UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
OR
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive office) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically,
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emerging growth company.” See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Smaller reporting company | ||||
| Emerging growth company |
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As of November 6, 2024, there were
SENSUS HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
i
INTRODUCTORY NOTE
Forward-Looking Statements
This report includes statements that are, or may be deemed, “forward-looking statements.” In some cases, these statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “approximately,” or “potential,” or negative or other variations of those terms or comparable terminology, although not all forward-looking statements contain these words.
Forward-looking statements involve risks and uncertainties because they relate to events, developments, and circumstances relating to Sensus Healthcare, Inc., our industry, and/or general economic or other conditions that may or may not occur in the future or may occur on longer or shorter timelines or to a greater or lesser degree than anticipated. In addition, even if future events, developments and circumstances are consistent with the forward-looking statements contained in this report, they may not be predictive of results or developments in future periods. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, forward-looking statements are not guarantees of future performance, and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained in this report as a result of the following factors, among others: the level and availability of government and/or third party payor reimbursement for clinical procedures using our products, and the willingness of healthcare providers to purchase our products if the level of reimbursement declines; concentration of our customers in the U.S. and China, including the concentration of sales to one particular customer in the U.S; the development by others of new products, treatments, or technologies that render our technology partially or wholly obsolete; the regulatory requirements applicable to us and our competitors; our ability to efficiently manage our manufacturing processes and costs; the risks arising from doing business in China and other foreign countries; legislation, regulation, or other governmental action that affects our products, taxes, international trade regulation, or other aspects of our business; the performance of the Company’s information technology systems and its ability to maintain data security; our ability to obtain and maintain the intellectual property needed to adequately protect our products, and our ability to avoid infringing or otherwise violating the intellectual property rights of third parties; and other risks described from time to time in our filings with the Securities and Exchange Commission.
To date, the Russian invasion of Ukraine, conditions in the Middle East, and other global geopolitical uncertainties have not had significant impacts on our business, but we continue to monitor developments and will address them in future disclosures, if applicable.
Any forward-looking statements that we make in this report speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this report, except as may be required by applicable law.
ii
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| As of September 30, | As of December 31, | |||||||
| (in thousands, except shares and per share data) | 2024 | 2023 | ||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Deferred tax asset | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Other noncurrent assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Product warranties | ||||||||
| Operating lease liability, current portion | ||||||||
| Income tax payable | ||||||||
| Deferred revenue, current portion | ||||||||
| Total current liabilities | ||||||||
| Operating lease liability | ||||||||
| Deferred revenue, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
1
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands, except shares and per share data) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ||||||||||||
| Other income: | ||||||||||||||||
| Gain on sale of assets | ||||||||||||||||
| Interest income, net | ||||||||||||||||
| Other income, net | ||||||||||||||||
| Income (loss) before income tax | ( | ) | ( | ) | ||||||||||||
| Provision for (benefit from) income taxes | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net income (loss) per share – basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average number of shares used in computing net income (loss) per share – basic | ||||||||||||||||
| diluted | ||||||||||||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
2
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
| For the Three and Nine Months Ended September 30, 2024 and 2023 | ||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In | Treasury Stock | Retained | |||||||||||||||||||||||||
| (in thousands, except shares) | Shares | Amount | Capital | Shares | Amount | Earnings | Total | |||||||||||||||||||||
| December 31, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Exercise of stock options | - | |||||||||||||||||||||||||||
| Forfeiture of restricted stock units | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||||||
| Surrender of shares for tax withholding on stock-based compensation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| March 31, 2023 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Forfeiture of restricted stock units | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| June 30, 2023 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Surrender of shares for tax withholding on stock-based compensation | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Stock repurchase | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| September 30, 2023 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
| December 31, 2023 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Forfeiture of restricted stock units | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| March 31, 2024 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Exercise of stock options | - | |||||||||||||||||||||||||||
| Forfeiture of restricted stock units | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| June 30, 2024 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Surrender of shares for tax withholding on stock-based compensation | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Exercise of stock options | - | |||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| September 30, 2024 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
3
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| (in thousands) | 2024 | 2023 | ||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash and cash equivalents used in operating activities: | ||||||||
| Credit loss expense | ||||||||
| Depreciation and amortization | ||||||||
| Gain on sale of property and equipment | ( | ) | ||||||
| Amortization of right-of-use asset | ||||||||
| Provision for product warranties | ||||||||
| Stock-based compensation | ||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Changes in operating assets: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid inventory | ||||||||
| Other current assets | ( | ) | ( | ) | ||||
| Other noncurrent assets | ||||||||
| Changes in operating liabilities: | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Income tax payable | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Product warranties | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Acquisition of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of assets | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Repurchase of common stock | ( | ) | ||||||
| Withholding taxes on stock-based compensation | ( | ) | ( | ) | ||||
| Exercise of stock options | ||||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents – beginning of period | ||||||||
| Cash and cash equivalents – end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income tax paid | $ | $ | ||||||
| Supplemental schedule of noncash investing and financing transactions: | ||||||||
| Transfer of inventory to property and equipment | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
4
SENSUS HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 — Organization and Summary of Significant Accounting Policies
Description of the Business
Sensus Healthcare, Inc. (together, with its subsidiaries, unless the context otherwise indicates, “Sensus” or the “Company”) is a manufacturer of radiation therapy devices sold to healthcare providers globally through its distribution and marketing network. The Company operates from its corporate headquarters located in Boca Raton, Florida.
