UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period
ended
OR
For the transition period from ____________ to ____________
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emerging growth company”. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Smaller reporting company | |
Emerging growth company |
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 July 19, 2022,
SENSUS HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
i
INTRODUCTORY NOTE
Caution Concerning 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,” “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. 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 continuation and severity of the COVID-19 pandemic, including its impact on sales and marketing; our ability to maintain profitability; 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; 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; 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; concentration of our customers in the U.S. and China, including the concentration of sales to one particular customer in the U.S.; the performance of the Company’s information technology systems and its ability to maintain data security; and other risks described from time to time in our filings with the Securities and Exchange Commission.
At the present time, we do not expect that the Russian invasion of Ukraine and global geopolitical uncertainty will have any significant impact on our business, but we continue to monitor developments and will address them in future disclosures, if applicable.
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. Any forward-looking statements that we make in this report speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this report, except as may be required by applicable law.
ii
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of | As of | |||||||
June 30, | December 31, | |||||||
(in thousands, except shares and per share data) | 2022 | 2021 | ||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Accounts receivable, net | ||||||||
Inventories | ||||||||
Prepaid and other current assets | ||||||||
Total current assets | ||||||||
Property and equipment, net | ||||||||
Intangibles, net | ||||||||
Deposits | ||||||||
Deferred tax asset | ||||||||
Operating lease right-of-use assets, net | ||||||||
Total assets | $ | $ | ||||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | $ | ||||||
Product warranties | ||||||||
Operating lease liabilities, current portion | ||||||||
Loan payable | - | |||||||
Income tax payable | ||||||||
Deferred revenue, current portion | ||||||||
Total current liabilities | ||||||||
Operating lease liabilities | ||||||||
Deferred revenue, net of current portion | ||||||||
Total liabilities | ||||||||
Commitments and contingencies | ||||||||
Stockholders’ equity | ||||||||
Preferred stock, | ||||||||
Common stock, $ | ||||||||
Additional paid-in capital | ||||||||
Treasury stock, | ( | ) | ( | ) | ||||
Retained earnings (Accumulated deficit) | ( | ) | ||||||
Total stockholders’ equity | ||||||||
Total liabilities and stockholders’ equity | $ | $ |
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 | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(in thousands, except shares and per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Revenues | $ | $ | $ | $ | ||||||||||||
Cost of sales | ||||||||||||||||
Gross profit | ||||||||||||||||
Operating expenses | ||||||||||||||||
Selling and marketing | ||||||||||||||||
General and administrative | ||||||||||||||||
Research and development | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Income (loss) from operations | ( | ) | ( | ) | ||||||||||||
Other income (expense): | ||||||||||||||||
Gain on sale of assets | ||||||||||||||||
Interest income | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
Other income, net | ||||||||||||||||
Net income (loss) before income tax | ( | ) | ( | ) | ||||||||||||
Provision for income taxes | ||||||||||||||||
Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Net income (loss) per share – basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Weighted average number of shares used in computing net income (loss) per share – basic | ||||||||||||||||
diluted |
See accompanying notes to the unaudited condensed consolidated financial statements.
2
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
Retained | ||||||||||||||||||||||||||||
Additional | Earnings | |||||||||||||||||||||||||||
Common Stock | Paid-In | Treasury Stock | (Accumulated | |||||||||||||||||||||||||
(in thousands, except shares) | Shares | Amount | Capital | Shares | Amount | Deficit) | Total | |||||||||||||||||||||
December 31, 2020 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
Stock-based compensation | - | - | ||||||||||||||||||||||||||
Surrender of shares for tax withholding on stock compensation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
March 31, 2021 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
Stock-based compensation | - | - | ||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
June 30, 2021 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
December 31, 2021 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
Stock-based compensation | - | - | ||||||||||||||||||||||||||
Exercise of stock options | ||||||||||||||||||||||||||||
Surrender of shares for tax withholding on stock compensation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
Net income | - | - | ||||||||||||||||||||||||||
March 31, 2022 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
Stock-based compensation | - | - | ||||||||||||||||||||||||||
Exercise of stock options | ||||||||||||||||||||||||||||
Stock repurchase | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
Net income | - | - | ||||||||||||||||||||||||||
June 30, 2022 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | $ |
See accompanying notes to the unaudited condensed consolidated financial statements.
3
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended | ||||||||
June 30, | ||||||||
(in thousands) | 2022 | 2021 | ||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | $ | ( | ) | ||||
Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by operating activities: | ||||||||
Depreciation and amortization | ||||||||
Loss on sale of property and equipment | ||||||||
Gain on sale of assets | ( | ) | ||||||
Provision for product warranties | ||||||||
Stock-based compensation | ||||||||
Impairment of intangible assets | ||||||||
Deferred income taxes | ( | ) | ||||||
Decrease (increase) in: | ||||||||
Accounts receivable | ( | ) | ||||||
Inventories | ( | ) | ||||||
Deposits | ||||||||
Prepaid and other current assets | ( | ) | ||||||
Increase (decrease) in: | ||||||||
Accounts payable and accrued expenses | ( | ) | ||||||
Income tax payable | ||||||||
Deferred revenue | ( | ) | ( | ) | ||||
Product warranties | ( | ) | ( | ) | ||||
Total adjustments | ( | ) | ||||||
Net cash provided by operating activities | ||||||||
Cash flows from investing activities | ||||||||
Acquisition of property and equipment | ( | ) | ( | ) | ||||
Proceeds from sale of asset | ||||||||
Net cash provided by investing activities | ||||||||
Cash flows from financing activities | ||||||||
Repurchase of common stock | ( | ) | ||||||
Withholding taxes on stock-based compensation | ( | ) | ( | ) | ||||
Loan payable | ( | ) | ( | ) | ||||
Exercise of stock options | ||||||||
Net cash used in financing activities | ( | ) | ( | ) | ||||
Net increase in cash and cash equivalents | ||||||||
Cash and cash equivalents – beginning of period | ||||||||
Cash and cash equivalents – end of period | $ | $ | ||||||
Supplemental disclosure of cash flow information: | ||||||||
Interest paid | $ | $ | ||||||
Income taxes paid | $ | $ | ||||||
Supplemental schedule of noncash investing and financing transactions: | ||||||||
Operating lease right-of-use asset and lease liability increase from lease modification | $ | $ | ||||||
Transfer of property and equipment to inventory | $ | $ |
See accompanying notes to the unaudited condensed consolidated financial statements.
4
SENSUS HEALTHCARE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 — Organization and Summary of Significant Accounting Policies
Description of the Business
Sensus Healthcare, Inc. (together, with its subsidiary, unless the context otherwise indicates, “Sensus” or the “Company”) is a manufacturer of radiation therapy devices and sells the devices to healthcare providers and distributors globally through its distribution network. The Company operates in one segment from its corporate headquarters located in Boca Raton, Florida.
Basis of Presentation and Principles of Consolidation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its subsidiary. Accounts and transactions between consolidated entities have been eliminated.
Revenue Recognition
The Company’s revenue derives 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.
The revenues from the 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 warranty expires, the Company recognizes revenue when the service is rendered.
The Company has determined that in practice no significant discount is given on the service contract when it is offered with the device purchase as compared to when it is sold on a stand-alone basis. The service level provided is identical whether the service contract is purchased on a stand-alone basis or together with the device. There is no termination provision in the service contract nor any penalties in practice for cancellation of the service contract.
