UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________
TO ____________
Commission File Number: 001-37714
Sensus Healthcare, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | | 27-1647271 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
| 851 Broken Sound Pkwy., NW #215, Boca Raton, FL | | 33487 |
| (Address of principal executive office) | | (Zip Code) |
(561) 922-5808
(Registrant’s telephone number, including
area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | | Trading symbol(s) | | Name of each exchange on which registered |
| Common Stock, par value $0.01 per share | | SRTS | | The NASDAQ Stock Market, LLC |
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically,
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emerging growth company.” See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Smaller reporting company ☒ |
| | | | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 6, 2024, there were 16,389,051
shares of the registrant’s common stock outstanding.
SENSUS HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
INTRODUCTORY NOTE
Forward-Looking Statements
This report includes statements that are, or may
be deemed, “forward-looking statements.” In some cases, these statements can be identified by the use of forward-looking terminology
such as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,”
“may,” “could,” “might,” “will,” “should,” “approximately,” or
“potential,” or negative or other variations of those terms or comparable terminology, although not all forward-looking statements
contain these words.
Forward-looking statements involve risks and uncertainties
because they relate to events, developments, and circumstances relating to Sensus Healthcare, Inc., our industry, and/or general economic
or other conditions that may or may not occur in the future or may occur on longer or shorter timelines or to a greater or lesser degree
than anticipated. In addition, even if future events, developments and circumstances are consistent with the forward-looking statements
contained in this report, they may not be predictive of results or developments in future periods. Although we believe that we have a
reasonable basis for each forward-looking statement contained in this report, forward-looking statements are not guarantees of future
performance, and our actual results of operations, financial condition and liquidity, and the development of the industry in which we
operate, may differ materially from the forward-looking statements contained in this report as a result of the following factors, among
others: the level and availability of government and/or third party payor reimbursement for clinical procedures using our products, and
the willingness of healthcare providers to purchase our products if the level of reimbursement declines; concentration of our customers
in the U.S. and China, including the concentration of sales to one particular customer in the U.S; the development by others of new products,
treatments, or technologies that render our technology partially or wholly obsolete; the regulatory requirements applicable to us and
our competitors; our ability to efficiently manage our manufacturing processes and costs; the risks arising from doing business in China
and other foreign countries; legislation, regulation, or other governmental action that affects our products, taxes, international trade
regulation, or other aspects of our business; the performance of the Company’s information technology systems and its ability to
maintain data security; our ability to obtain and maintain the intellectual property needed to adequately protect our products, and our
ability to avoid infringing or otherwise violating the intellectual property rights of third parties; and other risks described from time
to time in our filings with the Securities and Exchange Commission.
To date, the Russian invasion of Ukraine, conditions
in the Middle East, and other global geopolitical uncertainties have not had significant impacts on our business, but we continue to monitor
developments and will address them in future disclosures, if applicable.
Any forward-looking statements that we make in
this report speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or
circumstances after the date of this report, except as may be required by applicable law.
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| (in thousands, except shares and per share data) | |
As of
June 30,
2024 | | |
As of
December 31,
2023 | |
| | |
(unaudited) | | |
| |
| Assets | |
| | |
| |
| Current assets | |
| | |
| |
| Cash and cash equivalents | |
$ | 18,972 | | |
$ | 23,148 | |
| Accounts receivable, net | |
| 18,293 | | |
| 10,645 | |
| Inventories | |
| 12,769 | | |
| 11,861 | |
| Prepaid inventory | |
| 3,333 | | |
| 2,986 | |
| Other current assets | |
| 1,106 | | |
| 888 | |
| Total current assets | |
| 54,473 | | |
| 49,528 | |
| Property and equipment, net | |
| 712 | | |
| 464 | |
| Deferred tax asset | |
| 1,644 | | |
| 2,140 | |
| Operating lease right-of-use asset, net | |
| 679 | | |
| 774 | |
| Other noncurrent assets | |
| 655 | | |
| 804 | |
| Total assets | |
$ | 58,163 | | |
$ | 53,710 | |
| | |
| | | |
| | |
| Liabilities and stockholders’ equity | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 3,284 | | |
$ | 2,793 | |
| Product warranties | |
| 517 | | |
| 538 | |
| Operating lease liability, current portion | |
| 195 | | |
| 187 | |
| Income tax payable | |
| - | | |
| 37 | |
| Deferred revenue, current portion | |
| 686 | | |
| 657 | |
| Total current liabilities | |
| 4,682 | | |
| 4,212 | |
| Operating lease liability | |
| 503 | | |
| 596 | |
| Deferred revenue, net of current portion | |
| 77 | | |
| 60 | |
| Total liabilities | |
| 5,262 | | |
| 4,868 | |
| Commitments and contingencies | |
| | | |
| | |
| Stockholders’ equity | |
| | | |
| | |
| Preferred stock, 5,000,000 shares authorized and none issued and outstanding | |
| - | | |
| - | |
| Common stock, $0.01 par value – 50,000,000 authorized; 16,927,845 issued and 16,394,921 outstanding at June 30, 2024; 16,907,095 issued and 16,374,171 outstanding at December 31, 2023 | |
| 169 | | |
| 169 | |
| Additional paid-in capital | |
| 45,578 | | |
| 45,405 | |
| Treasury stock, 532,924 shares at cost, at June 30, 2024 and December 31, 2023 | |
| (3,519 | ) | |
| (3,519 | ) |
| Retained earnings | |
| 10,673 | | |
| 6,787 | |
| Total stockholders’ equity | |
| 52,901 | | |
| 48,842 | |
| Total liabilities and stockholders’ equity | |
$ | 58,163 | | |
$ | 53,710 | |
See accompanying notes to the condensed consolidated
financial statements (unaudited).
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
| | |
For the Three Months Ended
June 30, | | |
For the Six Months Ended
June 30, | |
| (in thousands, except shares and per share data) | |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| | |
| | |
| | |
| | |
| |
| Revenues | |
$ | 9,239 | | |
$ | 4,527 | | |
$ | 19,902 | | |
$ | 7,941 | |
| Cost of sales | |
| 3,816 | | |
| 1,908 | | |
| 7,817 | | |
| 3,700 | |
| Gross profit | |
| 5,423 | | |
| 2,619 | | |
| 12,085 | | |
| 4,241 | |
| Operating expenses | |
| | | |
| | | |
| | | |
| | |
| Selling and marketing | |
| 996 | | |
| 1,595 | | |
| 2,266 | | |
| 3,693 | |
| General and administrative | |
| 1,579 | | |
| 1,329 | | |
| 3,158 | | |
| 2,693 | |
| Research and development | |
| 866 | | |
| 822 | | |
| 1,792 | | |
| 1,920 | |
| Total operating expenses | |
| 3,441 | | |
| 3,746 | | |
| 7,216 | | |
| 8,306 | |
| Income (loss) from operations | |
| 1,982 | | |
| (1,127 | ) | |
| 4,869 | | |
| (4,065 | ) |
| Other income: | |
| | | |
| | | |
| | | |
| | |
| Interest income, net | |
| 209 | | |
| 245 | | |
| 423 | | |
| 488 | |
| Other income, net | |
| 209 | | |
| 245 | | |
| 423 | | |
| 488 | |
| Income (loss) before income tax | |
| 2,191 | | |
| (882 | ) | |
| 5,292 | | |
| (3,577 | ) |
| Provision for (benefit from) income taxes | |
| 579 | | |
| (502 | ) | |
| 1,406 | | |
| (1,303 | ) |
| Net income (loss) | |
$ | 1,612 | | |
$ | (380 | ) | |
$ | 3,886 | | |
$ | (2,274 | ) |
| Net income (loss) per share – basic | |
$ | 0.10 | | |
$ | (0.02 | ) | |
$ | 0.24 | | |
$ | (0.14 | ) |
| diluted | |
$ | 0.10 | | |
$ | (0.02 | ) | |
$ | 0.24 | | |
$ | (0.14 | ) |
| Weighted average number of shares used in | |
| | | |
| | | |
| | | |
| | |
| computing net income (loss) per share – basic | |
| 16,298,459 | | |
| 16,249,766 | | |
| 16,296,715 | | |
| 16,247,567 | |
| diluted | |
| 16,333,481 | | |
| 16,249,766 | | |
| 16,325,764 | | |
| 16,247,567 | |
See accompanying notes to the condensed consolidated
financial statements (unaudited).
