| Organization and Summary of Significant Accounting Policies | Note
1 — Organization and Summary of Significant Accounting Policies Description
of the Business Sensus
Healthcare, Inc. (together, with its subsidiary, unless the context otherwise indicates, “Sensus” or the “Company”)
is primarily a manufacturer of radiation therapy devices sold to healthcare providers and distributors globally through its distribution
network. The Company operates in one segment from its corporate headquarters located in Boca Raton, Florida. Basis
of Presentation and Principles of Consolidation These
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 subsidiary. Accounts and transactions between 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 (consisting of normal recurring accruals) considered necessary for a fair statement
of the results have been included. Operating results for the three and six months ended June 30, 2023 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2023 or for any other period. The
condensed consolidated balance sheet as of December 31, 2022 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, 2022 (the “2022 Annual Report”). Revenue
Recognition The
Company’s revenue derives primarily 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 sales 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, only 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 a 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 under 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, it 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. The
revenues from 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. The
Company has determined that in practice no significant discount is given on the service contract when it is offered with the device purchase
as compared to when it is sold on a stand-alone basis. The service level provided is identical whether the service contract is purchased
on a stand-alone basis or together with the device. There is no termination provision in the service contract or any penalties in practice
for cancellation of the service contract. Disaggregated
revenue for the three and six months ended June 30, 2023 and 2022 was as follows:
For
the Three Months Ended For
the Six Months Ended
June
30, June
30,
(in
thousands) 2023 2022 2023 2022
Product Revenue
- recognized at a point in time $ 3,524 $ 10,970 $ 5,993 $ 20,199
Service Revenue - recognized
at a point in time 306 205 647 524
Service
Revenue - recognized over time 697 905 1,301 1,694
Total
Revenue $ 4,527 $ 12,080 $ 7,941 $ 22,417 The
Company operates in a highly regulated environment, primarily in the U.S. dermatology market, in which state regulatory approval is sometimes
required before the customer is able to use the product. In cases where such regulatory approval is pending, revenue is deferred until
such time as regulatory approval is obtained. Deferred
revenue as of June 30, 2023 was as follows:
(in
thousands) Product Service Total
December 31, 2022 $ 45 $ 787 $ 832
Revenue recognized (9 ) (1,301 ) (1,310 )
Amounts
invoiced - 1,286 1,286
June
30, 2023 $ 36 $ 772 $ 808 The
Company does not disclose information about remaining performance obligations with original expected durations of one year or less in
connection with deposits for products. Estimated service revenue to be recognized in the future related to performance obligations fully
or partially unsatisfied as of June 30, 2023 is as follows:
Year Service
Revenue
2023 (July 1 -
December 31, 2023) $ 457
2024 255
2025 40
2026 20
Total $ 772 The
Company pays commissions for 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. 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 approximately 46% and 78% of revenue for the three months ended June 30, 2023 and 2022, respectively,
approximately 52% and 77% of revenue for the six months ended June 30, 2023 and 2022, respectively, and 86% and 91% of the accounts receivable
as of June 30, 2023 and December 31, 2022, respectively. Segment
and Geographical Information The
following table illustrates total revenue for the three and six months ended June 30, 2023 and 2022 by geographic region.
For
the Three Months Ended
June
30,
(in
thousands) 2023 2022
United States $ 3,892 86 % $ 11,349 94 %
China 300 7 % 711 6 %
Guatemala 190 4 % - 0 %
Ireland 135 3 % - 0 %
Other 10 0 % 20 0 %
Total
Revenue $ 4,527 100 % $ 12,080 100 %
For
the Six Months Ended
June
30,
(in
thousands) 2023 2022
United States $ 7,166 90 % $ 21,497 96 %
China 430 5 % 890 4 %
Guatemala 190 2 % - 0 %
Ireland 135 2 % - 0 %
Other 20 0 % 30 0 %
Total
Revenue $ 7,941 100 % $ 22,417 100 % Fair
Value of Financial Instruments Carrying
amounts of cash equivalents, accounts receivable, and accounts payable approximate fair value due to their relatively short maturities. Fair
Value Measurements The
Company uses a fair value hierarchy that prioritizes inputs to valuation approaches used to measure fair value. The fair value hierarchy
gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority
to unobservable inputs. Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following
categories: Level
1 Inputs: Quoted
prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.
● Level
1 assets may include listed mutual funds, ETFs and listed equities Level
2 Inputs: Quoted
prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not
active; quotes from pricing services or brokers when the Company can determine that orderly transactions took place at the quoted price
or that the inputs used to arrive at the price are observable; and inputs other than quoted prices that are observable, such as models
or other valuation methodologies.
