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, 2023
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 ☐ No ☒
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 ☐ No ☒
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 ☒ No ☐
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 ☒ No ☐
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. ☐
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. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
aggregate market value of the common equity held by non-affiliates of the registrant on June 30, 2023, the last business day of the registrant’s
most recently completed second quarter, was $45,722,493, based on the closing price of $3.15 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 and officers of the registrant.
As
of March 7, 2024, there were 16,394,171 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 May 31, 2024, 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 10
Item 1B. Unresolved Staff Comments 19
Item 1C. Cybersecurity 19
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Mine Safety Disclosure 20
Item 6. Reserved 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 25
Item 8. Financial Statements and Supplementary Data F-1
Item 9A. Controls and Procedures 26
Item 9B. Other Information 26
Item 9C. Disclosures Regarding Foreign Jurisdiction that Prevent Inspections 26
PART III 27
Item 10. Directors, Executive Officers and Corporate Governance 27
Item 11. Executive Compensation 27
Item 14. Principal Accountant Fees and Services 27
Item 15. Exhibits and Financial Statement Schedules 28
Signatures 31
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,” or
“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 or to a greater or lesser degree
than anticipated. 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. 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 report as a result of the following factors, among
others: 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; concentration of our customers
in the U.S. and China, including the concentration of sales to one particular customer in the U.S; the development by others of new products,
treatments, or technologies that render our technology partially or wholly obsolete; the regulatory requirements applicable to us and
our competitors; our ability to efficiently manage our manufacturing processes and costs; the risks arising from doing business in China
and other foreign countries; legislation, regulation, or other governmental action that affects our products, taxes, international trade
regulation, or other aspects of our business; the performance of the Company’s information technology systems and its ability to
maintain data security; 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; and other risks described from time
to time in our filings with the Securities and Exchange Commission.
To date, the Russian invasion of Ukraine, conditions
in the Middle East, and other global geopolitical uncertainty have not had significant impacts on our business, but we continue to monitor
developments and will address them in future disclosures, if applicable.
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 subsidiaries,
Sensus Medical Devices Ltd. and Sensus Healthcare Services, LLC, unless the context otherwise indicates, “Sensus,” “we,”
“us,” “our,” 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.
Our business was organized in 2010 and the Company,
incorporated in Delaware, completed its initial public offering in 2016. The Company operates as one segment from its corporate headquarters
located in Boca Raton, Florida. In February 2024, the Company formed Sensus Healthcare Services, LLC, a wholly-owned subsidiary that
provides operational healthcare services to dermatology clinics. 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 is the Company’s core technology. As
of December 31, 2023, the Company had installed 752 units in 21 countries, primarily in the United States.
SRT-100
The SRT-100 is a photon x-ray low energy SRT 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
to treat 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. SRT 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. The SRT-100 provides the following clinical and functional
advantages:
1
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 SRT-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+
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
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, through the program, 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;
● Clinical applications training with the customer’s SRT staff; and
2
Other products
Transdermal Infusion (TDI)
TransDermal Infusion is a biophysical alternative to infuse high weight
molecule modalities into the dermis for medical and aesthetic purposes without the use of needles. In 2022, the Company sourced the product
from a manufacturer in Italy. The Company started developing its own TDI system in 2023, which is pending approval from the FDA. The Company
is not currently offering TDI.
Lasers
Sensus also distributes laser
devices, for the aesthetic dermatology market, which includes applications for hair removal, vascular lesions, acne treatment, epidermal
pigment removal (including removal of spots, freckles, and tattoos), skin toning, and skin rejuvenation.
Other services
Sensus provides Operational Healthcare
Services in the form of Radiation Oncology and Physics oversight in addition Radiotherapy Technologist for dermatology clinics.
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 that 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, acceptance by the patient community, ease of use and reliability,
product price and qualification for reimbursement, technical leadership and superiority, effective marketing and distribution, speed to
market, and quality of 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 had 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. It has also been used to treat keloids in China
since 2017.
3
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.
Other Markets
Sensus believes that the plastic surgery and
laser aesthetic markets present growth opportunities. 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.
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 our products, and believes manufacturing capacity is sufficient to meet global market demand for our
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 effectively with our competitors. Sensus also works
with other third parties that it believes could be relied upon if we needed 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 believes this supplier has superior products; however, products
of alternate suppliers would be adequate for Sensus’s 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’s products. The Company
also relies on trademarks to enhance, build, and maintain the integrity of the Sensus brand.