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
| | |
Common Stock | | |
Additional Paid-In | | |
Treasury Stock | | |
Retained | | |
| |
| (in thousands, except shares) | |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Amount | | |
Earnings | | |
Total | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| December 31, 2022 | |
| 16,902,761 | | |
$ | 169 | | |
$ | 45,031 | | |
| (512,342 | ) | |
$ | (3,433 | ) | |
$ | 6,302 | | |
$ | 48,069 | |
| Stock-based compensation | |
| 10,000 | | |
| - | | |
| 161 | | |
| - | | |
| - | | |
| - | | |
| 161 | |
| Exercise of stock options | |
| 8,334 | | |
| - | | |
| 46 | | |
| - | | |
| - | | |
| - | | |
| 46 | |
| Forfeiture of restricted stock units | |
| (7,500 | ) | |
| - | | |
| (18 | ) | |
| - | | |
| - | | |
| - | | |
| (18 | ) |
| Surrender of shares for tax withholding on stock-based compensation | |
| - | | |
| - | | |
| - | | |
| (4,487 | ) | |
| (40 | ) | |
| - | | |
| (40 | ) |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,894 | ) | |
| (1,894 | ) |
| March 31, 2023 | |
| 16,913,595 | | |
$ | 169 | | |
$ | 45,220 | | |
| (516,829 | ) | |
$ | (3,473 | ) | |
$ | 4,408 | | |
$ | 46,324 | |
| Stock-based compensation | |
| - | | |
| - | | |
| 67 | | |
| - | | |
| - | | |
| - | | |
| 67 | |
| Forfeiture of restricted stock units | |
| (1,000 | ) | |
| - | | |
| (1 | ) | |
| - | | |
| - | | |
| - | | |
| (1 | ) |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (380 | ) | |
| (380 | ) |
| June 30, 2023 | |
| 16,912,595 | | |
$ | 169 | | |
$ | 45,286 | | |
| (516,829 | ) | |
$ | (3,473 | ) | |
$ | 4,028 | | |
$ | 46,010 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| December 31, 2023 | |
| 16,907,095 | | |
$ | 169 | | |
$ | 45,405 | | |
| (532,924 | ) | |
$ | (3,519 | ) | |
$ | 6,787 | | |
$ | 48,842 | |
| Stock-based compensation | |
| 20,000 | | |
| - | | |
| 92 | | |
| - | | |
| - | | |
| - | | |
| 92 | |
| Forfeiture of restricted stock units | |
| (1,500 | ) | |
| - | | |
| (1 | ) | |
| - | | |
| - | | |
| - | | |
| (1 | ) |
| Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,274 | | |
| 2,274 | |
| March 31, 2024 | |
| 16,925,595 | | |
$ | 169 | | |
$ | 45,496 | | |
| (532,924 | ) | |
$ | (3,519 | ) | |
$ | 9,061 | | |
$ | 51,207 | |
| Stock-based compensation | |
| - | | |
| - | | |
| 66 | | |
| - | | |
| - | | |
| - | | |
| 66 | |
| Exercise of stock options | |
| 3,000 | | |
| - | | |
| 17 | | |
| - | | |
| - | | |
| - | | |
| 17 | |
| Forfeiture of restricted stock units | |
| (750 | ) | |
| - | | |
| (1 | ) | |
| - | | |
| - | | |
| - | | |
| (1 | ) |
| Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,612 | | |
| 1,612 | |
| June 30, 2024 | |
| 16,927,845 | | |
$ | 169 | | |
$ | 45,578 | | |
| (532,924 | ) | |
$ | (3,519 | ) | |
$ | 10,673 | | |
$ | 52,901 | |
See accompanying notes to the condensed
consolidated financial statements (unaudited).
SENSUS HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | |
For the Six Months Ended
June 30, | |
| (in thousands) | |
2024 | | |
2023 | |
| Cash flows from operating activities | |
| | |
| |
| Net income (loss) | |
$ | 3,886 | | |
$ | (2,274 | ) |
| Adjustments to reconcile net income (loss) to net cash and cash equivalents used in operating activities: | |
| | | |
| | |
| Credit loss expense | |
| 42 | | |
| 5 | |
| Depreciation and amortization | |
| 101 | | |
| 156 | |
| Amortization of right-of-use asset | |
| 95 | | |
| 93 | |
| Provision for product warranties | |
| 186 | | |
| 281 | |
| Stock-based compensation | |
| 156 | | |
| 209 | |
| Deferred income taxes | |
| 496 | | |
| (1,303 | ) |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| (7,690 | ) | |
| 8,145 | |
| Inventories | |
| (1,021 | ) | |
| (6,644 | ) |
| Prepaid inventory | |
| (347 | ) | |
| (429 | ) |
| Other current assets | |
| (218 | ) | |
| (709 | ) |
| Other noncurrent assets | |
| 149 | | |
| 118 | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts payable and accrued expenses | |
| 491 | | |
| (1,580 | ) |
| Operating lease liability | |
| (85 | ) | |
| (104 | ) |
| Income tax payable | |
| (37 | ) | |
| (890 | ) |
| Deferred revenue | |
| 46 | | |
| (24 | ) |
| Product warranties | |
| (207 | ) | |
| (305 | ) |
| Net cash used in operating activities | |
| (3,957 | ) | |
| (5,255 | ) |
| Cash flows from investing activities | |
| | | |
| | |
| Acquisition of property and equipment | |
| (236 | ) | |
| (218 | ) |
| Net cash used in investing activities | |
| (236 | ) | |
| (218 | ) |
| Cash flows from financing activities | |
| | | |
| | |
| Withholding taxes on stock-based compensation | |
| - | | |
| (40 | ) |
| Exercise of stock options | |
| 17 | | |
| 46 | |
| Net cash provided by financing activities | |
| 17 | | |
| 6 | |
| Net decrease in cash and cash equivalents | |
| (4,176 | ) | |
| (5,467 | ) |
| Cash and cash equivalents – beginning of period | |
| 23,148 | | |
| 25,520 | |
| Cash and cash equivalents – end of period | |
$ | 18,972 | | |
$ | 20,053 | |
| Supplemental disclosure of cash flow information: | |
| | | |
| | |
| Interest paid | |
$ | - | | |
$ | - | |
| Income tax paid | |
$ | 935 | | |
$ | 1,390 | |
| Supplemental schedule of noncash investing and financing transactions: | |
| | | |
| | |
| Transfer of inventory to property and equipment | |
$ | 113 | | |
$ | 14 | |
See accompanying notes to the condensed consolidated
financial statements (unaudited).
SENSUS HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note
1 — Organization and Summary of Significant Accounting Policies
Description
of the Business
Sensus Healthcare, Inc. (together, with its subsidiaries,
unless the context otherwise indicates, “Sensus” or the “Company”) is a manufacturer of radiation therapy devices
sold to healthcare providers globally through its distribution and marketing network. The Company operates from its corporate headquarters
located in Boca Raton, Florida.
In February 2024, the Company formed Sensus Healthcare
Services, LLC, a wholly-owned subsidiary that provides operational healthcare services in the form of leased equipment, radiation oncology
and physics oversight, including radiotherapy technologists for dermatology clinics.
Basis
of Presentation and Principles of Consolidation
These condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the
accounts of the Company and its subsidiaries. Accounts and transactions between condensed consolidated entities have been eliminated.
These financial statements have been prepared
in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. They do not include all of the information and notes required by GAAP. In the opinion of management, all
adjustments considered necessary for a fair statement of the results have been included. Operating results for the three and six months
ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any
other period.
The condensed consolidated balance sheet as of
December 31, 2023 has been derived from the audited financial statements at that date but does not include all of the information and
notes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and
notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual
Report”).
Use
of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense
during the reporting periods. Actual results could differ from those estimates.
Reclassification
of Prior Year Presentation
Certain prior period amounts have been reclassified
for consistency with the current period presentation. The reclassifications are limited to the condensed consolidated statements of cash
flow and have no impact on the reported results of operations.
Revenue
Recognition
The Company
derives revenue from sales of the Company’s devices and services related to maintaining and repairing the devices as part of a service
contract or on an ad-hoc basis without a service contract.
The Company
provides warranties, generally for one year, in conjunction with the sale of its products. These warranties entitle the customer to repair,
replacement, or modification of the defective product, subject to the terms of the relevant warranty. The Company has determined that
these warranties do not represent separate performance obligations, as the customer does not have the option to purchase the warranty
separately and the warranty does not provide the customer with a service in addition to the assurance that the product complies with agreed-upon
specifications. The Company records an estimate of future warranty claims at the time it recognizes revenue from the sale of the device
based upon management’s estimate of the future claims rate.
Revenue
is recognized upon transfer of control of promised goods or services to customers when the product is shipped or the service is rendered,
based on the amount the Company expects to receive in exchange for those goods or services. The Company enters into contracts that can
include multiple services, which are accounted for separately if they are determined to be distinct.
To determine
the transaction price for contracts in
which a customer promises consideration in a form other than cash, the Company measures the estimated fair value of the noncash
consideration at contract inception. If the Company cannot reasonably estimate the fair value of the noncash consideration, the Company
measures the consideration indirectly by reference to the standalone selling price of
the products promised to the customer or class of customer in exchange for the consideration.
Our service
contracts include maintenance or repair service contracts for device purchases and personnel service contracts to assist the use and operation
of leased-out equipment under lessor agreements.
The revenues
from maintenance or repair service contracts are recognized over the service contract period on a straight-line basis. In the event that
a customer does not sign a service contract, but requests maintenance or repair services after the warranty expires, the Company recognizes
revenue when the service is rendered. There is no termination provision in the service contract or any penalties in practice for cancellation
of the service contract.
The revenues from personnel service contracts
are recognized in the period the work is performed, as the Company has elected the practical expedient to recognize revenue in the amount
to which the entity has a right to invoice. The service contracts can be terminated by mutual written agreement.
The Company
has determined that in practice no significant discount is given on service contracts when offered with the device purchase or equipment
lease as compared to when sold on a stand-alone basis. The service level provided is identical whether the service contract is purchased
on a stand-alone basis or together with the device purchase or equipment lease. The Company may also incur preparation cost to ensure
the customer’s space meets the requirement and specifications for the operation of the equipment. The preparation cost is expensed
as incurred.
