293,348 or 84.2%. The decrease
was driven by the lower number of units sold, reflecting the impact of the COVID-19 outbreak, through the second quarter. We expected
COVID-19 to significantly impact our business in the second quarter of 2020. Whether and to what extent our revenue improves in
the second half of 2020 is largely dependent upon the status of the COVID-19 pandemic and the market’s response to the pandemic.
Cost of sales. Cost of sales was $543,294 for the three
months ended June 30, 2020 compared to $2,537,102 for the three months ended June 30, 2019, a decrease of $1,993,808, or 78.6%.
The decrease in cost of sales was commensurate with the decrease in sales.
Gross profit. Gross profit was $639,654 for the
three months ended June 30, 2020 compared to $4,939,194 for the three months ended June 30, 2019, a decrease of $4,299,540, or
87.0%. Our overall gross profit percentage was 54.1% in the three months ended June 30, 2020 compared to 66.1% in the corresponding
period in 2019. The decrease in gross profit was mostly due to the decrease in units sold as a result of the COVID-19 outbreak.
We could expect an increase in gross margin, as a percentage of revenue, for the second half of 2020 if we experience an increase
in sales, which is largely dependent upon the status of the COVID-19 pandemic and the market’s response to the pandemic.
Selling and marketing. Selling and marketing expense
was $1,161,845 for the three months ended June 30, 2020 compared to $1,995,263 for the three months ended June 30, 2019, a decrease
of $833,418, or 41.8%. The decrease was primarily attributable to cancellations of trade shows due to COVID-19, a decrease in commission
expense due to lower sales and reduced spending on marketing activities.
General and administrative. General and administrative
expense was $904,103 for the three months ended June 30, 2020 compared to $963,641 for the three months ended June 30, 2019, a
decrease of $59,538, or 6.2%. The net decrease in general and administrative expense was primarily due to a reduction in headcount.
Research and development. Research and development
expense was $1,148,328 for the three months ended June 30, 2020 compared to $1,934,807 for the three months ended June 30, 2019,
a decrease of $786,479, or 40.6%. The decrease in research and development spending was primarily attributable to the SculpturaTM
project as production began.
Other income (expense). We incur interest expense
in connection with our secured credit facility with Silicon Valley Bank and our loan under the Small Business Administration Paycheck
Protection Program, and we receive interest income from our cash investments. Interest income decreased due to maturing of our
investment in debt securities.
Six months ended June 30, 2020 compared to the six months
ended June 30, 2019
Revenue. Revenue was $2,862,394 for the six months
ended June 30, 2020 compared to $12,912,895 for the six months ended June 30, 2019, a decrease of $10,050,501 or 77.8%. Whether
and to what extent our revenue improves in the second half of 2020 is largely dependent upon the status of the COVID-19 pandemic
and the market’s response to the pandemic.
Cost of sales. Cost of sales was $1,514,238 for the six
months ended June 30, 2020 compared to $4,657,723 for the six months ended June 30, 2019, a decrease of $3,143,485, or 67.5%. The
decrease in cost of sales was commensurate with the decrease in sales.
Gross profit. Gross profit was $1,348,156 for the
six months ended June 30, 2020 compared to $8,255,172 for the six months ended June 30, 2019, a decrease of $6,907,016, or 83.7%.
Our overall gross profit percentage was 47.1% in the six months ended June 30, 2020 compared to 63.9% in the corresponding period
in 2019. The decrease in gross profit was mostly due to the decrease in units sold as a result of the COVID-19 outbreak. An increase
in gross margin, as a percentage of revenue, may occur for the second half of 2020 if we experience an increase in sales, which
is largely dependent upon the status of the COVID-19 pandemic and the market’s response to the pandemic.
Selling and marketing. Selling and marketing expense
was $2,952,815 for the six months ended June 30, 2020 compared to $4,525,608 for the six months ended June 30, 2019, a decrease
of $1,572,793, or 34.8%. The decrease was primarily attributable to a decrease in tradeshows expense due to cancellations related
to COVID-19, a decrease in commission expense due to lower sales and reduced spending on marketing activities.
General and administrative. General and administrative
expense was $2,233,660 for the six months ended June 30, 2020 compared to $1,976,803 for the six months ended June 30, 2019, an
increase of $256,856, or 13.0%. The net increase in general and administrative expense was primarily due to one-time severance
expenses and related legal fees.
Research and development. Research and development
expense was $2,373,510 for the six months ended June 30, 2020 compared to $3,900,314 for the six months ended June 30, 2019, a
decrease of $1,526,804, or 39.1%. The decrease in research and development spending was primarily attributable to the SculpturaTM
project as production began.
Other income (expense). We incur interest expense
in connection with our secured credit facility with Silicon Valley Bank and our loan under the Small Business Administration Paycheck
Protection Program, and we receive interest income from our cash investments. Interest income decreased due to maturing of our
investment in debt securities.
Financial Condition
Our cash, cash equivalent and investment balance increased to
$18.9 million at June 30, 2020 from $15.5 million at December 31, 2019, primarily due to cash provided in operating activities
of $2.6 million.
There were no borrowings under the revolving line of credit
at June 30, 2020 or December 31, 2019.
In light of the COVID-19 pandemic, we have taken proactive steps
to manage our costs and bolster our liquidity. We increased our borrowing availability as a precautionary measure to preserve financial
flexibility due to the current uncertainty in the global markets resulting from the COVID-19 pandemic. In addition, we received
a loan under the Small Business Administration Paycheck Protection Program enabled by the CARES Act of 2020 to be used for employee
compensation and facilities costs.
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;
|
|
●
|
the impact of COVID-19;
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 Six Months Ended
June 30,
|
|
|
|
(unaudited)
|
|
|
|
2020
|
|
|
2019
|
|
Net Cash Provided by (Used In):
|
|
|
|
|
|
|
Operating Activities
|
|
$
|
2,566,680
|
|
|
$
|
(941,596
|
)
|
Investing Activities
|
|
|
6,781,560
|
|
|
|
(2,729,144
|
)
|
Financing Activities
|
|
|
966,014
|
|
|
|
2,620,484
|
|
Total
|
|
$
|
10,314,254
|
|
|
$
|
(1,050,256
|
)
|
Cash flows from operating activities
Net cash provided by operating activities was $2,566,680 for
the six months ended June 30, 2020, consisting of a net loss of $6,161,688 partially offset by a decrease in net operating assets
of $7,977,535 and by non-cash charges of $750,833. The decrease in net operating assets was primarily due to a decrease in accounts
receivable, partially offset by an increase in inventories, accounts payables and accrued expenses, warranties and deferred revenue.
Non-cash charges consisted of stock compensation expense, depreciation and amortization, and a warranty provision. Net cash used
in operating activities was $941,596 for the six months ended June 30, 2019, primarily reflecting the operating loss and the increase
in accounts receivable and accounts payable and accrued expenses partially offset by an increase in deferred revenue.
Cash flows from investing activities
Net cash provided by investing activities was $6,781,560, mostly
due to matured investments of $6,470,817 during the six months ended June 30, 2020. Net cash used in investing activities was $2,729,144
for the six months ended June 30, 2019 due to the purchase of debt securities held-to-maturity of $3,699,718, partially offset
by $1,200,000 for investments matured.
Cash flows from financing activities
Net cash provided by financing activities was $966,014 during
the six months ended June 30, 2020 mostly from a loan under the Small Business Administration Paycheck Protection Program of $1,022,785.
Net cash provided by financing activities was $2,729,144 during the six months ended June 30, 2019, mainly from exercise of 405,813
investor warrants.
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 for the year ended
December 31, 2019.
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, 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.