Disaggregated revenue for the three and six months ended June 30, 2022 and 2021 was as follows:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Product Revenue - recognized at a point in time | $ | $ | $ | $ | ||||||||||||
Service Revenue - recognized at a point in time | ||||||||||||||||
Service Revenue - recognized over time | ||||||||||||||||
Total Revenue | $ | $ | $ | $ |
5
The Company operates in a highly regulated environment, primarily in the U.S. dermatology market, in which state regulatory approval is sometimes required before the customer is able to use the product. In cases where such regulatory approval is pending, revenue is deferred until such time as regulatory approval is obtained.
Deferred revenue as of June 30, 2022 was as follows:
(in thousands) | Product | Service | Total | |||||||||
Balance, beginning of period | $ | $ | $ | |||||||||
Revenue recognized | ( | ) | ( | ) | ( | ) | ||||||
Amounts invoiced | ||||||||||||
Balance, end of period | $ | $ | $ |
The Company does not disclose information about remaining performance obligations with original expected durations of one year or less in connection with deposits for products. Estimated service revenue to be recognized in the future related to the performance obligations that are fully or partially unsatisfied as of June 30, 2022 is as follows:
(in thousands) Year | Service Revenue | |||
2022 (July 1 – December 31, 2022) | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
Total | $ |
Shipping and handling costs are expensed as incurred and are included in cost of sales.
Segment and Geographical Information
The following table illustrates total revenue for the three and six months ended June 30, 2022 and 2021 by geographic region.
For the Three Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
(in thousands) | 2022 | 2021 | ||||||||||||||
United States | $ | % | $ | % | ||||||||||||
China | % | % | ||||||||||||||
Other | % | % | ||||||||||||||
Total Revenue | $ | % | $ | % |
For the Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
(in thousands) | 2022 | 2021 | ||||||||||||||
United States | $ | % | $ | % | ||||||||||||
China | % | % | ||||||||||||||
Other | % | % | ||||||||||||||
Total Revenue | $ | % | $ | % |
6
One customer in the U.S. accounted
for approximately
Fair Value of Financial Instruments
Carrying amounts of cash equivalents, accounts receivable and accounts payable 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 when the Company can determine that orderly transactions took place at the quoted price or that the inputs used to arrive at the price are observable; and inputs other than quoted prices that are observable, such as models or other valuation methodologies.
● | Level 2 assets may include debt securities and foreign currency exchange contracts that have inputs to the valuations that generally can be corroborated by observable market data. |
Level 3 Inputs:
Unobservable inputs for the valuation of the asset or liability, which may include nonbinding broker quotes. Level 3 assets include investments for which there is little, if any, market activity. These inputs require significant management judgment or estimation.
Significance of Inputs: The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of cash, money market funds, and short-term, highly liquid investments with original maturities of three months or less.
For purposes of the statements of cash flows, the Company considers all highly liquid financial instruments with a maturity of three months or less when purchased to be cash equivalents.
Accounts Receivable
The Company does business and
extends credit based on an evaluation of each customer’s financial condition, generally without requiring collateral. Exposure to
losses on receivables varies by customer, primarily due to the customer’s financial condition. 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 $
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. The
Company periodically reviews the value of items in inventory and reserves for inventory based on its assessment of market conditions.
The reserve is charged to cost of goods sold. The reserve for inventory obsolescence was $
Earnings Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income per share is computed by giving effect to all potential dilutive common share equivalents outstanding for the period, using the treasury stock method for options and unvested restricted shares. In periods when the Company has incurred a net loss, options and unvested shares are considered common share equivalents but have been excluded from the calculation of diluted net loss per share as their effect is antidilutive. Shares excluded were as follows:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Shares |
The factors used in the earnings per share computation are as follows:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Basic | ||||||||||||||||
Net income | $ | $ | ||||||||||||||
Weighted average common shares outstanding | ||||||||||||||||
Basic earnings per share | $ | $ | ||||||||||||||
Diluted | ||||||||||||||||
Net income | $ | $ | ||||||||||||||
Weighted average common shares outstanding | ||||||||||||||||
Dilutive effects of: | ||||||||||||||||
Assumed exercise of stock options | ||||||||||||||||
Restricted stock awards | ||||||||||||||||
Dilutive shares | ||||||||||||||||
Diluted earnings per share | $ | $ |
Leases
The Company evaluates arrangements at inception to determine if an arrangement is or contains a lease. Operating lease assets represent the Company’s right to use an underlying asset for the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the options. To determine the present value of the lease payment, the Company uses an incremental borrowing rate that the Company would expect to incur for a fully collateralized loan over a similar term under similar economic conditions. In addition, the Company has elected available practical expedients to not separate lease and non-lease components for all leased assets and to exclude leases with an initial term of 12 months or less.
8
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.
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 Pronouncement
In March 2020, the FASB issued 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 LIBOR to alternative reference rates, such as 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 is effective prospectively as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years. This update is not expected to have a significant impact on the Company’s financial statements.
Note 2 — Disposition
On February 25, 2022, the Company sold its Sculptura assets for $
Book Value | ||||
Cash | $ | |||
Inventory | ( | ) | ||
Property and equipment | ( | ) | ||
Other liabilities | ( | ) | ||
Gain on asset sale | $ |
9
Note 3 — Property and Equipment
As of | As of | |||||||||
June 30, | December 31, | Estimated | ||||||||
(in thousands) | 2022 | 2021 | Useful Lives | |||||||
(unaudited) | ||||||||||
Operations equipment | $ | $ | ||||||||
Tradeshow and demo equipment | ||||||||||
Computer equipment | ||||||||||
Less accumulated depreciation | ( | ) | ( | ) | ||||||
Property and Equipment, Net | $ | $ |
Depreciation
expense was approximately $
Note 4 — Intangibles
Patent | Customer | |||||||||||
(in thousands) | Rights | Relationships | Total | |||||||||
December 31, 2021 | $ | $ | | $ | ||||||||
Amortization expense | ( | ) | ( | ) | ||||||||
June 30, 2022 | $ | $ | $ |
Accumulated
amortization was $
Note 5 — Debt
Note 6 — Product Warranties
Changes in product warranty liability were as follows for the three months ended June 30, 2022:
(in thousands) | ||||
Balance, December 31, 2021 | $ | |||
Warranties accrued during the period | ||||
Payments on warranty claims | ( | ) | ||
Balance, June 30, 2022 | $ |
10
Note 7 — Leases
Operating Lease Agreements
The Company leases its headquarters office from an unrelated third party. The lease was last renewed in 2016 and expires in September 2022 with an option to extend with prior notice upon terms to be negotiated. On April 7, 2022, the Company renewed the headquarters office lease through September 2027.
With
the renewal, the present value of the right of use lease assets (“ROU”) and operating lease liability at the renewal of the
lease was $
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of June 30, 2022.
(in thousands)
Maturity of Operating Lease Liabilities | Amount | |||
2022 (July 1 – December 31, 2022) | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
Thereafter | ||||
Total undiscounted operating leases payments | $ | |||
Less: Imputed interest | ( | ) | ||
Present Value of Operating Lease Liabilities | $ | |||
Other Information | ||||
Weighted-average remaining lease term | ||||
Weighted-average discount rate | % |
Cash
paid for amounts included in the present value of operating lease liabilities was approximately $
Operating
lease cost was approximately $
Note 8 — Stockholders’ Equity
Preferred Stock
The
Company has authorized
Common Stock
During
the six months ended June 30, 2022, the Company issued
11
Treasury stock
Treasury
stock includes shares surrendered by employees for tax withholding on the vesting of restricted stock awards. In the second quarter of
2022, the Company repurchased
Note 9 — Commitments and Contingencies
Manufacturing Agreement
In 2010, the Company entered into a three-year contract manufacturing agreement with an unrelated third party for the production and manufacture of the SRT-100 (and subsequently the SRT-100 Vision and the SRT-100 Plus), in accordance with the Company’s product specifications. The agreement renews for successive one-year periods unless either party notifies the other party in writing, at least 60 days prior to the anniversary date of the agreement, that it will not renew the agreement. The Company or the manufacturer may also terminate the agreement upon 90 days’ prior written notice. As of June 30, 2022, the agreement is still in effect.
