Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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-100^TM, SRT-100+^TM and SRT-100 Vision^TM. 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.

Results of Operations

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
(in thousands, except shares and per share data)		2026				2025				2026				2025
Revenues		$	5,995			$	6,884			$	11,679			$	22,543
Cost of sales			2,707				4,171				6,632				12,573
Gross profit			3,288				2,713				5,047				9,970
Operating expenses
General and administrative			2,253				1,917				6,079				6,111
Selling and marketing			1,548				1,546				4,319				5,122
Research and development			1,106				1,819				3,806				5,896
Total operating expenses			4,907				5,282				14,204				17,129
Loss from operations			(1,619	)			(2,569	)			(9,157	)			(7,159	)
Other income:
Interest income, net			126				160				368				528
Other income, net			126				160				368				528
Loss before income tax			(1,493	)			(2,409	)			(8,789	)			(6,631	)
(Benefit from) provision for income taxes			-				(1,466	)			4,079				(2,079	)
Net loss		$	(1,493	)		$	(943	)		$	(12,868	)		$	(4,552	)

Three months ended September 30, 2026 compared to the three months ended September 30, 2025

Revenues. Revenues were $6.0 million for the three months ended September 30, 2026 compared to $6.9 million for the three months ended September 30, 2025, a decrease of $0.9 million, or 13.0%. Although the number of units shipped increased (26 in the three months ended September 30, 2026, including 8 units backlog from the second quarter of 2026 but delivered in the current period, compared to 16 in the three months ended September 30, 2025), the decrease in revenue was primarily driven by product mix (the number of lower-priced SRT-100 units shipped versus the number of higher-priced SRT-100 Vision units shipped), which resulted in a lower average selling price per unit, as well as no sales in the current period to a historically large customer. In addition, 3 systems shipped during the quarter were under the Fair Deal Agreement program and rental arrangements compared to zero in the prior year period, 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 $2.7 million for the three months ended September 30, 2026 compared to $4.2 million for the three months ended September 30, 2025, a decrease of $1.5 million, or 35.7%. The decrease in cost of sales was primarily related to the product mix, including a higher proportion of SRT-100 units shipped compared to SRT-100 Vision units shipped, as SRT-100 units have a lower average cost per unit.

Gross profit. Gross profit was $3.3 million for the three months ended September 30, 2026 compared to $2.7 million for the three months ended September 30, 2025, an increase of $0.6 million, or 22.2%. Our overall gross profit percentage was 55.0% in the three months ended September 30, 2026 compared to 39.1% in the corresponding period in 2025. The increase in gross profit and margin was primarily driven by product mix, including a higher proportion of shipments of higher-margin SRT-100 units compared to lower-margin SRT-100 Vision units.

General and administrative. General and administrative expense was $2.3 million for the three months ended September 30, 2026 compared to $1.9 million for the three months ended September 30, 2025, an increase of $0.4 million, or 21.1%. The net increase in general and administrative expense was primarily due to higher legal and professional fees offset by reduction of insurance cost.

Selling and marketing. Selling and marketing expense was $1.5 million for the three-month periods ended September 30, 2026 and September 30, 2025.

Research and development. Research and development expense was $1.1 million for the three months ended September 30, 2026 compared to $1.8 million for the three months ended September 30, 2025, a decrease of $0.7 million, or 38.9%. The decrease was primarily due to a reduction in lobbying cost and reduced headcount.

Other income. Other income of $0.1 million and $0.2 million for the three months ended September 30, 2026 and 2025, respectively, relates primarily to interest income.

Income taxes. The Company's effective tax rates for the three months ended September 30, 2026 and 2025 were 0% and 60.9%, respectively. The effective tax rate for the three months ended September 30, 2026 was primarily attributable to the continued recognition of a full valuation allowance against the Company's net deferred tax assets, which was initially established during the second quarter of 2026.

The Company assesses the realizability of its deferred tax assets at each reporting date based on all available positive and negative evidence in accordance with ASC 740. Based on its assessment during the third quarter of 2026, management concluded that the full valuation allowance remained necessary. Accordingly, the Company maintained the valuation allowance as of September 30, 2026 and recognized no income tax expense for the three months then ended. Management will continue to assess the realizability of its deferred tax assets in future reporting periods, and changes in operating results, expectations of future taxable income, or other relevant evidence could result in adjustments to the valuation allowance.

