10-K
1
f10k2020_sensushealth.htm
ANNUAL REPORT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER
31, 2020
OR
☐TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________
TO ____________
Commission File Number: 001-37714
Sensus Healthcare, Inc.
(Exact name of registrant as specified
in its charter)
851 Broken Sound Pkwy., NW #215, Boca Raton, Florida 33487
(Address of principal executive office) (Zip Code)
(561) 922-5808
(Registrant’s telephone number,
including area code)
Securities registered pursuant to
Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
Securities registered pursuant to
Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o
No x
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes o
No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes x
No o
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes x
No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Indicate by check mark whether the registrant has filed a
report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
No x
The aggregate market value of the common equity held by non-affiliates
of the registrant on June 30, 2020, the last business day of the registrant’s most recently completed second quarter, was
$35,160,655 based on the closing price of $3.06 per share of common stock on the Nasdaq Capital Market on that date. For this purpose,
all outstanding shares of common stock have been considered held by non-affiliates, other than the shares beneficially owned by
directors, officers and certain 5% stockholders of the registrant; certain of such persons disclaim that they are affiliates of
the registrant.
As of February 28, 2021 there were 16,485,780 shares of the
registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the Annual Meeting of
Stockholders to be held on June 4, 2021, are incorporated by reference in Part III.
SENSUS HEALTHCARE, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
PART I 1
Item 1. Business 1
Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 21
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Mine Safety Disclosure 21
Item 6. Selected Financial Data 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26
Item 8. Financial Statements and Supplementary Data F-1
Item 9A. Controls and Procedures 27
Item 9B. Other Information 27
PART III 28
Item 10. Directors, Executive Officers and Corporate Governance 28
Item 11. Executive Compensation 28
Item 14. Principal Accountant Fees and Services 28
Item 15. Exhibits and Financial Statement Schedules 29
Signatures 32
i
INTRODUCTORY NOTE
Forward-Looking Statements
This report includes statements that are, or
may be deemed, “forward-looking statements.” In some cases, these statements can be identified by the use of forward-looking
terminology such as “believes,” “estimates,” “anticipates,” “expects,” “plans,”
“intends,” “may,” “could,” “might,” “will,” “should,” “approximately,”
“potential” or negative or other variations of those terms or comparable terminology, although not all forward-looking
statements contain these words.
Forward-looking statements involve risks and
uncertainties because they relate to events, developments, and circumstances relating to Sensus Healthcare, Inc., our industry,
and/or general economic or other conditions that may or may not occur in the future or may occur on longer or shorter timelines
than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report,
forward-looking statements are not guarantees of future performance, and our actual results of operations, financial condition
and liquidity, and the development of the industry in which we operate may differ materially from the forward looking statements
contained in this press release, as a result of the following factors, among others: the continuation and severity of the COVID-19
pandemic, including its impact on sales and marketing; our ability to achieve profitability; our ability to obtain and maintain
the intellectual property needed to adequately protect our products, and our ability to avoid infringing or otherwise violating
the intellectual property rights of third parties; the level and availability of government and/or third party payor reimbursement
for clinical procedures using our products, and the willingness of healthcare providers to purchase our products if the level of
reimbursement declines; the regulatory requirements applicable to us and our competitors; our ability to efficiently manage our
manufacturing processes and costs; the risks arising from our international operations; legislation, regulation, or other governmental
action, that affects our products, taxes, international trade regulation, or other aspects of our business; concentration of our
customers in the U.S. and China, including the concentration of sales to one particular customer in the U.S., the performance of
the Company’s information technology systems and its ability to maintain data security; and other risks described from time
to time in our filings with the Securities and Exchange Commission.
In addition, even if future events, developments,
and circumstances are consistent with the forward-looking statements contained in this report, they may not be predictive of results
or developments in future periods. Any forward-looking statements that we make in this report speak only as of the date of such
statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this report,
except as may be required by applicable law.
ii
PART I.
Item 1.BUSINESS
Overview
Sensus Healthcare, Inc. (together, with its subsidiary, unless
the context otherwise indicates, “Sensus” or the “Company”) is a medical device company committed to providing
highly effective, non-invasive and cost-effective treatments for both oncological and non-oncological skin conditions. The Company
uses a proprietary low-energy X-ray technology known as superficial radiation therapy (“SRT”), which is based on over
a decade of dedicated research and development and has successfully incorporated SRT into a portfolio of treatment devices: the
SRT-100TM, SRT-100+TM and SRT-100 VisionTM. To date, SRT technology has been used to effectively
and safely treat oncological and non-oncological skin conditions in hundreds of thousands of patients around the world. With the
introduction of SculpturaTM, the Company has branched out into cancer treatment that goes far beyond skin and may provide
a revolutionary treatment option for patients around the world.
The Company was organized in 2010 and completed its initial
public offering in 2016. The Company operates as one segment from its corporate headquarters located in Boca Raton, Florida. For
further information see Note 1, Description of the Business, in the notes to the consolidated financial statements in Part
II, Item 8.
