Sensus Healthcare Inc (SRTS) 2017 Q2 法說會逐字稿

Good afternoon and welcome to the Sensus Healthcare Second Quarter 2017 Financial Results and Business Update Conference Call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Kim Golodetz. Please go ahead.

Thank you. This is Kim Golodetz with LHA. Thank you all for participating in today's call. Joining me from Sensus Healthcare are Joe Sardano, Chief Executive Officer and Arthur Levine, Chief Financial Officer. As a reminder, some of the matters that will be discussed on today's call are forward-looking statements within the meaning of the Federal Securities Laws. All statements other than historical facts that address activities Sensus Healthcare assumes, plans, expects, believes, intends or anticipates and other similar expressions; will, should or may occur in the future are forward-looking statements. The forward-looking statements are management's beliefs based on currently available information.

Sensus Healthcare undertakes no obligation to update or revise any forward-looking statements except as required by law. All forward-looking statements are subject to risks and uncertainties including those risk factors described in the company's Forms 10-K and 10-Q as filed with the SEC. During today's call, there will also be reference to certain non-GAAP financial measures. Sensus believes these measures provide useful information for investors. It should not be considered a substitute for GAAP nor should they be viewed as a substitute for operating results determined in accordance with GAAP. A reconciliation of non-GAAP to GAAP results is included in today's financial results press release.

With that said, I'd like to turn the call over to Joe Sardano. Joe?

Thank you, Kim, and thanks to each of you for joining us this afternoon. I'm real happy to report that once again we had an excellent quarter with revenues of $5 million, up 39% over the prior year. We not only set a new record for ourselves, but we also posted our 7th consecutive quarter of double-digit year-over-year revenue growth. Our installed base grew to 295 units as of quarter end with 69 of those units treating keloids as well as skin cancer. 1/2 of the 16 SRT systems we shipped during the quarter were our higher-end SRT-100 Vision systems and we believe those purchases reflect the sophistication of our physician customers and their dedication to patient health. In addition, we are starting to see the expected ROI from the expansion of our sales organization as representatives hired several months ago are becoming productive.

We now have 22 direct sales representatives, including our dedicated hospital oncology team, up from 17 at the beginning of the year. Not that -- note that a sales rep typically begins covering his or her costs around 6 months from hire. We've supported our direct sales reps with an increased marketing budget as well. This is largely directed to the important trade shows and medical conferences that our physician customer base attends augmented by a modest, but thoughtful and targeted direct-to-consumer program. SRT clearly is gaining acceptance in the medical community with a growing roster of customers who are key opinion leaders in their fields. In addition, these KOLs are speaking out on our behalf at important industry conferences, presenting posters on the benefits of SRT in treating non-melanoma skin cancers and keloids.

Our marketing efforts are also succeeding in drawing attention to the treatment of keloids and the SRT-100 has been featured in human interest media stories. For example, most recently on FOX6 in Milwaukee, they ran a powerful segment on a gentleman who following a nick by his barber was disfigured with enormous keloids for years. FOX6 viewers stepped in and funded his treatment with SRT and the before and after photos are stunning examples of how Sensus is able to transform lives. We are working hard to bring SRT to the radiation oncology marketplace as well and we exhibited this week at the American Association of Physicists in Madison Annual Meeting. We had numerous physicists representing oncology all over the country getting many more leads than ever before and we're still tallying those numbers.

We also are making a great deal of progress in our efforts to expand use of SRT and our products outside the U.S. In July, the SRT-100 received clearance by the China Food and Drug Administration for treatment and prevention of keloids. This is in addition to our previous clearance in China for non-melanoma skin cancer indications. We're looking forward to a formal launch into the keloid market by our partner Chindex Medical in October at the International Congress of The Dermatologic and Aesthetic Surgery International League being held in Shanghai. There will be several dermatologists from the U.S. in attendance to train and educate the Chinese physicians during a large workshop dedicated to SRT and a session on scar treatments. Remember that China represents 20% of the world's patient population so we are talking about a very, very large market. We are focusing on preventing and treating keloids associated with cesarean sections. According to a study in 2010 by the World Health Organization, 46% of Chinese babies were delivered via c-section.

Additionally, although the exact numbers are not known, Asians have amongst the highest incidences of post-surgical keloid scar formation. With the relaxing of China's 1 child policy in 2015, the prevention of keloids that form over the surgical scar following the c-section will lessen complications of a second c-section. So, we're very excited about the potential for the SRT-100 and expect it will be a major force in preventing keloids from forming. Answering to the China application for c-section scars keloids, Sensus designed and manufactured in oval-shaped applicator that addresses this need specifically as well as other surgical applications and is also being used in the U.S. at the many centers now treating keloids. We are also awaiting China FDA clearance for the SRT-100 Vision.

