| 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. 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. Service contracts
are considered a performance obligation only if they provide a material right, otherwise they are considered options. Other 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 December 31, 2017 and 2016 was as follows:
As of December 31,
2017 2016
Service contracts $ 570,242 $ 613,374
Sales pending regulatory approval — 155,517
Deposits on products 82,000 84,907
Total deferred revenue, current portion $ 652,242 $ 853,798
Service contracts, net of current portion 73,083 16,251
Total deferred revenue $ 725,325 $ 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. Concentration
of Credit Risk Financial instruments that potentially subject
the Company to concentration of credit risk consist primarily of cash and cash equivalents, accounts receivable and investments
in debt securities. Segment
and Geographical Information The Company’s revenue is generated primarily
from customers in the United States, which represented approximately 97% and 81% of revenue for the years ended December 31, 2017
and 2016, respectively. A customer in China accounted for approximately 2% and 10% of revenue for the years ended December 31,
2017 and 2016, respectively. A customer in the U.S. accounted for approximately 59% and 20% of revenue for the years ended December
31, 2017 and 2016, respectively, and 87% and 39% of the accounts receivable as of December 31, 2017 and 2016, respectively. Fair
Value of Financial Instruments Carrying amounts of cash equivalents, accounts
receivable, accounts payable, accrued liabilities and revolving credit facility approximate fair value due to their relative short
maturities. 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 December 31, 2017 and 2016, the Company had approximately $9,952,000 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 e carried at amortized cost plus accrued interest and
consist of the following:
Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value
Short Term:
Corporate bonds $ 6,462,369 $ 167 $ 7,243 $ 6,455,293
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 Investments December 31, 2016 $ 7,566,142 $ 167 $ 11,035 $ 7,555,274
Short Term:
Corporate bonds $ 602,599 $ — $ 256 $ 602,343
United States Treasury bonds 502,036 — 332 501,704
Total Short Term: 1,104,635 — 588 1,104,047
Total Investments December 31, 2017 $ 1,104,635 $ — $ 588 $ 1,104,047 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 $16,000 and $29,000 as of December 31, 2017 and 2016, respectively. Bad debt expense for the years ended
December 31, 2017 and 2016 was approximately $191,000 and $33,000, 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. Property
and Equipment Property and equipment are stated at cost.
Depreciation on property and equipment is calculated on the straight-line basis over the estimated useful lives of the assets.
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 income. Inventory units designated for customer demonstrations,
as part of the sales process, are reclassified to property and equipment and the depreciation is recorded to selling and marketing
expense. The inventory used for demonstrations that was reclassified to property and equipment for the years ended December 31,
2017 and 2016 was approximately $35,000 and $68,000, respectively. Inventory units designated for customer rental
agreements are reclassified to property and equipment and the depreciation is recorded to cost of sales. Intangible
Assets Intangible assets are comprised of the Company’s
patent rights and are amortized over the patents’ estimated useful life of approximately 13 years. As of December 31, 2017,
the remaining useful life was 66 months. Long-Lived
Assets The Company evaluates its long-lived assets,
including intangible assets, for possible impairment whenever circumstances indicate that the carrying amount of the asset, or
related group of assets, may not be recoverable from estimated future cash flows in accordance with accounting guidance. If circumstances
suggest the recorded amounts cannot be recovered, based upon estimated future undiscounted cash flows, the carrying values of such
assets are reduced to fair value. No impairment charges were recorded for long-lived assets for the years ended December 31, 2017
and 2016. 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 income (loss) per share is calculated
by dividing the net income (loss) 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 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 as their effect is antidilutive. Shares excluded were computed under the treasury stock method as follows:
For the Years Ended December 31,
2017 2016
Warrants 4,076 19,489
Unvested shares — 72,670 Equity-Based
Compensation Pursuant to 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 fair values on the grant date. The Company has accounted for issuance of shares, options,
and warrants in accordance with the guidance, which requires the recognition of expense, based on grant-date fair values, over
the service period, generally periods over which the shares, options and warrants vest. Advertising
Costs Advertising and promotion expenses are charged
to expense as incurred. Advertising and promotion expense included in selling and marketing expense in the accompanying statements
of operations amounted to approximately $1,684,000 and $1,051,000 for the years ended December 31, 2017 and 2016, respectively. Operating
Leases Rent expense for operating leases which contain
escalating rental clauses is recorded on a straight-line basis over the lease term. Recently
issued accounting pronouncements In May 2014, the FASB issued ASU 2014-09, Revenue
from Contracts with Customers (Topic 606). ASU 2014-09 eliminated transaction- and industry-specific revenue recognition guidance
under current GAAP and replaced it with a principle based approach for determining revenue recognition. ASU 2014-09 requires that
companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also requires
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. The Company has completed the
evaluation of this ASU impact on the results of operations and financial condition. The Company has concluded, after completing
a detailed contract review, that the adoption of the new standard does not have a material impact on the financial results and
determined that no material adjustments were necessary to the existing accounting policies. The Company will adopt 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 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. |