Our Products and Services
SRT-100
The SRT-100 is a photon x-ray low energy superficial radiotherapy
system that provides patients an alternative to surgery for treating non-melanoma skin cancers, including basal cell and squamous
cell skin cancers and other skin conditions such as keloids. The SRT-100 is especially effective in treating primary lesions that
would otherwise be difficult or require extensive surgery involving sensitive areas of the head and neck regions, such as the fold
in the nose, eyelids, lips, corner of the mouth, and the lining of the ear, that would otherwise lead to a less than desirable
cosmetic outcome. Superficial radiation therapy treatment procedures do not require the use of anesthetics and eliminate the need
for skin grafting. The Company believes that the SRT-100 provides healthcare providers and patients with a safe, virtually painless,
and substantially non-scarring treatment option for non-melanoma skin cancer and other skin conditions, such as keloids. It allows
dermatologists to retain non-melanoma skin cancer patients, rather than referring them to specialists, while offering radiation
oncologists an alternative to costly linear accelerator–based treatments with a process that is less invasive, more time-efficient,
and improves practice economics. Revenue is primarily derived from sales of our SRT-100 product line. The SRT-100 provides the
following clinical and functional advantages:
SRT-100 Vision
The SRT-100 Vision provides customers with additional options
compared to the SRT-100 base model. These additional options allow for dedicated treatment planning and full treatment progression
documentation in a patient’s record. The SRT-100 Vision provides the user with a unique superficial radiation therapy-tailored
treatment planning application that integrates an embedded high frequency ultrasound imaging module, volumetric tumor analysis,
beam margins planning, and comprehensive dosimetry parameters. This allows the user to precisely and more accurately plan and prescribe
the patient-specific treatment course to maximize patient outcomes and workflow efficiency. The SRT-100 Vision also offers a comprehensive
control console and workflow management that provides full record and treatment tracing, operator-level access and functional control,
audio-visual patient and treated lesion monitoring, and advanced dosimetry setting and tracing.
SRT-100 Plus
The SRT-100+ offers all the same features as the SRT-100,
with the addition of:
● An expanded energy range for customized, more precise treatment
● Remote diagnostics, including operation tracking
● New X-ray tube with extended functionality and performance
● Advanced console and enhanced system mobility to optimize clinical practice
Sculptura
In February 2019, the U.S. Food and Drug Administration (“FDA”)
allowed clearance of the Sculptura product, which is the Company’s proprietary modulated robotic brachytherapy radiation
oncology system that provides targeted directional anisotropic radiation therapy (“ART”) and brachytherapy that uses
patented Beam SculptingTM capabilities to treat various cancers during surgery. This system has the potential to give surgeons
and radiation oncologists at hospitals and cancer centers the ability to eliminate weeks of post-operative radiation treatments
that patients typically must undergo after surgery and also result in similar or better outcomes to current radiation treatments
today, with significantly less collateral damage. Sculptura has the potential to revolutionize the quality of life associated with
cancer treatment while achieving similar or lower mortality rates. Sculptura has several exclusive features, including 3D Beam
SculptingTM, respiratory motion tracking, embedded image guidance and treatment area illumination.
Sentinel service program
The Company offers the Sentinel service program, which provides
customers comprehensive protection for their systems. The Sentinel service program covers all parts and labor for the period of
the contract and one annual preventive maintenance session that includes cooling system maintenance, high-voltage loop maintenance,
filters and system cleaning, and system touch-ups, should these be required during the preventative maintenance session.
Sensus also provides turnkey pre-and post-sale services that
include the following:
● Providing a pre-install kit for the contractors to prepare the treatment room;
● Room retrofit and shielding;
● System shipping coordination and installation;
Sensus Laser Aesthetic Solutions (SLAS)
In August 2020, the Company acquired two mobile aesthetic
laser companies serving the State of Florida: Aesthetic Mobile Laser Services, which serves Southeast and Southwest Florida; and
Aesthetic Laser Partners, which serves Central and Northern Florida. The in-office laser rental service provides an easy way for
medical and health care professionals to offer aesthetic laser procedures without the long-term financial commitment, maintenance,
and obsolescence concerns associated with equipment ownership. Sensus Laser Aesthetic Solutions delivers a complete line of aesthetic
lasers to dermatologists and clinicians around the state for a variety of treatments, both cosmetic and clinical.
Aesthetic Mobile Laser Services and Aesthetic Laser Partners
each has been in business for more than two decades and both have a high level of customer trust and satisfaction. Together they
have approximately 30 lasers and six vans, and service some 150+ dermatology practices in Florida alone, including more than 500
dermatologists who are not current Sensus customers. Their lasers facilitate a wide range of in-office aesthetic dermatology procedures
including facial rejuvenation, wrinkle removal, body sculpting/fat removal as well as other aesthetic applications
Consumables
The Company sells disposable lead shielding replacements,
disposable radiation safety items, such as aprons and eye shields, ultrasound probe film, and disposable applicator tips, which
are used to treat various sized lesions and different areas of the body.
