UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2020

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission File Number: 001-37714

 

Sensus Healthcare, Inc. 

(Exact name of registrant as specified in its charter)

 

Delaware   27-1647271
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
851 Broken Sound Pkwy., NW #215, Boca Raton,
Florida
  33487
(Address of principal executive office)   Zip Code)

 

(561) 922-5808

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.01 per share   SRTS   Nasdaq Stock Market, LLC
Warrants to Purchase Common Stock   SRTSW   Nasdaq Stock Market, LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emerging growth company”. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒
      Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of April 30, 2020, 16,515,038 shares of the Registrant’s Common Stock, $0.01 par value, were outstanding.

 

 

 

 

 

 

SENSUS HEALTHCARE, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

    Page
PART I – Financial Information  
     
Item 1. Condensed Consolidated Financial Statements (Unaudited) 1
  Balance Sheets as of March 31, 2020 and December 31, 2019 1
  Statements of Operations for the Three Months Ended March 31, 2020 and 2019 2
  Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019 3
  Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 4
  Notes to the Condensed Consolidated Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
     
Item 4. Controls and Procedures 18
     
PART II – Other Information  
     
Item 1. Legal Proceedings 19
     
Item 1A. Risk Factors 19
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
     
Item 3. Defaults Upon Senior Securities 19
     
Item 4. Mine Safety Disclosure 19
     
Item 5. Other Information 20
     
Item 6. Exhibits 20
     
Signatures 21

 

i

 

 

INTRODUCTORY NOTE

 

Caution Concerning Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions, among other things. The words “may,” “could,” “should,” “would,” “will,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal, and similar expressions are intended to identify forward-looking statements. All forward-looking statements are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. Accordingly, our actual future results may differ materially from those set forth in our forward-looking statements.

 

Our ability to achieve our financial objectives could be adversely affected by the factors discussed in detail in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K, as well as:

 

the effects of widespread public health epidemics, including the novel coronavirus (“COVID-19”), that are beyond our control and any adverse impact in our business, results of operations and financial condition;
our ability to achieve and sustain profitability;

  market acceptance of our products;

  our ability to successfully commercialize our products;

  our ability to compete effectively in selling our products and services, including responding to technological change and cost containment efforts of our customers;

  the regulatory requirements applicable to us and our competitors, including any adverse regulatory action taken against us;

  our need and ability to obtain additional financing in the future, as well as complying with the restrictions our existing revolving credit facility imposes;

  our ability to expand, manage and maintain our direct sales and marketing organizations;

  our actual financial results may vary significantly from forecasts and from period to period;

  our ability to successfully develop new products, improve or enhance existing products or acquire complementary products, technologies, services or businesses;

  our ability to obtain and maintain intellectual property of sufficient scope to adequately protect our products, including the SRT-100, and our ability to avoid infringing or otherwise violating the intellectual property rights of third parties;

  market risks regarding consolidation in the healthcare industry;

  the willingness of healthcare providers to purchase our products if coverage, reimbursement and pricing from third party payors for procedures using our products declines;

the level of availability of government and third-party pay or reimbursement for clinical procedures using our products;
  our ability to effectively manage our anticipated growth, including hiring and retaining qualified personnel;

  our ability to manufacture our products to meet demand;

  our reliance on third party manufacturers and sole- or single-source suppliers;

  our ability to reduce the per unit manufacturing cost of our products;

  our ability to efficiently manage our manufacturing processes;

  regulatory, legal risks, and operating risks, that our international operations subject us to;

  off-label use of our products;

  information technology risks including risks from cyberattacks and other data breaches, and their adverse effect on our reputation;

  the fact that product quality issues or product defects may harm our business;

  the accuracy of our financial statements and accounting estimates, including allowances for accounts receivable and inventory obsolescence;

  any product liability claims;

  limited trading in our shares and the concentration of ownership of our shares;

  new legislation, administrative rules, or executive orders, including those that impact taxes and international trade regulation;

  the provisions in our certificate of incorporation, bylaws, or Delaware law that discourage takeovers or that limit certain disputes to be brought exclusively in the Delaware Court of Chancery;

  the concentration of sales to customers in the U.S. and China, including any adverse impact of political developments in China and the coronavirus epidemic; and

  our ability to manage the risk of the foregoing.

 

Factors in addition to those listed above or in Item 1A Risk Factors in our Annual Report on Form 10-K or discussed in this Form 10-Q also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable law.

 

ii

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

 

   As of
March 31,
   As of 
December 31,
 
   2020   2019 
   (unaudited)     
Assets        
Current Assets        
Cash and cash equivalents  $12,097,617   $8,100,288 
Investment in debt securities   3,688,015    7,389,407 
Accounts receivable, net   7,838,638    14,011,180 
Inventories   3,959,670    2,997,120 
Prepaid and other current assets   1,952,406    1,505,175 
Total Current Assets   29,536,346    34,003,170 
Property and Equipment, Net   1,088,470    1,082,428 
Patent Rights, Net   313,254    337,351 
Deposits   99,198    101,561 
Operating Lease Right-of-Use Assets, Net   1,316,796    1,400,037 
Total Assets  $32,354,064   $36,924,547 
Liabilities and Stockholders’ Equity          
Current Liabilities          
Accounts payable and accrued expenses  $3,919,742   $4,779,435 
Deferred revenue, current portion   1,270,247    1,191,898 
Operating lease liabilities, current portion   305,396    309,524 
Product warranties   137,736    187,454 
Total Current Liabilities   5,633,121    6,468,311 
Operating Lease Liabilities   1,041,091    1,115,529 
Deferred Revenue, Net of Current Portion   1,112,896    1,339,285 
Total Liabilities   7,787,108    8,923,125 
Commitments and Contingencies          
Stockholders’ Equity          
Preferred stock, 5,000,000 shares authorized and none issued and outstanding        
Common stock, $0.01 par value – 50,000,000 authorized; 16,570,478 issued and 16,515,038 outstanding at March 31, 2020; 16,540,478 issued and 16,485,780 outstanding at December 31, 2019   165,704    165,404 
Additional paid-in capital   43,469,602    43,314,123 
Treasury stock, 55,440 and 54,698 shares at cost, at March 31, 2020 and December 31, 2019, respectively   (255,709)   (252,570)
Accumulated deficit   (18,812,641)   (15,225,535)
Total Stockholders’ Equity   24,566,956    28,001,422 
Total Liabilities and Stockholders’ Equity  $32,354,064   $36,924,547 

  

See accompanying notes to the unaudited condensed consolidated financial statements.

 

1

 

 

SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   For the Three Months Ended 
March 31,
 
   2020   2019 
         
Revenues  $1,679,445   $5,436,599 
Cost of Sales   970,944    2,120,621 
Gross Profit   708,501    3,315,978 
Operating Expenses          
Selling and marketing   1,790,970    2,530,346 
General and administrative   1,329,557    1,013,162 
Research and development   1,225,182    1,965,507 
Total Operating Expenses   4,345,709    5,509,015 
Loss From Operations   (3,637,208)   (2,193,037)
Other Income (Expense)          
Interest income   50,102    72,019 
Other Income (Expense), net   50,102    72,019 
Net Loss  $(3,587,106)  $(2,121,018)
Net Loss per share – basic and diluted  $(0.22)  $(0.13)
Weighted average number of shares used in computing net loss per share – basic and diluted   16,407,102    16,119,726 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

2

 

 

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

 

       Additional             
   Common Stock   Paid-In   Treasury Stock   Accumulated     
   Shares   Amount   Capital   Shares   Amount   Deficit   Total 
December 31, 2018   16,145,915   $161,459   $39,957,905    (33,454)  $(133,816)  $(13,525,532)  $26,460,016 
Stock based compensation           154,535                154,535 
Exercise of warrants   400,281    4,002    2,697,895                2,701,897 
Net loss                       (2,121,018)   (2,121,018)
March 31, 2019 (unaudited)   16,546,196    165,461   $42,810,335    (33,454)  $(133,816)  $(15,646,550)  $27,195,430 
                                    
December 31, 2019   16,540,478   $165,404   $43,314,123    (54,698)  $(252,570)  $(15,225,535)  $28,001,422 
Stock based compensation   30,000    300    155,479                155,779 
Surrender of Shares for tax withholding on stock compensation               (742)   (3,139)       (3,139)
Net loss                       (3,587,106)   (3,587,106)
March 31, 2020 (unaudited)   16,570,478   $165,704   $43,469,602    (55,440)  $(255,709)  $(18,812,641)  $24,566,956 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3

 

 

SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   For the Three Months Ended 
March 31,
 
   2020   2019 
Cash Flows From Operating Activities        
Net loss  $(3,587,106)  $(2,121,018)
Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in) operating activities:          
Depreciation and amortization   152,742    128,435 
Provision for product warranties   23,373    59,638 
Stock based compensation   155,779    154,535 
Decrease (increase) in:          
Accounts receivable   6,172,542    (3,735,738)
Inventories   (962,550)   (26,299)
Prepaid and other current assets   (361,626)   (445,874)
Increase (decrease) in:          
Accounts payable and accrued expenses   (938,260)   (1,144,269)
Deferred revenue   (148,040)   71,402 
Product warranties   (73,091)   (57,913)
Total Adjustments   4,020,869    (4,996,083)
Net Cash Provided By (Used In) Operating Activities   433,763    (7,117,101)
Cash Flows from Investing Activities          
Acquisition of property and equipment   (134,687)   (9,404)
Investment in debt securities - held to maturity       (3,007,764)
Investments matured   3,701,392    1,200,000 
Net Cash Provided By (Used In) Investing Activities   3,566,705    (1,817,168)
Cash Flows from Financing Activities          
Withholding taxes on stock compensation   (3,139)    
Exercise of warrants       2,701,897 
Net Cash Provided By (Used In) Financing Activities   (3,139)   2,701,897 
Net Increase (Decrease) in Cash and Cash Equivalents   3,997,329    (6,232,372)
Cash and Cash Equivalents – Beginning   8,100,288    12,484,256 
Cash and Cash Equivalents – Ending  $12,097,617   $6,251,884 
Supplemental Disclosure of Cash Flow Information          
Non-Cash Investing and Financing Activities          
Transfer of inventory to property and equipment  $   $103,697 
Lease liabilities arising from obtaining right-of-use-assets  $   $805,000 

  

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4

 

 

SENSUS HEALTHCARE, INC.
NOTES TO THE FINANCIAL STATEMENTS

 

(unaudited)

 

Note 1 — Organization and Summary of Significant Accounting Policies

 

Description of the Business

 

Sensus Healthcare, Inc. (the “Company”) is a manufacturer of radiation therapy devices and has established a distribution and marketing network to sell the devices to healthcare providers globally. The Company was organized on May 7, 2010 as a limited liability corporation. On January 1, 2016, the Company completed a corporate conversion pursuant to which Sensus Healthcare, Inc. succeeded to the business of Sensus Healthcare, LLC. In February 2018, the Company formed a subsidiary in Israel. The Company operates as one segment from its corporate headquarters located in Boca Raton, Florida.

