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

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

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes to those financial statements appearing elsewhere in this Report.

Certain statements in this Report constitute forward-looking statements. These forward-looking statements include statements which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words "may," "will," "should," "anticipate," "estimate," "plan," "potential," "project," "continuing," "ongoing," "expects," "management believes," "we believe," "we intend," or the negative of these words or other variations on these words or comparable terminology. Considering these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

The "Company," "we," "us," or "our," are references to the business of Laser Photonics Corporation, a Delaware corporation.

Overview

We are a vertically integrated manufacturing Company for photonics based industrial products and solutions, primarily disruptive laser cleaning technologies, and applications for the pharmaceutical industry. Our vertically integrated operations allow us to reduce development and advanced laser equipment manufacturing time, offer better prices, control quality, and protect our proprietary knowhow and technology compared to other laser cleaning companies and companies with competing technologies.

In 2025, we expanded our product portfolio through the acquisition of Beamer Laser Marking Systems, formerly the laser capital equipment division of ARCH Cutting Tools. Beamer's IR fiber and CO₂ laser marking systems significantly expand our product offering into high-value industrial marking applications such as serialization, UID marking, medical devices, aerospace traceability, automotive components, and firearms compliance. The Beamer acquisition also provides an established customer base and IP portfolio. The Company has integrated the Beamer assets into its operations and is actively fulfilling orders for both existing and new customers. The revenue contribution from Beamer is expected to increase meaningfully beginning in the third quarter of 2026 and beyond as the Company scales production and expands its customer pipeline in the industrial marking and traceability markets.

Our principal executive offices are located at 250 Technology Park, Lake Mary FL, 32746, and our telephone number is (407) 804 1000. Our website address is www.laserphotonics.com. The Company's annual reports, quarterly reports, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), and other information related to the Company, are available, free of charge, on that website as soon as we electronically file those documents with, or otherwise furnish them to, the SEC. The Company's website and the information contained therein, or connected thereto, are not and are not intended to be incorporated into this Quarterly Report on Form 10-Q.

We intend to continue to stay ahead of the technology curve by researching and developing cutting edge products and technologies for both large and small businesses. We view the small companies as an attractive market opportunity since they were previously unable to take advantage of laser processing equipment due to high prices, significant operating costs, and the technical complexities of laser equipment. As a result, we are developing an array of laser cleaning equipment that we have named the CleanTech™ product line, which we believe represents a new generation of high-power laser cleaning systems applicable to numerous material processing operations.

Factors and Trends That Affect Our Operations and Financial Results

In reading our financial statements, you should be aware of the following factors and trends that our management believes are important in understanding our financial performance.

Beamer integration and expected synergies. With the Beamer acquisition, the Company expects near-term integration costs related to engineering alignment, supply chain consolidation, and facility relocation. Management anticipates long-term synergies through shared manufacturing resources, cross-selling opportunities, and expanded participation in regulated industries requiring permanent laser marking solutions.

Supply Chain. We are experiencing increased lead times for certain parts and components purchased from third party suppliers; particularly electronic components. We, our customers and our suppliers, continue to face constraints related to supply chain and logistics, including availability of capacity, materials, air cargo space, sea containers and higher freight rates and import duties. Supply chain and logistics constraints are expected to continue for the foreseeable future and could impact on our ability to supply products and our customers' demand for our product or readiness to accept deliveries. Notwithstanding these effects, we believe we can meet the near-term demand for our products, but the situation is fluid and subject to change.

Nasdaq Listing Compliance. On May 21, 2026, the Company received a notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC indicating non-compliance with Nasdaq Listing Rule 5250(c)(1) due to the delayed filing of this Quarterly Report. The notice has no immediate effect on the listing or trading of the Company's common stock. As of the filing date of this Quarterly Report, the Company believes it has regained compliance with the Listing Rule.

Net sales. Our net sales have historically fluctuated from quarter to quarter. The increase or decrease in sales from a prior quarter can be affected by the timing of orders received from customers, the shipment, installation, and acceptance of products at our customers' facilities. Net sales can be affected by the time taken to qualify our products for use in new applications in the end markets that we serve. Our sales cycle varies substantially, ranging from a period of a few weeks to as long as one year or more, but is typically several months. The adoption of our products by a new customer or qualification in a new application can lead to an increase in net sales for a period which may then slow until we penetrate new markets or obtain new customers.