Competition
The medical device industry is highly competitive and subject
to rapid technological change and is significantly affected by new product introductions and market activities of other participants.
Current marketed products, and any future products which the Company commercializes, will compete against healthcare providers
who use other methods of treatment for the same disease or condition.
In order to grow its business, Sensus must be able to compete
effectively for market acceptance of its products. Key competitive factors include improved outcomes for medical conditions, acceptance
by doctors treating non-melanoma skin cancer and keloids, potential greater acceptance by the patient community, potential greater
ease of use and reliability, product price and qualification for reimbursement, technical leadership and superiority, effective
marketing and distribution, speed to market and the quality of its client service.
Sales and Marketing
The Company’s focus is mainly on two primary markets,
private dermatology practices and radiation oncologists in both private and hospital settings. The Company currently employs a
multi-tier sales strategy to optimize geographic coverage and focus on its key markets. This multi-tier sales model uses a direct
sales force in the U.S., as well as international dealers and distributors. Sensus plans to continue selling and marketing the
Company’s products to both the dermatology and radiation oncology markets concurrently.
Dermatology Market
Private dermatology practices in the U.S. represent the point
of entry for most non-melanoma skin cancer patients. The Company believes its SRT products offer dermatologists a competitive advantage
by allowing them to retain patients for the treatment of non-melanoma skin cancer, rather than having to refer them to other professionals.
In addition to non-melanoma skin cancers, the Company has an FDA clearance to treat Keloid scars since 2014. The Company’s
SRT has been used by over 100 U.S. dermatology practices in the treatment of keloids. Since 2017, it is also being used to treat
keloids in China.
Radiation Oncology Market
For licensed radiation oncologists in the U.S., the Company
believes its SRT products offer a simpler, faster method of treatment with a better overall patient experience. SRT offers oncologists
the ability to free up more expensive radiation equipment, such as linear accelerators, for more complex procedures while providing
patients with effective, non-invasive treatment options for non-melanoma skin cancer.
Sculptura has the potential to give surgeons and radiation
oncologists at hospitals and cancer centers the ability to eliminate weeks of post-operative radiation treatments that patients
have to undergo after surgery and also result in similar or better outcomes to current radiation treatments today, with much less
collateral damage. Sculptura has several exclusive features, including 3D Beam SculptingTM and respiratory motion tracking
to the embedded image guidance and treatment area illumination.
Other Markets
Sensus believes that both plastic and general surgery
markets as well as the laser aesthetic market present growth opportunities for many product offerings. With FDA clearance to
treat keloids through SRT, plastic surgeons are recognizing the opportunity to be able to provide an effective treatment
solution for this benign tumor. Additionally, the Company believes that plastic surgeons view the non-melanoma skin cancer
market as a growth opportunity that can supplement their existing services.
Global Focus
As of December 31, 2020, the Company had an installed base
of 491 units in 18 countries, primarily in the United States. Customers include leading cancer centers, dermatology practices,
hospitals and plastic surgery clinics, which further validates the targeted marketing approach led by the Company’s direct
sales teams and global distribution partners.
Manufacturing and Supply
The Company currently uses third parties located in the U.S.
to manufacture products. In 2010, the Company entered into a manufacturing agreement with RbM Services, LLC (“RbM”)
pursuant to which RbM agreed to manufacture SRT-100 products. Under this agreement, the Company pays a fixed price per unit, subject
to annual adjustments due to changes in the cost of materials. The agreement renews for successive one-year periods unless either
party notifies the other party in writing, at least 60 days prior to the anniversary date of the agreement, that it will not renew
the agreement. The Company or manufacturer may terminate the agreement upon 90 days prior written notice.
The Company maintains internal policies, procedures and supplier
management processes designed to ensure that RbM meets applicable quality standards including FDA and International Organization
for Standardization, or ISO, requirements. To date, Sensus has not experienced any difficulty in locating and obtaining the materials
necessary to meet the demand for products, and believe manufacturing capacity is sufficient to meet global market demand for products
for the foreseeable future.
The Company believes this third-party manufacturing relationship
allows us to work with a supplier that has well-developed specific competencies while minimizing our capital investment, controlling
costs and shortening cycle times, all of which has allowed us to compete with our competitors. Sensus also works with other third
parties that it believes could be relied upon if there were a need to change suppliers.
The Company has a single preferred supplier for the x-ray
tubes and other major components used in its products. The Company also believes the preferred supplier has superior products;
however, products of alternate suppliers would be adequate for Sensus’ products and therefore the Company does not anticipate
any material disruptions to the supply of major components if there were a change in suppliers.
