CXApp Inc.
11/05/2026 | Press release | Distributed by Public on 11/05/2026 16:29
Quarterly Report for Quarter Ending September 30, 2026 (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 unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission on March 30, 2026. References in this Quarterly Report to "CXApp," the "Company," "we," "us" and "our" refer to CXApp Inc. and its consolidated subsidiaries. This discussion describes the principal factors affecting our results of operations and financial condition for the three and nine months ended September 30, 2026 and 2025.
On August 14, 2026, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation (the "Amendment") with the Secretary of State of the State of Delaware to effect a 1-for-50 reverse stock split (the "Reverse Stock Split") of shares of common stock, $0.0001 par value (the "common stock"), which became effective at 12:01 a.m. Eastern Time on August 18, 2026. Pursuant to the Reverse Stock Split, every fifty (50) shares of issued and outstanding shares of common stock were combined into one (1) share of common stock. All share and per share amounts presented herein have been retroactively adjusted to reflect the Reverse Stock Split. There was no change to the shares authorized or in the par value per share of common stock of $0.0001.
The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder's percentage interest in the Company's equity, except to the extent that the Reverse Stock Split resulted in the rounding up of fractional shares. The Company did not issue fractional shares in connection with the Reverse Stock Split. Any fractional share of common stock that would otherwise have resulted from the Reverse Stock Split was rounded up to the nearest whole share. The number of shares of common stock issuable under our equity incentive plans and exercisable under the outstanding warrants were also proportionately adjusted.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as "expect," "believe," "anticipate," "intend," "estimate," "seek" and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management's current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company's Annual Report on Form 10-K filed with the SEC. The Company's securities filings can be accessed on the EDGAR section of the SEC's website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview of Our Business
Executive Overview
At CXApp, we are at the forefront of transforming the modern workplace through AI-powered solutions that enhance employee experience, operational efficiency, and workplace intelligence. As a leader in this evolving market, our strategic focus is to drive sustainable growth, scale our enterprise customer base, and deliver innovative solutions that leverage data and artificial intelligence to optimize workplace experiences.
During the nine months ended September 30, 2026, we focused on three strategic priorities:
| 1. | AI-First Product Innovation: During the quarter, we continued to strengthen our competitive differentiation through the development of AI-native workplace intelligence tools. Enhancements to our Generative AI analytics platform enabled improved data ingestion, real-time behavioral insights, and predictive modeling capabilities. These innovations support enterprise decision-makers in optimizing space utilization, workforce engagement, and operational agility. Our investment in state-of-the-art AI infrastructure in partnership with Google Cloud (GCP) is enabling intelligent and scalable solutions that will transform the modern workplace. |
| 2. | Step-change in scale following EngineRoom acquisition: Our customer expansion strategy remained focused on enterprise accounts across the financial services, healthcare and technology sectors. We delivered 169.7% year-over-year revenue growth during the quarter, including contributions from the EngineRoom acquisition, which has been included in our results since June 3, 2026. While the inclusion of EngineRoom resulted in a shift in our revenue mix and reduced our reported gross margin for the period, we believe the acquisition strengthens our long-term growth strategy by expanding our revenue base, customer relationships, and distribution capabilities. We intend to leverage the combined platform to increase recurring and contractual technology revenue and expand the adoption of higher-margin platform offerings across our customer base. We believe these initiatives will enhance the quality of our revenue and support long-term growth and profitability. |
| 3. | Gross Profit Growth Despite Lower Margins: Gross profit was $1,619 thousand and $3,480 thousand for the three and nine months ended September 30, 2026, respectively, compared with $991 thousand and $3,117 thousand for the corresponding periods in 2025. Gross margin was 53.88% and 61.60% for the three and nine months ended September 30, 2026, respectively, compared with 88.96% and 87.53% for the corresponding periods in 2025. The decrease in gross margin primarily reflected a change in revenue mix following the inclusion of EngineRoom's results beginning June 3, 2026. In particular, managed advertising and growth marketing advisory services contributed $1,551 thousand and $2,077 thousand of revenue during the three and nine months ended September 30, 2026, respectively. These service offerings have a higher direct-cost profile than the Company's subscription revenue. |
Looking forward, our leadership team remains committed to balancing innovation with financial discipline, ensuring that CXApp is positioned for long-term profitability and strategic growth. By leveraging our AI-driven platform and expanding our enterprise footprint, we aim to deliver scalable, data-driven solutions that address the evolving needs of hybrid workplaces.