 

Basis of Presentation

 

The accompanying unaudited condensed financial statements in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and the rules and regulations of the U.S. Securities and Exchange Commission, or SEC. Accordingly, they do not include certain footnotes and financial presentations normally required under accounting principles generally accepted in the United States of America for complete financial statements. The interim financial information is unaudited, but reflects all normal adjustments and accruals which are, in the opinion of management, considered necessary to provide a fair presentation for the interim periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Form 10-K, filed with the SEC. The results for the three months ended March 31, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period.

 

Principles of consolidation

 

The accompanying condensed consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary in Israel. All inter-company balances and transactions have been eliminated.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities including disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates to which it is reasonably possible that a change could occur in the near term include, inventory reserves, receivable allowances, recoverability of long-lived assets and the Company’s product warranties. Actual results could differ from those estimates.

 

Revenue Recognition

 

On January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” using the modified retrospective method for all contracts as of the date of adoption. The adoption of this standard did not result in a significant change to the Company’s historical revenue recognition policies and there were no necessary adjustments required to retained earnings upon adoption.

 

Under ASC 606, a performance obligation is a promise within a contract to transfer a distinct good or service, or a series of distinct goods and services, to a customer. Revenue is recognized when performance obligations are satisfied and the customer obtains control of promised goods or services, which is generally upon shipment of the goods and performance of the service. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for goods or services. Under the standard, a contract’s transaction price is allocated to each distinct performance obligation. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identifies the contracts with a customer; (ii) identifies the performance obligations within the contract, including whether they are distinct and capable of being distinct in the context of the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when, or as, the Company satisfies each performance obligation. 

 

5

 

  

The Company’s revenue consists of sales of the Company’s devices and services related to maintaining and repairing the devices. The agreement for the sale of the devices and the service contract are usually signed at the same time and in some instances a service contract is signed on a stand-alone basis. Revenue for service contracts is recognized over the service contract period on a straight-line basis. The Company determined that in practice no significant discount is given on the service contract when it is offered with the device purchase as compared to when it is sold on a stand-alone basis. The service level provided is identical when the service contract is purchased stand-alone or together with the device. There is no termination provision in the service contract nor any penalties in practice for cancellation of the service contract. The service contract is not considered a performance obligation until it is paid, and it does not provide a material right for a significant discount when purchased with the device. The service portion of a sales contract or a stand-alone service contract is accounted for over the period of time of the service contract only when the customer exercises the option by paying for the service contract.

 

Disaggregated revenue for the three months ended March 31, 2020 and 2019 was as follows:

 

   For the Three Months Ended 
March 31,
 
   2020   2019 
Product Revenue  $1,076,002   $4,930,924 
Service Revenue   603,443    505,675 
Total Revenue  $1,679,445   $5,436,599 

 

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

 

Deferred revenue as of March 31, 2020 was as follows:

 

   Service 
Balance, beginning of period  $2,531,183 
Revenue recognized   (459,861)
Amounts invoiced   311,821 
Balance, end of period  $2,383,143 

 

The Company does not disclose information about remaining performance obligations with respect to deposits for products that have original expected durations of one year or less. Estimated service revenue to be recognized in the future related to the performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2020 was as follows: 

Year  Service Revenue 
2020 (April 1 – December 31, 2020)  $990,846 
2021   943,562 
2022   389,235 
2023   39,667 
2024   19,833 
Total  $2,383,143 

 

6

 

 

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

 

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

 

Segment and Geographical Information

 

The Company’s revenue is generated primarily from customers in the United States, which represented approximately 99% and 81% of total revenue for the three months ended March 31, 2020 and 2019, respectively. A single customer in the U.S. accounted for approximately 11% and 53% of revenues for the three months ended March 31, 2020 and 2019, respectively, and approximately 75% and 79% of the accounts receivable as of March 31, 2020 and December 31, 2019, respectively.

 

Cash and Cash Equivalents

 

The Company maintains its cash and cash equivalents with financial institutions which balances exceed the federally insured limits. Federally insured limits are $250,000 for deposits. As of March 31, 2020 and December 31, 2019, the Company had approximately $11,819,000 and $7,740,000, respectively in excess of federally insured limits.

 

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

 

Investments

 

Short-term investments consist of investments which the Company expects to convert into cash within one year and long-term investments after one year. The Company classifies its investments in debt securities at the time of purchase as held-to-maturity and reevaluates such classification on a quarterly basis. Held-to-maturity investments consist of securities that the Company has the intent and ability to retain until maturity. These securities are carried at amortized cost plus accrued interest and consist of the following:

 

   Amortized
Cost
   Gross
Unrealized
Gain
   Gross
Unrealized
Loss
   Fair
Value
 
Short-Term:                
Corporate bonds  $6,690,678   $4,251   $   $6,694,929 
United States Treasury bonds   698,729    1,302        700,031 
Total Short Term:   7,389,407    5,553        7,394,960 
                     
Total Investments December 31, 2019  $7,389,407   $5,553   $   $7,394,960 
                     
Short-Term:                    
Corporate bonds  $2,985,788   $   $4,809   $2,980,979 
United States Treasury bonds   702,228    3,300        705,528 
Total Short Term:   3,688,016    3,300    4,809    3,686,507 
                     
Total Investments March 31, 2020  $3,688,016   $3,300   $4,809   $3,686,507 

 

Accounts Receivable

 

The Company does business and extends credit based on an evaluation of each customer’s financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The allowance for doubtful accounts was approximately $0 and $80,000 as of March 31, 2020 and December 31, 2019.

 

7

 

 

Inventories

 

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

 

Earnings Per Share

 

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

 

   For the Three Months Ended 
March 31,
 
   2020   2019 
Warrants       256,035 
Stock options       64,463 
Shares   36,048    70,951 

  

Advertising Costs

 

Advertising and promotion expenses are charged to expense as incurred. Advertising and promotion expense included in selling expense in the accompanying statements of operations amounted to approximately $270,000 and $539,000 for the three months ended March 31, 2020 and 2019, respectively.

 

Leases

 

The Company evaluates arrangements at inception to determine if an arrangement is or contains a lease. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company uses an incremental borrowing rate that the Company would expect to incur for a fully collateralized loan over a similar term under similar economic conditions to determine the present value of the lease payments.

  

The lease payments used to determine the Company’s operating lease assets may include lease incentives and stated rent increases and are recognized in the Company’s operating lease assets in the Company’s condensed consolidated balance sheets. Operating lease assets are amortized to rent expense over the lease term and included in operating expenses in the condensed consolidated statements of operations.

  

8

 

 

Note 2 — Property and Equipment

 

   As of
March 31,
2020
   As of
December 31,
2019
   Estimated
Useful Lives
   (unaudited)        
Operations equipment  $1,411,666   $1,280,209   3 years
Tradeshow and demo equipment   914,415    914,891   3 years
Computer equipment   120,815    117,596   3 years
    2,446,896    2,312,696    
Less accumulated depreciation   (1,358,426)   (1,230,268)   
Property and Equipment, Net  $1,088,470   $1,082,428    

 

Depreciation expense was approximately $129,000 and $104,000, for the three months ended March 31, 2020 and 2019, respectively.

 

Note 3 — Patent Rights 

 

   As of
March 31,
   As of
December 31,
 
   2020   2019 
   (unaudited)     
Gross carrying amount  $1,253,018   $1,253,018 
Less accumulated amortization   (939,764)   (915,667)
Patent Rights, Net  $313,254   $337,351 

 

Amortization expense was approximately $24,000 for the three months ended March 31, 2020 and 2019. As of March 31, 2020, future remaining amortization expense is as follows:

 

Year    
2020 (April 1 – December 31, 2020)  $72,289 
2021   96,386 
2022   96,386 
2023   48,193 
Total  $313,254 

 

Note 4 — Revolving Credit Facility

 

The Company has a revolving credit facility that, through April 2020, provided for maximum borrowings equal to the lesser of (a) the $5 million commitment amount or (b) a borrowing base equal to 80% of eligible accounts receivable plus a $2.5 million non-formula sublimit. In October 2019, the term of the facility was extended through January 29, 2020, in January 2020; the term was further extended through April 28, 2020, and in April 2020, the term was further extended to April 1, 2022 and the maximum borrowings were increased to the lesser of (a) the $10 million commitment amount or (b) the borrowing base plus a $3 million non-formula sublimit.

 

Interest on any borrowings, at Prime plus 0.75% (4.00% at March 31, 2020) and Prime plus 1.50% on non-formula borrowings (4.75% at March 31, 2020), is payable monthly, and the outstanding principal and interest are due on the maturity date. The facility is secured by all of the Company’s assets and limits the amount of additional indebtedness; restricts the sale, disposition or transfer of assets of the Company and requires the maintenance of a monthly adjusted quick ratio restrictive covenant, as defined in the agreement. The Company was in compliance with its financial covenants as of March 31, 2020 and December 31, 2019. There were no borrowings outstanding under the revolving credit facility at March 31, 2020 and December 31, 2019. The Company pays commitment fees of 0.25% per annum on the average unused portion of the line of credit. 

 

9

 

 

Note 5 — Product Warranties

 

Changes in product warranty liability were as follows for the three months ended March 31, 2020:

 

Balance, beginning of period  $187,454 
Warranties accrued during the period   23,373 
Payments on warranty claims   (73,091)
Balance, end of period  $137,736 

 

Note 6 — Leases

 

Operating Lease Agreements

 

In July 2016, the Company renewed its lease with an unrelated third party for its headquarters office. The renewal was effective September 1, 2016 and expanded the office space being occupied. The lease expires in September 2022 and lease payments increase by 3% annually. In February 2017 and January 2018, the Company signed amendments to expand further the leased office space. The Company’s Israeli subsidiary entered into a two-year lease for office space starting in September 2018. The leases include an option to extend with prior notice and with terms to be negotiated. The Company currently does not have any lease with a term under 12 months.

 

On March 19, 2019, the Company’s Israeli subsidiary signed a 10-year lease for a manufacturing facility, effective April 1, 2019, for approximately 5,800 square feet. The landlord has provided a four-month grace period rent free from April to July 2019, after which the 10 year lease will begin. The monthly rental payment starts at approximately $5,300 and will be subject to periodic escalations at amounts specified in the lease plus the consumer price index. In addition, the Company is responsible for maintenance fees covering its portion of the expenses of common areas. After 2, 4, 6 and 8 years, and with 180 days prior notice, the Company has the right to terminate the lease at its sole discretion without penalty.

 

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of March 31, 2020.

 

Maturity of Operating Lease Liabilities  Amount 
2020 (April 1 – December 31, 2020)  $267,409 
2021   348,122 
2022   284,578 
2023   104,343 
2024   105,843 
Thereafter   494,731 
Total undiscounted operating leases payments  $1,605,026 
Less: Imputed interest   (258,539)
Present Value of Operating Lease Liabilities  $1,346,487 
      
Other Information     
Weighted-average remaining lease term   6.3 years 
Weighted-average discount rate   5.0%

 

An initial ROU asset of approximately $805,000 was recognized as a non-cash assets addition with the adoption of the new lease accounting standard. The ROU asset was reduced by approximately $83,000 and $330,000 for the three months ended March 31, 2020 and the year ended December 31, 2019, respectively. Cash paid for amounts included in the present value of operating lease liabilities was approximately $91,000 and $310,000 for the three months ended March 31, 2020 and the year ended December 31, 2019, respectively, is included in operating cash flows. Operating lease cost was approximately $96,000 and $65,000 for the three months ended March 31, 2020 and 2019, respectively. 