In February 2024, the Company formed Sensus Healthcare Services, LLC, a wholly-owned subsidiary that provides operational healthcare services in the form of leased equipment, radiation oncology and physics oversight, including radiotherapy technologists for dermatology clinics.
Basis of Presentation and Principles of Consolidation
These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its subsidiaries. Accounts and transactions between condensed consolidated entities have been eliminated.
These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by GAAP. In the opinion of management, all adjustments considered necessary for a fair statement of the results have been included. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any other period.
The condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”).
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 revenue and expense during the reporting periods. Actual results could differ from those estimates.
Reclassification of Prior Year Presentation
Certain prior period amounts have been reclassified for consistency with the current period presentation. The reclassifications are limited to the condensed consolidated statements of cash flow and have no impact on the reported results of operations.
Revenue Recognition
The Company derives revenue from sales of the Company’s devices and services related to maintaining and repairing the devices as part of a service contract or on an ad-hoc basis without a service contract.
The Company provides warranties, generally for one year, in conjunction with 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 has determined that these warranties do not represent separate performance obligations, as the customer does not have the option to purchase the warranty separately and the warranty does not provide the customer with a service in addition to the assurance that the product complies with agreed-upon specifications. The Company records an estimate of future warranty claims at the time it recognizes revenue from the sale of the device based upon management’s estimate of the future claims rate.
5
Revenue is recognized upon transfer of control of promised goods or services to customers when the product is shipped or the service is rendered, based on the amount the Company expects to receive in exchange for those goods or services. The Company enters into contracts that can include multiple services, which are accounted for separately if they are determined to be distinct.
To determine the transaction price for contracts in which a customer promises consideration in a form other than cash, the Company measures the estimated fair value of the noncash consideration at contract inception. If the Company cannot reasonably estimate the fair value of the noncash consideration, the Company measures the consideration indirectly by reference to the stand-alone selling price of the products promised to the customer or class of customer in exchange for the consideration.
Our service contracts include maintenance or repair service contracts for device purchases and personnel service contracts to assist the use and operation of leased-out equipment under lessor agreements.
The revenues from maintenance or repair service contracts are recognized over the service contract period on a straight-line basis. In the event that a customer does not sign a service contract, but requests maintenance or repair services after the warranty expires, the Company recognizes revenue when the service is rendered. There is no termination provision in the service contract or any penalties in practice for cancellation of the service contract.
The revenues from personnel service contracts are recognized in the period the work is performed, as the Company has elected the practical expedient to recognize revenue in the amount to which the entity has a right to invoice. The service contracts can be terminated by mutual written agreement.
The Company has determined that in practice no significant discount is given on service contracts when offered with the device purchase or equipment lease as compared to when 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 purchase or equipment lease. The Company may also incur preparation cost to ensure the customer’s space meets the requirement and specifications for the operation of the equipment. The preparation cost is expensed as incurred.
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Product Revenue - recognized at a point in time | $ | $ | $ | $ | ||||||||||||
| Service Revenue - recognized at a point in time | ||||||||||||||||
| Service Revenue - recognized over time | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
The Company operates in a highly regulated environment, primarily in the U.S. dermatology market, in which state regulatory approval is sometimes required prior to the customer being able to use the product. In cases where such regulatory approval is pending, revenue is deferred until such time as regulatory approval is obtained.
| (in thousands) | Product | Service | Total | |||||||||
| December 31, 2023 | $ | $ | $ | |||||||||
| Revenue recognized | ( | ) | ( | ) | ( | ) | ||||||
| Amounts invoiced | ||||||||||||
| September 30, 2024 | $ | $ | $ | |||||||||
6
Remaining performance obligations of deposits
for products have original expected durations of one year or less.
| Year | Service Revenue | |||
| 2024 (October 1 - December 31, 2024) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total | $ | |||
For the nine months ended September 30, 2024 and 2023, the Company paid commissions for certain equipment sales. Because the recovery of commissions is expected to occur from product revenue within one year, the Company charges commissions to expense as incurred.
