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

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the fiscal year ended December 31, 2025 included in the final prospectus for our initial public offering ("IPO"), dated as of March 16, 2026 and filed with the Securities and Exchange Commission (the "SEC"), pursuant to Rule 424(b)(4) on March 17, 2026. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Special Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading "Risk Factors" in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

Overview

We are a provider of autonomous drone swarm software and AI solutions, specializing in vendor-agnostic technologies that address critical operational challenges faced by modern military forces. Our primary customer base consists of drone manufacturers who license our software for integration with their hardware platforms. While not our direct customers, the ultimate end-users of our Swarmer-enabled systems are military forces and defense organizations.

With a focus on affordability, rapid development, and proven combat performance, we deliver software platforms and AI systems that enable military organizations to deploy and coordinate large-scale unmanned systems operations without requiring proportional increases in trained operators. Our primary mission areas include autonomous swarm coordination, multi-domain unmanned systems integration, AI-powered collaborative autonomy, and command and control software for distributed robotic operations.

Our combat-tested approach, proven deployment record since 2024, and demonstrated execution of over 100,000 combat missions flown by drones that were equipped with the Swarmer Operating System ("Swarmer OS"), operating at varying degrees of autonomy depending on each end-user's requirements and tactics, have enabled us to deliver operational value to drone manufacturers, defense system integrators, and the military end-users they serve.

For the three and six months ended June 30, 2026 and 2025, our net loss was $7.3 million and $11.8 million and $1.6 million and $2.3 million, respectively. As of June 30, 2026 and December 31, 2025, we had an accumulated deficit of $22.4 million and $10.6 million, respectively. Historically substantially all of our net losses have resulted from costs incurred in connection with our research and development related to engineering of our core software technology products, and more recently, from selling, general and administrative costs associated with our operations due to a rise in stock-based compensation, consulting and professional services as we prepared to operate as a public company, increased travel, office supplies, and rent as we ramped up our operations and opened new corporate offices in the U.S. and EU.

Recent Developments

Sale of Series A-1 Preferred Stock

During January 2026, the Company sold 558,116 shares of Series A-1 convertible preferred stock at a price of $6.2711 per share for gross proceeds of approximately $3.5 million.

Forward Stock Split

On February 18, 2026, our board of directors approved an amendment to our amended and restated certificate of incorporation providing a 1.8813-for-1 forward stock split of our issued and outstanding common stock. The forward stock split became effective on February 18, 2026.

Initial Public Offering

On March 18, 2026, we completed our IPO, in which we issued and sold 3,450,000 shares of our common stock, which includes the full exercise by the underwriters of their option to purchase 450,000 additional shares of our common stock, at a public offering price of $5.00 per share, which resulted in gross proceeds of $17.3 million, before deducting underwriting discounts and commissions and offering expenses. Our common stock began trading on the Nasdaq Capital Market on March 17, 2026.

Equity Line of Credit

On June 10, 2026, we entered into a common stock purchase agreement ("Purchase Agreement") in connection with an equity line of credit ("ELOC") with Lucid Capital Markets, LLC ("Lucid"), providing us with the ability, at our discretion, to sell up to 3,000,000 shares of our common stock over a 24-month period, subject to the terms and limitations of the agreement. We control the timing and amount of any sales and are under no obligation to sell any shares. Shares sold are priced at 98% of the volume-weighted average price of the common stock determined as provided in the Purchase Agreement (a 2% discount). Sales are subject to a 4.99% beneficial ownership limitation and, absent stockholder approval, to an aggregate limit of 2,240,930 shares (the "Exchange Cap"), representing approximately 19.99% of the shares of common stock outstanding at the time of the execution of the Purchase Agreement. No commitment fee was paid and no commitment shares were issued. We agreed to reimburse certain of Lucid's legal fees up to approximately $0.1 million. The resale of the shares issuable pursuant to the Purchase Agreement is registered under the Company's registration statement on Form S-1 (File No. 333-296678).

The facility became available on June 15, 2026 following the effectiveness of the related resale registration statement. During the period from commencement through June 30, 2026, we sold 313,996 shares of common stock under the ELOC for aggregate gross proceeds of approximately $13.5 million.