 

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Note 7 — Commitments and Contingencies

 

Manufacturing Agreement

 

In 2010, the Company entered into a three-year contract manufacturing agreement with an unrelated third party for the production and manufacture of the SRT-100 (and subsequently the SRT-100 Vision and the SRT-100 Plus), in accordance with the Company’s product specifications. The agreement renews for successive one-year periods unless either party notifies the other party in writing, at least 60 days prior to the anniversary date of this agreement that it will not renew the agreement. The Company or the manufacturer has the option to terminate the agreement upon 90 days written notice.

 

Purchases from this manufacturer totaled approximately $1,578,000 and $1,911,000 for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, and December 31, 2019 approximately $927,000 and $1,104,000, respectively, was due to this manufacturer, which is presented in accounts payable and accrued expenses in the accompanying balance sheets.

  

Legal contingencies

 

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

 

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

 

Note 8 — Employee Benefit Plans

 

The Company sponsors a 401(k) defined contribution retirement plan that allows eligible employees to contribute a portion of their compensation through payroll deductions in accordance with specified plan guidelines. The Company makes contributions to the plans that include matching a percentage of the employees’ contributions up to certain limits. Expenses related to this plan totaled approximately $31,000 and $28,000 for the three months ended March 31, 2020 and 2019, respectively. 

 

Note 9 — Stockholders’ Equity

 

The Company has authorized 50,000,000 shares of common stock, of which 16,570,478 were issued and 16,515,038 outstanding at March 31, 2020; 16,540,478 shares were issued and 16,485,780 were outstanding as of December 31, 2019.

 

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Warrants

 

The following table summarizes the Company’s warrant activity:

 

   Warrants 
   Number of
Warrants
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
(In Years)
 
Outstanding – December 31, 2019   2,032,187   $6.75    0.51 
Granted            
Exercised            
Expired            
Outstanding – March 31, 2020   2,032,187   $6.75    0.26 
Exercisable – March 31, 2020   2,032,187   $6.75    0.26 

 

The intrinsic value of the common stock warrants was approximately $0 as of March 31, 2020, and December 31, 2019, respectively.

 

2016 and 2017 Equity Incentive Plans

 

On January 25, 2018, 80,000 fully vested shares were granted to the nonemployee directors, and stock options covering 229,334 shares with a four-year vesting period were granted to certain employees. The shares were recorded at the fair value of $5.55 per share for a total of $444,000 and the stock options were valued using a Black Scholes model at $3.52 per option using the assumptions noted in the following table:

 

Expected volatility   67.8%
Risk-free interest rate   2.5%
Expected life   6.25 years 
Dividend yield   0.0%

 

Expected Volatility. Expected volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate. Expected volatility is based on the historical daily volatility of the price of our common shares. The Company estimated the expected volatility of the stock options at grant date.

 

Risk-Free Interest Rate. The risk-free interest rate is based on the implied yield on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of our stock-based awards.

 

Expected Term or Life. The expected term or life of stock options granted represents the expected weighted average period of time from the date of grant to the estimated date that the stock option would be fully exercised. The weighted average expected option term was determined using the “simplified method” for plain vanilla options as allowed by the accounting guidance. The “simplified method” calculates the expected term as the average of the vesting term and original contractual term of the options.

 

The stock options had an intrinsic value of $0 as of March 31, 2020 and December 31, 2019, respectively.

 

The Company recognizes forfeitures as they occur rather than estimating a forfeiture rate. The reduction of stock compensation expense related to the forfeitures was $0 for the three months ended March 31, 2020 and 2019, respectively.

 

Unrecognized stock compensation expense was approximately $638,000 as of March 31, 2020, which will be recognized over the remaining vesting period.

 

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A summary of restricted stock activity is presented as follows:

 

   Shares   Weighted 
Average
Grant Date Fair
Value
 
Unvested balance at December 31, 2019   80,417   $5.70 
Granted   30,000    4.11 
Vested   (2,500)   4.99 
Forfeited        
Unvested balance at March 31, 2020   107,917   $5.27 

  

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

 

   Number of
Options
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term 
(In Years)
 
Outstanding – December 31, 2019   229,334   $5.55    8.07 
Granted            
Exercised            
Expired            
Outstanding – March 31, 2020   229,334   $5.55    7.82 
Exercisable – March 31, 2020   229,334   $5.55    7.82 

 

Treasury Stock

 

The Company accounts for purchases of treasury stock under the cost method with the cost of such purchases reflected in treasury stock in the accompanying condensed balance sheet. As of March 31, 2020 and December 31, 2019, the Company had 55,440 and 54,698 treasury shares, respectively.

 

Note 10 — Income Taxes

 

Book income before taxes was negative for the three months ended March 31, 2020. Tax expense for the three months ended March 31, 2020 and 2019 was $0.

 

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

 

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

 

As of March 31, 2020, the Company has U.S. federal and certain state tax returns subject to examination, beginning with those filed for the year 2016.

 

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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.

 

The outbreak of the novel coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies and created uncertainty regarding potential impacts to the Company’s employees, operations, and customer demand. The Company, which provides medical devices, is considered an “essential business” and has been able to continue to operate. However, the COVID-19 pandemic has significantly impacted the Company’s sales and could further impact the Company’s operations and the operations of the Company’s customers, suppliers and vendors as a result of quarantines, facility closures, and travel and logistics restrictions. The extent to which the COVID-19 pandemic impacts the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread, severity, and impact of the COVID-19 pandemic, the effects of the COVID-19 pandemic on the Company’s customers, suppliers, and vendors and the remedial actions and stimulus measures adopted by local, state and federal governments, and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, the Company may continue to experience adverse impacts to its business as a result of any economic recession or depression that has occurred or may occur in the future. Therefore, the Company cannot reasonably estimate the impact at this time.

 

In light of the COVID-19 pandemic, the Company has taken steps to manage its costs and bolster its liquidity. We increased our borrowing availability as a precautionary measure to preserve financial flexibility due to the current uncertainty in the global markets resulting from the COVID-19 pandemic. Specifically, on April 13, 2020, the Company amended its revolving credit facility to extend the maturity from April 28, 2020 to April 1, 2022 and to increase the amount available under the facility from the lesser of $5 million or the borrowing base, equal to 80% of eligible accounts receivable, plus the $2.5 million sublimit to the $10 million commitment amount or the borrowing base plus a $3 million sublimit.

 

On April 20, 2020, the Company received a loan under the Small Business Administration Paycheck Protection Program enabled by the CARES Act of 2020 in the amount of $1,022,785 to be used for employee compensation and facilities costs. The loan has a six-month deferral period during which no payments will be due; however, interest will accrue. The loan matures in April 2022 and provides for interest at the rate of 1% per annum. The loan is subject to forgiveness for principal that is used for the limited purposes that expressly qualify for forgiveness under SBA requirements; however, the Company has no assurance that the loan will be forgiven.

 

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

 

You should read the following discussion and analysis in conjunction with the information set forth within the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019 (“Annual Report”). The statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, our plans, estimates, beliefs and expectations that involve risks and uncertainties, and other non-historical statements in this discussion, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those contained in or implied by any forward-looking statements. Please see the Introductory Note and Item 1A. Risk Factors of our Annual Report, as updated in our subsequent quarterly reports filed on Form 10-Q, and in our other filings made from time to time with the SEC after the date of this report.

 

Overview

 

We are a medical device company that is committed to providing highly effective, non-invasive and cost-effective treatments for both oncological and non-oncological skin conditions. We use a proprietary low-energy X-ray technology known as superficial radiation therapy (“SRT”), which is a result of over a decade of dedicated research and development. We have successfully incorporated SRT into our portfolio of treatment devices: the SRT-100TM, SRT-100+TM and SRT-100 VisionTM. In February 2019, we received FDA clearance of our Sculptura™, a robotic radiation oncology system that provides targeted intraoperative triple-modulated radiotherapy and Brachytherapy utilizing our proprietary, state-of-the-art 3D Beam Sculpting™ to treat patients undergoing cancer treatment during surgery, or at the tumor site, with a single dose.

 

Components of our results of operations

 

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

 

Significant Developments

 

The extent to which the COVID-19 pandemic impacts our financial condition and results will depend on future developments which are uncertain and cannot be predicted. We provide medical devices, which is considered an “essential business” and we have been able to continue to operate. We are taking a variety of measures to ensure the availability and functioning of our essential operations and to promote the safety and security of all employees. Please see Note 11 to the financial statements.

 

Results of Operations

 

   For the Three Months Ended 
March 31,
 
   2020   2019 
         
Revenues  $1,679,445   $5,436,599 
Cost of Sales   970,944    2,120,621 
Gross Profit   708,501    3,315,978 
Operating Expenses          
Selling and marketing   1,790,970    2,530,346 
General and administrative   1,329,557    1,013,162 
Research and development   1,225,182    1,965,507 
Total Operating Expenses   4,345,709    5,509,015 
Loss From Operations   (3,637,208)   (2,193,037)
Other Income (Expense)          
Interest income   50,102    72,019 
Other Income (Expense), net   50,102    72,019 
Net Loss  $(3,587,106)  $(2,121,018)

 

Three months ended March 31, 2020 compared to the three months ended March 31, 2019

 

Revenue. Revenue was $1,679,445 for the three months ended March 31, 2020 compared to $5,436,599 for the three months ended March 31, 2019, a decrease of $3,757,154 or 69.1%. The decrease was driven by the lower number of units sold, reflecting the impact of the COVID-19 outbreak, primarily near the end of the quarter. We expect COVID-19 to continue to be significant to our business through at least the second quarter of 2020.

 

Cost of sales. Cost of sales was $970,944 for the three months ended March 31, 2020 compared to $2,120,621 for the three months ended March 31, 2019, a decrease of $1,149,677, or 54.2%. The decrease in cost of sales was commensurate with the decrease in sales.

 

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Gross profit. Gross profit was $708,501 for the three months ended March 31, 2020 compared to $3,315,978 for the three months ended March 31, 2019, a decrease of $2,607,477, or 78.6%. Our overall gross profit percentage was 42.2% in the three months ended March 31, 2020 compared to 61.0% in the corresponding period in 2019. The decrease in gross profit was mostly due to the decrease in sales as a result of the COVID-19 outbreak. As of the date of this report, we expect gross margin as a percentage of revenue for the second quarter of 2020 to be approximately the same as the gross margin reported for the first quarter of 2020 due to the anticipated lower revenue level.

 

Selling and marketing. Selling and marketing expense was $1,790,970 for the three months ended March 31, 2020 compared to $2,530,346 for the three months ended March 31, 2019, a decrease of $739,375, or 29.2%. The decrease was primarily attributable to a decrease in tradeshows expense due to cancellations related to COVID-19, a decrease in commission expense due to lower sales and reduced spending on marketing activities.

 

General and administrative. General and administrative expense was $1,329,557 for the three months ended March 31, 2020 compared to $1,013,162 for the three months ended March 31, 2019, an increase of $316,395, or 31.2%. The net increase in general and administrative expense was primarily due to one-time severance expenses and related legal fees.

