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
produce the Company’s products to meet existing demand levels, especially if Sensus were unable to timely procure them from
other suppliers in the market, which could adversely affect the Company’s ability to commercialize products and increase
revenues.
The Company’s customers are concentrated in the
U.S. and China (including one U.S. customer accounting for a significant portion of our sales), and economic difficulties or changes
in the purchasing policies or patterns of the Company’s customers in these countries could have a significant impact on future
business and operating results.
Most of the Company’s sales have been made to customers
located in the U.S. (91% and 93% in the years ended December 31, 2020 and 2019, respectively). For the years ended December 31,
2020 and 2019, approximately 9% and 3%, respectively, of product sales were to Chinese customers and approximately 0% and 4%, respectively,
were to Israeli customers. Additionally, a single customer in the U.S. accounted for approximately 39% and 68% of revenues for
the years ended December 31, 2020 and 2019, respectively. Because of these geographic and customer concentrations, revenue could
fluctuate significantly due to changes in economic conditions, competitive products, or the loss of, reduction of business with,
or less favorable terms with, these countries or this customer. A reduction or delay in orders for the Company’s products
from these countries and this customer could materially harm business and results of operations, including any adverse impact of
the coronavirus epidemic
The Company’s operating results may vary significantly
from quarter to quarter, which may negatively impact the value of its securities.
Quarterly revenues and results of operations may fluctuate
due to the following reasons, among others:
● physician and hospital acceptance of our products;
● fluctuations in expenses associated with expanding operations;
● the introduction of new products and technologies by competitors;
● sales representatives’ productivity;
● supplier, manufacturing or quality problems with products;
● the timing of stocking orders from distributors;
● changes in third-party payors’ reimbursement policies.
Because of these and other related or similar factors, it
is likely that in some future period the Company’s operating results will not meet expectations. Failure to meet or exceed
analyst expectations could cause a decrease in the trading price of the Sensus’ securities.
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’ operations have consumed substantial amounts
of cash since inception. Sensus may need to seek additional capital, as the existing financial resources including our existing
revolving line of credit, may not allow the Company to conduct all of the activities that would be beneficial for future growth.
The Company may need to seek funds in the future. The Company’s
existing revolving line of credit restricts the ability to incur certain indebtedness or permit certain encumbrances on assets
without the prior written consent of the lender. If Sensus is unable to raise funds on favorable terms, or at all, the Company
may not be able to support commercialization efforts, increase research and development activities, meet debt and other contractual
obligations, and the growth of business may be negatively impacted. As a result, Sensus may be unable to compete effectively.
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.
To the extent that Sensus raises additional capital through
the sale of equity or convertible debt securities, the ownership interests of the existing stockholders will be diluted. Moreover,
the terms of newly issued securities may include liquidation or other preferences that adversely affect common stockholders’
rights. Debt financing, if available, may involve agreements that include covenants limiting or restricting ability to take specific
actions such as incurring additional debt, making capital expenditures or declaring distributions or dividends. If Sensus raises
additional funds through collaboration and licensing arrangements with third parties, the Company may have to relinquish valuable
rights to technologies, products or grant licenses on terms that are not favorable. Any of these events could adversely affect
the ability to declare dividends on the Company’s common stock and to achieve future product development and commercialization
goals and have a material adverse effect on business, financial condition and results of operations.
Consolidation in the healthcare industry could adversely
affect the Company’s future revenues and operating income.
The medical technology industry has experienced a significant
amount of consolidation, resulting in companies with greater market presence. Health care systems and other health care companies
are also consolidating, resulting in greater purchasing power for the combined companies. As a result, the disruption in the healthcare
industry caused by consolidation may lead to further competition among medical device suppliers to provide goods and services,
which could adversely affect the Company’s future revenues and operating income.
Risks Related to our Regulatory Environment
Sensus is subject to various federal, state and foreign
healthcare laws and regulations, and a finding of failure to comply with these laws and regulations could have a material adverse
effect on its business.
Sensus’ operations are, and will continue to be, directly
and indirectly affected by various federal, state and foreign healthcare laws, including, but not limited to, those described below.