The components of disaggregated revenue for the
three and six months ended June 30, 2024 and 2023 were as follows:
| | |
For the Three Months Ended | | |
For the Six Months Ended | |
| | |
June 30, | | |
June 30, | |
| (in thousands) | |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| Product Revenue - recognized at a point in time | |
$ | 8,074 | | |
$ | 3,524 | | |
$ | 17,566 | | |
$ | 5,993 | |
| Service Revenue - recognized at a point in time | |
| 367 | | |
| 306 | | |
| 739 | | |
| 647 | |
| Service Revenue - recognized over time | |
| 798 | | |
| 697 | | |
| 1,597 | | |
| 1,301 | |
| Total Revenue | |
$ | 9,239 | | |
$ | 4,527 | | |
$ | 19,902 | | |
$ | 7,941 | |
The Company operates in a highly regulated environment,
primarily in the U.S. dermatology market, in which state regulatory approval is sometimes required prior to the customer being able to
use the product. In cases where such regulatory approval is pending, revenue is deferred until such time as regulatory approval is obtained.
Deferred revenue activity as of June 30, 2024
was as follows:
| (in thousands) | |
Product | | |
Service | | |
Total | |
| December 31, 2023 | |
$ | 36 | | |
$ | 681 | | |
$ | 717 | |
| Revenue recognized | |
| (270 | ) | |
| (1,597 | ) | |
| (1,867 | ) |
| Amounts invoiced | |
| 332 | | |
| 1,581 | | |
| 1,913 | |
| June 30, 2024 | |
$ | 98 | | |
$ | 665 | | |
$ | 763 | |
Remaining performance obligations of deposits
for products have original expected durations of one year or less. Estimated service revenue to be recognized in the future related to
the performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2024 is as follows:
| Year | |
Service
Revenue | |
| 2024 (July 1 - December 31, 2024) | |
$ | 439 | |
| 2025 | |
| 172 | |
| 2026 | |
| 44 | |
| 2027 | |
| 10 | |
| Total | |
$ | 665 | |
For the six months ended June 30, 2024 and 2023,
the Company paid commissions for certain equipment sales. Because the recovery of commissions is expected to occur from product revenue
within one year, the Company charges commissions to expense as incurred.
In addition, the Company incurs commissions associated
with equipment lease agreements, which are accounted as initial direct costs and recorded in other noncurrent assets in the condensed
consolidated balance sheets. The commission is capitalized at the commencement of the lease and recognized as an expense in selling and
marketing expenses over the lease term.
Shipping and handling costs are expensed as incurred
and are included in cost of sales.
Concentration
Financial instruments that potentially subject
the Company to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable.
One customer in the U.S. accounted for 83% and
46% of revenue for the three months ended June 30, 2024 and 2023, respectively, 77% and 52% of revenue for the six months ended June 30,
2024 and 2023, respectively, and 92% and 85% of the accounts receivable as of June 30, 2024 and December 31, 2023, respectively.
Geographical
Information
The following table illustrates total revenue
for the three and six months ended June 30, 2024 and 2023 by country.
| | |
For the Three Months Ended | |
| | |
June 30, | |
| (in thousands) | |
2024 | | |
2023 | |
| United States | |
$ | 8,667 | | |
| 94 | % | |
$ | 3,892 | | |
| 86 | % |
| China | |
| 572 | | |
| 6 | % | |
| 300 | | |
| 7 | % |
| Guatemala | |
| - | | |
| 0 | % | |
| 190 | | |
| 4 | % |
| Ireland | |
| - | | |
| 0 | % | |
| 135 | | |
| 3 | % |
| Other | |
| - | | |
| 0 | % | |
| 10 | | |
| 0 | % |
| Total Revenue | |
$ | 9,239 | | |
| 100 | % | |
$ | 4,527 | | |
| 100 | % |
| | |
For the Six Months Ended | |
| | |
June 30, | |
| (in thousands) | |
2024 | | |
2023 | |
| United States | |
$ | 19,146 | | |
| 96 | % | |
$ | 7,166 | | |
| 90 | % |
| China | |
| 727 | | |
| 4 | % | |
| 430 | | |
| 5 | % |
| Guatemala | |
| - | | |
| 0 | % | |
| 190 | | |
| 2 | % |
| Ireland | |
| - | | |
| 0 | % | |
| 135 | | |
| 2 | % |
| Other | |
| 29 | | |
| 0 | % | |
| 20 | | |
| 0 | % |
| Total Revenue | |
$ | 19,902 | | |
| 100 | % | |
$ | 7,941 | | |
| 100 | % |
Fair
Value of Financial Instruments
Carrying amounts of cash equivalents, accounts
receivable, accounts payable and the revolving credit facility approximate fair value due to their relative short maturities.
Fair
Value Measurements
The Company uses a fair value hierarchy that prioritizes
inputs to valuation approaches used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted)
in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Assets and liabilities measured
and reported at fair value are classified and disclosed in one of the following categories:
Level 1 Inputs:
Quoted prices (unadjusted) in active
markets for identical assets or liabilities at the reporting date.
| ● | Level
1 assets may include listed mutual funds, ETFs and listed equities |
Level 2 Inputs:
Quoted prices for similar assets or
liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; quotes from pricing services
or brokers for which the Company can determine that orderly transactions took place at the quoted price or that the inputs used to arrive
at the price are observable; and inputs other than quoted prices that are observable, such as models or other valuation methodologies.
| ● | Level
2 assets may include debt securities and foreign currency exchange contracts that have inputs to the valuations that generally can be
corroborated by observable market data. |
Level 3 Inputs:
Unobservable inputs for the valuation
of the asset or liability, which may include nonbinding broker quotes.
| ● | Level
3 assets include investments for which there is little, if any, market activity. These inputs require significant management judgment
or estimation. |
Significance of Inputs: The Company’s assessment
of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific
to the financial instrument.
Cash
and Cash Equivalents
Cash and cash equivalents primarily consist of
cash, money market funds and short-term, highly liquid investments with original maturities of three months or less.
Accounts
Receivable
The Company does business and extends credit based
on an evaluation of each customer’s financial condition, generally without requiring collateral. Exposure to losses on receivables
is expected to vary by customer due to the financial condition of each customer. The Company estimates future credit losses based on the
age of customer receivable balances, collection history and forecasted economic trends. Future collections can be significantly different
from historical collection trends or current estimates. The Company monitors exposure to credit losses and maintains allowances for anticipated
losses considered necessary under the circumstances. The allowance for expected credit losses was $42 thousand and $0 as of June 30, 2024
and December 31, 2023, respectively. Credit loss expense was $42 thousand and $5 thousand for the three months ended June, 2024 and 2023,
respectively, and $42 thousand and $5 thousand for the six months ended June, 2024 and 2023, respectively.
Inventories
Inventories consist of finished product and components
and are stated at the lower of cost and net realizable value, determined using the first-in-first-out method.
Earnings
Per Share
Basic net income (loss) per share is calculated
by dividing the net income by the weighted-average number of common shares outstanding for the period using the treasury stock method
for options, restricted stocks and warrants. Diluted net income (loss) per share is computed by giving effect to all potential dilutive
common share equivalents outstanding for the period.
The factors used in the net income (loss) per
share computation are as follows:
| | |
For the Three Months Ended | | |
For the Six Months Ended | |
| | |
June 30, | | |
June 30, | |
| (in thousands) | |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| Basic | |
| | |
| | |
| | |
| |
| Net income (loss) | |
$ | 1,612 | | |
$ | (380 | ) | |
$ | 3,886 | | |
$ | (2,274 | ) |
| Weighted average number of shares used in computing net income (loss) per share – basic | |
| 16,298 | | |
| 16,250 | | |
| 16,297 | | |
| 16,248 | |
| Net income (loss) per share - basic | |
$ | 0.10 | | |
$ | (0.02 | ) | |
$ | 0.24 | | |
$ | (0.14 | ) |
| Diluted | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) | |
$ | 1,612 | | |
$ | (380 | ) | |
$ | 3,886 | | |
$ | (2,274 | ) |
| Weighted average number of shares used in computing net income (loss) per share – basic | |
| 16,298 | | |
| 16,250 | | |
| 16,297 | | |
| 16,248 | |
| Dilutive effects of: | |
| | | |
| | | |
| | | |
| | |
| Restricted stock awards | |
| 35 | | |
| - | | |
| 29 | | |
| - | |
| Weighted average number of shares used in computing net income (loss) per share – diluted | |
| 16,333 | | |
| 16,250 | | |
| 16,326 | | |
| 16,248 | |
| Net income (loss) per share - diluted | |
$ | 0.10 | | |
$ | (0.02 | ) | |
$ | 0.24 | | |
$ | (0.14 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| The shares listed below were not included in the computation of diluted net income (loss) | |
| | | |
| | | |
| | | |
| | |
| per share because to do so would have been antidilutive for the periods presented: | |
| | | |
| | | |
| | | |
| | |
| Restricted stock awards | |
| 52,500 | | |
| 146,000 | | |
| 52,500 | | |
| 146,000 | |
| Stock options | |
| 86,550 | | |
| 89,550 | | |
| 86,550 | | |
| 89,550 | |
Diluted net income per share for the three and
six months ended June 30, 2024 includes the dilutive effect of restricted stock awards that were issued in July 2021 and January 2024
to our directors, officers, and employees. Diluted weighted average common shares outstanding for the three and six months ended June
30, 2024 excludes stock options whose exercise prices were higher than the average price of our shares of common stock during the period.