 

Research and development. Research and development expense was $1,225,182 for the three months ended March 31, 2020 compared to $1,965,507 for the three months ended March 31, 2019, a decrease of $740,325, or 37.7%. The decrease in research and development spending was primarily attributable to the SculpturaTM project as production began.

 

Other income (expense). We incur interest expense in connection with our secured credit facility with Silicon Valley Bank and interest income from our cash and investments. No interest expense was incurred in 2020 due to no borrowings on the line of credit. Interest income decreased due to maturing of our investment in debt securities.

 

Financial Condition

 

Our cash, cash equivalent and investment balance increased to $15.8 million at March 31, 2020 from $15.5 million at December 31, 2019, primarily due to cash provided in operating activities of $0.4 million.

 

There were no borrowings under the revolving line of credit at March 31, 2020 or December 31, 2019.

 

In light of the COVID-19 pandemic, we have taken proactive steps to manage our costs and bolster our liquidity. We increased our borrowing availability as a precautionary measure to preserve financial flexibility due to the current uncertainty in the global markets resulting from the COVID-19 pandemic. In addition, we received a loan under the Small Business Administration Paycheck Protection Program enabled by the CARES Act of 2020 to be used for employee compensation and facilities costs. Please see Note 11 to the financial statements.

 

Liquidity and Capital Resources

 

Overview

 

Our liquidity position and capital requirements may be impacted by a number of factors, including the following:

 

  our ability to generate and increase revenue;
  fluctuations in gross margins, operating expenses and net results;
  the impact of COVID-19, see Note 11 “Subsequent Events”; and
  fluctuations in working capital.

 

Our primary short-term capital needs, which are subject to change, include expenditures related to:

 

  expansion of our sales, marketing and distribution activities; and
  expansion of our research and development activities.

 

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We regularly evaluate our cash requirements for current operations, commitments, capital requirements and business development transactions, and we may elect to raise additional funds for these purposes in the future.

 

Cash flows

 

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

 

  

For the Three Months

Ended
March 31,

 
   (unaudited) 
   2020   2019 
Net Cash Provided by (Used In):        
Operating Activities  $433,763   $(7,117,101)
Investing Activities   3,566,705    (1,817,168)
Financing Activities   (3,139)   2,701,897 
Total  $3,997,329   $(6,232,372)

 

Cash flows from operating activities

 

Net cash provided by operating activities was $433,763 for the three months ended March 31, 2020, consisting of a net loss of $3,587,106 partially offset by a decrease in net operating assets of $3,688,975 and by non-cash charges of $331,894. The decrease in net operating assets was primarily due to a decrease in accounts receivable, partially offset by an increase in inventories, prepaid and other current assets and accounts payables and accrued expenses, warranties and deferred revenue. Non-cash charges consisted of stock compensation expense, depreciation and amortization and warranty provision. Net cash used in operating activities was $7,117,101 for the three months ended March 31, 2019, primarily due to the operating loss and the increase in accounts receivable and accounts payable and accrued expenses.

 

Cash flows from investing activities

 

Net cash provided by investing activities was $3,566,705, mostly due to matured investments of $3,701,392 during the three months ended March 31, 2020. Net cash used in investing activities was $1,817,168 for the three months ended March 31, 2019 due to the purchase of debt securities held-to-maturity of $3,007,764, partially offset by $1,200,000 for investments matured.

 

Cash flows from financing activities

 

Net cash used in financing activities was $3,139 during the three months ended March 31, 2020 mostly from withholding taxes on stock compensation. Net cash provided by financing activities was $2,701,897 during the three months ended March 31, 2019, mainly from exercise of 400,281 investor warrants.

 

Indebtedness

 

Please see Note 4 to the financial statements.

 

Off-Balance Sheet Arrangements

 

We did not have, during the periods presented, and do not currently have, any off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S., or GAAP. We have identified certain accounting policies as critical to understanding our financial condition and results of our operations. For a detailed discussion on the application of these and other accounting policies, see the notes to our financial statements and our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2019.

 

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JOBS Act

 

We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act. For as long as we are an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, reduced disclosure obligations relating to the presentation of financial statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations, exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation. We have availed ourselves of the reduced reporting obligations in this Quarterly Report on Form 10-Q, and expect to continue to avail ourselves of the reduced reporting obligations available to emerging growth companies in future filings.

 

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

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

Item 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Control and Procedures

 

As of March 31, 2020, the end of the period covered by this Form 10-Q, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of March 31, 2020, the end of the period covered by this Form 10-Q, we maintained effective disclosure controls and procedures.

 

Changes in Internal Control over Financial Reporting

 

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

 

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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 7, Commitments and Contingencies.

 

Item 1A. Risk Factors

 

The following updates the risk factors previously reported in Part 1, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019:

 

Our business, results of operations and financial condition could be materially adversely affected by the effects of widespread public health epidemics, including the novel coronavirus (“COVID-19”), that are beyond our control.

 

Any outbreaks of contagious diseases, public health epidemics and other adverse public health developments in countries where we, our customers, or our suppliers operate could have a material and adverse effect on our business, results of operations and financial condition. The COVID-19 outbreak, has impacted our sales as social distancing forced physicians to temporarily close their practices during the first quarter of 2020, and is expected to continue to adversely impact our business, and the nature and extent of the impact is highly uncertain and beyond our control. Uncertain factors relating to COVID-19 include the duration, spread and severity of the virus, the effects of the COVID-19 pandemic on the Company’s customers, vendors and suppliers, and the actions or perception of actions that may be taken to contain or treat its impact, including declarations of states of emergency, business closures, manufacturing restrictions and a prolonged period of travel, commercial and/or other similar restrictions and limitations.

 

As a result of COVID-19 and the measures designed to contain its spread, our sales have been, and are expected to continue to be negatively impacted as a result of disruption in demand, which could have a material and adverse effect on our business, results of operations and financial condition. Similarly, our suppliers may not have the materials, capacity, or capability to manufacture our products according to our schedule and specifications. If our suppliers’ operations are impacted, we may need to seek alternate suppliers, which may be more expensive, may not be available or may result in delays in shipments to us and subsequently to our customers, each of which would affect our results of operations. The duration of the related financial impact to us, cannot be estimated at this time. Should such disruption continue for an extended period of time, the impact could have a material adverse effect on our business, results of operations and financial condition.

 

An investment in our securities involves risks. You should carefully consider the risk factors disclosed in our Form 10-K filed with the SEC for the year ended December 31, 2019, together with the other information in this Quarterly Report on Form 10-Q, including the financial statements and related notes, before deciding whether to purchase, hold, or sell our securities. The occurrence of any of these risks could harm our business, financial condition, or results of operations or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all of the risk factors described when evaluating our business.

 

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

 

(a) Sales of Unregistered Securities

 

There were no unregistered sales of securities during the three months ended March 31, 2020.

 

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

 

None.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosure

 

Not applicable.

 

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Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit No.   Description
10.1   Sixth Amendment to Second Amendment and Restated Loan and Security Agreement, dated April 13, 2020. 
     
31.1   Certification of Joseph C. Sardano, Chairman and Chief Executive Officer of Sensus Healthcare, Inc., Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
     
31.2   Certification of Javier Rampolla, Chief Financial Officer of Sensus Healthcare, Inc., Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
     
32.1   Certification of Joseph C. Sardano, Chairman and Chief Executive Officer of Sensus Healthcare, Inc., Pursuant to 18 U.S.C. Section 1350.
     
32.2   Certification of Javier Rampolla, Chief Financial Officer of Sensus Healthcare, Inc., Pursuant to 18 U.S.C. Section 1350.
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document

 

20

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

  SENSUS HEALTHCARE, INC.
   
Date: May 11, 2020 /s/ Joseph C. Sardano
  Joseph C. Sardano
  Chief Executive Officer
  (Principal Executive Officer)
   
Date: May 11, 2020 /s/ Javier Rampolla
  Javier Rampolla
  Chief Financial Officer
  (Principal Financial Officer and
Principal Accounting Officer)

 

 

21

 

 

Exhibit 10.1

 

SIXTH AMENDMENT

TO

SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

This Sixth Amendment to Second Amended and Restated Loan and Security Agreement (this “Amendment”) is entered into as of April 13, 2020, by and between Silicon Valley Bank (“Bank”) and Sensus Healthcare, Inc. (f/k/a Sensus Healthcare, LLC), a Delaware corporation (“Borrower”), whose address is 851 Broken Sound Parkway NW, Suite 215, Boca Raton, FL 33487.

 

Recitals

 

A. Bank and Borrower have entered into that certain Second Amended and Restated Loan and Security Agreement dated as of September 21, 2016 (as the same has been and may from time to time be further amended, modified, supplemented or restated, the “Loan Agreement”).

 

B. Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.

 

C. Borrower has requested that Bank amend the Loan Agreement to (i) increase the amount of the Revolving Line, (ii) extend the maturity date, and (iii) make certain other revisions to the Loan Agreement as more fully set forth herein.

 

D. Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

 

Agreement

 

Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

 

1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

 

2. Amendments to Loan Agreement.

 

2.1 Section 2.3 (Payment of Interest on the Credit Extensions). Section 2.3(a) is amended in its entirety and replaced with the following:

 

(a) Interest Rate.

 

(i) Advances. Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line (other than Non-Formula Advances) shall accrue interest at a floating per annum rate equal to (A) during any Streamline Period, the greater of (1) three-quarters of one percentage point (0.75%) above the Prime Rate and (2) four percent (4.00%), and (B) during any Non-Streamline Period, the greater of (1) one and one-half percentage points (1.50%) above the Prime Rate and (2) four and three-quarters percent (4.75%), in any case, which interest shall be payable monthly in accordance with Section 2.3(d) below.

 

1

 

 

(ii) Non-Formula Advances. Subject to Section 2.3(b), the outstanding principal amount of the Non-Formula Advances shall accrue interest at a floating per annum rate equal to the greater of (A) one and one-half percentage points (1.50%) above the Prime Rate and (B) four and three-quarters percent (4.75%), in either case, which interest shall be payable monthly in accordance with Section 2.3(d) below.

 

2.2 Section 2.4 (Fees). Section 2.4(e) is amended in its entirety and replaced with the following:

 

(e) Revolving Line Facility Fee. A non-refundable facility fee of One Hundred Thousand Dollars ($100,000), fully earned as of the Sixth Amendment Date, and payable as follows: (i) Fifty Thousand Dollars ($50,000), shall be due and payable on the Sixth Amendment Date, and (ii) Fifty Thousand Dollars ($50,000), shall be due and payable on the first anniversary of the Sixth Amendment Date (or any earlier termination of the Revolving Line);

 

2.3 Section 6.6 (Access to Collateral; Books and Records). Section 6.6 is amended by adding the following sentence to the end thereof:

 

Borrower hereby acknowledges that such an audit shall be conducted prior to the first Advance after the Sixth Amendment Date.

 

2.4 Section 6.8 (Operating Accounts). Section 6.8(a) is amended in its entirety and replaced with the following:

 

(a) Borrower and its Subsidiaries shall maintain account balances in any of its accounts at or through Bank representing at least seventy-five percent (75%) of all deposit account balances of Borrower and such Subsidiaries at any financial institution. Borrower and its Subsidiaries shall obtain any letters of credit exclusively from Bank.

