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 September 30, 2024

 

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, FL		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		The 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐		Accelerated filer ☐		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 November 6, 2024, there were 16,390,051 shares of the registrant’s common stock 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
	Condensed Consolidated Balance Sheets (unaudited)	1
	Condensed Consolidated Statements of Income (Loss) (unaudited)	2
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited)	3
	Condensed Consolidated Statements of Cash Flows (unaudited)	4
	Notes to the Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
Item 4.	Controls and Procedures	21
PART II – Other Information
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosure	22
Item 5.	Other Information	22
Item 6.	Exhibits	23
	Signatures	24

 

 

INTRODUCTORY NOTE

 

Forward-Looking Statements

 

This report includes statements that are, or may be deemed, “forward-looking statements.” In some cases, these statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “approximately,” or “potential,” or negative or other variations of those terms or comparable terminology, although not all forward-looking statements contain these words.

 

Forward-looking statements involve risks and uncertainties because they relate to events, developments, and circumstances relating to Sensus Healthcare, Inc., our industry, and/or general economic or other conditions that may or may not occur in the future or may occur on longer or shorter timelines or to a greater or lesser degree than anticipated. In addition, even if future events, developments and circumstances are consistent with the forward-looking statements contained in this report, they may not be predictive of results or developments in future periods. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, forward-looking statements are not guarantees of future performance, and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained in this report as a result of the following factors, among others: the level and availability of government and/or third party payor reimbursement for clinical procedures using our products, and the willingness of healthcare providers to purchase our products if the level of reimbursement declines; concentration of our customers in the U.S. and China, including the concentration of sales to one particular customer in the U.S; the development by others of new products, treatments, or technologies that render our technology partially or wholly obsolete; the regulatory requirements applicable to us and our competitors; our ability to efficiently manage our manufacturing processes and costs; the risks arising from doing business in China and other foreign countries; legislation, regulation, or other governmental action that affects our products, taxes, international trade regulation, or other aspects of our business; the performance of the Company’s information technology systems and its ability to maintain data security; our ability to obtain and maintain the intellectual property needed to adequately protect our products, and our ability to avoid infringing or otherwise violating the intellectual property rights of third parties; and other risks described from time to time in our filings with the Securities and Exchange Commission.

 

To date, the Russian invasion of Ukraine, conditions in the Middle East, and other global geopolitical uncertainties have not had significant impacts on our business, but we continue to monitor developments and will address them in future disclosures, if applicable.

 

Any forward-looking statements that we make in this report speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this report, except as may be required by applicable law.

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

SENSUS HEALTHCARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		As of September  30,				As of December 31,
(in thousands, except shares and per share data)		2024				2023
		(unaudited)
Assets
Current assets
Cash and cash equivalents		$	22,558			$	23,148
Accounts receivable, net			16,961				10,645
Inventories			11,968				11,861
Prepaid inventory			1,723				2,986
Other current assets			1,596				888
Total current assets			54,806				49,528
Property and equipment, net			1,635				464
Deferred tax asset			2,197				2,140
Operating lease right-of-use asset, net			630				774
Other noncurrent assets			590				804
Total assets		$	59,858			$	53,710
Liabilities and stockholders’ equity
Current liabilities
Accounts payable and accrued expenses		$	3,973			$	2,793
Product warranties			351				538
Operating lease liability, current portion			200				187
Income tax payable			-				37
Deferred revenue, current portion			686				657
Total current liabilities			5,210				4,212
Operating lease liability			451				596
Deferred revenue, net of current portion			66				60
Total liabilities			5,727				4,868
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; 16,930,845 issued and 16,390,051 outstanding at September 30, 2024; 16,907,095 issued and 16,374,171 outstanding at December 31, 2023			169				169
Additional paid-in capital			45,640				45,405
Treasury stock, 540,794 and 532,924 shares at cost, at September 30, 2024 and December 31, 2023, respectively			(3,566	)			(3,519	)
Retained earnings			11,888				6,787
Total stockholders’ equity			54,131				48,842
Total liabilities and stockholders’ equity		$	59,858			$	53,710

 

See accompanying notes to the condensed consolidated financial statements (unaudited).

 

 

SENSUS HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(unaudited)

 

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
(in thousands, except shares and per share data)		2024				2023				2024				2023
Revenues		$	8,839			$	3,898			$	28,741			$	11,838
Cost of sales			3,599				1,909				11,416				5,609
Gross profit			5,240				1,989				17,325				6,229
Operating expenses
Selling and marketing			1,309				1,290				3,575				4,983
General and administrative			1,573				1,511				4,731				4,204
Research and development			863				1,083				2,655				3,001
Total operating expenses			3,745				3,884				10,961				12,188
Income (loss) from operations			1,495				(1,895	)			6,364				(5,959	)
Other income:
Gain on sale of assets			-				42				-				42
Interest income, net			279				277				702				764
Other income, net			279				319				702				806
Income (loss) before income tax			1,774				(1,576	)			7,066				(5,153	)
Provision for (benefit from) income taxes			559				(125	)			1,965				(1,428	)
Net income (loss)		$	1,215			$	(1,451	)		$	5,101			$	(3,725	)
Net income (loss) per share – basic		$	0.07			$	(0.09	)		$	0.31			$	(0.23	)
diluted		$	0.07			$	(0.09	)		$	0.31			$	(0.23	)
Weighted average number of shares used in computing net income (loss) per share – basic			16,321,131				16,270,403				16,304,913				16,255,263
diluted			16,345,749				16,270,403				16,332,485				16,255,263

 

See accompanying notes to the condensed consolidated financial statements (unaudited).