From its commencement on June 15, 2026 through August 10, 2026, we sold a total of 642,484 shares of common stock under the ELOC facility for aggregate gross proceeds of approximately $26.8 million.

Swarmer Awarded $3.9 Million in Contracts to Outfit SkyKnight Drones With Swarming Software

On May 11, 2026, our wholly owned subsidiary, Swarmer Estonia OÜ ("Estonia"), a private limited company organized under the laws of Estonia, entered into a Master Supplier Agreement (the "MB MSA") with Meta Bureau LLC ("MB") for the use of our proprietary software in MB's quadcopter bombers and other unmanned aerial vehicles pursuant to three licenses. The MB MSA includes initial lump-sum license fees in an aggregate amount of approximately $2.9 million, ongoing support services, and has an initial term of one year, which term shall automatically renew for successive one-year periods subject to termination upon 30 days written notice. The MB MSA also provides for additional software upgrades upon MB's election with additional fees of up to approximately $10.4 million upon any such election in full.

On June 25, 2026, Estonia entered into an Amended and Restated Master Supplier Agreement (the "A&R MB MSA") with MB, pursuant to which the initial lump-sum license fees payable by MB were reduced to approximately $2.5 million and the option for additional software upgrades under the MB MSA were eliminated. The A&R MB MSA retains the initial one-year term, which shall automatically renew for successive one-year periods subject to termination upon 30-days written notice.

On June 25, 2026, in connection with the entry into the A&R MB MSA, Estonia entered into a Master Supplier Agreement ("Progress MSA") with Progress TRW S.R.O. ("Progress") for the use of our proprietary software in MB's quadcopter bombers and other unmanned aerial vehicles. The Progress MSA includes initial lump-sum license fees in an aggregate amount of approximately $1.4 million, for an aggregate of approximately $3.9 million in initial lump-sum license fees payable to us pursuant to the A&R MB MSA and Progress MSA. Additionally, the Progress MSA provides for additional software upgrades upon Progress' election, with additional fees of up to approximately $10.4 million upon any such election in full, which upgrades were previously reflected in the MB MSA prior to its amendment. The Progress MSA has an initial term of one year, which term shall automatically renew for successive one-year periods subject to termination upon 30-days written notice. See Note 9 to our unaudited condensed consolidated financial statements for further discussion.

Factors Affecting Our Performance

Acquiring New Customers

We believe there is substantial opportunity to continue to grow our customer base. We intend to drive new customer acquisitions by continuing to invest significantly in sales and marketing to engage our prospective customers, increase brand awareness and drive adoption of our software platforms and AI systems. We also plan to continue to invest in building brand awareness within the defense communities. As of June 30, 2026 and 2025, we had approximately six and seven customers, respectively. Our ability to attract new customers will depend on a number of factors, including the effectiveness and pricing of our software platforms, AI systems, offerings of our competitors, and the effectiveness of our marketing efforts.

Expanding our product portfolio and team through strategic acquisitions

We believe there is a significant opportunity to acquire best-in-class technologies and world-class teams in related and adjacent defense technology markets. As a hardware-agnostic software company, we have good visibility into the ecosystem and real-world data

that helps us understand which technologies work well and which teams deliver good value to the battlefield. We plan to explore the market and look for opportunities to expand our presence and market position through strategic acquisitions, and we believe that they will contribute to our long-term growth.

Expanding Within Our Existing Customer Base

Our base of customers represents a significant opportunity for further sales expansion. We believe that our business model allows us to efficiently increase revenue from our existing customer base as they ramp up production to meet expanding military demand. We intend to continue to invest in enhancing awareness of our brand and developing more products, features and functionality, which we believe are important factors to achieve widespread adoption of our platform. Our ability to increase sales to existing customers will depend on a number of factors, including our customers' satisfaction with our solution, competition, pricing and overall changes in our customers' spending levels.

