SENSUS HEALTHCARE, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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 2021 Annual Report.

Overview

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

On February 25, 2022, the Company sold its Sculptura assets for $15 million in
cash. Additional information regarding this transaction can be found in Note 2
and in the Company's Current Report on Form 8-K, filed with the Securities and
Exchange Commission on March 3, 2022.



Impact of COVID-19

The outbreak of COVID-19, which was declared a pandemic by the World Health
Organization on March 11, 2020, has materially and adversely impacted the U.S.
and global economies, as well as the Company, and its employees and operations,
as well as customer demand. Although we have been able to continue to operate
and service customers throughout the pandemic, it significantly impacted the
Company's sales throughout 2020, as social distancing forced physicians to
temporarily close their practices. In 2021 and in the first three quarters of
2022, the Company was able to increase sales significantly. However, the ongoing
COVID-19 pandemic, including the possible emergence of new variants, could
further impact the Company's operations and the operations of the Company's
customers, suppliers and vendors as a result of ongoing quarantines, facility
closures, and travel and logistics restrictions. The extent to which the
COVID-19 pandemic impacts the Company's business, results of operations and
financial condition will depend on future developments. The Company cannot
reasonably estimate the impact at this time.



Segment Information

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

                                       15





Results of Operations



                                              For the Three Months Ended             For the Nine Months Ended
                                                     September 30,                         September 30,
(in thousands, except shares and per
share data)                                    2022                2021              2022                2021

Revenues                                   $       9,010       $       5,525     $      31,428       $      14,017
Cost of sales                                      3,136               2,324            10,150               5,885
Gross profit                                       5,874               3,201            21,278               8,132
Operating expenses
Selling and marketing                              1,807               1,180             4,753               3,502
General and administrative                         1,160               1,082             3,564               3,499
Research and development                             746                 744             2,302               2,330
Total operating expenses                           3,713               3,006            10,619               9,331
Income (loss) from operations                      2,161                 195            10,659              (1,199 )
Other income (expense):
Gain on sale of assets                                 -                   -            12,779                   -
Interest income                                      119                   -               147                   1
Interest expense                                      (1 )                 -                (2 )                (1 )
Other income, net                                    118                   -            12,924                   -
Net Income (loss) before income tax                2,279                 195            23,583              (1,199 )
Provision for income taxes                           450                   -             2,168                   -
Net income (loss)                          $       1,829       $         195     $      21,415       $      (1,199 )




                                       16

Three months ended September 30, 2022 compared to the three months ended
September 30, 2021

Revenues. Revenues were $9.0 million for the three months ended September 30,
2022 compared to $5.5 million for the three months ended September 30, 2021, an
increase of $3.5 million, or 63.6%. The increase was primarily driven by the
higher number of units sold in the 2022 quarter, service revenue on installed
units, and the impact of COVID-19 in the three months ended September 30, 2021.



Cost of sales. Cost of sales was $3.1 million for the three months ended
September 30, 2022 compared to $2.3 million for the three months ended September
30, 2021, an increase of $0.8 million, or 34.8%. The increase in cost of sales
was primarily related to the increase in sales in the three months ended
September 30, 2022.



Gross profit. Gross profit was $5.9 million for the three months ended September
30, 2022 compared to $3.2 million for the three months ended September 30, 2021,
an increase of $2.7 million, or 84.4%. Our overall gross profit percentage was
65.6% in the three months ended September 30, 2022 compared to 57.9% in the
corresponding period in 2021. The increase in gross profit was primarily driven
by the higher number of units sold in 2022, customer mix, service revenue on
installed units, and the impact of COVID-19 in the three months ended September
30, 2021.



Selling and marketing. Selling and marketing expense was $1.8 million for the
three months ended September 30, 2022 compared to $1.2 million for the three
months ended September 30, 2021, an increase of $0.6 million, or 50.0%. The
increase was primarily attributable to an increase in tradeshow, advertising and
commission expense.



General and administrative. General and administrative expense was $1.2 million
for the three months ended September 30, 2022 compared to $1.1 million for the
three months ended September 30, 2021, an increase of $0.1 million, or 9.1%. The
net increase in general and administrative expense was primarily due to higher
professional fees.



Research and development. Research and development expense remained unchanged at
$0.7 million for the three months ended September 30, 2022 and September 30,
2021.

Nine months ended September 30, 2022 compared to the nine months ended September
30, 2021

Revenues. Revenues were $31.4 million for the nine months ended September 30,
2022 compared to $14.0 million for the nine months ended September 30, 2021, an
increase of $17.4 million, or 124.3%. The increase was primarily driven by the
higher number of units sold in 2022, service revenue on installed units and the
impact of COVID-19 in the first nine months of 2021.



Cost of sales. Cost of sales was $10.2 million for the nine months ended
September 30, 2022 compared to $5.9 million for the nine months ended September
30, 2021, an increase of $4.3 million, or 72.9%. The increase in cost of sales
was commensurate with the increase in sales in the nine months ended September
30, 2022.



Gross profit. Gross profit was $21.3 million for the nine months ended September
30, 2022 compared to $8.1 million for the nine months ended September 30, 2021,
an increase of $13.2 million, or 163.0%. Our overall gross profit percentage was
67.83% in the nine months ended September 30, 2022 compared to 58.0% in the
corresponding period in 2021. The increase in gross profit was primarily driven
by the higher number of units sold in 2022, customer mix, service revenue on
installed units, and the impact of COVID-19 in the nine months ended September
30, 2021.



Selling and marketing. Selling and marketing expense was $4.8 million for the
nine months ended September 30, 2022 compared to $3.5 million for the nine
months ended September 30, 2021, an increase of $1.3 million, or 37.1%. The
increase was primarily attributable to an increase in tradeshow, advertising,
and commission expense.



General and administrative. General and administrative expense was $3.6 million
for the nine months ended September 30, 2022 compared to $3.5 million for the
nine months ended September 30, 2021, an increase of $0.1 million, or 2.9%. The
net increase in general and administrative expense was primarily due to higher
professional fees.



                                       17

Research and development. Research and development expense remained unchanged at
$2.3 million for the nine months ended September 30, 2022 and September 30,
2021.

Other income. Other income of $12.8 million is related to the gain on the sale
of the Sculptura assets.

Financial Condition

The following discussion summarizes significant changes in assets and
liabilities. Please see the condensed consolidated balance sheets as of
September 30, 2022 and December 31, 2021 contained in Part I, Item 1 of this
filing.

Assets



Cash and cash equivalents at September 30, 2022 increased $23.1 million from
December 31, 2021. See Cash Flows for details on the change in cash and cash
equivalents during the nine months ended September 30, 2022.



Accounts receivable at September 30, 2022 decreased $4.7 million from December
31, 2021, primarily due to collection of receivables offset by an increase in
sales of units in the nine months ended September 30, 2022.

Inventories at September 30, 2022 increased $591 thousand from December 31,
2021, primarily due to increase in purchases of finished goods offset by
shipments of units sold in the nine months ended September 30, 2022.

Liabilities

There were no borrowings under our revolving line of credit at September 30,
2022 or December 31, 2021.

Liquidity and Capital Resources

The Company’s liquidity position and capital requirements may be impacted by a
number of factors, including the following:

  ? ability to generate and increase revenue;




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




  ? fluctuations in working capital.

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

  ? expansion of sales and marketing activities; and




  ? expansion of research and development activities.




Sensus management regularly evaluates cash requirements for current operations,
commitments, capital requirements and business development transactions. Given
our ability to borrow under our revolving credit facility and other factors,
management anticipates that the Company will be able to satisfy its cash
requirements for these purposes; however, it may seek to raise additional funds
for these or other purposes in the future.



                                       18





Cash flows



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



                                     For the Nine Months Ended
                                           September 30,
(in thousands)                        2022                2021
Net cash provided by (used in):
Operating activities              $       8,701       $      1,494
Investing activities                     14,851                167
Financing activities                       (494 )             (177 )
Total                             $      23,058       $      1,484




Net cash provided by operating activities was approximately $8.7 million for the
nine months ended September 30, 2022, consisting of net income of approximately
$21.4 million and an increase in net operating assets of approximately $1.0
million, offset by non-cash charges of approximately $13.7 million. Cash flows
provided by operating activities primarily include the receipt of revenues
offset by the payment of operating expenses incurred in the normal course of
business. Non-cash items consisted of a gain on asset sale (see Note
2, Dispositions, for more information), deferred income taxes, stock
compensation expense, depreciation and amortization, and a warranty provision.
Net cash provided in operating activities was $1.5 million for the nine months
ended September 30, 2021, consisting of a net loss of $1.2 million, an increase
in net operating assets of $1.5 million and non-cash charges of $1.2 million.
Cash flows used in operating activities primarily include the receipt of
revenues offset by the payment of operating expenses incurred in the normal
course of business, including year-end incentive compensation accrued for in the
prior year.



Net cash provided by investing activities for the nine months ended September
30, 2022 reflected $14.9 million of proceeds from the sale of assets, partially
offset by purchases of property and equipment. Net cash provided by investing
activities for the nine months ended September 30, 2021 reflected $0.2 million
of proceeds from the sale of property and equipment, partially offset by
purchases of property and equipment.



Net cash used in financing activities for the nine months ended September 30,
2022 primarily reflected $1.2 million to repurchase common stock, withholding
taxes on stock-based compensation, and loan payable, offset by approximately
$0.7 million of exercised stock options. Net cash used in financing activities
for the nine months ended September 30, 2021 primarily reflected $0.2 million of
loan repayments and withholding taxes on stock compensation.



Indebtedness

Please see Note 5, Debt, to the financial statements.

Contractual Obligations and Commitments

Please see Note 9, Commitments and Contingencies, to the financial statements.

Critical Accounting Policies and Estimates

The preparation of condensed consolidated financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the condensed consolidated financial statements
and the reported amounts of revenue and expense during the reporting periods.
Actual results could differ significantly from those estimates. For a summary of
these and additional accounting policies see Note 1, Organization and Summary of
Significant Accounting Policies, to the financial statements. In addition,
see Critical Accounting Policies in Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 1, Organization and
Summary of Significant Accounting Policies, in the 2021 Annual

Report for further information.

© Edgar Online, source Glimpses