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 is a discussion and analysis of our financial condition and results of operations as of, and for, the periods presented. You should read the following discussion and analysis of the Company's financial condition and results of operations together with the sections entitled "Risk Factors," and "Special Note Regarding Forward-Looking Statements," our audited consolidated financial statements, and related notes included in our IPO Registration. This discussion and analysis contains forward-looking statements, including statements regarding our expectations for the future of our business and our liquidity and capital resources as well as other non-historical statements. These statements are based upon our current plans, expectations, and beliefs, and are subject to numerous risks and uncertainties, including but not limited to the risks and uncertainties described in "Risk Factors" and "Special Note Regarding Forward-Looking Statements." Our actual results may differ materially from those contained in or implied by these forward-looking statements.

Overview

We are a pioneer in fully adaptive and cognitive mission-level autonomous robotics and artificial intelligence. Our proprietary Level 4B autonomy platform allows aerial and ground robotic systems to navigate safely and efficiently in complex, GPS-denied environments. We generate revenue through hardware-enabled software sales, licensing of ExynAI software, service contracts, and support agreements. Our customers include mining companies, construction firms, infrastructure operators, defense agencies, and OEMs integrating ExynAI into their platforms. We believe adoption of autonomous robotics in these verticals is accelerating, driven by demand for safety, efficiency, and digitization.

Recent Developments

Reverse Stock Split

On May 15, 2026, we effected a 1-for-25 reverse stock split of our issued and outstanding shares of common stock and preferred stock. The reverse stock split became effective on May 15, 2026.

Initial Public Offering

On May 18, 2026, we completed our IPO of 2,500,000 units, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock, at a public offering price of $7.75 per unit, which resulted in gross proceeds of approximately $19.4 million, before deducting underwriting discounts and commissions and offering expenses. Our common stock and warrants began trading on the Nasdaq Capital Market on May 15, 2026.

Key Factors Affecting Our Performance

Our results of operations are affected by the following factors:

Key Components of Our Results of Operations

Revenue

Revenue consists primarily of product sales, software licensing revenue, fees for consulting services, warranty sales, and after sale service and support. For the three months ended June 30, 2026, approximately 71% of our revenue was derived from Nexys product sales, of which approximately 63% of our revenue came from direct sales and approximately 37% of our revenue came from channel partners. For the six months ended June 30, 2026, approximately 77% of our revenue was derived from Nexys product sales, of which approximately 66% of our revenue came from direct sales and approximately 34% of our revenue came from channel partners.

Cost of Revenue

Cost of revenue includes materials, labor (including salary, benefits and taxes), and customer support.

Operating Expenses

Research and Development

R&D expenses consist primarily of personnel expenses, including salaries, benefits, costs of consulting, equipment and materials, manufacturing, supply chain, direct allocable overhead costs, including staff development cost, and travel and technology costs. We expect our R&D expenses to increase as we continue to invest in our infrastructure and technology and seek to develop new products and services. We also expect our R&D to fluctuate based on a number of factors including, among others, increased labor costs, availability and ability to obtain suitable drones and robots, availability and cost of supply chain components, such as sensors, inertial measurement units, motor controllers, and foreign currency exchange rates and tariffs.

Selling, General and Administrative

Selling, general and administrative expenses primarily consist of salaries, benefits and payroll taxes, commissions, advertising, trade shows, travel, consulting fees, costs associated with executive leadership, corporate governance, accounting and finance operations, and support functions, including human resources and information technology. We expect selling, general and administrative expenses to continue to increase as we expand our sales and marketing capabilities to acquire new customers and incur additional costs

associated with operating as a public company, including costs related to certain consulting and incentive agreements that became effective.

Other Income (Expense)

Interest Expense, Net

Interest expense, net consists primarily of the interest expense from borrowings relating to revolving lines of credit with external banks and third-party notes, net of interest income earned on invested cash balances.

Other Income (Expense), Net

Other income (expense), net consists primarily of gain/loss on foreign exchange, deferred financing cost amortization, loss on disposable assets, and other nonoperating income.

Income Tax (Expense) Benefit

Income tax (expense) benefit primarily consists of income taxes in certain foreign jurisdictions in which we conduct business.