Intellectual Property
The Company actively seeks to protect the intellectual property
that is important to our business, including seeking and maintaining patents that cover Sensus’ products. The Company also
relies on trademarks to enhance, build and maintain the integrity of the Sensus brand.
The Company is in the possession of several issued U.S. and
Global patents. The patents pertain to technology that is pertinent to the Company.
The following patents were issued between August 2007 and
September 2008:
The following patents were issued to us in 2018:
The following patent was issued to Sensus in 2019:
The following patents were issued to Sensus in 2020:
A total of 22 patent applications were pending at December
31, 2020 and additional patent applications are in process.
The Company also owns seven U.S. trademark registrations
(expiring from 2021 through 2031) and had two trademark applications pending as of December 31, 2020.
The Company also relies on trade secrets and other unpatented
proprietary rights to develop and maintain a competitive position. The Company seeks to protect unpatented proprietary rights through
a variety of methods, including confidentiality agreements with employees, consultants and others who may have access to this proprietary
information. The Company requires employees to execute invention assignment agreements with respect to inventions arising from
their employment.
The Company can provide no assurance that any patents or
trademarks will be issued or registered as a result of our pending or future applications for such intellectual property. Even
if any such patents or trademarks are ultimately issued or registered, they, or any of the Company’s other intellectual property,
may not provide any meaningful protection or competitive advantage. Intellectual property could be challenged, invalidated, circumvented,
infringed or misappropriated. In addition, third parties have claimed, and in the future may claim, that the Company, customers,
licensees or other parties indemnified by Sensus are infringing upon their intellectual property rights.
Government Regulation
Sensus’ business is subject to extensive federal, state,
local and foreign laws and regulations, including those relating to the protection of the environment, health and safety. Some
of the pertinent laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions
are open to a variety of subjective interpretations. In addition, these laws and their interpretations are subject to change, and
new laws may be enacted. Both federal and state governmental agencies continue to subject the healthcare industry to intense regulatory
scrutiny, including heightened civil and criminal enforcement efforts. The Company believes that the business operations and relationships
with our customers and suppliers are structured to comply with all applicable legal requirements. However, it is possible that
governmental entities or other third parties could interpret these laws differently and assert otherwise. Discussed below are statutes
and regulations that are most relevant to the Company’s business. For the years ended December 31, 2020 and 2019, we incurred
approximately $1.3 million and $1.6 million, respectively, in expenses related to regulatory compliance and quality standards.
FDA Regulation of Medical Devices
The Federal Food, Drug and Cosmetic Act (“FDCA”)
and FDA regulations establish a comprehensive system for the regulation of medical devices intended for human use. Sensus’
medical device products are subject to these regulations, as well as other federal, state, and local laws and regulations. The
FDA is also responsible for the overall enforcement of quality, regulatory and statutory requirements governing medical devices.
FDA classifies medical devices into one of three classes
— Class I, Class II, or Class III — depending on their level of risk and the types of controls that are necessary to
assure device safety and effectiveness. The class assignment determines the type of premarketing submission or application, if
any, that will be required before marketing in the U.S. The Company’s medical devices are Class II devices under the FDA’s
classification system. Class II devices present a moderate risk and are devices for which general controls alone are not
sufficient to provide a reasonable assurance of safety and effectiveness. Medical devices in Class II are subject to both general
controls and “special controls” — e.g., special labeling, compliance with industry standards, and postmarket
surveillance. Unless exempted, Class II devices typically require FDA clearance before marketing, through the premarket notification
(510(k)) process, in accordance with 21 CFR, Part 807 requirements.
Unless it is exempt from premarket
review requirements, a medical device must receive marketing authorization from the FDA prior to being commercially distributed
in the U.S. The most common pathways for obtaining marketing authorization are 510(k) clearance and PMA. With the enactment of
the Food and Drug Administration Safety and Innovation Act (“FDASIA”), the availability of a de novo pathway
was facilitated for certain low- to moderate-risk devices that do not qualify for the 510(k) pathway due to the absence of a predicate
device.
510(k) pathway
As of December 31, 2020, all of our products were subject
to or exempt from the 510(k) requirement. Three 510(k) clearances were issued to Sensus in 2019 for the Sculptura system and related
components for the balloon applicator and treatment planning software. We have previously received FDA 510(k) clearances for our
SRT-100, SRT-100 Vision, and SRT-100+ products. The Company has obtained all of its FDA clearances through the 510(k) pathway;,
although other pathways are available, the Company believes they are less efficient and effective for the Company.
Ongoing FDA regulation
After a device is entered into commerce in the U.S., regardless
of its classification or premarket pathway, numerous additional FDA requirements generally apply. These include:
The FDA enforces these requirements by inspection and market
surveillance. Failure to comply with applicable regulatory requirements can result in enforcement action by FDA, which may include,
but is not limited to, the following sanctions:
● Issuance of Form 483 observations during a facilities inspection;
● Untitled letters or warning letters;
● Fines, injunctions and civil penalties;
● Recall or seizure of our products;
● Operating restrictions, partial suspension or total shutdown of production;
● Criminal prosecution.