Additionally, HIPAA, as amended by the Health Information
Technology for Economic and Clinical Health Act of 2009, and applicable implementing regulations, impose certain requirements relating
to the privacy, security and transmission of individually identifiable health information without appropriate authorization on
entities subject to the law, such as health plans, clearinghouses, and healthcare providers and their business associates. Internationally,
substantially every jurisdiction in which we operate has established its own data security and privacy legal framework with which
we must comply, including the Data Protection Directive 95/46/EC and national implementation of the Directive in the member states
of the European Union.
Many states have also adopted laws similar to each of the
above federal laws, such as anti-kickback and false claims laws, which may be broader in scope and apply to items or services reimbursed
by any third-party payor, including commercial insurers, as well as laws that restrict our marketing activities with healthcare
professionals and entities, and require the Company to track and report payments and other transfers of value, including consulting
fees, provided to healthcare professionals and entities. Some states mandate implementation of compliance programs to ensure compliance
with these laws. Additionally, certain states require a certificate of need prior to the installation of a radiation device, such
as the SRT-100. Sensus is also subject to foreign fraud and abuse laws, which vary by country.
If the Company’s operations are found to be in violation
of any of the laws described above or any other governmental regulations that apply now or in the future, Sensus may be subject
to penalties, including administrative, civil and criminal penalties, damages, fines, disgorgement, individual imprisonment, contractual
damages, reputational harm, exclusion from governmental healthcare programs, and the curtailment or restructuring of its operations.
Any of the foregoing could adversely affect the Company’s ability to operate its business and financial results.
Sensus is required to comply with medical device reporting
requirements and must report certain malfunctions, deaths, and serious injuries associated with its products, which can result
in voluntary corrective actions or agency enforcement actions.
Under the U.S. Food and Drug Administration medical device
reporting regulations (21 CFR 803), medical device manufacturers are required to submit information to the U.S. Food and Drug Administration
when they receive a report or become aware that a device has or may have caused or contributed to a death or serious injury or
has or may have a malfunction that would likely cause or contribute to death or serious injury if the malfunction were to recur.
All manufacturers placing medical devices on the market in the European Economic Area are legally bound to report any serious or
potentially serious incidents involving devices they produce or sell (MEDDEV 2.12-1) to the Competent Authority in whose jurisdiction
the incident occurred through the European Vigilance process.
If an event subject to medical device reporting requirements
occurs, Sensus will need to comply with the reporting requirements, which would adversely affect its reputation and subject the
Company to actions by regulatory authorities, such as ordering recalls, imposing fines, or seizing the affected products. Furthermore,
any corrective action, whether voluntary or involuntary, will require the dedication of time and capital and will distract management
from business operations. Any of the foregoing would further harm the Company’s reputation and financial results.
Healthcare policy changes may have a material adverse
effect on Sensus’ business.
The Patient Protection and Affordable Care Act, as amended
by the Health Care and Education Reconciliation Act, included, among other things, a deductible 2.3% excise tax on any entity that
manufactures or imports medical devices offered for sale in the U.S., with limited exceptions, effective January 1, 2013. This
excise tax imposed a significant increase in the tax burden on the medical device industry. This excise tax was repealed in 2018.
Other elements of this law, including comparative effectiveness research, an independent payment advisory board, payment system
reforms including shared savings pilots and other provisions, may significantly affect the payment for, and the availability of,
healthcare services and may result in fundamental changes to federal healthcare reimbursement programs, any of which may materially
affect numerous aspects of our business.
Other healthcare reform measures may result in more rigorous
coverage criteria and in additional downward pressure on the reimbursement received for procedures utilizing our products. In addition,
other legislative changes have been proposed and adopted since the law discussed above was enacted that may adversely affect the
Company’s revenues. Changes to existing laws may result in additional reductions in Medicare and other healthcare funding,
which could have a material adverse effect on Sensus’ business and financial operations. Any reduction in reimbursement from
Medicare or other government programs may result in a reduction in payments from private payors. The implementation of cost containment
measures or other healthcare reforms may prevent the Company from being able to increase revenue, attain profitability, or commercialize
its devices. In addition, other legislative changes may be enacted or existing regulations, guidance or interpretations may be
changed, each of which may adversely affect operations.
Risks Related to our Intellectual Property
If the Company’s patents and other intellectual
property rights do not adequately protect its products, we may lose market share to competitors and be unable to operate business
profitably.