Our business depends substantially upon capital expenditures by end users, particularly by manufacturers using our products for materials processing, which includes general manufacturing, automotive including electric vehicles (EV), other transportation, aerospace, heavy industry, consumer, semiconductor, pharmaceutical, and electronics. Although applications within materials processing are broad, the capital equipment market in general is cyclical and historically has experienced sudden and severe downturns. For the foreseeable future, our operations will continue to depend upon capital expenditures by end users of materials processing equipment and will be subject to the broader fluctuations of capital equipment spending.

Gross margin. Our total gross margin in any period can be significantly affected by several factors, including net sales, production volumes, competitive factors, product mix, and by other factors such as changes in foreign exchange rates relative to the U.S. Dollar. Many of these factors are not under our control. The following are examples of factors affecting gross margin:

● As our products mature, we can experience additional competition which tends to decrease average selling prices and affects gross margin.

● Our gross margin can be significantly affected by product mix. Within each of our product categories, the gross margin is generally higher for devices with greater average power. These higher power products often have better performance, more difficult specifications to attain and fewer competing products in the marketplace.

General and administrative expenses. General and administrative expenses consist primarily of salaries and personnel-related costs, professional fees, insurance, SEC filing and compliance costs, public company expenses, and corporate overhead.

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of personnel-related costs, advertising and promotional activities, customer acquisition efforts, travel, and commercial support functions.

Research and development expenses. We plan to continue to invest in research and development to improve our existing laser blasting technology and equipment and develop new products, systems, and applications. We believe that these investments will sustain our position as a leader in the laser industry and will support the development of new products that can address new markets and growth opportunities. The amount of research and development expenses we incur may vary from period to period.

Results of Operations

Correction of previously reported amounts. As described in Note 2 to the condensed consolidated financial statements, the Company has corrected its accounting for the consideration transferred in connection with its March 2026 warrant inducement transaction, which was previously reported as a deemed dividend of $1,512,480 in the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2026. That amount is now presented as a cost of the related equity offering charged against additional paid-in capital. The correction has no effect on net loss, basic or diluted net loss per share, total assets, total liabilities, total stockholders' deficit or cash flows for any period presented.

Revenue. Net sales for the three months ended June 30, 2026, were $1,806,305, compared to $2,598,975 for the three months ended June 30, 2025, representing a decrease of $792,670, or 30.5%. Net sales for the six months ended June 30, 2026, were $2,721,858, compared to $4,889,257 for the six months ended June 30, 2025, a decrease of $2,167,399, or 44.3%. The decrease was primarily attributable to (i) lower equipment deliveries during the current periods, (ii) the timing of customer purchasing decisions, project execution schedules, and revenue recognition milestones, and (iii) the absence of affiliate revenue in the current periods compared to $391,818 recognized in the six months ended June 30, 2025. Second-quarter net sales increased $890,752, or 97.3%, over the first quarter of 2026, reflecting improved equipment delivery volume as the quarter progressed. Revenue may fluctuate from period to period based on customer purchasing cycles, project timing, equipment delivery schedules, and product mix.

Cost of Sales / Gross Profit (Loss). Cost of sales for the three months ended June 30, 2026, was $1,653,832, compared to $1,496,304 for the three months ended June 30, 2025, an increase of $157,528, or 10.5%. Gross profit was $152,473 for the three months ended June 30, 2026, reflecting a gross margin of 8.4%, compared to gross profit of $1,102,671 and a gross margin of 42.4% for the three months ended June 30, 2025. For the six months ended June 30, 2026, cost of sales was $2,957,836, compared to $2,886,096 for the six months ended June 30, 2025, an increase of $71,740, or 2.5%, and the Company recorded a gross loss of $235,978, reflecting a negative gross margin of 8.7%, compared to gross profit of $2,003,161 and a gross margin of 41.0% for the six months ended June 30, 2025. The deterioration in gross margin was primarily attributable to lower revenue volume and the resulting inability to absorb fixed manufacturing overhead and production costs, reduced production throughput, and changes in product mix, together with integration and facility-transition costs associated with the Beamer product line. The improvement from the negative gross margin of 42.4% recorded in the first quarter of 2026 to a positive gross margin of 8.4% in the second quarter reflects higher revenue volume and improved absorption of fixed manufacturing costs. Gross margins may fluctuate from period to period depending on sales volume, manufacturing utilization, customer mix, and timing of product deliveries.