Financial Performance Summary
Revenue Growth and Customer Expansion
| ● | Gross margin decreased to 53.88% for the three months ended September 30, 2026 from 88.96% for the three months ended September 30, 2025. The decrease primarily reflected the inclusion of EngineRoom's subscription and non-subscription revenue streams, including managed advertising and growth marketing advisory services from June 3, 2026, which changed the Company's revenue and cost-of-revenue mix. |
| ● | Our customer base continues to expand across key industries, including financial services, healthcare, and technology, aligning with our objective to target high-value, recurring revenue clients. |
| ● | We intend to leverage the combined customer base to increase recurring and contractual technology revenue and expand higher-margin platform offerings. We believe these initiatives will strengthen the quality of our revenue streams and support our long-term growth objectives. |
Operational Efficiencies and Cost Management
| ● | During the three months ended September 30, 2026, operating expenses remained essentially flat at $4,783 thousand compared to $4,816 thousand for the three months ended September 30, 2025. This consistency reflects ongoing discipline in cost management while supporting core business operations. |
| ● | Strategic workforce realignments have ensured resources are allocated to high-impact growth areas. |
| ● | We remain focused on optimizing resource allocation, ensuring that investments are targeted toward high-impact areas such as AI development and customer acquisition. |
Cash Flow and Liquidity Position
As of September 30, 2026, cash and cash equivalents were $8,986 thousand, compared with $11,101 thousand as of December 31, 2025.
| ● | This liquidity provides a strategic buffer for continued investment in AI product enhancements and market expansion initiatives. |
Strategic Growth Initiatives
| 1. | Product Innovation: We are expanding our AI-native capabilities, integrating advanced analytics, and developing seamless integrations with key enterprise platforms to position CXApp as the go-to solution for hybrid workplace management |
| 2. | Market Expansion: By targeting new verticals and strengthening partnerships with cloud providers and key technology platforms, we aim to increase market share and drive cross-selling opportunities. |
| 3. | Operational Excellence: Ongoing cost optimization, customer retention strategies, and sales efficiency initiatives remain key focus areas as we strive to enhance profitability and maintain financial discipline. |
Competitive Positioning and Market Outlook
| ● | The global employee experience market is projected to grow at 20% CAGR, creating substantial opportunities for CXApp to expand its footprint in the enterprise workplace solutions market. |
| ● | We believe our AI-driven platform differentiates us from legacy workplace management systems, enabling real-time data analytics and actionable insights that are designed to support strategic decision-making. |
| ● | Despite macroeconomic uncertainties, enterprise demand for hybrid workplace solutions remains robust, positioning CXApp for continued momentum as we scale our AI-enabled offerings. |
Conclusion
As we advance our strategic roadmap, CXApp remains focused on executing with discipline and precision. Our AI-first approach, financial discipline, and emphasis on customer-centric innovation are key drivers of our long-term vision to redefine employee experiences in the hybrid workplace. By leveraging our strong foundation and expanding our enterprise footprint, we are well-positioned to deliver sustained growth and value for our stakeholders.
Recent Events
Issuances in Connection with Convertible Debt
Between September 30, 2026 and November 5, 2026, the Company issued an aggregate of 152,599 shares of Class A common stock to Avondale Capital, LLC pursuant to purchase notices under Pre-Paid Purchase #4, dated December 30, 2025. The shares were issued at prices ranging from $1.74365 to $2.25316 per share.
On October 21, 2026, the Company received net cash proceeds of $1,000 thousand from the third tranche of the Pre-Paid Purchase Agreement with Avondale (Pre-Paid Purchase #3), issued pursuant to the SPA entered into on March 27, 2026. The third tranche was structured with a principal amount of $1,050 thousand, less a $50 thousand OID, resulting in the net cash proceeds mentioned above.
