Attached files
| file | filename |
|---|---|
| EX-32.2 - EXHIBIT 32.2 - Sensus Healthcare, Inc. | s106050_ex32-2.htm |
| EX-32.1 - EXHIBIT 32.1 - Sensus Healthcare, Inc. | s106050_ex32-1.htm |
| EX-31.2 - EXHIBIT 31.2 - Sensus Healthcare, Inc. | s106050_ex31-2.htm |
| EX-31.1 - EXHIBIT 31.1 - Sensus Healthcare, Inc. | s106050_ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2017
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission File Number: 001-37714
Sensus Healthcare, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 27-1647271 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 851 Broken Sound Pkwy., NW #215, Boca Raton, Florida | 33487 |
| (Address of principal executive office) | Zip Code) |
(561) 922-5808
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emerging growth company”. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ¨ | Accelerated filer | ¨ | Non-accelerated filer | ¨ | Smaller reporting company | x |
| (Do not check if smaller reporting company) |
Emerging growth company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
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. x
As of April 30, 2017, 13,527,168 shares of the Registrant’s Common Stock, $0.01 par value, were outstanding.
SENSUS HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| 2 |
INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “will,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements.
Our ability to achieve our financial objectives could be adversely affected by the factors discussed in detail in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K., as well as:
| · | our ability to achieve and sustain profitability; |
| · | market acceptance of the SRT-100 product line; |
| · | our ability to successfully commercialize our products, including the SRT-100; |
| · | our ability to compete effectively in selling our products and services, including responding to technological change and cost containment efforts of our customers; |
| · | our need and ability to obtain additional financing in the future, as well as complying with the restrictions our existing revolving credit facility imposes; |
| · | our ability to expand, manage and maintain our direct sales and marketing organizations; |
| · | our actual financial results may vary significantly from forecasts and from period to period; |
| · | our ability to successfully develop new products, improve or enhance existing products or acquire complementary products, technologies, services or businesses; |
| · | our ability to obtain and maintain intellectual property of sufficient scope to adequately protect our products, including the SRT-100, and our ability to avoid infringing or otherwise violating the intellectual property rights of third parties; |
| · | market risks regarding consolidation in the healthcare industry; |
| · | the willingness of healthcare providers to purchase our products if coverage, reimbursement and pricing from third party payors for procedures using our products significantly declines; |
| · | the level and availability of government and third party payor reimbursement for clinical procedures using our products; |
| · | our ability to effectively manage our anticipated growth, including hiring and retaining qualified personnel; |
| · | the regulatory requirements applicable to us and our competitors; |
| · | our ability to manufacture our products to meet demand; |
| · | our reliance on third party manufacturers and sole- or single-source suppliers; |
| · | our ability to reduce the per unit manufacturing cost of the SRT-100; |
| · | our ability to efficiently manage our manufacturing processes; |
| · | the regulatory and legal risks, and certain operating risks, that our international operations subject us to; |
| · | off label use of our products; |
| · | the fact that product quality issues or product defects may harm our business; |
| · | the accuracy of our financial statements and accounting estimates, including allowances for accounts receivable and inventory obsolescence; |
| · | any product liability claims; |
| · | limited trading in our shares and the concentration of ownership of our shares; |
| · | cyberattacks and other data breaches and the adverse effect on our reputation; |
| · | new legislation, administrative rules, or executive orders, including those that impact taxes and international trade regulation; |
| · | the provisions in our certificate of incorporation, bylaws, or Delaware law that discourage takeovers or that limit certain disputes to be brought exclusively in the Delaware Court of Chancery; |
| 3 |
| · | geographic concentration of our customers in the U.S. and China; and |
| · | our ability to manage the risk of the foregoing. |
However, other factors besides those listed in Item 1A Risk Factors or discussed in this Form 10-Q also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable law.
| 4 |
Item 1. CONDENSED FINANCIAL STATEMENTS
SENSUS HEALTHCARE, INC.
CONDENSED BALANCE SHEETS
| As of March 31, | As of December 31, | |||||||
| 2017 | 2016 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 3,141,223 | $ | 5,042,477 | ||||
| Accounts receivable, net | 4,220,481 | 3,098,635 | ||||||
| Inventories | 1,537,321 | 1,254,915 | ||||||
| Investment in debt securities | 7,906,370 | 6,462,369 | ||||||
| Prepaid and other current assets | 1,156,995 | 900,722 | ||||||
| Total Current Assets | 17,962,390 | 16,759,118 | ||||||
| Property and Equipment, Net | 507,840 | 433,408 | ||||||
| Patent Rights, Net | 602,412 | 626,509 | ||||||
| Investment in Debt Securities | — | 1,103,773 | ||||||
| Deposits | 24,272 | 24,272 | ||||||
| Total Assets | $ | 19,096,914 | $ | 18,947,080 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 3,321,792 | $ | 2,762,371 | ||||
| Product warranties | 52,303 | 40,481 | ||||||
| Revolving credit facility | 1,500,000 | — | ||||||
| Deferred revenue, current portion | 563,005 | 853,798 | ||||||
| Total Current Liabilities | 5,437,100 | 3,656,650 | ||||||
| Deferred Revenue, Net of Current Portion | 9,166 | 16,251 | ||||||
| Total Liabilities | 5,446,266 | 3,672,901 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, 5,000,000 shares authorized and none issued and outstanding. | — | — | ||||||
| Common stock, $0.01 par value – 50,000,000 authorized and 13,527,168 and 13,546,171 issued and outstanding at March 31, 2017 and December 31, 2016, respectively. | 135,271 | 135,461 | ||||||
| Additional paid-in capital | 22,879,767 | 22,930,975 | ||||||
| Accumulated deficit | (9,364,390 | ) | (7,792,257 | ) | ||||
| Total Stockholders’ Equity | 13,650,648 | 15,274,179 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 19,096,914 | $ | 18,947,080 | ||||
See accompanying notes to the unaudited condensed financial statements.
