What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-13 compared with 2026-05-15 · 210 added, 301 removed, 65 unchanged (89% of the section changed)

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

The following discussion and analysis of our

financial position as of March 31, 2026 and the results of our operations for the three months ended March 31, 2026 should be read in

conjunction with other information, including the unaudited Condensed Consolidated Financial Statements and notes included in this Quarterly

Report on Form 10-Q, the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the year

ended December 31, 2025 filed with the SEC on March 31, 2026, and the information contained under the heading “Risk Factors”

in our Annual Report on Form 10-K for the year ended December 31, 2025.

Our unaudited financial statements are stated in United States

Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

The following discussion contains

forward-looking statements that reflect our plans, estimates and beliefs.

Our actual results could differ materially from those discussed

in the forward-looking statements.

Founded in 2015, ROC is a consistently top-tier

rated U.S.-built, U.S.-owned, and U.S.-operated provider of advanced biometric, facial recognition, and Vision AI solutions.

and deploy innovative technologies that enhance safety, security, and convenience globally, while upholding principles of fairness and

Management’s Discussion and Analysis of F inancial Condition and Results of Operations

The following discussion and analysis of our financial position as of June 30, 2026 and the results of our operations for the three and six months ended June 30, 2026 should be read in conjunction with other information, including the unaudited Condensed Consolidated Financial Statements and notes included in this Quarterly Report on Form 10-Q, the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 31, 2026, and the information contained under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025.

Our unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.

Our actual results could differ materially from those discussed in the forward-looking statements.

Founded in 2015, ROC is a U.S.-built, U.S.-owned, and U.S.-operated provider of advanced biometric and Vision AI solutions.

We develop and deploy innovative technologies that enhance safety, security, and convenience globally;

our solutions are trusted by U.S.

and international military branches, law enforcement agencies, financial technology firms,

and commercial enterprises, with our multimodal capabilities consistently demonstrating robust performance in rigorous government evaluations

and in over 300 million annual identity verification transactions for major financial institutions.

We believe our customer-centric approach

and superior algorithms allow us to displace foreign incumbents and offer a transparent alternative to address the growing threat of “Poison

AI” as discussed below.

Factors and Trends Affecting Our Business

and Results of Operations

Several factors and trends affect our business

and results of operations.

These include the increasing importance of identity solutions, the evolving nature of biometric technologies,

and our strategic approach to market opportunities.

and international military branches, law enforcement agencies, financial technology firms, and commercial enterprises.

Our multimodal capabilities consistently demonstrate robust performance in rigorous government evaluations and in over 300 million annual identity verification transactions for major financial institutions.

We believe our customer-centric approach and superior algorithms allow us to displace foreign incumbents and offer a transparent alternative to address the growing threat of “Poison AI” as discussed below.

Factors and Trends Affecting Our Business and Results of Operations

Several factors and trends affect our business and results of operations.

These include the increasing importance of identity solutions, the evolving nature of biometric and Vision AI technologies, and our strategic approach to market opportunities.

Financial Considerations and Strategic Investments

We are making strategic investments to capitalize

on market opportunities.

ROC’s expenses reflect these investments, which are aimed at driving future growth and enabling us to provide

a platform that supports a wide range of identity-related needs.

We are making strategic investments to capitalize on market opportunities.

ROC’s expenses reflect these investments, which are aimed at driving future growth and enabling us to provide a platform that supports a wide range of identity-related needs.

Government Policy and Geopolitical Factors

We believe ROC is also well-positioned to benefit

federal government policies focused on greater efficiency through technology, and our unique placement as a U.S.-based provider.

Additionally, there is a general aversion to Chinese and Russian technology around the globe, which creates opportunities for ROC.

believe ROC is particularly well-positioned for winning automated biometric identification system (“ABIS”) contracts around

the world, where there are clear indications of aversion to legacy Western players, primarily due to a history of vendor lock-in and poor

We believe ROC is well-positioned to benefit from U.S.

federal government policies focused on greater efficiency through technology and our placement as a U.S.-based provider.

Additionally, there is a general aversion to competing Chinese and Russian technology in key markets around the globe, which creates opportunities for ROC.

We believe ROC is particularly well-positioned for winning automated biometric identification system (“ABIS”) contracts around the world, where we observe indications of aversion to legacy Western ABIS providers, primarily due to a history of vendor lock-in and poor service.

The Growing Importance of Identity Solutions

Identity is becoming a critical global currency,

with increasing recognition that robust identity management is essential for security, efficiency, and trust.

The increasing focus on

digital identity initiatives highlights the growing significance of effective and comprehensive identity management systems.

increases the demand for effective and comprehensive identity management systems.

Identity is becoming a critical global currency, with increasing recognition that robust identity management is essential for security, efficiency, and trust.

The increasing focus on digital identity initiatives highlights the growing significance of effective and comprehensive identity management systems.

This trend increases the demand for effective and comprehensive identity management systems.

Evolution of Biometric Technologies

While specific biometric modalities are becoming

more commoditized, the focus is shifting towards efficiency, plug-and-play capabilities, and multi-biometric systems.

The differentiators

around specific accuracy algorithms are becoming less important, with efficiency and the ability to integrate various technologies becoming

While specific biometric modalities are becoming more commoditized, the focus is shifting towards efficiency, plug-and-play capabilities, and multi-biometric systems.

The differentiators around specific accuracy algorithms are becoming less important, with efficiency and the ability to integrate various technologies becoming key.