In addition, the Company incurs commissions associated with equipment lease agreements, which are accounted as initial direct costs and recorded in other noncurrent assets in the condensed consolidated balance sheets. The commission is capitalized at the commencement of the lease and recognized as an expense in selling and marketing expenses over the lease term.
Shipping and handling costs are expensed as incurred and are included in cost of sales.
Concentration
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable.
One customer in the U.S. accounted for
Geographical Information
| For the Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (in thousands) | 2024 | 2023 | ||||||||||||||
| United States | $ | % | $ | % | ||||||||||||
| Israel | % | % | ||||||||||||||
| China | % | % | ||||||||||||||
| Other | % | % | ||||||||||||||
| Total Revenue | $ | % | $ | % | ||||||||||||
| For the Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (in thousands) | 2024 | 2023 | ||||||||||||||
| United States | $ | % | $ | % | ||||||||||||
| China | % | % | ||||||||||||||
| Israel | % | % | ||||||||||||||
| Guatemala | % | % | ||||||||||||||
| Ireland | % | % | ||||||||||||||
| Other | % | % | ||||||||||||||
| Total Revenue | $ | % | $ | % | ||||||||||||
7
Fair Value of Financial Instruments
Carrying amounts of cash equivalents, accounts receivable, accounts payable and the revolving credit facility approximate fair value due to their relatively short maturities.
Fair Value Measurements
The Company uses a fair value hierarchy that prioritizes inputs to valuation approaches used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:
Level 1 Inputs:
Quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.
| ● | Level 1 assets may include listed mutual funds, ETFs and listed equities |
Level 2 Inputs:
Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; quotes from pricing services or brokers 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.
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 estimates future credit losses based on the
age of customer receivable balances, collection history and forecasted economic trends. Future collections can be significantly different
from historical collection trends or current estimates. The Company monitors exposure to credit losses and maintains allowances for anticipated
losses considered necessary under the circumstances. The allowance for expected credit losses was $
Inventories
Inventories consist of finished product and components and are stated at the lower of cost and net realizable value, determined using the first-in, first-out method.
8
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 using the treasury stock method for options, restricted stocks and warrants. Diluted net income (loss) per share is computed by giving effect to all potential dilutive common share equivalents outstanding for the period.
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Basic | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average number of shares used in computing net income (loss) per share – basic | ||||||||||||||||
| Net income (loss) per share - basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Diluted | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average number of shares used in computing net income (loss) per share – basic | ||||||||||||||||
| Dilutive effects of: | ||||||||||||||||
| Stock options | ||||||||||||||||
| Restricted stock awards | ||||||||||||||||
| Weighted average number of shares used in computing net income (loss) per share – diluted | ||||||||||||||||
| Net income (loss) per share - diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| The full shares listed below were not included in the computation of diluted net income (loss) per share because to do so would have been antidilutive for the periods presented: | ||||||||||||||||
| Restricted stock awards | ||||||||||||||||
| Stock options | ||||||||||||||||
Diluted net income per share for the three and nine months ended September 30, 2024 includes the dilutive effect of stock options and restricted stock awards that were issued in December 2022 and January 2024 to directors, officers, and employees. Diluted weighted average common shares outstanding for the three and nine months ended September 30, 2024 does not exclude any stock options as their exercise prices were lower than the average price of our shares of common stock during the period. Diluted weighted average common shares outstanding for the three and nine months ended September 30, 2024 does not exclude any shares issued under restricted stock awards in December 2022 or January 2024, as the average price of our shares of common stock during the three and nine months ended September 30, 2024 was higher than average unrecognized compensation expense. Diluted net loss per share for the three and nine months ended September 30, 2023 excludes the dilutive effect of stock options and restricted stock awards as they are antidilutive during a period of net loss. The assumed proceeds of stock options and the restricted stock awards for the treasury stock method is the sum of proceeds from exercise and the average amount of unrecognized compensation expense.
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 control an underlying asset for the lease term, and operating lease liability represents the Company’s obligation to make lease payments arising from the lease. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company uses an incremental borrowing rate that the Company would expect to incur for a fully collateralized loan over a similar term under similar economic conditions to determine the present value of the lease payments. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets.
The lease payments used to determine the Company’s operating lease assets may include lease incentives, and stated rent increases 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 income (loss).
9
For leases in which the Company is the lessor, the Company identifies the lease and non-lease components and allocates the contract consideration to the different components on a relative stand-alone selling price basis at lease inception. The Company uses a residual approach for the components when the stand-alone selling price is not directly observable or those for which the Company has not established a price.
