First Breach, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements, such as those relating to our plans, objectives, expectations, intentions, and beliefs, which involve risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q. Capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to those terms in the “Part I - Financial Information,” including the related notes to the financial statements contained therein. Overview The Company was originally formed as a limited liability company named First Breach, LLC under the laws of the State of Maryland on April 9, 2018 and subsequently converted to a corporation named First Breach Inc. incorporated under the laws of the State of Delaware on October 22, 2021. The Company is a match-grade ammunition component manufacturer offering brass cups, brass casings, full-metal-jacket projectiles, lead projectile cores, and lead wire. Equipped with numerous quality control checks, the Company offers match-grade, SAAMI-specification products. Customers will have the ability to order custom head-stamped casings as well as a wide range of grain-size options for projectiles. The Company is also developing unmanned aerial systems (“UAS”) capabilities through a joint venture with ideaForge Technology Inc. formed on September 23, 2025, First Forge Technologies Inc., which was organized to develop, produce and sell drone platforms for defense, homeland security and commercial applications using domestic manufacturing and supply chain capabilities. On May 1, 2026, the Company also entered into a Master Services Agreement with Hellbender, Inc. for the design, engineering and prototyping of two Class 1 attritable first-person-view drone platforms, of which First Breach will own the design and related intellectual property of the UAS. . The Company’s UAS activities are in the development stage and have not generated any revenue. The Company is dedicated to building upon its industry experience while emphasizing placing integrity first along with competitive pricing, building customer relations, and utilizing quality raw materials. Factors and Trends Affecting Our Business and Results of Operations The Company’s operating results, financial condition, and future growth prospects are influenced by a number of macroeconomic, industry-specific, and geopolitical factors. Management continuously monitors the following trends, each of which may positively or negatively impact the Company’s performance: Inflation and Cost Pressures in Manufacturing, Talent, and Raw Materials The Company continues to experience elevated inflationary pressures affecting manufacturing inputs, labor, and raw materials. Wage inflation, competition for skilled personnel, and rising component and material costs have increased the overall cost structure. These pressures may require the Company to adjust pricing, modify sourcing strategies, or improve operational efficiencies to maintain gross margins. Global Supply-Chain Vulnerabilities for Raw Materials Worldwide supply-chain disruptions—including transportation delays, constrained logistics capacity, and limited availability of key raw materials—have created volatility in lead times and procurement costs. Unpredictable production schedules and inventory management. 28 Domestic Political and Geopolitical Risks Across Jurisdictions The Company operates in an environment influenced by evolving domestic regulatory policies, political uncertainty, and geopolitical tensions. Changes in trade restrictions, defense-related policies, foreign investment rules, sanctions, or interstate regulatory frameworks may affect market access, cost structures, or demand for the Company’s products. Funding Constraints and Need for Additional Capital The Company’s growth strategy and operational expansion require continued access to capital. Prevailing market conditions—such as higher interest rates, limited availability of venture or institutional financing, or volatility in the equity markets—may impact the Company’s ability to raise funds on acceptable terms or within desired timelines. These constraints may affect investment in production, research and development, or strategic initiatives. Inflationary Cost Uncertainty Affecting Pricing and Margins Persistent cost volatility has created uncertainty in forecasting product margins. Rapid or unpredictable changes in input costs may limit the Company’s ability to adjust pricing in a timely manner or could require price increases that may not be fully absorbed by customers. Such conditions may negatively affect gross margins, profitability, and operating cash flows. Demand Decline from Potential Political or Economic Factors The Company’s revenue trajectory is influenced by broader economic conditions and political developments. Economic downturns, shifts in government spending priorities, changes in procurement processes, or reductions in customer budgets may soften demand. Additionally, political instability or regulatory changes in certain jurisdictions may slow customer adoption or delay purchasing cycles. Components of Results of Operations Net Revenue The Company derives its revenue primarily