Sensus’ success significantly depends on its ability
to protect proprietary rights to the technologies used in its products. The Company relies on two U.S. patents and two foreign
patents, as well as a combination of copyright, trade secret and trademark laws, and nondisclosure, confidentiality and other contractual
restrictions, to protect proprietary technology. The Company also has patent applications currently pending and in the process
of being submitted. However, these legal means afford only limited protection and may not adequately protect its rights or permit
Sensus to gain or keep any competitive advantage. For example, some or all of the pending patent applications or any future pending
applications may be unsuccessful. The U.S. Patent and Trademark Office may deny or require significant narrowing of claims in the
pending patent applications or future patent applications, and patents issued as a result of these patent applications, if any,
may not provide Sensus with significant commercial protection or be issued in a form that is advantageous. Sensus could also incur
substantial costs in proceedings before the U.S. Patent and Trademark Office. These proceedings could result in adverse decisions
as to the priority of its inventions and the narrowing or invalidation of claims in its issued patents. Third parties may successfully
challenge issued patents and those that may be issued in the future, which would render these patents invalid or unenforceable,
which could limit the Company’s ability to stop competitors from marketing and selling related products. In addition, pending
patent applications include claims to aspects of the Company’s products and procedures that are not currently protected by
issued patents, and third parties may successfully patent those aspects before us or otherwise challenge Sensus’ rights to
these aspects.
Both the patent application process and the process of managing
patent disputes can be time consuming and expensive. Competitors may be able to design around Sensus’ patents or develop
products that provide outcomes that are comparable to the Company’s products. Although Sensus has entered into confidentiality
agreements and intellectual property assignment agreements with certain of its employees, consultants and advisors in order to
protect our intellectual property and other proprietary technology, these agreements may not be enforceable or may not provide
meaningful protection for trade secrets or other proprietary information in the event of unauthorized use or disclosure or other
breaches of the agreements. In addition, Sensus has not sought patent protection in all countries where it sells products. If Sensus
fails to timely file a patent application in any such country or major market, Sensus may be precluded from doing so at a later
date. Competitors may use the Company’s technologies in jurisdictions where Sensus has not obtained patent protection to
develop their own products and, further, may export otherwise infringing products to territories in which Sensus has patent protection
that may not be sufficient to terminate infringing activities. Furthermore, the laws of some foreign countries may not protect
intellectual property rights to the same extent as the laws of the U.S., if at all.
In the event a competitor infringes upon one of the Company’s
patents or other intellectual property rights, enforcing those patents and rights may be difficult and time consuming. Even if
successful, litigation to defend these patents against challenges or to enforce Sensus’ intellectual property rights could
be expensive and time consuming and could divert management’s attention. Moreover, the Company may not have sufficient resources
to defend patents against challenges or to enforce intellectual property rights, any of which would adversely affect its ability
to compete.
If Sensus’ trademarks or trade names are not
adequately protected, then the Company may be unable to build name recognition in markets of interest and business may be adversely
affected.
Sensus’ registered or unregistered trademarks or trade
names may be challenged, infringed, circumvented or declared generic or determined to infringe other marks. Sensus may be unable
to protect the rights to these trademarks and trade names, which the Company needs to build name recognition by potential partners
or customers in markets of interest. If these trademarks are challenged, infringed upon, circumvented, or declared generic or infringing,
or if the Company is unable to establish name recognition based on these trademarks and trade names, then it may be unable to compete
effectively and the Company’s business may be adversely affected.
The medical device industry is characterized by extensive
patent litigation, and if Sensus becomes subject to litigation, it could be costly, result in the diversion of management’s
attention, require the Company to pay significant damages or royalty payments, or prevent the Company from marketing and selling
existing or future products.
The medical device industry is characterized by extensive
litigation and administrative proceedings over patent and other intellectual property rights. Determining whether a product infringes
a patent involves complex legal and factual issues, the determination of which is often uncertain. As the number of participants
in the market for skin cancer and general oncology devices and treatments increases, the possibility of patent infringement claims
against Sensus increases. Any infringement claims, litigation or other proceedings would place a significant strain on the Company’s
financial resources, divert the attention of management from the core business and harm Sensus’ reputation.
Adverse outcomes in litigation or similar proceedings
could adversely impact business.
Sensus may in the future be, named as a party to litigation
or other similar legal proceedings. Adverse outcomes in any or all of these proceedings could result in monetary damages or injunctive
relief that could adversely affect its ability to continue conducting business. If an unfavorable final outcome in any such matter
becomes probable and reasonably estimable, the Company’s financial condition could be materially and adversely affected.