The Company is subject to unannounced establishment inspections
by the FDA, as well as other regulatory agencies overseeing the implementation of and compliance with applicable state public health
regulations. These inspections may include our suppliers’ facilities.
International
International sales of medical devices are subject to foreign
government regulations, which vary substantially from country to country. In order to market our products in other countries, the
Company must obtain regulatory approvals and comply with safety and quality regulations. The time required to obtain approval by
a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ. The
European Union/European Economic Area, or EU/EEA, requires a CE conformity mark in order to market medical devices. The UK, due
to Brexit, will also now require a separate clearance. Many other countries, such as Australia, India, New Zealand, Pakistan and
Sri Lanka, accept CE or FDA clearance or approval, although others, such as China, Brazil, Canada and Japan require separate regulatory
filings.
In the EU/EEA, Sensus’ devices are required to comply
with the essential requirements of the EU Medical Devices Directive (93/42/EEC). Compliance with these requirements entitles the
Company to affix the CE marking of conformity to our medical devices, without which they cannot be commercialized in the EU/EEA.
To demonstrate compliance with the essential requirements and obtain the right to affix the CE marking of conformity the Company
must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. Except
for low risk medical devices (Class I), where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment
of the conformity of its products with the essential requirements of the Medical Devices Directive, a conformity assessment procedure
requires the intervention of a Notified Body, which is an organization accredited by a Member State of the EU/EEA to conduct conformity
assessments. The Notified Body would typically audit and examine the quality system for the manufacture, design and final inspection
of our devices before issuing a certification demonstrating compliance with the essential requirements. Based on this certification
we can draw up an EC Declaration of Conformity which allows us to affix the CE mark to our products.
Further, the advertising and promotion of Sensus’ products
in the EU/EEA is subject to the laws of individual EEA Member States implementing the EU Medical Devices Directive, Directive 2006/114/EC
concerning misleading and comparative advertising, and Directive 2005/29/EC on unfair commercial practices, as well as other EU/EEA
Member State laws governing the advertising and promotion of medical devices. These laws may limit or restrict the advertising
and promotion of our products to the general public and may impose limitations on our promotional activities with healthcare professionals.
The Company has obtained approval to sell our products in
Australia, Canada, China, Europe, India, Israel, Mexico, Russia, South Africa, South Korea, and Taiwan, and is currently seeking
approval in several other countries.
Sales and Marketing Commercial Compliance
Federal anti-kickback laws and regulations prohibit, among
other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly,
in exchange for, or to induce either the referral of an individual, or the purchase, order or recommendation of, any good or service
paid for under federal healthcare programs such as the Medicare and Medicaid programs. Possible sanctions for violation of these
anti-kickback laws include monetary fines, civil and criminal penalties, exclusion from Medicare and Medicaid programs and forfeiture
of amounts collected in violation of such prohibitions.
In addition, federal false claims laws prohibit any person
from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making,
or causing to be made, a false statement to get a false claim paid. Off-label promotion has been pursued as a violation of the
federal false claims laws. Pursuant to FDA regulations, we can only market our products for cleared or approved uses. Although
surgeons are permitted to use medical devices for indications other than those cleared or approved by FDA based on their medical
judgment, we are prohibited from promoting products for such off-label uses. Additionally, the majority of states in which we market
our products have similar anti-kickback, false claims, anti-fee splitting and self-referral laws, which may apply to items or services
reimbursed by any third party payor, including commercial insurers, and violations may result in substantial civil and criminal
penalties.
To enforce compliance with the federal laws, the U.S. Department
of Justice, or DOJ, has increased its scrutiny of interactions between healthcare companies and healthcare providers which has
led to an unprecedented level of investigations, prosecutions, convictions and settlements in the healthcare industry. Dealing
with investigations can be time- and resource-consuming. Additionally, if a healthcare company settles an investigation with the
DOJ or other law enforcement agencies, the company may be required to agree to additional compliance and reporting requirements
as part of a consent decree or corporate integrity agreement.
The U.S. and foreign government regulators have increased
regulation, enforcement, inspections and governmental investigations of the medical device industry, including increased U.S. government
oversight and enforcement of the Foreign Corrupt Practices Act. Whenever a governmental authority concludes that we are not in
compliance with applicable laws or regulations, that authority can impose fines, delay or suspend regulatory clearances, institute
proceedings to detain or seize our products, issue a recall, impose operating restrictions, enjoin future violations and assess
civil penalties against us or our officers or employees and can recommend criminal prosecution. Moreover, governmental authorities
can ban or request the recall, repair, replacement or refund of the cost of devices we distribute.
Additionally, the commercial compliance environment is continually
evolving in the healthcare industry as some states, including California, Massachusetts and Vermont, mandate implementation of
corporate compliance programs, along with the tracking and reporting of gifts, compensation and other remuneration to physicians.