 

 

SENSUS HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

 

		For the Three and Nine Months Ended September 30, 2024 and 2023
		Common Stock								Additional Paid-In				Treasury Stock								Retained
(in thousands, except shares)		Shares				Amount				Capital				Shares				Amount				Earnings				Total
December 31, 2022			16,902,761			$	169			$	45,031				(512,342	)		$	(3,433	)		$	6,302			$	48,069
Stock-based compensation			10,000				-				161				-				-				-				161
Exercise of stock options			8,334				-				46				-				-				-				46
Forfeiture of restricted stock units			(7,500	)			-				(18	)			-				-				-				(18	)
Surrender of shares for tax withholding on stock-based compensation			-				-				-				(4,487	)			(40	)			-				(40	)
Net loss			-				-				-				-				-				(1,894	)			(1,894	)
March 31, 2023			16,913,595			$	169			$	45,220				(516,829	)		$	(3,473	)		$	4,408			$	46,324
Stock-based compensation			-				-				67				-				-				-				67
Forfeiture of restricted stock units			(1,000	)			-				(1	)			-				-				-				(1	)
Net loss			-				-				-				-				-				(380	)			(380	)
June 30, 2023			16,912,595			$	169			$	45,286				(516,829	)		$	(3,473	)		$	4,028			$	46,010
Stock-based compensation			-				-				67				-				-				-				67
Surrender of shares for tax withholding on stock-based compensation			-				-				-				(3,935	)			(12	)			-				(12	)
Stock repurchase			-				-				-				(9,427	)			(27	)			-				(27	)
Net loss			-				-				-				-				-				(1,451	)			(1,451	)
September 30, 2023			16,912,595			$	169			$	45,353				(530,191	)		$	(3,512	)		$	2,577			$	44,587
December 31, 2023			16,907,095			$	169			$	45,405				(532,924	)		$	(3,519	)		$	6,787			$	48,842
Stock-based compensation			20,000				-				92				-				-				-				92
Forfeiture of restricted stock units			(1,500	)			-				(1	)			-				-				-				(1	)
Net income			-				-				-				-				-				2,274				2,274
March 31, 2024			16,925,595			$	169			$	45,496				(532,924	)		$	(3,519	)		$	9,061			$	51,207
Stock-based compensation			-				-				66				-				-				-				66
Exercise of stock options			3,000				-				17				-				-				-				17
Forfeiture of restricted stock units			(750	)			-				(1	)			-				-				-				(1	)
Net income			-				-				-				-				-				1,612				1,612
June 30, 2024			16,927,845			$	169			$	45,578				(532,924	)		$	(3,519	)		$	10,673			$	52,901
Stock-based compensation			-				-				45				-				-				-				45
Surrender of shares for tax withholding on stock-based compensation			-				-				-				(7,870	)			(47	)			-				(47	)
Exercise of stock options			3,000				-				17				-				-				-				17
Net income			-				-				-				-				-				1,215				1,215
September 30, 2024			16,930,845			$	169			$	45,640				(540,794	)		$	(3,566	)		$	11,888			$	54,131

 

See accompanying notes to the condensed consolidated financial statements (unaudited).

 

 

SENSUS HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

		For the Nine Months Ended
		September 30,
(in thousands)		2024				2023
Cash flows from operating activities
Net income (loss)		$	5,101			$	(3,725	)
Adjustments to reconcile net income (loss) to net cash and cash equivalents used in operating activities:
Credit loss expense			123				7
Depreciation and amortization			154				216
Gain on sale of property and equipment			-				(42	)
Amortization of right-of-use asset			144				139
Provision for product warranties			81				325
Stock-based compensation			201				276
Deferred income taxes			(57	)			(1,428	)
Changes in operating assets:
Accounts receivable			(6,439	)			10,409
Inventories			(859	)			(9,818	)
Prepaid inventory			1,263				2,315
Other current assets			(708	)			(680	)
Other noncurrent assets			214				187
Changes in operating liabilities:
Accounts payable and accrued expenses			1,180				(1,522	)
Operating lease liability			(132	)			(152	)
Income tax payable			(37	)			(890	)
Deferred revenue			35				(44	)
Product warranties			(268	)			(386	)
Net cash used in operating activities			(4	)			(4,813	)
Cash flows from investing activities
Acquisition of property and equipment			(573	)			(229	)
Proceeds from sale of assets			-				42
Net cash used in investing activities			(573	)			(187	)
Cash flows from financing activities
Repurchase of common stock			-				(27	)
Withholding taxes on stock-based compensation			(47	)			(52	)
Exercise of stock options			34				46
Net cash used in financing activities			(13	)			(33	)
Net decrease in cash and cash equivalents			(590	)			(5,033	)
Cash and cash equivalents – beginning of period			23,148				25,520
Cash and cash equivalents – end of period		$	22,558			$	20,487
Supplemental disclosure of cash flow information:
Interest paid		$	-			$	-
Income tax paid		$	2,474			$	1,440
Supplemental schedule of noncash investing and financing transactions:
Transfer of inventory to property and equipment		$	752			$	117

 

See accompanying notes to the condensed consolidated financial statements (unaudited).

 

 

SENSUS HEALTHCARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 1 — Organization and Summary of Significant Accounting Policies

 

Description of the Business

 

Sensus Healthcare, Inc. (together, with its subsidiaries, unless the context otherwise indicates, “Sensus” or the “Company”) is a manufacturer of radiation therapy devices sold to healthcare providers globally through its distribution and marketing network. The Company operates from its corporate headquarters located in Boca Raton, Florida.

 

In February 2024, the Company formed Sensus Healthcare Services, LLC, a wholly-owned subsidiary that provides operational healthcare services in the form of leased equipment, radiation oncology and physics oversight, including radiotherapy technologists for dermatology clinics.

 

Basis of Presentation and Principles of Consolidation

 

These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its subsidiaries. Accounts and transactions between condensed consolidated entities have been eliminated.

 

These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by GAAP. In the opinion of management, all adjustments considered necessary for a fair statement of the results have been included. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any other period.

 

The condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”).

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates.

 

Reclassification of Prior Year Presentation

 

Certain prior period amounts have been reclassified for consistency with the current period presentation. The reclassifications are limited to the condensed consolidated statements of cash flow and have no impact on the reported results of operations.

 

Revenue Recognition

 

The Company derives revenue from sales of the Company’s devices and services related to maintaining and repairing the devices as part of a service contract or on an ad-hoc basis without a service contract.

 

The Company provides warranties, generally for one year, in conjunction with the sale of its products. These warranties entitle the customer to repair, replacement, or modification of the defective product, subject to the terms of the relevant warranty. The Company has determined that these warranties do not represent separate performance obligations, as the customer does not have the option to purchase the warranty separately and the warranty does not provide the customer with a service in addition to the assurance that the product complies with agreed-upon specifications. The Company records an estimate of future warranty claims at the time it recognizes revenue from the sale of the device based upon management’s estimate of the future claims rate.

 

 

Revenue is recognized upon transfer of control of promised goods or services to customers when the product is shipped or the service is rendered, based on the amount the Company expects to receive in exchange for those goods or services. The Company enters into contracts that can include multiple services, which are accounted for separately if they are determined to be distinct.

