Quarterly Report for Quarter Ending December 31, 2025 (Form 10-Q)

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 December 31, 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 10-K. 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.

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 margin 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 margin 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. During the three months ended December 31, 2025, these sales resulted in gross proceeds of approximately $0.2 million. As of December 31, 2025, the Company has not borrowed money to fund its business through either notes payable 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 December 31, 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.

Cash Flows

For the three months ended December 31, 2025

The following table summarizes the Company's cash flows for the three months ended December 31, 2025:

		Three Months Ended December 31,
		2025				2024
Net loss		$	(652,635	)		$	(837,458	)
Net cash (used in) provided by operating activities			(334,712	)			74,248
Net cash provided by financing activities			182,000				1,093,400
Net change in cash and cash equivalents		$	(152,712	)		$	1,167,648
Cash and cash equivalents, beginning of period			372,718				427,722
Cash and cash equivalents, end of period		$	220,006			$	1,595,370

Operating Activities

Net cash used in operating activities for the three months ended December 31, 2025 was approximately $0.3 million. The amount was primarily comprised of a net loss of $0.7 million, offset by stock-based compensation expense of approximately $0.3 million and the net change in assets and liabilities of approximately $0.1 million.

Net cash used in operating activities for the three months ended December 31, 2024 was approximately $0.1 million. The amount was primarily comprised of a net loss of $0.8 million, offset by stock-based compensation expense of approximately $0.5 million and the net change in assets and liabilities of approximately $0.4 million.

Investing Activities

There were no investing activities during the three months ended December 31, 2025 and 2024.

Financing Activities

Net cash provided by financing activities for the three months ended December 31, 2025, consisted solely of sales of common shares resulting in net proceeds of approximately $0.2 million.

Net cash provided by financing activities for the three months ended December 31, 2024, consisted solely of sales of common shares resulting in net proceeds of approximately $1.1 million.

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 $0.7 million during the three months ended December 31, 2025. Further, the Company had cash on hand of approximately $0.2 million as of December 31, 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.

Our financial results for the three months ended December 31, 2025 and 2024 are summarized as follows:

		Three Months Ended December 31,
		2025				2024
Revenue		$	57,000			$	3,666,000
Cost of revenue			48,900				3,598,000
Gross margin		$	8,100			$	68,000
Operating expenses:
Contract labor			157,795				125,210
Professional services			87,452				112,763
Salaries			45,000				60,000
Travel and entertainment			50,289				37,290
Stock-based compensation			266,076				464,118
Software expense			30,757				6,745
Commissions and fees			-				68,105
Other			23,366				31,227
Total operating expenses			660,735				905,458
Loss from operations			(652,635	)			(837,458	)
Net loss		$	(652,635	)		$	(837,458	)

Comparison of the three months ended December 31, 2025 and 2024

Revenue

Total revenue was $57,000 and $3,666,000 for the three months ended December 31, 2025 and 2024, respectively. Revenue decreased by $3,609,000, or 98%, due to a reduction in the number of products sold during the period. Revenue decreased compared to the prior-year period primarily due to the timing of orders. Certain transactions expected to close during the quarter were delayed as customer decision-making and procurement cycles extended and supplier and inventory lead times lengthened, resulting in deliveries shifting into subsequent periods. We believe the revenue decrease is not indicative of underlying demand trends. We have continued to expand our sales pipeline and enhance our financing offerings, which we believe supports increased customer adoption and conversion of opportunities, and we expect revenue to improve as delayed transactions progress and deliveries occur. However, revenue may vary from period to period based on the timing of customer orders, deliveries, and customer acceptance, among other factors.

Cost of Sales

Total cost of sales was $48,900 and $3,598,000 for the three months ended December 31, 2025 and 2024, respectively. Cost of sales decreased by $3,549,000, or 99%, due to the reduction in revenue.

Operating Expenses

Total operating expense was approximately $0.7 million and $0.9 million for the three months ended December 31, 2025 and 2024, respectively. Operating expense decreased by approximately $0.2 million, or 27%, primarily due to decreases in stock-based compensation of approximately $198,000, commissions and fees of approximately $68,000, professional services of approximately $25,000, salaries expense of approximately $15,000 and other expenses of approximately $8,000, which were partially offset by increases in contract labor of approximately $33,000, software expense of approximately $24,000 and travel and entertainment of $13,000. Commissions and fees decreased by approximately $68,000 due to lower sales during the current period compared to the prior period.

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, 2025.

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.