Purchases
from this manufacturer totaled approximately $
Legal Contingencies
The Company is a party to certain legal proceedings in the ordinary course of business. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and related contingencies.
In 2015, the Company learned that the Department of Justice (the “Department”) had commenced an investigation of the billing to Medicare by a physician who had treated patients with the Company’s SRT-100. The Department subsequently advised the Company that it was considering expanding the investigation to determine whether the Company had any involvements in physician’s use of certain reimbursements codes. The Company has received two Civil Investigative Demands from the Department seeking documents and written responses in connection with its investigation. The Company has fully cooperated with the Department. The Company disputes that it has engaged in any wrongdoing with respect to such reimbursement claims; among other things, the Company does not submit claims for reimbursement or provide coding or billing advice to physicians. To the Company’s knowledge, the Department has made no determination as to whether the Company engaged in any wrongdoing, or whether to pursue any legal action against the Company. Should the Department decide to pursue legal action, the Company believes it has strong and meritorious defenses and will vigorously defend itself. As of June 30, 2022, the Company is unable to estimate the cost associated with this matter.
Note 10 — STOCK-BASED COMPENSATION
2016 and 2017 Equity Incentive Plans
Awards
for up to
Restricted Stock
On
February 1, 2020, a total of
12
On
July 21, 2021, a total of
Restricted stock activity for the six months ended June 30, 2022 is summarized below:
Weighted- | ||||||||
Average | ||||||||
Grant | ||||||||
Restricted | Date Fair | |||||||
Outstanding at | Stock | Value | ||||||
December 31, 2021 | ||||||||
Granted | ||||||||
Vested | ( | ) | ||||||
Forfeited | ||||||||
June 30, 2022 |
The
Company recognizes forfeitures as they occur rather than estimating a forfeiture rate. The reduction of stock compensation expense related
to the forfeitures was $
Unrecognized
stock compensation expense was approximately $
Stock Options
Stock
options expire
Weighted- | ||||||||||||
Average | ||||||||||||
Weighted- | Remaining | |||||||||||
Average | Contractual | |||||||||||
Number of | Exercise | Term | ||||||||||
Outstanding at | Options | Price | (In Years) | |||||||||
December 31, 2021 | $ | |||||||||||
Granted | ||||||||||||
Exercised | ( | ) | ||||||||||
Expired | ||||||||||||
June 30, 2022 | $ | |||||||||||
Exercisable – June 30, 2022 | $ |
The
stock options had an intrinsic value of $
Stock
compensation expense related to restricted stock and stock options was approximately $
13
Note 11 — 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 period, disclosure and transition.
As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.
As
of December 31, 2021, the deferred tax assets were primarily the result of U.S. net operating loss and tax credit carryforwards. A valuation
allowance of
During
the three months ended March 31, 2022, in part because the Company achieved three years of cumulative pretax income for purposes of U.S.
federal tax, management determined that there was sufficient positive evidence to conclude that it is more likely than not that deferred
taxes are realizable. For the three and six months ended June 30, 2022, the Company recorded net valuation allowance releases of
Income
tax expense was $
The
effective tax rate for the three and six months ended June 30, 2022 was
As of June 30, 2022, the Company has U.S. federal and certain state tax returns subject to examination, beginning with those filed for the year ended December 31, 2018.
Note 12 — 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.
14
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the information set forth within the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”).
Overview
Sensus is a medical device company committed to providing highly effective, non-invasive, and cost-effective treatments for both oncological and non-oncological skin conditions.
On February 25, 2022, the Company sold its Sculptura assets for $15 million in cash. Additional information regarding this transaction can be found in Note 2 and in the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 3, 2022.
Impact of COVID-19
The outbreak of COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has materially and adversely impacted the U.S. and global economies, as well as the Company, and its employees and operations, as well as customer demand. Although we have been able to continue to operate and service customers throughout the pandemic, it significantly impacted the Company’s sales throughout 2020, as social distancing forced physicians to temporarily close their practices. In 2021 and in the first two quarters of 2022, the Company was able to increase sales significantly. However, the ongoing COVID-19 pandemic, including the possible emergence of new variants, could further impact the Company’s operations and the operations of the Company’s customers, suppliers and vendors as a result of ongoing quarantines, facility closures, and travel and logistics restrictions. The extent to which the COVID-19 pandemic impacts the Company’s business, results of operations and financial condition will depend on future developments. The Company cannot reasonably estimate the impact at this time.
Segment Information
The Company manages its business globally within one reportable segment, which is consistent with how our management reviews the business, prioritizes investment and resource allocation decisions, and assesses operating performance.
Results of Operations
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(in thousands, except shares and per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Revenues | $ | 12,080 | $ | 5,422 | $ | 22,417 | $ | 8,492 | ||||||||
Cost of sales | 3,824 | 2,077 | 7,013 | 3,561 | ||||||||||||
Gross profit | 8,256 | 3,345 | 15,404 | 4,931 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling and marketing | 1,728 | 1,254 | 2,946 | 2,322 | ||||||||||||
General and administrative | 1,131 | 1,445 | 2,404 | 2,417 | ||||||||||||
Research and development | 827 | 925 | 1,556 | 1,586 | ||||||||||||
Total operating expenses | 3,686 | 3,624 | 6,906 | 6,325 | ||||||||||||
Income (loss) from operations | 4,570 | (279 | ) | 8,498 | (1,394 | ) | ||||||||||
Other income (expense): | ||||||||||||||||
Gain on sale of assets | - | - | 12,779 | - | ||||||||||||
Interest income | 25 | - | 28 | 1 | ||||||||||||
Interest expense | (1 | ) | - | (1 | ) | (1 | ) | |||||||||
Other income, net | 24 | - | 12,806 | - | ||||||||||||
Net income (loss) before income tax | 4,594 | (279 | ) | 21,304 | (1,394 | ) | ||||||||||
Provision for income taxes | 1,070 | - | 1,718 | - | ||||||||||||
Net income (loss) | $ | 3,524 | $ | (279 | ) | $ | 19,586 | $ | (1,394 | ) |
15
Three months ended June 30, 2022 compared to the three months ended June 30, 2021
Revenues. Revenues were $12.1 million for the three months ended June 30, 2022 compared to $5.4 million for the three months ended June 30, 2021, an increase of 124.1% or $6.7 million. The increase was primarily driven by the higher number of units sold in the 2022 quarter, service revenue on installed units and the impact of COVID-19 in the three months ended June 30, 2021.
Cost of sales. Cost of sales was $3.8 million for the three months ended June 30, 2022 compared to $2.1 million for the three months ended June 30, 2021, an increase of $1.7 million, or 81.0%. The increase in cost of sales was primarily related to the increase in sales in the three months ended June 30, 2022.
Gross profit. Gross profit was $8.3 million for the three months ended June 30, 2022 compared to $3.3 million for the three months ended June 30, 2021, an increase of $5.0 million, or 152%. Our overall gross profit percentage was 68.6% in the three months ended June 30, 2022 compared to 61.1% in the corresponding period in 2021. The increase in gross profit was primarily driven by the higher number of units sold in 2022, service revenue on installed units, and the impact of COVID-19 in the three months ended June 30, 2021.
Selling and marketing. Selling and marketing expense was $1.7 million for the three months ended June 30, 2022 compared to $1.3 million for the three months ended June 30, 2021, an increase of $0.4 million, or 30.8%. The increase was primarily attributable to an increase in tradeshow expense, advertising expense and commissions offset by other marketing expenses.
General and administrative. General and administrative expense was $1.1 million for the three months ended June 30, 2022 compared to $1.4 million for the three months ended June 30, 2021, a decrease of $0.3 million, or 21.4%. The net decrease in general and administrative expense was primarily due to higher legal and professional fees in 2021.
Research and development. Research and development expense was $0.8 million for the three months ended June 30, 2022 compared to $0.9 million for the three months ended June 30, 2021, a decrease of $0.1 million, or 11.1%.
Six months ended June 30, 2022 compared to the six months ended June 30, 2021
Revenues. Revenues were $22.4 million for the six months ended June 30, 2022 compared to $8.5 million for the six months ended June 30, 2021, an increase of 163.5% or $13.9 million. The increase was primarily driven by the higher number of units sold in 2022, service revenue on installed units and the impact of COVID-19 in the first six months of 2021.
Cost of sales. Cost of sales was $7.0 million for the six months ended June 30, 2022 compared to $3.6 million for the six months ended June 30, 2021, an increase of $3.4 million, or 94.4%. The increase in cost of sales was commensurate with the increase in sales in the six months ended June 30, 2022.
Gross profit. Gross profit was $15.4 million for the six months ended June 30, 2022 compared to $4.9 million for the six months ended June 30, 2021, an increase of $10.5 million, or 214.3%. Our overall gross profit percentage was 68.8% in the six months ended June 30, 2022 compared to 57.6% in the corresponding period in 2021. The increase in gross profit was primarily driven by the higher number of units sold in 2022, service revenue on installed units, and the impact of COVID-19 in the six months ended June 30, 2021.
Selling and marketing. Selling and marketing expense was $2.9 million for the six months ended June 30, 2022 compared to $2.3 million for the six months ended June 30, 2021, an increase of $0.6 million, or 26.1%. The increase was primarily attributable to an increase in tradeshow expense, advertising expense and commissions offset by other marketing expenses.
General and administrative. General and administrative expense remained unchanged at $2.4 million for the six months ended June 30, 2022 and June 30, 2021.
16
Research and development. Research and development expense remained unchanged at $1.6 million for the six months ended June 30, 2022 and June 30, 2021.
Other income. Other income of $12.8 million is related to the gain on the sale of the Sculptura assets.
Financial Condition
The following discussion summarizes significant changes in assets and liabilities. Please see the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021 contained in Part I, Item 1 of this filing.
Assets
Cash and cash equivalents at June 30, 2022 increased $19.2 million. See Cash Flows for details on the change in cash and cash equivalents during the six months ended June 30, 2022.
Accounts receivable at June 30, 2022 decreased $1.8 million from December 31, 2021, primarily due to collection of receivables offset by an increase in sales of units in the six months ended June 30, 2022.
Inventories at June 30, 2022 decreased $74 thousand from December 31, 2021, primarily due to increase in purchases of finished goods offset by shipments of units sold in the six months ended June 30, 2022.
Liabilities
There were no borrowings under our revolving line of credit at June 30, 2022 or December 31, 2021.
Liquidity and Capital Resources
The Company’s liquidity position and capital requirements may be impacted by a number of factors, including the following:
● | ability to generate and increase revenue; |
● | fluctuations in gross margins, operating expenses and net results; and |
● | fluctuations in working capital. |
The Company’s primary short-term capital needs, which are subject to change, include expenditures related to:
● | expansion of sales and marketing activities; and |
● | expansion of research and development activities. |
Sensus management regularly evaluates cash requirements for current operations, commitments, capital requirements and business development transactions. Given our ability to borrow under our revolving credit facility and other factors, management anticipates that the Company will be able to satisfy its cash requirements for these purposes; however, it may seek to raise additional funds for these or other purposes in the future.
17
Cash flows
The following table provides a summary of cash flows for the periods indicated:
For the Six Months Ended | ||||||||
June 30, | ||||||||
(in thousands) | 2022 | 2021 | ||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | 4,978 | $ | 241 | ||||
Investing activities | 14,911 | 170 | ||||||
Financing activities | (705 | ) | (114 | ) | ||||
Total | $ | 19,184 | $ | 297 |
Net cash provided by operating activities was approximately $5.0 million for the six months ended June 30, 2022, consisting of net income of approximately $19.6 million and an increase in net operating assets of approximately $2.9 million, offset by non-cash charges of approximately $11.7 million. Cash flows provided by operating activities primarily include the receipt of revenues offset by the payment of operating expenses incurred in the normal course of business. Non-cash charges consisted of a gain on asset sale (see Note 2, Dispositions, for more information), stock compensation expense, depreciation and amortization, a warranty provision, and impairment of intangible assets. Net cash provided in operating activities was $0.2 million for the six months ended June 30, 2021, consisting of a net loss of $1.4 million and an increase in net operating assets of $0.9 million and non-cash charges of $0.7 million. Cash flows used in operating activities consist primarily of revenues, offset by the payment of operating expenses incurred in the normal course of business, including year-end incentive compensation accrued for in the prior year.
Net cash provided by investing activities for the six months ended June 30, 2022 reflected $15 million of proceeds from the sale of assets, partially offset by purchases of property and equipment. Net cash provided by investing activities for the six months ended June 30, 2021 reflected approximately $0.2 million of proceeds from the sale of assets, partially offset by purchases of property and equipment.
Net cash used in financing activities for the six months ended June 30, 2022 primarily reflected $1.1 million to repurchase common stock, withholding taxes on stock-based compensation, and loan payable, offset by approximately $0.4 million of exercised stock options. Net cash used in financing activities for the six months ended June 30, 2021 primarily reflected $0.1 million of loan repayments and withholding taxes on stock compensation.
Indebtedness
Please see Note 5, Debt, to the financial statements.
Contractual Obligations and Commitments
Please see Note 9, Commitments and Contingencies, to the financial statements.
Critical Accounting Policies and Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting periods. Actual results could differ significantly from those estimates. For a summary of these and additional accounting policies see Note 1, Organization and Summary of Significant Accounting Policies, to the financial statements. In addition, see Critical Accounting Policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1, Organization and Summary of Significant Accounting Policies, in the 2021 Annual Report for further information.
18
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Control and Procedures
As of June 30, 2022, 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 June 30, 2022, 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.
19
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 8, 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 2021 Annual Report, as updated in our subsequent quarterly reports. The risks described in our 2021 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 six months ended June 30, 2022.
(b) Use of Proceeds from the Sale of Registered Securities
None.
(c) Purchases of Equity Securities by the Registrant and Affiliated Purchases.
In March 2022, the Company announced that its Board of Directors had authorized a program to purchase up to $3,000,000 of shares of its common stock. Purchases may be made in a variety of methods, including open market, from time to time, depending upon market conditions, including the market price of the common stock, and other factors. The program has no time limit and may be modified, suspended or discontinued at any time.
During the three months ended June 30, 2022, the following repurchases were made:
Total number of shares (or units) | Maximum number (or approximate dollar value) | |||||||||||||||
Total number of | Average price | purchased as part of publicly | of shares (or units) that may yet be purchased | |||||||||||||
shares repurchased | paid per share | announced plans or programs | under the plans or programs | |||||||||||||
April 1, 2022 to April 30, 2022 | - | $ | - | - | $ | 3,000,000 | ||||||||||
May 1, 2022 to May 31, 2022 | 125,823 | $ | 7.89 | 125,823 | $ | 2,007,568 | ||||||||||
June 1, 2022 to June 30, 2022 | 700 | $ | 7.46 | 700 | $ | 2,002,346 | ||||||||||
Total | 126,523 | $ | 7.89 | 126,523 |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
None.
