| 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 superficial radiation therapy devices and has established a
distribution and marketing network to sell the devices to healthcare providers globally. The Company was organized on May 7, 2010
as a limited liability corporation. On January 1, 2016, the Company completed a corporate conversion pursuant to which Sensus
Healthcare, Inc. succeeded to the business of Sensus Healthcare, LLC. The Company operates as one segment from its corporate headquarters
located in Boca Raton, Florida. Initial
Public Offering In
June 2016, the Company issued 2,300,000 units in its initial public offering (“IPO”) at a price of $5.50 per
unit ($5.25 attributable to the common stock and $0.25 attributable to the warrant), for net proceeds of approximately $10,393,000
after deducting underwriting discounts and commissions of $886,000 and expenses of $1,371,000. Each unit consisted of one share
of common stock and a warrant to purchase one share of common stock. Immediately prior to the IPO, all shares of stock then outstanding
converted into an aggregate of 10,367,883 shares of common stock following a 241.95-for-one forward stock split approved by the
Company’s board of directors. On July 25, 2016, the common stock and warrants included in the units issued in the IPO commenced
trading separately under the symbols “SRTS” and “SRTSW,” respectively, and trading of the units under
the symbol “SRTSU” was suspended. 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 U.S. Securities
and Exchange Commission, or SEC. Accordingly, they do not include certain footnotes and financial presentations normally
required under accounting principles generally accepted in the United States of America 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
financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for
the year ended December 31, 2016 included in the Company’s Form 10-K, filed with the SEC. The results for the three months
ended March 31, 2017 are not necessarily indicative of results to be expected for the year ending December 31, 2017, any other
interim periods, or any future year or period. Use
of Estimates The
preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 financial statements and the reported amounts of revenues and expenses during the reporting
period. Significant estimates to which it is reasonably possible that a change could occur in the near term include, revenue recognition,
inventory reserves, receivable allowances, recoverability of long lived assets and estimation of the Company’s product warranties.
Actual results could differ from those estimates. Revenue
Recognition The
Company’s sales primarily relate to sales of the Company’s devices. The Company recognizes product revenue upon shipment
provided that there is persuasive evidence of an arrangement, there are no uncertainties regarding customer acceptance, the sales
price is fixed and determinable, and collection of the resulting receivable is reasonably assured. The Company does not provide
a right of return related to product sales. Revenues for service contracts are recognized over the service contract period on
a straight-line basis. Revenue for rentals of equipment is recognized over the lease term on a straight-line basis. The
Company sells products and services under multiple-element arrangements with separate units of accounting; in these situations,
total consideration is allocated to the identified units of accounting based on their relative selling prices and revenue is then
recognized for each unit based on its specific characteristics. A deliverable in an arrangement qualifies as a separate unit of
accounting if the delivered item has value to the customer on a stand-alone basis. The principal deliverables in our multiple
deliverable arrangements that qualify as separate units of accounting consist of (i) sales of medical devices and accessories
and (ii) service contracts. Performance obligations, including installation and customer training, are considered inconsequential
and are combined with the product as one unit of accounting. Selling prices are established using vendor-specific objective evidence
(VSOE). If
VSOE does not exist, the Company uses its best estimate of the selling prices for the deliverables. The Company operates in a
highly-regulated environment and is continually entering into new markets in which 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 and customer acceptance becomes certain. Deferred
revenue consists of payments from customers for long term separately priced service contracts, sales pending regulatory approval
and deposits on products. Deferred revenue as of March 31, 2017 and December 31, 2016 was as follows:
As
of March 31, As
of December 31,
2017 2016
(unaudited)
Service
contracts $ 527,943 $ 613,374
Sales pending regulatory
approval - 155,517
Deposits
on products 35,062 84,907
Total
deferred revenue, current portion $ 563,005 $ 853,798
Service
contracts, net of current portion 9,166 16,251
Total
deferred revenue $ 572,171 $ 870,049 The
Company provides warranties, generally for one year, in conjunction with the sale of its product. These warranties are short term
in nature and 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 99% and 45%
for the three months ended March 31, 2017 and 2016, respectively. Customers in China accounted for approximately 0% and 20% for
the three months ended March 31, 2017 and 2016, respectively. A customer in the US accounted for approximately 51% and 0% of revenues
for the three months ended March 31, 2017 and 2016, respectively, and approximately 69% and 39% of the accounts receivable as
of March 31, 2017 and December 31, 2016, respectively. A distributor in Costa Rica accounted for approximately 0% and 24% of revenues
for the three months ended March 31, 2017 and 2016, respectively. Cash
and Cash Equivalents The
Company maintains its cash and cash equivalents with financial institutions which balances exceed the federally insured limits.