 

2.5 Section 7.11 (Subsidiary Assets). A new Section 7.11 is added to the Loan Agreement as follows:

 

7.11 Subsidiary Assets. Permit its Subsidiaries’ total cash to exceed One Hundred Thousand Dollars ($100,000) (exclusive of the One Hundred Thousand Dollars ($100,000) on deposit at Bank Hapoalim as of the Sixth Amendment Date).

 

2

 

 

2.6 Section 13 (Definitions). Clauses (b), (c), (d), (e), (q), and (v) of the defined term “Eligible Accounts” in Section 13.1 are amended in their entirety and replaced with the following:

 

(b) Accounts that the Account Debtor has not paid within ninety (90) days (one hundred eighty (180) days for Accounts of SkinCure Oncology) of invoice date regardless of invoice payment period terms;

 

(c) Accounts with credit balances over ninety (90) days (one hundred eighty (180) days for Accounts of SkinCure Oncology) from invoice date;

 

(d) Accounts owing from an Account Debtor, if fifty percent (50%) or more of the Accounts owing from such Account Debtor have not been paid within ninety (90) days (one hundred eighty (180) days for Accounts of SkinCure Oncology) of invoice date;

 

(e) Accounts owing from an Account Debtor which does not have its principal place of business in the United States other than Accounts owing from Account Debtors approved in writing by Bank on a case-by-case basis in its sole discretion;

 

(q) Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond ninety (90) days (one hundred eighty (180) days for Accounts of SkinCure Oncology);

 

(v) Accounts owing from an Account Debtor, whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts (except for SkinCure Oncology, for which such percentage is fifty percent (50%)), for the amounts that exceed that percentage, unless Bank approves in writing; and

 

2.7 Section 13 (Definitions). The defined term “Permitted Investments” in Section 13.1 is amended by deleting the word “and” from the end of clause (g), replacing the period at the end of clause (h) with “; and”, and adding a new clause (i) as follows:

 

(i) Investments (i) by Borrower in Subsidiaries not to exceed (A) One Million Four Hundred Thousand Dollars ($1,400,000) in the aggregate for the 2020 fiscal year, and (B) Seven Hundred Fifty Thousand Dollars ($750,000) in the aggregate for the 2021 fiscal year and for each fiscal year thereafter, and (ii) by Subsidiaries in other Subsidiaries or in Borrower.

 

2.8 Section 13 (Definitions). The following terms and their respective definitions set forth in Section 13.1 are amended in their entirety and replaced with the following:

 

“Non-Formula Amount” is an amount equal to (a) at all times that Borrower maintains an Adjusted Quick Ratio, tested monthly, of at least 1.50 to 1.00, Three Million Dollars ($3,000,000), and (b) at all times that Borrower maintains an Adjusted Quick Ratio, tested monthly, of less than 1.50 to 1.00, Zero Dollars ($0).

 

“Revolving Line” is an aggregate principal amount equal to Ten Million Dollars ($10,000,000).

 

“Revolving Line Maturity Date” means April 1, 2022.

 

3

 

 

2.9 Section 13 (Definitions). The following term and its definition are added to Section 13.1, in appropriate alphabetical order, as follows:

 

“Sixth Amendment Date” is April 13, 2020.

 

2.10 Exhibit B (Compliance Certificate). Exhibit B to the Loan Agreement is amended in its entirety and replaced with Exhibit B attached hereto.

 

3. Limitation of Amendments.

 

3.1 The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

 

3.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

 

4. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:

 

4.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;

 

4.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

 

4.3 The organizational documents of Borrower most recently delivered to Bank remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

 

4.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

 

4.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

 

4

 

 

4.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and

 

4.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

 

5. Integration. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.

 

6. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

 

7. Electronic Execution of Documents. Each party hereto may execute this Amendment by electronic means and recognizes and accepts the use of electronic signatures and records by any other party hereto in connection with the execution and storage hereof.

 

8. Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, (b) Borrower’s payment of the facility fee in an amount equal to Fifty Thousand Dollars ($50,000) pursuant to Section 2.4(e)(i) of the Loan Agreement (as amended hereby), and (c) payment of Bank’s legal fees and expenses in connection with the negotiation and preparation of this Amendment.

 

[Signature page follows.]

 

5

 

 

In Witness Whereof, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

 

BANK   BORROWER
     
Silicon Valley Bank   Sensus Healthcare, Inc.
     
By: /s/ Dan Greaney   By: /s/ Javier Rampolla
Name: Dan Greaney   Name: Javier Rampolla
Title: Vice President I, Life Sciences   Title: CFO

 

[Signature Page to Sixth Amendment to

Second Amended and Restated Loan and Security Agreement]

 

 

 

 

EXHIBIT B

 

COMPLIANCE CERTIFICATE

 

TO: SILICON VALLEY BANK Date: ________________
FROM: SENSUS HEALTHCARE, INC.  

 

 

The undersigned authorized officer of SENSUS HEALTHCARE, INC. (“Borrower”) certifies that under the terms and conditions of the Second Amended and Restated Loan and Security Agreement between Borrower and Bank (the “Agreement”), (1) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below, (2) there are no Events of Default, (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank. Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

 

Please indicate compliance status by circling Yes/No under “Compliescolumn.

 

Reporting Covenant  Required  Complies
       
Monthly financial statements with Compliance Certificate  Monthly within 30 days  Yes No
Annual financial statement (CPA Audited) + CC  FYE within 150 days  Yes No
10-Q, 10-K and 8-K  Monthly within 30 days  Yes No
Borrowing Base Report  Monthly within 30 days  Yes No
A/R & A/P Agings, Deferred Revenue report  Monthly within 30 days  Yes No
Annual Financial Projections  FYE within 30 days and as updated  Yes No

 

Financial Covenant  Required  Actual  Complies
          
Maintain on a Monthly Basis:         
Minimum Adjusted Quick Ratio  1.35:1.00  ____:1.00  Yes No

 

Lockbox; Streamline Period; Non-Formula Availability  Applies
AQR ≥ 2.00:1.00*  No Lockbox Required; Streamline Period; Non-Formula = $3,000,000  Yes No
2.00:1.00 > AQR ≥ 1.50:1.00*  Lockbox Required; Streamline Period; Non-Formula = $3,000,000  Yes No
AQR < 1.50:1.00  Lockbox Required; Non-Streamline Period; Non-Formula = $0  Yes No

 

*At all times during the applicable Testing Month

 

 

 

 

The following financial covenant analysis and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

 

The following are the exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”)

 

 

 

 

 

 

 

Sensus Healthcare, Inc.   BANK USE ONLY
     
By:            Received by:  
Name:       AUTHORIZED SIGNER
Title:    
    Date:  
     
    Verified:                   
      AUTHORIZED SIGNER
       
    Date:  
       
    Compliance Status: Yes No

 

 

 

 

Schedule 1 to Compliance Certificate

 

Financial Covenants of Borrower

 

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

 

Dated: ____________________

 

I.Adjusted Quick Ratio

 

Required: 1.35:1.00 (For financial covenants)
  2.00:1.00 (For Lockbox to not be required)
  1.50:1.00 (For Streamline Period eligibility (at all times during the applicable Testing Month) and Non-Formula availability)

 

Actual:

 

A. Aggregate value of the unrestricted cash and Cash Equivalents of Borrower maintained with Bank $_________
     
B. Aggregate value of the net billed accounts receivable of Borrower $ _________
     
C. Quick Assets (the sum of lines A and B) $ _________
     
D. Aggregate value of Obligations to Bank $ _________
     
E. Aggregate value of liabilities that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness and the current portion of Subordinated Debt, and not otherwise reflected in line D above that matures within one (1) year $ _________
     
F. Current Liabilities (the sum of lines D and E) $ _________
     
G.

Aggregate value of all amounts received or invoiced by Borrower in advance of performance under contracts and not yet recognized as revenue

$ _________
     
H. Line F minus line G $ _________
     
I. Adjusted Quick Ratio (line C divided by line H) ____:1.00

 

Is line I equal to or greater than 1.35:1.00?

 

_______  No: Not in compliance   _______  Yes: In Compliance
     
Has line I been equal to or greater than 2.00:1.00 at all times during the term of this Agreement?
     
_______  No: Lockbox is required  

_______  Yes: Lockbox is not required

     

Was line I equal to or greater than 1.50:1.00 at all times during the applicable Testing Month?

     
_______  No: Non-Streamline Period; Non-Formula = $0   _______  Yes: Streamline Period; Non-Formula = $3,000,000

 

 

 

 

Exhibit 31.1

 

Certification of CEO Pursuant to Securities Exchange Act

Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Joseph C. Sardano, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Sensus Healthcare, Inc.;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

 

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 Date: May 11, 2020 /s/ Joseph C. Sardano
  Joseph C. Sardano
  Chairman and Chief Executive Officer

Exhibit 31.2

 

Certification of CEO Pursuant to Securities Exchange Act

Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Javier Rampolla, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Sensus Healthcare, Inc.;

     

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

     

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 Date: May 11, 2020 /s/ Javier Rampolla
  Javier Rampolla
  Chief Financial Officer

Exhibit 32.1

 

Certification of CEO Pursuant to 18 U.S.C. Section 1350

 

Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Joseph C. Sardano, the Chairman and Chief Executive Officer of Sensus Healthcare, Inc. (the “Company”), certify that, to my knowledge:

 

(1)the Quarterly Report for the Company on Form 10-Q for the period ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (this “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered therein.

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

/s/ Joseph C. Sardano

 
Joseph C. Sardano  
Chairman and Chief Executive Officer  
   
May 11, 2020  

Exhibit 32.2

 

Certification of CFO Pursuant to 18 U.S.C. Section 1350

 

Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Javier Rampolla, the Chief Financial Officer of Sensus Healthcare, Inc. (the “Company”), certify that, to my knowledge:

 

(1)the Quarterly Report for the Company on Form 10-Q for the period ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (this “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered therein.