Risks Related to the Ownership of Sensus’ Securities
We have a history of net losses. If we do not achieve
profitability, our financial condition and the value of our common stock could suffer.
Sensus has a history of net losses. The historical losses
from inception through December 31, 2020 totaled approximately $21.9 million. The Company has significantly reduced its research
and development expenses and is planning to continue to control these expenses as it competes the research and development of the
final stages for the Sculptura. However, there can be no assurances that this and other actions will result in the Company’s
profitability.
Limited trading activity for shares of Sensus’
common stock may contribute to price volatility.
While Sensus’ common stock are listed and traded on
the Nasdaq Capital Market, there has been limited trading activity in the Company’s shares. Due to the limited trading activity
of Sensus’ common stock, relativity small trades may have a significant impact on the price of these securities.
The Company does not anticipate paying dividends in
the foreseeable future. As a result, investors must rely on price appreciation of Sensus’ common stock for a return on its
investment in the foreseeable future.
The Company expects to retain any funds and future earnings
to support the operation, growth and development of its business and does not anticipate paying any cash dividends on its common
stock in the foreseeable future. As a result, a return on an investor’s investment in the near future will occur only if
the Company’s share price appreciates. Sensus’ common stock price may not appreciate in value or maintain the price
at which an investor purchased these securities, and in either case, may not realize a return on investment or could lose all or
part of an investment in Sensus’ securities.
Any future determination to declare cash dividends will be
made at the discretion of Sensus’ Board of Directors and will be subject to compliance with applicable laws and covenants
under any credit facilities, which may restrict or limit the Company’s ability to pay dividends. For example, the Company’s
current revolving line of credit restricts the ability to pay dividends or make any distributions or payments or redeem, retire
or purchase any capital stock without the prior written consent of the lender, provided that Sensus may pay dividends solely in
common stock. Also, the form, frequency and amount of dividends will depend upon the Company’s future operations and earnings,
capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors
may deem relevant. Sensus may not pay dividends as a result of any of the foregoing, and in these cases, an investor would need
to rely on price appreciation of Sensus’ common stock for a return on investment.
General stock market volatility could result in significant
declines in the trading price of our securities, and an investor could lose all or a substantial part of an investment.
Stock markets have experienced extreme volatility that has
often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect
the trading price of our securities. In addition, limited trading volume of Sensus’ securities may contribute to its future
volatility. Price declines in Sensus’ securities could result from general market and economic conditions, some of which
are beyond the Company’s control, and a variety of other factors, including any of the risk factors described in this Annual
Report on Form 10-K. These broad market and industry factors may harm the market price of Sensus’ securities, regardless
of the Company’s operating performance, and could cause an investor to lose all or part of an investment in Sensus’
securities since an investor might be unable to sell these securities at or above the price paid. Factors that could cause fluctuations
in the market price of Sensus’ securities include the following:
● price and volume fluctuations in the overall stock market from time to time;
● sales of Sensus’ securities by the Company or stockholders;
● any significant change in the Company’s management; and
In addition, in the past, following periods of volatility
in the overall market and the market price of a particular company’s securities, securities class action litigation has often
been instituted against these companies. This litigation, if instituted against Sensus, could result in substantial costs and a
diversion of management’s attention and resources.
Sensus is both an “emerging growth company”
and a “smaller reporting company,” and the reduced reporting requirements applicable to emerging growth companies and
smaller reporting companies may make the Company’s common stock less attractive to investors.
Sensus is an “emerging growth company,” as defined
in the Jumpstart Our Business Startups Act. As such,the Company can take advantage of exemptions from various reporting requirements
that are applicable to other public companies but not to “emerging growth companies,” including, but not limited to:
Sensus is expected to remain an emerging growth company until
December 31, 2021, following which it would continue to be a “smaller reporting company,” which will enable it to continue
to take advantage of many of these exemptions, as discussed below. Investors may find Sensus’ common stock less attractive
if the Company chooses to rely on these exemptions. If some investors find Sensus’ common stock less attractive as a result
of any choices to reduce future disclosure, there may be a less active trading market for the Company’s common stock and
the price of its common stock may be more volatile.
