Item
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SENSUS
HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
As of March 31, | | |
As of December 31, | |
(in thousands, except shares and per share data) | |
2022 | | |
2021 | |
| |
(unaudited) | | |
| |
Assets | |
| | |
| |
Current assets | |
| | |
| |
Cash and cash equivalents | |
$ | 32,830 | | |
$ | 14,519 | |
Accounts receivable, net | |
| 10,540 | | |
| 12,130 | |
Inventories | |
| 2,326 | | |
| 1,759 | |
Prepaid and other current assets | |
| 2,766 | | |
| 2,837 | |
Total current assets | |
| 48,462 | | |
| 31,245 | |
Property and equipment, net | |
| 426 | | |
| 605 | |
Intangibles, net | |
| 122 | | |
| 146 | |
Deposits | |
| 37 | | |
| 75 | |
Deferred tax asset | |
| 3,744 | | |
| - | |
Operating lease right-of-use assets, net | |
| 1,138 | | |
| 169 | |
Total assets | |
$ | 53,929 | | |
$ | 32,240 | |
Liabilities and stockholders’ equity | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 4,418 | | |
$ | 4,058 | |
Income tax payable | |
| 4,392 | | |
| - | |
Deferred revenue, current portion | |
| 939 | | |
| 1,172 | |
Operating lease liabilities, current portion | |
| 185 | | |
| 174 | |
Loan payable | |
| - | | |
| 51 | |
Product warranties | |
| 328 | | |
| 508 | |
Total current liabilities | |
| 10,262 | | |
| 5,963 | |
Operating lease liabilities | |
| 973 | | |
| - | |
Deferred revenue, net of current portion | |
| 236 | | |
| 262 | |
Total liabilities | |
| 11,471 | | |
| 6,225 | |
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; 16,756,811 issued and 16,677,548 outstanding at March 31, 2022; 16,694,311 issued and 16,617,274 outstanding at December 31, 2021 | |
| 168 | | |
| 167 | |
Additional paid-in capital | |
| 44,518 | | |
| 44,115 | |
Treasury stock, 79,263 and 77,037 shares at cost, at March 31, 2022 and December 31, 2021, respectively | |
| (348 | ) | |
| (325 | ) |
Accumulated deficit | |
| (1,880 | ) | |
| (17,942 | ) |
Total stockholders’ equity | |
| 42,458 | | |
| 26,015 | |
Total liabilities and stockholders’ equity | |
$ | 53,929 | | |
$ | 32,240 | |
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, | |
(in thousands, except shares and per share data) | |
2022 | | |
2021 | |
Revenues | |
$ | 10,338 | | |
$ | 3,070 | |
Cost of sales | |
| 3,189 | | |
| 1,484 | |
Gross profit | |
| 7,149 | | |
| 1,586 | |
Operating expenses | |
| | | |
| | |
Selling and marketing | |
| 1,218 | | |
| 1,068 | |
General and administrative | |
| 1,273 | | |
| 972 | |
Research and development | |
| 728 | | |
| 661 | |
Total operating expenses | |
| 3,219 | | |
| 2,701 | |
Income (loss) from operations | |
| 3,930 | | |
| (1,115 | ) |
Other income (expense) | |
| | | |
| | |
Gain on asset sale | |
| 12,779 | | |
| - | |
Interest income | |
| 1 | | |
| - | |
Other income (expense), net | |
| 12,780 | | |
| - | |
Income (loss) before income tax | |
| 16,710 | | |
| (1,115 | ) |
Provision for income tax | |
| 648 | | |
| - | |
Net income (loss) | |
$ | 16,062 | | |
$ | (1,115 | ) |
Net income (loss) per share – basic | |
$ | 0.97 | | |
$ | (0.07 | ) |
diluted | |
$ | 0.97 | | |
$ | (0.07 | ) |
Weighted-average number of shares used in computing net income (loss) per share – basic and diluted | |
| 16,497,801 | | |
| 16,461,311 | |
diluted | |
| 16,641,654 | | |
| 16,461,311 | |
See
accompanying notes to the unaudited condensed consolidated financial statements.
