Item 2. Management’s Discussion and Analysis
Item 2. 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 registration statement on Form S-1 filed previously with the SEC. 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.
Key Factors Affecting Our Performance
Our results of operations are affected by the following factors:
● Adoption of Autonomous Robotics and 3D mapping solutions in Industrial and Defense Markets . Our financial performance is tied to the rate of adoption of autonomous robotic and 3D mapping solutions within our target markets. Market acceptance is contingent upon our ability to educate customers on these benefits as well as broader market pressures driving technology adoption. Delays in broader technology adoption or a slower-than-anticipated shift towards automation and digitization in these key industrial and government sectors could adversely affect our revenue growth and financial results.
● Timing of OEM Integrations and Long-Term Licensing Contracts . A significant portion of our long-term strategy involves entering into extended licensing agreements and partnerships with OEMs to embed our technology into their platforms. Our revenue and results of operations are therefore highly dependent on the timing and successful execution of these complex agreements. The sales cycle for such integrations is often long and unpredictable, involving extensive evaluation, negotiation, and joint development phases. Any delays in finalizing these contracts or in the subsequent deployment and scaling of integrated solutions by our partners could result in significant fluctuations in our recognized revenue from period to period. Furthermore, our ability to convert pilot programs and initial deployments into large-scale, recurring revenue contracts is critical to our long-term financial success.
● Ongoing Investment in Research and Development to Maintain Technology Leadership . The market for autonomous robotics is characterized by rapid technological advancement and intense competition. To maintain and extend our position as a market leader, we must continue to make substantial investments in R&D. Our R&D efforts are focused on enhancing our core intellectual property, including our proprietary SLAM algorithms, sensor fusion capabilities, and AI-driven navigation software. These investments are essential to improve the performance of our existing products, develop new applications and functionalities, and broaden the range of environments in which our systems can operate.
● Expansion of Our Sales, Marketing, and Distribution Capabilities. Our ability to grow our revenue is dependent on our capacity to effectively expand our sales, marketing, and distribution channels. We are actively investing in growing our direct sales force to target large enterprise and government customers, while also developing a network of strategic channel partners and resellers to broaden our market reach both domestically and internationally. These investments include hiring and training
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specialized sales and support personnel, increasing our marketing activities to build brand awareness, and establishing the infrastructure necessary to support a global customer base. The success of these expansion efforts, and the time it takes for new sales channels to become productive, will be a significant factor in our ability to acquire new customers and drive revenue growth.
● Ability to Secure and Efficiently Deploy Growth Capital. Our strategic plan requires significant capital to fund our operations, support our research and development efforts, and finance the expansion of our sales and marketing organization. Our future growth and ability to execute on our business plan are contingent upon our ability to secure additional growth capital through equity or debt financing on favorable terms. The proceeds from such financing will be deployed to invest in critical R&D, scale our manufacturing and support capabilities, and potentially pursue strategic acquisitions of complementary technologies or businesses. Our ability to raise sufficient capital and to allocate it efficiently toward initiatives that drive scalable growth and accelerate our path to profitability will be critical to our operational and financial success.
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 March 31, 2026, approximately 82% of our revenue was derived from the Nexys product segment, approximately 68% of our revenue came from direct sales and approximately 32% 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.
Sales and Marketing
Sales and marketing expenses include salary, benefits and taxes, commissions, travel, advertising, and trade shows. We expect our sales and marketing expenses to increase as we seek to build out our capabilities in these areas to acquire new customers.
General and Administrative
General and administrative expenses include costs of executive leadership, corporate governance, consulting fees, accounting and finance operations, travel, and support functions, including human resources and information technology. General and administrative expenses are expected to continue to increase as we incur additional costs associated with being a public company and certain terms of our consulting and incentive agreements becoming effective.
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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), 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
Our operating results for the three months ended March 31, 2026 were characterized by stable revenue, improved gross profit, and higher operating expenses compared to the prior-year period. The improvement in gross profit was driven by lower costs incurred in delivering our products and services, while 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.