The Company elects the practical expedient to
combine lease and non-lease components when the components qualify to be combined. Continuous supporting services are the primary non-lease
components and are not predominant. As a result, the combined components are accounted for as a lease under Accounting Standards Codification
("ASC") 842, Leases. The revenues from non-lease components that are not qualified to be combined are recognized when
the services are rendered under ASC 606, Revenue from Contracts with Customers. The revenues from non-lease components were $
For operating leases where the Company is the lessor, the Company recognizes the underlying assets and depreciates them over the estimated useful life which is based upon to estimate the residual value expected at the end of the lease term. Lease income is recognized on a straight-line basis over the lease term when the lease payment is determined. Leasing revenue is not recognized when collection of all contractual rents over the term of the agreement is not probable. When collection is not probable, the Company limits the lease revenue to the lesser of the revenue recognized on a straight-line basis or cash basis. The lease income is included in revenues in the condensed consolidated statements of income (loss).
Variable lease payments associated with the leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented within revenues in the condensed consolidated statements of income (loss).
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax bases of the assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance against deferred tax assets is recorded if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Uncertain tax positions are recognized in the financial statements only if that position is more likely than not to be sustained upon examination by taxing authorities, based on the technical merits of the position. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, to provide temporary optional expedients and exceptions to U.S. GAAP guidance on contract modifications to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate, or LIBOR, to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. The guidance was originally effective as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years. In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 which was issued to defer the sunset date of Topic 848 to December 31, 2024. These updates are not expected to have a significant impact on the Company’s condensed consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to enhance disclosures about significant segment expenses for public entities reporting segment information under ASC Topic 280. The amendments require public entities to disclose significant expense categories for each reportable segment, other segment items, the title and position of the chief operating decision-maker, and interim disclosures of certain segment-related information previously required only on an annual basis. The amendments clarify that entities reporting single segments must disclose both the new and existing segment disclosures under Topic 280, and a public entity is permitted to disclose multiple measures of segment profit or loss if certain criteria are met. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements and related disclosures.
10
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance transparency into income tax disclosures. The amendments require annual disclosure of certain information relating to the rate reconciliation, income taxes paid by jurisdiction, income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign jurisdictions, income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign jurisdictions. The amendments also eliminate certain requirements relating to unrecognized tax benefits and certain deferred tax disclosure relating to subsidiaries and corporate joint ventures. The ASU is effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements and related disclosures.
In March 2024, the FASB issued ASU 2024-01, Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards, to clarify how an entity determines whether a profits interest or similar award is within the scope of Topic 718 or is not a share-based payment arrangement and therefore within the scope of other guidance. ASU 2024-01 provides an illustrative example with multiple fact patterns and also amends certain language in the “Scope” and “Scope Exceptions” sections of Topic 718 to improve its clarity and operability without changing the guidance. The ASU is effective for fiscal years beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted. These updates are not expected to have a significant impact on the Company’s condensed consolidated financial statements.
Note 2 — Property and Equipment
| (in thousands) | As of September 30, 2024 | As of December 31, 2023 | Estimated Useful Lives | |||||||
| Operations equipment | $ | $ | ||||||||
| FDA program equipment | ||||||||||
| Tradeshow and demo equipment | ||||||||||
| Computer equipment | ||||||||||
| Subtotal | ||||||||||
| Construction in progress | ||||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||||
| Property and Equipment, Net | $ | $ | ||||||||
Depreciation expense was $
Note 3 — Debt
As of December
31, 2022, the Company had a revolving credit facility with Silicon Valley Bank (“SVB”) that provided for maximum borrowings
equal to the lesser of (a) the $
On September
11, 2023, the Company entered into a new revolving credit facility (the “Credit Facility”) with Comerica Bank (“Comerica”),
replacing the prior facility with SVB, that provided for maximum borrowings of $
11
The Company was in compliance with its financial covenants under the respective facilities as of September 30, 2024 and December 31, 2023. There were no borrowings outstanding under either facility at September 30, 2024 and December 31, 2023.
