| ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Note 1 — Organization
and Summary of Significant Accounting Policies Description of
the Business Sensus Healthcare, Inc. (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 as one segment from its corporate headquarters located in Boca Raton, Florida. Basis of Presentation The accompanying unaudited condensed financial statements in
this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United
States of America, or (“GAAP”), and the rules and regulations of the SEC. Accordingly, they do not include certain
footnotes and financial presentations normally required under GAAP for complete financial statements. The interim financial information
is unaudited, but reflects all normal adjustments and accruals which are, in the opinion of management, considered necessary to
provide a fair presentation for the interim periods presented. The accompanying condensed consolidated financial statements should
be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31,
2019 included in the Company’s Form 10-K, filed with the SEC. The results for the nine months ended September 30, 2020 are
not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future
year or period. Principles of consolidation The accompanying condensed consolidated financial statements
include the financial statements of the Company and its wholly owned subsidiary in Israel. All inter-company balances and transactions
have been eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates as to which it is reasonably possible that a change could occur in the near
term include inventory reserves, receivable allowances, recoverability of long-lived assets and the Company’s product warranties.
Actual results could differ from those estimates. Impact of COVID-19 The outbreak of COVID-19, which was declared a pandemic by the
World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies and created uncertainty
regarding potential impacts to the Company’s employees, operations, and customer demand. The Company, which provides medical
devices, is considered an “essential business” and has been able to continue to operate and service its customers.
However, the COVID-19 pandemic has significantly impacted the Company’s sales in the first three quarters of 2020, as social
distancing forced physicians to temporarily close their practices, and 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, which are highly uncertain and cannot be predicted, including, but
not limited to the duration, spread, severity, and impact of the COVID-19 pandemic, the effects of the COVID-19 pandemic on the
Company’s customers, suppliers, and vendors, the remedial actions and stimulus measures adopted by local, state and federal
governments, and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided,
the Company may continue to experience adverse impacts to its business as a result of any economic recession or depression that
has occurred or may occur in the future. Therefore, the Company cannot reasonably estimate the impact at this time. REVENUE RECOGNITION On January 1, 2018, the Company adopted Accounting Standards
Codification (“ASC”) Topic 606, “ Revenue from Contracts with Customers Under ASC 606, a performance obligation is a promise within
a contract to transfer a distinct good or service, or a series of distinct goods and services, to a customer. Revenue is recognized
when performance obligations are satisfied and the customer obtains control of promised goods or services, which is generally upon
shipment of the goods and performance of the services. The amount of revenue recognized reflects the consideration to which the
Company expects to be entitled to receive in exchange for goods or services. Under the standard, a contract’s transaction
price is allocated to each distinct performance obligation. To determine revenue recognition for arrangements that the Company
determines are within the scope of ASC 606, the Company performs the following five steps: (i) identifies the contracts with a
customer; (ii) identifies the performance obligations within the contract, including whether they are distinct and capable of being
distinct in the context of the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance
obligations in the contract; and (v) recognizes revenue when, or as, the Company satisfies each performance obligation. The Company’s revenue consists of sales of the Company’s
devices and services related to maintaining and repairing the devices. The agreement for the sale of the devices and the service
contract are usually signed at the same time, although in some instances a service contract is signed on a stand-alone basis. Revenue
for service contracts is recognized over the service contract period on a straight-line basis. 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 stand-alone
or together with the device. There is no termination provision in the service contract nor are there any penalties in practice
for cancellation of the service contract. The service contract is not considered a performance obligation until it is paid, and
it does not provide a material right for a significant discount when purchased with the device. The service portion of a sales
contract or a stand-alone service contract is accounted for over the period of time of the service contract only when the customer
pays for the service contract. Disaggregated revenue for the three and nine months ended September
30, 2020 and 2019 was as follows:
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Product Revenue $ 475,208 $ 5,301,891 $ 1,620,789 $ 17,202,342
Service Revenue 1,144,955 539,054 2,861,768 1,551,497