The Company possesses eight issued U.S. and Global
patents. The patents relate 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 2017:
4
The following patents were issued to Sensus in
2020:
The following
patent was issued to Sensus in 2021:
The
following patent was issued to Sensus in 2024:
The
Company also owns eight U.S. trademark registrations (expiring from 2025 through 2031).
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 all 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 upon, or misappropriated. In addition, third parties have claimed, and in the future may claim, that the Company or customers,
licensees, or other parties indemnified by the Company are infringing upon their intellectual property rights.
Government Regulation
Sensus’s 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 and regulations 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 regulations 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 its business operations
and relationships with 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 and regulations differently and assert otherwise. Discussed
below are statutes and regulations that are most relevant to the Company’s business. For the year ended December 31, 2023, we incurred
approximately $1.4 million 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’s 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.
5
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 are deemed to 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 post market 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. For Class II devices,
510(k) is the most common pathway to obtain market authorization in the US.
510(k) pathway
We have previously received FDA 510(k) clearances
for our SRT-100, SRT-100 Vision, and SRT-100+ (Class II) products through the 510(k) pathway due to the requirement for special controls.
To date, other available US regulatory pathways (i.e., Self-certification (Class I), Pre-market Authorization Class III, or de novo)
have not been appropriate for our developed products and may involve extended review periods.
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 the FDA, which
may include, but is not limited to, the following sanctions:
● Untitled letters or warning letters;
6
● Fines, injunctions, and civil penalties;
● Recall or seizure of products;
● Operating restrictions, partial suspension or total shutdown of production;
● Refusing 510(k) clearance or premarket approval of new products;
● 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 Regulations
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, also
requires 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, existing Sensus devices are required
to comply with the essential requirements of the EU Medical Devices Directive (93/42/EEC), while any new products placed in the EU/EEA
must comply with the EU Medical Device Regulation (2017/745). 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 (existing products) or Medical Device Regulation (new products), 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 typically audits and examines the quality system for the manufacture, design, and
final inspection of devices before issuing a certification demonstrating compliance with the essential requirements. Based on this certification,
we can draw up an EU Declaration of Conformity which allows us to affix the CE mark to our products.
Further, the advertising and promotion of Sensus’s
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.
7
The Company has obtained approval to sell our
products in Australia, Canada, China, Hong Kong, European Union, United Kingdom, Israel, Mexico, Russia, South Africa, South Korea, Vietnam,
Taiwan, and Guatemala, 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 the 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. Violations of these laws 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.
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 a company is not in compliance
with applicable laws or regulations, that authority can impose fines, delay or suspend regulatory clearances, institute proceedings to
detain or seize the company’s products, issue a recall, impose operating restrictions, enjoin future violations, assess civil penalties
against the company, or its officers or employees, and recommend criminal prosecution. Moreover, governmental authorities can ban or request
the recall, repair, replacement, or refund of the cost of devices the company distributes.
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. The Company has implemented policies and procedures related to commercial compliance including with respect to compliance
in connection with sales and marketing.
Healthcare Fraud and Abuse
Healthcare fraud and abuse laws apply to Sensus’s
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 (the “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 Anti-Kickback Statute and criminal healthcare fraud
statute. 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
Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of 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 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 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.
8
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, obtaining 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. The Company has implemented policies and procedures related to compliance
with applicable regulations design to prevent healthcare fraud and abuse.
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.
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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, 2023 and 2022, the Company incurred research
and development expenses of approximately $3.7 million and $3.5 million, respectively. The Company expects research and development expenses
in 2024 to be generally consistent with 2023.
Employees and Human Capital
At December 31, 2023, the Company had 35 employees.
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 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, Sensus’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 Sensus’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’s
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’s common stock contains
a high degree of risk. Investors should carefully consider the following risks and uncertainties before making an investment decision
with respect to our common stock. Our business, including our operating results and financial conditions, could be harmed if any of these
risks, as well as other risks not currently known to us or that we currently deem immaterial, were to materialize. The trading price of
Sensus’s common stock could decline due to the occurrence of any of these risks. In assessing these risks, investors should also
refer to the other information included in our filings with the SEC, including our financial statements and the related notes.
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’s
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’s 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 for Medicare & 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’s 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’s
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 revenues and business.
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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’s 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’s products, in either the U.S. or internationally, the demand
for these products and, consequently, the Company’s revenues and business, will be adversely affected.
Substantially all of the Company’s
revenue is generated from the sale of the SRT-100 and related products, and any decline in the sales 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 SRT.