Sensus is also a “smaller reporting company,”
meaning that its “public float” – the outstanding common stock held by nonaffiliates - had a value of less than$250
million at the end of our most recently completed second fiscal quarter. Thus, even if the Company is no longer an emerging growth
company, as a smaller reporting company, the Company could take advantage of certain reduced governance and disclosure requirements,
including not being required to comply with the auditor attestation requirements in the assessment of the Company’s internal
control over financial reporting. As aresult, investors and others may be less comfortable with the effectiveness
of Sensus’ internal controls and the risk that materialweaknesses or other deficiencies in internal controls
go undetected may increase. In addition, as a smaller reporting company, Sensus takesadvantage of the ability to provide
certain other less comprehensive disclosures in our SEC filings, including, among other things, providing onlytwo
years of audited financial statements in annual reports and simplified executive compensation disclosures. Consequently, it may
be morechallenging for investors to analyze the Company’s results of operations and financial prospects, as
the information provided to stockholders may bedifferent from what one might receive from other public companies in
which one holds shares.
Sensus’ executive officers and directors may exert control over the Company and may exercise influence over matters subject to stockholder
approval.
Sensus’ executive officers and directors, together
with their respective affiliates, beneficially owned approximately 19% of our outstanding common stock as of February 8, 2021.
Accordingly, these stockholders, if they act together, may exercise substantial influence over matters requiring stockholder approval,
including the election of directors and approval of corporate transactions, such as a merger. This concentration of ownership could
have the effect of delaying or preventing a change in control or otherwise discourage a potential acquirer from attempting to obtain
control over the Company, which in turn could have a material adverse effect on the market value of Sensus’ common stock.
If securities or industry analysts do not publish research
or publish unfavorable or inaccurate research about Sensus’ business, the price of the Company’s securities and trading
volume could decline.
The trading market for Sensus’ securities depends,
in part, on the research and reports that securities or industry analysts publish about the Company or business. Sensus may be
unable to attract or sustain coverage by well-regarded securities and industry analysts. If either none or only a limited number
of securities or industry analysts cover the Company, or if these securities or industry analysts are not widely respected within
the general investment community, the trading price for Sensus’ securities would be materially and negatively impacted. In
the event the Company obtains securities or industry analyst coverage, if one or more of the analysts who cover Sensus downgrades
the securities or publish inaccurate or unfavorable research about the Company, the price of Sensus’ securities would likely
decline. If one or more of these analysts cease coverage of Sensus, or fail to publish reports on the Company regularly, demand
for the Company’s securities could decrease, which might cause the price of its securities and trading volume to decline.
Sensus’ certificate of incorporation, bylaws
and Delaware law contain provisions that could discourage another company from acquiring the Company and may prevent attempts by
the Company’s stockholders to replace or remove the current directors and management.
Provisions of the General Corporation Law of Delaware (where
the Company is incorporated), and the Company’s certificate of incorporation and bylaws may discourage, delay or prevent
a merger or acquisition that stockholders may consider favorable, including transactions in which an investor might otherwise receive
a premium for its stock. In addition, these provisions may frustrate or prevent any attempts by the Company’s stockholders
to replace or remove the current management by making it more difficult for stockholders to replace or remove the Company’s
board of directors. These provisions include:
● prohibiting stockholder action by written consent;
In addition, Sensus is subject to Section 203 of the Delaware
General Corporation Law, which may have an anti-takeover effect with respect to transactions not approved in advance by the Board
of Directors, including discouraging takeover attempts that could result in a premium over the market price for shares of the Company’s
common stock. These provisions will apply even if a takeover offer may be considered beneficial by some stockholders and could
delay or prevent an acquisition that the Company’s Board of Directors determines is not in the best interests of Sensus and
its stockholders and could also affect the price that some investors are willing to pay for Sensus’ common stock.
Sensus’ certificate of incorporation provides
that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between the Company and
its stockholders, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with the Company
or its directors, officers or employees.
Sensus’ certificate of incorporation provides that,
unless the Company consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware
is the exclusive forum for any derivative action or proceeding brought on behalf of the Company; any action asserting a breach
of fiduciary duty; any action asserting a claim against the Company arising pursuant to the Delaware General Corporation Law, the
Company’s certificate of incorporation or bylaws; or any action asserting a claim against the Company that is governed by
the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial
forum that it finds favorable for disputes with the Company or its directors, officers or other employees, which may discourage
these lawsuits against the Company and its directors, officers and other employees. If a court were to find the choice of forum
provision contained in the Company’s certificate of incorporation to be inapplicable or unenforceable in an action, Sensus
may incur additional costs associated with resolving the action in other jurisdictions, which could harm business and financial
condition.
