Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes to those financial statements appearing elsewhere in this Report.

Certain statements in this Report constitute forward-looking statements. These forward-looking statements include statements which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words "may," "will," "should," "anticipate," "estimate," "plan," "potential," "project," "continuing," "ongoing," "expects," "management believes," "we believe," "we intend," or the negative of these words or other variations on these words or comparable terminology. Considering these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

The "Company," "we," "us," or "our," are references to the business of Laser Photonics Corporation, a Delaware corporation.

Overview

We are a vertically integrated manufacturing Company for photonics based industrial products and solutions, primarily disruptive laser cleaning technologies and applications for the pharmaceutical industry. Our vertically integrated operations allow us to reduce development and advanced laser equipment manufacturing time, offer better prices, control quality and protect our proprietary knowhow and technology compared to other laser cleaning companies and companies with competing technologies.

In 2025, we expanded our product portfolio through the acquisition of Beamer Laser Marking Systems, formerly the laser capital equipment division of ARCH Cutting Tools. Beamer's IR fiber and CO₂ laser marking systems significantly expand our product offering into high-value industrial marking applications such as serialization, UID marking, medical devices, aerospace traceability, automotive components, and firearms compliance. The Beamer acquisition also provides an established customer base and IP portfolio. The Company has integrated the Beamer assets into its operations and is actively fulfilling orders for both existing and new customers. The revenue contribution from Beamer is expected to increase meaningfully beginning in the third quarter of 2026 and beyond as the Company scales production and expands its customer pipeline in the industrial marking and traceability markets.

Our principal executive offices are located at 250 Technology Park, Lake Mary FL, 32746, and our telephone number is (407) 804 1000. Our website address is www.laserphotonics.com. The Company's annual reports, quarterly reports, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), and other information related to the Company, are available, free of charge, on that website as soon as we electronically file those documents with, or otherwise furnish them to, the SEC. The Company's website and the information contained therein, or connected thereto, are not and are not intended to be incorporated into this Quarterly Report on Form 10-Q.

We intend to continue to stay ahead of the technology curve by researching and developing cutting edge products and technologies for both large and small businesses. We view the small companies as an attractive market opportunity since they were previously unable to take advantage of laser processing equipment due to high prices, significant operating costs and the technical complexities of laser equipment. As a result, we are developing an array of laser cleaning equipment that we have named the CleanTech™ product line, which we believe represents a new generation of high-power laser cleaning systems applicable to numerous material processing operations.

Factors and Trends That Affect Our Operations and Financial Results

In reading our financial statements, you should be aware of the following factors and trends that our management believes are important in understanding our financial performance.

Beamer integration and expected synergies. With the Beamer acquisition, the Company expects near-term integration costs related to engineering alignment, supply chain consolidation, and facility relocation. Management anticipates long-term synergies through shared manufacturing resources, cross-selling opportunities, and expanded participation in regulated industries requiring permanent laser marking solutions.

Supply Chain. We are experiencing increased lead times for certain parts and components purchased from third party suppliers; particularly electronic components. We, our customers and our suppliers, continue to face constraints related to supply chain and logistics, including availability of capacity, materials, air cargo space, sea containers and higher freight rates and import duties. Supply chain and logistics constraints are expected to continue for the foreseeable future and could impact on our ability to supply products and our customers' demand for our product or readiness to accept deliveries. Notwithstanding these effects, we believe we can meet the near-term demand for our products, but the situation is fluid and subject to change.

Nasdaq Listing Compliance. On May 21, 2026, the Company received a notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC indicating non-compliance with Nasdaq Listing Rule 5250(c)(1) due to the delayed filing of this Quarterly Report. The notice has no immediate effect on the listing or trading of the Company's common stock. As of the filing date of this Quarterly Report, the Company believes it has regained compliance with the Listing Rule.

Net sales. Our net sales have historically fluctuated from quarter to quarter. The increase or decrease in sales from a prior quarter can be affected by the timing of orders received from customers, the shipment, installation and acceptance of products at our customers' facilities. Net sales can be affected by the time taken to qualify our products for use in new applications in the end markets that we serve. Our sales cycle varies substantially, ranging from a period of a few weeks to as long as one year or more, but is typically several months. The adoption of our products by a new customer or qualification in a new application can lead to an increase in net sales for a period which may then slow until we penetrate new markets or obtain new customers.