This shift favors companies like us that offer versatile, data-agnostic, and privacy-protecting solutions.

We believe that our ability

to provide a “Swiss Army knife” of identity solutions, capable of addressing diverse use cases, positions us for success in

this evolving market.

“Poison AI” is a shorthand term that

refers to the practice of data poisoning, a type of machine learning attack where malicious data is deliberately introduced into an AI

model’s training dataset to manipulate its behavior or outputs, causing it to malfunction or become biased.

An illustrative example

of Poison AI is the Nightshade tool offered by the University of Chicago (https://nightshade.cs.uchicago.edu/whatis.html).

allows creators to prevent their digital artwork from being fed into generative AI models without consent by “turn[ing] any image

into a data sample that is unsuitable for model training.

More precisely, Nightshade transforms images into “poison” samples,

so that models training on them without consent will see their models learn unpredictable behaviors that deviate from expected norms.”

In the national security field, we believe Poison AI poses a serious and growing risk wherein adversarial state actors seek to intentionally

create security vulnerabilities in AI models that are used in critical U.S.

We believe that our ability to provide a “Swiss Army knife” of identity solutions, capable of addressing diverse use cases, positions us for success in this evolving market.

“Poison AI” is a shorthand term that refers to the practice of data poisoning, a type of machine learning attack where malicious data is deliberately introduced into an AI model’s training dataset to manipulate its behavior or outputs, causing it to malfunction or become biased.

An illustrative example of Poison AI is the Nightshade tool offered by the University of Chicago (https://nightshade.cs.uchicago.edu/whatis.html).

Nightshade allows creators to prevent their digital artwork from being fed into generative AI models by “turning" images into “poison” data samples, so that models training on them will learn unpredictable behaviors that deviate from expected norms.

In the national security field, we believe Poison AI poses a serious and growing risk wherein adversarial state actors seek to intentionally create security vulnerabilities in AI models that are used in critical U.S.

national security missions.

As a solution provider to the

national security community, we believe that our ability to closely manage our training data to prevent the introduction of “poison”

samples would mitigate the risk of Poison AI and differentiate our offerings for our prospective government customers.

As a solution provider to the U.S.

national security community, we believe that our ability to closely manage our training data to prevent the introduction of “poison” samples will mitigate the risk of Poison AI and differentiate our offerings for our prospective government customers.

Our Strategic Response

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We recognize that having a great algorithm alone is no longer sufficient.

Customers demand a full stack of capabilities, the ability to

turn features on and off, and accommodation of complex demands.

Customers demand a full stack of capabilities, the ability to turn features on and off, and accommodation of complex demands.

Our approach involves:

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We are focused on owning the full stack of identity capabilities, offering comprehensive platforms that address a wide range of customer needs.

This approach is evident in our development of products like ROC ABIS, ROC Watch, and ROC Enroll.

This approach is evident in our development of products like ROC ABIS, ROC Evidence, ROC Watch, ROC Enroll, and ROC Evidence.

• Modularity and Configurability :

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This strategy allows us to compete effectively with “all or nothing” approaches.

Our revenue primarily consists of sales of software

licenses for our products (ROC SDK, ROC Watch, ROC ABIS, and ROC Enroll), which generally include post-contract customer support, sales

of bundled security solutions that combine our software with cameras, hardware devices, and installation services, and research and development

services performed under contracts predominantly with the U.S.

Government and government-adjacent customers and with select commercial

Our revenue primarily consists of sales of software licenses for our products (ROC SDK, ROC Watch, ROC ABIS, ROC Enroll, and ROC Evidence), which generally include post-contract customer support, sales of bundled security solutions that combine our software with cameras, hardware devices, and installation services, and research and development services performed under contracts predominantly with the U.S.

Government and government-adjacent customers and with select commercial customers.

Cost of Sales

Cost of sales consists primarily of personnel-related

costs (including salaries, benefits, and stock-based compensation) for employees who provide customer support and deliver research and

development services under customer contracts, the cost of cameras, hardware devices, and installation services for our bundled security

solutions, and technology infrastructure costs.

Cost of sales consists primarily of personnel-related costs (including salaries, benefits, and stock-based compensation) for employees who provide customer support and deliver research and development services under customer contracts, the cost of cameras, hardware devices, and installation services for our bundled security solutions, and technology infrastructure costs.

Operating Expenses

Operating expenses consist of selling, general and administrative expenses,

and research and development.

Operating expenses consist of selling, general and administrative expenses, and research and development.

Research and Development

Research and development expenses consist primarily

of personnel-related costs for our research and engineering personnel, fees paid to third-party contractors and consultants supporting

our research and development activities, costs of research supplies and software development tools, and allocated facilities and information

technology costs.

Research and development costs are expensed as incurred, except for software development costs that qualify for capitalization

under ASC 985-20, Costs of Software to Be Sold, Leased, or Marketed.

Research and development expenses consist primarily of personnel-related costs for our research and engineering personnel, fees paid to third-party contractors and consultants supporting our research and development activities, costs of research supplies and software development tools, and allocated facilities and information technology costs.

Research and development costs are expensed as incurred, except for software development costs that qualify for capitalization under ASC 985-20, Costs of Software to Be Sold, Leased, or Marketed .

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist

of personnel-related costs, including salaries, benefits and stock-based compensation expense, for our personnel in executive, finance

and accounting, human resources, business operations and other administrative functions, investor relations activities, legal fees related

to corporate matters, fees paid for accounting and tax services, consulting fees and facility-related costs.

