STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

STOCKHOLDERS' EQUITY

Note 7 — Stockholders’ Equity

The Company has authorized 50,000,000 shares of common stock, of which 13,546,170 and 10,367,883 shares were issued and outstanding as of September 30, 2016 and December 31, 2015, respectively.

Stock Issuances

On January 1, 2016, Sensus Healthcare, LLC converted into a Delaware corporation pursuant to a statutory conversion and changed its name to Sensus Healthcare, Inc. As a result of the corporate conversion, the holders of the different classes of units of Sensus Healthcare, LLC became holders of common stock of Sensus Healthcare, Inc. Holders of warrants and options, respectively, to purchase membership interests of Sensus Healthcare, LLC became holders of warrants and options to purchase common stock of Sensus Healthcare, Inc., respectively. Each membership interest converted to one share of common stock.

During 2011, the Company offered to a limited number of investors (the “investor members”) preferred membership interests (the “interests”) consisting of (i) cumulative, non-compounded, 8% per annum preferential return, payable annually, if and when such distributions are made by the Company’s board of directors and (ii) participation in the Company’s net profits, net losses and distributions of the Company’s assets pursuant to the operating agreement. The offering raised approximately $6.4 million in gross proceeds ($6.0 million net of offering costs), utilizing a private placement memorandum. As of December 31, 2015, accumulated unpaid preferential distributions were approximately $2,674,000 ($0.87 per share). Preferential distributions no longer accrued after December 31, 2015. In June 2016, after the completion of the IPO, the accumulated unpaid distribution as of December 31, 2015 was payable in cash or shares, at the option of each stockholder with a preferential distribution. On July 15, 2016, the Company paid the accrued dividends in the amount of approximately $2,553,000 representing the amount for which former holders of membership units with a preferred return elected to receive dividends in cash. In addition, 23,138 shares valued at approximately $122,000 of common stock were issued to those that elected to receive the dividends in shares.

During 2014, the Company granted a 1% ownership interest in the Company to an executive which was to vest upon a change in control of the Company. During 2015, the terms were amended such that the ownership interest will vest in the event of involuntary termination or a liquidity event, as defined. In accordance with accounting principles generally accepted in the United States, compensation cost for awards with performance conditions should be recorded in the Company’s financial statements at which time that it is probable the performance condition is achieved. As of December 31, 2015, the achievement of the performance condition was not probable and accordingly no compensation cost was recorded. Following the IPO in June 2016, the performance condition was met and accordingly, stock compensation expense of approximately $465,000 was recorded during the three months ended June 30, 2016. The grant date fair value of the equity award was estimated using both an income and market approach. Under the income approach, the Company used a discounted cash flow method based on Company projections, historical financial information and guideline company/industry growth and margin indicators. The discount rate applied was based on the weighted average cost of capital of guideline public companies and was estimated at approximately 21%. The Company also used a market approach to estimate its enterprise value based on a multiple of revenue and earnings of guideline public companies. Using both of these approaches, management was able to estimate the fair value per share on the grant date which was approximately $4.42 per share or approximately $465,000.

Warrants

In March 2011, the closing date of the preferred offering, the Company’s placement agent was granted investor rights to five year warrants to purchase preferred units, which following the conversion were exercisable into 544,387 common shares of the Company at an exercise price of $2.08 per share. The expiration of the warrants was extended and the warrants were exercised on June 10, 2016. One of the Company’s directors is a managing partner of and has voting and dispositive authority in the entity that exercised the warrants.

In April 2013, the closing date of the second common offering, the placement agent received investor rights to 5 year warrants to purchase 86,376 common shares of the Company at an exercise price of $4.55 per unit, which was equal to 110% of the offering price.

In June 2016, from the IPO, the investors received three-year warrants to purchase 2,300,000 shares of common stock at an exercise price of $6.75 per share; the warrants are exercisable through June 2, 2019. Following the first anniversary of the date of issuance, if certain conditions are met, the Company may redeem any and all of the outstanding warrants at a price equal to $0.01 per warrant.

In addition, the underwriter’s representatives received four-year warrants to purchase up to 138,000 units, consisting of one share of common stock and one warrant to purchase one share of common stock. The warrants for the units are exercisable between June 2, 2017 and June 2, 2021 at an exercise price of $6.75 per unit.