Standstill Agreement
On October 21, 2026, the Company entered into a standstill agreement with Avondale Capital, LLC. Under the agreement, for a period of 90 days, Avondale Capital, LLC agreed not to make purchases under any outstanding Pre-Paid Purchase on any trading day unless the Company's Class A common stock traded at a price of at least 110% of the "Minimum Price," as defined in Nasdaq Listing Rule 5635(d), and the trading volume of the Company's Class A common stock was at least $250 thousand on that trading day.
The standstill period will terminate immediately upon a breach by the Company of the standstill agreement or the related transaction documents. Upon the termination or expiration of the standstill period, Avondale Capital, LLC may resume purchases in accordance with the applicable Pre-Paid Purchases, which could result in the issuance of additional shares of Class A common stock. The standstill agreement did not waive any existing event of default, and the outstanding Pre-Paid Purchases otherwise remain in effect.
Share Repurchase Program
On October 21, 2026, the Company's Board of Directors authorized a share repurchase program under which the Company may repurchase shares of its outstanding Class A common stock for an aggregate purchase price of up to $1,000 thousand. Repurchases may be made from time to time through open-market purchases, privately negotiated transactions or other lawful means. The timing, amount, price and manner of any repurchases will be determined by management based on market conditions, the Company's financial position, liquidity and capital requirements, applicable legal requirements and limitations contained in the Company's financing arrangements.
The share repurchase program has no expiration date and will remain in effect until the authorized amount has been utilized or the program is modified, suspended or terminated by the Board of Directors. The program does not obligate the Company to repurchase any particular number of shares and may be modified, suspended or discontinued at any time.
Reverse stock-split
On August 14, 2026, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation (the "Amendment") with the Secretary of State of the State of Delaware to effect a 1-for-50 reverse stock split (the "Reverse Stock Split") of the Company's shares of common stock, $0.0001 par value (the "common stock"), which became effective at 12:01 a.m. Eastern Time on August 18, 2026. Pursuant to the Reverse Stock Split, every Fifty (50) shares of issued and outstanding shares of common stock were combined into One (1) share of common stock. Accordingly, unless indicated otherwise, all the current period and historical per share data, number of shares issued and outstanding, stock awards, and other common stock equivalents for the periods presented in this Quarterly Report on Form 10-Q have been adjusted retroactively, where applicable, to reflect the Reverse Stock Split. There was no change to the shares authorized or in the par value per share of common stock of $0.0001.
RESULTS OF OPERATIONS
Comparison of the results of operations for the three months ended September 30, 2026 and September 30, 2025
The following table sets forth our results of operations. The following information should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report.
| (in thousands) |
Three months ended |
Three months ended |
||||||
| (unaudited) | (unaudited) | |||||||
| Condensed Consolidated Statements of Operations Data | ||||||||
| Revenues | $ | 3,005 | $ | 1,114 | ||||
| Cost of revenues | (1,386 | ) | (123 | ) | ||||
| Gross profit | 1,619 | 991 | ||||||
| Operating expenses | (4,783 | ) | (4,816 | ) | ||||
| Loss from operations | (3,164 | ) | (3,825 | ) | ||||
| Other income (expense), net | 728 | 668 | ||||||
| Income tax benefit (expense) | (716 | ) | - | |||||
| Net loss | $ | (3,152 | ) | $ | (3,157 | ) | ||
Revenues
The Company derives revenue from subscription software as a service (SaaS), design, deployment and implementation services for its enterprise apps business and also through managed advertising and growth marketing advisory following the acquisition of EngineRoom. Revenue increased by $1,891 thousand, or 169.7%, to $3,005 thousand for the three months ended September 30, 2026, compared with $1,114 thousand for the three months ended September 30, 2025. The increase primarily reflected $2,084 thousand of revenue contributed by the newly acquired subsidiary, EngineRoom, added new revenue streams consisting of $1,753 thousand of subscription and managed advertising and $331 thousand of growth marketing advisory services. This increase was partially offset by a $209 thousand decrease in software, license and maintenance revenue and a $2 thousand decrease in hardware revenue. Professional services revenue increased by $18 thousand. EngineRoom's results have been included in the Company's consolidated results since its acquisition on June 3, 2026. EngineRoom operates across multiple service lines, including paid performance marketing, search engine optimization (SEO), social marketing, network development, website development, customer engagement, and advisory services. The Company noted a decrease in the revenue from licenses during this period however, it was compensated by increase in Professional Services revenue and revenue generated from EngineRoom.