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

/s/ Javier Rampolla

 
Javier Rampolla  
Chief Financial Officer  
   
May 11, 2020  

 

 

 

v3.20.1
Condensed Consolidated Statements of Stockholders' Equity - USD ($)
Common Stock
Additional Paid-In Capital
Treasury Stock
Accumulated Deficit
Total
Balance beginning at Dec. 31, 2018 $ 161,459 $ 39,957,905 $ (133,816) $ (13,525,532) $ 26,460,016
Balance beginning, shares at Dec. 31, 2018 16,145,915   (33,454)    
Stock based compensation 154,535 154,535
Exercise of warrants $ 4,002 2,697,895     2,701,897
Exercise of warrants, shares 400,281        
Net loss       (2,121,018) (2,121,018)
Balance end at Mar. 31, 2019 $ 165,461 42,810,335 $ (133,816) (15,646,550) 27,195,430
Balance end, shares at Mar. 31, 2019 16,546,196   (33,454)    
Balance beginning at Dec. 31, 2019 $ 165,404 43,314,123 $ (252,570) (15,225,535) 28,001,422
Balance beginning, shares at Dec. 31, 2019 16,540,478   (54,698)    
Stock based compensation $ 300 155,479 155,779
Stock based compensation, shares 30,000        
Surrender of shares for tax withholding on stock compensation $ (3,139) (3,139)
Surrender of shares for tax withholding on stock compensation, shares   (742)    
Net loss       (3,587,106) (3,587,106)
Balance end at Mar. 31, 2020 $ 165,704 $ 43,469,602 $ (255,709) $ (18,812,641) $ 24,566,956
Balance end, shares at Mar. 31, 2020 16,570,478   (55,440)    
v3.20.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2020
Apr. 30, 2020
Document and Entity Information [Abstract]    
Entity Registrant Name Sensus Healthcare, Inc.  
Entity Central Index Key 0001494891  
Document Type 10-Q  
Document Period End Date Mar. 31, 2020  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity's Reporting Status Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company true  
Entity Ex Transition Period true  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   16,515,038
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2020  
Entity Interactive Data Current Yes  
Entity Incorporation State Country Code DE  
Entity File Number 001-37714  
v3.20.1
Organization and Summary Of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Schedule of Disaggregation of Revenue

   For the Three Months Ended 
March 31,
 
   2020   2019 
Product Revenue  $1,076,002   $4,930,924 
Service Revenue   603,443    505,675 
Total Revenue  $1,679,445   $5,436,599 
Schedule of deferred revenue

   Service 
Balance, beginning of period  $2,531,183 
Revenue recognized   (459,861)
Amounts invoiced   311,821 
Balance, end of period  $2,383,143 
Schedule of estimated service revenue recognised

Year  Service Revenue 
2020 (April 1 – December 31, 2020)  $990,846 
2021   943,562 
2022   389,235 
2023   39,667 
2024   19,833 
Total  $2,383,143 
Schedule of investment

   Amortized
Cost
   Gross
Unrealized
Gain
   Gross
Unrealized
Loss
   Fair
Value
 
Short-Term:                
Corporate bonds  $6,690,678   $4,251   $   $6,694,929 
United States Treasury bonds   698,729    1,302        700,031 
Total Short Term:   7,389,407    5,553        7,394,960 
                     
Total Investments December 31, 2019  $7,389,407   $5,553   $   $7,394,960 
                     
Short-Term:                    
Corporate bonds  $2,985,788   $   $4,809   $2,980,979 
United States Treasury bonds   702,228    3,300        705,528 
Total Short Term:   3,688,016    3,300    4,809    3,686,507 
                     
Total Investments March 31, 2020  $3,688,016   $3,300   $4,809   $3,686,507 
Schedule of antidilutive

   For the Three Months Ended 
March 31,
 
   2020   2019 
Warrants       256,035 
Stock options       64,463 
Shares   36,048    70,951 
v3.20.1
Patent Rights
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
PATENT RIGHTS

Note 3 — Patent Rights 

 

   As of
March 31,
   As of
December 31,
 
   2020   2019 
   (unaudited)     
Gross carrying amount  $1,253,018   $1,253,018 
Less accumulated amortization   (939,764)   (915,667)
Patent Rights, Net  $313,254   $337,351 

 

Amortization expense was approximately $24,000 for the three months ended March 31, 2020 and 2019. As of March 31, 2020, future remaining amortization expense is as follows:

 

Year    
2020 (April 1 – December 31, 2020)  $72,289 
2021   96,386 
2022   96,386 
2023   48,193 
Total  $313,254 
v3.20.1
Product Warranties
3 Months Ended
Mar. 31, 2020
Product Warranties Disclosures [Abstract]  
PRODUCT WARRANTIES

Note 5 — Product Warranties

 

Changes in product warranty liability were as follows for the three months ended March 31, 2020:

 

Balance, beginning of period  $187,454 
Warranties accrued during the period   23,373 
Payments on warranty claims   (73,091)
Balance, end of period  $137,736 
v3.20.1
Stockholders' Equity
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
STOCKHOLDERS' EQUITY

Note 9 — Stockholders' Equity

 

The Company has authorized 50,000,000 shares of common stock, of which 16,570,478 were issued and 16,515,038 outstanding at March 31, 2020; 16,540,478 shares were issued and 16,485,780 were outstanding as of December 31, 2019.

 

Warrants

 

The following table summarizes the Company's warrant activity:

 

   Warrants 
   Number of
Warrants
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
(In Years)
 
Outstanding – December 31, 2019   2,032,187   $6.75    0.51 
Granted            
Exercised            
Expired            
Outstanding – March 31, 2020   2,032,187   $6.75    0.26 
Exercisable – March 31, 2020   2,032,187   $6.75    0.26 

 

The intrinsic value of the common stock warrants was approximately $0 as of March 31, 2020, and December 31, 2019, respectively.

 

2016 and 2017 Equity Incentive Plans

 

On January 25, 2018, 80,000 fully vested shares were granted to the nonemployee directors, and stock options covering 229,334 shares with a four-year vesting period were granted to certain employees. The shares were recorded at the fair value of $5.55 per share for a total of $444,000 and the stock options were valued using a Black Scholes model at $3.52 per option using the assumptions noted in the following table:

 

Expected volatility   67.8%
Risk-free interest rate   2.5%
Expected life   6.25 years 
Dividend yield   0.0%

 

Expected Volatility. Expected volatility is a measure of the amount by which the Company's stock price is expected to fluctuate. Expected volatility is based on the historical daily volatility of the price of our common shares. The Company estimated the expected volatility of the stock options at grant date.

 

Risk-Free Interest Rate. The risk-free interest rate is based on the implied yield on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of our stock-based awards.

 

Expected Term or Life. The expected term or life of stock options granted represents the expected weighted average period of time from the date of grant to the estimated date that the stock option would be fully exercised. The weighted average expected option term was determined using the "simplified method" for plain vanilla options as allowed by the accounting guidance. The "simplified method" calculates the expected term as the average of the vesting term and original contractual term of the options.

 

The stock options had an intrinsic value of $0 as of March 31, 2020 and December 31, 2019, respectively.

 

The Company recognizes forfeitures as they occur rather than estimating a forfeiture rate. The reduction of stock compensation expense related to the forfeitures was $0 for the three months ended March 31, 2020 and 2019, respectively.

 

Unrecognized stock compensation expense was approximately $638,000 as of March 31, 2020, which will be recognized over the remaining vesting period.

 

A summary of restricted stock activity is presented as follows:

 

   Shares   Weighted 
Average
Grant Date Fair
Value
 
Unvested balance at December 31, 2019   80,417   $5.70 
Granted   30,000    4.11 
Vested   (2,500)   4.99 
Forfeited        
Unvested balance at March 31, 2020   107,917   $5.27 

  

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

 

   Number of
Options
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term 
(In Years)
 
Outstanding – December 31, 2019   229,334   $5.55    8.07 
Granted            
Exercised            
Expired            
Outstanding – March 31, 2020   229,334   $5.55    7.82 
Exercisable – March 31, 2020   229,334   $5.55    7.82 

 

Treasury Stock

 

The Company accounts for purchases of treasury stock under the cost method with the cost of such purchases reflected in treasury stock in the accompanying condensed balance sheet. As of March 31, 2020 and December 31, 2019, the Company had 55,440 and 54,698 treasury shares, respectively.

v3.20.1
Revolving Credit Facility (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Revolving Credit Facility (Textual)    
Revolving credit facility, outstanding
Line of credit facility, unused capacity, commitment fee percentage 0.25%  
Revolving credit facility, description The Company has a revolving credit facility that, through April 2020, provided for maximum borrowings equal to the lesser of (a) the $5 million commitment amount or (b) a borrowing base equal to 80% of eligible accounts receivable plus a $2.5 million non-formula sublimit. In October 2019, the term of the facility was extended through January 29, 2020, in January 2020; the term was further extended through April 28, 2020, and in April 2020, the term was further extended to April 1, 2022 and the maximum borrowings were increased to the lesser of (a) the $10 million commitment amount or (b) the borrowing base plus a $3 million non-formula sublimit.  
Interest on borrowing, description Interest on any borrowings, at Prime plus 0.75% (4.00% at March 31, 2020) and Prime plus 1.50% on non-formula borrowings (4.75% at March 31, 2020), is payable monthly, and the outstanding principal and interest are due on the maturity date.  
v3.20.1
Property and Equipment (Details Textual) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Property, Plant and Equipment [Abstract]    
Depreciation expense $ 129,000 $ 104,000
v3.20.1
Stockholders' Equity (Details Textual) - USD ($)
1 Months Ended 3 Months Ended
Jan. 25, 2018
Mar. 31, 2020
Dec. 31, 2019
Stockholders' Equity (Textual)      
Common stock, authorized   50,000,000 50,000,000
Common stock, issued   16,570,478 16,540,478
Common stock,outstanding   16,515,038 16,485,780
Intrinsic value of common stock warrants   $ 0 $ 0
Stock option Granted    
Weighted average exercise price stock option granted $ 5.55    
Options, vested in period, fair value $ 444,000    
Stock options fair value $ 3.52    
Intrinsic value of Stock options   $ 0 $ 0
Unrecognized stock compensation expense   $ 638,000  
Treasury stock   55,440 54,698
Employees [Member]      
Stockholders' Equity (Textual)      
Description of vesting rights 80,000 fully vested shares were granted to the nonemployee directors, and stock options covering 229,334 shares with a four-year vesting period were granted to certain employees.    
Stock option Granted 229,334    
Nonemployee Directors [Member]      
Stockholders' Equity (Textual)      
Stock option Granted 80,000    
v3.20.1
Stockholders' Equity (Details) - Warrants [Member]
3 Months Ended
Mar. 31, 2020
$ / shares
shares
Number of Warrants  
Outstanding at beginning | shares 2,032,187
Granted | shares
Exercised | shares
Expired | shares
Outstanding at ending | shares 2,032,187
Exercisable at end | shares 2,032,187
Weighted Average Exercise Price  
Outstanding at beginning | $ / shares $ 6.75
Granted | $ / shares
Exercised | $ / shares
Expired | $ / shares
Outstanding at ending | $ / shares 6.75
Exercisable at ending | $ / shares $ 6.75
Weighted Average Remainning Contractual Term (In Years)  
Outstanding at beginning 6 months 3 days
Outstanding at ending 3 months 4 days
Exercisable at ending 3 months 4 days
v3.20.1
Leases (Tables)
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Schedule of future minimum lease payments for operating leases

Maturity of Operating Lease Liabilities  Amount 
2020 (April 1 – December 31, 2020)  $267,409 
2021   348,122 
2022   284,578 
2023   104,343 
2024   105,843 
Thereafter   494,731 
Total undiscounted operating leases payments  $1,605,026 
Less: Imputed interest   (258,539)
Present Value of Operating Lease Liabilities  $1,346,487 
      
Other Information     
Weighted-average remaining lease term   6.3 years 
Weighted-average discount rate   5.0%
v3.20.1
Organization and Summary Of Significant Accounting Policies (Details 2)
Mar. 31, 2020
USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
2020 (April 1 – December 31, 2020) $ 990,846
2021 943,562
2022 389,235
2023 39,667
2024 19,833
Total $ 2,383,143
v3.20.1
Income Taxes (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Taxes (Textual)    
Tax expense $ 0 $ 0
v3.20.1
Stockholders' Equity (Details 1)
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Expected volatility 67.80%
Risk-free interest rate 2.50%
Expected life 6 years 2 months 30 days
Dividend yield 0.00%
v3.20.1
Product Warranties (Tables)
3 Months Ended
Mar. 31, 2020
Product Warranties Disclosures [Abstract]  
Schedule of changes in product warranty liability