| 5 |
SENSUS HEALTHCARE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Revenues | $ | 4,354,349 | $ | 3,035,204 | ||||
| Cost of Sales | 1,499,701 | 1,102,370 | ||||||
| Gross Profit | 2,854,648 | 1,932,834 | ||||||
| Operating Expenses | ||||||||
| Selling and marketing | 2,263,481 | 944,122 | ||||||
| General and administrative | 1,043,953 | 685,720 | ||||||
| Research and development | 1,135,426 | 293,404 | ||||||
| Total Operating Expenses | 4,442,860 | 1,923,246 | ||||||
| Income (Loss) From Operations | (1,588,212 | ) | 9,588 | |||||
| Other Income (Expense) | ||||||||
| Interest income | 22,720 | 2,755 | ||||||
| Interest expense | (6,641 | ) | (9,626 | ) | ||||
| Other Income (Expense), net | 16,079 | (6,871 | ) | |||||
| Income (Loss) Before Income Taxes | (1,572,133 | ) | 2,717 | |||||
| Provision for income taxes | - | 636 | ||||||
| Net Income (Loss) | $ | (1,572,133 | ) | $ | 2,081 | |||
| Net Income (Loss) per share – Basic | $ | (0.12 | ) | $ | 0.00 | |||
| – Diluted | $ | (0.12 | ) | $ | 0.00 | |||
| Weighted average number of shares used in computing net income (loss) per share | ||||||||
| – Basic | 13,219,170 | 10,367,883 | ||||||
| – Diluted | 13,219,170 | 10,657,307 | ||||||
See accompanying notes to the unaudited condensed financial statements.
| 6 |
SENSUS HEALTHCARE, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2017
(unaudited)
| Common Stock | Additional | |||||||||||||||||||
| Shares | Amount | Paid-In Capital | Accumulated Deficit | Total | ||||||||||||||||
| December 31, 2016 | 13,546,171 | $ | 135,461 | $ | 22,930,975 | $ | (7,792,257 | ) | $ | 15,274,179 | ||||||||||
| Stock based compensation | 10,000 | 100 | 103,970 | — | 104,070 | |||||||||||||||
| Surrender of shares for tax withholding on stock compensation | (29,003 | ) | (290 | ) | (155,178 | ) | — | (155,468 | ) | |||||||||||
| Net loss | — | — | — | (1,572,133 | ) | (1,572,133 | ) | |||||||||||||
| March 31, 2017 (unaudited) | 13,527,168 | $ | 135,271 | $ | 22,879,767 | $ | (9,364,390 | ) | $ | 13.650,648 | ||||||||||
See accompanying notes to the unaudited condensed financial statements.
| 7 |
SENSUS HEALTHCARE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | (1,572,133 | ) | $ | 2,081 | |||
| Adjustments to reconcile net income (loss) to net cash and cash equivalents used in operating activities: | ||||||||
| Bad debt expense | 169,054 | - | ||||||
| Depreciation and amortization | 94,157 | 84,795 | ||||||
| Provision for product warranties | 80,122 | 734 | ||||||
| Stock based compensation | 104,070 | 1,619 | ||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | (1,290,900 | ) | (250,368 | ) | ||||
| Inventories | (282,406 | ) | 138,269 | |||||
| Prepaid and other current assets | (256,274 | ) | (721,201 | ) | ||||
| Increase (decrease) in: | ||||||||
| Accounts payable and accrued expenses | 559,423 | 250,050 | ||||||
| Deferred revenue | (297,879 | ) | (85,739 | ) | ||||
| Product warranties | (68,300 | ) | (8,855 | ) | ||||
| Total Adjustments | (1,188,933 | ) | (590,696 | ) | ||||
| Net Cash Used In Operating Activities | (2,761,066 | ) | (588,615 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Acquisition of property and equipment | $ | (144,492 | ) | $ | (232,906 | ) | ||
| Investment in debt securities - held to maturity | (1,840,228 | ) | — | |||||
| Investments matured | 1,500,000 | — | ||||||
| Net Cash Used In Investing Activities | (484,720 | ) | (232,906 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Revolving credit facility, net | 1,500,000 | 377,298 | ||||||
| Withholding taxes on stock compensation | (155,468 | ) | — | |||||
| Offering costs | — | 126,254 | ||||||
| Net Cash Provided By Financing Activities | 1,344,532 | 503,552 | ||||||
| Net Decrease in Cash and Cash Equivalents | (1,901,254 | ) | (317,969 | ) | ||||
| Cash and Cash Equivalents – Beginning | 5,042,477 | 5,065,068 | ||||||
| Cash and Cash Equivalents – Ending | $ | 3,141,223 | $ | 4,747,099 | ||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Interest Paid | $ | 6,641 | $ | 7,916 | ||||
| Non Cash Investing and Financing Activities | ||||||||
| Reclassification of Prepaid Offering Costs to APIC | — | 130,629 | ||||||
| Transfer of inventory units to property and equipment | $ | — | $ | 44,854 | ||||
See accompanying notes to the unaudited condensed financial statements.
| 8 |
SENSUS HEALTHCARE, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note 1 — Organization and Summary of Significant Accounting Policies
Description of the Business
Sensus Healthcare, Inc. (the “Company”) is a manufacturer of superficial radiation therapy devices and has established a distribution and marketing network to sell the devices to healthcare providers globally. The Company was organized on May 7, 2010 as a limited liability corporation. On January 1, 2016, the Company completed a corporate conversion pursuant to which Sensus Healthcare, Inc. succeeded to the business of Sensus Healthcare, LLC. The Company operates as one segment from its corporate headquarters located in Boca Raton, Florida.