Nine months ended September 30, 2026 compared to the nine months ended September 30, 2025

Revenues. Revenues were $11.7 million for the nine months ended September 30, 2026 compared to $22.5 million for the nine months ended September 30, 2025, a decrease of $10.8 million, or 48.0%. The decrease in revenue was primarily driven by a lower number of units shipped (51 in the nine months ended September 30, 2026, compared to 56 in the nine months ended September 30, 2025), the decrease in revenue was primarily driven by product mix (the number of SRT-100 units sold versus the number of SRT-100 Vision units sold), which resulted in a lower average selling price per unit, as well as no sales in the current period to a historically large customer. Further, 12 systems shipped during the period were under the Fair Deal Agreement program and rental arrangements compared to 10 in the prior year period, 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 $6.6 million for the nine months ended September 30, 2026 compared to $12.6 million for the nine months ended September 30, 2025, a decrease of $6.0 million, or 47.6%. The decrease in cost of sales was primarily related to a lower number of units sold.

Gross profit. Gross profit was $5.0 million for the nine months ended September 30, 2026 compared to $10.0 million for the nine months ended September 30, 2025, a decrease of $5.0 million, or 50.0%. Our overall gross profit percentage was 42.7% in the nine months ended September 30, 2026 compared to 44.4% 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 $6.1 million for the nine-month periods ended September 30, 2026 and 2025.

Selling and marketing. Selling and marketing expense was $4.3 million for the nine months ended September 30, 2026 compared to $5.1 million for the nine months ended September 30, 2025, a decrease of $0.8 million, or 15.7%. The decrease was primarily driven by a decrease in tradeshow expenses and clinical research costs, partially offset by an increase in commission expense.

Research and development. Research and development expense was $3.8 million for the nine months ended September 30, 2026 compared to $5.9 million for the nine months ended September 30, 2025, a decrease of $2.1 million, or 35.6%. 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 $0.4 million and $0.5 million for the nine months ended September 30, 2026 and 2025, respectively, relates primarily to interest income.

Income taxes. The effective tax rates for the nine months ended September 30, 2026 and 2025 were (46.4%) and 31.4%, respectively. The decrease in the effective tax rate for the nine months ended September 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 September 30, 2026 and December 31, 2025 contained in Part I, Item 1 of this filing.

Assets

Cash, restricted cash, and cash equivalents were $12.9 million at September 30, 2026 compared to $22.1 million at December 31, 2025, a decrease of $9.2 million. The decrease was primarily attributable to net cash used in operating activities, including cash used to purchase inventory and an increase in customer notes receivable resulting from the Company offering customers more flexible payment terms for its products and services. See the section entitled "Inflation" below for details on the impacts of inflation on our business. See the section entitled "Cash flows" below for details on the change in cash, restricted cash, and cash equivalents during the nine months ended September 30, 2026.

Accounts receivable, net was $1.4 million at September 30, 2026 compared to $6.0 million at December 31, 2025, a decrease of $4.6 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 $18.0 million at September 30, 2026 compared to $14.6 million at December 31, 2025, an increase of $3.4 million. The increase was primarily due to the anticipation of increasing future sales and inventory purchases made to qualify for volume discounts from the manufacturer.

Notes receivable were $3.3 million at September 30, 2026 compared to $0.4 million at December 31, 2025, an increase of $2.9 million. The increase was primarily due to additional financing provided by the Company to a customer in connection with the sale of the Company's devices.

Liabilities

There were no borrowings outstanding under the revolving line of credit with City National Bank of Florida at September 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 nine months ended September 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.

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 Nine Months Ended
		September 30,
(in thousands)		2026				2025
Net cash provided by (used in):
Operating activities		$	(9,147	)		$	2,735
Investing activities			(16	)			(38	)
Financing activities			-				(300	)
Total		$	(9,163	)		$	2,397

Cash flows from operating activities

Net cash used in operating activities was $9.1 million for the nine months ended September 30, 2026, consisting of net loss of $12.9 million and an increase in net operating assets of $1.2 million, offset by non-cash activity of $5.0 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 $2.7 million for the nine months ended September 30, 2025, consisting of net loss of $4.6 million and non-cash activity of $(0.9) million, offset by a decrease in net operating assets of $8.2 million, primarily driven by a $10.4 million decrease in accounts receivable, a $2.0 million decrease in prepaid inventory, and a $3.7 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, credit loss expense, and depreciation of property and equipment.

Cash flows from investing activities

Net cash used in investing activities for the nine months ended September 30, 2026 reflected $16 thousand of purchases of property and equipment. Net cash used in investing activities for the nine months ended September 30, 2025 reflected $38 thousand of purchases of property and equipment.

Cash flows from financing activities

No cash was used in financing activities for the nine months ended September 30, 2026 . Net cash used in financing activities for the nine months ended September 30, 2025 reflected $0.3 million of repurchases of common stock.

Inflation

During the third 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.