Selling, general and administrative expenses consist of personnel-related costs, including salaries, benefits and stock-based compensation expense, for our personnel in executive, finance and accounting, human resources, business operations and other administrative functions, investor relations activities, legal fees related to corporate matters, fees paid for accounting and tax services, consulting fees and facility-related costs.

Recent Developments

Initial Public Offering

On February 19, 2026, the Company entered into

an underwriting agreement (the “Underwriting Agreement”) with The Benchmark Company, LLC, acting as the representative of

the several underwriters (the “Representative”), for a firm commitment underwritten initial public offering (the “IPO”).

Pursuant to the Underwriting Agreement, the Company agreed to sell to the Representative an aggregate of 4,000,000 shares of the Company’s

common stock at an offering price of $6.00 per share.

On February 23, 2026, the Company consummated

the closing of our IPO, generating gross proceeds of approximately $24,000,000, before deducting underwriting discounts and offering expenses.

On March 26, 2026, the Representative partially

exercised the over-allotment option pursuant to the Underwriting Agreement.

As a result of the partial exercise of the over-allotment

option, the Company received additional gross proceeds of $350,862 for the offer and sale of 58,477 shares of common stock, before underwriting

discounts, commissions, and offering expenses.

On February 19, 2026, we entered into an underwriting agreement (the “Underwriting Agreement”) with The Benchmark Company, LLC, acting as the representative of the several underwriters (the “Representative”), for a firm commitment underwritten initial public offering (the “IPO”).

Pursuant to the Underwriting Agreement, we agreed to sell to the Representative an aggregate of 4,000,000 shares of the Company’s common stock at an offering price of $6.00 per share.

On February 23, 2026, we consummated the closing of our IPO, generating gross proceeds of approximately $24,000,000, before deducting underwriting discounts and offering expenses.

On March 26, 2026, the Representative partially exercised the over-allotment option pursuant to the Underwriting Agreement.

As a result of the partial exercise of the over-allotment option, we received additional gross proceeds of $350,862 for the offer and sale of 58,477 shares of common stock, before underwriting discounts, commissions, and offering expenses.

Pending Acquisition of Zuccaro Technical Consulting LLC

On June 23, 2026, we entered into a Purchase Agreement to acquire 100% of the equity interests of Zuccaro Technical Consulting LLC (“ZTC”), a provider of digital forensics services that complements our ROC Evidence product line.

Consideration consists of $500,000 in cash payable at closing, subject to customary adjustments, $2,500,000 in restricted shares of our common stock vesting over three years, and revenue share payments equal to 15% of ROC Evidence Advanced Revenue over a seven-year term, capped in the aggregate at $7,000,000.

Separately, we have committed to grant up to $500,000 of retention restricted stock units to continuing ZTC employees vesting over five years.

Closing remains subject to customary conditions, including completion of an audit of ZTC’s 2024 and 2025 annual financial statements.

The acquisition had not closed as of June 30, 2026 and remains pending as of the date of this Quarterly Report.

We expect that a substantial portion of the share-based and revenue share consideration will be recognized as post-combination compensation expense over the applicable service periods rather than as purchase consideration, which we expect will increase operating expenses in future periods.

For additional information, refer to Note 7 of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.

Execution of Indemnification Agreements by Directors and Executive Officers of the Company

On August 11, 2026, each of the Company's directors and executive officers entered into an indemnification agreement with the Company (each, an "Indemnification Agreement").

Each Indemnification Agreement provides that the Company will indemnify the director or officer party thereto against expenses, judgments, fines, penalties, and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending, or completed proceeding by reason of the fact that such person is or was a director or officer of the Company, to the fullest extent permitted under Colorado law.

Each Indemnification Agreement also provides for the advancement of expenses to the director or officer in connection with a covered proceeding, subject to the terms of the agreement.

The Company's indemnification obligations under each Indemnification Agreement are not exclusive of any other indemnification rights to which the applicable director or officer may be entitled under the Company's organizational documents, applicable law, or any other agreement, and the Company is the indemnitor of first resort with respect to such obligations.

Each Indemnification Agreement is governed by and construed in accordance with the internal laws of the State of Colorado.

Results of Operations

Comparison of the three months ended March

31, 2026 and 2025

We define Product Revenue as the aggregate revenue recognized from

our four commercial software product lines:

ROC SDK, ROC Watch, ROC ABIS, and ROC Enroll.

Product Revenue is derived directly from amounts

presented in our consolidated statements of operations and excludes revenue from research and development contracts, which consist of

customer-funded development services performed under U.S.

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

We define Product Revenue as the aggregate revenue recognized from our commercial software product lines:

ROC SDK, ROC Watch, ROC ABIS, ROC Enroll, and ROC Evidence.

Product Revenue is derived directly from amounts presented in our consolidated statements of operations and excludes revenue from research and development contracts, which consist of customer-funded development services performed under U.S.

Government and similar arrangements.

Management uses Product Revenue as an indicator of the commercial adoption

of our software offerings and to evaluate the performance of our go-to-market activities.

Product Revenue isolates revenue generated from

productized software from revenue earned under research and development contracts, which are generally project-specific and non-recurring

Product Revenue should be considered in conjunction with, and not as

a substitute for, total revenue and other measures presented in accordance with U.S.

The following table sets forth our financial results

for the periods indicated.

All information is derived from the statements of income for the three months ended March 31, 2026 and 2025.

Management uses Product Revenue as an indicator of the commercial adoption of our software offerings and to evaluate the performance of our go-to-market activities.