Note 4 — Product Warranties
| (in thousands) | ||||
| Balance, December 31, 2023 | $ | |||
| Warranties accrued during the period | ||||
| Payments on warranty claims | ( | ) | ||
| Balance, September 30, 2024 | $ | |||
Note 5 — Leases
Operating Lease Agreements
The Company leases its headquarters
office from an unrelated third party under a lease expiring in September 2027. The amortization of the right of use lease asset was $
| Maturity of Operating Lease Liability | Amount | |||
| 2024 (October 1 - December 31, 2024) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total undiscounted operating leases payments | $ | |||
| Less: Imputed interest | ( | ) | ||
| Present Value of Operating Lease Liability | $ | |||
| Operating lease liability, current portion | $ | |||
| Operating lease liability, net of current portion | $ | |||
| Other Information | ||||
| Weighted-average remaining lease term | | |||
| Weighted-average discount rate | % | |||
Cash paid
for amounts included in the measurement of the operating lease liability was $
12
Operating
lease cost recognized as expense was $
Lessor Accounting
Beginning in the quarter ended June 30, 2024, the Company, through its subsidiary, Sensus Healthcare Services, LLC, leases superficial radiotherapy equipment to dermatology clinics. The leases generally have initial lease terms of sixty months and automatically renew for a one-year period upon the expiration of the initial lease terms. Payments due under the leases may be fixed or variable payments.
| For the | For the | |||||||
| Three Months Ended | Nine Months Ended | |||||||
| (in thousands) | September 30, 2024 | September 30, 2024 | ||||||
| Lease income - operating leases - fixed payments | $ | $ | ||||||
| (in thousands) | Amount | |||
| 2024 (October 1 - December 31, 2024) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
Note 6 – Commitments and Contingencies
Manufacturing Agreement
The Company has a 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+), 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 sixty days prior to the anniversary date of the agreement, that it will not renew the agreement. The Company or the manufacturer may terminate the agreement upon ninety days’ prior written notice.
The Company pays this manufacturer for finished
goods in advance of the inventory being received. The Company paid this manufacturer $
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.
13
In 2015, the Company learned that the Department of Justice (the “Department”) had commenced an investigation of the billing to Medicare by a physician who had treated patients with the Company’s SRT-100. The Department subsequently advised the Company that it was considering expanding the investigation to determine whether the Company had any involvements in physician’s use of certain reimbursements codes. The Company has received two Civil Investigative Demands from the Department seeking documents and written responses in connection with its investigation. The Company has fully cooperated with the Department. The Company disputes that it has engaged in any wrongdoing with respect to such reimbursement claims; among other considerations, the Company does not submit claims for reimbursement or provide coding or billing advice to physicians. To the Company’s knowledge, the Department has made no determination as to whether the Company engaged in any wrongdoing, or whether to pursue any legal action against the Company. Should the Department decide to pursue legal action, the Company believes it has strong and meritorious defenses and will vigorously defend itself. As of September 30, 2024, the Company was unable to estimate the cost associated with this matter.
Note 7 — Stockholders’ Equity
Preferred Stock
The Company has authorized
Treasury Stock
Treasury stock includes shares surrendered by
employees for tax withholding on the vesting of restricted stock awards and shares repurchased in open market transactions.
Note 8 — Equity-based Compensation
2016 and 2017 Equity Incentive Plans
The Company’s 2016 Equity Incentive Plan
and the 2017 Incentive Plan, as amended in June 2023 (collectively, the “Plans”), provide for the issuance of up to
On February
1, 2020, a total of
On July 21, 2021, a total of
14
On December 19, 2022, a total of
On January 26, 2023,
On January 11, 2024,
Restricted Stock
| Weighted- | ||||||||
| Average | ||||||||
| Grant | ||||||||
| Restricted | Date Fair | |||||||
| Outstanding at | Stock | Value | ||||||
| December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | $ | |||||
| September 30, 2024 | $ | |||||||
The Company recognizes forfeitures as they occur.
The reduction of stock compensation expense related to the forfeitures was $
Stock compensation expense related to restricted
stock, excluding the recognition of forfeitures, was $
Unrecognized stock compensation expense was $
Stock Options
Stock options
expire
| Weighted- | ||||||||||||
| Average | ||||||||||||
| Weighted- | Remaining | |||||||||||
| Average | Contractual | |||||||||||
| Number of | Exercise | Term | ||||||||||
| Options | Price | (In Years) | ||||||||||
| Outstanding - December 31, 2023 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | ( | ) | - | |||||||||
| Expired | - | |||||||||||
| Outstanding - September 30, 2024 | $ | |||||||||||
| Exercisable – September 30, 2024 | $ | |||||||||||
No stock compensation expense related to stock
options was incurred for the three and nine months ended September 30, 2024 and 2023. The stock options outstanding as of September 30,
2024 and December 31, 2023 had an intrinsic value of $
15
Note 9 — Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes, (“ASC 740”), which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Effective income tax rates for interim periods are based upon the Company’s current estimated annual tax rate, which varies based upon the Company’s estimate of taxable earnings or loss and the mix of taxable earnings or loss in the various states in which the Company operates. In addition, the Company recognizes taxes related to unusual or infrequent items or resulting from a change in judgment regarding a position taken in a prior period as discrete items in the interim period in which the event occurs.