SENSUS
HEALTHCARE, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| |
| | |
Additional | | |
| | |
| | |
| |
| |
Common Stock | | |
Paid-In | | |
Treasury Stock | | |
Accumulated | | |
| |
(in thousands, except shares) | |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Amount | | |
Deficit | | |
Total | |
December 31, 2020 | |
| 16,564,311 | | |
$ | 166 | | |
$ | 43,701 | | |
| (73,208 | ) | |
$ | (310 | ) | |
$ | (22,061 | ) | |
$ | 21,496 | |
Stock based compensation | |
| - | | |
| - | | |
| 60 | | |
| - | | |
| - | | |
| - | | |
| 60 | |
Surrender of Shares for tax withholding on stock compensation | |
| - | | |
| - | | |
| - | | |
| (1,484 | ) | |
| (6 | ) | |
| - | | |
| (6 | ) |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,115 | ) | |
| (1,115 | ) |
March 31, 2021 (unaudited) | |
| 16,564,311 | | |
$ | 166 | | |
$ | 43,761 | | |
| (74,692 | ) | |
$ | (316 | ) | |
$ | (23,176 | ) | |
$ | 20,435 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
December 31, 2021 | |
| 16,694,311 | | |
$ | 167 | | |
$ | 44,115 | | |
| (77,037 | ) | |
$ | (325 | ) | |
$ | (17,942 | ) | |
$ | 26,015 | |
Stock based compensation | |
| - | | |
| - | | |
| 57 | | |
| - | | |
| - | | |
| - | | |
| 57 | |
Exercise of stock options | |
| 62,500 | | |
| 1 | | |
| 346 | | |
| - | | |
| - | | |
| - | | |
| 347 | |
Surrender of Shares for tax withholding on stock compensation | |
| - | | |
| - | | |
| - | | |
| (2,226 | ) | |
| (23 | ) | |
| - | | |
| (23 | ) |
Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 16,062 | | |
| 16,062 | |
March 31, 2022 (unaudited) | |
| 16,756,811 | | |
$ | 168 | | |
$ | 44,518 | | |
| (79,263 | ) | |
$ | (348 | ) | |
$ | (1,880 | ) | |
$ | 42,458 | |
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, | |
(in thousands) | |
2022 | | |
2021 | |
Cash flows from operating activities | |
| | |
| |
Net income (loss) | |
$ | 16,062 | | |
$ | (1,115 | ) |
Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by (used in) operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 92 | | |
| 208 | |
Provision for product warranties | |
| (25 | ) | |
| 26 | |
Stock-based compensation | |
| 57 | | |
| 60 | |
Gain on sale of asset | |
| (12,779 | ) | |
| - | |
Deferred income taxes | |
| (3,744 | ) | |
| - | |
Changes in operating assets (decrease (increase)): | |
| | | |
| | |
Accounts receivable | |
| 1,590 | | |
| (280 | ) |
Inventories | |
| (1,969 | ) | |
| 196 | |
Prepaid and other current assets | |
| 186 | | |
| 230 | |
Changes in operating liabilities (increase (decrease)): | |
| | | |
| | |
Accounts payable and accrued expenses | |
| (366 | ) | |
| (121 | ) |
Income tax payable | |
| 4,392 | | |
| - | |
Deferred revenue | |
| (259 | ) | |
| (291 | ) |
Product warranties | |
| (155 | ) | |
| (28 | ) |
Total adjustments | |
| (12,980 | ) | |
| - | |
Net cash provided by (used in) operating activities | |
| 3,082 | | |
| (1,115 | ) |
Cash flows from investing activities | |
| | | |
| | |
Acquisition of property and equipment | |
| (44 | ) | |
| (80 | ) |
Proceeds from sale of asset | |
| 15,000 | | |
| - | |
Net cash provided by (used in) investing activities | |
| 14,596 | | |
| (80 | ) |
Cash flows from financing activities | |
| | | |
| | |
Withholding taxes on stock-based compensation | |
| (23 | ) | |
| (6 | ) |
Loan payable | |
| (51 | ) | |
| (54 | ) |
Exercise of warrants | |
| 347 | | |
| - | |
Net cash provided by (used in) financing activities | |
| 273 | | |
| (60 | ) |
Net increase (decrease) in cash and cash equivalents | |
| 18,311 | | |
| (1,255 | ) |
Cash and cash equivalents – beginning of period | |
| 14,519 | | |
| 14,907 | |
Cash and cash equivalents – end of period | |
$ | 32,830 | | |
$ | 13,652 | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Interest paid | |
| - | | |
| - | |
Income taxes paid | |
| - | | |
| - | |
Supplemental schedule of noncash investing and financing transactions: | |
| | | |
| | |
Operating lease right-of-use asset and lease liability increase from lease modification | |
$ | 1,045 | | |
$ | - | |
Transfer of property and equipment to inventory | |
| - | | |
$ | 66 | |
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. (together, with its subsidiary, unless the context otherwise indicates, “Sensus” or the “Company”)
is a manufacturer of radiation therapy devices and sells the devices to healthcare providers globally through its distribution and marketing
network. The Company operates in one segment from its corporate headquarters located in Boca Raton, Florida.