Product Revenue isolates revenue generated from productized software from revenue earned under research and development contracts, which are generally project-specific and non-recurring in nature.

Product Revenue should be considered in conjunction with, and not as a substitute for, total revenue and other measures presented in accordance with U.S.

The following table sets forth our financial results for the periods indicated.

All information is derived from the statements of income for the three and six months ended June 30, 2026 and 2025.

Three Months Ended

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Cost of sales

Revenue decreased by $624,880, or 20%, for the

three months ended March 31, 2026, compared to the three months ended March 31, 2025.

Product revenues declined by $113,968, or 5%, compared to the prior

year quarter, primarily reflecting lower revenues from ROC SDK and ROC Enroll, partially offset by growth in ROC Watch and ROC ABIS.

contract revenue decreased by $510,912, or 69%, primarily attributable to the completion of a significant prior-year R&D program,

with new R&D contract activity in the current quarter occurring at a smaller scale.

The pace of new contract awards and customer order

placement during the quarter was also affected by lingering effects of the U.S.

federal government funding lapse that occurred during

the period from October 1, 2025 through November 12, 2025.

Although the funding lapse ended prior to the start of the current quarter,

it constrained federal procurement and contracting activity through late 2025, which delayed certain customer purchasing decisions, contract

awards, and program authorizations that we believe would otherwise have advanced during the three months ended March 31, 2026.

in the “Risk Factors” section of our 2025 Annual Report, the timing of our sales cycles is influenced by U.S.

Government budgeting,

appropriation, and procurement cycles, and disruptions to those cycles may delay customer purchasing decisions and the timing of revenue

Despite these timing impacts, the Company experienced

continued traction in ROC Watch sales, new pilot deployments, and increased customer engagements during the quarter.

The Company also

went live with multiple early-adopter pilot deployments of its ROC ABIS product offering, demonstrating directional traction in this emerging

product area.

These trends reflect continued underlying demand for the Company’s platform product offerings and support the progression

of deployments into larger programs over time, consistent with the Company’s land-and-expand strategy.

Six Months Ended

Total product revenue

R&D contracts

Total revenue

Cost of sales

Revenue increased by $124,060, or 2%, for the three months ended June 30, 2026 compared to the same period in 2025.

The increase was primarily driven by higher R&D contract revenue, partially offset by lower product revenue.

R&D Contract revenue increased $867,703, or 41%, to $2,990,707.

This increase is primarily attributable to a single research and development contract with a U.S.

Government customer.

We recognized approximately $2.7 million of revenue under that arrangement during the quarter.

Of that amount, approximately $2.3 million related to a license of functional intellectual property and approximately $0.4 million related to research and development services.

The license component was recognized in full during the second quarter.

The services component is expected to be recognized over the remaining period of performance under the option, which extends into 2027.

Product revenue decreased $743,643, or 26%, to $2,102,275.

The decrease was driven principally by a $1,676,462 decline in ROC Watch revenue, reflecting the completion of a significant ROC Watch deployment in the prior-year period, partially offset by an increase of $725,676 in ROC SDK revenue and increases of $143,761 and $45,882 in ROC ABIS and ROC Enroll revenue, respectively.

Revenue decreased by $500,820, or 6%, for the six months ended June 30, 2026 compared to the same period in 2025.

The decrease was primarily driven by lower product revenue, partially offset by higher R&D contract revenue.

Product revenue decreased by $857,611, or 16%, primarily due to lower ROC Watch revenue following the completion of a significant deployment.

The decrease was partially offset by growth in ROC SDK from new customer and expansion opportunities, as well as increased revenue from ROC ABIS and ROC Evidence.

R&D contract revenue increased by $356,791, or 12%, primarily reflecting revenue recognized from government-funded development contracts, including the significant contract awarded during the second quarter of 2026 discussed above.

Our revenue has historically been concentrated among a limited number of customers, and one customer accounted for 35% of total revenue for the six months ended June 30, 2026 and 47% of accounts receivable at June 30, 2026.

The timing of contract awards, option exercises and license deliveries can cause our quarterly revenue to fluctuate significantly.

Period-to-period comparisons of our results of operations should not be relied upon as indicative of future performance.

Our gross profit increased by $572,214 or 14%, for the three months ended June 30, 2026, compared to the same period in 2025, while gross margin improved to 90% from 80%.

This improvement was driven principally by the recognition of the license component of the U.S.

Government research and development arrangement described above, whereas the license portion of the arrangement was recognized with no significant incremental cost of sales.

This arrangement accounted for substantially all of the margin improvement in the quarter.

Our cost of sales also declined $448,154, or 46%, reflecting a lower proportion of hardware revenue following the decrease in ROC Watch revenue.

Our gross profit increased by $64,077, or 1%, for the six months ended June 30, 2026, compared to the same period in 2025, while gross margin improved to 86% from 80%.

The drivers were the same as for the quarter, with the effect of the license component partially offset by the decline in higher-cost hardware revenue over the six-month period then ended.

We do not expect the gross margin improvement in the second quarter of 2026 to recur in the third and fourth quarters of 2026.

Period-to-period comparisons of gross margin should not be relied upon as indicative of future performance.

Operating Expenses

The following table sets forth selected operating

data for the periods indicated.

All information is derived from the statements of income for the three months ended March 31, 2026 and

March 31, 2025, and we provide additional explanation below.

The following table sets forth selected operating data for the periods indicated.

All information is derived from the statements of income for the three and six months ended June 30, 2026 and June 30, 2025, and we provide additional explanation below.