 

To determine the transaction price for contracts in which a customer promises consideration in a form other than cash, the Company measures the estimated fair value of the noncash consideration at contract inception. If the Company cannot reasonably estimate the fair value of the noncash consideration, the Company measures the consideration indirectly by reference to the stand-alone selling price of the products promised to the customer or class of customer in exchange for the consideration.

 

Our service contracts include maintenance or repair service contracts for device purchases and personnel service contracts to assist the use and operation of leased-out equipment under lessor agreements.

 

The revenues from maintenance or repair service contracts are recognized over the service contract period on a straight-line basis. In the event that a customer does not sign a service contract, but requests maintenance or repair services after the warranty expires, the Company recognizes revenue when the service is rendered. There is no termination provision in the service contract or any penalties in practice for cancellation of the service contract.

 

The revenues from personnel service contracts are recognized in the period the work is performed, as the Company has elected the practical expedient to recognize revenue in the amount to which the entity has a right to invoice. The service contracts can be terminated by mutual written agreement.

 

The Company has determined that in practice no significant discount is given on service contracts when offered with the device purchase or equipment lease as compared to when sold on a stand-alone basis. The service level provided is identical whether the service contract is purchased on a stand-alone basis or together with the device purchase or equipment lease. The Company may also incur preparation cost to ensure the customer’s space meets the requirement and specifications for the operation of the equipment. The preparation cost is expensed as incurred.

 

The components of disaggregated revenue for the three and nine months ended September 30, 2024 and 2023 were as follows: 

 

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
(in thousands)		2024				2023				2024				2023
Product Revenue - recognized at a point in time		$	7,471			$	2,896			$	25,037			$	8,889
Service Revenue - recognized at a point in time			585				286				1,324				932
Service Revenue - recognized over time			783				716				2,380				2,017
Total Revenue		$	8,839			$	3,898			$	28,741			$	11,838

 

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

 

Deferred revenue activity as of September 30, 2024 was as follows:

 

(in thousands)		Product				Service				Total
December 31, 2023		$	36			$	681			$	717
Revenue recognized			(300	)			(2,380	)			(2,680	)
Amounts invoiced			345				2,370				2,715
September 30, 2024		$	81			$	671			$	752

 

 

Remaining performance obligations of deposits for products 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 September 30, 2024 is as follows:

 

Year		Service Revenue
2024 (October 1 - December 31, 2024)		$	276
2025			341
2026			44
2027			10
Total		$	671

 

For the nine months ended September 30, 2024 and 2023, the Company paid commissions for certain equipment sales. Because the recovery of commissions is expected to occur from product revenue within one year, the Company charges commissions to expense as incurred.

 

In addition, the Company incurs commissions associated with equipment lease agreements, which are accounted as initial direct costs and recorded in other noncurrent assets in the condensed consolidated balance sheets. The commission is capitalized at the commencement of the lease and recognized as an expense in selling and marketing expenses over the lease term.

 

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

 

Concentration

 

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable.

 

One customer in the U.S. accounted for 65% and 52% of revenue for the three months ended September 30, 2024 and 2023, respectively, 74% and 52% of revenue for the nine months ended September 30, 2024 and 2023, respectively, and 88% and 85% of the accounts receivable as of September 30, 2024 and December 31, 2023, respectively.

 

Geographical Information

 

The following table illustrates total revenue for the three and nine months ended September 30, 2024 and 2023 by country.

 

		For the Three Months Ended
		September 30,
(in thousands)		2024								2023
United States		$	8,689				98	%		$	3,438				88	%
Israel			141				2	%			7				0	%
China			6				0	%			450				12	%
Other			3				0	%			3				0	%
Total Revenue		$	8,839				100	%		$	3,898				100	%

 

		For the Nine Months Ended
		September 30,
(in thousands)		2024								2023
United States		$	27,835				97	%		$	10,603				90	%
China			732				2	%			880				7	%
Israel			165				1	%			27				0	%
Guatemala			-				0	%			190				2	%
Ireland			-				0	%			135				1	%
Other			9				0	%			3				0	%
Total Revenue		$	28,741				100	%		$	11,838				100	%

 

 

Fair Value of Financial Instruments

 

Carrying amounts of cash equivalents, accounts receivable, accounts payable and the revolving credit facility approximate fair value due to their relatively short maturities.

 

Fair Value Measurements

 

The Company uses a fair value hierarchy that prioritizes inputs to valuation approaches used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:

 

Level 1 Inputs:

 

Quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.

 

●

Level 1 assets may include listed mutual funds, ETFs and listed equities

 

Level 2 Inputs:

 

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; quotes from pricing services or brokers for which the Company can determine that orderly transactions took place at the quoted price or that the inputs used to arrive at the price are observable; and inputs other than quoted prices that are observable, such as models or other valuation methodologies. 

 

●

Level 2 assets may include debt securities and foreign currency exchange contracts that have inputs to the valuations that generally can be corroborated by observable market data.

 

Level 3 Inputs:

 

Unobservable inputs for the valuation of the asset or liability, which may include nonbinding broker quotes.

 

●

Level 3 assets include investments for which there is little, if any, market activity. These inputs require significant management judgment or estimation.

 

Significance of Inputs: The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

 

Cash and Cash Equivalents

 

Cash and cash equivalents primarily consist of cash, money market funds and short-term, highly liquid investments with original maturities of three months or less.

 

Accounts Receivable

 

The Company does business and extends credit based on an evaluation of each customer’s financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company estimates future credit losses based on the age of customer receivable balances, collection history and forecasted economic trends. Future collections can be significantly different from historical collection trends or current estimates. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The allowance for expected credit losses was $123 thousand and $0 as of September 30, 2024 and December 31, 2023, respectively. Credit loss expense was $81 thousand and $2 thousand for the three months ended September 30, 2024 and 2023, respectively, and $123 thousand and $7 thousand for the nine months ended September 30, 2024 and 2023, respectively.

  

Inventories

 

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

 

 

Earnings Per Share

 

Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of common shares outstanding for the period using the treasury stock method for options, restricted stocks and warrants. Diluted net income (loss) per share is computed by giving effect to all potential dilutive common share equivalents outstanding for the period.