Basis
of Presentation
These
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
(“GAAP”) and include the accounts of the Company and its subsidiary. Accounts and transactions between consolidated entities
have been eliminated.
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 revenue and expense during the reporting periods. Actual results could differ from those estimates.
Revenue
Recognition
The
Company’s revenue derives from 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, although 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 has determined
that
in practice no significant discount is given on the service contract when it is offered with the device purchase as compared to when
it is sold on a stand-alone basis. The service level provided is identical whether the service contract is purchased on a stand-alone
basis or together with the device. There is no termination provision in the service contract nor any penalties in practice for cancellation
of the service contract.
Revenue
is recognized upon transfer of control of promised goods or services to customers in an amount to which the Company expects to be entitled
in exchange for those goods or services. The Company enters into contracts that can include multiple services, which are accounted for
separately if they are determined to be distinct.
Disaggregated
revenue for the three months ended March 31, 2022 and 2021 was as follows:
| |
For the Three Months Ended March 31, | |
(in thousands) | |
2022 | | |
2021 | |
Product Revenue | |
$ | 9,228 | | |
$ | 1,674 | |
Service Revenue | |
| 1,110 | | |
| 1,396 | |
Total Revenue | |
$ | 10,338 | | |
$ | 3,070 | |
The
Company operates in a highly regulated environment, primarily in the U.S. dermatology market, in which state regulatory approval is sometimes
required before the customer is able to use the product. In cases where such regulatory approval is pending, revenue is deferred until
such time as regulatory approval is obtained.
Deferred
revenue as of March 31, 2022 was as follows:
(in thousands) | |
Product | | |
Service | | |
Total | |
Balance, beginning of period | |
$ | 97 | | |
$ | 1,337 | | |
$ | 1,434 | |
Revenue recognized | |
| - | | |
| (789 | ) | |
| (789 | ) |
Amounts invoiced | |
| 28 | | |
| 502 | | |
| 530 | |
Balance, end of period | |
$ | 125 | | |
$ | 1,050 | | |
$ | 1,175 | |
The
Company does not disclose information about remaining performance obligations with original expected durations of one year or less in
connection with deposits for products. Estimated service revenue to be recognized in the future related to the performance obligations
that are fully or partially unsatisfied as of March 31, 2022 is as follows:
(in
thousands)
Year | |
Service Revenue | |
2022 (April 1 – December 31, 2022) | |
$ | 814 | |
2023 | |
| 112 | |
2024 | |
| 81 | |
2025 | |
| 23 | |
2026 | |
| 20 | |
Total | |
$ | 1,050 | |
The
Company provides warranties, generally for one year, in conjunction with the sale of its products. These warranties entitle the customer
to repair, replacement, or modification of the defective product subject to the terms of the relevant warranty. The Company records an
estimate of future warranty claims at the time it recognizes revenue from the sale of the device based upon management’s estimate
of the future claims rate.
Shipping
and handling costs are expensed as incurred and are included in cost of sales.