Diluted weighted average common shares outstanding for the three and six months ended June 30, 2024 also excludes the 52,500 shares issued
under restricted stock awards in December 2022 to employees, as the average price of our shares of common stock during the three and six
months ended June 30, 2024 was less than average unrecognized compensation expense. Diluted net loss per share for the three and six months
ended June 30, 2023 excludes the dilutive effect of stock options and restricted stock awards as they are antidilutive during a period
of net loss. The assumed proceeds of stock options and the restricted stock awards for the treasury stock method is the sum of proceeds
from exercise and the average amount of unrecognized compensation expense.
Leases
The Company evaluates arrangements at inception
to determine if an arrangement is or contains a lease. Operating lease assets represent the Company’s right to control an underlying
asset for the lease term, and operating lease liability represents the Company’s obligation to make lease payments arising from
the lease. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain
substantially all of the economic benefits from using the underlying asset. Operating lease assets and liabilities are recognized at the
commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the
Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The
Company uses an incremental borrowing rate that the Company would expect to incur for a fully collateralized loan over a similar term
under similar economic conditions to determine the present value of the lease payments. The Company has lease agreements which include
lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying
assets.
The lease payments used to determine the Company’s
operating lease assets may include lease incentives, and stated rent increases are recognized in the Company’s operating lease assets
in the Company’s condensed consolidated balance sheets. Operating lease assets are amortized to rent expense over the lease term
and included in operating expenses in the condensed consolidated statements of income.
For leases in which the Company is the lessor,
the Company identifies the lease and non-lease components and allocates the contract consideration to the different components on a relative
standalone selling price basis at lease inception. The Company uses a residual approach for the components when the standalone selling
price is not directly observable or those for which the Company has not established a price.
The Company elects the practical expedient to
combine lease and non-lease components when the components qualify to be combined. Continuous supporting services are the primary non-lease
components and are not predominant. As a result, the combined components are accounted for as a lease under ASC 842, Leases. The
revenues from non-lease components that are not qualified to be combined are recognized when the services are rendered under ASC 606,
Revenue from Contracts with Customers. The revenues from non-lease components were $50 thousand for the three and six months ended
June 30, 2024.
For operating leases where the Company is the
lessor, the Company recognizes the underlying assets and depreciates them over the estimated useful life which is based upon to estimate
the residual value expected at the end of the lease term. Lease income is recognized on a straight-line basis over the lease term. Leasing
revenue is not recognized when collection of all contractual rents over the term of the agreement is not probable. When collection is
not probable, the Company limits the lease revenue to the lesser of the revenue recognized on a straight-line basis or cash basis. The
lease income is included in revenues in the condensed consolidated statements of income (loss).
Variable lease payments associated with the leases
are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable
lease payments are presented within revenues in the condensed consolidated statements of income (loss).
Income
Taxes
The Company
recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s
financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differences between
the financial statement carrying amounts and the tax bases of the assets and liabilities using the enacted tax rates in effect in the
years in which the differences are expected to reverse. A valuation allowance against deferred tax assets is recorded if, based on the
weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Uncertain
tax positions are recognized in the financial statements only if that position is more likely than not to be sustained upon examination
by taxing authorities, based on the technical merits of the position. The Company’s practice is to recognize interest and/or penalties
related to income tax matters in income tax expense.
Recent
Accounting Pronouncements
In
March 2020, the Financial Accounting Standard Board (“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 the London Interbank
Offered Rate, or LIBOR, to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply
certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform if certain criteria
are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous
accounting determination. The guidance was originally effective as of March 12, 2020 through December 31, 2022 and interim periods within
those fiscal years. In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 which was issued to
defer the sunset date of Topic 848 to December 31, 2024. These updates are not expected to have a significant impact on the Company’s
condensed consolidated financial statements.
In
November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to enhance
disclosures about significant segment expenses for public entities reporting segment information under ASC Topic 280. The amendments require
public entities to disclose significant expense categories for each reportable segment, other segment items, the title and position of
the chief operating decision-maker, and interim disclosures of certain segment-related information previously required only on an annual
basis. The amendments clarify that entities reporting single segments must disclose both the new and existing segment disclosures under
Topic 280, and a public entity is permitted to disclose multiple measures of segment profit or loss if certain criteria are met. The ASU
is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15,
2024. The Company is currently evaluating the impact of this standard on its condensed consolidated
financial statements and related disclosures.
In December
2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance transparency into
income tax disclosures. The amendments require annual disclosure of certain information relating to the rate reconciliation, income taxes
paid by jurisdiction, income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic
and foreign jurisdictions, income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and
foreign jurisdictions. The amendments also eliminate certain requirements relating to unrecognized tax benefits and certain deferred tax
disclosure relating to subsidiaries and corporate joint ventures. The ASU is effective for fiscal years beginning after December 15, 2024,
and interim periods within fiscal years beginning after December 15, 2025. Early adoption is permitted. The Company is currently evaluating
the impact of this standard on its condensed consolidated financial statements and related disclosures.
In March
2024, the FASB issued ASU 2024-01, Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar
Awards, to clarify how an entity determines whether a profits interest or similar award is within the scope of Topic 718 or is not
a share-based payment arrangement and therefore within the scope of other guidance. ASU 2024-01 provides an illustrative example with
multiple fact patterns and also amends certain language in the “Scope” and “Scope Exceptions” sections of Topic
718 to improve its clarity and operability without changing the guidance. The ASU is effective for fiscal years beginning after December
15, 2024, and interim periods within those annual periods. Early adoption is permitted. These updates are not expected to have a significant
impact on the Company’s condensed consolidated financial statements.
Note
2 — Property and Equipment
Property and equipment consist of the following:
| (in thousands) | |
As of
June 30,
2024 | | |
As of
December 31,
2023 | | |
Estimated
Useful Lives |
| Operations equipment | |
$ | 1,129 | | |
$ | 1,018 | | |
3-10 years |
| Tradeshow and demo equipment | |
| 1,181 | | |
| 1,184 | | |
3 years |
| Computer equipment | |
| 148 | | |
| 145 | | |
3 years |
| Subtotal | |
| 2,458 | | |
| 2,347 | | |
|
| Construction in progress | |
| 228 | | |
| - | | |
|
| Less accumulated depreciation | |
| (1,974 | ) | |
| (1,883 | ) | |
|
| Property and Equipment, Net | |
$ | 712 | | |
$ | 464 | | |
|
Depreciation expense was $31 thousand and $59
thousand for the three months ended June 30, 2024 and 2023, respectively, and $101 thousand and $107 thousand for the six months ended
June 30, 2024 and 2023, respectively.
Note
3 — Debt
As of December
31, 2022, the Company had a revolving credit facility with Silicon Valley Bank (“SVB”) that provided for maximum borrowings
equal to the lesser of (a) the $15 million commitment amount or (b) the borrowing base plus a $7.5 million non-formula sublimit. On March
10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation
(the “FDIC”) was appointed receiver. On March 13, 2023, the FDIC transferred all deposits, both insured and uninsured, and
substantially all assets of SVB to a newly created, full-service FDIC-operated “bridge bank”, Silicon Valley Bridge Bank,
N.A. (“SVBB”), chartered by the Office of the Comptroller of the Currency as a national bank. Subsequently, on March 27, 2023,
the FDIC entered into a purchase and assumption agreement for all deposits and loans, as well as certain other assets, of SVBB, with First-Citizens
Bank &Trust Company (“FCB”), a subsidiary of First Citizens BancShares, Inc. (“First Citizens”). As a result
of this transaction, SVB became a wholly owned subsidiary of FCB.
On September
11, 2023, the Company entered into a new revolving credit facility (the “Credit Facility”) with Comerica Bank (“Comerica”),
replacing the prior facility with SVB, that provides for maximum borrowings of $10 million. The Credit Facility may be terminated by the
Company or Comerica at any time without penalty. At June 30, 2024, the available borrowings under this facility were $10 million. Any
borrowings bear interest at the Secured Overnight Financing Rate plus 2.50% (or 7.83% at June 30, 2024) and would be due upon demand by
Comerica. The Credit Facility is secured by all of the Company’s assets. The Credit Facility contains a financial covenant requiring
that the Company maintain unencumbered liquid assets having a minimum value of $3,500,000 in a Comerica account.
The Company
was in compliance with its financial covenants under the respective facilities as of June 30, 2024 and December 31, 2023. There were no
borrowings outstanding under either facility at June 30, 2024 and December 31, 2023.
Note
4 — Product Warranties
Changes in product warranty liability were as
follows for the six months ended June 30, 2024:
| (in thousands) | |
| |
| Balance, December 31, 2023 | |
$ | 538 | |
| Warranties accrued during the period | |
| 186 | |
| Payments on warranty claims | |
| (207 | ) |
| Balance, June 30, 2024 | |
$ | 517 | |
Note
5 — Leases
Operating
Lease Agreements
The Company leases its headquarters
office from an unrelated third party under a lease expiring in September 2027. The amortization of the right of use lease asset was $48
thousand and $46 thousand for the three months ended June 30, 2024 and 2023, respectively, and $95 thousand and $90 thousand for the six
months ended June 30, 2024 and 2023, respectively.