Our business depends substantially upon capital expenditures by end users, particularly by manufacturers using our products for materials processing, which includes general manufacturing, automotive including electric vehicles (EV), other transportation, aerospace, heavy industry, consumer, semiconductor, pharmaceutical, and electronics. Although applications within materials processing are broad, the capital equipment market in general is cyclical and historically has experienced sudden and severe downturns. For the foreseeable future, our operations will continue to depend upon capital expenditures by end users of materials processing equipment and will be subject to the broader fluctuations of capital equipment spending.

Gross margin. Our total gross margin in any period can be significantly affected by several factors, including net sales, production volumes, competitive factors, product mix, and by other factors such as changes in foreign exchange rates relative to the U.S. Dollar. Many of these factors are not under our control. The following are examples of factors affecting gross margin:

● As our products mature, we can experience additional competition which tends to decrease average selling prices and affects gross margin.

● Our gross margin can be significantly affected by product mix. Within each of our product categories, the gross margin is generally higher for devices with greater average power. These higher power products often have better performance, more difficult specifications to attain and fewer competing products in the marketplace.

General and administrative expenses. General and administrative expenses consist primarily of salaries and personnel-related costs, professional fees, insurance, SEC filing and compliance costs, public company expenses, and corporate overhead.

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of personnel-related costs, advertising and promotional activities, customer acquisition efforts, travel, and commercial support functions..

Research and development expenses. We plan to continue to invest in research and development to improve our existing laser blasting technology and equipment and develop new products, systems and applications. We believe that these investments will sustain our position as a leader in the laser industry and will support the development of new products that can address new markets and growth opportunities. The amount of research and development expenses we incur may vary from period to period.

Results of Operations

Revenue. Net sales for the three months ended March 31, 2026 were $915,553, compared to $2,290,282 for the three months ended March 31, 2025, representing a decrease of $1,374,729, or 60%. The decrease was primarily attributable to (i) lower equipment deliveries during the current period, and (ii) timing of customer purchasing decisions, project execution schedules, and revenue recognition milestones. Revenue may fluctuate from period to period based on customer purchasing cycles, project timing, equipment delivery schedules, and product mix.

Cost of Sales / Gross Profit (Loss). Cost of sales for the three months ended March 31, 2026 was $1,304,004, compared to $1,389,791 for the three months ended March 31, 2025, representing a decrease of $85,787, or 6.2%. Despite the reduction in cost of sales, the significant decline in net sales resulted in a gross loss of $388,451 for the three months ended March 31, 2026, reflecting a negative gross margin of 42.4%, compared to gross profit of $900,491 and a gross margin of 39.3% for the three months ended March 31, 2025. The deterioration in gross margin was primarily attributable to lower revenue volume and the resulting inability to absorb fixed manufacturing overhead and production costs, reduced production throughput, and changes in product mix during the current period. Gross margins may fluctuate from period to period depending on sales volume, manufacturing utilization, customer mix, and timing of product deliveries..

Sales and Marketing. Sales and marketing expenses for the three months ended March 31, 2026 were $621,454, compared to $674,582 for the three months ended March 31, 2025, representing a decrease of $53,128, or 7.9%. Sales and marketing expenses consist primarily of personnel-related costs, advertising, promotional activities, customer acquisition efforts, travel, and commercial support functions. The decrease reflects lower discretionary marketing and travel expenditures during the period, consistent with the Company's ongoing focus on cost management.

General and Administrative. General and administrative expenses for the three months ended March 31, 2026 were $1,638,833, compared to $1,634,965 for the three months ended March 31, 2025, remaining substantially consistent with the prior-year period.

Research and Development Costs. Research and development expense for the three months ended March 31, 2026 was $127,081, compared to $163,469 for the three months ended March 31, 2025, representing a decrease of $36,388, or 22.3%. Research and development activities remain focused on enhancing existing laser cleaning technologies and equipment and developing new products, systems, and applications. The Company expects research and development expenditures to fluctuate based on project timing, product development priorities, and resource allocation.

Operating Loss. Operating loss for the three months ended March 31, 2026 was $2,775,819, compared to $1,572,525 for the three months ended March 31, 2025, representing an increase of $1,203,294, or 76.5%. The increase in operating loss was primarily attributable to lower revenue and the resulting gross loss during the current period, combined with a significant increase in general and administrative expenses driven by financing-related transaction costs and expanded public company operating costs, partially offset by modest decreases in sales and marketing and research and development costs.