Results of Operations for the Three Months Ended June 30, 2026

Our operating results for the three months ended June 30, 2026 were characterized by lower revenue, relatively consistent gross margins, and higher operating expenses compared to the prior-year period. The decrease in revenue was primarily attributable to the timing of customer project activity and product deliveries, while lower costs incurred in delivering our products and services partially offset the impact of lower revenues on gross profit. The increase in operating expenses reflects continued investment in personnel, infrastructure, and activities supporting the growth and commercialization of our autonomous mapping and robotics solutions.

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Revenues, Net

For the three months ended June 30, 2026, revenues decreased by approximately $0.4 million to $0.9 million from $1.3 million for the three months ended June 30, 2025. The decrease was primarily attributable to the timing of customer project activity and product deliveries during the period. Gross profit decreased from $0.6 million to $0.4 million primarily due to lower revenues, partially offset by lower costs incurred to deliver products and services.

Cost of Revenues

For the three months ended June 30, 2026, cost of revenues decreased by approximately $0.3 million to $0.5 million from $0.8 million for the three months ended June 30, 2025. The decrease was primarily attributable to lower direct labor, materials, and other costs associated with product and service delivery.

Operating Expenses

Selling, General and Administrative Expenses

For the three months ended June 30, 2026, selling, general and administrative expenses increased by approximately $1.7 million to $3.0 million from $1.3 million for the three months ended June 30, 2025. The increase was primarily attributable to higher personnel-related costs, professional fees, and other expenses associated with preparing to be and operating as a public company.

Research and Development Expenses

For the three months ended June 30, 2026, research and development expenses increased by approximately $0.2 million to $1.4 million from $1.2 million for the three months ended June 30, 2025. The increase was primarily attributable to higher product development and engineering expenditures.

Stock-based Compensation

For the three months ended June 30, 2026, stock-based compensation expense remained relatively consistent at $0.2 million compared to the three months ended June 30, 2025, decreasing by approximately $4 thousand. The slight decrease was primarily attributable to changes in the timing and mix of equity awards subject to amortization during the respective periods.

Interest Expense and Interest Income

For the three months ended June 30, 2026, as compared to the three months ended June 30, 2025, interest expense increased by approximately $0.4 million from $0.1 million to $0.5 million. Interest income increased by approximately $28 thousand from $8 thousand for the three months ended June 30, 2025 to $36 thousand for the three months ended June 30, 2026.

Debt Modification Expense

Debt modification expense increased by approximately $0.7 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, primarily attributable to the modification and extinguishment of the senior secured convertible promissory notes issued to Evergreen, including the write-off of the related debt discount.

Debt Settlement Expense

Debt settlement expense increased by approximately $1.9 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, attributable to the settlement with Evergreen pursuant to the Evergreen Side Letter.

Other Expense

For the three months ended June 30, 2026, other expense was approximately $0.3 million compared to approximately $8 thousand for the three months ended June 30, 2025. The change was primarily attributable to expenses related to the issuance of equity kicker shares and other non-operating expenses incurred during the period.

Results of Operations for the Six Months Ended June 30, 2026

Our operating results for the six months ended June 30, 2026 were characterized by lower revenue, relatively consistent gross profit, and higher operating expenses compared to the prior-year period. The decrease in revenue was primarily attributable to the timing of customer project activity and product deliveries, while gross profit remained relatively consistent as lower revenues were partially offset by lower costs incurred in delivering our products and services. The increase in operating expenses reflects continued investment in personnel, infrastructure, and activities supporting the growth and commercialization of our autonomous mapping and robotics solutions.

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Revenues, Net

For the six months ended June 30, 2026, revenues decreased by approximately $0.4 million to $2.1 million from $2.5 million for the six months ended June 30, 2025. The decrease was primarily attributable to the timing of customer project activity and product deliveries during the period. Gross profit decreased from $1.0 million to $0.9 million primarily due to lower revenues, partially offset by lower costs incurred to deliver products and services.

Cost of Revenues

For the six months ended June 30, 2026, cost of revenues decreased by approximately $0.4 million to $1.2 million from $1.6 million for the six months ended June 30, 2025. The decrease was primarily attributable to lower direct labor, materials, and other costs associated with product and service delivery.