Future minimum
lease payments under the Company’s non-cancellable leases as of June 30, 2024 are as follows:
| Maturity of Operating Lease Liability | | Amount | |
| 2024 (July 1 - December 31, 2024) | | $ | 112 | |
| 2025 | | | 229 | |
| 2026 | | | 236 | |
| 2027 | | | 181 | |
| Total undiscounted operating leases payments | | $ | 758 | |
| Less: Imputed interest | | | (60 | ) |
| Present Value of Operating Lease Liability | | $ | 698 | |
| Operating lease liability, current portion | | $ | 195 | |
| Operating lease liability, net of current portion | | $ | 503 | |
| | | | | |
| Other Information | | | | |
| Weighted-average remaining lease term | | | 3.25
years | |
| Weighted-average discount rate | | | 5 | % |
Cash paid
for amounts included in the measurement of operating lease liability was $85 thousand and $104 thousand for the six months ended June
30, 2024 and 2023, respectively, and is included in cash flows from operating activities in the accompanying condensed consolidated statement
of cash flows.
Operating lease cost recognized
as expense was $57 thousand for the three months ended June 30, 2024 and 2023, and $114 thousand for the six months ended June 30,
2024 and 2023. The financing component for operating lease liability represents the effect of discounting the operating lease payments
to their present value.
Lessor
Accounting
Beginning in the quarter ended
June 30, 2024, the Company, through its subsidiary, Sensus Healthcare Services, LLC, leases superficial radiotherapy equipment to dermatology
clinics. The leases generally have initial lease terms of sixty months and automatically renew for a one-year period upon the expiration
of the initial lease terms. Payments due under the leases may be fixed or variable payments.
The component of lease income
for the three and six months ended June 30, 2024 is as follows:
| (in thousands) | |
For the
Three Months Ended
June 30, 2024 | | |
For the
Six Months Ended
June 30, 2024 | |
| Lease income - operating leases | |
$ | 41 | | |
$ | 41 | |
The future
minimum fixed lease payments to be received under the lease agreements as of June 30, 2024 are as follows:
| (in thousands) | |
Amount | |
| 2024 (July 1 - December 31, 2024) | |
$ | 128 | |
| 2025 | |
| 256 | |
| 2026 | |
| 256 | |
| 2027 | |
| 256 | |
| 2028 | |
| 256 | |
| Thereafter | |
| 343 | |
| Total | |
$ | 1,495 | |
Note
6 – Commitments and Contingencies
Manufacturing
Agreement
The Company has a contract manufacturing agreement
with an unrelated third party for the production and manufacture of the SRT-100 (and subsequently the SRT-100 Vision and the SRT-100+),
in accordance with the Company’s product specifications. The agreement renews for successive one-year periods unless either party
notifies the other party in writing, at least sixty days prior to the anniversary date of the agreement, that it will not renew the agreement.
The Company or the manufacturer may terminate the agreement upon ninety days’ prior written notice.
The Company pays this manufacturer for finished
goods in advance of the inventory being received. The Company paid this manufacturer $0 million and $1.2 million for finished goods for
the three months ended June 30, 2024 and 2023, respectively, and $5.7 million and $7.9 million for the six months ended June 30, 2024
and 2023, respectively. Finished goods of $0.3 million and $4.5 million were received from this manufacturer for the three months ended
June 30, 2024 and 2023, respectively, and $5.2 million and $7.7 million for the six months ended June 30, 2024 and 2023, respectively.
As of June 30, 2024 and December 31, 2023, a prepayment related to these finished goods of $3.3 million and $3.0 million, respectively,
was presented in prepaid inventory in the accompanying condensed consolidated balance sheets.
Legal
contingencies
The Company is party to certain legal proceedings
in the ordinary course of business. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation
and related contingencies.
In 2015, the Company learned that the Department
of Justice (the “Department”) had commenced an investigation of the billing to Medicare by a physician who had treated patients
with the Company’s SRT-100. The Department subsequently advised the Company that it was considering expanding the investigation
to determine whether the Company had any involvements in physician’s use of certain reimbursements codes. The Company has received
two Civil Investigative Demands from the Department seeking documents and written responses in connection with its investigation. The
Company has fully cooperated with the Department. The Company disputes that it has engaged in any wrongdoing with respect to such reimbursement
claims; among other considerations, the Company does not submit claims for reimbursement or provide coding or billing advice to physicians.
To the Company’s knowledge, the Department has made no determination as to whether the Company engaged in any wrongdoing, or whether
to pursue any legal action against the Company. Should the Department decide to pursue legal action, the Company believes it has strong
and meritorious defenses and will vigorously defend itself. As of June 30, 2024, the Company was unable to estimate the cost associated
with this matter.
Note
7 — Stockholders’ Equity
Preferred Stock
The Company has authorized 5 million shares of
preferred stock. No shares of preferred stock were issued or outstanding at June 30, 2024 or December 31, 2023.
Treasury stock
Treasury stock includes shares surrendered by
employees for tax withholding on the vesting of restricted stock awards and shares repurchased in open market transactions. No shares
were surrendered by employees for tax withholding for the three and six months ended June 30, 2024. 0 and 4,487 shares were surrendered
by employees for tax withholding for the three and six months ended June 30, 2023, respectively. During three and six months ended June
30, 2024 and 2023, the Company did not repurchase any shares in open market transactions.
Note
8 — Equity-based Compensation
2016
and 2017 Equity Incentive Plans
The Company’s 2016 Equity Incentive Plan
and the 2017 Incentive Plan, as amended in June 2023 (collectively, the “Plans”), provide for the issuance of up to 397,473
shares and 750,000 shares, respectively. In addition, unless the Compensation Committee specifically determines otherwise, the maximum
number of shares available under the Plans and the awards granted under the Plans will be subject to appropriate adjustment in the case
of any stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, exchanges or other changes in capitalization
affecting the Company’s common stock. The awards may be made in the form of restricted stock
awards or stock options, among other things. As of June 30, 2024 and December 31, 2023, 295,223 and 312,973 shares were available
to be granted under the Plans, respectively.
On February
1, 2020, a total of 35,000 shares of restricted stock were issued to employees. The restricted shares vest 25% per year over
a four-year period. The grant date fair value of $4.11 per share is being recognized as expense on a straight-line basis over the vesting
period. During the six months ended June 30, 2024, 2,500 shares of common stock vested. As of June 30, 2024, the shares issued on February
1, 2020 were fully vested.
On July 21, 2021, a total of 130,000 shares
of restricted stock were issued to employees and board members. The restricted shares vest 25% at grant date and 25% per year over a three-year
period. The grant date fair value of $3.84 per share is being recognized as expense on a straight-line basis over the vesting period.
No additional restricted shares vested during the six months ended June 30, 2024.
On December 19, 2022, a total of 77,000 shares
of restricted stock were issued to employees. The restricted shares vest 25% per year over a four-year period. The fair value of $6.40
per share, the stock price on grant date, is being recognized as expense on a straight-line basis over the vesting period. During the
six months ended June 30, 2024, 2,250 shares of unvested common stock were forfeited due to the termination of three employees.
On January 26, 2023, 10,000 shares of common stock
were issued to an employee and were recorded at the fair value of $8.96 per share, the stock price on the grant date. The shares were
fully vested on the grant date.
On January 11, 2024, 20,000 shares of common stock
with a fair value of $2.65 per share, the stock price on the grant date, were issued to an employee. 10,000 of the shares were vested
and the expense related to these shares was recognized on the grant date. The remaining 10,000 shares are scheduled to cliff vest in January
2025. The grant date fair value of $2.65 per share is being recognized as expense on a straight-line basis over the vesting period. The
grant date fair value is being recognized as expense on a straight-line basis over the vesting period.
Restricted
Stock
Restricted stock activity for the six months ended
June 30, 2024 is summarized below:
| Outstanding at | |
Restricted
Stock | | |
Weighted-
Average
Grant
Date Fair
Value | |
| December 31, 2023 | |
| 89,750 | | |
$ | 5.41 | |
| Granted | |
| 20,000 | | |
| 2.65 | |
| Vested | |
| (12,500 | ) | |
| 2.94 | |
| Forfeited | |
| (2,250 | ) | |
$ | 6.40 | |
| June 30, 2024 | |
| 95,000 | | |
$ | 5.13 | |
The Company recognizes forfeitures as they occur.
The reduction of stock compensation expense related to the forfeitures was $1 thousand and $1 thousand for the three months ended
June 30, 2024 and 2023, respectively, and $2 thousand and $19 thousand for the six months ended June 30, 2024 and 2023, respectively.
Stock compensation expense related to restricted
stock, excluding the recognition of forfeitures, was $66 thousand and $67 thousand for the three months ended June 30, 2024 and 2023,
respectively, and $158 thousand and $228 thousand for the six months ended June 30, 2024 and 2023, respectively.
Unrecognized stock compensation expense was $292 thousand
as of June 30, 2024, which will be recognized over a weighted-average period of 2.3 years.
Stock
Options
Stock options
expire ten years after the grant date. Options that have been granted are exercisable and vest based on the terms of the related agreements.
The following table summarizes
the Company’s stock options activity:
| | | Number of
Options | | | Weighted-
Average
Exercise
Price | | | Weighted-
Average
Remaining
Contractual
Term
(In Years) | |
| Outstanding - December 31, 2023 | | | 89,550 | | | $ | 5.55 | | | | 4.08 | |
| Granted | | | - | | | | - | | | | - | |
| Exercised | | | (3,000 | ) | | | 5.55 | | | | - | |
| Expired | | | - | | | | - | | | | - | |
| Outstanding - June 30, 2024 | | | 86,550 | | | $ | 5.55 | | | | 3.58 | |
| Exercisable – June 30, 2024 | | | 86,550 | | | $ | 5.55 | | | | 3.58 | |
No stock compensation expense related to stock
options was incurred for the three and six months ended June 30, 2024 and 2023. The stock options outstanding had an intrinsic value of
$0 as of June 30, 2024 and December 31, 2023.
