The following discussion and analysis should be read in conjunction with the information set forth within the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2025 Annual Report. 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 treatments for non-melanoma skin cancer and post-surgical keloid scar prevention. The Company uses a proprietary low-energy X-ray technology known as superficial radiation therapy (“SRT”), which is based on decades 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 of close to one million 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 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 offerings to dermatology clinics in the form of equipment, radiation oncology and physicist oversight, and on-site device operation by radiotherapy technologists. The term the Company uses for this service model is the “Fair Deal Agreement.” Segment Information The Company manages its business globally within one reportable segment, which is consistent with how our management views the business, prioritizes investment and resource allocation decisions, and assesses operating performance. 19 Results of Operations For the Three Months Ended June 30, For the Six Months Ended June 30, (in thousands, except shares and per share data) 2026 2025 2026 2025 Revenues $ 2,290 $ 7,315 $ 5,684 $ 15,659 Cost of sales 1,521 4,412 3,924 8,403 Gross profit 769 2,903 1,760 7,256 Operating expenses General and administrative 1,786 1,986 3,827 4,193 Selling and marketing 1,054 1,389 2,771 3,575 Research and development 1,109 1,471 2,699 4,077 Total operating expenses 3,949 4,846 9,297 11,845 Loss from operations (3,180 ) (1,943 ) (7,537 ) (4,589 ) Other income: Interest income, net 117 183 241 367 Other income, net 117 183 241 367 Loss before income tax (3,063 ) (1,760 ) (7,296 ) (4,222 ) (Benefit from) provision for income taxes 5,686 (723 ) 4,079 (613 ) Net loss $ (8,749 ) $ (1,037 ) $ (11,375 ) $ (3,609 ) Three months ended June 30, 2026 compared to the three months ended June 30, 2025 Revenues. Revenues were $2.3 million for the three months ended June 30, 2026 compared to $7.3 million for the three months ended June 30, 2025, a decrease of $5.0 million, or 68.5%. The decrease in revenue was primarily driven by a lower number of units sold (6 in the three months ended June 30, 2026, compared to 19 in the three months ended June 30, 2025), reflecting no sales in the current period to a historically large customer. In addition, some systems placed during the quarter were under the Fair Deal Agreement program and rental arrangements, for which revenue is recognized over the term of the agreement rather than at the time of shipment. Cost of sales. Cost of sales was $1.5 million for the three months ended June 30, 2026 compared to $4.4 million for the three months ended June 30, 2025, a decrease of $2.9 million, or 65.9%. The decrease in cost of sales was primarily related to a lower number of units sold. Gross profit. Gross profit was $0.8 million for the three months ended June 30, 2026 compared to $2.9 million for the three months ended June 30, 2025, a decrease of $2.1 million, or 72.4%. Our overall gross profit percentage was 34.8% in the three months ended June 30, 2026 compared to 39.7% in the corresponding period in 2025. The decrease in gross profit and margin was primarily driven by product mix, including a higher proportion of international shipments, which carry lower average selling prices, and costs associated with new system placements pursuant to the Fair Deal Agreements, which are recognized upfront while related revenue is recognized over the term of the agreement. General and administrative. General and administrative expense was $1.8 million for the three months ended June 30, 2026 compared to $2.0 million for the three months ended June 30, 2025, a decrease of $0.2 million, or 10.0%. The net decrease in general and administrative expense was primarily due to lower compensation costs, slightly offset by increases in professional fees. 20 Selling and marketing. Selling and marketing expense was $1.1 million for the three months ended June 30, 2026 compared to $1.4 million for the three months ended June 30, 2025, a decrease of $0.3 million, or 21.4%. The decrease was primarily driven by a decrease in tradeshow expenses, commission expenses, and clinical research costs. Research and development. Research and development expense was $1.1 million for the three months ended June 30, 2026 compared to $1.5 million for the three months ended June 30, 2025, a decrease of $0.4 million, or 26.7%. The decrease was primarily due to a decrease in product development costs related to next-generation systems, and reduced headcount. Other income. Other income of $0.1 million and $0.2 million for the three months ended June 30, 2026 and 2025, respectively, relates primarily to interest income. Income taxes. The effective tax rates for the three months ended June 30, 2026 and 2025 were (185.6%) and 41.1%, respectively. The decrease in the effective tax rate for the three months ended June 