 

The factors used in the net income (loss) per share computation are as follows:

 

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
(in thousands)		2024				2023				2024				2023
Basic
Net income (loss)		$	1,215			$	(1,451	)		$	5,101			$	(3,725	)
Weighted average number of shares used in computing net income (loss) per share – basic			16,321				16,270				16,305				16,255
Net income (loss) per share - basic		$	0.07			$	(0.09	)		$	0.31			$	(0.23	)
Diluted
Net income (loss)		$	1,215			$	(1,451	)		$	5,101			$	(3,725	)
Weighted average number of shares used in computing net income (loss) per share – basic			16,321				16,270				16,305				16,255
Dilutive effects of:
Stock options			7				-				2
Restricted stock awards			18				-				25				-
Weighted average number of shares used in computing net income (loss) per share – diluted			16,346				16,270				16,332				16,255
Net income (loss) per share - diluted		$	0.07			$	(0.09	)		$	0.31			$	(0.23	)
The full shares listed below were not included in the computation of diluted net income (loss) per share because to do so would have been antidilutive for the periods presented:
Restricted stock awards			-				113,500				-				113,500
Stock options			-				89,550				-				89,550

 

Diluted net income per share for the three and nine months ended September 30, 2024 includes the dilutive effect of stock options and restricted stock awards that were issued in December 2022 and January 2024 to directors, officers, and employees. Diluted weighted average common shares outstanding for the three and nine months ended September 30, 2024 does not exclude any stock options as their exercise prices were lower than the average price of our shares of common stock during the period. Diluted weighted average common shares outstanding for the three and nine months ended September 30, 2024 does not exclude any shares issued under restricted stock awards in December 2022 or January 2024, as the average price of our shares of common stock during the three and nine months ended September 30, 2024 was higher than average unrecognized compensation expense. Diluted net loss per share for the three and nine months ended September 30, 2023 excludes the dilutive effect of stock options and restricted stock awards as they are antidilutive during a period of net loss. The assumed proceeds of stock options and the restricted stock awards for the treasury stock method is the sum of proceeds from exercise and the average amount of unrecognized compensation expense.

 

Leases

 

The Company evaluates arrangements at inception to determine if an arrangement is or contains a lease. Operating lease assets represent the Company’s right to control an underlying asset for the lease term, and operating lease liability represents the Company’s obligation to make lease payments arising from the lease. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company uses an incremental borrowing rate that the Company would expect to incur for a fully collateralized loan over a similar term under similar economic conditions to determine the present value of the lease payments. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets.

 

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

 

 

For leases in which the Company is the lessor, the Company identifies the lease and non-lease components and allocates the contract consideration to the different components on a relative stand-alone selling price basis at lease inception. The Company uses a residual approach for the components when the stand-alone selling price is not directly observable or those for which the Company has not established a price.

 

The Company elects the practical expedient to combine lease and non-lease components when the components qualify to be combined. Continuous supporting services are the primary non-lease components and are not predominant. As a result, the combined components are accounted for as a lease under Accounting Standards Codification ("ASC") 842, Leases. The revenues from non-lease components that are not qualified to be combined are recognized when the services are rendered under ASC 606, Revenue from Contracts with Customers. The revenues from non-lease components were $97 thousand and $147 thousand for the three and nine months ended September 30, 2024, respectively.

 

For operating leases where the Company is the lessor, the Company recognizes the underlying assets and depreciates them over the estimated useful life which is based upon to estimate the residual value expected at the end of the lease term. Lease income is recognized on a straight-line basis over the lease term when the lease payment is determined. Leasing revenue is not recognized when collection of all contractual rents over the term of the agreement is not probable. When collection is not probable, the Company limits the lease revenue to the lesser of the revenue recognized on a straight-line basis or cash basis. The lease income is included in revenues in the condensed consolidated statements of income (loss).

 

Variable lease payments associated with the leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented within revenues in the condensed consolidated statements of income (loss).

 

Income Taxes

 

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax bases of the assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance against deferred tax assets is recorded if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

 

Uncertain tax positions are recognized in the financial statements only if that position is more likely than not to be sustained upon examination by taxing authorities, based on the technical merits of the position. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

 

Recent Accounting Pronouncements

 

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, to provide temporary optional expedients and exceptions to U.S. GAAP guidance on contract modifications to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate, or LIBOR, to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. The guidance was originally effective as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years. In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 which was issued to defer the sunset date of Topic 848 to December 31, 2024. These updates are not expected to have a significant impact on the Company’s condensed consolidated financial statements.

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to enhance disclosures about significant segment expenses for public entities reporting segment information under ASC Topic 280. The amendments require public entities to disclose significant expense categories for each reportable segment, other segment items, the title and position of the chief operating decision-maker, and interim disclosures of certain segment-related information previously required only on an annual basis. The amendments clarify that entities reporting single segments must disclose both the new and existing segment disclosures under Topic 280, and a public entity is permitted to disclose multiple measures of segment profit or loss if certain criteria are met. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements and related disclosures.

 

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance transparency into income tax disclosures. The amendments require annual disclosure of certain information relating to the rate reconciliation, income taxes paid by jurisdiction, income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign jurisdictions, income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign jurisdictions. The amendments also eliminate certain requirements relating to unrecognized tax benefits and certain deferred tax disclosure relating to subsidiaries and corporate joint ventures. The ASU is effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements and related disclosures.

 

In March 2024, the FASB issued ASU 2024-01, Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards, to clarify how an entity determines whether a profits interest or similar award is within the scope of Topic 718 or is not a share-based payment arrangement and therefore within the scope of other guidance. ASU 2024-01 provides an illustrative example with multiple fact patterns and also amends certain language in the “Scope” and “Scope Exceptions” sections of Topic 718 to improve its clarity and operability without changing the guidance. The ASU is effective for fiscal years beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted. These updates are not expected to have a significant impact on the Company’s condensed consolidated financial statements.

 

Note 2 — Property and Equipment

 

Property and equipment consist of the following:

 

(in thousands)		As of September 30, 2024				As of December 31, 2023				Estimated Useful Lives
Operations equipment		$	930			$	1,018			3-10 years
FDA program equipment			1,163				-			10 years
Tradeshow and demo equipment			1,182				1,184			3 years
Computer equipment			163				145			3 years
Subtotal			3,438				2,347
Construction in progress			228				-
Less accumulated depreciation			(2,031	)			(1,883	)
Property and Equipment, Net		$	1,635			$	464

 

Depreciation expense was $53 thousand and $60 thousand for the three months ended September 30, 2024 and 2023, respectively, and $154 thousand and $167 thousand for the nine months ended September 30, 2024 and 2023, respectively.

 

Note 3 — Debt

 

As of December 31, 2022, the Company had a revolving credit facility with Silicon Valley Bank (“SVB”) that provided for maximum borrowings equal to the lesser of (a) the $15 million commitment amount or (b) the borrowing base plus a $7.5 million non-formula sublimit.