From the Company’s inception in 2010 through December 31, 2023, revenue has primarily been derived from sales of the SRT-100 product
line and related services and ancillary products. Although the Company has introduced new products, the Company expects most of revenue
in the near to medium term to be derived from or related to sales of the SRT-100 product line. Because of this, any decline in the sales
of these products will negatively impact the Company’s business, financial condition, and results of operations.
The Company’s technology could be
superseded by new products, treatments, or technologies that gain wider acceptance among doctors and patients, which could adversely affect
the Company.
The medical device industry is highly competitive
and subject to rapid technological change, and is significantly affected by the introduction of new products and treatment options. The
Company’s products, some of which use technologies that have been available for many years, compete for market acceptance against
those of healthcare providers who use other methods of treatment for similar diseases and conditions. If new products, treatments, and/or
technologies were developed that gain wide acceptance among doctors and patients, including products or treatments developed by our significant
customers, it could take market share away from the Company, which could adversely affect the Company’s ability to maintain or increase
revenue and/or render the Company’s products obsolete.
The Company’s customers, including
one U.S. customer accounting for a significant portion of our sales, are concentrated in the U.S., and economic difficulties or changes
in the purchasing policies or patterns of the Company’s customers in the U.S. could have a significant impact on our business and
operating results.
Most of the Company’s sales have been made
to customers located in the U.S. (91% and 94% in the years ended December 31, 2023 and 2022, respectively). Additionally, a single customer
in the U.S. accounted for approximately 61% and 73% of revenues for the years ended December 31, 2023, and December 31, 2022, respectively.
Because of these concentrations, revenue could fluctuate significantly due to changes in economic conditions, competitive products (including
any developed by our significant customers), or the loss of, reduction of business with, or less favorable terms with, our significant
customer or other U.S. customers. A reduction or delay in orders for the Company’s products for these or other reasons could materially
harm business and results of operations.
The Company 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.
The Company 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 its inability
to supply the Company with an adequate supply of these components, could hinder the Company’s ability to effectively produce the
Company’s products to meet existing demand levels, especially if the Company were unable to timely procure them from other suppliers
in the market, which could adversely affect the Company’s ability to commercialize products and to maintain or increase revenues.
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The Company’s operations may be impaired
if our information technology systems fail to perform adequately or are the subject of a data breach or cyberattack.
The Company’s information technology systems
are critically important to operating business efficiently. The Company relies on information technology systems to manage business data,
communications, employee information, and other business processes. The Company outsources certain business process functions to third-party
providers and similarly relies on these third parties to maintain and store confidential information on their systems. The failure of
these information technology systems to perform as the Company anticipates could disrupt business and could result in transaction errors,
processing inefficiencies, and the loss of sales and customers, causing business and results of operations to suffer.
The Company has experienced, and expects to continue
to experience, cyber security threats and incidents, none of which has been material to the Company to date. Although the Company protects
our information technology systems, the Company has experienced varying degrees of cyber-incidents in the normal conduct of business,
including viruses, worms, phishing, and other malicious activities. Although there have been no serious consequences to date, such breaches
could result in unauthorized access to information, including customer, supplier, employee, or other company confidential data. The Company
carries insurance against these risks, performs penetration tests from time to time, and designs business processes to attempt to mitigate
the risk of such breaches. However, the Company’s efforts to mitigate these risks may be unsuccessful, and security breaches may
occur. Moreover, the development and maintenance of these measures requires continuous monitoring as technologies change and efforts to
overcome security measures evolve. However, a successful breach or attack could have a material negative impact on operations and subject
the Company to consequences such as direct costs associated with incident response.
Sensus may be required to obtain additional
funds in the future, and these funds may not be available on acceptable terms or at all.
Sensus’s operations have consumed substantial
amounts of cash since its inception. Sensus may need to seek additional capital, as our existing financial resources including our revolving
line of credit (which restricts the ability to incur certain indebtedness or permit certain encumbrances on assets without the prior written
consent of the lender), may not allow us to conduct all of the activities that would be beneficial for future growth. If Sensus is unable
to raise funds on favorable terms, or at all, it may not be able to support commercialization efforts, increase research and development
activities, compete effectively, or meet debt and other contractual obligations, and the growth of our business may be negatively impacted.
The Company’s cash requirements in the future
may be significantly different from current estimates and depend on many factors, including:
● the results of commercialization efforts for products;
● the need for additional capital to fund development programs;
● success in entering into collaborative relationships with other parties.
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