Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following management’s
discussion and analysis (“MD&A”) in conjunction with the information set forth within the financial statements
and related notes included in this Annual Report on Form 10-K.
Overview
As discussed elsewhere in this Report,
Sensus achieved profitability for the first time in 2021, and maintained profitability through 2024. The Company incurred a net
loss in 2025, mostly related to lobbying costs to secure reimbursement codes and lower demand particularly from our historically
largest customer. Sensus continues to seek to return to profitability in 2026 by, among other things, increasing sales and managing
operational expenses where necessary in order to continue to invest in marketing initiatives to promote the Company’s products.
SRT reimbursement was just revalued and increased by CMS, effective as of January 1, 2026. Management expects that the new reimbursement
codes will increase the demand for the SRT product. However, Sensus faces a number of uncertainties in 2026 that could impact our
ability to achieve this goal. These include further decreased demand from its historically largest customer, increased cost due
to hiring more sales representatives, continued inflation, and decreased demand for its higher priced SRT device.
Components of our results of operations
Sensus manages its business globally within
one reportable segment, which is consistent with how management views the business, prioritizes investment and resource allocation
decisions, and assesses operating performance.
Results of Operation
24
For the Years Ended
December 31,
(in thousands, except shares and per share data) 2025 2024
Operating expenses
Other income:
(Loss) income before income tax (9,624 ) 9,022
(Benefit from) provision for income taxes (1,905 ) 2,375
Net income per share – basic $ (0.47 ) $ 0.41
Weighted average number of shares used in
2025 Compared with 2024
Revenues of
$27.5 million in 2025 decreased by $14.3 million, or 34%, from $41.8 million in 2024. The decrease in revenue was primarily driven
by a lower number of units sold (70 in the year ended December 31, 2025, compared to 115 in the year ended December 31, 2024),
reflecting reduced sales to our largest customer, slightly offset by revenue recognized from new placements under the Fair Deal
Agreement (the “Program”).
Cost of sales of $15.6 million in
2025 decreased by $1.8 million, or 10%, from $17.4 million in 2024. The decrease in cost of sales was primarily related to a lower
number of units sold offset by significantly higher costs of servicing systems and the cost associated with new placements under
the Program, which generates costs related to installation and training in advance of related revenues.
Gross profit of $11.9 million, or
43.3% of revenue, in 2025 decreased by $12.5 million, or 51%, from $24.4 million, or 58.4% of revenue, in 2024. The decrease in
gross profit was primarily driven by lower sales, higher cost of servicing systems and the costs associated with new placements
under the Program.
General and administrative expenses
of $7.9 million in 2025 increased by $0.8 million, or 11%, from $7.1 million in 2024. The net increase in general and administrative
expense was primarily due to higher professional fees and insurance costs and compensation costs.
Selling and marketing expenses of
$6.5 million in 2025 increased by $1.5 million, or 30%, from $5.0 million in 2024. The increase was primarily driven by increases
in tradeshow costs and payroll cost due to increase in headcount.
25
Research and development expenses
of $7.8 million in 2025 increased by $3.6 million, or 86%, from $4.2 million in 2024. The increase was primarily due to significant
lobbying costs related to billing code reimbursement, increased headcount, and an increase in product development costs related
to next generation systems. The Company expects research and development expenses incurred in 2026 to be substantially lower than
those incurred in 2025.
Other income, net of $0.7 million
and $0.9 million in the years ended December 31, 2025 and 2024, respectively, relates primarily to interest income.
Cash and cash
equivalents of $22.1 million at December 31, 2025 was unchanged as compared to December 31, 2024. See Cash flows for
details on the change in cash and cash equivalents during the year ended December 31, 2025.
Accounts receivable,
net of $6.0 million at December 31, 2025 decreased by $13.7 million, or 70%, from $19.7 million at December 31, 2024. The decrease
was primarily due to the decrease in sales and concentration of sales to the Company’s largest customer that are subject
to extended payment terms.
Inventories of $14.6 million at
December 31, 2025 increased by $4.5 million, or 44%, from $10.1 million at December 31, 2024. The increase was primarily due to
the anticipation of increasing future sales.