As of September 30, 2024 and December 31, 2023, management determined there continues to be sufficient positive evidence that it is more likely than not that the net deferred tax asset (other than foreign net operation losses) is realizable.
Income tax expense (benefit) was $
The effective tax rates for the three months ended
September 30, 2024 and 2023 were
The effective tax rate differs from the U.S. federal statutory rate for the three and nine months ended September 30, 2024, primarily due to nondeductible expenses, state income taxes and the favorable impact of tax credits. The effective tax rate differs from the U.S. federal statutory rate for the three and nine months ended September 30, 2023, primarily due to nondeductible expenses and state income taxes.
As of September 30, 2024, the Company’s U.S. federal and certain state tax returns remain subject to examination, beginning with those filed for the year ended December 31, 2017.
Note 10 — Subsequent Events
The Company has evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued for potential recognition or disclosure. The Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.
16
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the information set forth within the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2023 Annual Report.
Overview
Sensus is a medical device company committed to providing highly effective, non-invasive and cost-effective treatments for both oncological and non-oncological skin conditions.
Segment Information
The Company manages its business globally within one reportable segment, which is consistent with how our management views the business, prioritizes investment and resource allocation decisions, and assesses operating performance.
Results of Operations
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| (in thousands, except shares and per share data) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Revenues | $ | 8,839 | $ | 3,898 | $ | 28,741 | $ | 11,838 | ||||||||
| Cost of sales | 3,599 | 1,909 | 11,416 | 5,609 | ||||||||||||
| Gross profit | 5,240 | 1,989 | 17,325 | 6,229 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 1,309 | 1,290 | 3,575 | 4,983 | ||||||||||||
| General and administrative | 1,573 | 1,511 | 4,731 | 4,204 | ||||||||||||
| Research and development | 863 | 1,083 | 2,655 | 3,001 | ||||||||||||
| Total operating expenses | 3,745 | 3,884 | 10,961 | 12,188 | ||||||||||||
| Income (loss) from operations | 1,495 | (1,895 | ) | 6,364 | (5,959 | ) | ||||||||||
| Other income: | ||||||||||||||||
| Gain on sale of assets | - | 42 | - | 42 | ||||||||||||
| Interest income | 279 | 277 | 702 | 764 | ||||||||||||
| Other income, net | 279 | 319 | 702 | 806 | ||||||||||||
| Income (loss) before income tax | 1,774 | (1,576 | ) | 7,066 | (5,153 | ) | ||||||||||
| Provision for (benefit from) income taxes | 559 | (125 | ) | 1,965 | (1,428 | ) | ||||||||||
| Net income (loss) | $ | 1,215 | $ | (1,451 | ) | $ | 5,101 | $ | (3,725 | ) | ||||||
Three months ended September 30, 2024 compared to the three months ended September 30, 2023
Revenues. Revenues were $8.8 million for the three months ended September 30, 2024 compared to $3.9 million for the three months ended September 30, 2023, an increase of $4.9 million, or 125.6%. The increase was primarily driven by a higher number of units sold to a large customer in the three months ended September 30, 2024 compared to the three months ended September 30, 2023.
Cost of sales. Cost of sales was $3.6 million for the three months ended September 30, 2024 compared to $1.9 million for the three months ended September 30, 2023, an increase of $1.7 million, or 89.5%. The increase in cost of sales was primarily related to a higher number of units sold and was fairly consistent as a percentage of revenue in the three months ended September 30, 2024 compared to the three months ended September 30, 2023.
17
Gross profit. Gross profit was $5.2 million for the three months ended September 30, 2024 compared to $2.0 million for the three months ended September 30, 2023, an increase of $3.2 million, or 160.0%. Our overall gross profit percentage was 59.1% in the three months ended September 30, 2024 compared to 51.3% in the corresponding period in 2023. The increase in gross profit was primarily driven by a higher number of units sold in the three months ended September 30, 2024 compared to the three months ended September 30, 2023.
Selling and marketing. Selling and marketing expense was $1.3 million for the three months ended September 30, 2024 and 2023.
General and administrative. General and administrative expense was $1.6 million for the three months ended September 30, 2024 compared to $1.5 million for the three months ended September 30, 2023, an increase of $0.1 million, or 6.7%. The net increase in general and administrative expense was primarily due to higher compensation and bad debt expense, which were offset by a reduction in bank fees.
Research and development. Research and development expense was $0.9 million for the three months ended September 30, 2024 compared to $1.1 million for the three months ended September 30, 2023, a decrease of $0.2 million, or 18.2%. The decrease was primarily due to expenses related to a project to develop a drug delivery system for aesthetic use, as most of the development expenses occurred in the 2023 period.
Other income. Other income of $0.3 million for the three months ended September 30, 2024 and 2023 relate primarily to interest income.
Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023
Revenues. Revenues were $28.7 million for the nine months ended September 30, 2024 compared to $11.8 million for the nine months ended September 30, 2023, an increase of $16.9 million, or 143.2%. The increase was primarily driven by a higher number of units sold to a large customer in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
Cost of sales. Cost of sales was $11.4 million for the nine months ended September 30, 2024 compared to $5.6 million for the nine months ended September 30, 2023, an increase of $5.8 million, or 103.6%. The increase in cost of sales was primarily related to a higher number of units sold in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
Gross profit. Gross profit was $17.3 million for the nine months ended September 30, 2024 compared to $6.2 million for the nine months ended September 30, 2023, an increase of $11.1 million, or 179.0%. Our overall gross profit percentage was 60.3% in the nine months ended September 30, 2024 compared to 52.5% in the corresponding period in 2023. The increase in gross profit was primarily driven by a higher number of units sold in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
Selling and marketing. Selling and marketing expense was $3.6 million for the nine months ended September 30, 2024 compared to $5.0 million for the nine months ended September 30, 2023, a decrease of $1.4 million, or 28.0%. The decrease was primarily attributable to the decrease in marketing agency expense, travel expense, and payroll cost due to lower headcount.
General and administrative. General and administrative expense was $4.7 million for the nine months ended September 30, 2024 compared to $4.2 million for the nine months ended September 30, 2023, an increase of $0.5 million, or 11.9%. The net increase in general and administrative expense was primarily due to higher compensation and bad debt expense, which were offset by a reduction in bank fees and insurance expense.
Research and development. Research and development expense was $2.7 million for the nine months ended September 30, 2024 compared to $3.0 million for the nine months ended September 30, 2023, a decrease of $0.3 million, or 10.0%. The decrease was primarily due to expenses related to a project to develop a drug delivery system for aesthetic use.
18
Other income. Other income of $0.7 and 0.8 million for the nine months ended September 30, 2024 and 2023, respectively, relate primarily to interest income.
Financial Condition
The following discussion summarizes significant changes in assets and liabilities. Please see the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 contained in Part I, Item 1 of this filing.
Assets
Cash and cash equivalents at September 30, 2024 decreased $0.5 million from December 31, 2023. See Cash Flows for details on the change in cash and cash equivalents during the nine months ended September 30, 2024.
Accounts receivable at September 30, 2024 increased $6.4 million from December 31, 2023, primarily due to the increase in sales and concentration of sales to the Company’s primary customer that is subject to extended payment terms.
Inventories at September 30, 2024 increased $0.1 million from December 31, 2023, as volume has been increased in anticipation of increasing future revenues.
Liabilities
There were no borrowings outstanding under our revolving line of credit with Comerica Bank at September 30, 2024 or December 31, 2023.
Liquidity and Capital Resources
In general terms, liquidity is a measurement of the Company’s ability to meet its cash needs. For the three months ended September 30, 2024, funding was derived primarily from cash generated by the sale of equipment to our customers in the ordinary course of business. The Company believes that proceeds from maturing cash equivalents, as well as the Company’s borrowing capacity under its existing line of credit and access to capital resources are sufficient to meet operating capital and funding requirements for the next 12 months from the date of this quarterly report. Please see Note 3, Debt, to the consolidated financial statements for a discussion regarding the Company’s revolving credit facility with Comerica Bank. The Company’s liquidity position and capital requirements may be impacted by a number of factors, including the following:
| ● | ability to generate and increase revenue; |
| ● | fluctuations in gross margins, operating expenses and net results; and |
| ● | financial market instability or disruptions to the banking system due to bank failures |
The Company’s primary short-term capital needs, which are subject to change, include expenditures related to:
| ● | expansion of sales and marketing activities; and |
| ● | expansion of research and development activities. |
Sensus’s management regularly evaluates cash requirements for current operations, commitments, capital requirements and business development transactions, and may seek to raise additional funds for these purposes in the future. However, there can be no assurance that it will be able to raise such funds or the terms on which such funds may be raised, if at all.