● Level
2 assets may include debt securities and foreign currency exchange contracts that have inputs
to the valuations that generally can be corroborated by observable market data. Level
3 Inputs: Unobservable
inputs for the valuation of the asset or liability, which may include nonbinding broker quotes.
● Level
3 assets include investments for which there is little, if any, market activity. These inputs
require significant management judgment or estimation. Significance
of Inputs: The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires
judgment and considers factors specific to the financial instrument. Cash
and Cash Equivalents The
Company considers all highly liquid financial instruments with maturities of three months or less when purchased to be cash equivalents. Accounts
Receivable The
Company does business and extends credit based on an evaluation of each customer’s financial condition, generally without requiring
collateral. Exposure to losses on receivables varies by customer, primarily due to the customer’s financial condition. The Company
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 allowance for expected credit
losses was $28 thousand and $107 thousand as of June 30, 2023 and December 31, 2022, respectively. Bad debt expense was $5 thousand and
$0 for the three months ended June 30, 2023 and 2022, respectively, and $5 thousand and $0 for the six months ended June 30, 2023 and
2022, respectively. Inventories Inventories
consist of finished product and components and are stated at the lower of cost or net realizable value, determined using the first-in-first-out
method. The Company periodically reviews the value of items in inventory for obsolescence based on its assessment of market conditions
and writes down any obsolete inventory to its net realizable value through a charge to costs of goods sold. The provision for inventory
obsolescence was $18 thousand as of both June 30, 2023 and December 31, 2022. Earnings
Per Share Basic
net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for
the period. Diluted net income per share is computed by giving effect to all potential dilutive common share equivalents outstanding
for the period, using the treasury stock method for options and unvested restricted shares. In periods when the Company has incurred
a net loss, options and unvested shares are considered common share equivalents but have been excluded from the calculation of diluted
net loss per share as their effect is antidilutive. Shares excluded were as follows:
For
the Three Months Ended For
the Six Months Ended
June
30, June
30,
(in
thousands) 2023 2022 2023 2022
Stock Options 89,550 - 89,550 -
Restricted
Stock 146,000 - 146,000 -
Total 235,550 - 235,550 - The
factors used in the earnings per share computation are as follows:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(in thousands) 2023 2022 2023 2022
Basic
Net income (loss) $ (380 ) $ 3,524 $ (2,274 ) $ 19,586
Weighted average common shares outstanding 16,250 16,495 16,248 16,509
Basic earnings per share $ (0.02 ) $ 0.21 $ (0.14 ) $ 1.19
Diluted
Net income (loss) $ (380 ) $ 3,524 $ (2,274 ) $ 19,586
Weighted average common shares outstanding 16,250 16,495 16,248 16,509
Dilutive effects of:
Assumed exercise of stock options - 60 - 127
Restricted stock awards - 76 - 75
Dilutive shares 16,250 16,631 16,248 16,711
Diluted earnings per share $ (0.02 ) $ 0.21 $ (0.14 ) $ 1.17 Leases The
Company evaluates arrangements at inception to determine if an arrangement is or contains a lease. The operating lease right-of-use asset
(the “ROU asset”) represents the Company’s right to use an underlying asset for the lease term, and operating lease
liabilities represent the Company’s obligation to make lease payments arising from the lease. The ROU asset and operating lease
liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term.
When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the
Company will exercise the options. To determine the present value of the lease payment, the Company uses an incremental borrowing rate
that the Company would expect to incur for a fully collateralized loan over a similar term under similar economic conditions. In addition,
the Company has elected available practical expedients to not separate lease and non-lease components for all leased assets and to exclude
leases with initial terms of 12 months or less. The
lease payments used to determine the Company’s operating lease asset may include lease incentives, and stated rent increases are
recognized in the ROU asset in the Company’s consolidated balance sheets. The ROU asset is amortized to rent expense over the lease
term and included in operating expenses in the 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
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. The amendments in this ASU replace the incurred loss model for recognition of credit losses with a methodology
that reflects expected credit losses over the life of the loan and requires consideration of a broader range of reasonable and supportable
information to calculate credit loss estimates. In November 2019, the FASB issued ASU 2019-10, which provides a one-year deferral of
the effective dates of ASU No. 2016-13. Accordingly, the guidance is effective for fiscal years beginning after December 15, 2022. The
Company adopted this update in January 2023. This update did not have a significant impact on the Company’s consolidated financial
statements. Management
does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect
on the Company’s consolidated financial statements. |