Sales and Marketing. Sales and marketing expenses for the three months ended June 30, 2026, were $817,609, compared to $338,025 for the three months ended June 30, 2025, an increase of $479,584, or 141.9%. For the six months ended June 30, 2026, sales and marketing expenses were $1,439,063, compared to $1,012,606 for the six months ended June 30, 2025, an increase of $426,457, or 42.1%. Sales and marketing expenses consist primarily of personnel-related costs, advertising, promotional activities, customer acquisition efforts, travel, and commercial support functions. The increase reflects expanded commercial headcount and promotional activity supporting the Beamer product line and the industrial marking and traceability markets, together with allocated personnel and facility costs.

General and Administrative. General and administrative expenses for the three months ended June 30, 2026, were $1,504,154, compared to $1,542,841 for the three months ended June 30, 2025, a decrease of $38,687, or 2.5%. For the six months ended June 30, 2026, general and administrative expenses were $3,142,987, compared to $3,177,805 for the six months ended June 30, 2025, a decrease of $34,818, or 1.1%. General and administrative expenses consist primarily of salaries and personnel-related costs, professional fees, insurance, SEC filing and compliance costs, public company expenses, and corporate overhead. General and administrative expenses remained substantially consistent with the prior-year periods, as increased professional fees incurred in connection with the Company's capital-raising activities and delayed periodic filings were offset by reductions in other general and administrative costs.

Research and Development Costs. Research and development expense for the three months ended June 30, 2026, was $219,006, compared to $184,494 for the three months ended June 30, 2025, an increase of $34,512, or 18.7%. For the six months ended June 30, 2026, research and development expense was $346,087, compared to $347,963 for the six months ended June 30, 2025, substantially consistent with the prior-year period. Research and development activities remain focused on enhancing existing laser cleaning technologies and equipment and developing new products, systems, and applications, including integration of the Beamer laser marking platform. The Company expects research and development expenditures to fluctuate based on project timing, product development priorities, and resource allocation.

Operating Loss. Operating loss for the three months ended June 30, 2026, was $2,388,296, compared to $962,688 for the three months ended June 30, 2025, an increase of $1,425,608, or 148.1%. Operating loss for the six months ended June 30, 2026, was $5,164,115, compared to $2,535,213 for the six months ended June 30, 2025, an increase of $2,628,902, or 103.7%. The increase in operating loss was primarily attributable to lower revenue and the resulting compression in gross margin, combined with increased sales and marketing spending, partially offset by substantially consistent general and administrative expenses.

Interest Expenses, Net. Interest expense, net, for the three months ended June 30, 2026 was $434,789, compared with $811,214 for the three months ended June 30, 2025, a decrease of $376,425, or 46.4%. For the six months ended June 30, 2026, interest expense, net, was $819,640, compared with $919,412 for the six months ended June 30, 2025, a decrease of $99,772, or 10.9%. The decrease reflects the repayment during 2026 of the Company's higher-cost note obligations, including the NPA Notes, the District 2 Note, the 2025 Term Loans, and related-party borrowings, partially offset by interest and amortization of debt discount on borrowings under the 2026 Term Loan.

Change in Fair Value of Derivative Liability The change in fair value of the derivative liability resulted in a loss of $98,193 for the three months ended June 30, 2026, and a gain of $116,193 for the six months ended June 30, 2026, compared to $nil in each of the corresponding prior-year periods. The amounts reflect changes in the estimated fair value of the Company's derivative liability associated with the Hudson financing arrangement, driven by changes in the underlying valuation inputs during the periods. The carrying value of the derivative liability was $222,709 at June 30, 2026, compared to $124,516 at March 31, 2026, and $338,902 at December 31, 2025.