Initial Public Offering
In June 2016, the Company issued 2,300,000 units in its initial public offering (“IPO”) at a price of $5.50 per unit ($5.25 attributable to the common stock and $0.25 attributable to the warrant), for net proceeds of approximately $10,393,000 after deducting underwriting discounts and commissions of $886,000 and expenses of $1,371,000. Each unit consisted of one share of common stock and a warrant to purchase one share of common stock. Immediately prior to the IPO, all shares of stock then outstanding converted into an aggregate of 10,367,883 shares of common stock following a 241.95-for-one forward stock split approved by the Company’s board of directors. On July 25, 2016, the common stock and warrants included in the units issued in the IPO commenced trading separately under the symbols “SRTS” and “SRTSW,” respectively, and trading of the units under the symbol “SRTSU” was suspended.
Basis of Presentation
The accompanying unaudited condensed financial statements in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and the rules and regulations of the U.S. Securities and Exchange Commission, or SEC. Accordingly, they do not include certain footnotes and financial presentations normally required under accounting principles generally accepted in the United States of America for complete financial statements. The interim financial information is unaudited, but reflects all normal adjustments and accruals which are, in the opinion of management, considered necessary to provide a fair presentation for the interim periods presented. The accompanying condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2016 included in the Company’s Form 10-K, filed with the SEC. The results for the three months ended March 31, 2017 are not necessarily indicative of results to be expected for the year ending December 31, 2017, any other interim periods, or any future year or period.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates to which it is reasonably possible that a change could occur in the near term include, revenue recognition, inventory reserves, receivable allowances, recoverability of long lived assets and estimation of the Company’s product warranties. Actual results could differ from those estimates.
Revenue Recognition
The Company’s sales primarily relate to sales of the Company’s devices. The Company recognizes product revenue upon shipment provided that there is persuasive evidence of an arrangement, there are no uncertainties regarding customer acceptance, the sales price is fixed and determinable, and collection of the resulting receivable is reasonably assured. The Company does not provide a right of return related to product sales. Revenues for service contracts are recognized over the service contract period on a straight-line basis. Revenue for rentals of equipment is recognized over the lease term on a straight-line basis.
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The Company sells products and services under multiple-element arrangements with separate units of accounting; in these situations, total consideration is allocated to the identified units of accounting based on their relative selling prices and revenue is then recognized for each unit based on its specific characteristics. A deliverable in an arrangement qualifies as a separate unit of accounting if the delivered item has value to the customer on a stand-alone basis. The principal deliverables in our multiple deliverable arrangements that qualify as separate units of accounting consist of (i) sales of medical devices and accessories and (ii) service contracts. Performance obligations, including installation and customer training, are considered inconsequential and are combined with the product as one unit of accounting. Selling prices are established using vendor-specific objective evidence (VSOE).
If VSOE does not exist, the Company uses its best estimate of the selling prices for the deliverables. The Company operates in a highly-regulated environment and is continually entering into new markets in which regulatory approval is sometimes required prior to the customer being able to use the product. In these cases, where regulatory approval is pending, revenue is deferred until such time as regulatory approval is obtained and customer acceptance becomes certain.
Deferred revenue consists of payments from customers for long term separately priced service contracts, sales pending regulatory approval and deposits on products. Deferred revenue as of March 31, 2017 and December 31, 2016 was as follows:
| As of March 31, | As of December 31, | |||||||
| 2017 | 2016 | |||||||
| (unaudited) | ||||||||
| Service contracts | $ | 527,943 | $ | 613,374 | ||||
| Sales pending regulatory approval | - | 155,517 | ||||||
| Deposits on products | 35,062 | 84,907 | ||||||
| Total deferred revenue, current portion | $ | 563,005 | $ | 853,798 | ||||
| Service contracts, net of current portion | 9,166 | 16,251 | ||||||
| Total deferred revenue | $ | 572,171 | $ | 870,049 | ||||
The Company provides warranties, generally for one year, in conjunction with the sale of its product. These warranties are short term in nature and entitle the customer to repair, replacement, or modification of the defective product subject to the terms of the respective warranty. The Company records an estimate of future warranty claims at the time the Company recognizes revenue from the sale of the product based upon management’s estimate of the future claims rate.
Shipping and handling costs are expensed as incurred and are included in cost of sales.
Segment and Geographical Information
The Company’s revenue is generated primarily from customers in the United States, which represented approximately 99% and 45% for the three months ended March 31, 2017 and 2016, respectively. Customers in China accounted for approximately 0% and 20% for the three months ended March 31, 2017 and 2016, respectively. A customer in the US accounted for approximately 51% and 0% of revenues for the three months ended March 31, 2017 and 2016, respectively, and approximately 69% and 39% of the accounts receivable as of March 31, 2017 and December 31, 2016, respectively. A distributor in Costa Rica accounted for approximately 0% and 24% of revenues for the three months ended March 31, 2017 and 2016, respectively.
Cash and Cash Equivalents
The Company maintains its cash and cash equivalents with financial institutions which balances exceed the federally insured limits. Federally insured limits are $250,000 for deposits. As of March 31, 2017 and December 31, 2016, the Company had approximately $2,697,000 and $4,792,000, respectively in excess of federally insured limits.
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For purposes of the statement of cash flows, the Company considers all highly liquid financial instruments with a maturity of three months or less when purchased to be a cash equivalent.