Recurring revenue represents revenue recognized from ongoing customer arrangements that provide software, platform, managed advertising, growth marketing advisory or other continuing services under contractual or renewable arrangements. Recurring revenue may include both Subscription Revenue and Non-Subscription Revenue depending on the nature of the underlying customer arrangement. It excludes one-time projects, hardware sales and other revenue that management does not consider to be recurring in nature.
Recurring revenue is a management operating metric and is not a measure calculated in accordance with U.S. GAAP. It is not synonymous with Subscription Revenue. Refer to the following table:
|
Three months ended September 30, 2026 |
Nine months ended September 30, 2026 |
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| (in thousands) | Amount | Total | Amount | Total | ||||||||||||
| Recurring Revenue | $ | 2,815 | 93.68 | % | $ | 5,306 | 93.93 | % | ||||||||
| Non recurring revenue | 190 | 6.32 | % | 343 | 6.07 | % | ||||||||||
| Total Revenue | $ | 3,005 | 100.00 | % | $ | 5,649 | 100.00 | % | ||||||||
Of the $2,815 thousand and $5,306 thousand for the three and nine months, period ended September 30, 2026, of Recurring Revenue includes software platform, managed advertising, growth marketing advisory or other continuing services. The $190 thousand and $343 thousand for the three and nine months, period ended September 30, 2026, of Non Recurring Revenue consists of one-time projects, hardware and professional services.
For the three and nine months, period ended September 30, 2025, Subscription Revenue represents Recurring Revenue and Non-Subscription Revenue represents Non-Recurring Revenue as disclosed in the Note 3 - Disaggregation of Revenue.
Gross Margin
Cost of revenues includes the direct costs to deliver the services, including employees' and overhead. Cost of revenues were $1,386 thousand for the three months ended September 30, 2026 compared to $123 thousand for the three months ended September 30, 2025. The gross profit margin decreased to 53.88% for the three months ended September 30, 2026 from 88.96% for the three months ended September 30, 2025, and increase in cost of revenues of approximately $1,263 thousand, or approximately 1027%, for the comparative periods ended September 30, 2026 and September 30, 2025, primarily reflects a shift in service mix following the EngineRoom acquisition toward services with higher direct delivery and fulfillment costs.
Operating Expenses
Operating expenses consist primarily of research and development, sales and marketing, and general and administrative expenses. Total operating expenses were $4,783 thousand for the three months ended September 30, 2026, compared to $4,816 thousand for the three months ended September 30, 2025.
The decrease of $33 thousand period over period was primarily attributable to the decrease in research and development of approximately $414 thousand which was offset by increase in general administrative expenses of approximately $48 thousand and increase in sales and marketing of approximately $183 thousand and increase in amortization of intangible assets increased by $150 thousand, primarily reflecting amortization associated with intangible assets acquired in the EngineRoom acquisition.
Other Income/Expense
Other income/expenses was an income of $728 thousand for the three months ended September 30, 2026 and an income of $668 thousand for the three months ended September 30, 2025. The $60 thousand increase reflects of $166 thousand favorable change in interest expense, net and a $102 thousand decrease in other expense, partially offset by a $208 thousand decrease in the gain from changes in the fair value of convertible debt and warrant liabilities.
Provision for Income Taxes
For the three months ended September 30, 2026, the Company recorded an income tax expense of $716 thousand compared with no income tax expenses or benefit for the three months ended September 30, 2025. The 2026 income tax expense consisted of deferred income tax expense.
Comparison of the results of operations for the nine months ended September 30, 2026 and September 30, 2025
The following table sets forth our results of operations. The following information should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report.