Operating Expenses

Selling, General and Administrative Expenses

For the six months ended June 30, 2026, selling, general and administrative expenses increased by approximately $2.3 million to $5.0 million from $2.7 million for the six months ended June 30, 2025. The increase was primarily attributable to higher personnel-related costs, professional fees, and other expenses associated with preparing to be and operating as a public company.

Research and Development Expenses

For the six months ended June 30, 2026, research and development expenses remained relatively consistent at $2.6 million compared to $2.5 million for the six months ended June 30, 2025, increasing by approximately $53 thousand. The slight increase was primarily attributable to product development and engineering expenditures.

Stock-based Compensation

For the six months ended June 30, 2026, stock-based compensation expense remained relatively consistent at $0.4 million compared to the six months ended June 30, 2025, decreasing by approximately $6 thousand. The slight decrease was primarily attributable to changes in the timing and mix of equity awards subject to amortization during the respective periods.

Interest Expense and Interest Income

For the six months ended June 30, 2026, as compared to the six months ended June 30, 2025, interest expense increased by approximately $0.6 million from $0.2 million to $0.8 million. Interest income increased by approximately $25 thousand from $15 thousand for the six months ended June 30, 2025 to $40 thousand for the six months ended June 30, 2026.

Debt Modification Expense

Debt modification expense increased by approximately $0.7 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, primarily attributable to the modification and extinguishment of the senior secured convertible promissory notes issued to Evergreen, including the write-off of the related debt discount.

Debt Settlement Expense

Debt settlement expense increased by approximately $1.9 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, attributable to the settlement with Evergreen pursuant to the Evergreen Side Letter.

Other Expense

For the six months ended June 30, 2026, other expense was approximately $0.3 million compared to approximately $31 thousand for the six months ended June 30, 2025. The change was primarily attributable to expenses related to the issuance of equity kicker shares and other non-operating expenses incurred during the period.

Liquidity and Capital Resources

Since inception, we have incurred recurring net losses and negative cash flows from operating activities. As of June 30, 2026, we had cash and cash equivalents of approximately $7.8 million. On May 18, 2026, we completed our IPO of 2,500,000 units, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock, at a public offering price of $7.75 per unit, which resulted in net proceeds of approximately $15.3 million. While the completion of our IPO strengthened our liquidity position, we expect to continue to incur operating losses and negative cash flows as we execute our business plan. Based on our current operating plan, management has concluded that substantial doubt exists regarding our ability to continue as a going concern.

Our primary uses of cash are to fund our operations, which consist primarily of research and development expenditures related to our products 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 products, 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.

Over the next twelve months, we expect to finance our operations primarily through cash generated from commercial operations and, as needed, through short-term debt arrangements, private placements of our equity securities, and proceeds from public offerings, if completed. Beyond the next twelve months, we expect our long-term liquidity and capital resource needs to be driven primarily by our plans to scale production, expand our sales and marketing capabilities, and continue to invest in research and development. We

anticipate funding these long-term needs through a combination of cash generated from operations, additional equity or debt financings, and other capital-raising alternatives, although we cannot assure you that such funding will be available on acceptable terms, or at all.

Following the closing of our IPO, our liquidity position improved significantly as a result of the net proceeds received from the offering. While these proceeds are expected to support our near-term operating and capital needs, we may require additional financing in the future to support the continued growth of our business. We expect to fund our operations through a combination of existing cash balances, cash generated from operations, and, if necessary, additional debt or equity financings. If additional capital is required and is not available on acceptable terms, we may need to prioritize investments in the product lines and business activities that generate the greatest revenue and offer the most significant long-term growth opportunities.

Cash Flows

The following table summarizes our cash flows for the periods presented:

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Net Cash Used in Operating Activities

Net cash used in operating activities for the six months ended June 30, 2026 totaled approximately $7.1 million compared to approximately $3.7 million for the six months ended June 30, 2025, an increase of approximately $3.4 million. The increase was primarily driven by a higher net loss during the period, partially offset by noncash items, including debt modification expense, stock payments made for settlement of debt, stock-based compensation, depreciation and amortization, amortization of debt issuance costs, changes in the fair value of SAFE liabilities, and changes in working capital.