If Sensus fails to maintain proper and effective internal
controls, the Company’s ability to produce accurate and timely financial statements could be impaired and investors’
views of the Company or its business could be harmed, resulting in a decrease in value of the Company’s common stock.
As a public company, Sensus is required to maintain internal
control over financial reporting and to report any material weaknesses in the Company’s internal controls. In addition, the
Company is required to furnish a report by management on the effectiveness of the internal control over financial reporting pursuant
to Section 404 of the Sarbanes-Oxley Act. In addition, the Company’s independent registered public accounting firm will be
required to attest to the effectiveness of the internal control over financial reporting beginning with the Company’s annual
report on Form 10-K following the date on which Sensus is no longer an emerging growth company or the date Sensus no longer qualifies
as a smaller reporting company. Compliance with Section 404 of the Sarbanes-Oxley Act will require the Company to incur substantial
accounting expense and expend significant management efforts. If Sensus is unable to comply with the requirements of Section 404
in a timely manner, or the Company and the independent registered public accounting firm identify deficiencies in the internal
control over financial reporting that are deemed to be material weaknesses, the market price of Sensus’ common stock could
decline and the Company could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which
would require additional financial and management resources.
The Company’s operations may be impaired if information
technology systems fail to perform adequately or if are the subject of a data breach or cyberattack.
The Company’s information technology systems are critically
important to operating business efficiently. Sensus’ 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.
Although Sensus protects our information technology systems,
Sensus 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. Sensus carries insurance against
these risks, perform penetration tests from time to time, and design business processes to attempt to mitigate the risk of such
breaches. However, the Company’s efforts to mitigate these risks may be unsuccessful for security breaches not to occur.
Moreover, the development and maintenance of these measures requires continuous monitoring as technologies change and efforts to
overcome security measures evolve. The Company has experienced, and expect to continue to experience, cyber security threats and
incidents, none of which has been material to Sensus to date. 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.
Item 1B.UNRESOLVED STAFF COMMENTS
The Company has no unresolved comments from the SEC staff
relating to Sensus’ periodic or current reports filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended.
Item 2.PROPERTIES
Sensus’ corporate headquarters is located in Boca Raton,
Florida and occupies approximately 8,926 square feet of leased space. The lease expires in September 2022 with an option to extend
upon terms to be negotiated. The Company believes that the current facilities are suitable and adequate to meet the Company’s
current needs and that suitable additional space will be available as and when needed on acceptable terms. Sensus’ main manufacturing
function is physically located at our third-party manufacturer’s facility in Oak Ridge, Tennessee. Additional disclosures
have been included within Note 7, Commitments and Contingencies, of the consolidated financial statements.
Item 3.LEGAL PROCEEDINGS
From time to time, Sensus is party to certain legal proceedings
in the ordinary course of business. Management, after consultation with legal counsel, currently does not anticipate that the aggregate
liability arising out of certain legal proceedings will have a material effect on Sensus’ results of operations, financial
position, or cash flows and have assessed that there is no need to record a liability for these legal proceedings and related contingencies.
Additional disclosures have been included within Note 7, Commitments and Contingencies of the consolidated financial statements.
Item 4.MINE SAFETY DISCLOSURE
Not applicable.
PART II.
Item 5.MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company’s
Class A common stock is publicly traded on the NASDAQ Capital Market under the symbol “SRTS.”
Holders
At the close of business on March 2, 2021, there were 24
common stockholders of record. This does not include “street name” or beneficial owners, whose shares are held of record
by banks, brokers, and other financial institutions.
Dividends
The Company has never declared or paid any dividend on its
common stock and anticipates that for the foreseeable future all earnings will be retained for use rather than paid out as dividends.