This premium version of our system incorporates ultrasound among other features and we anticipate receiving clearance sometime in 2018. We also have submitted the paperwork for regulatory clearance in Mexico and hope to receive approval to sell the SRT-100 there in the coming months.

As mentioned during our last 2 conference calls, we are accelerating our research and development projects, which will impact expenses this year so as to impact sales with new indications and provide new product features during 2018. We have several sites poised to begin studies with the SRT-100 Vision for the treatment of psoriasis and we are right on schedule in our development work for the use of SRT in intraoperative radiation therapy for breast and other cancers. In addition, our development work will -- with our next-generation SRT product is proceeding as planned.

Looking ahead, we also are contemplating synergistic opportunities. These are intended to include products that would immediately add revenue and be accretive to earnings by providing additional products for our sales reps to sell in their existing channels. As you know, our primary focus is on capital equipment sales. As a reminder, in the U.S. alone there are approximately 950 more surgeons, about 14,000 dermatologists, 5,500 radiation oncologists, 6,500 plastic surgeons and 14 hospital and surgery centers that comprise our target market. We continue working to gain customers in this market; but with a worldwide installed base of 295 units, we still have plenty of room to grow.

I'm now going to turn the call over to Arthur Levine, our CFO, for an in-depth discussion on our financial results. Arthur?

Thanks, Joe. It's a pleasure to be speaking with all of you today. As Joe mentioned, revenues for the second quarter 2017 increased by 39% to $5 million, up from $3.6 million for the second quarter of 2016. The increase was primarily the result of a particularly strong contribution from the SRT-100 Vision, which has a higher average selling price. Note that as in Q1, only one half of our unit sales during the second quarter were from the Vision product. Gross profit for the second quarter of 2017 was $3.4 million or 68.7% of revenue compared with $2.3 million or 65% of revenue for the second quarter of 2016. Both gross profit and gross margin percentage were positively affected by the increase in sales of SRT-100 Vision systems.

Selling and marketing expenses were $2.1 million for the second quarter of 2017 compared with $1.2 million for the second quarter of 2016 reflecting a higher headcount from hiring since the second half of 2016 as well as increases in advertising, trade show and other marketing expenses. General and administrative expenses for the second quarter of 2017 were $0.9 million compared with $1.1 million for the second quarter of 2016. The decrease was primarily due to lower stock compensation expense and lower professional fees offset by higher director and officer insurance premiums and other public company expenses following the company's IPO in June 2016.

Research and development expenses for the second quarter of 2017 were $1.2 million compared with $0.4 million for the second quarter of 2016 primarily due to the continued investment in the next-generation SRT and the IORT product that began in the fourth quarter of 2016. The net loss for the second quarter of 2017 was $0.8 million or $0.06 per share compared with a net loss of $0.4 million or $0.03 per share for the second quarter of 2016. Adjusted EBITDA for the second quarter of 2017 was negative $0.6 million compared with a positive $0.2 million for the second quarter of 2016. Adjusted EBITDA is defined as earnings before depreciation and amortization, income taxes, interest expense and stock compensation expense.

Stock compensation expense was $97,000 in Q2 compared with $500,000 in the second quarter of 2016 as the prior year stock compensation expense included a one-time charge. We continue to have a strong balance sheet with cash, cash equivalents and investments of $10.6 million as of June 30, 2017 and no long-term debt. At June 30, we had $1.5 million outstanding under our $2 million line of credit. Our credit facility matures in September and we are currently negotiating a new facility. Turning to our half year results. Revenues for the 6 months ended June 30, 2017 increased 41% to $9.3 million from $6.6 million a year ago. Gross profit for the first half of 2017 was $6.3 million or 67.2% of revenue compared with $4.3 million or 64.4% of revenue last year.

Selling and marketing expenses were $4.4 million for the 6 months ended June 30, 2017 compared to $2.1 million last year. General and administrative expenses were $2 million for the 6 months ended June 30, 2017 compared with $1.8 million last year. Research and development expenses for the first half of 2017 were $2.3 million compared with $0.7 million a year ago. The net loss for the 6 months ended June 30, 2017 was $2.3 million or $0.18 per share compared with a net loss $0.3 million or $0.03 per share for the 6 months ended June 30, 2016.