Liabilities
There were no
borrowings under our revolving lines of credit at December 31, 2025 or December 31, 2024. See Note 3, Debt, to the consolidated
financial statements for further discussion.
26
Liquidity and Capital Resources
In general terms, liquidity is a measurement
of the Company’s ability to meet its cash needs. For the year ended December 31, 2025, funding was derived primarily from
cash generated by the sale of equipment to our customers in the ordinary course of business. The Company believes that proceeds
from maturing cash equivalents, as well as the Company’s borrowing capacity under its existing line of credit provide the
Company with access to capital resources sufficient to meet operating capital and funding requirements for the next 12 months from
the date of this annual report. Please see Note 3, Debt , to the consolidated financial statements for a discussion regarding
the Company’s revolving credit facility with Comerica Bank. 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
The Company’s primary short-term
capital needs, which are subject to change, include expenditures related to:
● expansion of sales and marketing activities; and
● continued research and development activities.
The
Company claimed Employee Retention Credits (“ERC”) as provided in the Coronavirus Aid, Relief, and Economic Security
Act of 2020 and subsequent amendments. The ERC is a fully refundable payroll tax credit to provide financial incentives to eligible
businesses to retain their workforce through the period of financial hardship resulting from the COVID-19 pandemic. The Company
received $0.3 million in the second quarter of 2025 and $0.2 million in the fourth quarter of 2024. These amounts were recorded
against the payroll expenses in the consolidated statements of (loss) income. Further claims outstanding will be recorded in the
period in which payment is received.
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 the Company’s cash flows for the periods indicated:
For the Years Ended
December 31,
Net cash provided by (used in):
Operating activities $ 528 $ (831 )
Investing activities (196 ) (276 )
Financing activities (305 ) 15
Cash flows from operating activities
Net cash provided by operating activities
was $0.5 million for the year ended December 31, 2025, consisting of net loss of $7.7 million and non-cash activities of $0.4 million,
offset by an increase in net operating assets of $8.6 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, amortization
of right-of-use asset and depreciation of property and equipment. Net cash used in operating activities was $0.8 million for the
year ended December 31, 2024, consisting of net income of $6.6 million and non-cash charges of $1.1 million, offset by an increase
in net operating assets of $8.5 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.
27
Cash flows from investing activities
Net cash used in investing activities during
the year ended December 31, 2025 reflected $0.2 million of purchases of property and equipment. Net cash used in investing activities
during the year ended December 31, 2024 mainly reflected $0.3 million of purchases of property and equipment.
Cash flows from financing activities
Net cash used in financing activities during
the year ended December 31, 2025 reflected $0.3 million of stock repurchase and $5 thousand of withholding taxes on stock-based
compensation. Net cash provided by financing activities during the year ended December 31, 2024 reflected $67 thousand of exercised
stock options, offset by $52 thousand of withholding taxes on stock-based compensation.
Inflation
During 2025, increased commodity and shipping
prices and energy and labor costs resulted in minor 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
Please see Note 3, Debt, to the
consolidated financial statements.
Contractual Obligations and Commitments
Please see Note 6, Commitments and Contingencies,
to the consolidated financial statements.
Critical Accounting Policies and Estimates
The preparation of the 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 consolidated financial statements and the
reported amounts of revenue and expense during the reporting periods. Management has not applied any critical accounting estimates
but 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 notes to the consolidated financial
statements included in this Annual Report on Form 10-K.
Item 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
28
FINANCIAL STATEMENTS OF SENSUS HEALTHCARE,
INC.
CONTENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 213) F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID 52) F-3
Financial Statements
Consolidated Balance Sheets as of December 31, 2025 and 2024 F-5
Notes to the Consolidated Financial Statements F-9
F-1
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of
Directors and
Stockholders of Sensus Healthcare,
Inc. and Subsidiaries
Opinion on the Financial
Statements
We have audited the accompanying
consolidated balance sheet of Sensus Healthcare, Inc. and Subsidiaries (the “Company”) as of December 31, 2025, and
the related consolidated statement of (loss) income, stockholders’ equity, and cash flows for the year then ended, and the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and
the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted
in the United States of America.