Federally insured limits are $250,000 for deposits. As of March 31, 2017 and December 31, 2016, the Company had approximately
$2,697,000 and $4,792,000, respectively in excess of federally insured limits. For
purposes of the statement of cash flows, the Company considers all highly liquid financial instruments with a maturity of three
months or less when purchased to be a cash equivalent. Investments Short
term investments consist of investments which the Company expects to convert into cash within one year and long term investments
after one year. The Company classifies its investments in debt securities at the time of purchase as h eld-to-maturity and
reevaluates 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 ar e carried at amortized cost
plus accrued interest and consist of the following:
Amortized Cost Gross Gross Fair
Short
Term:
Corporate
bonds $ 6,462,369 167 7,243 6,455,293
United
States Treasury bonds - - - -
Total
Short Term: 6,462,369 167 7,243 6,455,293
Long
Term:
United States Treasury
bonds 502,063 - 1,174 500,890
Corporate
bonds 601,710 2,618 599,091
Total
Long Term: 1,103,773 - 3,792 1,099,981
Total
Investment December 31, 2016 7,566,142 167 11,035 7,555,274
Short
Term:
Corporate bonds $ 6,403,228 - 5,707 6,397,521
United
States Treasury bonds 1,503,142 - 1,868 1,501,274
Total
Short Term: 7,906,370 - 7,575 7,898,795
Long
Term:
United States Treasury
bonds - - - -
Corporate
bonds - - -
Total
Long Term: - - - -
Total
Investment March 31, 2017 (unaudited) 7,906,370 - 7,575 7,898,795 Accounts
Receivable The
Company does business and extends credit based on an evaluation of each customer’s financial condition, generally without
requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each
customer. 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 $0 and $7,000 as of March 31, 2017 and December
31, 2016, respectively. Bad debt expense for the three months ended March 31, 2017 and 2016 was approximately $169,000 and $0,
respectively. Inventories Inventories
consist of finished product and components and are stated at the lower of cost and net realizable value, determined using the
first-in-first-out method. Earnings
Per Share Basic
net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to
common stockholders by the weighted-average number of common shares outstanding for the period using the treasury stock method
for options and warrants. The diluted net income per share attributable to common stockholders is computed by giving effect to
all potential dilutive common share equivalents outstanding for the period. In periods when the Company has incurred a net loss,
options and warrants to purchase common shares are considered common share equivalents but have been excluded from the calculation
of diluted net loss per share attributable to common stockholders as their effect is antidilutive. Shares excluded were computed
under the treasury stock method as follows:
For
the Three Months Ended March 31,
2017 2016
Warrants 4,025 288,474
Unvested restricted
stock 39,509 —
Options — 950 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 $733,000 and $232,000 for the three months ended March 31, 2017
and 2016, respectively. Recently
issued accounting pronouncements In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 will eliminate transaction-
and industry-specific revenue recognition guidance under current GAAP and replace it with a principle based approach for determining
revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services
as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty
of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets
recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for reporting periods beginning after
December 15, 2017. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the
date of adoption. In April 2016, the FASB also issued ASU 2016-10, Identifying Performance Obligations and Licensing, implementation
guidance on principal versus agent, identifying performance obligations, and licensing. ASU 2016-10 is effective for reporting
periods beginning after December 15, 2017. Entities can transition to the standard either retrospectively or as a cumulative-effect
adjustment as of the date of adoption. For Sensus the ASU is effective January 1, 2018. The Company is continuing to evaluate
the standard’s impact on the results of operations and financial condition. The Company has conducted initial analyses and
is currently completing detailed contract reviews to determine if any adjustments are necessary to the existing accounting policies
and to support the evaluation of the standard’s impact to the results of operations and financial condition. For the majority
of the Company’s revenue arrangements, no significant impacts are expected as these transactions are not accounted for under
industry-specific guidance that will be superseded by the ASU, and generally consist of obligations to transfer goods and services.
The Company currently anticipates utilizing the modified retrospective method of adoption on January 1, 2018. In
November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). Under the new guidance,
companies are required to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating
deferred taxes into current and noncurrent amounts. In addition, companies will no longer allocate valuation allowances between
current and noncurrent deferred tax assets because those allowances will also be classified as noncurrent. This guidance is effective
for financial statements issued for annual and interim periods beginning after December 15, 2016. The Company adopted this standard
in the first quarter of 2017 and it did not have a material impact on its financial statements. In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The guidance in ASU 2016-02 supersedes
the lease recognition requirements in ASC Topic 840, Leases (FAS 13). The new standard establishes a right-of-use (ROU)
model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for lease s In
April 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation (Topic 718), which requires that the
income tax effect of share-based awards be recognized in the income statement when the awards vest or are settled. The guidance
will also allow an employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability
accounting and to make a policy election to account for forfeitures as they occur. The guidance is effective for years beginning
after December 15, 2016 and interim periods within those years. The Company adopted this standard in the first quarter of 2017
and it did not have a material impact on its financial statements. |