The Affordable Care Act also imposes reporting and disclosure requirements on device manufacturers for any “transfer of value”
made or distributed to prescribers and other healthcare providers. Device manufacturers are also required to report and disclose
any investment interests held by physicians and their family members during the preceding calendar year. Failure to submit required
information may result in civil monetary penalties of up to an aggregate of $150,000 per year (and up to an aggregate of $1 million
per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests not reported
in an annual submission. The shifting compliance environment and the need to build and maintain robust and expandable systems to
comply in multiple jurisdictions with different compliance or reporting requirements increases the possibility that a healthcare
company may run afoul of one or more of the requirements.
Healthcare Fraud and Abuse
Healthcare fraud and abuse laws apply to Sensus’ business
when a customer submits a claim for an item or service that is reimbursed under Medicare, Medicaid or most other federally funded
healthcare programs. The federal Anti-Kickback Statute prohibits unlawful inducements for the referral of business reimbursable
under federally funded healthcare programs, such as remuneration provided to physicians to induce them to use certain tissue products
or medical devices reimbursable by Medicare or Medicaid. The Anti-Kickback Statute is subject to evolving interpretations. For
example, the government has enforced the Anti-Kickback Statute to reach large settlements with healthcare companies based on sham
consultant arrangements with physicians. The majority of states also have anti-kickback laws which establish similar prohibitions
that may apply to items or services reimbursed by any third party payor, including commercial insurers. Further, recently enacted
amendments to the Affordable Care Act, among other things, amend the intent requirement of the federal anti-kickback and criminal
healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate
it. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting
from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims
statutes. If a governmental authority were to conclude that we are not in compliance with applicable laws and regulations, we and
our officers and employees could be subject to severe criminal and civil penalties including, for example, exclusion from participation
as a supplier of product to beneficiaries covered by Medicare or Medicaid. In addition to the Anti-Kickback Statute, the federal
physician self-referral statute, commonly known as the Stark Law, prohibits physicians who have a financial relationship with an
entity, including an investment, ownership or compensation relationship, from referring Medicare patients for designated health
services, which include clinical pathology services, unless an exception applies. Similarly, entities may not bill Medicare or
any other party for services furnished pursuant to a prohibited referral. Many states have their own self-referral laws as well,
which in some cases apply to all third party payors, not just Medicare and Medicaid. If a governmental authority were to conclude
that we are not in compliance with the Stark Law or state self-referral laws and regulations, our pathology laboratory business
could be subject to severe financial consequences, including the obligation to refund amounts billed to third party payors in violation
of such laws, civil penalties and potentially also exclusion from participation in government healthcare programs like Medicare
and Medicaid. The Stark Law often is enforced through lawsuits brought under the Federal False Claims Act, violations of which
trigger significant monetary penalties and treble damages.
Additionally, the civil False Claims Act prohibits knowingly
presenting or causing the presentation of a false, fictitious or fraudulent claim for payment to the U.S. government. Actions under
the False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government.
Violations of the False Claims Act can result in very significant monetary penalties and treble damages. The federal government
is using the False Claims Act, and the accompanying threat of significant liability, in its investigations of healthcare providers
and suppliers throughout the country for a wide variety of Medicare billing practices, and has obtained multi-million and multi-billion
dollar settlements in addition to individual criminal convictions. Given the significant size of actual and potential settlements,
it is expected that the government will continue to devote substantial resources to investigating healthcare providers’ and
suppliers’ compliance with the healthcare reimbursement rules and fraud and abuse laws.
Health Information Privacy
The federal Health Insurance Portability and Accountability
Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH,
and their respective implementing regulations, impose requirements on certain covered healthcare providers, health plans and healthcare
clearinghouses, known as covered entities, as well as their business associates that perform services for them that involve individually
identifiable health information. The HIPAA privacy and security regulations, including the expanded requirements under HITECH,
establish comprehensive federal standards with respect to the use and disclosure of protected health information by covered entities
and their business associates, in addition to setting standards to protect the confidentiality, integrity and security of protected
health information.