30, 2026 compared to the prior period was primarily attributable to the valuation allowance recorded against the Company’s deferred tax assets during the second quarter of 2026. The Company evaluates the realizability of its deferred tax assets on a quarterly basis, considering both positive and negative evidence in accordance with ASC 740. During the second quarter of 2026, based on its quarterly assessment of all available positive and negative evidence, management concluded that a valuation allowance against the Company's net deferred tax assets was required. As a result, the Company recorded a valuation allowance during the quarter, which materially increased income tax expense and the effective tax rate for the six-month period ended June 30, 2026. Management will continue to evaluate the realizability of its deferred tax assets each reporting period based on all available evidence. Changes in future operating results, taxable income projections, or other relevant evidence could result in changes to the amount of the valuation allowance in future periods. Six months ended June 30, 2026 compared to the six months ended June 30, 2025 Revenues. Revenues were $5.7 million for the six months ended June 30, 2026 compared to $15.7 million for the six months ended June 30, 2025, a decrease of $10.0 million, or 63.7%. The decrease in revenue was primarily driven by a lower number of units sold (16 in the six months ended June 30, 2026, compared to 40 in the six months ended June 30, 2025), reflecting no sales in the current period to a historically large customer. Further, some systems placed during the quarter were under the Fair Deal Agreement program and rental arrangements, for which revenue is recognized over the term of the agreement rather than at the time of shipment. Cost of sales. Cost of sales was $3.9 million for the six months ended June 30, 2026 compared to $8.4 million for the six months ended June 30, 2025, a decrease of $4.5 million, or 53.6%. The decrease in cost of sales was primarily related to a lower number of units sold. Gross profit. Gross profit was $1.8 million for the six months ended June 30, 2026 compared to $7.3 million for the six months ended June 30, 2025, a decrease of $5.5 million, or 75.3%. Our overall gross profit percentage was 31.6% in the six months ended June 30, 2026 compared to 46.5% in the corresponding period in 2025. The decrease in gross profit was primarily driven by product mix, including a higher proportion of international shipments, which carry lower average selling prices, and costs associated with new system placements pursuant to the Fair Deal Agreements, which are recognized upfront while related revenue is recognized over the term of the agreement. General and administrative. General and administrative expense was $3.8 million for the six months ended June 30, 2026 compared to $4.2 million for the six months ended June 30, 2025, a decrease of $0.4 million, or 9.5%. The net decrease in general and administrative expense was primarily due to lower compensation costs, slightly offset by increase in professional fees. Selling and marketing. Selling and marketing expense was $2.8 million for the six months ended June 30, 2026 compared to $3.6 million for the six months ended June 30, 2025, a decrease of $0.8 million, or 22.2%. The decrease was primarily driven by a decrease in tradeshow expenses, commission expenses, and clinical research costs. 21 Research and development. Research and development expense was $2.7 million for the six months ended June 30, 2026 compared to $4.1 million for the six months ended June 30, 2025, a decrease of $1.4 million, or 34.1%. The decrease was primarily due to the decrease in lobbying costs related to billing code reimbursement, the decrease in product development costs related to next-generation systems, and reduced headcount. Other income. Other income of $0.2 million and $0.4 million for the six months ended June 30, 2026 and 2025, respectively, relates primarily to interest income. Income taxes. The effective tax rates for the six months ended June 30, 2026 and 2025 were (55.9%) and 14.5%, respectively. The decrease in the effective tax rate for the six months ended June 30, 2026 compared to the prior year period was primarily due to an increase in valuation allowance. Financial Condition The following discussion summarizes significant changes in assets and liabilities. Please see the condensed consolidated balance sheets as of June 30, 2026 and December 31, 2025 contained in Part I, Item 1 of this filing. Assets Cash, restricted cash, and cash equivalents were $15.2 million at June 30, 2026 compared to $22.1 million at December 31, 2025, a decrease of $6.9 million. The decrease was primarily attributable to cash used to purchase inventory. See Cash Flows for details on the change in cash, restricted cash, and cash equivalents during the six months ended June 30, 2026. Accounts receivable was $1.7 million at June 30, 2026 compared to $6.0 million at December 31, 2025, a decrease of $4.3 million. The decrease