Three Months Ended

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Operating Expenses

Six Months Ended

Selling, general and administrative

Research and development

Operating Expenses

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased

by $956,504, or 48%, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

The increase was primarily

driven by higher personnel-related costs associated with continued investment in our business development and administrative functions

to support the growth of our product offerings and markets served.

The increase also reflects higher professional services expenses, including

legal and accounting fees, and incremental costs associated with operating as a public company.

These investments are aligned with our

continued focus on operational execution and scaling the organization to support future growth.

Selling, general and administrative expenses increased by $1,450,858, or 80%, for the three months ended June 30, 2026 compared to the same period in 2025.

The increase was primarily driven by higher personnel-related costs associated with expanding our business development and administrative functions to support the growth of our product offerings and markets served.

The increase also reflected additional costs associated with operating as a public company.

These investments support our long-term growth strategy.

Selling, general and administrative expenses increased by $2,407,364, or 63%, for the six months ended June 30, 2026, compared to the same period in 2025.

The drivers were consistent with those described above for the quarter.

The increase also reflected additional costs associated with operating as a public company.

These investments support our long-term growth strategy.

Research and Development

Research and development expenses increased by

$533,521, or 34%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025.

The increase was primarily

driven by higher labor costs associated with growth in R&D headcount, reflecting continued investment in the development and enhancement

of our platform and products.

These investments are focused on expanding platform capabilities and functionality to address evolving customer

requirements across our target markets.

Research and development expenses increased by $720,442 or 53%, for the three months ended June 30, 2026, compared to the same period in 2025.

The increase was primarily driven by higher personnel-related costs associated with expanding our research and engineering organization and continued investment in the development and enhancement of our products and platform.

These investments are intended to expand product capabilities, support new customer opportunities, and address evolving customer requirements across our target markets.

Research and development expenses increased by $1,253,963, or 43%, for the six months ended June 30, 2026, compared to the same period in 2025.

These investments are intended to expand product capabilities, support new customer opportunities, and address evolving customer requirements across our target markets.

Other Income and Expenses

Three Months Ended

Interest expense

Interest income (expense)

Other expense

Total other income (expense)

expense increased by $12,654 for the three months ended March 31, 2026, compared to the three months ended March 31, 2025.

was primarily driven by higher interest expense, as well as additional other expense recognized during the current period.

Six Months Ended

Interest income (expense)

Other expense

Total other income (expense)

Total other expense increased by $28,125 and $40,778 for the three and six months ended June 30, 2026, respectively, compared to the same periods in 2025.

The increase was primarily attributable to higher non-operating expenses, partially offset by higher interest income.

Income Tax Provision (Benefit)

Income tax provision (benefit) for the three months

ended March 31, 2026 was $0, reflecting an effective tax rate of 0%, compared to an income tax benefit of approximately $290,813 and an

effective tax rate of approximately 28.3% for the three months ended March 31, 2025.

The decrease in income tax benefit of approximately

$290,813 was primarily attributable to the establishment of a full valuation allowance against our U.S.

federal and state deferred tax

assets during 2025.

As a result, no income tax benefit was recognized on our pre-tax loss for the three months ended March 31, 2026, as

any benefit that would otherwise have been recognized was offset by a corresponding increase in the valuation allowance.

Our effective tax rate for the three months ended

March 31, 2026 differed from the U.S.

federal statutory rate of 21% primarily due to the impact of the full valuation allowance recorded

against our deferred tax assets.

We expect to continue to maintain a full valuation allowance on our deferred tax assets until there is

sufficient positive evidence to support the realization of some or all of these deferred tax assets.

For additional information, refer

to Note 9 of our condensed consolidated financial statements included elsewhere in this Quarterly Report and Note 9 of our consolidated

financial statements included in our 2025 Annual Report.

We recorded no provision for or benefit from income taxes for either the three or the six months ended June 30, 2026, in each case reflecting an effective tax rate of 0%.

For the comparable prior-year periods, we recorded income tax expense of $229,494 for the three months ended June 30, 2025 on pre-tax income of $810,698, reflecting an effective tax rate of approximately 28.3%, and an income tax benefit of $61,319 for the six months ended June 30, 2025 on a pre-tax loss of $216,679, also reflecting an effective tax rate of approximately 28.3%.

The $229,494 decrease in income tax expense for the three-month period, and the $61,319 decrease in income tax benefit for the six-month period were each primarily attributable to the establishment of a full valuation allowance against our U.S.

federal and state deferred tax assets during 2025.

The prior-year interim amounts were determined before that valuation allowance was established and therefore reflect tax expense and benefit at a blended federal and state rate, whereas no tax expense or benefit has been recognized in the current-year periods.

The shift from an income tax benefit for the six months ended June 30, 2025 to income tax expense for the three months ended June 30, 2025 does not reflect any change in our tax positions or in the rate applied.

Because substantially the same blended federal and state rate of approximately 28.3% was applied in each period, the direction of the tax amount follows the direction of pre-tax results.

No income tax benefit was recognized on our pre-tax losses for the three and six months ended June 30, 2026 because any benefit that would otherwise have been recognized was offset by a corresponding increase in the valuation allowance.

Accordingly, our effective tax rate of 0% for each of the three and six months ended June 30, 2026 differed from the U.S.

federal statutory rate of 21% primarily due to the effect of the full valuation allowance recorded against our deferred tax assets, as well as due to state income taxes and non-deductible expenses, the effect of each of which was also offset by the change in the valuation allowance.