Segment
and Geographical Information
The
following table illustrates total revenue for the three months ended March 31, 2022 and 2021 by geographic region.
| |
For the Three Months Ended | |
| |
March 31, | |
(in thousands) | |
2022 | | |
2021 | |
United States | |
$ | 10,147 | | |
| 98 | % | |
$ | 2,915 | | |
| 95 | % |
China | |
| 179 | | |
| 2 | % | |
| 155 | | |
| 5 | % |
Israel | |
| 12 | | |
| 0 | % | |
| - | | |
| 0 | % |
Total Revenue | |
$ | 10,338 | | |
| 100 | % | |
$ | 3,070 | | |
| 100 | % |
One
customer in the U.S. accounted for approximately 81% and 7% of revenue for the three months ended March 31, 2022 and 2021, respectively,
and 93% and 57% of the accounts receivable as of March 31, 2022 and December 31, 2021, respectively.
Fair
Value of Financial Instruments
Carrying
amounts of cash equivalents, accounts receivable and accounts payable approximate fair value due to their relative short maturities.
Fair
Value Measurements
The
Company uses a fair value hierarchy that prioritizes inputs to valuation approaches used to measure fair value. The fair value hierarchy
gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority
to unobservable inputs. Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following
categories:
Level
1 Inputs:
Quoted
prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.
| ● | Level
1 assets may include listed mutual funds, ETFs and listed equities |
Level
2 Inputs:
Quoted
prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not
active; quotes from pricing services or brokers for which the Company can determine that orderly transactions took place at the quoted
price or that the inputs used to arrive at the price are observable; and inputs other than quoted prices that are observable, such as
models or other valuation methodologies.
| ● | Level
2 assets may include debt securities and foreign currency exchange contracts that have inputs to the valuations that
generally can be corroborated by observable market data. |
Level
3 Inputs:
Unobservable
inputs for the valuation of the asset or liability, which may include nonbinding broker quotes. Level 3 assets include investments for
which there is little, if any, market activity. These inputs require significant management judgment or estimation.
Significance
of Inputs: The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires
judgment and considers factors specific to the financial instrument.
Cash
and Cash Equivalents
Cash
and cash equivalents primarily consist of cash, money market funds, and short-term, highly liquid investments with original maturities
of three months or less.
For
purposes of the statements of cash flows, the Company considers all highly liquid financial instruments with a maturity of three months
or less when purchased to be cash equivalents.
Accounts
Receivable
The
Company does business and extends credit based on an evaluation of each customer’s financial condition, generally without requiring
collateral. Exposure to losses on receivables is expected to vary by customer, primarily 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 $69 thousand as of both March 31, 2022 and December 31, 2021.
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 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 excluded were as follows:
| |
For the Three Months Ended March 31, | |
| |
2022 | | |
2021 | |
Shares | |
| — | | |
| 301 | |
| |
| | | |
| | |
Leases
The
Company evaluates arrangements at inception to determine if an arrangement is or contains a lease. Operating lease assets represent the
Company’s right to use an underlying asset for the lease term, and operating lease liabilities represent the Company’s obligation
to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date of the
lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options
to extend or terminate the lease when it is reasonably certain that the Company will exercise the options. To determine the present value
of the lease payment, the Company uses an incremental borrowing rate that the Company would expect to incur for a fully collateralized
loan over a similar term under similar economic conditions.
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 — Disposition
On
February 25, 2022, the Company sold its Sculptura assets for $15 million in cash.
The
sale price was allocated to the existing assets and liabilities based on the book value at the date of the transaction. A summary of
the assets and liabilities sold is as follows:
| |
Book Value | |
Cash | |
$ | 15,000 | |
Inventory | |
| (1,401 | ) |
Property and equipment | |
| (157 | ) |
Other liabilities | |
| (663 | ) |
| |
| | |
Gain on asset sale | |
$ | 12,779 | |
Note
3 — Property and Equipment
(in thousands) | |
As of March 31, 2022 | | |
As of December 31, 2021 | | |
Estimated Useful Lives |
| |
(unaudited) | | |
| | |
|
Operations equipment | |
$ | 1,313 | | |
$ | 1,760 | | |
3 years |
Tradeshow and demo equipment | |
| 960 | | |
| 927 | | |
3 years |
Computer equipment | |
| 140 | | |
| 129 | | |
3 years |
| |
| 2,413 | | |
| 2,816 | | |
|
Less accumulated depreciation | |
| (1,987 | ) | |
| (2,211 | ) | |
|
Property and Equipment, Net | |
$ | 426 | | |
$ | 605 | | |
|
Depreciation
expense was approximately $68 thousand and $177 thousand, for the three months ended March 31, 2022 and 2021, respectively.