The Company has implemented policies and procedures related
to compliance with the HIPAA privacy and security regulations, as required by law. The privacy and security regulations establish
a “floor” and do not supersede state laws that are more stringent. Therefore, we are required to comply with both federal
privacy and security regulations and varying state privacy and security laws. In addition, for healthcare data transfers from other
countries relating to citizens of those countries, the Company must comply with the laws of those other countries. The federal
privacy regulations restrict the ability to use or disclose patient identifiable laboratory data, without patient authorization,
for purposes other than payment, treatment or healthcare operations (as defined by HIPAA), except for disclosures for various public
policy purposes and other permitted purposes outlined in the privacy regulations. HIPAA, as amended by HITECH, provides for significant
fines and other penalties for wrongful use or disclosure of protected health information in violation of the privacy and security
regulations, including potential civil and criminal fines and penalties. If the Company does not comply with existing or new laws
and regulations related to protecting the privacy and security of health information, it could be subject to monetary fines, civil
penalties or criminal sanctions. In addition, other federal and state laws that protect the privacy and security of patient information
may be subject to enforcement and interpretations by various governmental authorities and courts resulting in complex compliance
issues. The Company could incur damages under state laws pursuant to an action brought by a private party for the wrongful use
or disclosure of confidential health information or other private personal information. If the Company were to experience a breach
of protected health information, it could be subject to significant adverse publicity in addition to possible enforcement sanctions
and civil damages lawsuits. Finally, the Company may be required to incur additional costs related to ongoing HIPAA compliance
as may be necessary to address evolving interpretations and enforcement of HIPAA and other health information privacy and security
laws, the enactment of new laws or regulations, emerging cybersecurity threats and other factors.
Research and Development
Research and development costs related to development and
quality and regulatory costs are expensed as incurred. For the years ended December 31, 2020 and 2019, the Company incurred research
and development expense of approximately $4.2 million and $6.4 million, respectively. Most of the increase in R&D spending
in 2019 was related to the final development and production ramp-up of SculpturaTM, a modulated robotic brachytherapy radiation
oncology system that provides targeted directional anisotropic radiation therapy (ART) and brachytherapy, for which we filed a
510(k) application with the U.S. Food and Drug Administration (FDA) in December 2017 and received FDA clearance in February 2019.
Employees and Human Capital
At December 31, 2020, Sensus had 42 employees, including
38 in the U.S. and four in Israel. None of the Company’s employees are represented by a labor union or covered by a collective
bargaining agreement.
The Company believes that its success depends on the ability
to attract, develop and retain key personnel. It also believes that the skills, experience and industry knowledge of its key employees
significantly benefits its operations and performance. The Company believes that it offers competitive compensation and other means
of attracting and retaining key personnel.
Employee health and safety in the workplace is one of the
Company’s core values. The COVID-19 pandemic has underscored for the Company the importance of keeping employees safe and
healthy. In response to the COVID-19 pandemic, the Company has taken actions aligned with the World Health Organization and the
Centers for Disease Control and Prevention in an effort to protect the Company’s workforce so they can more safely and effectively
perform their work. These actions include shutting down its headquarters for some months during 2020, providing facemasks to all
employees, and allowing employees to work from home.
Employee levels are managed to align with the pace of business
and management believes it has sufficient human capital to operate its business successfully.
Available Information
Sensus files annual, quarterly and current reports, proxy
statements and all amendments to these reports and other information with the SEC. Sensus makes available free-of-charge, on or
through its website at http://www.sensushealthcare.com, the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K, proxy statements and all amendments to those filings, as soon as reasonably practicable after
such material is electronically filed with or furnished to the SEC . The information on the Company’s website is not incorporated
by reference in this Annual Report on Form 10-K. Reports, proxy statements and other information regarding issuers that file electronically
with the SEC, including Sensus’ filings, are also available to the public from the SEC’s website at http://www.sec.gov.
Item 1A.RISK FACTORS
An investment in Sensus’ common stock contains a high
degree of risk. An investor should consider carefully the risks and uncertainties described below before making an investment decision.
Sensus’ business could be harmed if any of these risks, as well as other risks not currently known or deem immaterial, could
materialize. The trading price of Sensus’ common stock could decline due to the occurrence of any of these risks. These risks
and uncertainties include the following:
Risks Related to our Business
If third-party payors do not provide coverage and adequate
reimbursement for the use of our products, it is unlikely that our products will be widely used, and our revenue will be negatively
impacted.
In the U.S., the commercial success of Sensus’ existing
products and any future products will depend, in part, on the extent to which governmental payors at the federal and state levels,
including Medicare and Medicaid, private health insurers and other third-party payors provide coverage for and establish adequate
reimbursement levels for procedures using these products. Neither hospitals nor physicians are likely to use Sensus’ products
if they do not receive adequate reimbursement payments for the procedures using these products.
Some private payors in the U.S. may base their reimbursement
policies on the coverage decisions determined by the Center of Medicare and Medical Services, or CMS, which administers the Medicare
program and works in partnership with state governments to administer the Medicaid program. Others may adopt different coverage
or reimbursement policies for procedures performed using Sensus’ products, while some governmental programs, such as Medicaid,
have reimbursement policies that vary from state to state, some of which may not pay an amount that supports the selling price
of Sensus’ products, if at all. A Medicare national or local coverage decision denying coverage for any of the procedures
performed using the Company’s products could result in private and other third-party payors also denying coverage. Medicare
(Part B) and a number of private insurers in the U.S. currently cover and pay for both non-melanoma skin cancer and keloid treatments
using the SRT-100. A withdrawal, or even contemplation of a withdrawal, by CMS, Medicaid or private payors of reimbursements, or
any other unfavorable coverage or reimbursement decisions by government programs or private payors, could have a material adverse
effect on the Company’s business.