Sustaining Innovation and Technology Leadership

Our success is dependent on our ability to sustain innovation and technology leadership in order to maintain our competitive advantage. We believe that we have built software platforms and AI systems that enable military organizations to deploy and coordinate large-scale unmanned systems operations without requiring proportional increases in trained operators. We employ a business-to-business-to-government ("B2B2G") model that enables manufacturers to enhance products with advanced autonomous capabilities without developing proprietary swarm technology, significantly reducing research & development ("R&D") costs and time-to-market. Our efficient B2B2G model enables us to prioritize significant investment in innovation. We intend to continue to invest in building additional products, features and functionality that expand our capabilities and facilitate the extension of our software platforms and AI systems to new use cases. We also intend to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive product and market expansion. Our future success is dependent on our ability to successfully develop, market and sell existing and new products to both new and existing customers.

Expanding Internationally

We believe there is a significant opportunity to expand usage of our software platforms and AI systems. For the three months ended June 30, 2026, substantially all of our revenue was derived from customers in Europe. We have made and plan to continue to make significant investments to expand geographically, particularly in the European Union ("EU") and United States ("U.S."). Although these investments may adversely affect our operating results in the near term, we believe that they will contribute to our long-term growth.

Components of Results of Operations

Revenue

We earn revenue through software license sales. License sales include multiple performance obligations, including the license, video streaming and cloud storage services and updates and technical support. The license is a non-exclusive, non-transferable, non-sublicensable license to use our software. Support and maintenance include access to our support center, software upgrades and updates, and error investigation. We recognize revenues from software licenses at a point in time and generally when the software is activated within the corresponding hardware it was installed. Revenues from maintenance and support, including data storage-related services, are recognized ratably over the contractual term which is generally one year.

Cost of Revenue

Our cost of revenue consists primarily of third-party hosting fees and certain allocated consulting and professional service costs related to engineering and sales support.

Operating Expenses

R&D Expenses

Our R&D expense consists primarily of consulting and outside professional services costs related to engineering and product development, stock-based compensation, and other supporting overhead expenses associated with the development of our software offerings.

Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for general release to customers. In most

instances, the Company's products are released soon after technological feasibility has been established. Costs incurred subsequent to achievement of technological feasibility were not significant, and software development costs were expensed as incurred.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of consulting fees for our management team, facilities related costs, legal fees related to intellectual property and corporate matters, other professional fees for accounting and consulting services, insurance, and other administrative expenses.

We expect that our selling, general and administrative expense will increase for the foreseeable future as we continue to support our expanding headcount and operation to support the growth of our business.

Other Income (Expense)

Change in Fair Value of SAFE Liability

Change in fair value of SAFE liability consists of gains and losses associated with the change in fair value of our SAFE liabilities and primarily attributable to the timing and probability in which we anticipated completing a qualified financing to which the SAFE liabilities would be settled and no longer subject to remeasurement each reporting period.

Change in the Fair Value of ELOC Derivative

Change in fair value of ELOC derivative consists of gains and losses associated with the change in fair value of the ELOC derivative each reporting period.

Other Income

Other income is primarily related to foreign exchange gains and losses associated with our international operations, consulting services provided outside the normal course of business, government grant proceeds and interest earned on our cash and cash equivalents held with financial institutions.

Consolidated Results of Operations

Comparison of the three and six months ended June 30, 2026 and 2025

The following table sets forth key components of the unaudited condensed consolidated statements of operations data during the three and six months ended June 30, 2026 and 2025:

Revenue

Revenue was $0.2 million for each of the three and six months ended June 30, 2026, as compared to $0.1 million and $0.2 million for the three and six months ended June 30, 2025, respectively. Of the $1.5 million invoiced under the SkyKnight master supplier

agreements, $0.2 million was recognized as revenue and $0.1 million was recorded as deferred revenue, with the remainder presented as advances received under combined arrangement, reflecting the reduction of the transaction price for consideration payable to the counterparty group. See Note 9 to our unaudited condensed consolidated financial statements for further discussion.

Cost of Revenue

Cost of revenue remained relatively consistent, primarily due to fixed hosting and engineering support costs associated with maintaining our software infrastructure and the timing and volume of license deliveries.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased from $0.3 million and $0.5 million during the three and six months ended June 30, 2025, respectively, to $5.7 million and $8.7 million during the three and six months ended June 30, 2026, respectively.

The $5.4 million increase for the three months ended June 30, 2026, as compared to the prior year period, was primarily attributable to a $1.8 million increase in salaries, wages and benefits associated with increased headcount, a $1.2 million increase in stock-based compensation, and a $1.0 million rise in consulting and professional services, largely in connection with our public financing initiatives. In addition, our transition to a public company resulted in incremental expenses of $0.2 million for software subscriptions and license fees, $0.2 million for public relations, media, and conferences, $0.1 million for insurance, $0.1 million for board-related costs, $0.1 million for depreciation, and $0.3 million for other general operating expenses. We also increased travel, office supplies, and rent by approximately $0.4 million as we ramped up our operations and opened new corporate offices in the U.S. and EU.

The $8.1 million increase for the six months ended June 30, 2026, as compared to the prior year period, was primarily attributable to a $2.6 million increase in salaries, wages and benefits associated with increased headcount, a $1.4 million increase in stock-based compensation, and a $2.0 million rise in consulting and professional services, largely in connection with our public financing initiatives. In addition, our transition to a public company resulted in incremental expenses of $0.3 million for software subscriptions and license fees, $0.2 million for public relations, media, and conferences, $0.2 million for insurance, $0.1 million for board-related costs, $0.1 million for depreciation, and $0.3 million for other general operating expenses. We also increased travel, office supplies, and rent by approximately $0.9 million as we ramped up our operations and opened new corporate offices in the U.S. and EU.

R&D Expenses

R&D expenses increased from $0.6 million and $1.1 million for the three and six months ended June 30, 2025, respectively, to $1.8 million and $3.3 million for the three and six months ended June 30, 2026, respectively. The $1.2 million increase for the three months ended June 30, 2026, as compared to the prior year period, was driven primarily by a $0.7 million increase in salary, wages and benefits associated with increased headcount, and a $0.5 million increase in R&D hardware, testing and software related to engineering and product development initiatives. The $2.2 million increase for the six months ended June 30, 2026, as compared to the prior year period, was driven primarily by a $1.5 million increase in salary, wages and benefits associated with increased headcount, and a $0.8 million increase in R&D hardware, testing and software costs related to engineering and product development initiatives, partially offset by a $0.1 million decrease in outsourced engineering consulting fees.

Change in Fair Value SAFE Liability

During the three and six months ended June 30, 2025, we recorded a noncash charge of $0.9 million associated with the change in fair value of our SAFE liabilities and primarily attributable to the timing and probability in which we anticipated completing a qualified financing to which the SAFE liabilities would be settled and no longer subject to remeasurement each reporting period.

Change in Fair Value of ELOC Derivative

During the three and six months ended June 30, 2026, we recorded a noncash charge of $0.3 million for the change in fair value of the ELOC derivative.

Other Income

Other income during the three and six months ended June 30, 2026 reflects $0.2 million and $0.3 million, respectively, of foreign exchange gains associated with our European subsidiaries, as the U.S. dollar was comparably weaker to the euro during these reporting periods.

Liquidity and Capital Resources

Source of Liquidity

Since our inception in 2023, we have devoted substantially all of our efforts and financial resources to building our organization, including raising capital, research and development, business planning, and providing selling, general and administrative support for these operations. To date, we have funded our operations primarily through the issuance of SAFEs, the sale of Series A-1 preferred stock, the issuance of common stock in our IPO and the sale of our common stock through our ELOC with Lucid.

From inception through June 30, 2026, we raised aggregate net proceeds of approximately $3.2 million from the issuance and sale of SAFEs. The SAFE instruments were previously accounted for as liabilities and remeasured at fair value each reporting period until their conversion into Series A preferred stock in connection with the Company's preferred stock financing completed during 2025. In multiple closings held from September 2025 through January 2026, we issued and sold an aggregate of 2,491,721 shares of Series A-1 convertible preferred stock for aggregate gross proceeds of approximately $15.6 million. In connection with these financings, we issued warrants to purchase 2,999,950 shares of common stock at an exercise price of $3.3334 per share. The warrants are immediately exercisable and expire on March 22, 2027.

On March 18, 2026, we completed our IPO, in which we issued and sold 3,450,000 shares of common stock, including the full exercise by the underwriters of their option to purchase an additional 450,000 shares of common stock, at a public offering price of $5.00 per share, resulting in gross proceeds of approximately $17.3 million before deducting underwriting discounts, commissions and offering expenses.

On June 10, 2026, we entered into an ELOC with Lucid providing us with the ability, at our discretion, to sell up to 3,000,000 shares of our common stock over a 24-month period, subject to the terms and limitations of the agreement. The facility became available on June 15, 2026 following the effectiveness of the related resale registration statement. During the period from commencement through June 30, 2026, we sold 313,996 shares of common stock under the ELOC for aggregate gross proceeds of approximately $13.5 million.

From its commencement on June 15, 2026 through August 10, 2026, we sold a total of 642,484 shares of common stock under the ELOC facility for aggregate gross proceeds of approximately $26.8 million.

Future Funding Requirements

Our primary uses of cash are to fund our operations, which consist primarily of research and development expenditures related to our product and, to a lesser extent, general and administrative expenditures. We anticipate that we will continue to incur significant and increasing expenses for the foreseeable future as we expand our corporate infrastructure, including the costs associated with being a public company, further our research and development initiatives for our product, and incur costs associated with sales and marketing. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We anticipate that we may require additional funding in connection with our continuing operations.

We believe that our current capital resources, which consist of cash and cash equivalents, will be sufficient to fund operations for at least the next twelve months from the date the financial statements included in this Quarterly Report on Form 10-Q are issued based on our current operating plan. As we continue to pursue our business plan, we may seek to finance our operations through additional equity offerings, debt financings, or other capital sources. However, there can be no assurance that any additional financing or strategic arrangements will be available to us on acceptable terms, if at all.

Cash Flows

The following table sets forth our cash flow activity for the six months ended June 30, 2026 and 2025:

Operating Activities

Net cash used in operating activities was $11.1 million for the six months ended June 30, 2026, and reflected our net loss of $11.8 million; partially offset by the change in advances received under the combined arrangement described in Note 9 and changes in net working capital.

During the six months ended June 30, 2025, cash used in operating activities was $1.4 million, and reflected our net loss of $2.3 million, which included the $0.9 million non-cash change in fair value of the SAFE liability.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2026, was approximately $0.4 million and related to the $0.3 million purchase of property and equipment and the $0.1 million purchase of intangibles.

Financing Activities

During the six months ended June 30, 2026, cash provided by financing activities was $27.4 million and primarily related to proceeds from the IPO, proceeds from the issuance of common stock under our ELOC with Lucid, and the sale of Series A-1 convertible preferred stock.

Contractual Obligations

Following the consummation of the IPO, our contractual obligations consist primarily of operating lease commitments, a D&O premium financing arrangement and our commitment to procure, deploy, and integrate our proprietary software onto unmanned aerial vehicles for use by designated military units of the Armed Forces of Ukraine. See Note 8, "Accrued Expenses and Other Current Liabilities", Note 9, "Advances Received Under Combined Arrangement", and Note 10, "Commitments and Contingencies", to our unaudited condensed consolidated financial statements for further details.

Critical Accounting Policies and Significant Judgments and Estimates

Management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported expenses during the reporting periods. These estimates are based on historical experience and other factors that management believes are reasonable under the circumstances. Actual results may differ from these estimates, and such differences may be material.

There have been no material changes to the methodologies applied by management in determining critical accounting estimates during the three and six months ended June 30, 2026 and 2025, as compared to those described in our audited financial statements included in our Registration Statement. For additional information regarding our critical accounting policies and estimates, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our final prospectus for our IPO, dated as of March 16, 2026 and filed with the SEC, pursuant to Rule 424(b)(4) on March 17, 2026.

Recent Accounting Pronouncements

See Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.

Emerging Growth Company and Smaller Reporting Company Status

We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act ("JOBS Act"), and we may remain an emerging growth company for up to five years following the completion of our IPO. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period, and therefore, we are not subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies; however, we may adopt certain new or revised accounting standards early. We will remain an "emerging growth company" until the earliest to occur of: (i) the last day of the fiscal year in which we have $1.235 billion or more in annual revenue; (ii) the date on which we first qualify as a large accelerated filer under the rules of the SEC; (iii) the date on which we have, in any prior three-year period issued more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year following the fifth anniversary of the consummation of our IPO.

We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

Off Balance Sheet Arrangements

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.