Vertical Data Inc. 10-K

ITEM 7. 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 together with our audited financial statements and related notes included elsewhere in this filing. Some of the information contained in this discussion and analysis constitutes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in these forward-looking statements. The results of operations for the fiscal year ended September 30, 2025, are not necessarily indicative of the results that may be expected for any other future period. The following discussion should be read in conjunction with the annual consolidated financial statements and the notes thereto included in this filing. Further, the Company’s Management Discussion and Analysis of Financial Condition and Results of Operations has been prepared in accordance with Item 303 of Regulation S-K. Overview Vertical Data Inc. is a systems and solutions technology provider delivering high performance compute solutions to enterprise and data center clients. We distribute computer systems and information technology (“IT”) systems including graphics processing unit (“GPU”) servers, storage solutions, system components, software, networking and communications equipment, and related complementary products and services. We distribute technology products from original equipment manufacturers (“OEMs”) as well as suppliers of next-generation technologies and delivery models such as converged and hyper-converged infrastructure. We purchase peripherals, IT systems, systems components, software, and networking equipment from a network of suppliers, consisting of mainly two vendors, and sell them to our data center and enterprise customers. The Company also engages in the coordination and provision of data center services and hosting services for our customers. Our Company’s business model focuses on supporting the demand for enterprise AI compute capability. We are characterized by high volumes of sales and price sensitivity by our end users. The market for IT products is generally characterized by declining unit prices and short product life cycles. We set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and services we provide. In addition, we try to provide just-in-time delivery of the IT products to avoid taking significant inventory in order to ensure positive working capital cycles and to ensure our product offerings tie with current market demands. 11 We are highly dependent on the end-market demand for IT products and on our partners’ strategic initiatives and business models. This end market demand is influenced by many factors including the introduction of new IT products and software by OEMs, replacement cycles for existing IT products, trends toward AI computing, overall economic growth and general business activity. A difficult and challenging economic environment may also lead to consolidation or decline in the IT industries and increased price-based competition We are an early-stage company. Our financial results reflect our investment in building a direct sales force for revenue-producing initiatives and the development of a business development team for identifying target customers and key equipment and hardware suppliers. We are a value-added reseller of best-in-class technology and computing solutions to data centers. Our mission is to expand the availability of high-performance computing to the global landscape. We accomplish this by providing infrastructure hardware and services to data centers and enterprises looking to utilize high performance compute such as machine learning and inference. We intend to make deliberate and substantial investments in support of our mission and long-term growth. For example, we have invested in building a team of expert and experienced consultants and business development personnel that is responsible for development and expansion of our customer base and our technology supplier base. We also plan to make significant investments in sales and marketing and incentives to grow and retain our customer base. Our priorities are to (a) continue to invest in identifying best-in-class technologies that will enable us to expand our product offerings, (b) establishing and extending our product offerings in new jurisdictions, and (c) expand our product and service offerings that are related to and complimentary of our existing product offerings. Our current business is highly scalable with relatively minimal incremental spend in adding consulting resources to our sales and business development personnel. We will continue to manage our fixed-cost base in conjunction with our market entry plans and focus our variable spend on marketing, customer experience and support to become the value-added reseller of choice for customers and to maintain favorable relationships with suppliers. We also expect to improve our profitability over time as our revenue and gross profit expand as customer relationships mature and expand, and our variable marketing expenses and fixed costs stabilize or grow at a slower rate. Our path to profitability is based on the acceleration of positive contribution profit growth driven by increased revenue and gross profit generation from ongoing customer acquisition, strong customer retention, improved monetization from increased sales volume, as well as scale benefits from investments in our general and administrative functions. On an adjusted EBITDA basis, we expect to achieve profitability when total contribution profit exceeds the fixed costs of our business, which depends, in part, on the number of customers that have access to our product offerings and the other factors summarized in the section entitled “Cautionary Statement Regarding Forward-Looking Statements”. We distribute our products and technology solutions through direct sales channels managed by our team of consultants in addition to our own direct-to-customer platforms and web pages. The Company was incorporated in Nevada on May 3, 2024, and our corporate office, which is rented on a month-to-month basis, is currently located in Las Vegas, Nevada. Recent Developments Effective as of October 8, 2025, certain founders and other Company shareholders voluntarily surrendered an aggregate of 31,752,690 shares of Common Stock to the Company for no consideration. Consequently, as of the date of the filing, the Company had 9,440,362 shares of Common Stock outstanding. 12 Liquidity and Capital Resources The Company has funded its operations primarily through ongoing sales of equipment to its customers and through private equity offerings to investors. For the fiscal year ended September 30, 2025, sales of common stock resulted in gross proceeds of approximately $1.4 million. As of September 30, 2025, the Company has not borrowed money to fund its business through either note payables or lines of credit. The Company plans to continue to fund its operations through private equity offerings as well as cash generated from its ongoing business operations. The Company purchases equipment from certain suppliers to sell to its customers. However, as of September 30, 2025, the Company has not entered into any long-term commitments or contractual obligations with those suppliers to purchase equipment. Cash Flows The following table summarizes the Company’s cash flows for the periods ended September 30, 2025 and 2024: Fiscal Period Ended September 30, 2025 2024 (1) Net loss $ (3,820,078 ) $ (350,599 ) Net cash used in operating activities (1,452,945 ) (518,478 ) Net cash used in investing activities (459 ) (1,352 ) Net cash provided by financing activities 1,398,400 947,552 Net change in cash and cash equivalents $ (55,004 ) $ 427,722 Cash and cash equivalents, beginning of period 427,722 - Cash and cash equivalents, end of period $ 372,718 $ 427,722 (1) Represents fiscal period from Company