ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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, 2015 included in the Company’s final prospectus dated June 2, 2016, filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, relating to the Company’s Registration Statement on Form S-1 (File No. 333-209451), filed with the SEC. The results for the three and nine months ended September 30, 2016 are not necessarily indicative of results to be expected for the year ending December 31, 2016, 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 September 30, 2016 and December 31, 2015 was as follows:

	As of September 30,		As of December 31,
	2016		2015
	(unaudited)
Service contracts	$	764,600	$	669,717
Sales pending regulatory approval		155,517		155,517
Deposits on products		70,679		65,000
Total deferred revenue, current portion	$	990,796	$	890,234
Service contracts, net of current portion		9,979		45,786
Total deferred revenue	$	1,000,775	$	936,020

The Company provides warranties, generally 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 100% and 85% of its net revenues for the three months ended September 30, 2016 and 2015, respectively, and approximately 74% and 85% for the nine months ended September 30, 2016 and 2015, respectively. Customers in China accounted for approximately 0% and 14% of revenues for the three months ended September 30, 2016 and 2015 and approximately 15% and 14% for the nine months ended September 30, 2016 and 2015, 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 September 30, 2016 and December 31, 2015, the Company had approximately $4,357,000 and $4,815,000, 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 held-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 are carried at amortized cost plus accrued interest and consist of the following:

	As of September 30, 2016
	(unaudited)
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Short Term:
Corporate bonds	$	4,848,278		322		1,697		4,846,903
Total Short Term:		4,848,278		322		1,697		4,846,903
Long Term:
United States Treasury bonds		502,493		208		—		502,701
Corporate bonds		1,226,752				624		1,226,128
Total Long Term:		1,729,245		208		624		1,728,829

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 $27,000 as of September 30, 2016 and approximately $27,000 as of December 31, 2015. To date, the Company has not experienced significant credit-related losses.

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 nine months ended September 30, 2016 and 2015 was approximately $68,000 and $44,000, respectively.

Inventory units designated for customer rental agreements are reclassified to property and equipment and the depreciation is recorded to cost of sales. Inventory reclassified for the nine months ended September 30, 2016 and 2015 was approximately $0 and $39,000, respectively.

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 September 30, 2016 the remaining useful life was 81 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 nine months ended September 30, 2016 and 2015.

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 September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Warrants		23,644		288,474		23,644		288,474
Unvested restricted stock		71,142		—		71,142		—
Options		—		950		—		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 $168,000 and $70,000 for the three months ended September 30, 2016 and 2015, respectively, and $687,000 and $455,000 for the nine months ended September 30, 2016 and 2015, respectively.

Deferred Initial Public Offering Costs

Deferred offering costs, which consist of direct incremental legal, accounting and other fees relating to the IPO, are capitalized. The deferred offering costs were offset against IPO proceeds upon the consummation of the offering. As of December 31, 2015, approximately $310,000 of deferred offering costs were capitalized and included in deferred offering costs and other prepaids on the balance sheet.