Reimbursement systems in international markets vary significantly
by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. In
many international markets, a product must be approved for reimbursement before it can be cleared for sale in that country. Further,
many international markets have government-managed healthcare systems that control reimbursement for new devices and procedures.
In most markets there are private insurance systems as well as government-managed systems. Sensus’ products may not be considered
cost-effective by international third-party payors or governments managing healthcare systems. Furthermore, reimbursement may not
be available or, if available, third-party payors’ reimbursement policies may adversely affect the Company’s ability
to sell products profitably. If sufficient coverage and reimbursement are not available for Sensus’ products, in either the
U.S. or internationally, the demand for these products and, consequently, the Company’s revenues will be adversely affected.
Our business, results of operations
and financial condition could be materially adversely affected by the effects of widespread public health epidemics, including
COVID-19, that are beyond our control.
Any outbreaks of contagious diseases,
public health epidemics and other adverse public health developments in countries where we, our customers, or our suppliers operate
could have a material and adverse effect on our business, results of operations and financial condition. The COVID-19 pandemic
has impacted our sales as social distancing and related concerns forced physicians to temporarily close their practices in 2020
and is expected to continue to adversely impact our business, and the nature and extent of the impact is highly uncertain and beyond
our control. Uncertain factors relating to COVID-19 include the duration, spread and severity of the virus, the effects of the
COVID-19 pandemic on our customers, vendors and suppliers, and the actions or perception of actions that may be taken to contain
or treat its impact, including declarations of states of emergency, business closures, manufacturing restrictions and a prolonged
period of travel, commercial and/or other similar restrictions and limitations.
As a result of COVID-19 and the
measures designed to contain its spread, our sales have been, and are expected to continue to be negatively impacted as a result
of disruption in demand, which could have a material and adverse effect on our business, results of operations and financial condition.
Similarly, our suppliers may not have the materials, capacity, or capability to manufacture our products according to our schedule
and specifications. If our suppliers’ operations are impacted, we may need to seek alternate suppliers, which may be more
expensive, may not be available, or may result in delays in shipments to us and subsequently to our customers, each of which would
affect our results of operations. The duration of the related financial impact to us, cannot be estimated at this time. Should
such disruption continue for an extended period of time, the impact could have a material adverse effect on our business, results
of operations and financial condition.
If our essential employees who are unable to telework
become ill or otherwise incapacitated, our operations may be adversely impacted.
Consistent with rapidly changing federal, state and local
governmental orders and recommendations, we have implemented informal telework policies for appropriate categories of our employees.
Employees that are unable to telework continue to work at our facilities, and we have implemented appropriate safety measures,
including social distancing, face covering mandates, temperature checking, and increased sanitation standards in an attempt to
maintain the health and safety of our workforce. We are following guidance from the Center for Disease Control (“CDC”)
and the Occupational Safety and Health Administration (“OSHA”) regarding suspension of nonessential travel, self-isolation
recommendations for employees returning from certain geographic areas, confirmed reports of any COVID-19 diagnosis among our employees,
and the return of such employees to our workplace. Pursuant to updated guidance from the Equal Employment Opportunity Commission,
we are engaging in limited and appropriate inquiries of employees regarding potential COVID-19 exposure, based on the direct threat
that such exposure may present to our workforce. We continue to address other unique situations that arise among our workforce
due to the COVID-19 pandemic on a case-by-case basis. While we believe that we have taken appropriate measures to ensure the health
and wellbeing of our employees, there can be no assurances that our measures will be sufficient to protect our employees in our
workplace or that they may not otherwise be exposed to COVID-19 outside of our workplace. If a number of our essential employees
become ill, incapacitated or are otherwise unable to continue working during the current or any future epidemic, our operations
may be adversely impacted.
Substantially all of Sensus’ revenue is generated
from the sale of the SRT-100 and related products, and any decline in the sales of these products or failure to gain market acceptance
of these products will negatively impact the Company’s business, financial condition and results of operations.
The Company is focused heavily on the development and commercialization
of a limited number of products for the treatment of non-melanoma skin cancer and other skin conditions with superficial radiotherapy.
From the Company’s inception in 2010 through December 31, 2020, revenue has primarily been derived from sales of the SRT-100
product line and related services and ancillary products. Although Sensus has introduced new products, the Company expects most
of revenue in 2021 to be derived from or related to sales of the SRT-100 product line.
Sensus has a single preferred supplier for the x-ray
tubes and other major components used in the Company’s products and the loss of this preferred supplier could adversely affect
the Company.
Sensus has a single preferred supplier for the x-ray tubes
and other major components used in the Company’s products. Although other suppliers exist in the market, the Company believes
that our preferred supplier’s products are of a superior quality. The loss of the preferred supplier, or the inability to
supply the Company or third party manufacturer with adequate components could hinder the Company’s ability to effectively