In addition, because relatively small changes in projected pre-tax results would produce significant changes in our estimated annual effective tax rate, we determined that a reliable estimate of the annual effective tax rate could not be made and computed our interim income tax provision based on actual year-to-date results.

We expect to continue to maintain a full valuation allowance on our deferred tax assets until there is sufficient positive evidence to support the realization of some or all of these deferred tax assets.

For additional information, refer to Note 9 of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report and Note 9 of our consolidated financial statements included in our 2025 Annual Report.

Net Loss Attributable to Common Stockholders

Net loss attributable to common stockholders was

$3,038,194 and $736,566 for the three months ended March 31, 2026 and 2025, respectively.

The increase in net loss was primarily attributable

to the items discussed above, including higher operating expenses associated with continued investment in personnel and product development,

as well as incremental costs associated with operating as a public company.

Net loss was $816,513 and $3,854,707 for the three and six months ended June 30, 2026, respectively, compared to net income of $581,204 for the three months ended June 30, 2025, and a net loss of $155,360 for the six months ended June 30, 2025.

The increase in net loss was primarily attributable to the items discussed above, including higher operating expenses associated with continued investment in personnel and product development, as well as incremental costs associated with operating as a public company.

Net Loss per Share

Basic and diluted net loss per share was $0.18

for the three months ended March 31, 2026, compared to $0.05 for the three months ended March 31, 2025.

The change reflects both the increase

in net loss and the increase in the weighted-average number of common shares outstanding to 16,624,897 from 14,985,411 primarily as a

result of the issuance of 4,058,477 shares in our initial public offering in February 2026, including the partial exercise of the underwriters’

over-allotment option.

Because we reported a net loss in both periods, all potentially dilutive securities, including outstanding stock

options, warrants, and unvested restricted stock units, were excluded from the calculation of diluted net loss per share as their inclusion

would have been anti-dilutive.

For additional information, refer to Note 2 of our condensed consolidated financial statements included

elsewhere in this Quarterly Report.

Basic and diluted net loss per share was $0.04 and $0.22 for the three and six months ended June 30, 2026, respectively, compared to basic and diluted earnings per share of $0.04 for the three months ended June 30, 2025, and a basic and diluted net loss per share of $0.01 for the six months ended June 30, 2025.

The change reflects the increase in net loss, partially offset by the increase in the weighted-average number of common shares outstanding to 19,080,127 and 17,859,295 for the three and six months ended June 30, 2026, respectively, from 14,999,087 and 14,992,287 for the comparable prior-year periods, primarily as a result of the issuance of 4,058,477 shares in our initial public offering in February 2026, including the partial exercise of the underwriters' over-allotment option.

Because we reported a net loss for both 2026 periods, all potentially dilutive securities, including outstanding stock options, warrants, and unvested restricted stock units, were excluded from the calculation of diluted net loss per share because their inclusion would have been anti-dilutive.

For additional information, refer to Note 2 of our condensed consolidated financial statements included elsewhere in this Quarterly Report.

Liquidity and Capital Resources

As of March 31, 2026, we had cash of approximately $16.6 million and

working capital of $16.5 million.

In February 2026, we completed our initial public offering, resulting in net proceeds to the Company

of approximately $21.5 million, including net proceeds from the partial exercise of the underwriters’ over-allotment option, after

deducting underwriting discounts, commissions, and offering expenses.

Our revenue is concentrated among a limited number

Government and government-adjacent customers, and the timing of customer billings, collections, and contract awards is influenced

by federal budgeting and appropriation cycles.

As a result, our quarterly cash flow from operations may vary significantly based on the

timing of contract awards and customer payments.

We monitor working capital, days sales outstanding, and our concentrated receivable balances

on a regular basis.

Based on management’s evaluation as of March 31,

2026, including consideration of our cash, available borrowing capacity under our revolving line of credit, expected cash flows from operations,

and our forecasted operating plan, management concluded that no conditions or events exist that raise substantial doubt about our ability

to continue as a going concern for at least twelve months from the date these condensed consolidated financial statements are issued.

Our future capital requirements will depend on

many factors, including our rate of revenue growth, the timing and extent of our product development and sales and marketing activities,

the pace of customer acquisition, and general market conditions.

We may seek additional equity or debt financing in the future to fund

our growth strategy, though there can be no assurance that such financing will be available on acceptable terms, or at all.

As of June 30, 2026, we had cash of approximately $11.9 million and working capital of $14.8 million, compared to cash of $0.3 million and a working capital deficit of $1.5 million as of December 31, 2025.

In February 2026, we completed our initial public offering, resulting in net proceeds to the Company of approximately $21.5 million, including net proceeds from the partial exercise of the underwriters’ over-allotment option, after deducting underwriting discounts, commissions, and offering expenses.

We had no borrowings outstanding under our revolving line of credit as of June 30, 2026.

We used $6,045,692 of cash in operating activities during the six months ended June 30, 2026, compared to $126,190 during the same period in 2025.

Cash used in operating activities in the 2026 period included approximately $3.0 million of net outflows from changes in operating assets and liabilities, primarily due to a $1.5 million increase in accounts receivable, and a $0.7 million decrease in accounts payable and accrued expenses.

We expect to continue to use cash in operating activities as we invest in product development and expand our sales and marketing organization.

Our rate of cash usage in any given period depends substantially on the timing of contract awards, billings and collections, and may vary significantly from period to period

Our revenue is concentrated among a limited number of U.S.