All warrants reflect the 241.05-for-one forward stock split and were fully vested as of September 30, 2016 and December 31, 2015. The following table summarizes the Company’s warrant activity:

	Preferred Unit Warrants								Common Unit Warrants
	Number of Warrants			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (In Years)		Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (In Years)
Outstanding – December 31, 2015		544,387		$	2.08			0.17		86,376	$	4.55		1.5
Granted		—			—			—		2,438,000		6.75		2.80
Exercised		(544,387	)		(2.08	)		—		—		—		—
Cancelled (forfeited)		—			—			—		—		—		—
Outstanding – September 30, 2016		—			—			—		2,524,376	$	6.67		2.76
Exercisable –  September 30, 2016		—			—			—		2,524,376	$	6.67		2.76

The intrinsic value of the common stock warrants was approximately $148,000 as of September 30, 2016, and approximately $0 as of December 31, 2015.

2013 Option Plan

The Company’s 2013 option plan (the “Plan”) permitted the grant of 90,731 options to purchase shares of common stock to its employees. Option awards were generally granted with an exercise price equal to the fair value of the Company’s common shares at the date of grant and those option awards generally vested based on five years of continuous service. The awards provided for accelerated vesting if there was a change in control as defined in the Plan.

On November 1, 2013, the Company granted two employees, options to purchase 7,258 shares of common stock at an exercise price of $4.13 per unit. In lieu of cash exercise, the options also contained certain cashless exercise provisions however the net settlement amount remained fixed. The options were to expire 10 years from the grant date and vest five years from the grant date.

The fair value of each option was estimated on the date of grant using the Black-Scholes Option Pricing Model (“Black-Scholes Model).

Upon the closing of the IPO, all options issued under the Plan were automatically exercised using a cashless exercise feature and converted to 3,096 shares of common stock, and the Option Plan was terminated.

All options amounts reflect the 241.05-for-one forward stock split. A summary of option activity under the Plan is as follows:

	Number of Options			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (In Years)
Outstanding – December 31, 2015		14,516		$	4.13			7.83
Granted		—			—			—
Exercised		(14,516	)		(4.13	)		—
Cancelled (forfeited)		—			—			—
Outstanding – September 30, 2016		—		$	—			—
Exercisable – September 30, 2016		—		$	—			—

The Company recognized approximately $22,000 and $2,000 of stock based compensation related to the grant of the options to its employees for nine months ended September 30, 2016 and 2015, and approximately $25,000 and $5,000 for the nine months ended September 30, 2016 and 2015.

2016 equity incentive Plan

In February 2016, with stockholder approval, the Company adopted the Sensus Healthcare, Inc. 2016 Equity Incentive Plan (the “2016 Plan”). Pursuant to the 2016 Plan, our directors, officers and other key employees who have been selected as participants are eligible to receive awards of various forms of equity-based incentive compensation, including incentive and nonqualified stock options, stock appreciation rights, restricted stock awards, performance shares and phantom stock, and awards consisting of combinations of such incentives. The 2016 Plan is administered by the Compensation Committee of the Board of Directors. Under the 2016 Plan, the Compensation Committee has the authority to establish, adopt, revise or rescind such rules and regulations and to make all such determinations relating to the 2016 Plan as it may deem necessary or advisable for the administration of the 2016 Plan. Subject to the provisions of the 2016 Plan, the Compensation Committee has sole discretionary authority to interpret the 2016 Plan and to determine the type of awards to grant, when, if, and to whom awards are granted, the number of shares covered by each award and the terms and conditions of the award. The term of the 2016 Plan is 10 years from the effective date, after which no further awards may be granted thereunder.

The Company has limited the aggregate number of shares of common stock to be awarded under the 2016 Plan to 397,473 shares and no more than 397,473 shares of common stock in the aggregate may be granted in connection with incentive stock options. In addition, unless the Compensation Committee specifically determines otherwise, the maximum number of shares available under the 2016 Plan and the awards granted under the 2016 Plan will be subject to appropriate adjustment in the case of any stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, exchanges or other changes in capitalization affecting our common stock. Any shares granted in connection with options and stock appreciation rights shall be counted against this limit as one share for every one share allotted in connection with the awarded option or stock appreciation right. Any shares granted in connection with awards other than options and stock appreciation rights shall be counted against this limit as two shares for every one share granted in connection with such award or by which the award is valued by reference.

On June 2, 2016, 307,666 shares of restricted stock were issued to employees and were recorded at the fair value of $5.25 as per the initial offering price. The shares vest 25% per year over a four-year vesting period and are being recognized as expense on a straight-line basis over the vesting period of the awards. Stock compensation expense of approximately $101,000 was recognized for the three months ended September 30, 2016 and $135,000 for the nine months ended September 30, 2016. Unrecognized stock compensation expense was approximately $1,481,000 as of September 30, 2016, which will be recognized over the remaining vesting period.