As described in Notes 1 and 10, the Company adopted
Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” as of
January 1, 2025, which is retrospectively applied to January 1, 2024. Except for the effects of the retrospective presentation
for the adoption of Topic 740, we were not engaged to audit, review, or apply any procedures to the financial position of the Company
as of December 31, 2024, and the results of its operations and its cash flows for the year then ended. Other than as stated above,
we do not express an opinion or any other form of assurance about whether such financial position and the results of its operations
and its cash flows as of and for the year ended December 31, 2024, have been fairly stated. Those balances were audited by the
predecessor auditor.
Basis for Opinion
These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of
our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express
no such opinion.
Our audit included performing
procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit
matters are matters arising from the current period audit of the financial statements that were communicated or required to
be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no
critical audit matters.
/s/ Carr, Riggs & Ingram, L.L.C.
We have served as the Company’s auditor
since 2026.
Palm Beach Gardens, FL
March 4, 2026
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Sensus Healthcare, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of Sensus Healthcare, Inc. and Subsidiaries (the “Company”) as of December 31, 2024, and the related
consolidated statement of income, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations
and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of
America.
As described in Notes 1 and 12, the Company
adopted Accounting Standards Update No. 2023-07, “Segment Reporting (“Topic 280”): Improvements to Reportable
Segment Disclosures,” as of January 1, 2024, which is retrospectively applied to January 1, 2023. Except for the effects
of the retrospective presentation for the adoption of Topic 280, we were not engaged to audit, review, or apply any procedures
to the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the
year then ended, other than as stated above and, accordingly, we do not express an opinion or any other form of assurance about
whether such financial position has been fairly stated as of December 31, 2023 and for the year then ended. Those balances were
audited by the predecessor auditor.
Basis for Opinion
These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are
required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures
to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audit provides a reasonable basis for our opinion.
MIAMI | FT. LAUDERDALE
| BOCA RATON | WEST PALM BEACH | NEW YORK CITY
F-3
Critical Audit Matters
Critical audit matters are matters arising
from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. We determined that there are no critical audit matters.
/s/
Berkowitz Pollack Brant, Advisors + CPAs
We
have served as the Company’s auditor since 2024.
West Palm Beach, FL
March
5, 2025
F-4
SENSUS HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
As of As of
December 31, December 31,
(in thousands, except shares and per share data) 2025 2024
Assets
Current assets
Operating lease right-of-use assets, net 452 581
Other noncurrent assets 640 652
Liabilities and stockholders’ equity
Current liabilities
Accounts payable and accrued expenses $ 3,343 $ 4,811
Operating lease liabilities, current portion 262 204
Deferred revenue, current portion 842 541
Operating lease liabilities 209 398
Deferred revenue, net of current portion 10 55
Commitments and contingencies — —
Stockholders’ equity
Preferred stock, 5,000,000 shares authorized and none issued and outstanding — —
Total liabilities and stockholders’ equity $ 53,039 $ 62,165
See accompanying notes to the consolidated
financial statements.
F-5
SENSUS HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
For the Years Ended
December 31,
(in thousands, except shares and per share data) 2025 2024
Operating expenses
Other income:
(Loss) income before income taxes (9,624 ) 9,022
(Benefit from) provision for income taxes (1,905 ) 2,375
Net (loss) income per share – basic $ (0.47 ) $ 0.41
See accompanying notes to the consolidated
financial statements.
F-6
SENSUS HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2025
AND 2024
Common Stock Additional Paid-In Treasury Stock Retained
(in thousands, except shares) Shares Amount Capital Shares Amount Earnings Total
Exercise of stock options 12,000 — 67 — — — 67
Forfeiture of restricted stock units (2,250 ) — (2 ) — — — (2 )
Exercise of stock options — — — — — — —
Forfeiture of restricted stock units (20,000 ) — (5 ) — — — (5 )
See accompanying notes to the consolidated
financial statements.