from the production and sale of ammunition, which includes shipping income. Revenue is recognized when the Company satisfies its performance obligations to its customers, which generally occurs at a set delivery of the deliverables as specified in its customer contracts, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company reports any tax assessed by a governmental authority that the Company collects from its customers that is both imposed on and concurrent with its revenue-producing activities (such as sales, use, value-added and excise taxes) on a net basis (meaning the Company does not recognize these taxes in either its revenues or its costs and expenses). Operating Expenses Cost of revenues includes all finished material, supplies and materials, depreciation of equipment, equipment rental, and freight. Depreciation and amortization expenses include depreciation of property and equipment and amortization of leasehold improvements. Depreciation and amortization is based on the estimated useful lives of the assets using the straight-line method. These expenses are included within selling, general and administrative expenses and cost of revenues. Selling, general and administrative expenses primarily consist of costs associated with administrative staff salaries, facilities, utilities, insurance, marketing & advertising, stock-based compensation, legal fees and other office expenses related to the Company’s business functions. 29 Other Expenses, Net Other expenses, net consists primarily of interest income, interest expenses, loss on sale of equipment and a loss on the liquidation of raw materials outside the normal course of operations, and other miscellaneous expenses. Results of Operations Comparison of the three months ended June 30, 2026 and 2025 The following table sets forth our summarized financial information for the periods indicated: Three months ended June 30, Change 2026 2025 ($) (%) Net revenues $ 95,353 $ 95,219 $ 134 0 % Cost of revenues (605,866 ) (592,348 ) (13,518 ) 2 % Net loss associated with liquidation of raw materials — (298,771 ) 298,771 (100 )% Gross margin (510,513 ) (795,900 ) 285,387 (36 )% Operating expenses: Selling, general and administrative expense 11,202,485 873,299 10,329,186 1183 % Research and development 126,313 — 126,313 100 % Total operating expenses 11,328,798 873,299 10,455,499 1197 % Loss from operations (11,839,311 ) (1,669,199 ) (10,170,112 ) 609 % Other expense, net: Interest expense, net (1,860,323 ) (582,123 ) (1,278,200 ) 220 % Amortization of deferred financing costs (191,590 ) — (191,590 ) 100 % Change in fair value of warrant liability 45,094 — 45,094 100 % Loss on sale of assets (16,758 ) (1,906 ) (14,852 ) 779 % Other income — 25,500 (25,500 ) (100 )% Other expense (13,389 ) (10,260 ) (3,129 ) 30 % Total other expense, net (2,036,966 ) (568,789 ) (1,468,177 ) 258 % Net loss $ (13,876,277 ) $ (2,237,988 ) $ (11,638,289 ) 520 % Net Revenue Revenue increased by $134 for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. Revenue remained relatively consistent with the prior-year period as the Company continued to transition its core product offerings. Cost of Revenue Cost of revenue increased by $13,518 or 2% for the three months ended June 30, 2026, compared to three months ended June 30, 2025. Higher fixed manufacturing costs and lower production volumes led to under-absorption of overhead, which negatively affected gross margin. Net Loss associated with Liquidation of Raw Materials The net loss associated with liquidation of raw materials for the three months ended June 30, 2026 and 2025 was $0 and $298,771, respectively, attributable to the liquidation of certain raw material inventory outside the normal course of operations to support operating cash flow and working capital management, which resulted in proceeds below the inventory’s carrying value. The Company does not anticipate further liquidation of raw materials. Operating Expenses Selling, general and administrative expenses increased by $10,329,186, for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The primary increase in selling, general and administrative expenses was primarily attributable to non-cash stock-based compensation of $8,959,827, an increase in professional fees associated with the public listing of $601,050 and increase in salary and benefits of $574,790. Total Other Expenses, Net Total other expenses, net increased by $1,468,177, for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The increase in other expenses, net was primarily attributable to increased interest expense of $1,278,200, amortization of deferred financing costs of $191,590 and the change in the fair value of warrant liability of $45,094. Net Loss Net loss increased by $11,638,289, for the three months ended June 30, 2026, compared to the three months ended June 30, 2025, due to the fluctuations described above under “Revenue,” “Operating Expenses,” and “Other Expenses, Net.” 30 Comparison of the six months ended June 30, 2026 and 2025 The following table sets forth our summarized financial information for the periods indicated: Six months ended June 30, Change 2026 