 

On September 11, 2023, the Company entered into a new revolving credit facility (the “Credit Facility”) with Comerica Bank (“Comerica”), replacing the prior facility with SVB, that provided for maximum borrowings of $10 million. The Credit Facility may be terminated by the Company or Comerica at any time without penalty. At September 30, 2024, the available borrowings under this facility were $10 million. Any borrowings bear interest at the Secured Overnight Financing Rate plus 2.50% (or 7.46% at September 30, 2024) and would be due upon demand by Comerica. The Credit Facility is secured by all of the Company’s assets. At September 30, 2024, the Credit Facility contained a financial covenant requiring that the Company maintain unencumbered liquid assets having a minimum value of $3,500,000 in a Comerica account. In October 2024, the Credit Facility was amended to extend the term of the Credit Facility and to increase the maximum borrowings to $15 million. The amended Credit Facility includes updated covenants requiring that the Company maintain (1) unencumbered liquid assets having a minimum value of $10,000,000 in a Comerica account; (2) minimum profitability of $1 on a trailing 12-month basis; and (3) the contractual relationship with the manufacturer of the SRT-100 discussed in Note 6, Commitments and Contingencies – Manufacturing Agreement. There were no other significant changes to the terms of the Credit Facility.

 

 

The Company was in compliance with its financial covenants under the respective facilities as of September 30, 2024 and December 31, 2023. There were no borrowings outstanding under either facility at September 30, 2024 and December 31, 2023.

 

Note 4 — Product Warranties

 

Changes in product warranty liability were as follows for the nine months ended September 30, 2024:

 

(in thousands)
Balance, December 31, 2023		$	538
Warranties accrued during the period			81
Payments on warranty claims			(268	)
Balance, September 30, 2024		$	351

 

Note 5 — Leases

 

Operating Lease Agreements

 

The Company leases its headquarters office from an unrelated third party under a lease expiring in September 2027. The amortization of the right of use lease asset was $49 thousand for the three months ended September 30, 2024 and 2023, respectively, and $144 thousand and $139 thousand for the nine months ended September 30, 2024 and 2023, respectively.

 

Future minimum lease payments under the Company’s non-cancellable leases as of September 30, 2024 are as follows:

 

Maturity of Operating Lease Liability		Amount
2024 (October 1 - December 31, 2024)		$	57
2025			229
2026			236
2027			181
Total undiscounted operating leases payments		$	703
Less: Imputed interest			(52	)
Present Value of Operating Lease Liability		$	651
Operating lease liability, current portion		$	200
Operating lease liability, net of current portion		$	451
Other Information
Weighted-average remaining lease term			3.00 years
Weighted-average discount rate			5	%

 

Cash paid for amounts included in the measurement of the operating lease liability was $132 thousand and $152 thousand for the nine months ended September 30, 2024 and 2023, respectively, and is included in cash flows from operating activities in the accompanying condensed consolidated statements of cash flows.

 

 

Operating lease cost recognized as expense was $57 thousand for the three months ended September 30, 2024 and 2023, and $171 thousand for the nine months ended September 30, 2024 and 2023. The financing component for operating lease liability represents the effect of discounting the operating lease payments to their present value.

 

Lessor Accounting

 

Beginning in the quarter ended June 30, 2024, the Company, through its subsidiary, Sensus Healthcare Services, LLC, leases superficial radiotherapy equipment to dermatology clinics. The leases generally have initial lease terms of sixty months and automatically renew for a one-year period upon the expiration of the initial lease terms. Payments due under the leases may be fixed or variable payments.

 

The component of lease income for the three and nine months ended September 30, 2024 is as follows:

 

		For the				For the
		Three Months Ended				Nine Months Ended
(in thousands)		September 30, 2024				September 30, 2024
Lease income - operating leases - fixed payments		$	75			$	116

 

The future minimum fixed lease payments to be received under the lease agreements as of September 30, 2024 are as follows:

 

(in thousands)		Amount
2024 (October 1 - December 31, 2024)		$	99
2025			396
2026			396
2027			396
2028			396
Thereafter			576
Total		$	2,259

 

Note 6 – Commitments and Contingencies

 

Manufacturing Agreement

 

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

 

The Company pays this manufacturer for finished goods in advance of the inventory being received. The Company paid this manufacturer $0.2 million and $1.3 million for finished goods for the three months ended September 30, 2024 and 2023, respectively, and $5.9 million and $9.2 million for the nine months ended September 30, 2024 and 2023, respectively. Finished goods of $2.6 million and $3.5 million were received from this manufacturer for the three months ended September 30, 2024 and 2023, respectively, and $7.8 million and $11.2 million for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024 and December 31, 2023, a prepayment related to these finished goods of $1.7 million and $3.0 million, respectively, was presented in prepaid inventory in the accompanying condensed consolidated balance sheets. 

 

Legal Contingencies

 

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

 

 

In 2015, the Company learned that the Department of Justice (the “Department”) had commenced an investigation of the billing to Medicare by a physician who had treated patients with the Company’s SRT-100. The Department subsequently advised the Company that it was considering expanding the investigation to determine whether the Company had any involvements in physician’s use of certain reimbursements codes. The Company has received two Civil Investigative Demands from the Department seeking documents and written responses in connection with its investigation. The Company has fully cooperated with the Department. The Company disputes that it has engaged in any wrongdoing with respect to such reimbursement claims; among other considerations, the Company does not submit claims for reimbursement or provide coding or billing advice to physicians. To the Company’s knowledge, the Department has made no determination as to whether the Company engaged in any wrongdoing, or whether to pursue any legal action against the Company. Should the Department decide to pursue legal action, the Company believes it has strong and meritorious defenses and will vigorously defend itself. As of September 30, 2024, the Company was unable to estimate the cost associated with this matter. 

 

Note 7 — Stockholders’ Equity

 

Preferred Stock

 

The Company has authorized 5 million shares of preferred stock. No shares of preferred stock were issued or outstanding at September 30, 2024 or December 31, 2023.

 

Treasury Stock

 

Treasury stock includes shares surrendered by employees for tax withholding on the vesting of restricted stock awards and shares repurchased in open market transactions. 7,870 shares were surrendered by employees for tax withholding for the three and nine months ended September 30, 2024. 3,935 and 8,422 shares were surrendered by employees for tax withholding for the three and nine months ended September 30, 2023, respectively. During the three and nine months ended September 30, 2024, the Company did not repurchase any shares in open market transactions. During the three and nine months ended September 30, 2023, the Company repurchased 9,427 shares in open market transactions.