Note
4 — Intangibles
(in thousands) | |
Patent Rights | | |
Customer Relationships | | |
Total | |
December 31, 2021 | |
$ | 145 | | |
$ | 1 | | |
$ | 146 | |
Amortization expense | |
| (24 | ) | |
| - | | |
| (24 | ) |
March 31, 2022 | |
$ | 121 | | |
| 1 | | |
| 122 | |
Note
5 — Debt
The
Company has a revolving credit facility that, through March 2022, provides for maximum borrowings equal to the lesser of (a) the $10
million commitment amount or (b) the borrowing base plus a $3 million non-formula sublimit. In April 2022, the term was extended
to April 1, 2024, and the maximum borrowings were increased to the lesser of (a) the $15 million commitment amount or (b) the borrowing
base plus a $7.5 million non-formula sublimit. The Company was in compliance with its financial covenants as of March 31, 2022 and December
31, 2021. There were no borrowings outstanding under the revolving credit facility at March 31, 2022 or December 31, 2021.
Note
6 — Product Warranties
Changes
in product warranty liability were as follows for the three months ended March 31, 2022:
(in thousands) | |
| |
Balance, December 31, 2021 | |
$ | 508 | |
Warranties accrued during the period | |
| (25 | ) |
Payments on warranty claims | |
| (155 | ) |
Balance, March 31, 2022 | |
$ | 328 | |
Note
7 — Leases
Operating
Lease Agreements
The
Company leases its headquarters office from an unrelated third party. The lease was last renewed in 2016 and expires in September 2022
with an option to extend with prior notice upon terms to be negotiated. On April 7, 2022, the Company renewed the headquarters office
lease through September 2027.
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, 2022.
(in
thousands)
Maturity of Operating Lease Liabilities | |
Amount | |
2022 (April 1 – December 31, 2022) | |
$ | 179 | |
2023 | |
| 236 | |
2024 | |
| 238 | |
2025 | |
| 245 | |
2026 | |
| 253 | |
Thereafter | |
| 194 | |
Total undiscounted operating leases payments | |
$ | 1,345 | |
Less: Imputed interest | |
| (187 | ) |
Present Value of Operating Lease Liabilities | |
$ | 1,158 | |
| |
| | |
Other Information | |
| | |
Weighted-average remaining lease term | |
| 5.4 years | |
Weighted-average discount rate | |
| 5.0 | % |
For the three months ended March
31, 2022, the right of use asset was increased by approximately $1 million related to the renewal of the headquarters office lease.
Cash
paid for amounts included in the present value of operating lease liabilities was approximately $66 thousand and $331 thousand
for the three months ended March 31, 2022 and the year ended December 31, 2021, respectively, and is included in cash flows from operating
activities in the accompanying consolidated statement of cash flows. Operating lease cost was approximately $63 thousand and $335 thousand
for the three months ended March 31, 2022 and the year ended December 31, 2021, respectively.
Note
8 — Commitments and Contingencies
Manufacturing
Agreement
In
2010, the Company entered into a three-year contract manufacturing agreement with an unrelated third party for the production and manufacture
of the SRT-100 (and subsequently the SRT-100 Vision and the SRT-100 Plus), in accordance with the Company’s product specifications.
The agreement renews for successive one-year periods unless either party notifies the other party in writing, at least 60 days prior
to the anniversary date of the agreement, that it will not renew the agreement. The Company or the manufacturer may also terminate the
agreement upon 90 days’ prior written notice.