Investments
Short term investments consist of investments which the Company expects to convert into cash within one year and long term investments after one year. The Company classifies its investments in debt securities at the time of purchase as held-to-maturity and reevaluates such classification on a quarterly basis. Held-to-maturity investments consist of securities that the Company has the intent and ability to retain until maturity. These securities are carried at amortized cost plus accrued interest and consist of the following:
| Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Market Value | |||||||||||||
| Short Term: | ||||||||||||||||
| Corporate bonds | $ | 6,462,369 | 167 | 7,243 | 6,455,293 | |||||||||||
| United States Treasury bonds | - | - | - | - | ||||||||||||
| Total Short Term: | 6,462,369 | 167 | 7,243 | 6,455,293 | ||||||||||||
| Long Term: | ||||||||||||||||
| United States Treasury bonds | 502,063 | - | 1,174 | 500,890 | ||||||||||||
| Corporate bonds | 601,710 | 2,618 | 599,091 | |||||||||||||
| Total Long Term: | 1,103,773 | - | 3,792 | 1,099,981 | ||||||||||||
| Total Investment December 31, 2016 | 7,566,142 | 167 | 11,035 | 7,555,274 | ||||||||||||
| Short Term: | ||||||||||||||||
| Corporate bonds | $ | 6,403,228 | - | 5,707 | 6,397,521 | |||||||||||
| United States Treasury bonds | 1,503,142 | - | 1,868 | 1,501,274 | ||||||||||||
| Total Short Term: | 7,906,370 | - | 7,575 | 7,898,795 | ||||||||||||
| Long Term: | ||||||||||||||||
| United States Treasury bonds | - | - | - | - | ||||||||||||
| Corporate bonds | - | - | - | |||||||||||||
| Total Long Term: | - | - | - | - | ||||||||||||
| Total Investment March 31, 2017 (unaudited) | 7,906,370 | - | 7,575 | 7,898,795 | ||||||||||||
Accounts Receivable
The Company does business and extends credit based on an evaluation of each customer’s financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The allowance for doubtful accounts was approximately $0 and $7,000 as of March 31, 2017 and December 31, 2016, respectively. Bad debt expense for the three months ended March 31, 2017 and 2016 was approximately $169,000 and $0, respectively.
Inventories
Inventories consist of finished product and components and are stated at the lower of cost and net realizable value, determined using the first-in-first-out method.
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Earnings Per Share
Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding for the period using the treasury stock method for options and warrants. The diluted net income per share attributable to common stockholders is computed by giving effect to all potential dilutive common share equivalents outstanding for the period. In periods when the Company has incurred a net loss, options and warrants to purchase common shares are considered common share equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive. Shares excluded were computed under the treasury stock method as follows:
| For the Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Warrants | 4,025 | 288,474 | ||||||
| Unvested restricted stock | 39,509 | — | ||||||
| Options | — | 950 | ||||||
Advertising Costs
Advertising and promotion expenses are charged to expense as incurred. Advertising and promotion expense included in selling expense in the accompanying statements of operations amounted to approximately $733,000 and $232,000 for the three months ended March 31, 2017 and 2016, respectively.
Recently issued accounting pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. In April 2016, the FASB also issued ASU 2016-10, Identifying Performance Obligations and Licensing, implementation guidance on principal versus agent, identifying performance obligations, and licensing. ASU 2016-10 is effective for reporting periods beginning after December 15, 2017. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. For Sensus the ASU is effective January 1, 2018. The Company is continuing to evaluate the standard’s impact on the results of operations and financial condition. The Company has conducted initial analyses and is currently completing detailed contract reviews to determine if any adjustments are necessary to the existing accounting policies and to support the evaluation of the standard’s impact to the results of operations and financial condition. For the majority of the Company’s revenue arrangements, no significant impacts are expected as these transactions are not accounted for under industry-specific guidance that will be superseded by the ASU, and generally consist of obligations to transfer goods and services. The Company currently anticipates utilizing the modified retrospective method of adoption on January 1, 2018.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). Under the new guidance, companies are required to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. In addition, companies will no longer allocate valuation allowances between current and noncurrent deferred tax assets because those allowances will also be classified as noncurrent. This guidance is effective for financial statements issued for annual and interim periods beginning after December 15, 2016. The Company adopted this standard in the first quarter of 2017 and it did not have a material impact on its financial statements.
| 12 |
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption of the amendments in the update is permitted. The Company is currently evaluating the effect this standard will have on our financial statements.
In April 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation (Topic 718), which requires that the income tax effect of share-based awards be recognized in the income statement when the awards vest or are settled. The guidance will also allow an employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The guidance is effective for years beginning after December 15, 2016 and interim periods within those years. The Company adopted this standard in the first quarter of 2017 and it did not have a material impact on its financial statements.
Note 2 — Property and Equipment
| As of March 31, | As to December 31, | Estimated | ||||||||
| 2017 | 2016 | Useful Lives | ||||||||
| (unaudited) | ||||||||||
| Operations and rental equipment | $ | 758,954 | $ | 630,886 | 3 years | |||||
| Tradeshow and demo equipment | 294,476 | 294,475 | 3 years | |||||||
| Computer equipment | 111,641 | 95,218 | 3 years | |||||||
| 1,165,071 | 1,020,579 | |||||||||
| Less accumulated depreciation | (657,231 | ) | (587,171 | ) | ||||||
| Property and Equipment, Net | $ | 507,840 | $ | 433,408 | ||||||
Depreciation expense was approximately 70,000 and $61,000, for the three months ended March 31, 2017 and 2016, respectively.
Note 3 — Patent Rights
| As to March 31, | As of December 31, | |||||||
| 2017 | 2016 | |||||||
| (unaudited) | ||||||||
| Gross carrying amount | $ | 1,253,018 | $ | 1,253,018 | ||||
| Less accumulated amortization | (650,606 | ) | (626,509 | ) | ||||
| Patent Rights, Net | 602,412 | 626,509 | ||||||
Amortization expense was approximately $24,000 for the three months ended March 31, 2017 and 2016. As of March 31, 2017, future remaining amortization expense is as follows:
| As of March 31, | ||||
| For the Year Ending December 31, | 2017 | |||
| 2017 (April 1 — December 31, 2017) | 72,290 | |||
| 2018 | 96,386 | |||
| 2019 | 96,386 | |||
| 2020 | 96,386 | |||
| 2021 | 96,386 | |||
| Thereafter | 144,578 | |||
| Total | $ | 602,412 | ||
| 13 |
Note 4 — Revolving Credit Facility
On March 12, 2013, the Company entered into a two-year $3 million revolving credit facility. The credit facility was amended and extended effective March 12, 2015 through May 12, 2017. The maximum borrowing was reduced to $1,500,000 and was limited by the Company’s eligible borrowing base of 80% of eligible accounts receivable. On September 21, 2016, a second amendment to the credit facility extended the facility through September 21, 2017, increased the maximum borrowing to $2,000,000 and expanded the eligible accounts receivables to include certain international receivables.