Total Other Expense. Total other expense for the three months ended June 30, 2026, was $890,142, compared to $811,214 for the three months ended June 30, 2025, an increase of $78,928, or 9.7%. For the six months ended June 30, 2026, total other expense was $1,060,607, compared to $919,412 for the six months ended June 30, 2025, an increase of $141,195, or 15.4%. Other expense in the current periods consisted of net interest expense on the Company's outstanding debt obligations and a $357,160 charge recognized in connection with the registration payment arrangement entered into as part of the April 2026 warrant inducement, partially offset (for the six-month period) by the gain recognized from the change in fair value of the Company's remaining derivative liability associated with the Hudson financing arrangement.

Net Loss. Net loss for the three months ended June 30, 2026, was $3,278,437, or $(0.08) per basic and diluted share, compared to net loss of $1,773,902, or $(0.12) per basic and diluted share, for the three months ended June 30, 2025, representing an increase of $1,504,535, or 84.8%. Net loss for the six months ended June 30, 2026, was $6,224,721, or $(0.19) per basic and diluted share, compared to net loss of $3,454,625, or $(0.24) per basic and diluted share, for the six months ended June 30, 2025, representing an increase of $2,770,096, or 80.2%. The increase in net loss was primarily attributable to lower revenues, negative gross margin performance, and the $357,160 registration payment arrangement charge, partially offset by lower net interest expense.

Liquidity and Capital Resources

The following is a summary of the Company's cash flows provided by (and used in) operating, investing, and financing activities for the six-month periods ended on June 30, 2026, and June 30, 2025.

		Six Months Ended June 30
		2026				2025
Net cash used in operating activities		$	(4,735,656	)		$	(2,192,704	)
Net cash used in investing activities			(97,974	)			(22,560	)
Net cash provided by financing activities			6,339,922				1,759,915
Net cash increase (decrease) for period			1,506,292				(455,349	)
Cash at the beginning of period			650,339				533,871
Cash at end of period		$	2,156,631			$	78,522

As of June 30, 2026, the Company had cash of $2,156,631, total current assets of $4,600,859, and total current liabilities of $7,708,679. The Company's working capital deficit was $3,107,820, compared with a working capital deficit of $7,344,637 as of December 31, 2025. The improvement in working capital was primarily attributable to the Company's February 2026 public offering, proceeds received from warrant exercises and the March and April 2026 warrant inducement transactions, and the repayment of outstanding debt obligations during the period.

Operating Activities

Net cash used in operating activities was $4,735,656 for the six months ended June 30, 2026, compared with $2,192,704 for the six months ended June 30, 2025. Operating cash outflows during the current period were primarily driven by the Company's net loss of $6,224,721, partially offset by non-cash items including depreciation and amortization, stock-based compensation expense, amortization of debt discount and deferred financing costs, financing costs recognized as additional note principal on default, and the change in fair value of derivative liabilities. Working capital changes included movements in accounts receivable, inventories, contract liabilities, deferred revenue, and accounts payable.

Investing Activities

Net cash used in investing activities was $97,974 for the six months ended June 30, 2026, compared with $22,560 for the six months ended June 30, 2025. Investing activity during the current period consisted of purchases of property and equipment.

Financing Activities

Net cash provided by financing activities was $6,339,922 for the six months ended June 30, 2026, compared with $1,759,915 for the six months ended June 30, 2025. Financing activity during the current period was primarily attributable to net proceeds from the Company's February 2026 public offering, proceeds received from warrant exercises and the March and April 2026 warrant inducement transactions, and borrowings under financing arrangements. These inflows were partially offset by offering and transaction costs, repayments of outstanding debt obligations, and repayments of related-party borrowings. Financing transactions completed during the period strengthened liquidity and contributed to the improvement in working capital. The Company continues to require additional liquidity to support operations, strategic initiatives, and working capital requirements. Management expects to continue evaluating debt and equity financing alternatives to support future operations and growth objectives. While management believes additional actions are available to improve liquidity, there can be no assurance that financing will be available on acceptable terms, or at all

Off-Balance Sheet Arrangements

As of June 30, 2026, the Company did not maintain any material off-balance sheet arrangements, including obligations under guarantee contracts, retained or contingent interests in transferred assets, obligations under certain derivative instruments, or obligations arising from variable interest entities.