Any future payment of cash dividends will be dependent upon the Company’s financial condition, results of operations, current
and anticipated cash requirements, plans for expansion, as well as other factors that the Board of Directors deems relevant. Additionally,
certain contractual agreements and provisions of Delaware law impose restrictions on our ability to pay dividends. For example,
the Company’s current revolving line of credit restricts the ability to pay dividends or make any distributions or payments
or redeem, retire or purchase any capital stock without the prior written consent of the lender, provided that the Company may
pay dividends solely in common stock without prior consent. Additionally, Section 170(a) of the Delaware General Corporation Law
(“DGCL”) only permits dividends to be paid out of two legally available sources: (1) out of surplus, or (2) if there
is no surplus, out of net profits for the year in which the dividend is declared or the preceding year (so-called “nimble
dividends”). However, dividends may not be declared out of net profits if “the capital of the corporation, computed
in accordance with sections 154 and 244 of the DGCL, shall have been diminished by depreciation in the value of its property, or
by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock
of all classes having a preference upon the distribution of assets.” Contractual obligations and applicable law will restrict
the ability to declare and pay dividends in the future.
Unregistered Sales of Securities
There were no unregistered sales of securities during the
year ended December 31, 2020.
Purchases of Equity Securities by the Registrant and Affiliated
Purchasers
None.
Item 6.SELECTED FINANCIAL DATA
Not applicable.
Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following management’s discussion
and analysis (“MD&A”) in conjunction with the information set forth within the financial statements and related
notes included in this Annual Report on Form 10-K.
Overview
As discussed elsewhere in this Report, Sensus seeks to achieve
profitability. However, Sensus faces a number of uncertainties in 2021 that could impact our ability to achieve this goal. These
include the ongoing coronavirus epidemic and international trade issues. Either of these matters could adversely affect the Company’s
ability to do business in a number of countries and geographic regions, including China.
In order to achieve profitability, the Company is reducing
operational expenses where necessary in order to continue to invest in research and development related to the Company’s
products.
Impact of COVID-19
The outbreak of COVID-19, which was declared a pandemic by
the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies, as well as on the
Company’s and its employees, operations, and customer demand. The Company has been able to continue to operate and service
its customers throughout the pandemic. However, the pandemic significantly impacted the Company’s sales throughout 2020,
as social distancing forced physicians to temporarily close their practices, and could further impact the Company’s operations
and the operations of the Company’s customers, suppliers and vendors as a result of ongoing quarantines, facility closures,
and travel and logistics restrictions. The extent to which the COVID-19 pandemic impacts the Company’s business, results
of operations and financial condition will depend on future developments. The Company cannot reasonably estimate the impact at
this time. (See Note 1, Business Overview, of the consolidated financial statements).
Components of our results of operations
Sensus manages our business globally within one reportable
segment, which is consistent with how management views the business, prioritizes investment and resource allocation decisions and
assesses operating performance.
Results of Operations
For the Years Ended December 31,
Operating expenses
Other income (expense)
Gain on extinguishment of loan 757,782 -
Interest expense (14,230 ) -
2020 Compared with 2019
Revenues of $9,576,932 in 2020 decreased $17,686,316
from $27,263,248 in 2019, primarily reflecting the impact of COVID-19 and the decrease in the number of units sold. Due to COVID-19,
the Company was unable to sell effectively to its markets due to travel restrictions and other factors. The Company believes these
factors are gradually subsiding as the healthcare industry has developed and continues to develop effective vaccines and other
treatments for COVID-19 and as local, state, and federal governments ease distancing restrictions. Additionally, the overall embrace
of technology that enables the global business community to communicate effectively without the need for close proximity is expected
to help the Company reach its potential clients for 2021.
Cost of sales of $4,327,839 in 2020 decreased by $5,378,265
from $9,706,104 in 2019, reflecting the lower number of units sold due to the COVID-19 pandemic.
Gross profit decreased $12,308,051, or 70.1%, from
2019, primarily driven by continued fixed costs and depreciation and amortization expenses combined with the decline in units sold.
Any increase in 2021 in gross profit or gross margin, as a percentage of revenue, is largely dependent upon the status of the COVID-19
pandemic and the market’s response to the COVID-19 pandemic.
Selling and marketing expenses decreased $3,766,709,
or 41.4%, from 2019, primarily attributable to cancellations of trade shows due to COVID-19, a decrease in commission expense due
to lower sales and reduced spending on marketing activities.
Research and development expenses decreased $2,260,189
or 35.2.%, from 2019, reflecting lower spending as the SculpturaTM project entered production phase during 2020.