Government and government-adjacent customers, and the timing of customer billings, collections, and contract awards is influenced by federal budgeting and appropriation cycles.

One customer represented 47% of our accounts receivable as of June 30, 2026.

As a result, our quarterly cash flow from operations may vary significantly from period to period, and a delay in collection from a significant customer could have a disproportionate effect on our liquidity in any given quarter.

We monitor working capital, days sales outstanding, and our concentrated receivable balances on a regular basis.

Our revolving line of credit provides for borrowings of up to $2.5 million.

We repaid all amounts outstanding under the facility during the three months ended June 30, 2026 and had no borrowings outstanding as of June 30, 2026.

The facility is payable on demand and may be cancelled by either party at any time upon written notice.

Accordingly, we do not consider availability under the facility to be a committed source of liquidity.

Based on management’s evaluation as of June 30, 2026, including consideration of our cash, expected cash flows from operations and our forecasted operating plan, management concluded that no conditions or events exist that raise substantial doubt about our ability to continue as a going concern for at least twelve months from the date these condensed consolidated financial statements are issued.

In reaching this conclusion, management did not rely on availability under our revolving line of credit.

Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and extent of our product development and sales and marketing activities, the pace of customer acquisition, and general market conditions.

We may seek additional equity or debt financing in the future to fund our growth strategy, though there can be no assurance that such financing will be available on acceptable terms, or at all.

Material Cash Requirements

Our material cash requirements as of March 31,

2026 consist primarily of the following:

Our material cash requirements as of June 30, 2026 consist primarily of the following:

Operating lease obligations:

We lease office space

under non-cancelable operating leases for our offices in Denver, Colorado, Morgantown, West Virginia, and Grand Rapids, Michigan.

March 31, 2026, the total undiscounted future minimum lease payments under these leases were approximately $1.3 million, of which approximately

$0.3 million is payable within the next twelve months.

For additional information regarding our lease obligations, including the remaining

lease term and discount rate used to measure the related lease liability, refer to Note 6 of our condensed consolidated financial statements

included elsewhere in this Quarterly Report and Note 6 of our consolidated financial statements included in our 2025 Annual Report.

We lease office space under non-cancelable operating leases for our offices in Denver, Colorado, Morgantown, West Virginia, and Grand Rapids, Michigan.

As of June 30, 2026, the total undiscounted future minimum lease payments under these leases were approximately $1.2 million, of which approximately $0.3 million is payable within the next twelve months.

For additional information regarding our lease obligations, including the remaining lease term and discount rate used to measure the related lease liability, refer to Note 6 of our condensed consolidated financial statements included elsewhere in this Quarterly Report and Note 6 of our consolidated financial statements included in our 2025 Annual Report.

Line of credit:

We maintain a revolving line of credit, and during

the three months ended March 31, 2026, we repaid $3,709,907 of outstanding borrowings under the line of credit.

As of March 31, 2026,

$237,812 of borrowings were outstanding, and approximately $2.3 million of borrowing capacity remained available under the facility, subject

to the terms and conditions of the credit agreement, including covenant requirements.

We currently expect to maintain the facility as

a source of supplemental liquidity.

For additional information, refer to Note 7 of our condensed consolidated financial statements included

elsewhere in this Quarterly Report.

We maintain a revolving line of credit, and during the three months ended June 30, 2026, we repaid $237,812 of outstanding borrowings under the line of credit.

As of June 30, 2026, there were no borrowings outstanding, and approximately $2.5 million of borrowing capacity remained available under the facility, subject to the terms and conditions of the credit agreement, including covenant requirements.

We currently expect to maintain the facility as a source of supplemental liquidity.

For additional information, refer to Note 7 of our condensed consolidated financial statements included elsewhere in this Quarterly Report.

Purchase obligations:

In the ordinary course of

business, we enter into agreements with vendors and service providers, including for cloud infrastructure, software, and professional

As of March 31, 2026, we had approximately $1.3 million of non-cancelable purchase commitments for equipment to expand our computing

infrastructure.

Other than as described above, we do not have any material non-cancelable purchase obligations as of March 31, 2026.

In the ordinary course of business, we enter into agreements with vendors and service providers, including for cloud infrastructure, software, and professional services.

As of June 30, 2026, we had approximately $0.7 million of non-cancelable purchase commitments for equipment to expand our computing infrastructure.

Other than as described above, we do not have any material non-cancelable purchase obligations as of June 30, 2026.

Off-balance sheet arrangements:

We do not have

any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results

of operations, liquidity, capital expenditures, or capital resources that is material to investors.

We expect to fund these obligations from our existing

cash, cash generated from operations, and, if necessary, borrowings under our line of credit.

Cash flow activity below is a vital financial

metric that represents the net amount of cash moving into and out of a business.

The table below provides details about cash flow performance

for the three months ended March 31, 2026, compared to the three months ended March 31, 2025.

Three months ended

Net cash (used in) provided by:

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

We expect to fund these obligations from our existing cash, cash generated from operations, and, if necessary, borrowings under our line of credit.

Cash flow activity below is a vital financial metric that represents the net amount of cash moving into and out of a business.

The table below provides details about cash flow performance for the three months ended June 30, 2026, compared to the three months ended June 30, 2025.

Six Months Ended

Net cashed (used in) provided by:

Operating activities

$ (2,878,872 )

$ (2,455,117 )

Investing activities

2 unchanged sentences

Operating Activities

Net cash used in operating activities was $2,878,872 and $423,755 for

the three months ended March 31, 2026 and 2025, respectively.