Net Cash Used in Investing Activities

Net cash used in investing activities for the six months ended June 30, 2026 totaled approximately $29 thousand compared to approximately $14 thousand for the six months ended June 30, 2025. The cash used in investing activities primarily related to purchases of property and equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2026 totaled approximately $14.1 million compared to approximately $3.0 million for the six months ended June 30, 2025. Financing activities during the period were primarily driven by $15.3 million of net proceeds from the Company's IPO which included an issuance of common stock, and $1.0 million of borrowings under notes payable, partially offset by approximately $2.2 million of repayments of notes payable.

Contractual Commitments

We enter into contractual obligations in the normal course of business. For additional discussion, see Note 13, "Leases" and Note 14, "Commitments and Contingencies," to our condensed consolidated financial statements included elsewhere in this Form 10-Q.

Trends and Uncertainties

We operate in rapidly evolving markets. Key trends include the expanding adoption of autonomous data collection in mining and other geospatial applications; growing demand for autonomous systems in defense and contested environments; ongoing supply chain constraints affecting availability of LiDAR, sensors, and semiconductor components; increasing regulatory clarity from the FAA and international bodies on BVLOS operations; and competitive dynamics from both established defense contractors and emerging robotics companies. Collectively, these trends create both opportunities and risks. They may require increased investment in research and development, regulatory and security compliance, inventory and supplier diversification, and customer success resources. There can be no assurance that our strategies will successfully mitigate these uncertainties, that regulatory developments will proceed as anticipated,

or that customer adoption will occur at the pace or scale we expect. See also "Risk Factors - Risks Related to Our Business Operations - If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customer needs or requirements, our solutions may become less competitive" for risks related to technological disruption.

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to reported revenue generated and reported expenses incurred during the reporting periods. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our audited financial statements included in the IPO Registration Statement in connection with our IPO, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. Credit is granted in the normal course of business without collateral. Accounts receivable are stated net of credit losses, which represent estimated losses resulting from the inability of customers to make the required payments. Accounts that are outstanding longer than the contractual terms are considered past due. When determining the allowance for credit losses, the Company takes several factors into consideration, including macroeconomic factors, industry trends, the creditworthiness of counterparties, historical experience, the financial conditions of the customers, and the amount and age of past due accounts. The Company writes off accounts receivable when they become uncollectible. The allowance for credit losses was $248,326 and $203,960 as of June 30, 2026 and December 31, 2025, respectively. There was one customer in each period who represented in the aggregate 10% and 12% of total accounts receivable as of June 30, 2026 and December 31, 2025, respectively.

Revenue Recognition

We recognize revenue in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with Customers," issued by the FASB. This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including (i) identifying the promised goods, (ii) evaluating performance obligations, (iii) measuring the transaction price, (iv) allocating the transaction price to the performance obligations if there are multiple components, and (v) recognizing revenue as each obligation is satisfied. Our primary revenue streams include sales of aerial robotic systems and related software solutions, service revenue and subscription revenue generated through the Company's installment program.

Our contracts with customers may include multiple services. For example, some of our contracts include both hardware and software licenses and required integration. Determining whether the hardware sales, software licenses and the integration are distinct from each other, and therefore performance obligations to be accounted for separately, or not distinct from each other, and therefore part of a single performance obligation, may require significant judgment. We have concluded that the software licenses and integration services provided in subscription offerings are not distinct from each other and thus, should be considered a single performance obligation and the total revenue from the contract is recognized ratably over the subscription period of the software licenses. In reaching this conclusion, we considered that since the integration service requires integration of the software to function with the customer's other processes, the integration and software license are not separately identifiable and should be combined into a single performance obligation.

Off-Balance Sheet Arrangements

As of June 30, 2026 and December 31, 2025, we have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

Recent Accounting Pronouncements Not Yet Adopted

In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (ASU 2024-03). The new guidance requires disaggregated information about certain income statement expense line items on an annual and interim basis. This guidance will be effective for annual periods beginning the year ended December 31, 2027 and for interim periods thereafter. The new standard permits early adoption and can be applied prospectively or retrospectively. The Company is evaluating the impact of this ASU on its consolidated financial statements disclosures.