20
Item 6. Exhibits
21
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: August 12, 2022 | /s/ Joseph C. Sardano |
Joseph C. Sardano | |
Chief Executive Officer | |
(Principal Executive Officer) | |
Date: August 12, 2022 | /s/ Javier Rampolla |
Javier Rampolla | |
Chief Financial Officer | |
(Principal Financial Officer
and Principal Accounting Officer) |
22
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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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: August 12, 2022 | /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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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: August 12, 2022 | /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, the undersigned certificates that:
(1) the Quarterly Report for Sensus Healthcare, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2022, 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 | |
August 12, 2022 |
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, the undersigned certificates that:
(1) the Quarterly Report for Sensus Healthcare, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2022, 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 | |
August 12, 2022 |
Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares |
Jun. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | ||
Preferred stock, shares outstanding | ||
Common stock, par value (in Dollars per share) | $ 0.01 | $ 0.01 |
Common stock, authorized | 50,000,000 | 50,000,000 |
Common stock share issued | 16,761,811 | 16,694,311 |
Common stock shares outstanding | 16,556,025 | 16,617,274 |
Treasury stock, shares | 205,786 | 77,037 |
Organization and Summary of Significant Accounting Policies |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Note 1 — Organization and Summary of Significant Accounting Policies
Description of the Business
Sensus Healthcare, Inc. (together, with its subsidiary, unless the context otherwise indicates, “Sensus” or the “Company”) is a manufacturer of radiation therapy devices and sells the devices to healthcare providers and distributors globally through its distribution network. The Company operates in one segment from its corporate headquarters located in Boca Raton, Florida.
Basis of Presentation and Principles of Consolidation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its subsidiary. Accounts and transactions between consolidated entities have been eliminated.
Revenue Recognition
The Company’s revenue derives 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.
The revenues from the 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 warranty expires, the Company recognizes revenue when the service is rendered.
The Company has determined that in practice no significant discount is given on the service contract when it is offered with the device purchase as compared to when it is sold on a stand-alone basis. The service level provided is identical whether the service contract is purchased on a stand-alone basis or together with the device. There is no termination provision in the service contract nor any penalties in practice for cancellation of the service contract.
Disaggregated revenue for the three and six months ended June 30, 2022 and 2021 was as follows:
The Company operates in a highly regulated environment, primarily in the U.S. dermatology market, in which state regulatory approval is sometimes required before the customer is able to use the product. In cases where such regulatory approval is pending, revenue is deferred until such time as regulatory approval is obtained.
Deferred revenue as of June 30, 2022 was as follows:
The Company does not disclose information about remaining performance obligations with original expected durations of one year or less in connection with deposits for products. Estimated service revenue to be recognized in the future related to the performance obligations that are fully or partially unsatisfied as of June 30, 2022 is as follows:
Shipping and handling costs are expensed as incurred and are included in cost of sales.
Segment and Geographical Information
The following table illustrates total revenue for the three and six months ended June 30, 2022 and 2021 by geographic region.
One customer in the U.S. accounted for approximately 78% and 44% of total revenue for the three months ended June 30, 2022 and 2021, respectively; approximately 77% and 30% for the six months ended June 30, 2022 and 2021, respectively; and 95% and 51% of the accounts receivable as of June 30, 2022 and December 31, 2021, respectively.
Fair Value of Financial Instruments
Carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value due to their 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 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 when 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 3 Inputs:
Unobservable inputs for the valuation of the asset or liability, which may include nonbinding broker quotes. Level 3 assets include investments for which there is little, if any, market activity. These inputs require significant management judgment or estimation.
Significance of Inputs: The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of cash, money market funds, and short-term, highly liquid investments with original maturities of three months or less.
For purposes of the statements of cash flows, the Company considers all highly liquid financial instruments with a maturity of three months or less when purchased to be cash equivalents.
Accounts Receivable
The Company does business and extends credit based on an evaluation of each customer’s financial condition, generally without requiring collateral. Exposure to losses on receivables varies by customer, primarily due to the customer’s financial condition. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The allowance for doubtful accounts was approximately $69 thousand as of both June 30, 2022 and December 31, 2021.
Inventories
Inventories consist of finished product and components and are stated at the lower of cost or net realizable value, determined using the first-in-first-out method. The Company periodically reviews the value of items in inventory and reserves for inventory based on its assessment of market conditions. The reserve is charged to cost of goods sold. The reserve for inventory obsolescence was $18 thousand at June 30, 2022 and December 31, 2021.
Earnings Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income per share is computed by giving effect to all potential dilutive common share equivalents outstanding for the period, using the treasury stock method for options and unvested restricted shares. In periods when the Company has incurred a net loss, options and unvested shares are considered common share equivalents but have been excluded from the calculation of diluted net loss per share as their effect is antidilutive. Shares excluded were as follows:
The factors used in the earnings per share computation are as follows:
Leases
The Company evaluates arrangements at inception to determine if an arrangement is or contains a lease. Operating lease assets represent the Company’s right to use an underlying asset for the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the options. To determine the present value of the lease payment, the Company uses an incremental borrowing rate that the Company would expect to incur for a fully collateralized loan over a similar term under similar economic conditions. In addition, the Company has elected available practical expedients to not separate lease and non-lease components for all leased assets and to exclude leases with an initial term of 12 months or less.
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.
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 Pronouncement
In March 2020, the FASB issued 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 LIBOR to alternative reference rates, such as 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 is effective prospectively as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years. This update is not expected to have a significant impact on the Company’s financial statements. |
Disposition |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||
DISPOSITION | Note 2 — Disposition
On February 25, 2022, the Company sold its Sculptura assets for $15 million in cash. The sale price was allocated to the existing assets and liabilities based on the book value at the date of the transaction. A summary of the assets and liabilities sold is as follows:
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Property and Equipment |
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PROPERTY AND EQUIPMENT | Note 3 — Property and Equipment
Depreciation expense was approximately $50 thousand and $112 thousand for the three months ended June 30, 2022 and 2021, respectively, and approximately $118 thousand and $289 thousand for the six months ended June 30, 2022 and 2021, respectively. |
Intangibles |
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Intangibles [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLES | Note 4 — Intangibles
Accumulated amortization was $1,176 thousand and $1,128 thousand at June 30, 2022 and December 31, 2021, respectively. |
Debt |
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Jun. 30, 2022 | |
Debt Disclosure [Abstract] | |
DEBT | Note 5 — Debt
The Company has a revolving credit facility that, as of June 30, 2022, provided for maximum borrowings equal to the lesser of (a) the $10 million commitment amount or (b) the borrowing base plus a $3 million non-formula sublimit. In April 2022, the term was extended to April 1, 2024, and the maximum borrowings were increased to the lesser of (a) the $15 million commitment amount or (b) the borrowing base plus a $7.5 million non-formula sublimit. The Company was in compliance with its financial covenants as of June 30, 2022 and December 31, 2021. There were no borrowings outstanding under the revolving credit facility at June 30, 2022 or December 31, 2021. |
Product Warranties |
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Product Warranties [Abstract] | ||||||||||||||||||||||||||
PRODUCT WARRANTIES | Note 6 — Product Warranties
Changes in product warranty liability were as follows for the three months ended June 30, 2022:
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Leases |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases | Note 7 — Leases
Operating Lease Agreements
The Company leases its headquarters office from an unrelated third party. The lease was last renewed in 2016 and expires in September 2022 with an option to extend with prior notice upon terms to be negotiated. On April 7, 2022, the Company renewed the headquarters office lease through September 2027.