The increase in cash used in operations was primarily driven by a higher

net loss, partially offset by favorable changes in working capital and non-cash items.

The higher net loss reflects continued investment

in personnel and product development to support growth, including expansion of the Company’s research and development and business

development functions, as well as incremental costs associated with operating as a public reporting company.

These factors were partially

offset by lower cost of sales compared to the prior-year period.

Net cash used in operating activities was $6,045,692 and $126,190 for the six months ended June 30, 2026 and 2025, respectively.

The increase of $5,919,502 was driven by two principal factors.

First, our cash operating costs grew substantially faster than gross profit.

Selling, general and administrative expenses increased $2,407,364 and research and development expenses increased $1,253,963, while gross profit increased only $64,077.

The costs driving that growth, principally personnel costs and costs associated with operating as a public company, were substantially settled in cash during the period.

Second, changes in operating assets and liabilities used $3.0 million of cash during the 2026 period, compared to $0.5 million during the 2025 period.

The most significant movement was a $1.5 million increase in accounts receivable, with one customer representing 47% of our accounts receivable balance at June 30, 2026.

Revenue recognized during the second quarter of 2026 under the research and development contract described above substantially exceeded cash collected under that contract during the period.

Accordingly, the improvement in gross profit for the quarter was not accompanied by a corresponding increase in operating cash flow.

In addition, accounts payable and accrued expenses decreased $0.7 million and deferred revenue decreased $0.4 million, each of which further reduced operating cash flow.

Investing Activities

Net cash used in investing activities was $622,199 and $206,250 for

the three months ended March 31, 2026 and 2025, respectively.

The increase in cash used in investing activities was primarily driven by

higher spending on capitalized software development and purchases of fixed assets during the three months ended March 31, 2026 compared

to the prior-year period.

Capitalized software costs reflect ongoing investment in the development and enhancement of certain of the Company’s

product offerings.

Net cash used in investing activities was $1,953,786 and $354,171 for the six months ended June 30, 2026 and 2025, respectively.

The increase in cash used in investing activities was primarily driven by higher spending on capitalized software development and purchases of fixed assets during the six months ended June 30, 2026 compared to the prior-year period.

Capitalized software costs reflect ongoing investment in the development and enhancement of certain of the Company’s product offerings.

Financing Activities

Net cash provided by financing activities was $19,847,363 and $108,481

for the three months ended March 31, 2026 and 2025, respectively.

The increase in cash provided by financing activities was primarily

attributable to net proceeds of approximately $21.5 million from the Company’s initial public offering, including proceeds from

the partial exercise of the underwriters’ over-allotment option, partially offset by repayments on the Company’s line of credit

during the period.

Emerging Growth Company and Smaller Reporting

Company Status

We are an “emerging growth company”

as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and a “smaller reporting company” as

defined in Rule 12b-2 under the Securities Exchange Act of 1934.

As an emerging growth company, we are eligible to take advantage of certain

reduced reporting and other requirements otherwise applicable to public companies, including, but not limited to, an exemption from the

auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.

Section 102(b)(1) of the JOBS Act permits emerging

growth companies to delay adoption of new or revised financial accounting standards until those standards would otherwise apply to private

Net cash provided by financing activities was $19,642,381 for the six months ended June 30, 2026, compared to net cash used in financing activities of $184,753 for the six months ended June 30, 2025.

The increase was primarily attributable to net proceeds of approximately $21.5 million from the Company's initial public offering, including proceeds from the partial exercise of the underwriters' over-allotment option, partially offset by net repayments under the Company's line of credit during the period.

Emerging Growth Company and Smaller Reporting Company Status

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and a “smaller reporting company” as defined in Rule 12b-2 under the Securities Exchange Act of 1934.

As an emerging growth company, we are eligible to take advantage of certain reduced reporting and other requirements otherwise applicable to public companies, including, but not limited to, an exemption from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.

Section 102(b)(1) of the JOBS Act permits emerging growth companies to delay adoption of new or revised financial accounting standards until those standards would otherwise apply to private companies.

We have elected to take advantage of this extended transition period, and this election is irrevocable.

As a result, our consolidated

financial statements may not be comparable to those of public companies that comply with new or revised financial accounting standards

as of the effective dates applicable to non-emerging growth companies.

There have been no changes to our status as an

emerging growth company or smaller reporting company, or to our election to use the extended transition period, since the filing of our

Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

As a result, our consolidated financial statements may not be comparable to those of public companies that comply with new or revised financial accounting standards as of the effective dates applicable to non-emerging growth companies.

There have been no changes to our status as an emerging growth company or smaller reporting company, or to our election to use the extended transition period, since the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Critical Accounting Policies and Estimates

There has been no material change in our significant

accounting policies and estimates disclosed in Note 1 of the Notes to Consolidated Financial Statements and in Part II, Item 7 of our

Annual Report on Form 10-K for the year ended December 31, 2025.

There has been no material change in our significant accounting policies and estimates disclosed in Note 1 of the Notes to Consolidated Financial Statements and in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the Securities and Exchange Commission (the “SEC").

Recent Accounting Pronouncements

See Note 2 of the Notes to Condensed Consolidated

Financial Statements of this Quarterly Report on Form 10-Q.

Quantitative and Qualitative Disclosures

About Market Risk

As a “smaller reporting company”,

we are not required to provide the information required by this Item.

See Note 2 of the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Quantitative and Qualitativ e Disclosures About Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis