Sensus Healthcare(SRTS) - 2020 Q4 - Annual Report

Part I Item 1. Business Sensus Healthcare specializes in superficial radiation therapy for skin conditions, expanding into broader cancer treatment and aesthetic lasers, with revenue from product sales and services, subject to extensive regulation Overview and Products Sensus Healthcare offers non-invasive SRT for skin conditions, including the SRT-100 series, Sculptura™ for cancer, and aesthetic laser rental services - The company's core business is providing non-invasive treatments for skin conditions using its proprietary superficial radiation therapy (SRT) technology[20] - Key products include the SRT-100, SRT-100+, and SRT-100 Vision, used to treat non-melanoma skin cancers and keloids[22][24][25] - The company expanded its offerings with the FDA-cleared Sculptura™, a robotic brachytherapy system for intraoperative cancer treatment[25] - In August 2020, Sensus acquired two mobile aesthetic laser companies to form Sensus Laser Aesthetic Solutions (SLAS), expanding into the aesthetic laser rental market in Florida[27] Sales, Marketing, and Manufacturing Sensus uses a direct U.S. sales force and international distributors to target dermatologists and radiation oncologists, with manufacturing outsourced to a third party - The company targets private dermatology practices and radiation oncologists using a direct U.S. sales force and international distributors[33] - As of December 31, 2020, Sensus had an installed base of 491 units in 18 countries, primarily in the United States[38] - Manufacturing of SRT-100 products is outsourced to RbM Services, LLC, under a renewable one-year agreement[39] - The company relies on a single preferred supplier for x-ray tubes and other major components, but alternate suppliers are believed to be available[42] Intellectual Property and Government Regulation The company protects its technology with patents and is subject to extensive FDA and international regulations, including Class II device classification and compliance with healthcare laws - The company holds several issued U.S. and global patents, with 22 patent applications pending as of December 31, 2020[43][45] - Sensus's medical devices are classified as Class II devices by the FDA and have obtained all clearances through the 510(k) pathway[52][54] - The company has obtained approval to sell products in numerous international markets, including China and the EU/EEA, requiring separate regulatory compliance like the CE mark[57][58][60] Regulatory Compliance Expenses | Year | Expenses (USD) | | :--- | :--- | | 2020 | ~$1.3 million | | 2019 | ~$1.6 million | Research & Development and Human Capital R&D expenses decreased to $4.2 million in 2020 due to Sculptura™ development completion, and the company had 42 employees as of December 31, 2020 Research and Development Expenses | Year | R&D Expense (USD) | | :--- | :--- | | 2020 | ~$4.2 million | | 2019 | ~$6.4 million | - The decrease in R&D spending from 2019 to 2020 was primarily related to the final development and production ramp-up of the Sculptura™ system[71] - As of December 31, 2020, the company had 42 employees, none represented by a labor union[72] Item 1A. Risk Factors The company faces significant risks from reimbursement dependence, COVID-19, single product reliance, customer concentration, supply chain issues, regulatory compliance, and intellectual property disputes Business and Financial Risks Key risks include dependence on third-party reimbursement, COVID-19 impact, reliance on the SRT-100 product line, significant customer and geographic concentration, and single supplier reliance - Commercial success is highly dependent on coverage and adequate reimbursement from governmental and private payors for procedures using the company's products[78] - The COVID-19 pandemic has negatively impacted sales due to physician practice closures and social distancing, with its future impact remaining uncertain[81][82] - The company has significant customer and geographic concentration, with one U.S. customer accounting for 39% of 2020 revenues and 91% of 2020 sales originating in the U.S.[86] - The company has a history of net losses, totaling approximately $21.9 million from inception through December 31, 2020[110] Regulatory and Legal Risks Sensus is subject to complex healthcare laws, including Anti-Kickback Statute and HIPAA, with non-compliance risking penalties, recalls, and adverse impacts from policy changes - The company is subject to numerous healthcare laws, including the federal Anti-Kickback Statute, False Claims Act, and HIPAA, with non-compliance potentially leading to significant penalties[94][95][97] - Sensus must report certain device-related malfunctions, deaths, and serious injuries to the FDA and other international bodies, which could result in recalls or fines[98][99] - Changes in healthcare policy and reimbursement rates from programs like Medicare could have a material adverse effect on the company's revenue and profitability[100][101] Intellectual Property and Ownership Risks Risks include inadequate intellectual property protection, costly patent litigation, a history of net losses, stock price volatility, no dividends, reduced disclosure as an emerging growth company, and significant insider ownership - The company's ability to protect its proprietary technology through patents and other IP rights is critical, but these may not be sufficient to prevent competition or withstand legal challenges[103][105] - The company is an 'emerging growth company' and a 'smaller reporting company', allowing for reduced public reporting and disclosure requirements[116][119] - Executive officers and directors beneficially owned approximately 19% of outstanding common stock as of February 8, 2021, allowing substantial influence over corporate matters[120] - The company does not anticipate paying dividends in the foreseeable future, meaning investors must rely on stock price appreciation for returns[112] Item 1B. Unresolved Staff Comments The company has no unresolved comments from the SEC staff regarding its periodic or current reports - As of the filing date, Sensus Healthcare has no unresolved comments from the SEC staff[129] Item 2. Properties Sensus Healthcare's corporate headquarters is a leased facility in Boca Raton, Florida, with manufacturing outsourced to a third-party in Tennessee - The company's corporate headquarters is in a leased space of 8,926 sq. ft. in Boca Raton, Florida, with the lease expiring in September 2022[130] - The main manufacturing function is physically located at the third-party manufacturer's facility in Oak Ridge, Tennessee[130] Item 3. Legal Proceedings The company is involved in ordinary course legal proceedings, which management does not expect to materially impact financial results - Management does not anticipate that current legal proceedings will have a material impact on the company's financial results[131] Item 4. Mine Safety Disclosure This item is not applicable to the company - Not applicable[132] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ, has 24 stockholders, and does not anticipate paying dividends, retaining earnings for growth - The company's common stock is traded on the NASDAQ Capital Market under the symbol 'SRTS'[135] - Sensus has never declared or paid a dividend and does not plan to in the foreseeable future, citing the need to retain earnings for growth[136] Item 6. Selected Financial Data This item is not applicable as the company is a smaller reporting company - Not applicable[139] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant COVID-19 impact on 2020 sales, leading to decreased revenues and increased net loss, partially offset by expense reductions and liquidity measures Impact of COVID-19 The COVID-19 pandemic significantly impacted 2020 sales due to physician practice closures, and its future effects on the business remain uncertain - The COVID-19 pandemic significantly impacted the company's sales in 2020 as social distancing measures forced physicians to temporarily close their practices[144] - The future impact of the pandemic on the company's business, operations, and financial condition is uncertain and cannot be reasonably estimated[144] Results of Operations (2020 vs. 2019) In 2020, revenues decreased by 64.9% to $9.6 million due to COVID-19, leading to a wider net loss despite reduced operating expenses Consolidated Results of Operations (in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Revenues | $9,577 | $27,263 | | Gross Profit | $5,249 | $17,557 | | Loss from Operations | ($8,234) | ($1,968) | | Net Loss | ($6,836) | ($1,700) | - Revenues decreased by $17.7 million in 2020, primarily due to the impact of COVID-19, which restricted sales activities[147] - Selling and marketing expenses decreased by $3.8 million (41.4%) due to trade show cancellations and lower commission, while R&D expenses decreased by $2.3 million (35.2%) as the Sculptura project entered its production phase[150] - Other income increased significantly in 2020, driven by a $757,782 gain from the forgiveness of a PPP loan and a $588,011 bargain purchase gain from acquisitions[151] Liquidity and Capital Resources Cash and equivalents slightly decreased to $14.9 million in 2020, with improved operating cash flow and increased investing cash flow from matured investments Summary of Cash Flows (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in Operating | ($434) | ($2,107) | | Net cash from (used in) Investing | $7,031 | ($4,898) | | Net cash from Financing | $210 | $2,620 | - The company's cash and cash equivalents balance increased to $14.9 million at year-end 2020 from $8.1 million at year-end 2019, primarily due to matured investments[152][179] - In 2020, the company obtained a PPP loan of $1,022,785 to bolster liquidity amid the pandemic[154] - Management believes existing capital resources are sufficient to meet operating and funding requirements for at least the next 12 months[156] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable as the company is a smaller reporting company - Not applicable[169] Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2020 and 2019, including balance sheets, income statements, equity, cash flows, and notes Financial Statements The audited financial statements show total assets decreased to $28.0 million in 2020, with a net loss of $6.8 million, and a net increase in cash and equivalents Key Balance Sheet Data (in thousands) | Metric | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $14,907 | $8,100 | | Total Current Assets | $25,171 | $34,003 | | Total Assets | $28,010 | $36,925 | | Total Liabilities | $6,514 | $8,923 | | Total Stockholders' Equity | $21,496 | $28,001 | Net Loss Per Share | Year | Basic and Diluted EPS | | :--- | :--- | | 2020 | ($0.42) | | 2019 | ($0.10) | Notes to Financial Statements Notes detail accounting policies, the COVID-19 impact, a 2020 acquisition gain, PPP loan forgiveness, and a pending Department of Justice investigation - One U.S. customer accounted for approximately 40% of revenue in 2020 and 68% in 2019[203] - On August 3, 2020, the company acquired two mobile aesthetic laser companies, resulting in a bargain purchase gain of $588,011[226][227][228] - In April 2020, the company received a PPP loan of $1,022,785, of which $757,782 was subsequently forgiven[235] - The company is cooperating with a Department of Justice investigation concerning Medicare billing by a physician who used an SRT-100 device, disputing wrongdoing and unable to estimate potential costs[244] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants regarding accounting principles, financial disclosure, or auditing scope - There have been no disagreements on accounting and financial disclosure matters with the company's accountants[263] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[264] - Management concluded that internal control over financial reporting was effective as of December 31, 2020[265] Item 9B. Other Information No other information is being furnished in this report - No other information is being furnished[268] Part III Item 10. Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[271] Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[272] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details equity compensation plans and incorporates security ownership information by reference from the 2021 Proxy Statement Equity Compensation Plan Information | Plan Category | Securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Approved by Security Holders | 229,334 | $5.55 | 265,973 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[275] Item 14. Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[276] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed with the Form 10-K report - This section includes the company's consolidated financial statements and a list of all exhibits filed with the report[278] Item 16. Form 10-K Summary The company has not provided a summary for its Form 10-K - None provided[279]