Purchases
from this manufacturer totaled approximately $3.3 million and $312 thousand for the three months ended March 31, 2022 and 2021,
respectively. As of March 31, 2022 and December 31, 2021, approximately $450 thousand and $1.2 million, respectively, was due
to this manufacturer, which is presented in accounts payable and accrued expenses in the accompanying condensed consolidated 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 Department subsequently advised the Company
that it was considering expanding the investigation to determine whether the Company had any involvements in physician’s use of
certain reimbursements codes. The Company has received two Civil Investigative Demands from the Department seeking documents and written
responses in connection with its investigation. The Company has fully cooperated with the Department. The Company disputes that it has
engaged in any wrongdoing with respect to such reimbursement claims; among other things, the Company does not submit claims for reimbursement
or provide coding or billing advice to physicians. To the Company’s knowledge, the Department has made no determination as to whether
the Company engaged in any wrongdoing, or whether to pursue any legal action against the Company. Should the Department decide to pursue
legal action, the Company believes it has strong and meritorious defenses and will vigorously defend itself. At this time, the Company
is unable to estimate the cost associated with this matter.
Note
9 — STOCK-BASED COMPENSATION
2016
and 2017 Equity Incentive Plans
Awards
for up to 397,473 shares of common stock may be granted under the Company’s 2016 Equity Incentive Plan, and awards for
up to 500,000 shares may be granted under its 2017 Equity Incentive Plan. The awards may be made in the form of restricted
stock awards and stock options, among other things. 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
July 21, 2021, a total of 130,000 shares of restricted stock were issued to employees and board members and were recorded at
the fair value of $3.84 per share. The restricted shares vest 25% at grant date and 25% per year over a three-year vesting
period and are being recognized as expense on a straight-line basis over the vesting period of the awards.
Restricted
stock activity for the three months ended March 31, 2022 is summarized below:
Outstanding at | |
Restricted
Stock | | |
Weighted- Average Grant Date Fair Value | |
December 31, 2021 | |
| 123,750 | | |
$ | 3.90 | |
Granted | |
| - | | |
| - | |
Vested | |
| (8,750 | ) | |
| 4.11 | |
Forfeited | |
| - | | |
| - | |
March 31, 2022 | |
| 115,000 | | |
$ | 3.88 | |
The
Company recognizes forfeitures as they occur rather than estimating a forfeiture rate. The reduction of stock compensation expense related
to the forfeitures was $0 for the three months ended March 31, 2022 and 2021.
Unrecognized
stock compensation expense was approximately $347 thousand as of March 31, 2022, which will be recognized over a weighted average
period of 2 years. The stock compensation expense was approximately $60 thousand and $57 thousand, for the three
months ended March 31, 2022 and 2021, respectively.
The
following table summarizes the Company’s stock option activity:
Outstanding at | |
Number of Options | | |
Weighted- Average Exercise Price | | |
Weighted- Average Remaining Contractual Term (In Years) | |
December 31, 2021 | |
| 229,334 | | |
$ | 5.55 | | |
| 6.07 | |
Granted | |
| — | | |
| — | | |
| — | |
Exercised | |
| (62,500 | ) | |
| 5.55 | | |
| — | |
Expired | |
| — | | |
| — | | |
| — | |
March 31, 2022 | |
| 166,834 | | |
$ | 5.55 | | |
| 5.82 | |
Exercisable – March 31, 2022 | |
| 166,834 | | |
$ | 5.55 | | |
| 5.82 | |
The
stock options had an intrinsic value of $762 thousand and $382 thousand as of March 31, 2022 and December 31, 2021, respectively.
Note
10 — Income Taxes
Income
tax expense was $648 thousand and $0 for the three months ended March 31, 2022 and 2021, respectively. The effective tax rate was 3.88%
and 0% for the first quarter 2022 and 2021, respectively. The increase in the effective tax rate is a result of the Company’s operations
coupled with the release of the valuation allowance during the first quarter 2022.
The
Company accounts for income taxes in accordance with ASC 740, Income Taxes, (“ASC 740”) which prescribes a recognition
threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period,
disclosure and transition.
As
of March 31, 2022, the Company has U.S. federal and certain state tax returns subject to examination, beginning with those filed for
the year ended December 31, 2018.
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. Other than as described below, 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, 2021 (the “2021 Annual Report”).
Overview
Sensus is a medical device company committed to providing highly effective,
non-invasive, and cost-effective treatments for both oncological and non-oncological skin conditions.
On February 25, 2022, the Company sold its
Sculptura assets for $15 million in cash. Additional information regarding this transaction can be found in Note 2 and in the Company’s
Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 3, 2022.