With that, I will turn the call back over to Joe.

Thank you, Arthur. I want to say that I'm very, very proud of our team and the sales that we've just reported to you. We continue to expect double-digit year-over-year revenue growth in this year's third and fourth quarters. But I do want to mention, however, that in the third quarter, it tends to be impacted by summer vacations in comparison to the second quarter, which then usually is followed by a robust pick up in the fourth quarter.

Before we take your questions, I'd like to mention that we have an active schedule in front of us and we'll be presenting at 3 investor conferences during September. On September 6, we will be in San Francisco at the Liolios Gateway Conference and on September 11 and 12, we'll be at the HC Wainwright Rodman & Renshaw Global Health Conference in New York City.

Then later that month, we'll be presenting at the Sidoti Conference also in New York City on September 28. We have plans for more conference participation in October, including Dawson James Conference in Jupiter Florida and we'll be sending out alerts on those later next month. I look forward to seeing some of you in person at these various events and for those of you not intending, I invite you to login to our website and listen to the webcast of our presentations. We'll be providing additional information regarding the day and time of our presentation slots as we get closer to these conferences.

With those comments, operator, we are ready to take questions.

(Operator Instructions) The first question comes from Suraj Kalia with Northland Securities.

Can you hear me all right, Joe?

Yes, we hear you very clearly. Thank you.

So just for the audience, can you remind us, it seems like you guys are seeing an uptake in demand for SRT Vision. Can you give us some color on the underlying fundamentals that are causing this push? And the reason I ask is that ASPs are almost doubled, functionalities different. Is it because people are getting more and more comfortable with Vision in terms of everything that it has to offer? Is it certain categories, certain geographies that is -- the demand is increasing? Any -- if you can kind of delineate some of the fundamentals for SRT Vision?

I think it's a twofold approach. First and foremost, we're gaining more and more confidence internally with the fact that our prospects are looking for the best technology possible and our sales people are very well trained on these products whereas before we thought this was going to be going more towards the hospital market or the oncology market. But we're getting full training for the new people on the Vision product, they're grasping it. The selling cycle might be a little longer, but it seems to be worth the extra time in spending with our prospects. But more importantly, the prospects are seeing the advantages of the benefits of the Vision product. They cherish those benefits, especially, the impact that ultrasound has in giving them full imagery of the depth and the width of the lesions that they're treating. So, this is something that really has never been brought to the fold before. As you know, in the past mostly everything was done with biopsies and that was a very invasive procedure. But having this really helps the patients as well as the physicians guide them through the radiation treatment during their course of treatment and I think that's a huge advantage that the physicians definitely want to have for themselves as well as for their patients. So, the outcome is much, much better for everybody involved because of the knowledge and the experience and the information that's gathered during these fractionation periods. I hope that answers your question.

Fair enough. Joe on this China keloid opportunity, please correct me if I'm wrong, some of the stats do indicate that c-sections are a pretty huge market overall. Maybe that is a genetic predisposition to keloids, but you guys at least in our discussions also, you guys seem to be pretty excited about this. Can you specifically talk about at what point would something like SRT be used post c-section? By that I mean can you give us some stats on when keloids appear, if they appear, this would presumably be an inpatient requirement? Any of the -- any metrics would be great there.

It's important to understand what the protocols are and how we apply the protocols with our physicians because it's being used both here in the United States as well as China. But again the focus in China is on the c-sections because there's so many of them, but it also relates to other surgeries as well. So, when a person has a wound or a surgical procedure that causes an incision or a mark like that, within 24 hours we apply the first application of SRT. So in China, most of the women that have c-sections are pretty much released within the time frame of having the c-section, delivering the baby and spending at most 24 hours in the hospital before being released. So, they usually get a procedure done before they leave. They will come back for 2 more in 2 consecutive days. And that's been the protocol that we've used across the United States as well as in China and we hope that it spreads to all surgical procedures for those who will develop keloids or applicable to developing keloids and making sure that we prevent it. So, there's a two-fold effect. One is to immediately treat post surgically within 24 hours to prevent collagen from forming in that area and then following up with 2 more procedures on consecutive days and that's the protocols that are being used. So, it's an aggressive protocol. But as we're seeing here in the United States, we had a recent abstract that was accepted by The American Society for Dermatological Surgery that will be presented at their upcoming meeting in the next couple of months, which identifies about 165 patients with keloids that have not returned after a 2-year follow-up, which is a phenomenal result using this protocol. So we're very, very excited for the opportunity especially in China because of the amount of keloids that exist in China, but even more importantly, the amount of keloids that we could prevent in China.