2025 ($) (%) Net revenues $ 361,357 $ 110,905 $ 250,452 226 % Cost of revenues (1,235,716 ) (919,844 ) (315,872 ) 34 % Net loss associated with liquidation of raw materials — (684,960 ) 684,960 (100 )% Gross margin (874,359 ) (1,493,899 ) 619,540 (41 )% Operating expenses: Selling, general and administrative expense 25,288,394 1,345,881 23,942,513 1779 % Research and development 126,313 — 126,313 100 % Total operating expenses 25,414,707 1,345,881 24,068,826 1788 % Loss from operations (26,289,066 ) (2,839,780 ) (23,449,286 ) 826 % Other expense, net: Interest expense, net (2,004,679 ) (988,452 ) (1,016,227 ) 103 % Amortization of deferred financing costs (191,590 ) — (191,590 ) 100 % Change in fair value of warrant liability 45,094 — 45,094 100 % Loss on sale of assets (56,215 ) (1,906 ) (54,309 ) 2849 % Other income — 42,500 (42,500 ) (100 )% Other expense (26,776 ) (20,525 ) (6,251 ) 30 % Total other expense, net (2,234,166 ) (968,383 ) (1,265,783 ) 131 % Net loss $ (28,523,232 ) $ (3,808,163 ) $ (24,715,069 ) 649 % Net Revenue Revenue increased by $250,452 for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The increase in revenue was primarily attributable to a strategic shift in the Company’s core product offerings and the implementation of new inspection equipment during the six months ended June 30, 2026. Cost of Revenue Cost of revenue increased by $315,872 or 34% for the six months ended June 30, 2026, compared to six months ended June 30, 2025, partially attributable with the increase in revenue. In addition, higher fixed manufacturing costs and lower production volumes led to under-absorption of overhead, which negatively affected gross margin. Net Loss associated with Liquidation of Raw Materials The net loss associated with liquidation of raw materials for the six months ended June 30, 2026 and 2025 was $0 and $684,960, respectively, attributable to the liquidation of certain raw material inventory outside the normal course of operations to support operating cash flow and working capital management, which resulted in proceeds below the inventory’s carrying value. The Company does not anticipate further liquidation of raw materials. 31 Operating Expenses Selling, general and administrative expenses increased by $23,942,513 for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The primary increase in selling, general and administrative expenses was primarily attributable to non-cash stock-based compensation of $21,962,399, an increase in professional fees associated with the public listing of $918,125 and increase in salary and benefits of $812,874. Total Other Expenses, Net Total other expenses, net increased by $1,265,783 or 131%, for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The increase in other expenses, net was primarily attributable to increased interest expense of $1,016,227, amortization of deferred financing costs of $191,590 and the change in the fair value of warrant liability of $45,094. Net Loss Net loss increased by $24,715,069 for the six months ended June 30, 2026, compared to the six months ended June 30, 2025, due to the fluctuations described above under “Revenue,” “Operating Expenses,” and “Other Expenses, Net.” Liquidity and Capital Resources Six months ended June 30, 2026, and 2025: As of June 30, 2026 and 2025, our cash was $4,923,504 and $605,677, respectively. The following table shows a summary of our cash flows for the periods presented: Six Months Ended June 30, Change 2026 2025 ($) (%) Net cash (used in) provided by: Operating activities $ (5,759,482 ) $ (570,882 ) $ (5,188,600 ) 909 % Investing activities (1,682,684 ) (10,368 ) (1,672,316 ) 16130 % Financing activities 9,888,548 752,319 9,136,229 1214 % Net change in cash $ 2,446,382 $ 171,069 $ 2,275,313 1330 % Operating Activities Net cash used in operating activities increased by $5,188,600 to $5,759,482 for the six months ended June 30, 2026 compared to the net cash used in operating activities of $570,882 for the six months ended June 30, 2025. Cash used in operating activities for the six ended June 30, 2026 was primarily attributable to a net loss of $28,523,232, an addition of non-cash stock-based compensation of $21,962,399 and depreciation adjustment of $682,374, debt discounts of $1,688,788, change in the fair value of warrant liability of $45,094, and non-cash PIK interest of $30,393. The remaining change was primarily attributed to net negative cash from changes in operating assets and liabilities of $1,870,492. Cash used in operating activities for the six months ended June 30, 2025 was primarily attributable to a net loss of $3,808,163 and the addition of non-cash deprecation adjustment of $665,743 and debt discounts of $569,023, and non-cash PIK interest of $143,731. The remaining change was primarily attributed to net positive cash from changes in operating assets and liabilities of $1,858,544. 