Impact of COVID-19
The outbreak of COVID-19, which was declared
a pandemic by the World Health Organization on March 11, 2020, has materially and adversely impacted the U.S. and global economies, as
well as the Company, and its employees and operations, as well as customer demand. Although we have been able to continue to operate and
service customers throughout the pandemic, it significantly impacted the Company’s sales throughout 2020, as social distancing forced
physicians to temporarily close their practices. In 2021 and in the first quarter of 2022, as the markets started to open, the Company
was able to increase sales significantly. However, the ongoing COVID-19 pandemic, including the possible emergence of new variants, could
further impact the Company’s operations and the operations of the Company’s customers, suppliers and vendors as a result of
ongoing quarantines, facility closures, and travel and logistics restrictions. The extent to which the COVID-19 pandemic impacts the Company’s
business, results of operations and financial condition will depend on future developments. The Company cannot reasonably estimate the
impact at this time.
Segment Information
The Company manages its business globally
within one reportable segment, which is consistent with how our management reviews the business, prioritizes investment and resource
allocation decisions, and assesses operating performance.
Results of Operations
| |
For the Three Months Ended March 31, | |
(in thousands, except shares and per share data) | |
2022 | | |
2021 | |
Revenues | |
$ | 10,338 | | |
$ | 3,070 | |
Cost of sales | |
| 3,189 | | |
| 1,484 | |
Gross profit | |
| 7,149 | | |
| 1,586 | |
Operating expenses | |
| | | |
| | |
Selling and marketing | |
| 1,218 | | |
| 1,068 | |
General and administrative | |
| 1,273 | | |
| 972 | |
Research and development | |
| 728 | | |
| 661 | |
Total operating expenses | |
| 3,219 | | |
| 2,701 | |
Income (loss) from operations | |
| 3,930 | | |
| (1,115 | ) |
Other income (expense) | |
| | | |
| | |
Gain on asset sale | |
| 12,779 | | |
| - | |
Interest income | |
| 1 | | |
| - | |
Other income (expense), net | |
| 12,780 | | |
| - | |
Income (loss) before income tax | |
| 16,710 | | |
| (1,115 | ) |
Provision for income tax | |
| 648 | | |
| - | |
Net income (loss) | |
$ | 16,062 | | |
$ | (1,115 | ) |
Three months ended March 31, 2022 compared
to the three months ended March 31, 2021
Revenues. Revenues were $10.3 million
for the three months ended March 31, 2022 compared to $3.0 million for the three months ended March 31, 2021, an increase of 236.7% or
$7.3 million. The increase was primarily driven by the higher number of units sold in 2022, service revenue on installed units and the
impact of COVID-19 in the first three months of 2021.
Cost of sales. Cost of sales was $3.2
million for the three months ended March 31, 2022 compared to $1.5 million for the three months ended March 31, 2021, an increase of $1.7
million, or 114.9%. The increase in cost of sales was commensurate with the increase in sales in the three months ended March 31, 2022.
Gross profit. Gross profit was $7.1
million for the three months ended March 31, 2022 compared to $1.6 million for the three months ended March 31, 2021, an increase of $5.6
million, or 350.8%. Our overall gross profit percentage was 69.1% in the three months ended March 31, 2022 compared to 51.6% in the corresponding
period in 2021. The increase in gross profit was primarily driven by the higher number of units sold in 2022, service revenue on installed
units, and the impact of COVID-19 in the first three months of 2021.
Selling and marketing. Selling and
marketing expense was $1.2 million for the three months ended March 31, 2022 compared to $1.1 million for the three months ended March
31, 2021, an increase of $0.1 million, or 14.0%. The increase was primarily attributable to an increase in tradeshow expense and commissions.
General and administrative. General
and administrative expense was $1.3 million for the three months ended March 31, 2022 compared to $1.0 million for the three months ended
March 31, 2021, an increase of $0.3 million, or 40.0%. The net increase in general and administrative expense was primarily due to professional
fees related to the sale of the Sculptura asset and compensation expense.
Research and development. Research
and development expense was $0.7 million for the three months ended March 31, 2022 and 2021, respectively.
Other income. Other income of $12.8
million is related to the gain on the sale of the Sculptura assets.
Financial Condition
The following discussion summarizes significant
changes in assets and liabilities. Please see the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021 contained
in Part I, Item 1 of this filing.