Joe, would I be too far off in saying that the ROI for SRT in China would be quicker than in the U.S.?

It possibly could. Again, they don't have a lot of statistics on this. We just know after the last 2 years of working on this with their physicians, they are in desperate need of having something that prevents keloids. They're anxious to have something on board. And I have to give our partner Chindex as well as the staff that we have here as well as the CFDA for recognizing the fact that this was a solution to a major problem that they have within their population. So, we're very, very excited and we're anxious to see what kind of numbers we can produce with this application.

And one last question and I'll hop back in queue. Did you mention the OUS installed base? Is it still 20% of overall or -- forgive me, I've just been hopping in between calls? Thank you for taking my questions.

So, the installation base outside of the U.S. is approximately it's 19%. So, it's still very aggressive and we're still growing in that area with China being the biggest opportunity. Mexico coming up next also has huge populations of skin cancer and keloids so we're excited for that market as well. And of course in the United States, we now have 69 centers with our device treating skin cancers as well as keloids, all with very high success rates.

The next question comes from Anthony Vendetti with Maxim Group.

I just wanted to follow-up a little bit more on the international expansion efforts. I know we've talked about China a lot here and it looks like a huge opportunity. But can you also talk about, Joe, you just touched on Mexico and also Taiwan, how you see that -- those markets developing and how you expect to penetrate those markets?

I think everyone knows that we have a unit in Taiwan. I think that that market will grow slowly and they may adapt the keloid application. Hopefully because of what China has done, maybe they'll fall into line a whole lot faster, but that is a good opportunity as well. Clearly not as big as China, but a good opportunity for us. Mexico with their population and because of the sun factor there, a lot of skin cancer exists. Again, a lot of the numbers are not known, but they're using extensive surgery for it. Non-surgical would also be a huge bonus for us. But they also have keloids, there's a tremendous amount of keloids in Mexico and I think that once we get the approvals there, I think that they can start growing very quickly. And what we're hoping for is at some point in the future, maybe 2019 or so, that we're going to start seeing about a 50/50 level of business that's being done in the United States and outside of the country.

By 2019?

Yes, 50/50.

Okay. And I know, Arthur, you said this during the prepared remarks that a lot of the upside in terms of the revenue and also the gross margin was driven by higher or greater SRT-100 Vision sales because your gross margin came in higher than I expected as well. So I was wondering if you could talk about the ASP for SRT-100 versus just the SRT-100 by itself -- the SRT-100 Vision versus the SRT-100?

Our preference is to talk about targeted ASPs rather than actual breakdown of ASP during each quarter. So, we are targeting approximately $400,000 ASP for the SRT-100 Vision and approximately $200,000 for the SRT-100.

Okay. And I see that the launch in China with Chindex is -- the formal launch is in October. Can you talk about as we look into 2018 as best you can, what does the -- what does that market look like? How many Chindex sales people are focused on selling this product at this point?

They have sales people in all 38 provinces and when I say sales people, anywhere from 5 to 10 sales people in each province selling their products there. And I would tell you that half of those are dedicated to the market that we're in, being the oncology market over there because it has to go into radiation oncology, but there also is a major market on the private side with plastics as well as dermatologists -- private dermatologists. So they have 2 divisions, 1 is in the aesthetics addressing our market with SRT as well as the hospital market. The hospital market is going to be I think the biggest market that we have and that being because that's where the money is going to come from, from the government finally or getting us approval on this. Now how does that going to be evolved for the next little while? First and foremost, their process is very much like what we have in the United States. You have to present to the hospital administration as well as to the hospital physicians. They have to accept it, which I think the acceptance will be very, very high. They'll put it into their plan to develop a budget for it. They'll get approval from -- for the budget from the government and then they'll be able to implement it by providing Chindex, our partners, with a purchase order. So, that could be anywhere between 6 and 12 months before that gets mainstream. So, I see a good impact in 2018. I think that we're going to see additional numbers coming out of China in 2018, but I see a major impact in 2019 when most of their hospitals should have this somewhere on their screens for budget approval if not for having budget approval. So, again very, very excited for the opportunity. And I think that there's multiple opportunities for multiple units in the hospitals because they have various departments. All these hospitals are extremely big, they're all 2,000 beds or more. They have various departments of surgery with orthopedics, with internal medicine and a whole bunch of other things that we're all aware of and they seem to have their own outpatient centers with their own surgery centers. It's not just one surgery center for the entire hospital, they just couldn't handle it. So, every department seems to have their own support system and resources for this. So, that's one of the reasons why we're so excited for the opportunity there. So, it can be very, very big.