was primarily due to the decrease in sales and concentration of sales to the Company’s historically large customer, which have historically been subject to extended payment terms. Inventories were $18.5 million at June 30, 2026 compared to $14.6 million at December 31, 2025, an increase of $3.9 million. The increase was primarily due to the anticipation of increasing future sales. Liabilities There were no borrowings outstanding under the revolving line of credit with City National Bank of Florida at June 30, 2026 or under the Company’s former revolving line of credit with Fifth Third at December 31, 2025. Liquidity and Capital Resources In general terms, liquidity is a measurement of the Company’s ability to meet its cash needs. For the six months ended June 30, 2026, funding was derived primarily from cash generated by the sale of equipment to our customers in the ordinary course of business and existing cash reserves. The Company believes that proceeds from maturing cash equivalents, as well as cash on hand are sufficient to meet operating capital and funding requirements for the next 12 months from the date this Quarterly Report was issued. 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 ● financial market instability or disruptions to the banking system due to bank failures. 22 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’s 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. However, there can be no assurance that it will be able to raise such funds or the terms on which such funds may be raised, if at all. Cash flows The following table provides a summary of cash flows for the periods indicated: For the Six Months Ended June 30, (in thousands) 2026 2025 Net cash provided by (used in): Operating activities $ (6,886 ) $ 440 Investing activities (11 ) (34 ) Financing activities — (300 ) Total $ (6,897 ) $ 106 Cash flows from operating activities Net cash used in operating activities was $6.9 million for the six months ended June 30, 2026, consisting of net loss of $11.4 million and a decrease in net operating liabilities of $0.2 million, offset by non-cash activity of $4.7 million. Cash flows used in operating activities primarily include the receipt of revenues offset by the payment of operating expenses incurred in the normal course of business. Non-cash items consisted of stock-based compensation expense, deferred income taxes, provision for product warranties, amortization of right-of-use asset, and depreciation of property and equipment. Net cash provided by operating activities was $0.4 million for the six months ended June 30, 2025, consisting of net loss of $3.6 million and non-cash charges of $0.1 million, offset by a decrease in net operating assets of $4.1 million, primarily driven by a $7.1 million decrease in accounts receivable and a $3.2 million increase in inventories. Cash flows provided by operating activities primarily include the receipt of revenues offset by the payment of operating expenses incurred in the normal course of business. Non-cash items consisted of stock-based compensation expense, deferred income taxes, provision for product warranties, amortization of right-of-use asset, and depreciation and amortization of property and equipment. Cash flows from investing activities Net cash used in investing activities for the six months ended June 30, 2026 reflected $11 thousand of purchases of property and equipment. Net cash used in investing activities for the six months ended June 30, 2025 reflected $34 thousand of purchases of property and equipment. Cash flows from financing activities No cash was used in financing activities for the six months ended June 30, 2026 . Net cash used in financing activities for the six months ended June 30, 2025 reflected $0.3 million of repurchases of common stock. 23 Inflation During the second quarter of 2026, we continued to experience some increase in commodity and shipping prices and energy and labor costs which resulted in minor inflationary pressures across various parts of our business and operations, including on our customers, partners, and suppliers. We continue to monitor the impact of inflation and we are taking actions, such as ordering inventory in advance, to minimize its effects on our product cost and sales. Indebtedness Please see Note 3, Debt, to the condensed consolidated financial statements. Contractual Obligations and Commitments Please see Note 6, Commitments and Contingencies, to the condensed consolidated financial statements. Critical Accounting Policies and Estimates The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting periods. Management has not applied any critical accounting estimates but has identified revenue recognition policies as critical to understanding the Company’s financial condition and results of operations. For a detailed discussion on the application of these and other accounting policies, see the Note 1, Organization and Summary of Significant Accounting Policies to the consolidated financial statements included in the 2025 Annual Report for further information.