Other income (expense), net of $1,398,348 in 2020 increased
$1,130,058 from $268,290 in 2019. The net increase was primarily attributable to the forgiveness of $757,782 of our loan under
the Small Business Administration Paycheck Protection Program (See “Financial Condition” below and Note 5, Debt,
of the consolidated financial statements) and a bargain purchase gain $588,011 which was recorded as a result of acquisitions (See
Note 2, Acquisitions, of the consolidated financial statements)
Financial Condition
The Company’s cash, cash equivalent and investment
balance decreased to $14,906,976 at December 31, 2020 from $15,489,695 at December 31, 2019, primarily due to cash used in operating
activities and the purchase of property and equipment.
There were no borrowings under the revolving line of credit
at December 31, 2020 and 2019.
In light of the COVID-19 pandemic, the Company took proactive
steps during 2020 to manage costs and bolster liquidity. These steps included increasing borrowing availability as a precautionary
measure to preserve financial flexibility in view of the uncertainty in global markets resulting from the COVID-19 pandemic and
obtaining a loan of $1,022,785 under the Small Business Administration Paycheck Protection Program enabled by the Coronavirus Aid,
Relief, and Economic Security (“CARES”) Act of 2020 which was used for employee compensation and facilities costs.
Liquidity and Capital Resources
Overview
In general terms, liquidity is a measurement of the Company’s
ability to meet its cash needs. For the years ended December 31, 2020 and 2019, a significant source of funding has been cash flows
from investing and financing activities. The Company believes that proceeds from investment maturing, borrowing capacity and access
to capital resources are sufficient to meet operating capital and funding requirements for the next 12 months from the issuance
date of this annual report. The Company’s liquidity position and capital requirements may be impacted by a number of factors,
including the following:
● ability to generate and increase revenue;
● fluctuations in gross margins, operating expenses and net results; and
● fluctuations in working capital.
The Company’s primary short-term capital needs, which
are subject to change, include expenditures related to:
● expansion of sales and marketing activities; and
● expansion of research and development activities.
Sensus’ management regularly evaluates cash requirements
for current operations, commitments, capital requirements and business development transactions, and may seek to raise additional
funds for these purposes in the future.
Cash flows
The following table provides a summary of the Company’s
cash flows for the periods indicated:
For the Years Ended December 31,
Net cash provided by (used in):
Increase (decrease) in cash and cash equivalents $ 6,806,688 $ (4,383,968 )
Cash flows from operating activities
Net cash used in operating activities was $434,180 for
the year ended December 31, 2020, consisting of a net loss of $6,835,526 partially offset by an increase in net operating
assets of $5,561,274 and non-cash charges of $840,072. The increase in net operating assets was primarily related to a
decrease in sales and resulting in a decrease in accounts receivable, offset by an increase in inventory and a decrease in
accounts payable and accrued expenses. Non-cash charges consisted of depreciation and amortization, partially offset by the
gain on bargain purchase in 2020. Net cash used in operating activities was $2,106,642 for the year ended December 31, 2019,
consisting of a net loss of $1,700,003 and an increase in net operating assets of $2,212,112, partially offset by non-cash
charges of $1,805,474. The increase in net operating assets was primarily due to the increase in sales and other longer
payment terms on certain sales, resulting in an increase in accounts receivable, an increase in inventory and an increase in
deferred revenue offset by a decrease in accounts payable and accrued expenses. Non-cash charges consisted primarily of stock
compensation expense, bad debt and depreciation and amortization.
Cash flows from investing activities
Net cash provided by investing activities was $7,030,862,
primarily due to matured investments of $7,389,407, partially offset by $358,545 of acquisition of property and equipment. Net
cash used in investing activities was $4,897,810 due the purchase of debt securities held-to-maturity of $7,797,217 and $400,593
for acquisition of property and equipment offset by matured investments of $3,300,000 during the year ended December 31, 2019.
Cash flows from financing activities
Net cash provided by financing activities was $210,006 during
the year ended December 31, 2020, mostly from the balance of the loan of $266,777 under the Small Business Administration Paycheck
Protection Program. Net cash provided by financing activities was $2,620,484 during the year ended December 31, 2019, mostly from
the exercise of investor warrants of $2,739,238 offset by withholding tax on stock compensation of $118,754.
Indebtedness
Please see Note 5, Debt, to the financial statements.
Contractual Obligations and Commitments
Please see Note 7, Commitments and Contingencies,
to the financial statements.
Off-Balance Sheet Arrangements
The Company did not have during the periods presented, and