Interest, at Prime plus 0.75% (4.75% at March 31, 2017), is payable monthly with outstanding principal and interest due on the maturity date. The facility is secured by all of the Company’s assets and limits the amount of additional indebtedness, restricts the sale, disposition or transfer of assets of the Company and requires the maintenance of a certain monthly adjusted quick ratio restrictive covenant and minimum quarterly EBITDA restrictive covenant, as defined in the agreement. Approximately $1,500,000 was outstanding under the revolving credit facility at March 31, 2017 and $0 at December 31, 2016. The Company pays commitment fees of 0.25% per annum on the average unused portion of the line of credit.
Note 5 — Product Warranties
Changes in product warranty liability were as follows for the three months ended March 31, 2017 (unaudited).
| Balance, beginning of period | $ | 40,481 | ||
| Warranties accrued during the period | 80,754 | |||
| Payments on warranty claims | (68,932 | ) | ||
| Balance, end of period | 52,303 |
Note 6 — Commitment and Contingencies
Operating Lease Agreements
In July 2016, the Company renewed a lease with an unrelated third party for its headquarters office. The renewal was effective September 1, 2016 and expanded the office space being occupied. The lease expires in September 2022 and lease payments increase by 3% annually. Future minimum lease payments as of March 31, 2017 are as follows:
| As of March 31, | ||||
| Year | 2017 | |||
| (unaudited) | ||||
| 2017 (April 1 — December 31, 2017) | $ | 138,000 | ||
| 2018 | 190,000 | |||
| 2019 | 196,000 | |||
| 2020 | 202,000 | |||
| 2021 | 208,000 | |||
| Thereafter | 160,000 | |||
| Total | $ | 1,094,000 | ||
| 14 |
Rental expense for the three months ended March 31, 2017 and 2016 was approximately $40,000 and $25,000, respectively.
Manufacturing Agreement
In July 2010, the Company entered into a three-year contract manufacturing agreement with an unrelated third party for the production and manufacture of the Company’s main product in accordance with the Company’s product specifications. The agreement shall automatically be renewed for successive years unless either party notifies the other party in writing, at least 60 days prior to the anniversary date of this agreement that it will not renew the agreement. The Company or the manufacturer has the option to terminate the agreement with 90 days written notice. Any change in the relationship with the manufacturer could have an adverse effect on the Company’s business.
Purchases from this manufacturer totaled approximately $1,275,000 and $1,175,000 for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, and December 31, 2016 approximately $967,000 and $563,000, respectively, was due to this manufacturer, which is presented in accounts payable and accrued expenses in the accompanying balance sheets.
Legal contingencies
The Company is party to certain legal proceedings in the ordinary course of business. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and related contingencies. The Company does not believe that any legal proceedings are likely to have a material effect on the business, financial condition, or results of operations.
Note 7 — Stockholders’ Equity
The Company has authorized 50,000,000 shares of common stock, of which 13,527,168 and 13,546,171 shares were issued and outstanding as of March 31, 2017 and December 31, 2016, respectively.
Stock Issuances
On January 1, 2016, Sensus Healthcare, LLC converted into a Delaware corporation pursuant to a statutory conversion and changed its name to Sensus Healthcare, Inc. As a result of the corporate conversion, the holders of the different classes of units of Sensus Healthcare, LLC became holders of common stock of Sensus Healthcare, Inc. Holders of warrants and options, respectively, to purchase membership interests of Sensus Healthcare, LLC became holders of warrants and options to purchase common stock of Sensus Healthcare, Inc., respectively. Each membership interest converted to one share of common stock.
During 2011, the Company offered to a limited number of investors (the “investor members”) preferred membership interests (the “interests”) consisting of (i) cumulative, non-compounded, 8% per annum preferential return, payable annually, if and when such distributions are made by the Company’s board of directors and (ii) participation in the Company’s net profits, net losses and distributions of the Company’s assets pursuant to the operating agreement. The offering raised approximately $6.4 million in gross proceeds ($6.0 million net of offering costs), utilizing a private placement memorandum. As of December 31, 2015, accumulated unpaid preferential distributions were approximately $2,674,000 ($0.87 per share). Preferential distributions no longer accrued after December 31, 2015. In June 2016, after the completion of the IPO, the accumulated unpaid distribution as of December 31, 2015 was payable in cash or shares, at the option of each stockholder with a preferential distribution. On July 15, 2016, the Company paid the accrued dividends in the amount of approximately $2,553,000 representing the amount for which former holders of membership units with a preferred return elected to receive dividends in cash. In addition, 23,138 shares valued at approximately $122,000 of common stock were issued to those that elected to receive the dividends in shares.
| 15 |
Warrants
In April 2013, the closing date of the second common offering, the Company’s placement agent received investor rights to 5 year warrants to purchase 86,376 common shares of the Company at an exercise price of $4.55 per unit, which was equal to 110% of the offering price.
In June 2016, from the IPO, the investors received three-year warrants to purchase 2,300,000 shares of common stock at an exercise price of $6.75 per share; the warrants are exercisable through June 2, 2019. Following the first anniversary of the date of issuance, if certain conditions are met, the Company may redeem any and all of the outstanding warrants at a price equal to $0.01 per warrant.
In addition, the underwriter’s representatives received four-year warrants to purchase up to 138,000 units, consisting of one share of common stock and one warrant to purchase one share of common stock. The warrants for the units are exercisable between June 2, 2017 and June 2, 2021 at an exercise price of $6.75 per unit.
The following table summarizes the Company’s warrant activity:
| Common Unit Warrants | ||||||||||||
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (In Years) | ||||||||||
| Outstanding – December 31, 2016 | 2,524,376 | $ | 6.67 | 2.50 | ||||||||
| Granted | — | — | — | |||||||||
| Exercised | — | — | — | |||||||||
| Cancelled (forfeited) | — | — | — | |||||||||
| Outstanding – March 31, 2017 | 2,524,376 | $ | 6.67 | 2.26 | ||||||||
| Exercisable – March 31, 2017 | 2,386,376 | $ | 6.67 | 2.26 | ||||||||
The intrinsic value of the common stock warrants was approximately $19,000 as of March 31, 2017, and $114,000 as of December 31, 2016.
2016 equity incentive Plan
The Company has limited the aggregate number of shares of common stock to be awarded under the 2016 Equity Incentive Plan to 397,473 shares and no more than 397,473 shares of common stock in the aggregate may be granted in connection with incentive stock options. In addition, unless the Compensation Committee specifically determines otherwise, the maximum number of shares available under the 2016 Plan and the awards granted under the 2016 Plan will be subject to appropriate adjustment in the case of any stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, exchanges or other changes in capitalization affecting our common stock. Any shares granted in connection with options and stock appreciation rights shall be counted against this limit as one share for every one share allotted in connection with the awarded option or stock appreciation right. Any shares granted in connection with awards other than options and stock appreciation rights shall be counted against this limit as two shares for every one share granted in connection with such award or by which the award is valued by reference.
On June 2, 2016, 307,666 shares of restricted stock were issued to employees and were recorded at the fair value of $5.25 as per the initial offering price. In addition, on January 20, 2017, 10,000 shares of restricted stock were issued to one employee and were recorded at the fair value of $4.99 per share. The shares vest 25% per year over a four-year vesting period and are being recognized as expense on a straight-line basis over the vesting period of the awards. Stock compensation expense of approximately $104,000 and $0 was recognized for the three months ended March 31, 2017 and 2016, respectively. Unrecognized stock compensation expense was approximately $1,327,000 as of March 31, 2017, which will be recognized over the remaining vesting period. As of March 31, 2017, 79,807 shares were available to be granted under the 2016 Plan.
| 16 |
A summary of the restricted stock activity for the three months ended March 31, 2017 is presented as follows:
| Shares | Weighted Average Grant Date Fair Value | |||||||
| Unvested balance at December 31, 2016 | 412,914 | 5.04 | ||||||
| Granted | 10,000 | 4.99 | ||||||
| Vested | (105,284 | ) | 4.42 | |||||
| Forfeited | - | - | ||||||
| Unvested balance at March 31, 2017 | 317,666 | 5.24 | ||||||
Note 8 — Income Taxes
Book income before taxes was negative for the first quarter of 2017. Tax expense for the first quarter of 2016 was $636.
There are no uncertain tax positions that would require recognition in the financial statements. If the Company incurs an income tax liability in the future, interest on any income tax liability would be reported as interest expense and penalties on any income tax liability would be reported as income taxes. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analyses of tax laws, regulations and interpretations thereof as well as other factors.
The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
As of March 31, 2017, the Company has US federal and certain state tax returns subject to examination, beginning with those filed for the year 2013.
Note 9 — 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. The Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the information set forth within the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with our Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2016 (“Annual Report”). The statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, our plans, estimates, beliefs and expectations that involve risks and uncertainties, and other non-historical statements in this discussion, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those contained in or implied by any forward-looking statements. Please see the Introductory Note and Item 1A. Risk Factors of our Annual Report, as updated in our subsequent quarterly reports filed on Form 10-Q, and in our other filings made from time to time with the SEC after the date of this report.
| 17 |
Overview
Sensus Healthcare, LLC, a Delaware limited liability company (the “Company”), was formed on May 7, 2010, to design, manufacture and market proprietary medical devices specializing in the treatment of non-melanoma skin cancers and other skin conditions, such as keloids, with superficial radiation therapy. In June 2010, Sensus Healthcare, LLC, a Florida limited liability company (“Sensus (FL)”) acquired all the assets associated with our primary product, the SRT-100, from Topex, Inc. for $1.3 million. Following this acquisition, we relaunched the SRT-100 under the Sensus Healthcare brand. In December 2011, we merged with Sensus (FL), with the Delaware limited liability company surviving the merger for the purpose of changing our domicile from Florida to Delaware. On January 1, 2016, Sensus Healthcare, LLC converted into a Delaware corporation pursuant to a statutory conversion and we changed our name to Sensus Healthcare, Inc. As a result of the corporate conversion, all holders of units of Sensus Healthcare, LLC became holders of common stock of Sensus Healthcare, Inc. Holders of warrants and options to purchase units of Sensus Healthcare, LLC became holders of warrants and options to purchase common stock of Sensus Healthcare, Inc., respectively.
The SRT-100 is a photon x-ray low energy superficial radiotherapy system that provides patients an alternative to surgery for treating non-melanoma skin cancers, including basal cell and squamous cell skin cancers and other skin conditions such as keloids. The SRT-100 may also be used to treat primary lesions that would otherwise be difficult to treat or require extensive surgery involving sensitive areas of the head and neck regions, such as the fold in the nose, eyelids, lips, corner of the mouth, and the lining of the ear, which could lead to a less than desirable cosmetic outcome. Superficial radiation therapy treatment procedures do not require the use of anesthetics and eliminates the need for skin grafting. The SRT-100 provides healthcare providers and patients with a safe, virtually painless, and substantially non-scarring treatment option for non-melanoma skin cancer and other skin conditions, such as keloids. It allows dermatologists to retain non-melanoma skin cancer patients, rather than referring them to specialists, while offering radiation oncologists an alternative to costly linear accelerator–based treatments with a process that is less invasive, more time-efficient, and improves practice economics. Our revenue is primarily derived from sales of our SRT-100 product line.
Components of our results of operations
We manage our business globally within one reportable segment, which is consistent with how our management reviews our business, prioritizes investment and resource allocation decisions and assesses operating performance.
Results of Operations
| For the Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Revenues | $ | 4,354,349 | $ | 3,035,204 | ||||
| Cost of Sales | 1,499,701 | 1,102,370 | ||||||
| Gross Profit | 2,854,648 | 1,932,834 | ||||||
| Operating Expenses | ||||||||
| Selling and marketing | 2,263,481 | 944,122 | ||||||
| General and administrative | 1,043,953 | 685,720 | ||||||
| Research and development | 1,135,426 | 293,404 | ||||||
| Total Operating Expenses | 4,442,860 | 1,923,246 | ||||||
| Income (Loss) From Operations | (1,588,212 | ) | 9,588 | |||||
| Other Income (Expense) | ||||||||
| Interest income | 22,720 | 2,755 | ||||||
| Interest expense | (6,641 | ) | (9,626 | ) | ||||
| Other Income (Expense), net | 16,079 | (6,871 | ) | |||||
| Income (Loss) Before Income Taxes | (1,572,133 | ) | 2,717 | |||||
| Provision for income taxes | - | 636 | ||||||
| Net Income (Loss) | $ | (1,572,133 | ) | $ | 2,081 | |||
| 18 |
Three months ended March 31, 2017 compared to the three months ended March 31, 2016
Total revenue. Total revenue was $4,354,349 for the three months ended March 31, 2017 compared to $3,035,204 for the three months ended March 31, 2016, an increase of $1,319,145, or 43.5%. The growth in revenue was primarily attributable to an increase in sales of the higher priced SRT-100 Vision product in the current quarter.
Total cost of sales. Cost of sales was $1,499,701 for the three months ended March 31, 2017 compared to $1,102,370 for the three months ended March 31, 2016, an increase of $397,331, or 36.0%. The increase in cost was due to a greater number of SRT-Vision systems sold during the three months ended March 31, 2017 compared to the corresponding period in 2016.
Gross profit. Gross profit was $2,854,648 for the three months ended March 31, 2017 compared to $1,932,834 for the three months ended March 31, 2016, an increase of $921,814, or 47.7%, for the reasons discussed above. Our overall gross profit percentage was 65.6% in the three months ended March 31, 2017 compared to 63.7% in the corresponding period in 2016.
Selling and marketing. Selling and marketing expense was $2,263,481 for the three months ended March 31, 2017 compared to $944,122 for the three months ended March 31, 2016, an increase of $1,319,358, or 140%. The increase was primarily attributable to an increase in sales headcount and higher participation in tradeshows and other marketing activities.
General and administrative. General and administrative expense was $1,043,953 for the three months ended March 31, 2017 compared to $685,720 for the three months ended March 31, 2016, an increase of $358,233, or 52.2%. The net increase was due primarily to director and officer insurance and other public company expenses as well as bad debts, offset by a reduction in legal and other professional fees.
Research and development. Research and development expense was $1,135,426 for the three months ended March 31, 2017 compared to $293,404 for the three months ended March 31, 2016, an increase of $842,022, or 287%. The increase in research and development spending was primarily attributable to new R&D projects that we expect will continue as the projects progress during 2017.
Other income (expense). We incur interest expense in connection with our secured credit facility with Silicon Valley Bank and interest income from our investment in held-to-maturity securities.
Income taxes. Book income before taxes was negative for the first quarter of 2017. Tax expense for the first quarter 2016 was $636.
Financial Condition
Our cash, cash equivalent and investment balance decreased from $12.6 million at December 31, 2016 to $11.0 million at March 31, 2017, primarily as a result of the operating loss in the first quarter of 2017 and the increase in accounts receivable.
Borrowings under the revolving line of credit as of March 31, 2017 were $1.5M.
Liquidity and Capital Resources
Overview
Our liquidity position and capital requirements may be impacted by a number of factors, including the following:
| • | our ability to generate and increase revenue; |
| • | fluctuations in gross margins, operating expenses and net results; and |
| • | fluctuations in working capital. |
| 19 |
Our primary short-term capital needs, which are subject to change, include expenditures related to:
| • | expansion of our sales, marketing and distribution activities; and |
| • | expansion of our research and development activities. |
We regularly evaluate our cash requirements for current operations, commitments, capital requirements and business development transactions, and we may elect to raise additional funds for these purposes in the future.
Cash flows
The following table provides a summary of our cash flows for the periods indicated:
| For the Three Months Ended March 31, | ||||||||
| (unaudited) | ||||||||
| 2017 | 2016 | |||||||
| Net Cash Provided by (Used In): | ||||||||
| Operating Activities | $ | (2,761,066 | ) | $ | (588,615 | ) | ||
| Investing Activities | (484,720 | ) | (232,906 | ) | ||||
| Financing Activities | 1,344,532 | 503,552 | ||||||
| Total | $ | (1,901,254 | ) | $ | (317,969 | ) | ||
Cash flows from operating activities
Net cash used in operating activities was $2,761,066 for the three months ended March 31, 2017, consisting of a net loss of $1,572,133 and an increase in net operating assets of $1,636,335, offset by non-cash charges of $447,403. The increase in net operating assets was primarily due to the increase in sales resulting in an increase in accounts receivable as well as an increase in inventory, prepaid expenses and accounts payable and accrued expenses and a decrease in deferred revenues. Non-cash charges consisted primarily of bad debts, stock compensation expense and depreciation and amortization. Net cash used in operating activities was $588,615 for the three months ended March 31, 2016, primarily due to the increase in accounts receivable, prepaids and other current assets and accounts payable and accrued expenses less a decrease in deferred revenue.
Cash flows from investing activities
Net cash used in investing activities was $484,720 due to the purchase of debt securities held-to-maturity for $340,228 and $144,492 for acquisition of property and equipment during the three months ended March 31, 2017. Cash used in investing activities was $232,906 for the three months ended March 31, 2016 for the acquisition of property and equipment.
Cash flows from financing activities
Net cash provided by financing activities was $1,344,532 during the three months ended March 31, 2017, mostly from the $1,500,000 borrowing from the revolving credit facility. Net cash provided by financing activities was $503,552 during the three months ended March 31, 2016 mostly from borrowings from the line of credit.
| 20 |
Indebtedness
Silicon Valley Bank Secured Credit Facility
On March 12, 2013, the Company entered into a two-year $3 million revolving credit facility. The credit facility was amended and extended effective March 12, 2015 through May 12, 2017. The maximum borrowing was reduced to $1,500,000 and was limited by the Company’s eligible borrowing base of 80% of eligible accounts receivable. On September 21, 2016, a second amendment to the credit facility extended the facility through September 21, 2017, increased the maximum borrowing to $2,000,000 and expanded the eligible accounts receivables to include certain international receivables.
Interest, at Prime plus 0.75% (4.75% at March 31, 2017), is payable monthly with outstanding principal and interest due on the maturity date. The facility is secured by all of the Company’s assets and limits the amount of additional indebtedness, restricts the sale, disposition or transfer of assets of the Company and requires the maintenance of a certain monthly adjusted quick ratio restrictive covenant and minimum quarterly EBITDA restrictive covenant, as defined in the agreement. Approximately $1,500,000 was outstanding under the revolving credit facility at March 31, 2017 and $0 was outstanding at December 31, 2016. The Company pays commitment fees of 0.25% per annum on the average unused portion of the line of credit. As of December 31, 2016 and March 31, 2017, the Company was in compliance with all financial covenants.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and do not currently have, any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S., or GAAP. We have identified certain accounting policies as critical to understanding our financial condition and results of our operations. For a detailed discussion on the application of these and other accounting policies, see the notes to our financial statements and our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, for the year ended December 31, 2016.
JOBS Act
We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act. For as long as we are an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, reduced disclosure obligations relating to the presentation of financial statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations, exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation. We have availed ourselves of the reduced reporting obligations in this Quarterly Report on Form 10-Q, and expect to continue to avail ourselves of the reduced reporting obligations available to emerging growth companies in future filings.
In addition, an emerging growth company can delay its adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to “opt out” of such extended transition period, and as a result, we plan to comply with any new or revised accounting standards on the relevant dates on which non-emerging growth companies must adopt such standards. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
| 21 |
| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| Item 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Control and Procedures
As of March 31, 2017, 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 Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of March 31, 2017, 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
Our management, including the Chief Executive Officer and Chief Financial Officer, has reviewed our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). 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.
| 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. Please see note 6 to the condensed financial statements.
| Item 1A. | Risk Factors |
An investment in our securities involves risks. You should carefully consider the risk factors as previously disclosed in our Form 10-K filed with the SEC for the year ended December 31, 2016, as updated in our subsequent quarterly reports, together with the other information in this Quarterly Report on Form 10-Q, including the financial statements and related notes, before deciding whether to purchase, hold, or sell our securities. The occurrence of any of these risks could harm our business, financial condition, or results of operations or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all of the risk factors described when evaluating our business. There have been no material changes to the risk factors as previously disclosed in our Form 10-K filed with the SEC for the year ended December 31, 2016, the discussion of which is specifically incorporated by reference into this Quarterly Report on Form 10-Q.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(a) Sales of Unregistered Securities
There have been no unregistered sales of securities during the quarter ended March 31, 2017.
(b) Use of Proceeds from the Sale of Registered Securities
In June 2016, we completed an initial public offering, or IPO, of units consisting of one share of common stock and one warrant to purchase one share of common stock. In connection with the IPO, we issued 2,300,000 units of our common stock at a price of $5.50 per unit, including 300,000 units pursuant to the underwriters’ full exercise of their over-allotment option for an aggregate offering price of $12.65 million. The offer and sale of all of the securities in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1, as amended (File No. 333-209451), which was declared effective by the SEC on June 2, 2016.
| 22 |
We received total net proceeds from the IPO of approximately $10.5 million after deducting underwriting discounts and commissions of approximately $0.9 million and other offering expenses of approximately $1.4 million. We have used approximately $2.6M for the payment of dividends to former preferred investors and approximately $3.4M in operations.
The remaining proceeds from the IPO have been invested in highly-liquid money market funds and debt securities with maturities of 12 months or less. There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on June 2, 2016.
(c) Purchases of Equity Securities by The Registrant and Affiliated Purchases.
The table below summarizes the number of shares of our common stock that were withheld to satisfy the tax withholding obligations for restricted stock that vested during the three months ended March 31, 2017.
ISSUER PURCHASES OF EQUITY SECURITIES
| Total number of shares purchased(1) | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs | |||||||||||||
| January 1 – January 31, 2017 | 29,003 | $ | 4.99 | - | - | |||||||||||
| February 1 – February 28, 2017 | - | - | - | - | ||||||||||||
| March 1 – March 31, 2017 | - | - | - | - | ||||||||||||
| Total | 29,003 | $ | 4.99 | - | - | |||||||||||
| (1) | The table reflects 29,003 shares of the Company’s common stock that were withheld to satisfy tax withholding obligations for restricted stock that vested during the three month period ended March 31, 2017. |
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosure |
Not applicable
| Item 5. | Other Information |
None.
| Item 6. | Exhibits |
A list of exhibits required to be filed as part of this report is set forth in the Exhibit Index, which is presented elsewhere in this document, and is incorporated herein by reference.
| 23 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SENSUS HEALTHCARE, INC. | |
| Date: May 9, 2017 | /s/ Joseph C. Sardano |
| Joseph C. Sardano | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| Date: May 9, 2017 | /s/ Arthur Levine |
| Arthur Levine | |
| Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) |
| 24 |
EXHIBIT INDEX
| Exhibit No. | Description |
| 31.1 | Certification of Joseph C. Sardano, Chairman and Chief Executive Officer of Sensus Healthcare, Inc., Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |
| 31.2 | Certification of Arthur Levine, Chief Financial Officer of Sensus Healthcare, Inc., Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |
| 32.1 | Certification of Joseph C. Sardano, Chairman and Chief Executive Officer of Sensus Healthcare, Inc., Pursuant to 18 U.S.C. Section 1350. |
| 32.2 | Certification of Arthur Levine, Chief Financial Officer of Sensus Healthcare, Inc., Pursuant to 18 U.S.C. Section 1350. |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 25 |