Balance, beginning of period  $187,454 
Warranties accrued during the period   23,373 
Payments on warranty claims   (73,091)
Balance, end of period  $137,736 
v3.20.1
Organization and Summary Of Significant Accounting Policies (Details 1) - Service [Member]
3 Months Ended
Mar. 31, 2020
USD ($)
Deferred Revenue Arrangement [Line Items]  
Balance, beginning of period $ 2,531,183
Revenue recognized (459,861)
Amounts invoiced 311,821
Balance, end of period $ 2,383,143
v3.20.1
Property and Equipment
3 Months Ended
Mar. 31, 2020
Property, Plant and Equipment [Abstract]  
PROPERTY AND EQUIPMENT

Note 2 — Property and Equipment

 

   As of
March 31,
2020
   As of
December 31,
2019
   Estimated
Useful Lives
   (unaudited)        
Operations equipment  $1,411,666   $1,280,209   3 years
Tradeshow and demo equipment   914,415    914,891   3 years
Computer equipment   120,815    117,596   3 years
    2,446,896    2,312,696    
Less accumulated depreciation   (1,358,426)   (1,230,268)   
Property and Equipment, Net  $1,088,470   $1,082,428    

 

Depreciation expense was approximately $129,000 and $104,000, for the three months ended March 31, 2020 and 2019, respectively.

v3.20.1
Revolving Credit Facility
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
REVOLVING CREDIT FACILITY

Note 4 — Revolving Credit Facility

 

The Company has a revolving credit facility that, through April 2020, provided for maximum borrowings equal to the lesser of (a) the $5 million commitment amount or (b) a borrowing base equal to 80% of eligible accounts receivable plus a $2.5 million non-formula sublimit. In October 2019, the term of the facility was extended through January 29, 2020, in January 2020; the term was further extended through April 28, 2020, and in April 2020, the term was further extended to April 1, 2022 and the maximum borrowings were increased to the lesser of (a) the $10 million commitment amount or (b) the borrowing base plus a $3 million non-formula sublimit.

 

Interest on any borrowings, at Prime plus 0.75% (4.00% at March 31, 2020) and Prime plus 1.50% on non-formula borrowings (4.75% at March 31, 2020), is payable monthly, and the outstanding principal and interest are due on the maturity date. The facility is secured by all of the Company's assets and limits the amount of additional indebtedness; restricts the sale, disposition or transfer of assets of the Company and requires the maintenance of a monthly adjusted quick ratio restrictive covenant, as defined in the agreement. The Company was in compliance with its financial covenants as of March 31, 2020 and December 31, 2019. There were no borrowings outstanding under the revolving credit facility at March 31, 2020 and December 31, 2019. The Company pays commitment fees of 0.25% per annum on the average unused portion of the line of credit. 

v3.20.1
Employee Benefit Plans
3 Months Ended
Mar. 31, 2020
Retirement Benefits [Abstract]  
EMPLOYEE BENEFIT PLANS

Note 8 — Employee Benefit Plans

 

The Company sponsors a 401(k) defined contribution retirement plan that allows eligible employees to contribute a portion of their compensation through payroll deductions in accordance with specified plan guidelines. The Company makes contributions to the plans that include matching a percentage of the employees' contributions up to certain limits. Expenses related to this plan totaled approximately $31,000 and $28,000 for the three months ended March 31, 2020 and 2019, respectively. 

v3.20.1
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Revenues $ 1,679,445 $ 5,436,599
Cost of Sales 970,944 2,120,621
Gross Profit 708,501 3,315,978
Operating Expenses    
Selling and marketing 1,790,970 2,530,346
General and administrative 1,329,557 1,013,162
Research and development 1,225,182 1,965,507
Total Operating Expenses 4,345,709 5,509,015
Loss From Operations (3,637,208) (2,193,037)
Other Income (Expense)    
Interest income 50,102 72,019
Other Income (Expense), net 50,102 72,019
Net Loss $ (3,587,106) $ (2,121,018)
Net Loss per share - basic and diluted $ (0.22) $ (0.13)
Weighted average number of shares used in computing net loss per share - basic and diluted 16,407,102 16,119,726
v3.20.1
Organization and Summary Of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
DESCRIPTION OF THE BUSINESS

Description of the Business

 

Sensus Healthcare, Inc. (the "Company") is a manufacturer of radiation therapy devices and has established a distribution and marketing network to sell the devices to healthcare providers globally. The Company was organized on May 7, 2010 as a limited liability corporation. On January 1, 2016, the Company completed a corporate conversion pursuant to which Sensus Healthcare, Inc. succeeded to the business of Sensus Healthcare, LLC. In February 2018, the Company formed a subsidiary in Israel. The Company operates as one segment from its corporate headquarters located in Boca Raton, Florida.

BASIS OF PRESENTATION

Basis of Presentation

 

The accompanying unaudited condensed financial statements in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and the rules and regulations of the U.S. Securities and Exchange Commission, or SEC. Accordingly, they do not include certain footnotes and financial presentations normally required under accounting principles generally accepted in the United States of America for complete financial statements. The interim financial information is unaudited, but reflects all normal adjustments and accruals which are, in the opinion of management, considered necessary to provide a fair presentation for the interim periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements and notes thereto for the year ended December 31, 2019 included in the Company's Form 10-K, filed with the SEC. The results for the three months ended March 31, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period.

PRINCIPLES OF CONSOLIDATION

Principles of consolidation

 

The accompanying condensed consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary in Israel. All inter-company balances and transactions have been eliminated.

USE OF ESTIMATES

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities including disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates to which it is reasonably possible that a change could occur in the near term include, inventory reserves, receivable allowances, recoverability of long-lived assets and the Company's product warranties. Actual results could differ from those estimates.

REVENUE RECOGNITION

Revenue Recognition

 

On January 1, 2018, the Company adopted Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers" using the modified retrospective method for all contracts as of the date of adoption. The adoption of this standard did not result in a significant change to the Company's historical revenue recognition policies and there were no necessary adjustments required to retained earnings upon adoption.

 

Under ASC 606, a performance obligation is a promise within a contract to transfer a distinct good or service, or a series of distinct goods and services, to a customer. Revenue is recognized when performance obligations are satisfied and the customer obtains control of promised goods or services, which is generally upon shipment of the goods and performance of the service. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for goods or services. Under the standard, a contract's transaction price is allocated to each distinct performance obligation. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identifies the contracts with a customer; (ii) identifies the performance obligations within the contract, including whether they are distinct and capable of being distinct in the context of the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when, or as, the Company satisfies each performance obligation. 

 

 

The Company's revenue consists of sales of the Company's devices and services related to maintaining and repairing the devices. The agreement for the sale of the devices and the service contract are usually signed at the same time and in some instances a service contract is signed on a stand-alone basis. Revenue for service contracts is recognized over the service contract period on a straight-line basis. The Company determined that in practice no significant discount is given on the service contract when it is offered with the device purchase as compared to when it is sold on a stand-alone basis. The service level provided is identical when the service contract is purchased stand-alone or together with the device. There is no termination provision in the service contract nor any penalties in practice for cancellation of the service contract. The service contract is not considered a performance obligation until it is paid, and it does not provide a material right for a significant discount when purchased with the device. The service portion of a sales contract or a stand-alone service contract is accounted for over the period of time of the service contract only when the customer exercises the option by paying for the service contract.

 

Disaggregated revenue for the three months ended March 31, 2020 and 2019 was as follows:

 

   For the Three Months Ended 
March 31,
 
   2020   2019 
Product Revenue  $1,076,002   $4,930,924 
Service Revenue   603,443    505,675 
Total Revenue  $1,679,445   $5,436,599 

 

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

 

Deferred revenue as of March 31, 2020 was as follows:

 

   Service 
Balance, beginning of period  $2,531,183 
Revenue recognized   (459,861)
Amounts invoiced   311,821 
Balance, end of period  $2,383,143 

 

The Company does not disclose information about remaining performance obligations with respect to deposits for products that have original expected durations of one year or less. Estimated service revenue to be recognized in the future related to the performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2020 was as follows: 

Year  Service Revenue 
2020 (April 1 – December 31, 2020)  $990,846 
2021   943,562 
2022   389,235 
2023   39,667 
2024   19,833 
Total  $2,383,143 

 

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

 

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

SEGMENT AND GEOGRAPHICAL INFORMATION

Segment and Geographical Information

 

The Company's revenue is generated primarily from customers in the United States, which represented approximately 99% and 81% of total revenue for the three months ended March 31, 2020 and 2019, respectively. A single customer in the U.S. accounted for approximately 11% and 53% of revenues for the three months ended March 31, 2020 and 2019, respectively, and approximately 75% and 79% of the accounts receivable as of March 31, 2020 and December 31, 2019, respectively.

CASH AND CASH EQUIVALENTS

Cash and Cash Equivalents

 

The Company maintains its cash and cash equivalents with financial institutions which balances exceed the federally insured limits. Federally insured limits are $250,000 for deposits. As of March 31, 2020 and December 31, 2019, the Company had approximately $11,819,000 and $7,740,000, respectively in excess of federally insured limits.

 

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

INVESTMENTS

Investments

 

Short-term investments consist of investments which the Company expects to convert into cash within one year and long-term investments after one year. The Company classifies its investments in debt securities at the time of purchase as held-to-maturity and reevaluates such classification on a quarterly basis. Held-to-maturity investments consist of securities that the Company has the intent and ability to retain until maturity. These securities are carried at amortized cost plus accrued interest and consist of the following:

 

   Amortized
Cost
   Gross
Unrealized
Gain
   Gross
Unrealized
Loss
   Fair
Value
 
Short-Term:                
Corporate bonds  $6,690,678   $4,251   $   $6,694,929 
United States Treasury bonds   698,729    1,302        700,031 
Total Short Term:   7,389,407    5,553        7,394,960 
                     
Total Investments December 31, 2019  $7,389,407   $5,553   $   $7,394,960 
                     
Short-Term:                    
Corporate bonds  $2,985,788   $   $4,809   $2,980,979 
United States Treasury bonds   702,228    3,300        705,528 
Total Short Term:   3,688,016    3,300    4,809    3,686,507 
                     
Total Investments March 31, 2020  $3,688,016   $3,300   $4,809   $3,686,507 
ACCOUNTS RECEIVABLE

Accounts Receivable

 

The Company does business and extends credit based on an evaluation of each customer's financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The allowance for doubtful accounts was approximately $0 and $80,000 as of March 31, 2020 and December 31, 2019.

INVENTORIES

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

Earnings Per Share

 

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

 

   For the Three Months Ended 
March 31,
 
   2020   2019 
Warrants       256,035 
Stock options       64,463 
Shares   36,048    70,951 
ADVERTISING COSTS

Advertising Costs

 

Advertising and promotion expenses are charged to expense as incurred. Advertising and promotion expense included in selling expense in the accompanying statements of operations amounted to approximately $270,000 and $539,000 for the three months ended March 31, 2020 and 2019, respectively.