With the renewal, the present value of the right of use lease assets (“ROU”) and operating lease liability at the renewal of the lease was $1,156 thousand using an incremental borrowing rate of 5% as imputed interest. The amortization of the ROU was $51 thousand and $77 thousand for the three months ended June 30, 2022 and 2021, respectively, and $103 thousand and $153 thousand for the six months ended June 30, 2022 and 2021, respectively.
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of June 30, 2022.
(in thousands)
Cash paid for amounts included in the present value of operating lease liabilities was approximately $97 thousand and $331 thousand for the six months ended June 30, 2022 and the year ended December 31, 2021, respectively, and is included in cash flows from operating activities in the accompanying consolidated statement of cash flows.
Operating lease cost was approximately $60 thousand and $88 thousand for the three months ended June 30, 2022 and 2021, respectively, and $123 thousand and $176 thousand for the six months ended June 30, 2022 and 2021, respectively. The financing component for operating lease obligations represents the effect of discounting the operating lease payments to their present value. |
Stockholders' Equity |
6 Months Ended |
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Jun. 30, 2022 | |
Stockholders' Equity Note [Abstract] | |
Stockholders' Equity | Note 8 — Stockholders’ Equity
Preferred Stock
The Company has authorized 5 million shares of preferred stock. There are no issued or outstanding shares at June 30, 2022 and December 31, 2021.
Common Stock
During the six months ended June 30, 2022, the Company issued 67,500 shares of common stock upon the exercise of stock options with an exercise price of $5.55.
Treasury stock
Treasury stock includes shares surrendered by employees for tax withholding on the vesting of restricted stock awards. In the second quarter of 2022, the Company repurchased 126,523 shares in open market transactions at prices per share ranging from $7.46 to $8.36. The total cost of the repurchased shares was approximately $1 million. Pending a decision on the ultimate disposition of these shares, they are recorded as treasury stock at cost. |
Commitments and Contingencies |
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Jun. 30, 2022 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | Note 9 — Commitments and Contingencies
Manufacturing Agreement
In 2010, the Company entered into a three-year contract manufacturing agreement with an unrelated third party for the production and manufacture of the SRT-100 (and subsequently the SRT-100 Vision and the SRT-100 Plus), in accordance with the Company’s product specifications. The agreement renews for successive one-year periods unless either party notifies the other party in writing, at least 60 days prior to the anniversary date of the agreement, that it will not renew the agreement. The Company or the manufacturer may also terminate the agreement upon 90 days’ prior written notice. As of June 30, 2022, the agreement is still in effect.
Purchases from this manufacturer totaled approximately $3.5 million and $87 thousand for the three months ended June 30, 2022 and 2021, respectively, and approximately $6.8 million and $398 thousand for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and December 31, 2021, approximately $2.1 million and $1.2 million, respectively, was due to this manufacturer, which is presented in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.
Legal Contingencies
The Company is a party to certain legal proceedings in the ordinary course of business. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and related contingencies.
In 2015, the Company learned that the Department of Justice (the “Department”) had commenced an investigation of the billing to Medicare by a physician who had treated patients with the Company’s SRT-100. The Department subsequently advised the Company that it was considering expanding the investigation to determine whether the Company had any involvements in physician’s use of certain reimbursements codes. The Company has received two Civil Investigative Demands from the Department seeking documents and written responses in connection with its investigation. The Company has fully cooperated with the Department. The Company disputes that it has engaged in any wrongdoing with respect to such reimbursement claims; among other things, the Company does not submit claims for reimbursement or provide coding or billing advice to physicians. To the Company’s knowledge, the Department has made no determination as to whether the Company engaged in any wrongdoing, or whether to pursue any legal action against the Company. Should the Department decide to pursue legal action, the Company believes it has strong and meritorious defenses and will vigorously defend itself. As of June 30, 2022, the Company is unable to estimate the cost associated with this matter. |
Stock-Based Compensation |
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STOCK-BASED COMPENSATION | Note 10 — STOCK-BASED COMPENSATION
2016 and 2017 Equity Incentive Plans
Awards for up to 397,473 shares of common stock may be granted under the Company’s 2016 Equity Incentive Plan, and awards for up to 500,000 shares may be granted under its 2017 Equity Incentive Plan. The awards may be made in the form of restricted stock awards or stock options, among other things. As of June 30, 2022, 135,973 shares are available to be granted in the plans.
Restricted Stock
On February 1, 2020, a total of 35,000 shares of restricted stock were issued to employees and were recorded at the fair value of $4.11 per share. The restricted shares vest 25% per year over a four-year time vesting period and are being recognized as expense on a straight-line basis over the vesting period of the awards.
On July 21, 2021, a total of 130,000 shares of restricted stock were issued to employees and board members and were recorded at the fair value of $3.84 per share. The restricted shares vest 25% at grant date and 25% per year over a three-year vesting period and are being recognized as expense on a straight-line basis over the vesting period of the awards.
Restricted stock activity for the six months ended June 30, 2022 is summarized below:
The Company recognizes forfeitures as they occur rather than estimating a forfeiture rate. The reduction of stock compensation expense related to the forfeitures was $0 for the six months ended June 30, 2022 and 2021.
Unrecognized stock compensation expense was approximately $307 thousand as of June 30, 2022, which will be recognized over a weighted average period of 2 years.
Stock Options
Stock options expire 10 years after the grant date. Options that have been granted are exercisable and vest based on the terms on the related agreements. The following table summarizes the Company’s stock option activity:
The stock options had an intrinsic value of $345 thousand and $382 thousand as of June 30, 2022 and December 31, 2021, respectively.
Stock compensation expense related to restricted stock and stock options was approximately $40 thousand and $59 thousand for the three months ended June 30, 2022 and 2021, respectively, and approximately $97 thousand and $119 thousand for the six months ended June 30, 2022 and 2021, respectively. |
Income Taxes |
6 Months Ended |
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Jun. 30, 2022 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | Note 11 — 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 period, disclosure and transition.
As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.
As of December 31, 2021, the deferred tax assets were primarily the result of U.S. net operating loss and tax credit carryforwards. A valuation allowance of $3.7 million was recorded against the deferred tax asset balance as of December 31, 2021.
During the three months ended March 31, 2022, in part because the Company achieved three years of cumulative pretax income for purposes of U.S. federal tax, management determined that there was sufficient positive evidence to conclude that it is more likely than not that deferred taxes are realizable. For the three and six months ended June 30, 2022, the Company recorded net valuation allowance releases of $0 and $3.7 million, respectively, on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized.
Income tax expense was $1.1 million and $0 for the three months ended June 30, 2022 and 2021, respectively, and $1.7 million and $0 for the six months ended June 30, 2022 and 2021, respectively.
The effective tax rate for the three and six months ended June 30, 2022 was 23.3% and 8.07%, respectively. The tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income the Company earns in those jurisdictions, which are expected to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. The items that had the most significant impact on the difference between the statutory U.S. federal income tax rate of 21% and the effective tax rate for the three months ended June 30, 2022 were the favorable impact of credits and state rate changes, the release of the valuation allowance during the quarter, and the difference in statutory rates in foreign jurisdictions. The items that had the most significant impact on the difference between the statutory U.S. federal income tax rate of 21% and the effective tax rate for the six months ended June 30, 2022 were the favorable impact of credits and state rate changes and the difference in statutory rates in foreign jurisdictions.
As of June 30, 2022, the Company has U.S. federal and certain state tax returns subject to examination, beginning with those filed for the year ended December 31, 2018. |
Subsequent Events |
6 Months Ended |
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Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | Note 12 — 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. |
Accounting Policies, by Policy (Policies) |
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Description of the Business | Description of the Business
Sensus Healthcare, Inc. (together, with its subsidiary, unless the context otherwise indicates, “Sensus” or the “Company”) is a manufacturer of radiation therapy devices and sells the devices to healthcare providers and distributors globally through its distribution network. The Company operates in one segment from its corporate headquarters located in Boca Raton, Florida.