 

Note 8 — Equity-based Compensation

 

2016 and 2017 Equity Incentive Plans

 

The Company’s 2016 Equity Incentive Plan and the 2017 Incentive Plan, as amended in June 2023 (collectively, the “Plans”), provide for the issuance of up to 397,473 shares and 750,000 shares, respectively. In addition, unless the Compensation Committee specifically determines otherwise, the maximum number of shares available under the Plans and the awards granted under the Plans will be subject to appropriate adjustment in the case of any stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, exchanges or other changes in capitalization affecting the Company’s common stock. The awards may be made in the form of restricted stock awards or stock options, among other things. As of September 30, 2024 and December 31, 2023, 295,223 and 312,973 shares were available to be granted under the Plans, respectively.

  

On February 1, 2020, a total of 35,000 shares of restricted stock were issued to employees. The restricted shares vest 25% per year over a four-year period. The grant date fair value of $4.11 per share is being recognized as expense on a straight-line basis over the vesting period. During the nine months ended September 30, 2024, 2,500 shares of common stock vested. As of September 30, 2024, the shares issued on February 1, 2020 were fully vested.

 

On July 21, 2021, a total of 130,000 shares of restricted stock were issued to employees and board members. The restricted shares vest 25% at grant date and 25% per year over a three-year period. The grant date fair value of $3.84 per share is being recognized as expense on a straight-line basis over the vesting period. During the nine months ended September 30, 2024, 32,500 shares of common stock vested. As of September 30, 2024, the shares issued on July 21, 2021 were fully vested.

 

 

On December 19, 2022, a total of 77,000 shares of restricted stock were issued to employees. The restricted shares vest 25% per year over a four-year period. The fair value of $6.40 per share, the stock price on grant date, is being recognized as expense on a straight-line basis over the vesting period. During the nine months ended September 30, 2024, 2,250 shares of unvested common stock were forfeited due to the termination of three employees.

 

On January 26, 2023, 10,000 shares of common stock were issued to an employee and were recorded at the fair value of $8.96 per share, the stock price on the grant date. The shares were fully vested on the grant date.

 

On January 11, 2024, 20,000 shares of common stock with a fair value of $2.65 per share, the stock price on the grant date, were issued to an employee. 10,000 of the shares were vested and the expense related to these shares was recognized on the grant date. The remaining 10,000 shares are scheduled to cliff vest in January 2025. The grant date fair value of $2.65 per share is being recognized as expense on a straight-line basis over the vesting period.

 

Restricted Stock

 

Restricted stock activity for the nine months ended September 30, 2024 is summarized below:

 

						Weighted-
						Average
						Grant
		Restricted				Date Fair
Outstanding at		Stock				Value
December 31, 2023			89,750			$	5.41
Granted			20,000				2.65
Vested			(45,000	)			3.59
Forfeited			(2,250	)		$	6.40
September 30, 2024			62,500			$	5.80

 

The Company recognizes forfeitures as they occur. The reduction of stock compensation expense related to the forfeitures was $0 for the three months ended September 30, 2024 and 2023, and $2 thousand and $19 thousand for the nine months ended September 30, 2024 and 2023, respectively.

 

Stock compensation expense related to restricted stock, excluding the recognition of forfeitures, was $45 thousand and $67 thousand for the three months ended September 30, 2024 and 2023, respectively, and $203 thousand and $295 thousand for the nine months ended September 30, 2024 and 2023, respectively.

 

Unrecognized stock compensation expense was $257 thousand as of September 30, 2024, which will be recognized over a weighted-average period of 2.1 years.

 

Stock Options

 

Stock options expire ten years after the grant date. Options that have been granted are exercisable and vest based on the terms of the related agreements.

 

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

 

										Weighted-
										Average
						Weighted-				Remaining
						Average				Contractual
		Number of				Exercise				Term
		Options				Price				(In Years)
Outstanding - December 31, 2023			89,550			$	5.55				4.08
Granted			-				-				-
Exercised			(6,000	)			5.55				-
Expired			-				-				-
Outstanding - September 30, 2024			83,550			$	5.55				3.33
Exercisable – September 30, 2024			83,550			$	5.55				3.33

 

No stock compensation expense related to stock options was incurred for the three and nine months ended September 30, 2024 and 2023. The stock options outstanding as of September 30, 2024 and December 31, 2023 had an intrinsic value of $21 thousand and $0, respectively.

 

 

Note 9 — Income Taxes

 

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

 

Effective income tax rates for interim periods are based upon the Company’s current estimated annual tax rate, which varies based upon the Company’s estimate of taxable earnings or loss and the mix of taxable earnings or loss in the various states in which the Company operates. In addition, the Company recognizes taxes related to unusual or infrequent items or resulting from a change in judgment regarding a position taken in a prior period as discrete items in the interim period in which the event occurs.

 

As of September 30, 2024 and December 31, 2023, management determined there continues to be sufficient positive evidence that it is more likely than not that the net deferred tax asset (other than foreign net operation losses) is realizable.

 

Income tax expense (benefit) was $559 thousand and ($125) thousand for the three months ended September 30, 2024 and 2023, respectively. Income tax expense (benefit) was $1,965 thousand and ($1,428) thousand for the nine months ended September 30, 2024 and 2023, respectively.

 

The effective tax rates for the three months ended September 30, 2024 and 2023 were 31.5% and 7.9%, respectively. The effective tax rates for the nine months ended September 30, 2024 and 2023 were 27.8% and 27.7%, respectively. The increase in the effective tax rate for the three months ended September 30, 2024 compared to the prior year periods was primarily due to an increase in nondeductible expenses in proportion to pretax income (loss).

 

The effective tax rate differs from the U.S. federal statutory rate for the three and nine months ended September 30, 2024, primarily due to nondeductible expenses, state income taxes and the favorable impact of tax credits. The effective tax rate differs from the U.S. federal statutory rate for the three and nine months ended September 30, 2023, primarily due to nondeductible expenses and state income taxes.

 

As of September 30, 2024, the Company’s U.S. federal and certain state tax returns remain subject to examination, beginning with those filed for the year ended December 31, 2017.

 

Note 10 — Subsequent Events

 

The Company has evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued for potential recognition or disclosure. The Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.

 

 

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

 

You should read the following discussion and analysis in conjunction with the information set forth within the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2023 Annual Report.

 

Overview

 

Sensus is a medical device company committed to providing highly effective, non-invasive and cost-effective treatments for both oncological and non-oncological skin conditions.