Three Months Ended March 31,
Period Over Period Change
2026
2025
$
%
Revenues, net
$
1,190,597
$
1,218,053
$
(27,456)
(2.3)
%
Cost of revenues
688,262
784,894
(96,632)
(12.3)
%
Gross profit
502,335
433,159
69,176
16.0
%
Operating expenses:
Selling, general, and administrative expenses
1,960,412
1,410,939
549,473
38.9
%
Research and development expenses
1,214,834
1,333,919
(119,085)
(8.9)
%
Stock-based compensation
199,809
201,734
(1,925)
(1.0)
%
Total operating expenses
3,375,055
2,946,592
428,463
14.5
%
Operating loss
(2,872,720)
(2,513,433)
(359,287)
14.3
%
Non-operating income (expense):
Interest expense
(336,154)
(81,323)
(254,831)
313.4
%
Interest income
3,828
7,516
(3,688)
(49.1)
%
Noncash change in fair value of SAFE liabilities
(30,000)
—
(30,000)
N/A
Other expense
(3,739)
7,581
(11,320)
(149.3)
%
Total non-operating income (expense)
(366,065)
(66,226)
(299,839)
452.8
%
Net loss before income tax benefit
(3,238,785)
(2,579,659)
(659,126)
25.6
%
Income Tax Benefit
—
—
—
N/A
Net loss
$
(3,238,785)
$
(2,579,659)
$
(659,126)
25.6
%
Revenues, Net
For the three months ended March 31, 2026, revenues decreased by approximately $27 thousand to $1.2 million from $1.2 million for the three months ended March 31, 2025. The slight decrease was primarily attributable to timing of customer project activity and product deliveries during the period. Gross profit increased from $0.4 million to $0.5 million due to a more favorable revenue mix and lower costs incurred to deliver products and services.
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Cost of Revenues
For the three months ended March 31, 2026, cost of revenues decreased by approximately $0.1 million to $0.7 million from $0.8 million for the three months ended March 31, 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 March 31, 2026, selling, general and administrative expenses increased by approximately $0.5 million to $2.0 million from $1.4 million for the three months ended March 31, 2025. The increase was primarily attributable to higher personnel-related costs, professional fees, and other expenses associated with preparing for and operating as a public company.
Research and Development Expenses
For the three months ended March 31, 2026, research and development expenses decreased by approximately $0.1 million to $1.2 million from $1.3 million for the three months ended March 31, 2025. The decrease was primarily attributable to lower product development and engineering expenditures.
Stock-based Compensation
For the three months ended March 31, 2026, stock-based compensation expense remained relatively consistent at $0.2 million compared to the three months ended March 31, 2025, decreasing by approximately $2 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 March 31, 2026 as compared to the three months ended March 31, 2025, interest expense increased by $0.2 million from $0.1 million to $0.3 million. Interest income decreased by $4 thousand from $8 thousand for the three months ended March 31, 2025 to $4 thousand for the three months ended March 31, 2026.
Other Expense
For the three months ended March 31, 2026 as compared to the three months ended March 31, 2025, other expense changed from $8 thousand income to ($3) thousand expense, primarily due to an unfavorable swing in foreign currency exchange gains and losses.
Liquidity and Capital Resources
We have incurred net losses and negative cash flows from operations since inception. As of March 31, 2026, we had cash and cash equivalents of approximately $1.1 million and total indebtedness of approximately $8.1 million, including borrowings under our loan agreements and the Neolync and NCH Convertible Notes. These conditions raise substantial doubt about our ability to continue as a going concern.
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.
After the closing of our initial public offering, we continue to operate with nominal cash flow, as we have historically. Given all these facts, we are dependent on obtaining funding from operations and the sale of debt or equity to continue as a going concern. If we are unable to obtain a sufficient amount of financing to support all of our operations, we will prioritize deploying resources to the segments that generate the most revenue and have the potential for the greatest long-term growth.
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Cash Flows
The following table summarizes our cash flows for the periods presented:
For the Three Months Ended
2026
2025
Net cash used in operating activities
$
(1,626,727)
$
(1,510,557)
Net cash used in investing activities
(3,550)
(11,429)
Net cash provided by financing activities
1,919,909
—
Net Cash Used in Operating Activities
Net cash used in operating activities for the three months ended March 31, 2026 totaled approximately $1.6 million compared to approximately $1.5 million for the three months ended March 31, 2025, an increase of approximately $0.1 million. The increase was primarily driven by an increase in operating activities to reconcile net loss, such as non cash change in fair value of SAFE liabilities and credit loss changes, offset and combined with decreases in depreciation and amortization expenses and higher working capital consumption.
Net Cash Used in Investing Activities
Net cash used in investing activities for the three months ended March 31, 2026 totaled approximately $4 thousand compared to approximately $11 thousand for the three months ended March 31, 2025.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2026 totaled approximately $1.9 million. The cash flows from financing activities were primarily driven by net borrowings from notes payable.
Contractual Commitments
We enter into contractual obligations in the normal course of business. For additional discussion, see 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
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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 registration statement on Form S-1 filed in connection with our initial public offering, 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 key inputs such as 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 $232,206 and $203,960 as of March 31, 2026 and December 31, 2025, respectively. There were two and one customers who represented in the aggregate 25% and 12% of total accounts receivable as of March 31, 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 March 31, 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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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