F-7
SENSUS HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
Cash flows from operating activities
Credit loss expense 44 123
Amortization of right-of-use asset 240 193
Provision for product warranties 503 255
Stock-based compensation 295 323
Deferred income taxes (1,882 ) (57 )
Changes in operating assets and liabilities:
Other current assets (176 ) (619 )
Other noncurrent assets 12 152
Accounts payable and accrued expenses (1,468 ) 2,018
Operating lease liability (242 ) (181 )
Income tax payable — (37 )
Product warranties (557 ) (464 )
Net cash provided by (used in) operating activities 528 (831 )
Cash flows from investing activities
Acquisition of property and equipment (196 ) (276 )
Net cash used in investing activities (196 ) (276 )
Cash flows from financing activities
Repurchase of common stock (300 ) —
Withholding taxes on stock-based compensation (5 ) (52 )
Exercise of stock options — 67
Net cash (used in) provided by financing activities (305 ) 15
Net increase (decrease) in cash and cash equivalents 27 (1,092 )
Cash and cash equivalents – beginning of period 22,056 23,148
Cash and cash equivalents – end of period $ 22,083 $ 22,056
Supplemental disclosure of cash flow information:
Interest paid $ — $ —
Income tax refunds received $ 395 $ —
Supplemental schedule of noncash investing and financing transactions:
Net transfers from inventory to fixed assets $ 169 $ 1,496
Lease liability arising from obtaining right-of-use-assets $ 111 $ —
See accompanying notes to the consolidated
financial statements.
F-8
SENSUS HEALTHCARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 and sells the devices to healthcare providers globally through its distribution and marketing network.
The Company operates from its corporate headquarters located in Boca Raton, Florida.
In 2024, the Company formed Sensus Healthcare
Services, LLC, a wholly-owned subsidiary that provides operational healthcare services to dermatology clinics in the form of equipment,
radiation oncology oversight and physicist oversight, and on-site device operation by radiotherapy technologists where the Company
receives a contractual percentage of all SRT reimbursement to the practice.
Basis
of Presentation and Principles of Consolidation
These consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include
the accounts of the Company and its subsidiaries. Accounts and transactions between consolidated entities have been eliminated.
Use
of Estimates
The preparation of consolidated 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.
Revenue
Recognition
The
Company’s revenue is derived from sales of the Company’s devices and services related to operating, maintaining and
repairing the devices as part of a 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 stand-alone 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 for device purchases and personnel service contracts to assist in the use
and operation of leased-out equipment under lease agreements where the Company is the lessor.
F-9
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 that the work is performed, as the Company has elected the
practical expedient under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers,
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 requirements and specifications for the operation of the equipment.
The preparation cost is expensed as incurred.
The Company also generates revenue from leases in which the Company is the lessor. The Company identifies
the lease and non-lease components and allocates the contract consideration on a relative stand-alone selling price basis at lease
inception. The Company has elected the practical expedient to combine lease and non-lease components when the components qualify
to be combined, and such combined components are accounted for as a lease under ASC 842, Leases. Revenues from non-lease
components that are not qualified to be combined are recognized under ASC 606, Revenue from Contracts with Customers, when
the related services are rendered.
The components of disaggregated revenue
for the years ended December 31, 2025 and 2024 were as follows:
Schedule of Total Revenue
For the Years Ended
December 31,
Product Revenue - recognized at a point in time $ 19,758 $ 36,398
Product Revenue - recognized over time 1,721 247
Service Revenue - recognized at a point in time 2,542 1,961
Service Revenue - recognized over time 3,461 3,201
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 for 2025 and
2024 was as follows:
Schedule of Deferred Revenue
(in thousands) Product Service Total
F-10
Remaining performance obligations related to 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 December 31, 2025 is as follows:
Schedule of Remaining Performance Obligations
Year Service Revenue
For the years ended December 31, 2025 and
2024, 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 for as initial direct costs and recorded in other noncurrent assets
in the 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.
The Company maintains cash balances at
financial institutions in excess of federally insured limits. The Company has not experienced any losses related to these balances.
The Federal Deposit Insurance Corporation insures eligible accounts up to $250,000 per depositor at each financial institution.
The Company holds cash at well-known banks and does not believe that it is exposed to any significant credit risks on its cash.
One customer in the United States accounted
for 52% and 73% of revenue for the years ended December 31, 2025 and 2024, respectively, and 65% and 86% of accounts receivable
as of December 31, 2025 and 2024, respectively.
Geographical
Information
The following table illustrates total revenue
for the years ended December 31, 2025 and 2024 by geographic region.
Schedule of Total Revenue
For the Years Ended
December 31,
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.
F-11
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 3 Inputs:
Unobservable inputs for the
valuation of the asset or liability, which may include nonbinding broker quotes.
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.
Foreign
Currency
The Company’s foreign operation functional
currency is the U.S. dollar. The Company considers its Israel subsidiary an extension of the parent company operations in the United
States. The cash flow in the foreign operation depends primarily on the funding by the parent company.
Cash
and Cash Equivalents
Cash and cash equivalents primarily consists
of cash, money market funds and short-term, highly liquid investments with original maturities of three months or less.
Accounts
Receivable
On January 1, 2023, the Company adopted
Accounting Standards Update (“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. This update did not have a significant impact on the Company’s
consolidated financial statements.
On October 1, 2025, the Company adopted
ASU No. 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses for Accounts Receivable and Contract
Assets. The amendments in this ASU provide a practical expedient related to the estimation of expected credit losses for current
accounts receivable and current contract assets that arise from transactions accounted for under ASC 606, Revenue from Contracts
with Customers. This update did not have a significant impact on the Company’s consolidated financial statements.
F-12
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 $0.1 million as of December 31, 2025 and 2024. Credit loss expense for the years ended December 31, 2025 and
2024 was $44 thousand and $0.1 million, 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.
Property
and Equipment
Property and equipment are stated at
cost less accumulated depreciation. Depreciation on property and equipment is calculated on the straight-line basis over the
estimated useful life of each asset. Maintenance and repairs are expensed as incurred; expenditures that enhance the value of
property or extend their useful lives are capitalized. When assets are sold or returned, the cost and related accumulated
depreciation are removed from the accounts and the resulting gain or loss is included in other income in the consolidated
statements of (loss) income.
Inventory units designated for customer
demonstrations, as part of the sales process, are reclassified to property and equipment and the depreciation is recorded in selling
and marketing expense. Property and equipment that were reclassified to or from inventory were $0.2 million and $1.5 million for
the years ended December 31, 2025 and 2024, respectively. These property and equipment were for demonstrations and the leasing
program where the Company is the lessor.
Research
and Development
Research and development costs related
to products under development by the Company and quality and regulatory costs and are expensed as incurred.
Earnings
Per Share
Basic net (loss) income per share is calculated
by dividing the net (loss) 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 (loss) income per share is computed by giving effect to all
potential dilutive common share equivalents outstanding for the period.
F-13
The factors used in the earnings per share
computation are as follows:
Schedule of Earnings Per Share Computation
For the Years Ended
December 31,
(in thousands, except share and per share amounts) 2025 2024
Basic
Net (loss) income per share - basic $ (0.47 ) $ 0.41
Diluted
Dilutive effects of:
Stock options — 6,710
Restricted stock awards — 40,555
Net (loss) income per share - diluted $ (0.47 ) $ 0.41
Restricted stock awards 105,000 —
Diluted net loss per share for the year
ended December 31, 2025 excludes the dilutive effect of any stock options or shares issued under restricted stock awards, as the
inclusion would be antidilutive due to the Company’s net loss during the period. Diluted net income per share for the year
ended December 31, 2024 includes the dilutive effect of stock options and restricted stock awards that were issued in December
2022, January 2024, and December 2024 to directors, officers, and employees.
Equity-Based
Compensation
Pursuant to relevant accounting guidance
related to accounting for equity-based compensation, the Company is required to recognize all share-based payments to non-employees
and employees in the financial statements based on grant-date fair values. The Company has accounted for issuances of shares and
options in accordance with the guidance, which requires the recognition of expense, based on grant-date fair values, over the service
period, which is generally the period over which the shares and options vest.
Advertising
Costs
Advertising and promotion costs are
charged to expense as incurred. Advertising and promotion costs included in selling and marketing expense in the accompanying
consolidated statements of (loss) income amounted to $2.0
million and $1.2 million for
the years ended December 31, 2025 and 2024, respectively.
Leases
The Company evaluates arrangements at inception