32 Investing Activities Net cash used in investing activities decreased by $1,672,316 to $1,682,684 for the six months ended June 30, 2026 compared to $10,368 in net cash provided by investing activities for the six months ended June 30, 2025. The net cash used in investing activities for the six months ended June 30, 2026 and 2025 consisted of capital expenditures of $1,682,684 and $88,368, respectively. Financing Activities Net cash provided by financing activities increased by $9,136,229 to $9,888,548 for the six months ended June 30, 2026 compared to the net cash provided by financing activities of $752,319 for the six months ended June 30, 2025. The net cash provided by financing activities for the six months ended June 30, 2026 consisted of proceeds from convertible notes of $10,150,000, proceeds from issuance of common stock of $1,342,003, offset by payments on notes payable of $34,689, principal payments on capital lease of $598,766, and payments of debt issuance cost of $970,000. The net cash provided by financing activities for the six months ended June 30, 2025 consisted of proceeds from convertible notes payable of $1,350,000, offset by principal payments on capital lease of $597,117, and payment of note payable of $564. As of June 30, 2026, current assets totaled $6,992,647 and current liabilities totaled $15,227,419 as compared to current assets totaling $3,493,562 and current liabilities totaling $4,631,271 at December 31, 2025. As a result, we had negative working capital of $8,234,772 at June 30, 2026, compared to a negative working capital of $1,137,709 at December 31, 2025. The decrease in the working capital as of June 30, 2026 is primarily attributable to the loss from operations of $4,326,667, exclusive of non-cash stock-based compensation of $21,962,399 and depreciation and amortization of $58,355, an aggregate decrease in accounts payable, accrued liabilities and accrued expenses, related party of $1,166,934, partially offset by a reduction of inventory of $130,880 and proceeds from the issuance of stock of $1,342,003. On April 24, 2026 (the “Original Issuance Date”), the Company entered into a securities purchase agreement with certain related parties, pursuant to which the Company issued senior secured convertible promissory notes in the principal amount of $10,500,000 (the “Notes”) plus OID of $5,465,385 and matures twelve (12) months from the Original Issuance Date. The cash proceeds received by the Company were $10,500,000. The Company intends to use the net proceeds for working capital and general corporate purposes. The Notes bear interest at a rate of 6% per annum per annum on the original outstanding principal amount. In connection with the issuance of the Notes, the accredited investors were also issued a total of 282,500 six month warrants to purchase shares of the Company’s common stock at an exercise price of $8.00 per share (the “Warrant Shares”). If, while the Warrant Shares are outstanding, the Company issues common stock for consideration per share less than $8.00, the exercise price of the Warrant Shares will be reduced to the latest common stock issuance price. On May 21, 2026 (the “Original Issuance Date”), the Company entered into a securities purchase agreement with certain related parties, pursuant to which the Company issued senior secured convertible promissory notes in the principal amount of $5,000,000 (the “Notes”) plus OID of $2,692,308, and matures twelve (12) months from the Original Issuance Date. The cash proceeds to be received by the Company are $5,000,000. The Company intends to use the net proceeds for working capital and general corporate purposes. The Notes do not bear interest. On May 21, 2026, the company entered into a Equity Line of Credit Agreement (the “ELOC Agreement”) with certain accredited investors (the “ELOC Investors”), pursuant to which the Company can issue $50,000,000 in Common Stock. The term of the ELOC Agreement is thirty six (36) months from the date of the agreement. Under the ELOC Agreement, the Company may, at its sole discretion, deliver purchase notices to ELOC Investors directing them to purchase shares of the Company’s Common Stock at a purchase price equal to 97% of the volume-weighted average price of the Common Stock during a specified pricing period. In connection with the ELOC Agreement, the Company has paid $25,000 in legal expenses. There are no commitment fees associated with the ELOC Agreement. We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we anticipate that all available funds and any earnings generated in our business will be used to finance the growth of our business and will not be paid out as dividends to our shareholders. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our Board of Directors may deem relevant. 