 

Segment Information

 

The Company manages its business globally within one reportable segment, which is consistent with how our management views the business, prioritizes investment and resource allocation decisions, and assesses operating performance.

 

Results of Operations

 

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
(in thousands, except shares and per share data)		2024				2023				2024				2023
Revenues		$	8,839			$	3,898			$	28,741			$	11,838
Cost of sales			3,599				1,909				11,416				5,609
Gross profit			5,240				1,989				17,325				6,229
Operating expenses
Selling and marketing			1,309				1,290				3,575				4,983
General and administrative			1,573				1,511				4,731				4,204
Research and development			863				1,083				2,655				3,001
Total operating expenses			3,745				3,884				10,961				12,188
Income (loss) from operations			1,495				(1,895	)			6,364				(5,959	)
Other income:
Gain on sale of assets			-				42				-				42
Interest income			279				277				702				764
Other income, net			279				319				702				806
Income (loss) before income tax			1,774				(1,576	)			7,066				(5,153	)
Provision for (benefit from) income taxes			559				(125	)			1,965				(1,428	)
Net income (loss)		$	1,215			$	(1,451	)		$	5,101			$	(3,725	)

 

Three months ended September 30, 2024 compared to the three months ended September 30, 2023

 

Revenues. Revenues were $8.8 million for the three months ended September 30, 2024 compared to $3.9 million for the three months ended September 30, 2023, an increase of $4.9 million, or 125.6%. The increase was primarily driven by a higher number of units sold to a large customer in the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

 

Cost of sales. Cost of sales was $3.6 million for the three months ended September 30, 2024 compared to $1.9 million for the three months ended September 30, 2023, an increase of $1.7 million, or 89.5%. The increase in cost of sales was primarily related to a higher number of units sold and was fairly consistent as a percentage of revenue in the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

 

 

Gross profit. Gross profit was $5.2 million for the three months ended September 30, 2024 compared to $2.0 million for the three months ended September 30, 2023, an increase of $3.2 million, or 160.0%. Our overall gross profit percentage was 59.1% in the three months ended September 30, 2024 compared to 51.3% in the corresponding period in 2023. The increase in gross profit was primarily driven by a higher number of units sold in the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

 

Selling and marketing. Selling and marketing expense was $1.3 million for the three months ended September 30, 2024 and 2023.

 

General and administrative. General and administrative expense was $1.6 million for the three months ended September 30, 2024 compared to $1.5 million for the three months ended September 30, 2023, an increase of $0.1 million, or 6.7%. The net increase in general and administrative expense was primarily due to higher compensation and bad debt expense, which were offset by a reduction in bank fees.

 

Research and development. Research and development expense was $0.9 million for the three months ended September 30, 2024 compared to $1.1 million for the three months ended September 30, 2023, a decrease of $0.2 million, or 18.2%. The decrease was primarily due to expenses related to a project to develop a drug delivery system for aesthetic use, as most of the development expenses occurred in the 2023 period.

 

Other income. Other income of $0.3 million for the three months ended September 30, 2024 and 2023 relate primarily to interest income.

 

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

 

Revenues. Revenues were $28.7 million for the nine months ended September 30, 2024 compared to $11.8 million for the nine months ended September 30, 2023, an increase of $16.9 million, or 143.2%. The increase was primarily driven by a higher number of units sold to a large customer in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

 

Cost of sales. Cost of sales was $11.4 million for the nine months ended September 30, 2024 compared to $5.6 million for the nine months ended September 30, 2023, an increase of $5.8 million, or 103.6%. The increase in cost of sales was primarily related to a higher number of units sold in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

 

Gross profit. Gross profit was $17.3 million for the nine months ended September 30, 2024 compared to $6.2 million for the nine months ended September 30, 2023, an increase of $11.1 million, or 179.0%. Our overall gross profit percentage was 60.3% in the nine months ended September 30, 2024 compared to 52.5% in the corresponding period in 2023. The increase in gross profit was primarily driven by a higher number of units sold in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

 

Selling and marketing. Selling and marketing expense was $3.6 million for the nine months ended September 30, 2024 compared to $5.0 million for the nine months ended September 30, 2023, a decrease of $1.4 million, or 28.0%. The decrease was primarily attributable to the decrease in marketing agency expense, travel expense, and payroll cost due to lower headcount.

 

General and administrative. General and administrative expense was $4.7 million for the nine months ended September 30, 2024 compared to $4.2 million for the nine months ended September 30, 2023, an increase of $0.5 million, or 11.9%. The net increase in general and administrative expense was primarily due to higher compensation and bad debt expense, which were offset by a reduction in bank fees and insurance expense.

 

Research and development. Research and development expense was $2.7 million for the nine months ended September 30, 2024 compared to $3.0 million for the nine months ended September 30, 2023, a decrease of $0.3 million, or 10.0%. The decrease was primarily due to expenses related to a project to develop a drug delivery system for aesthetic use.

 

 

Other income. Other income of $0.7 and 0.8 million for the nine months ended September 30, 2024 and 2023, respectively, relate primarily to interest income.

 

Financial Condition

 

The following discussion summarizes significant changes in assets and liabilities. Please see the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 contained in Part I, Item 1 of this filing.

 

Assets

 

Cash and cash equivalents at September 30, 2024 decreased $0.5 million from December 31, 2023. See Cash Flows for details on the change in cash and cash equivalents during the nine months ended September 30, 2024.

 

Accounts receivable at September 30, 2024 increased $6.4 million from December 31, 2023, primarily due to the increase in sales and concentration of sales to the Company’s primary customer that is subject to extended payment terms.

 

Inventories at September 30, 2024 increased $0.1 million from December 31, 2023, as volume has been increased in anticipation of increasing future revenues.

 

Liabilities

 

There were no borrowings outstanding under our revolving line of credit with Comerica Bank at September 30, 2024 or December 31, 2023.

 

Liquidity and Capital Resources

 

In general terms, liquidity is a measurement of the Company’s ability to meet its cash needs. For the three months ended September 30, 2024, funding was derived primarily from cash generated by the sale of equipment to our customers in the ordinary course of business. The Company believes that proceeds from maturing cash equivalents, as well as the Company’s borrowing capacity under its existing line of credit and access to capital resources are sufficient to meet operating capital and funding requirements for the next 12 months from the date of this quarterly report. Please see Note 3, Debt, to the consolidated financial statements for a discussion regarding the Company’s revolving credit facility with Comerica Bank. The Company’s liquidity position and capital requirements may be impacted by a number of factors, including the following:

 

●

ability to generate and increase revenue;

 

●

fluctuations in gross margins, operating expenses and net results; and

 

●

financial market instability or disruptions to the banking system due to bank failures

 

The Company’s primary short-term capital needs, which are subject to change, include expenditures related to:

 

●

expansion of sales and marketing activities; and

 

●

expansion of research and development activities.

