Vertical Data 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 together with our most recent audited financial statements and related notes. 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 interim period ended June 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 unaudited interim and annual financial statements and the notes thereto included in Company’s previously filed Form S-1. Further, the Company’s Management Discussion and Analysis of Financial Condition and Results of Operations has been prepared in accordance with Item 303(c) 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. 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. 4 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 is currently located in Las Vegas, Nevada. 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 nine months ended June 30, 2025, these sales have resulted in gross proceeds of approximately $1.4 million. As of June 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 Sepember 30, 2025, the Company has not entered into any long-term commitments or contractual obligations with those suppliers to purchase equipment. Further, while the Company entered into a lease agreement during October of 2024, the agreement is on a month-to-month basis and we do not expect the agreement to have a material impact on our financial statements or results of operations. 5 Cash Flows For the nine months ended June 30, 2025 The following table summarizes the Company’s cash flows for the nine months ended June 30, 2025: Nine Months Ended June 30, 2025 May 3, 2024 (Inception) Through June 30, 2024 Net loss $ (3,040,539 ) $ (45,143 ) Net cash used in operating activities (1,089,017 ) 466,534 Net cash used in investing activities (459 ) - Net cash provided by financing activities 1,398,400 586 Net change in cash and cash equivalents 308,924 467,120 Cash and cash equivalents, beginning of period 427,722 - Cash and cash equivalents, end of period $ 736,646 $ 467,120 Operating Activities Net cash used in operating activities for the nine months ended June 30, 2025 was approximately $1.1 million. The amount was primarily comprised of a net loss of $3.0 million, offset by stock-based compensation expense of approximately $1.8 million and the net change in assets and liabilities of approximately $0.1 million. Net cash provided by operating activities from Company inception on May 3, 2024 through June 30, 2025 was approximately $0.5 million. The amount was primarily comprised of a net loss of approximately $0.1 million and changes in operating assets and liabilities of approximately $0.5 million. Investing Activities The Company’s investing activities for the nine months ended June 30, 2025 were not material. There were no investing activities from the Company’s inception from May 3, 2024 through June 30, 2024. Financing Activities Net cash provided by financing activities for the nine months ended June 30, 2025 consisted solely of private equity offering resulting in net proceeds of approximately $1.4 million. Net cash provided by financing activities from the Company’s inception on May 3, 2024 through June 30, 2024 was $586 related to the issuance of 36,503,000 founders shares. 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 $0.8 million and $3.0 million during the three and nine months ended June 30, 2025, respectively. Further, the Company had cash on hand of approximately $0.7 million as of June 30, 2025. Based on the above, the Company determined that there was substantial doubt about its ability to continue as a going concern. The Company hopes to mitigate the substantial doubt through its future capital raises and operating income. Results of Operations We are an early-stage company, and our historical results may not be indicative of our future results. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical or future results of operations. As noted in Item 1 of this Form 10-Q, the Company was incorporated on May 3, 2024. The comparative period from Company inception of May 3, 2024 through June 30, 2024 has been presented in the filing. 6 For the period from the Company’s inception on May 3, 2024 through June 30, 2024 From the Company’s inception on May 3, 2024 through June 30, 2024, the Company recognized revenue of approximately $3.9 million, cost of sales of approximately $3.7 and general and administrative of $0.3 million, resulting in a net loss for the period of approximately $45 thousand. The net loss for the period was primarily driven by general and administrative expenses. For the three months ended June 30, 2025 During the three months ended June 30, 2025, the Company recognized no revenue and had a net loss for the period of approximately $0.8 million. The net loss for the period was driven by general and administrative expense of $0.8 million. For the nine months ended June 30, 2025 During the nine months ended June 30, 2025, the Company recognized revenue of approximately $3.7 million and had a net loss for the period of approximately $3.6 million. Revenue for the period was generated solely by equipment sales to the Company’s customers. Further, the net loss for the period was primarily driven by cost of revenue of approximately $3.6 million and general and administrative expense of $3.1 million. Critical Accounting Estimates There have been no material changes in the Company’s Critical Accounting Estimates as compared to our most recent fiscal year ended September 30, 2024. Recent Accounting Pronouncements Accounting standards that have been issued or proposed by the Financial Accounting Standards Board (“FASB”) that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.