Total Revenue $ 1,620,163 $ 5,840,945 $ 4,482,557 $ 18,753,839 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 these cases, where regulatory approval is pending, revenue is deferred until such time as regulatory approval is
obtained. Deferred revenue activity during the nine months ended September
30, 2020 was as follows:
Product Service Total
December 31, 2019 $ — $ 2,531,183 $ 2,531,183
Revenue recognized — (2,064,316 ) (2,064,316 )
Amounts invoiced 120,164 1,824,476 1,944,640
September 30, 2020 $ 120,164 $ 2,291,343 $ 2,411,507 The Company does not disclose information about
remaining performance obligations with respect to deposits for products that 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 September 30, 2020 was as follows:
Year Service
2020 (October 1 – December 31, 2020) $ 508,704
2021 1,333,903
2022 389,235
2023 39,667
2024 19,834
Total $ 2,291,343 The Company provides warranties 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 respective warranty. The Company records an estimate of future warranty claims at the time the Company recognizes
revenue from the sale of the product based upon management’s estimate of the future claims rate. Shipping and handling costs are expensed as incurred and are
included in cost of sales. Segment and Geographical
Information The Company’s revenue is generated primarily from customers
in the United States, which represented approximately 79% and 100% for the three months ended September 30, 2020 and 2019, and
approximately 92% and 91% for the nine months ended September 30, 2020 and 2019, respectively. A customer in the U.S. accounted
for approximately 32% and 83% of revenues for the three months ended September 30, 2020 and 2019, respectively; approximately 23%
and 70% for the nine months ended September 30, 2020 and 2019, respectively; and approximately 24% and 79% of the accounts receivable
as of September 30, 2020 and December 31, 2019, respectively. Two customers in China accounted for approximately 20% of revenues
for the three months ended September 30, 2020. Cash and Cash Equivalents The Company maintains its cash and cash equivalents with financial
institutions which balances exceed federally insured limits ($250,000 for deposits). As of September 30, 2020 and December 31,
2019, the Company had approximately $15,862,000 and $7,740,000, respectively in excess of federally insured limits. For purposes of the statement of cash flows, cash equivalents
primarily consist of highly liquid financial investments with original maturities of three months or less. Investments Short-term investments consist of investments that the Company
expects to convert into cash within one year and long-term investments are those that the Company expects to convert to cash after
one year. The Company classifies its investments in debt securities at the time of purchase as held-to-maturity and re-evaluates
such classification on a quarterly basis. Held-to-maturity investments consist of securities that the Company has the intent and
ability to retain until maturity. These securities are carried at amortized cost plus accrued interest and consist of the following:
Amortized Gross Gross Fair
Short-Term:
Corporate bonds $ 6,690,678 $ 4,251 $ — $ 6,694,929
United States Treasury bonds 698,729 1,302 — 700,031
Total Short Term: 7,389,407 5,553 — 7,394,960
Total Investments December 31, 2019 $ 7,389,407 $ 5,553 $ — $ 7,394,960
Short-Term:
Corporate bonds $ — $ — $ — $ —
Total Short Term: — — — —
Total Investments September 30, 2020 $ — $ — $ — $ — Accounts Receivable The Company does business and extends credit based on an evaluation
of each customer’s financial condition, generally without requiring collateral. The Company monitors exposure to credit losses
and maintains allowances for anticipated losses considered necessary under the circumstances. The allowance for doubtful accounts
was approximately $24,000 and $80,000 as of September 30, 2020 and December 31, 2019. 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. Earnings Per Share Basic net income (loss) per share is calculated by dividing
the 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 warrants, as well as unvested restricted shares. In periods when the Company has incurred a net loss,
options, warrants 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 were excluded as follows:
For the Three Months Ended For the Nine Months Ended
2020 2019 2020 2019
Shares — 17,671 — 8,499
Stock options — 10,639 — 32,000 Advertising Costs Advertising and promotion expenses are charged to expense as
incurred. Advertising and promotion expense included in selling expense in the accompanying statements of operations amounted to
approximately $71,000 and $307,000 for the three months ended September 30, 2020 and 2019, respectively, and $415,000 and $1,035,000
for the nine months ended September 30, 2020 and 2019, respectively. Leases The Company evaluates arrangements at inception to determine
if an arrangement is or contains a lease. Operating lease assets represent the Company’s right to 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. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value
of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the
lease when it is reasonably certain that the Company will exercise the option. To determine the present value of the lease payments,
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. The lease payments used to determine the Company’s operating
lease assets may include lease incentives and stated rent increases and are recognized in the Company’s operating lease assets
in the Company’s condensed consolidated balance sheets. Operating lease assets are amortized to rent expense over the lease
term and included in operating expenses in the condensed consolidated statements of operations. |