Note
9 — Income Taxes
The Company accounts for income taxes in accordance
with ASC 740, Income Taxes, (“ASC 740”), which prescribes a recognition threshold and measurement process for financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance
on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Effective income tax rates for interim periods
are based upon the Company’s current estimated annual tax rate, which varies based upon the Company’s estimate of taxable
earnings or loss and the mix of taxable earnings or loss in the various states in which the Company operates. In addition, the Company
recognizes taxes related to unusual or infrequent items or resulting from a change in judgment regarding a position taken in a prior period
as discrete items in the interim period in which the event occurs.
As of June 30, 2024 and 2023, management determined
there continues to be sufficient positive evidence that it is more likely than not that the net deferred tax asset (other than foreign
net operation losses) is realizable.
Income tax expense (benefit) was $579 thousand
and ($502) thousand for the three months ended June 30, 2024 and 2023, respectively. Income tax expense (benefit) was $1,406 thousand
and ($1,303) thousand for the six months ended June 30, 2024 and 2023, respectively.
The effective tax rates for the three months ended
June 30, 2024 and 2023 were 26.4% and 56.9%, respectively. The effective tax rates for the six months ended June 30, 2024 and
2023 were 26.6% and 36.4%, respectively. The decrease in the effective tax rate for the three and six months ended June 30, 2024 compared
to the prior year periods was primarily due to a decrease in nondeductible expenses and an increase in the estimated tax credits that
are expected to be generated and utilized.
The effective tax rate differs from the U.S. federal
statutory rate for the three and six months ended June 30, 2024, primarily due to nondeductible expenses, state income taxes and the favorable
impact of tax credits. The effective tax rate differs from the U.S. federal statutory rate for the three and six months ended June 30,
2023, primarily due to nondeductible expenses and state income taxes.
As of June 30, 2024, the Company’s U.S.
federal and certain state tax returns remain subject to examination, beginning with those filed for the year ended December 31, 2017.
Note
10 — Subsequent Events
The Company has evaluated subsequent events and
transactions that occurred after the balance sheet date up to the date that the financial statements were issued for potential recognition
or disclosure. The Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
Item 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion
and analysis in conjunction with the information set forth within the financial statements and the notes thereto included elsewhere in
this Quarterly Report on Form 10-Q, and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations
in the 2023 Annual Report.
Overview
Sensus is a medical device company committed to
providing highly effective, non-invasive and cost-effective treatments for both oncological and non- oncological skin conditions.
Segment Information
The Company manages its business globally within
one reportable segment, which is consistent with how our management 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) | |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| | |
| | |
| | |
| | |
| |
| Revenues | |
$ | 9,239 | | |
$ | 4,527 | | |
$ | 19,902 | | |
$ | 7,941 | |
| Cost of sales | |
| 3,816 | | |
| 1,908 | | |
| 7,817 | | |
| 3,700 | |
| Gross profit | |
| 5,423 | | |
| 2,619 | | |
| 12,085 | | |
| 4,241 | |
| Operating expenses | |
| | | |
| | | |
| | | |
| | |
| Selling and marketing | |
| 996 | | |
| 1,595 | | |
| 2,266 | | |
| 3,693 | |
| General and administrative | |
| 1,579 | | |
| 1,329 | | |
| 3,158 | | |
| 2,693 | |
| Research and development | |
| 866 | | |
| 822 | | |
| 1,792 | | |
| 1,920 | |
| Total operating expenses | |
| 3,441 | | |
| 3,746 | | |
| 7,216 | | |
| 8,306 | |
| Income (loss) from operations | |
| 1,982 | | |
| (1,127 | ) | |
| 4,869 | | |
| (4,065 | ) |
| Other income: | |
| | | |
| | | |
| | | |
| | |
| Interest income | |
| 209 | | |
| 245 | | |
| 423 | | |
| 488 | |
| Other income, net | |
| 209 | | |
| 245 | | |
| 423 | | |
| 488 | |
| Income (loss) before income tax | |
| 2,191 | | |
| (882 | ) | |
| 5,292 | | |
| (3,577 | ) |
| Provision for (benefit from) income taxes | |
| 579 | | |
| (502 | ) | |
| 1,406 | | |
| (1,303 | ) |
| Net income (loss) | |
$ | 1,612 | | |
$ | (380 | ) | |
$ | 3,886 | | |
$ | (2,274 | ) |
Three months ended June 30, 2024 compared
to the three months ended June 30, 2023
Revenues. Revenues were $9.2
million for the three months ended June 30, 2024 compared to $4.5 million for the three months ended June 30, 2023, an increase of $4.7
million, or 104.4%. The increase was primarily driven by a higher number of units sold to a large customer in the three months ended June
30, 2024 compared to the three months ended June 30, 2023.
Cost of sales. Cost of sales
was $3.8 million for the three months ended June 30, 2024 compared to $1.9 million for the three months ended June 30, 2023, an increase
of $1.9 million, or 100.0%. The increase in cost of sales was primarily related to a higher number of units sold and was fairly consistent
as a percentage of revenue in the three months ended June 30, 2024 compared to the three months ended June 30, 2023.
Gross profit. Gross profit was
$5.4 million for the three months ended June 30, 2024 compared to $2.6 million for the three months ended June 30, 2023, an increase of
$2.8 million, or 107.7%. Our overall gross profit percentage remained consistent at 58.7% in the three months ended June 30, 2024 compared
to 57.9% in the corresponding period in 2023.
Selling and marketing. Selling
and marketing expense was $1.0 million for the three months ended June 30, 2024 compared to $1.6 million for the three months ended June
30, 2023, a decrease of $0.6 million, or 37.5%. The decrease was primarily attributable to the decrease in marketing agency expense, lower
headcount and decrease in tradeshow costs.
General and administrative. General
and administrative expense was $1.6 million for the three months ended June 30, 2024 compared to $1.3 million for the three months ended
June 30, 2023, an increase of $0.3 million, or 23.1%. The net increase in general and administrative expense was primarily due to higher
professional fees and compensation.
Research and development. Research
and development expense was $0.9 million for the three months ended June 30, 2024 compared to $0.8 million for the three months ended
June 30, 2023, an increase of $0.1 million, or 12.5%. The increase was primarily due to expenses
related to a project to develop a drug delivery system for aesthetic use.
Other income. Other income of $0.2 million
for the three months ended June 30, 2024 and 2023 relate primarily to interest income.
Six months ended June 30, 2024 compared to
the six months ended June 30, 2023
Revenues. Revenues were $20.0
million for the six months ended June 30, 2024 compared to $8.0 million for the six months ended June 30, 2023, an increase of $12.0 million,
or 151.9%. The increase was primarily driven by a higher number of units sold to a large customer in the six months ended June 30, 2024
compared to the six months ended June 30, 2023.
Cost of sales. Cost of sales
was $7.8 million for the six months ended June 30, 2024 compared to $3.7 million for the six months ended June 30, 2023, an increase of
$4.1 million, or 110.8%. The increase in cost of sales was primarily related to a higher number of units sold in the six months ended
June 30, 2024 compared to the six months ended June 30, 2023.
Gross profit. Gross profit was
$12.1 million for the six months ended June 30, 2024 compared to $4.2 million for the six months ended June 30, 2023, an increase of $7.9
million, or 188.1%. Our overall gross profit percentage was 60.7% in the six months ended June 30, 2024 compared to 53.4% in the corresponding
period in 2023. The increase in gross profit was primarily driven by a higher number of units sold in the six months ended June 30, 2024
compared to the six months ended June 30, 2023.
Selling and marketing. Selling
and marketing expense was $2.3 million for the six months ended June 30, 2024 compared to $3.7 million for the six months ended June 30,
2023, a decrease of $1.4 million, or 37.8%. The decrease was primarily attributable to the decrease in marketing agency expense, lower
headcount and decrease in tradeshow costs.
General and administrative. General
and administrative expense was $3.2 million for the six months ended June 30, 2024 compared to $2.7 million for the six months ended June
30, 2023, an increase of $0.5 million, or 18.5%. The net increase in general and administrative expense was primarily due to higher professional
fees and compensation.
Research and development. Research
and development expense was $1.8 million for the six months ended June 30, 2024 compared to $1.9 million for the six months ended June
30, 2023, a decrease of $0.1 million, or 5.3%. The decrease was primarily due to expenses
related to a project to develop a drug delivery system for aesthetic use.
Other income. Other income of $0.4 and
0.5 million for the six months ended June 30, 2024 and 2023, respectively, relate primarily to interest income.
Financial Condition
The following discussion summarizes
significant changes in assets and liabilities. Please see the condensed consolidated balance sheets as of June 30, 2024 and December 31,
2023 contained in Part I, Item 1 of this filing.
Assets
Cash and cash equivalents at June 30,
2024 decreased $4.1 million from December 31, 2023. See Cash Flows for details on the change in cash and cash equivalents during
the six months ended June 30, 2024.
Accounts receivable at June 30, 2024
increased $7.7 million from December 31, 2023, primarily due to the increase in sales and concentration of sales to the Company’s
primary customer that is subject to extended payment terms.
Inventories at June 30, 2024 increased
$0.9 million from December 31, 2023, as volume has been increased in anticipation of increasing future revenues.