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Basis of Presentation and Principles of Consolidation | Basis of Presentation and Principles of Consolidation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its subsidiary. Accounts and transactions between consolidated entities have been eliminated.
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Revenue Recognition | Revenue Recognition
The Company’s revenue derives 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.
The revenues from the 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 warranty expires, the Company recognizes revenue when the service is rendered.
The Company has determined that in practice no significant discount is given on the service contract when it is offered with the device purchase as compared to when it is sold on a stand-alone basis. The service level provided is identical whether the service contract is purchased on a stand-alone basis or together with the device. There is no termination provision in the service contract nor any penalties in practice for cancellation of the service contract.
Disaggregated revenue for the three and six months ended June 30, 2022 and 2021 was as follows:
The Company operates in a highly regulated environment, primarily in the U.S. dermatology market, in which state regulatory approval is sometimes required before the customer is able to use the product. In cases where such regulatory approval is pending, revenue is deferred until such time as regulatory approval is obtained.
Deferred revenue as of June 30, 2022 was as follows:
The Company does not disclose information about remaining performance obligations with original expected durations of one year or less in connection with deposits for products. Estimated service revenue to be recognized in the future related to the performance obligations that are fully or partially unsatisfied as of June 30, 2022 is as follows:
Shipping and handling costs are expensed as incurred and are included in cost of sales.
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Segment and Geographical Information | Segment and Geographical Information
The following table illustrates total revenue for the three and six months ended June 30, 2022 and 2021 by geographic region.
One customer in the U.S. accounted for approximately 78% and 44% of total revenue for the three months ended June 30, 2022 and 2021, respectively; approximately 77% and 30% for the six months ended June 30, 2022 and 2021, respectively; and 95% and 51% of the accounts receivable as of June 30, 2022 and December 31, 2021, respectively.
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Fair Value of Financial Instruments | Fair Value of Financial Instruments
Carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value due to their relatively short maturities.
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Fair Value Measurements | 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 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 when 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 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.
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Cash and Cash Equivalents | Cash and Cash Equivalents
Cash and cash equivalents primarily consist of cash, money market funds, and short-term, highly liquid investments with original maturities of three months or less.
For purposes of the statements of cash flows, the Company considers all highly liquid financial instruments with a maturity of three months or less when purchased to be cash equivalents.
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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 varies by customer, primarily due to the customer’s financial condition. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The allowance for doubtful accounts was approximately $69 thousand as of both June 30, 2022 and December 31, 2021.
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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. The Company periodically reviews the value of items in inventory and reserves for inventory based on its assessment of market conditions. The reserve is charged to cost of goods sold. The reserve for inventory obsolescence was $18 thousand at June 30, 2022 and December 31, 2021.
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Earnings Per Share | Earnings Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income per share is computed by giving effect to all potential dilutive common share equivalents outstanding for the period, using the treasury stock method for options and unvested restricted shares. In periods when the Company has incurred a net loss, options and unvested shares are considered common share equivalents but have been excluded from the calculation of diluted net loss per share as their effect is antidilutive. Shares excluded were as follows:
The factors used in the earnings per share computation are as follows:
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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 the options. To determine the present value of the lease payment, the Company uses an incremental borrowing rate that the Company would expect to incur for a fully collateralized loan over a similar term under similar economic conditions. In addition, the Company has elected available practical expedients to not separate lease and non-lease components for all leased assets and to exclude leases with an initial term of 12 months or less.
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.
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Income Taxes | 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.
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Recent Accounting pronouncement | Recent Accounting Pronouncement
In March 2020, the FASB issued 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 LIBOR to alternative reference rates, such as 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 is effective prospectively as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years. This update is not expected to have a significant impact on the Company’s financial statements. |
Organization and Summary of Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of disaggregated revenue |
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Schedule of deferred revenue |
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Schedule of estimated service revenue to be recognized |
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Schedule of illustrates total revenue |
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Schedule of Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Table Text Block] |
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Schedule of earnings per share computation |
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Disposition (Tables) |
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Schedule of the assets and liabilities sold |
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Property and Equipment (Tables) |
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Schedule of property and equipment |
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Intangibles (Tables) |
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Schedule of intangible assets |
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Product Warranties (Tables) |
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Schedule of changes in product warranty liability |
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Leases (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of operating leases |
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Stock-Based Compensation (Tables) |
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of restricted stock activity |
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Schedule of stock option activity |
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Organization and Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
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Organization and Summary of Significant Accounting Policies (Details) [Line Items] | |||||
Percentage of accounts receivable | 95.00% | 95.00% | 51.00% | ||
Allowance for doubtful accounts receivable, current (in Dollars) | $ 69 | $ 69 | |||
Reserve for inventory obsolescence (in Dollars) | $ 18 | $ 18 | |||
U.S. [Member] | Customer [Member] | |||||
Organization and Summary of Significant Accounting Policies (Details) [Line Items] | |||||
Total revenue, percentage | 78.00% | 44.00% | 77.00% | 30.00% |
Organization and Summary of Significant Accounting Policies (Details) - Schedule of deferred revenue $ in Thousands |
6 Months Ended |
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Jun. 30, 2022
USD ($)
| |
Organization and Summary of Significant Accounting Policies (Details) - Schedule of deferred revenue [Line Items] | |
Balance, beginning of period | $ 1,434 |
Revenue recognized | (2,200) |
Amounts invoiced | 2,130 |
Balance, end of period | 1,364 |
Product [Member] | |
Organization and Summary of Significant Accounting Policies (Details) - Schedule of deferred revenue [Line Items] | |
Balance, beginning of period | 97 |
Revenue recognized | (506) |
Amounts invoiced | 879 |
Balance, end of period | 470 |
Service [Member] | |
Organization and Summary of Significant Accounting Policies (Details) - Schedule of deferred revenue [Line Items] | |