33 Management is exploring new product channel sales in distributors and continuing e-commerce sales of produce for consumers. The Company has increased its focus on sales and developing a sales pipeline for potential customers. This customer base expansion will enable us to provide financial stability for the foreseeable future, expand our current processes, and position us for long-term shareholder value creation. Additionally, the Company continues to evaluate strategic initiatives (e.g., acquisitions) and additional capital raises through debt or equity may be necessary to achieve these objectives. The Company’s management concluded that its recurring losses from operations and the fact that it has not generated significant revenue or positive cash flows from operations raise substantial doubt about its ability to continue as a going concern for the next 12 months from the date of filing. The Company expects to continue to generate operating losses and negative cash flow from operations for the foreseeable future. Our ability to continue to operate as a going concern in the long term is dependent upon our ability to manage and grow our current products and to ultimately achieve profitable operations. Management may consider various options to raise capital to fund potential acquisitions through equity or debt offerings. There can be no assurances, however, that management will be able to obtain sufficient additional funds, if needed, or that such funds, if available, will be obtained on terms satisfactory to us. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and liabilities that might be necessary should we be unable to continue as a going concern. Additionally, it is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including the recoverability of long-lived assets. Critical Accounting Policies and Estimates Our condensed financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q are prepared in accordance with United States generally accepted accounting principles. The preparation of financial statements also requires us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. These estimates are developed based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operation, and cash flows will be affected. We believe that the accounting policies described below involve a greater degree of judgment and complexity. Accordingly, these are the estimates we believe are most critical to aid in fully understanding and evaluating our financial condition, results of operations and future performance. We have described our significant accounting policies within Note 2 to our audited financial statements. Warrants The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The Company’s assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance. 34 The issuance of warrants in conjunction with convertible d ebt (see Note 9) and the issuance of warrants to investors and placement agents (see Note 14) qualify for the derivative sc ope exception under ASC 815 and are therefore presented as a component of Stockholders’ Equity on the interim unaudited condensed balance sheets without subsequent fair value re-measurement. Indebtedness The Company did not have any bank debt or revolving credit facilities for any of the periods presented. However, of June 30, 2026, the Company has outstanding convertible promissory notes to investors in private placements and entered into financing lease arrangements. As of June 30, 2026, the Company had outstanding convertible promissory notes with a gross principal balance of $612,900 and accrued payment-in-kind (“PIK”) interest of $61,881, net of original issue discount (“OID”) of $23,958 and unamortized debt discount of $54,732, resulting is a total stated balance of $596,090. The notes bear interest at rates of 10% per annum, which accrues as PIK interest, is not payable in cash, and is added to the outstanding principal balance of the notes. The notes have stated maturity dates ranging from November 2026 to June 2027. The notes are unsecured and, subject to certain conditions, are convertible into shares of the Company’s common stock upon the occurrence of a qualified financing or a Liquidity Event, defined as the Company’s consummation of a direct listing of its shares on a public marketplace based on a Company valuation of not more than $60.0 million. Upon conversion, the aggregate principal amount, including accrued PIK interest, converts at a price equal to a 15% discount to the price paid by investors. The notes contain customary events of default, including failure to pay principal or interest when due and certain insolvency events, which could result in acceleration of amounts due. In addition, the Company has outstanding finance lease arrangements primarily related to equipment. As of June 30, 2026, the Company had outstanding finance lease obligations with an aggregate present value of approximately $229,697, with remaining lease term of 1.18 years and a weighted-average interest rate of 22.6%. The finance leases are secured by the underlying leased assets. Contractual Obligations and Commitments From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. The Company is not a party to any litigation or proceeding, including any governmental proceeding, which our management believes could result in any judgments or fines against us that would have a material adverse effect on our financial position, liquidity or results of future operations. Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. The Company measures all stock-based awards granted to employees, directors and non-employee consultants based on the fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company historically has been a private company and lacks company-specific historical information for its stock. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expenses could be materially different for future awards. 35 Off-Balance Sheet Transactions We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Emerging Growth Company Accounting Election Section 102(b)(1) of the Jumpstart Our Business Startups Act (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect not to take advantage of the extended transition period and to comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. Following the listing of our common stock on Nasdaq, we expect to be an emerging growth company and will have the benefit of the extended transition period. We intend to take advantage of the benefits of this extended transition period. Emerging Growth Company and Smaller Reporting Company Status As an “emerging growth company,” under the JOBS Act, we are permitted to take advantage of an extended transition period for complying with new or revised accounting standards. We may elect to avail ourselves of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we can adopt the new or revised standard at the time private companies adopt the new or revised standard and may do so until such time that we either irrevocably elect to opt out of such extended transition period or no longer qualify as an emerging growth company. We may choose to adopt any new or revised accounting standards early whenever such early adoption is permitted for private companies. Subject to certain conditions set forth in the JOBS Act, if, as an emerging growth company, we choose to rely on available exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes Oxley Act, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), or (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. We will remain an emerging growth company until the earliest to occur of the following: (i) the last day of the fiscal year following the fifth anniversary of the date of its first sale of common equity securities pursuant to an effective registration statement; (ii) the last day of the fiscal year in which our total annual gross revenue is equal to or more than $1.235 billion; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act. 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 permitted to do so for so long as (i) 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 (ii) 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. 36 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Accounting Pronouncements Recently Issued and Adopted Pronouncements In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. 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 permitted to do so for so long as (i) 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 (ii) 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. The amendments also require disclosure of all annual segment profit or loss and asset disclosures in interim periods and provide expanded disclosure requirements for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. The Company adopted ASU 2023-07 for its year ended December 31, 2024, in accordance with the required effective date for non-accelerated filers. The adoption did not impact the Company’s financial position, results of operations, or cash flows; however, it resulted in enhanced segment disclosures in the notes to the financial statements in accordance with ASC 280, Segment Reporting . These enhancements include the identification of significant segment expense categories, disclosure of the measures of segment profit or loss used by the Chief Operating Decision Maker (“CODM”), related reconciliations to the most comparable GAAP measure, and expanded disclosures for entities with a single reportable segment. In December 2023, the FASB issued ASU 2023-09 , Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as reconciling items that meet a quantitative threshold. Further, the ASU requires additional disclosures on income tax expense and taxes paid, net of refunds received, by jurisdiction. The new standard is effective for annual periods beginning after December 15, 2024 on a prospective basis with the option to apply it retrospectively. Early adoption is permitted. The Company adopted ASC 2023-09 for the year ended December 31, 2025, and applied the new disclosure requirements prospectively to the current annual period. Prior period disclosures have not been adjusted to reflect the new disclosure requirements. For additional information, see Note 19 “Income Taxes” to the December 31, 2025 financial statements. Recently Issued but Not Yet Adopted Accounting Pronouncements In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses to expand the disclosure requirements for certain costs and expenses. In January 2025, FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which clarified the effective date of ASU 2024-03 as periods beginning after December 15, 2026 for annual reporting, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is evaluating the potential impact that the adoption of these ASUs will have on its financial statements. 37 Item 3. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.