inception on May 3, 2024 through September 30, 2024 Operating Activities Net cash used in operating activities for the fiscal period ended September 30, 2025 was approximately $1.5 million. The amount was primarily comprised of a net loss of $3.8 million which was partially offset by changes in operating assets and liabilities of approximately $0.4 million and stock-based compensation expense of approximately $1.9 million. Net cash used in operating activities for the fiscal period ended September 30, 2024 was approximately $0.5 million. The amount was primarily comprised of a net loss of $0.4 million and a change in other current assets of approximately $0.7 million offset by stock-based compensation expense of approximately $0.1 million and the change in accrued liabilities and other current liabilities of 0.1 million and 0.2 million, respectively. Investing Activities The Company’s investing activities for the period were not material and consisted solely of the purchase of computer equipment. Financing Activities Net cash provided from financing activities for the periods ended September 30, 2025 and 2024 were approximately $1.4 million and $0.9 million, respectively, and consisted solely of sales of common stock. 13 Going Concern Pursuant to the guidance in ASC 205-40 Going Concern, for each annual and interim reporting period an entity’s management must evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. To that extent, the Company incurred a net loss of approximately $3.8 million during the year ended September 30, 2025 and had cash of approximately $0.4 million as of its fiscal year end. As such, the Company has concluded that there is substantial doubt about its ability to continue as a going concern within one year after the date that the financial statements are issued. To mitigate the condition, management plans to increase liquidity through the future sale of equity. However, as of the time of the filing we do not have any financing plans that are probable of occurring. Results of Operations Revenue for the year ended September 30, 2025 decreased by $3.2 million, or 47%, as compared to the prior year period (from May, 3 2024 through September 30, 2024). The decrease in revenue was primarily driven by the trade tariffs implemented by the US federal government during our current fiscal year. General and administrative expenses increased by $3.2 million, or 476%, as compared to the prior year period (from May, 3 2024 through September 30, 2024). The increase was primarily driven by i) increased stock-based compensation expense of $1.8 million ii) increased salary and contract labor expense for the full fiscal year and iii) increased accounting and legal expenses incurred during the current fiscal year stemming from the filing of our registration statement and ongoing ‘34 Act reporting obligations. Critical Accounting Estimates Revenue Recognition The Company recognizes revenue from its contracts with customers in accordance with the core principle outlined in ASC 606 Revenue from Contracts with Customers. Specifically, the Company recognizes revenue “to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services”. To that extent, the Company recognizes revenue in accordance with the ASC Topic by applying the following five steps: ● Step 1-Identify the contract(s) with a customer ● Step 2-Identify the performance obligations in the contract ● Step 3-Determine the transaction price ● Step 4-Allocate the transaction price to the performance obligations in the contract ● Step 5-Recognize revenue when (or as) the Company satisfies a performance obligation The Company’s contracts with its customers currently only contain a single performance obligation comprised of the sale of IT equipment. Further, as noted above, revenue is recognized at a point in time upon delivery of the equipment to the customer at the agreed upon location. The Company does not currently extend any form of payment terms to its customers and, as such, full payment for the equipment is received from the customer (via wire payment) immediately upon delivery of the equipment. As full payment is received only upon delivery, the Company typically does not have the need to recognize contract assets, contract liabilities or accounts receivable. In determining the transaction price, the Company’s contracts with its customers do not include a significant financing component, noncash consideration or consideration payable to the customer. The Company’s contracts do include a refund option whereby the customer has the right to return the equipment to the Company for a full refund within a stated period after purchase. However, the Company noted that equipment returns were highly infrequent and were not material to our results of operations. As such, no refund liability has been recorded. 14 As it pertains to incremental costs of obtaining a contract, the Company, in accordance with the practical expedient provided in ASC 340-40, has elected to expense when incurred all sales commissions paid to its employees as the amortization period of the asset that the entity would have recognized would be one year or less. Stock Based Compensation The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments, including grants of employee stock options, to be recognized in the statement of operations by measuring the fair value of the award on the date of grant and recognizing this fair value as stock-based compensation over the requisite service period, generally the vesting period. The Company determines the fair value of its underlying shares in accordance with the practical expedient for nonpublic entities provided in ASC 718-10-30. The Company estimates the grant date fair value of stock option awards using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the fair value of our underlying shares, the expected term of the option, the expected volatility of the Common Stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the Common Stock. Recent Accounting Pronouncements In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires incremental disclosures related to a public entity’s reportable segments. Required disclosures include, on an annual and interim basis, significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, an amount for other segment items (which is the difference between segment revenue less segment expenses and less segment profit or loss) and a description of its composition, the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The standard also permits disclosure of more than one measure of segment profit. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company adopted the new standard on September 30, 2025. The adoption of the new standard did not have a material impact to our financial statements. In December 2023, the FASB issued ASU 2023-09-Income Taxes (Topic 740)-Improvements to Income Tax Disclosures, which requires entities to provide additional information in the rate reconciliation and additional disclosures about income taxes paid. The guidance should be applied prospectively and is effective for annual periods beginning after December 15, 2024. The Company does not expect the issued standard to have a material impact on its financial statements. In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The amendments in this update require disclosure, in the notes to financial statements, of specified information about certain costs and expenses at each interim and annual reporting period. The amendments are effective for annual periods beginning after December 15, 2026, and reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of the new ASU to its financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a Smaller Reporting Company, the Company is not required to provide the information in Item 305 of Regulation S-K