Assets
Cash and cash equivalents at March 31, 2022
increased $18.3 million. See Cash Flows for details on the change in cash and cash equivalents during the three months
ended March 31, 2022.
Accounts receivable at March 31, 2022 decreased
$1.6 million from December 31, 2021, primarily due to collection of receivables offset by an increase in sales of units in the three months
ended March 31, 2022.
Inventories at March 31, 2022 increased $566
thousand from December 31, 2021, primarily due to increase in purchases of finished goods offset by shipments of units sold in the three
months ended March 31, 2022.
Liabilities
There were no borrowings under our revolving
line of credit at March 31, 2022 or December 31, 2021.
Liquidity and Capital Resources
The Company’s liquidity position and
capital requirements may be impacted by a number of factors, including the following:
| ● | ability
to generate and increase revenue; |
| ● | fluctuations
in gross margins, operating expenses and net results; and |
| ● | fluctuations
in working capital. |
The Company’s primary short-term capital
needs, which are subject to change, include expenditures related to:
| ● | expansion
of sales and marketing activities; and |
| ● | expansion
of research and development activities. |
Sensus management regularly evaluates cash
requirements for current operations, commitments, capital requirements and business development transactions. Given our ability to borrow
under our revolving credit facility and other factors, management anticipates that the Company will be able to satisfy its cash requirements
for these purposes; however, it may seek to raise additional funds for these or other purposes in the future.
Cash flows
The following table provides a summary of
cash flows for the periods indicated:
| |
For the Three Months Ended March 31, (unaudited) | |
(in thousands) | |
2022 | | |
2021 | |
Net cash provided by (used in): | |
| | |
| |
Operating activities | |
$ | 3,082 | | |
$ | (1,115 | ) |
Investing activities | |
| 14,956 | | |
| (80 | ) |
Financing activities | |
| 273 | | |
| (60 | ) |
Total | |
$ | 18,311 | | |
$ | (1,255 | ) |
Net cash provided by operating activities
was $3.0 million for the three months ended March 31, 2022, consisting of a net income of $16.1 million, an increase in net operating
assets of $0.4 million and non-cash charges of $12.7 million. Cash flows provided by operating activities primarily include the receipt
of revenues offset by the payment of operating expenses incurred in the normal course of business. Net cash used in operating activities
was $1.1 million for the three months ended March 31, 2021, consisting of a net loss of $1.1 million and a decrease in net operating assets
of $0.3 million, partially offset by non-cash charges of $0.3 million. The increase in net operating assets was primarily due to an increase
in inventories, prepaid and other current assets and accounts payable and accrued expenses, partially offset by a decrease in accounts
receivable, warranties and deferred revenue. Non-cash charges consisted of a gain on asset sale (See Note 2, Dispositions,
for more information), stock compensation expense, depreciation and amortization, and a warranty provision.
Net cash provided by investing activities
for the three months ended March 31, 2020 reflected $15 million of proceeds from the sale of Sculptura assets, partially offset by purchases
of property and equipment. Net cash used in investing activities for the three months ended March 31, 2021 reflected $0.1 million of purchases
of property and equipment.
Net cash provided in financing activities
for the three months ended March 31, 2022 primarily reflected $0.4 million of exercised stock options offset by the repayment of our PPP
loan and withholding taxes on stock compensation. Net cash used in financing activities for the three months ended March 31, 2021 primarily
reflected $0.1 million of loan repayments and withholding taxes on stock compensation.
Indebtedness
Please see Note 5, Debt, to the
financial statements.
Contractual Obligations and Commitments
Please see Note 8, Commitments and
Contingencies, to the financial statements.
Critical Accounting Policies and Estimates
The preparation of condensed consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements
and the reported amounts of revenue and expense during the reporting periods. Actual results could differ significantly from those estimates.
For a summary of these and additional accounting policies see Note 1, Organization and Summary of Significant Accounting Policies, to
the financial statements. In addition, see Critical Accounting Policies in Management’s Discussion and Analysis
of Financial Condition and Results of Operations and Note 1, Organization and Summary of Significant Accounting Policies,
in the 2021 Annual Report for further information.