Balance, beginning of period | 1,337 |
Revenue recognized | (1,694) |
Amounts invoiced | 1,251 |
Balance, end of period | $ 894 |
Organization and Summary of Significant Accounting Policies (Details) - Schedule of estimated service revenue to be recognized $ in Thousands |
Jun. 30, 2022
USD ($)
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Schedule of estimated service revenue to be recognized [Abstract] | |
2022 (July 1 – December 31, 2022) | $ 513 |
2023 | 257 |
2024 | 81 |
2025 | 23 |
2026 | 20 |
Total | $ 894 |
Organization and Summary of Significant Accounting Policies (Details) - Schedule of illustrates total revenue - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
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Segment Reporting Information [Line Items] | ||||
Total revenue | $ 12,080 | $ 5,422 | $ 22,417 | $ 8,492 |
Total revenue, percentage | 100.00% | 100.00% | 100.00% | 100.00% |
United States [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Total revenue | $ 11,349 | $ 4,803 | $ 21,497 | $ 7,718 |
Total revenue, percentage | 94.00% | 89.00% | 96.00% | 91.00% |
China [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Total revenue | $ 711 | $ 614 | $ 890 | $ 769 |
Total revenue, percentage | 6.00% | 11.00% | 4.00% | 9.00% |
Other [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Total revenue | $ 20 | $ 5 | $ 30 | $ 5 |
Total revenue, percentage | 0.00% | 0.00% | 0.00% | 0.00% |
Organization and Summary of Significant Accounting Policies (Details) - Schedule of diluted net loss per share - shares |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
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Schedule of diluted net loss per share [Abstract] | ||||
Shares | 277 | 257 |
Organization and Summary of Significant Accounting Policies (Details) - Schedule of earnings per share computation - Earnings Per Share [Member] - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
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Basic | ||||
Net income (in Dollars) | $ 3,524 | $ 19,586 | ||
Weighted average common shares outstanding | 16,495 | 16,509 | ||
Basic earnings per share (in Dollars per share) | $ 0.21 | $ 1.19 | ||
Diluted | ||||
Net income (in Dollars) | $ 3,524 | $ 19,586 | ||
Weighted average common shares outstanding | 16,495 | 16,509 | ||
Dilutive effects of: | ||||
Assumed exercise of stock options | 60 | 127 | ||
Restricted stock awards | 76 | 75 | ||
Dilutive shares | 16,631 | 16,711 | ||
Diluted earnings per share (in Dollars per share) | $ 0.21 | $ 1.17 |
Disposition (Details) $ in Millions |
Feb. 25, 2022
USD ($)
|
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Discontinued Operations and Disposal Groups [Abstract] | |
Assets sold in cash | $ 15 |
Disposition (Details) - Schedule of the assets and liabilities sold $ in Thousands |
6 Months Ended |
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Jun. 30, 2022
USD ($)
| |
Schedule of the assets and liabilities sold [Abstract] | |
Cash | $ 15,000 |
Inventory | (1,401) |
Property and equipment | (157) |
Other liabilities | (663) |
Gain on asset sale | $ 12,779 |
Property and Equipment (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
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Property and Equipment [Abstract] | ||||
Depreciation expense | $ 50 | $ 112 | $ 118 | $ 289 |
Property and Equipment (Details) - Schedule of property and equipment - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 30, 2022 |
Dec. 31, 2021 |
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Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | $ 2,431 | $ 2,816 |
Less accumulated depreciation | (2,011) | (2,211) |
Property and Equipment, Net | 420 | 605 |
Operations equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | $ 1,302 | 1,760 |
Property, plant and equipment, estimated useful Life | 3 years | |
Tradeshow and demo equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | $ 985 | 927 |
Property, plant and equipment, estimated useful Life | 3 years | |
Computer equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | $ 144 | $ 129 |
Property, plant and equipment, estimated useful Life | 3 years |
Intangibles (Details) - USD ($) $ in Thousands |
Jun. 30, 2022 |
Dec. 31, 2021 |
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Intangibles [Abstract] | ||
Accumulated amortization | $ 1,176 | $ 1,128 |
Intangibles (Details) - Schedule of intangible assets $ in Thousands |
6 Months Ended |
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Jun. 30, 2022
USD ($)
| |
Finite-Lived Intangible Assets [Line Items] | |
Beginning balance | $ 146 |
Amortization expense | (48) |
Ending balance | 98 |
Patent Rights [Member] | |
Finite-Lived Intangible Assets [Line Items] | |
Beginning balance | 145 |
Amortization expense | (48) |
Ending balance | 97 |
Customer Relationships [Member] | |
Finite-Lived Intangible Assets [Line Items] | |
Beginning balance | 1 |
Amortization expense | |
Ending balance | $ 1 |
Debt (Details) |
6 Months Ended |
---|---|
Jun. 30, 2022 | |
Debt Disclosure [Abstract] | |
Revolving credit facility, description | The Company has a revolving credit facility that, as of June 30, 2022, provided for maximum borrowings equal to the lesser of (a) the $10 million commitment amount or (b) the borrowing base plus a $3 million non-formula sublimit. In April 2022, the term was extended to April 1, 2024, and the maximum borrowings were increased to the lesser of (a) the $15 million commitment amount or (b) the borrowing base plus a $7.5 million non-formula sublimit. |
Product Warranties (Details) - Schedule of changes in product warranty liability $ in Thousands |
6 Months Ended |
---|---|
Jun. 30, 2022
USD ($)
| |
Schedule of changes in product warranty liability [Abstract] | |
Balance, beginning of period | $ 508 |
Warranties accrued during the period | 63 |
Payments on warranty claims | (256) |
Balance, end of period | $ 315 |
Leases (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | 15 Months Ended | ||
---|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
Jun. 30, 2022 |
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Leases [Abstract] | ||||||
Operating lease liability renewal | $ 1,156 | $ 1,156 | $ 1,156 | |||
Borrowing rate interest | 5.00% | |||||
Amortization | 51 | $ 103 | $ 153 | $ 77 | ||
Operating lease liabilities | 97 | $ 331 | ||||
Operating lease cost | $ 60 | $ 88 | $ 123 | $ 176 |
Leases (Details) - Schedule of operating leases $ in Thousands |
Jun. 30, 2022
USD ($)
|
---|---|
Schedule of operating leases [Abstract] | |
2022 (July 1 – December 31, 2022) | $ 118 |
2023 | 237 |
2024 | 238 |
2025 | 245 |
2026 | 253 |
Thereafter | 194 |
Total undiscounted operating leases payments | 1,285 |
Less: Imputed interest | (162) |
Present Value of Operating Lease Liabilities | $ 1,123 |
Other Information | |
Weighted-average remaining lease term | 5 years 2 months 12 days |
Weighted-average discount rate | 5.00% |
Stockholders' Equity (Details) - $ / shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2022 |
Dec. 31, 2021 |
|
Stockholders' Equity (Details) [Line Items] | ||
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Repurchased shares | 1,000,000 | |
Common Stock [Member] | ||
Stockholders' Equity (Details) [Line Items] | ||
Exercise of stock options | 67,500 | |
Exercise price (in Dollars per share) | $ 5.55 | |
Treasury Stock [Member] | ||
Stockholders' Equity (Details) [Line Items] | ||
Repurchased shares | 126,523 | |
Minimum [Member] | Treasury Stock [Member] | ||
Stockholders' Equity (Details) [Line Items] | ||
Prices per share (in Dollars per share) | $ 7.46 | |
Maximum [Member] | Treasury Stock [Member] | ||
Stockholders' Equity (Details) [Line Items] | ||
Prices per share (in Dollars per share) | $ 8.36 |
Commitments and Contingencies (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
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Commitments and Contingencies Disclosure [Abstract] | |||||
Purchases from this manufacturer totaled | $ 3.5 | $ 87.0 | $ 6.8 | $ 398.0 | |
Accounts payable and accrued expenses | $ 2.1 | $ 2.1 | $ 1.2 |
Stock-Based Compensation (Details) - Schedule of restricted stock activity |
6 Months Ended |
---|---|
Jun. 30, 2022
$ / shares
shares
| |
Schedule of restricted stock activity [Abstract] | |
Restricted Stock, balance at beginning | shares | 123,750 |
Weighted-Average Grant Date Fair Value, balance at beginning | $ / shares | $ 3.9 |
Restricted Stock, Granted | shares | |
Weighted-Average Grant Date Fair Value, Granted | $ / shares | |
Restricted Stock, Vested | shares | (8,750) |
Weighted-Average Grant Date Fair Value, Vested | $ / shares | $ 4.11 |
Restricted Stock, Forfeited | shares | |
Weighted-Average Grant Date Fair Value, Forfeited | $ / shares | |
Restricted Stock, balance at ending | shares | 115,000 |
Weighted-Average Grant Date Fair Value, balance at ending | $ / shares | $ 3.88 |
Income Taxes (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
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Income Tax Disclosure [Abstract] | |||||
Valuation allowance | $0 | $3.7 | $3.7 | ||
Income tax expense | $ 1.1 | $ 0.0 | $ 1.7 | $ 0.0 | |
Effective tax rate | 23.30% | 8.07% | |||
Statutory U.S. federal income tax rate | 21.00% | 21.00% |
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