19
Cash flows
The following table provides a summary of cash flows for the periods indicated:
| For the Nine Months Ended September 30 | ||||||||
| (in thousands) | 2024 | 2023 | ||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (4 | ) | $ | (4,813 | ) | ||
| Investing activities | (573 | ) | (187 | ) | ||||
| Financing activities | (13 | ) | (33 | ) | ||||
| Total | $ | (590 | ) | $ | (5,033 | ) | ||
Cash flows from operating activities
Net cash used in operating activities was $4 thousand for the nine months ended September 30, 2024, consisting of net income of $5.1 million and non-cash charges of $0.6 million, offset by an increase in net operating assets of $5.8 million. Cash flows provided by operating activities primarily include the receipt of revenues offset by the payment of operating expenses incurred in the normal course of business. Non-cash items consisted of credit loss expense, deferred income taxes, stock-based compensation expense, provision for product warranties, amortization of right-of-use asset and depreciation and amortization of property and equipment. Net cash used in operating activities was approximately $4.8 million for the nine months ended September 30, 2023, consisting of net loss of approximately $3.7 million, a decrease in net working capital of approximately $0.6 million, and non-cash charges of approximately $0.5 million. Cash flows provided by operating activities primarily include the receipt of revenues offset by the payment of operating expenses incurred in the normal course of business. Non-cash items consisted of credit loss expense, deferred income taxes, stock-based compensation expense, provision for product warranties, amortization of right-of-use asset, and depreciation and amortization of property and equipment.
Cash flows from investing activities
Net cash used in investing activities for the nine months ended September 30, 2024 reflected $0.6 million of purchases of property and equipment. Net cash used in investing activities for the nine months ended September 30, 2023 reflected $0.2 million of purchases of property and equipment.
Cash flows from financing activities
Net cash provided by financing activities for the nine months ended September 30, 2024 reflected $34 thousand of exercised stock options, offset by $47 thousand of withholding taxes on stock-based compensation. Net cash provided in financing activities for the nine months ended September 30, 2023 primarily reflected $46 thousand of exercised stock options, offset by $79 thousand used for the repurchase of common stock and withholding taxes on stock-based compensation.
Inflation
During the first three quarters of 2024, we continued to experience some increase in commodity and shipping prices and energy and labor costs which resulted in inflationary pressures across various parts of our business and operations, including on our customers, partners, and suppliers. We continue to monitor the impact of inflation and we are taking actions, such as ordering inventory in advance, to minimize its effects on our product cost and sales.
Indebtedness
Please see Note 3, Debt, to the condensed consolidated financial statements.
Contractual Obligations and Commitments
Please see Note 6, Commitments and Contingencies, to the condensed consolidated financial statements.
20
Critical Accounting Policies and Estimates
The preparation of the 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. Management has identified certain accounting policies as critical to understanding the financial condition and results of operations. For a detailed discussion on the application of these and other accounting policies, see the Note 1, Organization and Summary of Significant Accounting Policies to the consolidated financial statements included in the 2023 Annual Report for further information.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Control and Procedures
As of September 30, 2024, the end of the period covered by this Form 10-Q, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of September 30, 2024, the end of the period covered by this Form 10-Q, we did not maintain effective disclosure controls and procedures, as described below.
| ● | Information technology general controls were not designed and operating effectively to ensure that access to applications and data were adequately restricted to appropriate personnel, ensure segregation of duties, and appropriately monitor the activities of the individuals with access to modify data. |
While the deficiencies described above did not result in any material misstatements to the Company’s condensed consolidated financial statements for the period ending September 30, 2024, they did represent a material weakness as of September 30, 2024, since there existed a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements would not be prevented or detected on a timely basis.
Management’s Remediation Measures
To address the material weakness described above, the Company has implemented new and enhanced controls designed to: ensure that access to information technology applications and data are adequately restricted to appropriate personnel, ensure segregation of duties, and appropriately monitor the activities of the individuals with access to modify data. We believe the actions described above will be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting. However, the new and enhanced controls have not operated for a sufficient amount of time to conclude that the material weakness has been remediated. We will continue to monitor the effectiveness of these controls and will make any further changes management determines to be appropriate.
Changes in Internal Control over Financial Reporting
Except for the remediation efforts described above, there have been no significant changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to certain legal proceedings in the ordinary course of business. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and related contingencies. See Note 6, Commitments and Contingencies.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our 2023 Annual Report, as updated in our subsequent quarterly reports. The risks described in our 2023 Annual Report and our subsequent quarterly reports are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| (a) | Sales of Unregistered Securities |
There were no unregistered sales of securities during the three months ended September 30, 2024.
| (b) | Use of Proceeds from the Sale of Registered Securities |
None.
| (c) | Purchases of Equity Securities by the Registrant and Affiliated Purchasers. |
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
(c) Rule 10b5-1 Trading Plans
During the three months ended September
30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act)
22
Item 6. Exhibits
EXHIBIT INDEX
| * | Filed electronically herewith. |
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SENSUS HEALTHCARE, INC. | |
| Date: November 14, 2024 | /s/ Joseph C. Sardano |
| Joseph C. Sardano | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| Date: November 14, 2024 | /s/ Javier Rampolla |
| Javier Rampolla | |
| Chief Financial Officer | |
| (Principal Financial Officer and | |
| Principal Accounting Officer) |
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