Except for the changes below, we have consistently applied the accounting policies to all periods in these condensed consolidated financial statements.

 

On the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic - Revenue from Contracts with Customers (“ASC ) and concluded that, consistent with prior reporting, the Company has separate revenue streams: rentals and product sales. The adoption of ASC had impact upon adoption on the Company’s net income for the quarter of   However, the adoption of ASC requires certain customer concessions associated with rental revenues reported in accordance with ASC - Revenue Recognition, previously reported in selling, general and administrative expenses as “provisions for doubtful accounts” to now be recorded as a reduction of net rental revenues as they are considered price concessions of the transaction price under the new revenue guidance.  As ASC was adopted on a modified retrospective method, prior quarters are restated.  

 

ASC defines a -step process to recognize revenues at the time and in an amount that reflects the consideration expected to be received for the performance obligations that have been provided. ASC defines contracts as written, oral and through customary business practice. Under this definition, the Company considers contracts to be created at the time that the rental service is authorized or an order to purchase product is agreed upon regardless of whether or there is a written contract.

 

 

The Company has separate and distinct performance obligations offered to its customers: a rental service performance obligation or a product sale performance obligation. These performance obligations are related to separate revenue streams and at point are they combined into a single transaction.

 

The Company generates the majority of its revenue from the rental and servicing of infusion pumps to its customers and a minority of its revenue from product sales. Revenue related to rentals is recognized at the point in time that a patient concludes a treatment and the proper documentation has been received by the Company, or in certain arrangements, based on the number of pumps that a facility has onsite. Revenue related to product sales is recognized at the time that control of the product has been transferred to the customer; either at the time the product is shipped or the time the product has been received by the customer depending on the shipping terms. The Company does commit to long-term contracts to sell customers a certain minimum quantity of products.

 

 

The Company employs certain significant judgments to estimate the dollar amount of revenue, and related concessions, allocated to the rental service and sale of products. These judgments include, among others, the estimation of variable consideration. Variable consideration, specifically related to the Company’s -party payor rental revenues, is estimated as a contractual allowance for commercial payors and implied customer concessions, which has been traditionally considered bad debt for self-pay customers. The estimates for variable consideration are based on historical collections with similar payors which provide a reasonable basis for estimating the variable portion of a transaction. The Company uses the “expected value” method to estimate the component of variable consideration, which is consistent with the expectations set forth in ASC The Company doesn’t believe that a significant reversal of revenue will occur in future periods because (i) there is significant uncertainty about the amount of considerations that are expected to be collected based on collection history and (ii) the large number of sufficiently similar contracts allows the Company to adequately estimate the component of variable consideration.

 

 

The following table presents the impact of ASC on the Condensed Consolidated Statements of Operations (unaudited) for the months ended in thousands):

 

		Three Months Ended
		March 31, 2018
		As Reported				Adjustments				Pro-Forma as if Previous Accounting Guidance Was in Effect
Net revenues:
Rentals		$	14,421			$	1,904			$	16,325
Net revenues			16,483				1,904				18,387
Gross profit			10,073				1,904				11,977
Selling, general and administrative expenses:
Provision for doubtful accounts			-				1,904				1,904
Total selling, general and administrative		$	9,485			$	1,904			$	11,389

 

The following table presents disaggregated revenue by offering type:

 

		Three Months Ended
		March 31, 2018
Third-Party Payor Rentals		48.6%
Direct Payor Rentals		38.9%
Product Sales		12.5%
Total - Net revenues		100.0%