Okay. And then just lastly, can you talk about Europe and the opportunity there?

Europe is a very, very flat economy, everything is on socialized healthcare. There really is no money to be buying anything there and there's not a lot of private opportunity because there really is not a lot of private physicians or private hospitals that serve the public there. However, there is an opportunity in Germany. Germany has a very good private as well as public healthcare system so that could be an opportunity for us. We're working with a couple of people, hopefully we can get a couple of orders maybe before the end of the year. But we're working very, very hard to try to achieve that, but it's very, very tough. There's just not a lot of money and the economy is just having a tough time in -- all through Europe. And as you can imagine with a lot of the immigration things that are going on, especially in Germany, we know for a fact that the German system is being taxed quite heavily.

(Operator Instructions) Our next question comes from James Terwilliger with Paulson Investment Company.

Can you hear me?

I can hear your loud and clear.

A lot of my questions on China and Mexico have already been asked. But just remind me real quick how much of your business today or the quarter, just approximate numbers, is U.S. versus international? What's the revenue breakdown?

This past quarter, it was just about 100% from the U.S. So, it was all U.S. business that came in this past quarter.

So on the international side, this is the top of the first inning, is that a good way to...?

I mean I love baseball and I agree with you that it's the top of the first inning and we've got our first batter coming up.

Okay. So since it's the top of the first inning, is it -- so when I look at the -- my next question was going to be growth rates, but it's probably too early to get an international growth rate and the growth rates that you've been putting up recently, which are tremendous, they're all U.S. Is that correct because I'm working on my model?

Correct.

Okay. And then lastly, I'll just move, could you talk a little bit more in terms of the R&D pipeline? I think psoriasis is very, very attractive, you talk about what you're trying to do within breast cancer and then you also mentioned some other types of maybe cancer applications that are in your R&D pipeline in addition to breast. So, just highlight that at 30,000 feet for me?

One of the things that we've done working with some of our suppliers is develop an x-ray tube or a radiation tube source as we have been using that provides a lower energy level. Right now we have -- we offer our customers 3 energy levels of 50, 70 and 100. And so, all of the new Vision units have the new tube that provides access to as low as 10 kV all the way up to 100 kV. The lower ranges, particularly around 20 kV, is called Grenz Rays, G-R-E-N-Z. Grenz Rays has been used in the past to treat psoriasis and it's been very successful in treating psoriasis. So, some of the doctors are looking at this opportunity to see how they might be able to treat psoriasis and developing a track record, if you will, of their patients using Grenz Rays because this is something that's been used in the past. So, we're now going to adapt that tube as well to the regular SRT-100 product. So, that's where that piece is going. The next one is IORT, which is a big one for us. IORT, intraoperative radiation therapy for the treatment of breast cancer. As most people know today when a women is diagnosed with breast cancer, she's going to have either a lumpectomy or a mastectomy to remove the tumor or the entire breast and during the course of that procedure or after that procedure, the protocol is for that woman to follow 6 to 10 weeks of radiation therapy. This is heavy doses of electron beam radiation therapy and they involve every day for 1 hour for 6 to 10 weeks excluding weekends. This is very, very tough on a woman's body; they lose their hair, it weakens them, it affects other parts of their body, other organs. And a lot of women, a huge percentage of women do not complete their 6 to 10 weeks of protocol because they eventually go to their doctors and say I'm married, I've got children, I've got a job, I have no time for this especially for the way it makes me feel. I can't tend to my family, I can't tend to my job, and therefore, I'm not going to continue. The majority -- a lot of these women have the same outcomes as those that complete the 6 to 10 weeks.