Liabilities
There were no borrowings outstanding under our revolving lines of credit
at June 30, 2024 or December 31, 2023.
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 |
| ● | financial market instability or disruptions to the banking
system due to bank failures |
The Company’s primary short-term capital
needs, which are subject to change, include expenditures related to:
| ● | expansion of sales and marketing activities; and |
| ● | expansion of research and development activities. |
Sensus’s management regularly
evaluates cash requirements for current operations, commitments, capital requirements and business development transactions, and may seek
to raise additional funds for these purposes in the future. However, there can be no assurance that it will be able to raise such funds
or the terms on which such funds may be raised, if at all.
Cash flows
The following table provides a summary of cash
flows for the periods indicated:
| | |
For the Six Months Ended | |
| | |
June 30 | |
| (in thousands) | |
2024 | | |
2023 | |
| Net cash provided by (used in): | |
| | |
| |
| Operating activities | |
$ | (3,957 | ) | |
$ | (5,255 | ) |
| Investing activities | |
| (236 | ) | |
| (218 | ) |
| Financing activities | |
| 17 | | |
| 6 | |
| Total | |
$ | (4,176 | ) | |
$ | (5,467 | ) |
Net cash used in operating activities was $4.0
million for the six months ended June 30, 2024, consisting of net income of $3.9 million and non-cash charges of $1.1 million, offset
by an increase in net operating assets of $9.0 million. Cash flows provided by operating activities primarily include the receipt of revenues
offset by the payment of operating expenses incurred in the normal course of business. Non-cash items consisted of credit loss expense,
deferred income taxes, stock-based compensation expense, provision for product warranties, amortization of right-of-use asset and depreciation
and amortization of property and equipment. Net cash used in operating activities was $5.3 million for the six months ended June 30, 2023,
consisting of net loss of $2.4 million, an increase in net operating liabilities of $2.3 million, and non-cash charges of $0.6 million.
Cash flows provided by operating activities primarily include the receipt of revenues offset by the payment of operating expenses incurred
in the normal course of business. Non-cash items consisted of credit loss expense, deferred income taxes, stock-based compensation expense,
provision for product warranties and depreciation and amortization.
Net cash used
in investing activities for the six months ended June 30, 2024 reflected $236 thousand of purchases of property and equipment. Net cash
used in investing activities for the six months ended June 30, 2023 reflected $0.2 million of purchases of property and equipment.
Net cash provided by financing activities for
the six months ended June 30, 2024 reflected $17 thousand of exercised stock options. Net cash provided in financing activities for the
six months ended June 30, 2023 primarily reflected $46 thousand of exercised stock options, offset by $40 thousand of withholding taxes
on stock-based compensation.
Inflation
During the first
and second quarters of 2024, we continued to experience some increase in commodity and shipping prices and energy and labor costs which
resulted in inflationary pressures across various parts of our business and operations, including on our customers, partners, and suppliers.
We continue to monitor the impact of inflation and we are taking actions, such as ordering inventory in advance, to minimize its effects
on our product cost and sales.
Indebtedness
As discussed in Note 3, Debt, to the financial
statements, in September 2023, the Company entered into the new Credit Facility with Comerica, replacing the Company’s prior facility
with SVB. Additional information regarding the Credit Facility, including the amounts that may be borrowed under the Credit Facility and
the covenants and other terms included in the Credit Facility, is included in the Company’s Current Report on Form 8-K, filed with
the Securities and Exchange Commission on September 14, 2023.
Contractual Obligations and Commitments
Please see Note 6, Commitments and Contingencies,
to the condensed consolidated financial statements.
Critical Accounting Policies and Estimates
The preparation of the condensed consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements
and the reported amounts of revenue and expense during the reporting periods. Management has identified certain accounting policies as
critical to understanding the financial condition and results of operations. For a detailed discussion on the application of these and
other accounting policies, see the Note 1, Organization and Summary of Significant Accounting Policies to the consolidated financial
statements included in the 2023 Annual Report for further information.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Control and Procedures
As of June 30, 2024, the end of the
period covered by this Form 10-Q, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of June 30, 2024, the end of the
period covered by this Form 10-Q, we did not maintain effective disclosure controls and procedures, as described below.
| |
● | Information technology general controls were not designed and operating effectively to ensure
that access to applications and data were adequately restricted to appropriate personnel, ensure segregation of duties, and appropriately
monitor the activities of the individuals with access to modify data. |
While the deficiencies described above did not result in any material misstatements to the Company’s condensed consolidated financial
statements for the period ending June 30, 2024, they did represent a material weakness as of June 30, 2024, since there existed a reasonable
possibility that a material misstatement of the Company’s annual or interim financial statements would not be prevented or detected
on a timely basis.
Management’s
Remediation Measures
Management is committed to maintaining a strong internal control environment. Accordingly, management is in the process of implementing
a plan to remediate the material weakness described above as soon as possible.
Changes in Internal Control over Financial
Reporting
Except as described above, there have been no significant changes
in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to certain
legal proceedings in the ordinary course of business. The Company assesses, in conjunction with its legal counsel, the need to record
a liability for litigation and related contingencies. See Note 6, Commitments and Contingencies.
Item 1A. Risk Factors
In addition to the other information
set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors”
in our 2023 Annual Report, as updated in our subsequent quarterly reports. The risks described in our 2023 Annual Report and our subsequent
quarterly reports are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently
deem to be immaterial also may materially adversely affect our business, financial condition or operating results.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
(a)
Sales of Unregistered Securities
There were no unregistered sales of
securities during the three months ended June 30, 2024.
(b)
Use of Proceeds from the Sale of Registered Securities
None.
(c)
Purchases of Equity Securities by the Registrant and Affiliated Purchasers.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
(c) Rule 10b5-1 Trading Plans
During the three months ended June
30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction
or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)
under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K. None.
Item 6. Exhibits
EXHIBIT INDEX
| Exhibit No. |
|
Description |
| 3.1* |
|
Amended and Restated Certificate of Incorporation of Sensus Healthcare, Inc., dated as of June 14, 2024 |
| |
|
|
| 31.1* |
|
Certification of Joseph C. Sardano, Chairman and Chief Executive Officer of Sensus Healthcare, Inc., Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |
| |
|
|
| 31.2* |
|
Certification of Javier Rampolla, Chief Financial Officer of Sensus Healthcare, Inc., Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |
| |
|
|
| 32.1* |
|
Certification of Joseph C. Sardano, Chairman and Chief Executive Officer of Sensus Healthcare, Inc., Pursuant to 18 U.S.C. Section 1350. |
| |
|
|
| 32.2* |
|
Certification of Javier Rampolla, Chief Financial Officer of Sensus Healthcare, Inc., Pursuant to 18 U.S.C. Section 1350. |
| |
|
|
| 101.INS* |
|
Inline XBRL Instance Document. |
| |
|
|
| 101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document. |
| |
|
|
| 101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| |
|
|
| 101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
| |
|
|
| 101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| |
|
|
| 101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| |
|
|
| 104.* |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed
electronically herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
SENSUS HEALTHCARE, INC. |
| |
|
| Date: August 13, 2024 |
/s/ Joseph C. Sardano |
| |
Joseph C. Sardano |
| |
Chief Executive Officer |
| |
(Principal Executive Officer) |
| |
|
| Date: August 13, 2024 |
/s/ Javier Rampolla |
| |
Javier Rampolla |
| |
Chief Financial Officer |
| |
(Principal Financial Officer and |
| |
Principal Accounting Officer) |
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Sensus Healthcare, Inc., a corporation
organized and existing under the laws of the State of Delaware (the “Corporation”), hereby certifies as follows:
1.
The name of the Corporation is Sensus Healthcare, Inc. The Corporation’s original Certificate of Incorporation was filed
with the Secretary of State of the State of Delaware effective January 1, 2016.
2.
This Amended and Restated Certificate of Incorporation was duly adopted in accordance with Sections 242, 245, and 228 of the Delaware
General Corporation Law, and restates, integrates, and further amends the provisions of the Corporation’s Certificate of Incorporation.
3.
The text of the Certificate of Incorporation of this Corporation is hereby amended and restated in its entirety, effective June
14, 2024, as set forth in Exhibit A attached hereto.
The name of the corporation is Sensus Healthcare, Inc. (the
“Corporation”).
The address of
the registered office of the Corporation in the State of Delaware will be at 1521 Concord Pike, Suite 201, Wilmington, Delaware 19803.
The name of the registered agent of the Corporation at such address is Corporate Creations Network Inc.
The purpose
of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation
Law.
The total number
of shares and classes of stock that the Corporation will have authority to issue is 55,000,000 shares, which will be divided into two
classes, as follows: 5,000,000 shares of preferred stock, with the par value of $0.01 per share, and 50,000,000 shares of common stock,
with the par value of $0.01 per share.
The Board of
Directors is hereby expressly authorized (A) to provide for one or more series of preferred stock out of the unissued shares of preferred
stock; and (B) with respect to each such series, to fix (i) the number of shares constituting such series and the designation of
such series; (ii) the voting powers (if any) of the shares of such series; and (iii) the preferences and relative, participating,
optional, or other special rights (if any), and any qualifications, limitations, or restrictions thereof, of the shares of such series.
The powers, preferences and relative, participating, optional, and other special rights of each series of preferred stock (if any), and
the qualifications, limitations, or restrictions thereof, may differ from those of any and all other series at any time outstanding.