LEASES

Leases

 

The Company evaluates arrangements at inception to determine if an arrangement is or contains a lease. Operating lease assets represent the Company's right to use an underlying asset for the lease term and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company uses an incremental borrowing rate that the Company would expect to incur for a fully collateralized loan over a similar term under similar economic conditions to determine the present value of the lease payments.

  

The lease payments used to determine the Company's operating lease assets may include lease incentives and stated rent increases and are recognized in the Company's operating lease assets in the Company's condensed consolidated balance sheets. Operating lease assets are amortized to rent expense over the lease term and included in operating expenses in the condensed consolidated statements of operations.

v3.20.1
Product Warranties (Details)
3 Months Ended
Mar. 31, 2020
USD ($)
Product Warranties Disclosures [Abstract]  
Balance, beginning of period $ 187,454
Warranties accrued during the period 23,373
Payments on warranty claims (73,091)
Balance, end of period $ 137,736
v3.20.1
Patent Rights (Details) - USD ($)
Mar. 31, 2020
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]    
Gross carrying amount $ 1,253,018 $ 1,253,018
Less accumulated amortization (939,764) (915,667)
Patent Rights, Net $ 313,254 $ 337,351
v3.20.1
Stockholders' Equity (Details 3)
3 Months Ended
Mar. 31, 2020
$ / shares
shares
Number of Options  
Outstanding at beginning shares | shares 229,334
Granted | shares
Exercised | shares
Expired | shares
Outstanding at end shares | shares 229,334
Exercisable | shares 229,334
Weighted Average Exercise  
Outstanding at beginning | $ / shares $ 5.55
Granted | $ / shares
Exercised | $ / shares
Expired | $ / shares
Outstanding at end | $ / shares 5.55
Exercisable | $ / shares $ 5.55
Weighted Average Remainning Contractual Term (In Years)  
Outstanding at beginning 8 years 26 days
Outstanding at end 7 years 9 months 25 days
Exercisable at end 7 years 9 months 25 days
v3.20.1
Employee Benefit Plans (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Retirement Benefits [Abstract]    
Expenses related to employee benefit plan $ 31,000 $ 28,000
v3.20.1
Organization and Summary Of Significant Accounting Policies (Details 3) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Amortized Cost $ 3,688,016 $ 7,389,407
Gross Unrealized Gain 3,300 5,553
Gross Unrealized Loss 4,809
Fair Value 3,686,507 7,394,960
Short Term [Member]    
Amortized Cost 3,688,016 7,389,407
Gross Unrealized Gain 3,300 5,553
Gross Unrealized Loss 4,809
Fair Value 3,686,507 7,394,960
Short Term [Member] | Corporate Bonds [Member]    
Amortized Cost 2,985,788 6,690,678
Gross Unrealized Gain 4,251
Gross Unrealized Loss 4,809
Fair Value 2,980,979 6,694,929
Short Term [Member] | United States Treasury Bonds [Member]    
Amortized Cost 702,228 698,729
Gross Unrealized Gain 3,300 1,302
Gross Unrealized Loss
Fair Value $ 705,528 $ 700,031
v3.20.1
Property and Equipment (Tables)
3 Months Ended
Mar. 31, 2020
Property, Plant and Equipment [Abstract]  
Schedule of property and equipment

   As of
March 31,
2020
   As of
December 31,
2019
   Estimated
Useful Lives
   (unaudited)        
Operations equipment  $1,411,666   $1,280,209   3 years
Tradeshow and demo equipment   914,415    914,891   3 years
Computer equipment   120,815    117,596   3 years
    2,446,896    2,312,696    
Less accumulated depreciation   (1,358,426)   (1,230,268)   
Property and Equipment, Net  $1,088,470   $1,082,428    
v3.20.1
Stockholders' Equity (Tables)
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Schedule of warrant activity

   Warrants 
   Number of
Warrants
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
(In Years)
 
Outstanding – December 31, 2019   2,032,187   $6.75    0.51 
Granted            
Exercised            
Expired            
Outstanding – March 31, 2020   2,032,187   $6.75    0.26 
Exercisable – March 31, 2020   2,032,187   $6.75    0.26 
Schedule of Stock Options, Valuation Assumptions

Expected volatility   67.8%
Risk-free interest rate   2.5%
Expected life   6.25 years 
Dividend yield   0.0%
Schedule of restricted activity

   Shares   Weighted 
Average
Grant Date Fair
Value
 
Unvested balance at December 31, 2019   80,417   $5.70 
Granted   30,000    4.11 
Vested   (2,500)   4.99 
Forfeited        
Unvested balance at March 31, 2020   107,917   $5.27 
Schedule of option activity

   Number of
Options
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term 
(In Years)
 
Outstanding – December 31, 2019   229,334   $5.55    8.07 
Granted            
Exercised            
Expired            
Outstanding – March 31, 2020   229,334   $5.55    7.82 
Exercisable – March 31, 2020   229,334   $5.55    7.82 
v3.20.1
Patent Rights (Details Textual) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]    
Amortization expense $ 24,000 $ 24,000
v3.20.1
Property and Equipment (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Property, Plant and Equipment [Line Items]    
Property, plant and equipment, gross $ 2,446,896 $ 2,312,696
Less accumulated depreciation (1,358,426) (1,230,268)
Property and Equipment, Net 1,088,470 1,082,428
Operations Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Property, plant and equipment, gross $ 1,411,666 1,280,209
Property, plant and equipment, useful Life 3 years  
Tradeshow and Demo Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Property, plant and equipment, gross $ 914,415 914,891
Property, plant and equipment, useful Life 3 years  
Computer Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Property, plant and equipment, gross $ 120,815 $ 117,596
Property, plant and equipment, useful Life 3 years  
v3.20.1
Leases (Details Textual) - USD ($)
1 Months Ended 3 Months Ended
Mar. 19, 2019
Jul. 31, 2016
Mar. 31, 2020
Dec. 31, 2019
Leases (Textual)        
Decrease in ROU asset     $ 83,000 $ 330,000
Cash paid for amounts included in present value of operating lease liabilities     91,000 310,000
Operating lease cost     96,000 $ 65,000
Leases, description The Company's Israeli subsidiary signed a 10-year lease for a manufacturing facility, effective April 1, 2019, for approximately 5,800 square feet. The landlord has provided a four-month grace period rent free from April to July 2019, after which the 10 year lease will begin. The monthly rental payment starts at approximately $5,300 and will be subject to periodic escalations at amounts specified in the lease plus the consumer price index. In addition, the Company is responsible for maintenance fees covering its portion of the expenses of common areas. After 2, 4, 6 and 8 years, and with 180 days prior notice, the Company has the right to terminate the lease at its sole discretion without penalty. The Company renewed its lease with an unrelated third party for its headquarters office. The renewal was effective September 1, 2016 and expanded the office space being occupied. The lease expires in September 2022 and lease payments increase by 3% annually. In February 2017 and January 2018, the Company signed amendments to expand further the leased office space. The Company's Israeli subsidiary entered into a two-year lease for office space starting in September 2018. The leases include an option to extend with prior notice and with terms to be negotiated. The Company currently does not have any lease with a term under 12 months.    
Right-of-Use Assets     $ 805,000  
v3.20.1
Leases
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
LEASES

Note 6 — Leases

 

Operating Lease Agreements

 

In July 2016, the Company renewed its lease with an unrelated third party for its headquarters office. The renewal was effective September 1, 2016 and expanded the office space being occupied. The lease expires in September 2022 and lease payments increase by 3% annually. In February 2017 and January 2018, the Company signed amendments to expand further the leased office space. The Company's Israeli subsidiary entered into a two-year lease for office space starting in September 2018. The leases include an option to extend with prior notice and with terms to be negotiated. The Company currently does not have any lease with a term under 12 months.

 

On March 19, 2019, the Company's Israeli subsidiary signed a 10-year lease for a manufacturing facility, effective April 1, 2019, for approximately 5,800 square feet. The landlord has provided a four-month grace period rent free from April to July 2019, after which the 10 year lease will begin. The monthly rental payment starts at approximately $5,300 and will be subject to periodic escalations at amounts specified in the lease plus the consumer price index. In addition, the Company is responsible for maintenance fees covering its portion of the expenses of common areas. After 2, 4, 6 and 8 years, and with 180 days prior notice, the Company has the right to terminate the lease at its sole discretion without penalty.

 

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company's operating leases as of March 31, 2020.

 

Maturity of Operating Lease Liabilities  Amount 
2020 (April 1 – December 31, 2020)  $267,409 
2021   348,122 
2022   284,578 
2023   104,343 
2024   105,843 
Thereafter   494,731 
Total undiscounted operating leases payments  $1,605,026 
Less: Imputed interest   (258,539)
Present Value of Operating Lease Liabilities  $1,346,487 
      
Other Information     
Weighted-average remaining lease term   6.3 years 
Weighted-average discount rate   5.0%

 

An initial ROU asset of approximately $805,000 was recognized as a non-cash assets addition with the adoption of the new lease accounting standard. The ROU asset was reduced by approximately $83,000 and $330,000 for the three months ended March 31, 2020 and the year ended December 31, 2019, respectively. Cash paid for amounts included in the present value of operating lease liabilities was approximately $91,000 and $310,000 for the three months ended March 31, 2020 and the year ended December 31, 2019, respectively, is included in operating cash flows. Operating lease cost was approximately $96,000 and $65,000 for the three months ended March 31, 2020 and 2019, respectively. 

v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES

Note 10 — Income Taxes

 

Book income before taxes was negative for the three months ended March 31, 2020. Tax expense for the three months ended March 31, 2020 and 2019 was $0.

 

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

 

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

 

As of March 31, 2020, the Company has U.S. federal and certain state tax returns subject to examination, beginning with those filed for the year 2016.

v3.20.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash Flows From Operating Activities    
Net loss $ (3,587,106) $ (2,121,018)
Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in) operating activities:    
Depreciation and amortization 152,742 128,435
Provision for product warranties 23,373 59,638
Stock based compensation 155,779 154,535
Decrease (increase) in:    
Accounts receivable 6,172,542 (3,735,738)
Inventories (962,550) (26,299)
Prepaid and other current assets (361,626) (445,874)
Increase (decrease) in:    
Accounts payable and accrued expenses (938,260) (1,144,269)
Deferred revenue (148,040) 71,402
Product warranties (73,091) (57,913)
Total Adjustments 4,020,869 (4,996,083)
Net Cash Provided By (Used In) Operating Activities 433,763 (7,117,101)
Cash Flows from Investing Activities    
Acquisition of property and equipment (134,687) (9,404)
Investment in debt securities - held to maturity (3,007,764)
Investments matured 3,701,392 1,200,000
Net Cash Provided By (Used In) Investing Activities 3,566,705 (1,817,168)
Cash Flows from Financing Activities    
Withholding taxes on stock compensation (3,139)
Exercise of warrants 2,701,897
Net Cash Provided By (Used In) Financing Activities (3,139) 2,701,897
Net Increase (Decrease) in Cash and Cash Equivalents 3,997,329 (6,232,372)
Cash and Cash Equivalents - Beginning 8,100,288 12,484,256
Cash and Cash Equivalents - Ending 12,097,617 6,251,884
Non-Cash Investing and Financing Activities    
Transfer of inventory to property and equipment 103,697
Lease liabilities arising from obtaining right-of-use-assets $ 805,000