| (in thousands) |
Nine months ended September 30, 2026 |
Nine months ended September 30, 2025 |
||||||
| (unaudited) | (unaudited) | |||||||
| Condensed Consolidated Statements of Operations Data | ||||||||
| Revenues | $ | 5,649 | $ | 3,561 | ||||
| Cost of revenues | (2,169 | ) | (444 | ) | ||||
| Gross profit | 3,480 | 3,117 | ||||||
| Operating expenses | (14,887 | ) | (14,798 | ) | ||||
| Loss from operations | (11,407 | ) | (11,681 | ) | ||||
| Other income (expense), net | (4,301 | ) | 3,770 | |||||
| Income tax expense | (67 | ) | (1 | ) | ||||
| Net loss | $ | (15,775 | ) | $ | (7,912 | ) | ||
Revenues
The Company derives revenue from subscription software as a service (SaaS), design, deployment and implementation services for its enterprise apps business and also through managed advertising and growth marketing advisory following the acquisition of EngineRoom. Revenue increased by $2,088 thousand, or 58.6%, to $5,649 thousand for the nine months ended September 30, 2026, compared with $3,561 thousand for the nine months ended September 30, 2025. The increase primarily reflected $2,773 thousand of revenue contributed by the newly acquired subsidiary, EngineRoom, on June 3, 2026, which added new revenue streams consisting of $2,352 thousand of subscription and managed advertising and $421 thousand of growth marketing advisory services. This increase was partially offset by a $731 thousand decrease in software, license and maintenance revenue and a $16 thousand decrease in hardware revenue. Professional services revenue increased by $62 thousand.
Gross Margin
Cost of revenues increased by $1,725 thousand to $2,169 thousand for the nine months ended September 30, 2026, compared with $444 thousand for the nine months ended September 30, 2025. Gross profit increased by $363 thousand to $3,480 thousand, compared with $3,117 thousand in the prior-year period. Gross margin decreased to 61.6% from 87.5%, primarily reflects a shift in service mix following the EngineRoom acquisition toward services with higher direct delivery and fulfillment costs.
Operating Expenses
Total operating expenses increased by $89 thousand to $14,887 thousand for the nine months ended September 30, 2026, compared with $14,798 thousand for the nine months ended September 30, 2025. Research and development expense decreased by $893 thousand, and sales and marketing expense decreased by $107 thousand. These decreases were offset by a $897 thousand increase in general and administrative expense and a $192 thousand increase in amortization of intangible assets. The increase in general and administrative expense included acquisition-related costs and other costs associated with the EngineRoom acquisition, while the increase in amortization relates to intangible assets acquired in EngineRoom acquisition.
Other Income/Expense
Other expense, net, was $4,301 thousand for the nine months ended September 30, 2026, compared with other income, net, of $3,770 thousand for the nine months ended September 30, 2025, an unfavorable change of $8,071 thousand. The change was primarily attributable to an unfavorable $8,111 thousand change in the fair value of convertible debt and warrant liabilities, from a gain of $3,963 thousand in 2025 to a loss of $4,148 thousand in 2026. The change was partially offset by a $215 thousand reduction in interest expense and the absence of the $48 thousand loss on debt extinguishment recognized in 2025. Other income of $162 thousand in 2025 changed to other expense of $61 thousand in 2026, an unfavorable change of $223 thousand.
Income taxes
The Company recorded an income tax expense of $67 thousand for the nine months ended September 30, 2026, compared with an income tax expense of $1 thousand for the nine months ended September 30, 2025. The income tax expense consisted of current and deferred income tax expense.
Non-GAAP Financial Information
Adjusted EBITDA
The Company includes a non-GAAP measure that we use to supplement our results presented in accordance with U.S. GAAP. EBITDA is defined as earnings before interest and other income, taxes, depreciation and amortization. Adjusted EBITDA is used by our management as the metric in which it manages the business. It is defined as EBITDA plus adjustments for other income or expense items and non-cash stock-based compensation. Adjusted EBITDA is a performance measure that we believe is useful to investors and analysts because it illustrates the underlying financial and business trends relating to our core, recurring results of operations and enhances comparability between periods.
Adjusted EBITDA is not a recognized measure under U.S. GAAP and is not intended to be a substitute for any U.S. GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry. Investors should exercise caution in comparing our non-GAAP measure to any similarly titled measure used by other companies.