 

Sensus’s management regularly evaluates cash requirements for current operations, commitments, capital requirements and business development transactions, and may seek to raise additional funds for these purposes in the future. However, there can be no assurance that it will be able to raise such funds or the terms on which such funds may be raised, if at all.

 

 

Cash flows

 

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

 

		For the Nine Months Ended September 30
(in thousands)		2024				2023
Net cash provided by (used in):
Operating activities		$	(4	)		$	(4,813	)
Investing activities			(573	)			(187	)
Financing activities			(13	)			(33	)
Total		$	(590	)		$	(5,033	)

 

Cash flows from operating activities

 

Net cash used in operating activities was $4 thousand for the nine months ended September 30, 2024, consisting of net income of $5.1 million and non-cash charges of $0.6 million, offset by an increase in net operating assets of $5.8 million. Cash flows provided by operating activities primarily include the receipt of revenues offset by the payment of operating expenses incurred in the normal course of business. Non-cash items consisted of credit loss expense, deferred income taxes, stock-based compensation expense, provision for product warranties, amortization of right-of-use asset and depreciation and amortization of property and equipment. Net cash used in operating activities was approximately $4.8 million for the nine months ended September 30, 2023, consisting of net loss of approximately $3.7 million, a decrease in net working capital of approximately $0.6 million, and non-cash charges of approximately $0.5 million. Cash flows provided by operating activities primarily include the receipt of revenues offset by the payment of operating expenses incurred in the normal course of business. Non-cash items consisted of credit loss expense, deferred income taxes, stock-based compensation expense, provision for product warranties, amortization of right-of-use asset, and depreciation and amortization of property and equipment.

 

Cash flows from investing activities

 

Net cash used in investing activities for the nine months ended September 30, 2024 reflected $0.6 million of purchases of property and equipment. Net cash used in investing activities for the nine months ended September 30, 2023 reflected $0.2 million of purchases of property and equipment.

 

Cash flows from financing activities

 

Net cash provided by financing activities for the nine months ended September 30, 2024 reflected $34 thousand of exercised stock options, offset by $47 thousand of withholding taxes on stock-based compensation. Net cash provided in financing activities for the nine months ended September 30, 2023 primarily reflected $46 thousand of exercised stock options, offset by $79 thousand used for the repurchase of common stock and withholding taxes on stock-based compensation.

 

Inflation

 

During the first three quarters of 2024, we continued to experience some increase in commodity and shipping prices and energy and labor costs which resulted in inflationary pressures across various parts of our business and operations, including on our customers, partners, and suppliers. We continue to monitor the impact of inflation and we are taking actions, such as ordering inventory in advance, to minimize its effects on our product cost and sales.

 

Indebtedness

 

Please see Note 3, Debt, to the condensed consolidated financial statements.

 

Contractual Obligations and Commitments

 

Please see Note 6, Commitments and Contingencies, to the condensed consolidated financial statements.

 

 

Critical Accounting Policies and Estimates

 

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting periods. Management has identified certain accounting policies as critical to understanding the financial condition and results of operations. For a detailed discussion on the application of these and other accounting policies, see the Note 1, Organization and Summary of Significant Accounting Policies to the consolidated financial statements included in the 2023 Annual Report for further information.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

Item 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Control and Procedures

 

As of September 30, 2024, the end of the period covered by this Form 10-Q, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of September 30, 2024, the end of the period covered by this Form 10-Q, we did not maintain effective disclosure controls and procedures, as described below.

 

●

Information technology general controls were not designed and operating effectively to ensure that access to applications and data were adequately restricted to appropriate personnel, ensure segregation of duties, and appropriately monitor the activities of the individuals with access to modify data.

 

While the deficiencies described above did not result in any material misstatements to the Company’s condensed consolidated financial statements for the period ending September 30, 2024, they did represent a material weakness as of September 30, 2024, since there existed a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements would not be prevented or detected on a timely basis.

 

Management’s Remediation Measures

 

To address the material weakness described above, the Company has implemented new and enhanced controls designed to: ensure that access to information technology applications and data are adequately restricted to appropriate personnel, ensure segregation of duties, and appropriately monitor the activities of the individuals with access to modify data. We believe the actions described above will be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting. However, the new and enhanced controls have not operated for a sufficient amount of time to conclude that the material weakness has been remediated. We will continue to monitor the effectiveness of these controls and will make any further changes management determines to be appropriate.

 

Changes in Internal Control over Financial Reporting

 

Except for the remediation efforts described above, there have been no significant changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The Company is party to certain legal proceedings in the ordinary course of business. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and related contingencies. See Note 6, Commitments and Contingencies.

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our 2023 Annual Report, as updated in our subsequent quarterly reports. The risks described in our 2023 Annual Report and our subsequent quarterly reports are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

 

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

 

(a)	Sales of Unregistered Securities

 

There were no unregistered sales of securities during the three months ended September 30, 2024.

 

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

 

None.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosure

 

Not applicable.

 

Item 5. Other Information

 

(c) Rule 10b5-1 Trading Plans

 

During the three months ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K. None.

 

 

Item 6. Exhibits

 

EXHIBIT INDEX

 

Exhibit No.		Description
3.1		Amended and Restated Certificate of Incorporation of Sensus Healthcare, Inc., dated as of June 14, 2024 incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q (filed 8/13/2024)
10.1*		Amendment No.1 to Credit Agreement between the Company and Comerica Bank, dated as of October 16, 2024
10.2*		Amendment No.1 to Master Revolving Note between the Company and Comerica Bank, dated as of October 16, 2024
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*		Inline XBRL Instance Document.
101.SCH*		Inline XBRL Taxonomy Extension Schema Document.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
104.*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

*	Filed electronically herewith.

 

 

SIGNATURES

 

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

 

	SENSUS HEALTHCARE, INC.
Date: November 14, 2024	/s/ Joseph C. Sardano
	Joseph C. Sardano
	Chief Executive Officer
	(Principal Executive Officer)
Date: November 14, 2024	/s/ Javier Rampolla
	Javier Rampolla
	Chief Financial Officer
	(Principal Financial Officer and
	Principal Accounting Officer)