Interest Expenses, Net. Interest expenses, net for the three months ended March 31, 2026 were $384,851, compared to $99,000 for the three months ended March 31, 2025. The increase reflects interest accrued on the Company's outstanding debt obligations during the quarter, including notes payable and related party borrowings outstanding during the period.

Change in Fair Value of Derivative Liability The change in fair value of derivative liability resulted in a gain of $214,386 for the three months ended March 31, 2026, compared to $nil for the three months ended March 31, 2025. The gain reflects a decrease in the estimated fair value of the Company's derivative liability associated with the Hudson financing arrangement, driven by changes in the underlying valuation inputs during the quarter.

Total Other Expense. Total other expense for the three months ended March 31, 2026 was $170,465, compared to $108,198 for the three months ended March 31, 2025, representing an increase of $62,267, or 57.5%. Other expense during the current period consisted of net interest expense of $384,851 on the Company's outstanding debt obligations, partially offset by a gain of $214,386 recognized from the change in fair value of the Company's remaining derivative liability associated with the Hudson financing arrangement. The increase compared to the prior-year period was primarily attributable to higher interest expense resulting from the Company's increased borrowing activity during the quarter, partially offset by the derivative fair value gain.

Net Loss. Net loss for the three months ended March 31, 2026 was $2,946,284, or $(0.11) per basic and diluted share and $(0.16) per share attributable to common shareholders after deducting the deemed dividend of $1,512,480, compared to net loss of $1,680,723, or $(0.12) per basic and diluted share, for the three months ended March 31, 2025, representing an increase of $1,265,561, or 75%. The increase in net loss was primarily attributable to lower revenues, negative gross margin performance, and higher interest expense incurred in connection with the Company's outstanding debt obligations during the quarter, partially offset by the gain recognized from the change in fair value of the derivative liability.

Liquidity and Capital Resources

The following is a summary of the Company's cash flows provided and (and used in) operating, investing, and financing activities for the three-month periods ended on March 31, 2026, and March 31, 2025.

		Three Months Ended March 31
		2026				2025
Net cash used in operating activities		$	(1,842,774	)		$	(1,157,220	)
Net cash used in investing activities			(97,974	)			(22,560	)
Net cash provided by financing activities			2,918,009				825,000
Net cash increase (decrease) for period			977,261				(354,780	)
Cash at the beginning of period			650,339				533,871
Cash at end of period		$	1,627,600			$	179,091

As of March 31, 2026, the Company had cash of $1,627,600, total current assets of $4,530,096, and total current liabilities of $8,514,918. The Company's working capital deficit was $3,984,822, compared with a working capital deficit of $7,344,637 as of December 31, 2025. The improvement in working capital was primarily attributable to financing transactions completed during the quarter and subsequent debt reduction activities.

Operating Activities

Net cash used in operating activities was $1,842,774 for the three months ended March 31, 2026, compared with $1,157,220 for the three months ended March 31, 2025. Operating cash outflows during the current period were primarily driven by the Company's net loss of $2,946,284, partially offset by non-cash items including depreciation and amortization, stock-based compensation expense, amortization of deferred financing costs, changes in fair value of derivative liabilities, and changes in operating assets and liabilities. Working capital changes included movements in accounts receivable, inventories, contract liabilities, deferred revenue, and accounts payable.

Investing Activities

Net cash used in investing activities was $97,974 for the three months ended March 31, 2026, compared with $22,560 for the three months ended March 31, 2025. Investing activity during the current period primarily consisted of purchases of property and equipment.

Financing Activities

Net cash provided by financing activities was $2,918,009 for the three months ended March 31, 2026, compared with $825,000 for the three months ended March 31, 2025.

Financing activity during the current period was primarily attributable to proceeds from the Company's February 2026 public offering, proceeds received from warrant exercises and warrant inducement transactions, and borrowings under financing arrangements. These inflows were partially offset by offering and transaction costs, repayments of outstanding debt obligations, and repayments of related-party borrowings. Financing transactions completed during the quarter strengthened liquidity and contributed to the improvement in working capital during the period.

The Company continues to require additional liquidity to support operations, strategic initiatives, and working capital requirements. Management expects to continue evaluating debt and equity financing alternatives to support future operations and growth objectives. While management believes additional actions are available to improve liquidity, there can be no assurance that financing will be available on acceptable terms, or at all.

Off-Balance Sheet Arrangements

As of March 31, 2026, the Company did not maintain any material off-balance sheet arrangements, including obligations under guarantee contracts, retained or contingent interests in transferred assets, obligations under certain derivative instruments, or obligations arising from variable interest entities.