A. Powers of the Board of Directors
The business and affairs of the Corporation
will be managed by or under the direction of the Board of Directors. Elections of directors need not be by written ballot unless otherwise
provided in the bylaws of the Corporation (the “Bylaws”).
B. Number of Directors; Classes of Directors
Subject to the
rights of the holders of one or more series of preferred stock then outstanding, the total number of directors constituting the entire
Board of Directors of the Corporation will be as set forth in the Bylaws. Other than those directors (if any) elected by the holders of
any series of preferred stock then outstanding, the Board of Directors will be and is divided into three classes, as nearly equal in number
as possible, designated: Class I, Class II, and Class III. In case of any increase or decrease, from time to time, in the number of directors,
the number of directors in each class will be apportioned as nearly equal as possible. No decrease in the number of directors will shorten
the term of any incumbent director.
C. Term of Office; Qualification
Except for the
terms of such additional directors (if any) as elected by the holders of any series of preferred stock then outstanding, each director
will serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected;
provided, that each director initially appointed to Class I will serve for an initial term expiring at the Corporation’s
first annual meeting of stockholders following the filing of this Certificate of Incorporation of the Corporation (this “Certificate”)
with the Secretary of State of the State of Delaware; each director initially appointed to Class II will serve for an initial term
expiring at the Corporation’s second annual meeting of stockholders following the filing of this Certificate with the Secretary
of State of the State of Delaware; and each director initially appointed to Class III will serve for an initial term expiring at
the Corporation’s third annual meeting of stockholders following the filing of this Certificate with the Secretary of State of the
State of Delaware, in all cases subject to such director’s earlier death, resignation, or removal. Directors need not be stockholders
unless so required by this Certificate or the Bylaws, wherein other qualifications for directors may be prescribed.
D. Removal
Except for such
additional directors (if any) as elected by the holders of any series of preferred stock then outstanding, any director or the entire
Board of Directors may be removed from office only for cause and only by the affirmative vote of at least seventy-five percent (75%) of
the total voting power of the then-outstanding shares of the common stock of the Corporation entitled to vote in any annual election of
directors or class of directors.
A. Special Meetings
A special meeting of the stockholders
for any purpose or purposes may be called at any time by resolution of the Board of Directors, and may not be called by any other person
or persons.
B. No Stockholder Action Permitted by Written Consent
No action that is required or permitted
to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders may be effected by written consent
of stockholders in lieu of a meeting.
C. Change of Control Transactions
In addition to
any affirmative vote required by applicable law or this Certificate, including, without limitation, any vote of the holders of any class
or series of stock of the Corporation required by applicable law or this Certificate, a Change of Control Transaction (as defined below)
will require, except as otherwise prohibited by applicable law, the affirmative vote of the holders of at least seventy-five percent (75%)
of the total voting power of the shares of the then-outstanding voting stock of the Corporation, voting together as a single class. Such
affirmative vote will be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be permitted,
by applicable law or in any agreement with any national securities exchange or otherwise. A “Change of Control Transaction”
means the occurrence of any of the following events: (i) the sale, encumbrance or disposition (other than non-exclusive licenses in the
ordinary course of business and the grant of security interests in the ordinary course of business) by the Corporation of all or substantially
all of the Corporation’s assets; (ii) the merger or consolidation of the Corporation with or into any other corporation or
entity, other than a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity
or its parent) more than fifty percent (50%) of the total voting power represented by the voting securities of the Corporation or such
surviving entity or its parent outstanding immediately after such merger or consolidation; or (iii) the issuance by the Corporation,
in a transaction or series of related transactions, of voting securities representing more than two percent (2%) of the total voting power
of the Corporation before such issuance, to any person or persons acting as a group as contemplated in Rule 13d-5(b) under the Securities
Exchange Act of 1934 (or any successor provision) such that, following such transaction or related transactions, such person or group
of persons would hold more than fifty percent (50%) of the total voting power of the Corporation, after giving effect to such issuance.
A. Limitation of Liability
To the fullest
extent permitted by the Delaware General Corporation Law, as the same exists or as may hereafter be amended, a director or officer of
the Corporation will not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty
as a director or officer. If the Delaware General Corporation Law is amended after the filing of this Amended and Restated Certificate
of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors and/or officers, then
the liability of a director and/or officer of the Corporation, as applicable, shall be eliminated or limited to the fullest extent permitted
by the Delaware General Corporation Law, as so amended. Any repeal or modification of Section 102(b)(7) of the Delaware General Corporation
Law shall not adversely affect any right or protection of a director or officer of the Corporation existing in respect of any act or omission
occurring prior to the time of such repeal or modification. All references in this paragraph to an “officer” shall mean only
a person who, at the time of an act or omission as to which liability is asserted, falls within the meaning of the term “officer,”
as defined in Section 102(b)(7) of the Delaware General Corporation Law.
B. Indemnification of Directors and Officers
The Corporation
will indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended,
any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, by reason of the fact that he or she, or a person for whom he or she is the legal representative,
is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request
of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, enterprise,
or nonprofit entity, including service with respect to employee benefit plans (each such person, an “Indemnified Party”),
against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Indemnified Party.
The Corporation will be required to indemnify an Indemnified Party in connection with a proceeding (or part thereof) initiated by such
Indemnified Party only if the proceeding (or part thereof) was explicitly authorized by the Board of Directors of the Corporation.
C. Amendment or Repeal
In furtherance
and not in limitation of the powers conferred by statute, the Board of Directors is expressly empowered to adopt, amend, or repeal Bylaws
of the Corporation. Any adoption, amendment, or repeal of the Bylaws of the Corporation by the Board of Directors will require the approval
of a majority of the entire Board of Directors. The stockholders will also have power to adopt, amend, or repeal the Bylaws of the Corporation;
provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required
by applicable law or this Certificate, the affirmative vote of the holders of at least seventy-five percent (75%) of the total voting
power of the shares of the then-outstanding voting stock of the Corporation, voting together as a single class, will be required to adopt,
amend, or repeal any provision of the Bylaws of the Corporation.
The Corporation
will have the right, subject to any express provisions or restrictions contained in this Certificate or the Bylaws, from time to time,
to amend, alter, or repeal any provision of this Certificate in any manner now or hereafter provided by applicable law, and all rights
and powers of any kind conferred upon a director or stockholder of the Corporation by this Certificate, or any amendment of this Certificate,
are conferred subject to such right.
Notwithstanding
any other provision of this Certificate, the Bylaws, or any provision of applicable law that might otherwise permit a lesser vote or no
vote, but in addition to any vote of the holders of any class or series of the stock of the Corporation, and, as applicable, such other
approvals of the Board of Directors of the Corporation, as are required by this Certificate, the Bylaws, or applicable law, the affirmative
vote of the holders of at least seventy-five percent (75%) of the total voting power of the shares of the then-outstanding voting stock
of the Corporation, voting together as a single class, will be required to amend or repeal any provisions, or adopt any provisions inconsistent
with those provisions, set forth in Articles V, VI, VIII, IX, or X of this Certificate.
Unless the Corporation
consents in writing to the selection of an alternative forum (an “Alternative Forum Consent”), the Court of Chancery
of the State of Delaware will be the sole and exclusive forum for (A) any derivative action or proceeding brought on behalf of the Corporation;
(B) any action or proceeding asserting a claim for breach of a fiduciary duty owed by any director, officer, employee, or agent of the
Corporation to the Corporation or the Corporation’s stockholders; (C) any action or proceeding asserting a claim arising pursuant
to any provision of the Delaware General Corporation Law, this Certificate, or the Bylaws of the Corporation; or (D) any action or
proceeding asserting a claim governed by the internal affairs doctrine, in each case subject to said Court of Chancery having personal
jurisdiction over the indispensable parties named as defendants therein; provided, however, that, in the event that
the Court of Chancery of the State of Delaware lacks subject matter jurisdiction over any such action or proceeding, the sole and exclusive
forum for such action or proceeding will be another state or federal court located within the State of Delaware, in each such case, unless
the Court of Chancery (or such other state or federal court located within the State of Delaware, as applicable) has dismissed a prior
action by the same plaintiff asserting the same claims because such court lacked personal jurisdiction over an indispensable party named
as a defendant therein. If any action the subject matter of which is within the scope of this Article X is filed in a court other
than the Court of Chancery of the State of Delaware (or any other state or federal court located within the State of Delaware, as applicable)
(a “Foreign Action”) by or in the name of any stockholder, such stockholder will be deemed to have consented to (i)
the personal jurisdiction of the Court of Chancery of the State of Delaware (or such other state or federal court located within the State
of Delaware, as applicable) in connection with any action brought in any such court to enforce this Article X; and (ii) having
service of process made upon such stockholder in any such action by service upon such stockholder’s counsel in the Foreign Action
as agent for such stockholder. The existence of any prior Alternative Forum Consent will not act as a waiver of the Corporation’s
ongoing consent right as set forth above in this Article X with respect to any current or future actions or claims. Any person
or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation will be deemed to have notice of
and consented to the provisions of this Article X. Failure to enforce the foregoing provisions would cause the Corporation irreparable
harm and the Corporation will be entitled to equitable relief, including, without limitation, injunctive relief and specific performance,
to enforce the foregoing provisions.
I, Joseph C. Sardano, certify that:
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, the undersigned certifies that:
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.
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, the undersigned certifies that:
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.