So in Europe for the last 20 years they've used IORT as a way, but they haven't had a product like ours. They've used a vault within a vault and then they walk away from the patient and allow an extra 30 minutes for that patient to be under anesthesia to clear all of the excess cells or cancer cells that may exist in and around the breast and then they sew the patient up and they send them on their merry way and never have to go through this for 6 to 10 weeks. What created that need was the fact that they don't have a linear accelerator on every corner or at every hospital like we do. They have socialized healthcare. They can't afford a $3 million to $4 million product to do this consistently everywhere. So, it's very, very rare and the lines are very, very long; much like Canada, much like Europe. So, we've designed this product, intraoperative radiation therapy, where we can take our system, roll it in -- because it's on wheels roll it into the surgical suite, plug it into a regular outlet and be able to attend to the breast during the course of treatment while under anesthesia. And our treatment should take no longer than 5 minutes to clear all of those -- that area in that open cavity and then send the patient home on their merry way. Now there are predicates that exist. There's a couple of other companies that are out there that have this. They've been selling it minimally. They don't have, what I would call, state-of-the-art technology that's going to really make a difference. It adds more time to the surgical procedure, which is not in the surgeon's best interest nor is it in the patient's best interest to be under extra -- any extra length of time under anesthesia. So, these are all things that would be mitigated with our system and that's what we're working on today. Now this will also be applicable to other types of cancers such as head and neck cancers, things that are pretty much on the surface where you can get to it from the outside. It's also going to be available for vaginal, colorectal, any of these types of cancers that you can access through an access through the body. So, these are things that we're going to be able to do. They affectionately call them the orphan cancers. So, we'll be able to attend to these cancers as well and I think this is going to have a big impact. Today, CMS reimburses or FDA or Medicare reimburses and third-party insurance companies reimburse anywhere between $30,000 to $40,000 for that radiation treatment for these patients. We don't think that's going to exist in the future. We think that those numbers are going to come down and at that point these hospitals, these doctors, these patients and Medicare, Medicaid as well as the third-party insurance companies are going to be looking for a less expensive technology to address this and rather than have them on the very heavy expensive linear accelerators. We think we're going to be able to meet those needs and address those needs with a product that's going to be in the range of $900,000.

So, one last question. When you're going down this road, are these 510(k) approvals on your existing technology?

All 510(k). There's predicates that exist, we just have to follow those predicates, which is a tremendous advantage of our technology.

No. that's huge. And then here's a real dumb question, what about -- and this is really -- what about throat and tongue?

All very possible because there's a lot of statistics showing that that's growing and all you need to do is develop an applicator so that we can do a lot of these cancers that exist inside the mouth. With people chewing tobacco and all these other diseases that are causing this, I agree with you, those are all things that we need to look at. But highly effective -- could very highly be effective for anything inside the mouth.

I mean it's tough to hit those with those big linear accelerators. So, I'll stop right there. But again, Joe, thanks for taking the time on the -- for my questions, great quarter. Again, great quarter. And forget about stock price and all of that, people and patients really need your technology out there. It's a better -- it's a better technology, you can help a lot of people. So keep up the good work, you and your team. Thank you.

The next question comes from Geary Mason with Stifel Nicolaus.

Question for you. It seems like the future opportunities exist overseas specifically China. Regarding China, since that seems to be where the big opportunity is with the relationship which Chindex, what is your main competition in China or the main obstacles that you guys have to overcome to maximize the potential of that>

There is no competition. We're the only company and only technology that has CSDA approval in China for the treatment of keloids so we're excited about that. We're working with a very, very good partner in Chinex who has tremendous coverage and is only getting stronger since Fosun purchased them and has total control of Chindex now for the last 6 to 9 months. We're seeing tremendous input with upgrades in management, upgrades in salesforce capabilities and developing a real strong footprint in the Chinese market. So, we're excited for the growth opportunities that we have with our partner there.

Okay. Follow-on question, do you have any kind of projection on when you guys might be profitable maybe next quarter or any idea?

Let me pass that over to Arthur because I think he's got very, very good sign -- line sight on this because we're very aggressively to make that happen. So, Arthur?

I'll start off by saying that we're not giving guidance, but I will give a few comments about the upcoming quarters and line by line. The selling and marketing expenses will increase depending on how much we increase our headcount. It will also increase with sales since we will pay higher commissions with higher sales. The other line items, G&A should be relatively flat going forward and R&D should also be relatively flat as we continue the projects that we talked about earlier in the call.. So, I'd say we are approaching breakeven. With a reasonable increase in sales, we will be there If not in the fourth quarter, early in 2018.

Due to our time constraints, this concludes our question-and-answer session. I would like to turn the conference back over to Joe Sardano for any closing comments.

Well, in closing, I want to thank you all for your time this afternoon and your interest in our company and more importantly your support in our company. We really, really appreciate all of the investors, stakeholders in the company. It's very, very important for us that we provide everybody with the transparency that we're looking for and we're working very, very hard to make sure that we hit our numbers. We're pleased with our financial performance for both Q2 and the first half of the year and with momentum in the business as we see it. We look forward to speaking with you again when we report third quarter results in early November. So, we thank you. Have a good day.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.