This non-GAAP measure excludes certain items required by U.S. GAAP and should not be considered as an alternative to information reported in accordance with U.S. GAAP. The table below presents our adjusted EBITDA, reconciled to net loss, which is the most comparable GAAP measure, for the periods indicated (in thousands).
|
Three Months Ended September 30, 2026 |
Nine Months Ended September 30, 2026 |
Three Months Ended September 30, 2025 |
Nine Months Ended September 30, 2025 |
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| Net loss | $ | (3,152 | ) | $ | (15,775 | ) | $ | (3,157 | ) | $ | (7,912 | ) | ||||
| Interest expense, net | (59 | ) | 92 | 107 | 307 | |||||||||||
| Income tax expense | 716 | 67 | - | 1 | ||||||||||||
| Depreciation and amortization | 843 | 2,271 | 694 | 2,084 | ||||||||||||
| EBITDA | (1,652 | ) | (13,345 | ) | (2,356 | ) | (5,520 | ) | ||||||||
| Adjusted for: | ||||||||||||||||
| Changes in fair value of derivative and warrant liabilities | (679 | ) | 4,148 | (887 | ) | (3,963 | ) | |||||||||
| Loss on debt extinguishment | - | - | - | 48 | ||||||||||||
| Other income (expense), net | 10 | 61 | 112 | (162 | ) | |||||||||||
| Loss on contract to issue common stock | - | - | - | 20 | ||||||||||||
| Loss on asset disposal | - | - | 4 | 4 | ||||||||||||
| Stock-based compensation - compensation and related benefits | 304 | 1,115 | 872 | 2,250 | ||||||||||||
| Adjusted EBITDA | $ | (2,017 | ) | $ | (8,021 | ) | $ | (2,255 | ) | $ | (7,323 | ) | ||||
We rely on Adjusted EBITDA, which is a non-GAAP financial measure for the following:
| ● | To compare our current operating results with corresponding periods and with the operating results of other companies in our industry; |
| ● | As a basis for allocating resources to various projects; |
| ● | As a measure to evaluate potential economic outcomes of acquisitions, operational alternatives and strategic decisions; and |
| ● | To evaluate internally the performance of our personnel. |
We have presented Adjusted EBITDA above because we believe it conveys useful information to investors regarding our operating results. We believe it provides an additional way for investors to view our operations, when considered with both our GAAP results and the reconciliation to net loss. By including this information, we can provide investors with a more complete understanding of our business. Specifically, we present Adjusted EBITDA as supplemental disclosure because of the following:
| ● | We believe Adjusted EBITDA is a useful tool for investors to assess the operating performance of our business without the effect of interest, income taxes, depreciation and amortization and other non- cash items transaction and financing costs, impairment, unrealized gains, stock-based compensation, interest income and expense, and income tax benefit. |
| ● | We believe that it is useful to provide to investors with a standard operating metric used by management to evaluate our operating performance; and |
| ● | We believe that the use of Adjusted EBITDA is helpful to compare our results to other companies. |
Even though we believe Adjusted EBITDA is useful for investors, it does have limitations as an analytical tool. Thus, we strongly urge investors not to consider this metric in isolation or as a substitute for net loss and the other unaudited condensed consolidated statement of operations and comprehensive loss data prepared in accordance with GAAP. Some of these limitations include the fact that:
| ● | Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; |
| ● | Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
| ● | Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt; |
| ● | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; |
| ● | Adjusted EBITDA does not reflect income or other taxes or the cash requirements to make any tax payments; and |
| ● | Other companies in our industry may calculate Adjusted EBITDA differently than we do, thereby potentially limiting its usefulness as a comparative measure. |
Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business or as a measure of performance in compliance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and providing Adjusted EBITDA only as supplemental information.
Financing Obligations and Requirements
Net cash used in operating activities was $7,091 thousand for the nine months ended September 30, 2026, reflecting a net loss of $15,775 thousand, adjusted for noncash items and changes in operating assets and liabilities. During the period, the Company received net proceeds of approximately $5,990 thousand from the issuance of convertible debt under the Securities Purchase Agreement entered into on March 27, 2026 and $2,464 thousand from its at-the-market offering program.
As of September 30, 2026, the Company had cash and cash equivalents of $8,986 thousand and working capital surplus of $3,717 thousand. Management continues to implement expense-management and working-capital initiatives and evaluate available financing sources. Certain financing sources are dependent on market and contractual conditions, including the Company's stock price, trading volume, registration effectiveness and applicable issuance limitations. See Note 2, Summary of Significant Accounting Policies, for the Company's liquidity and going-concern disclosures.
Revenue Recognition
The Company recognizes revenue, in accordance with ASC 606, when control of the promised products or services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from its software as a service for cloud-based software, as well as design, implementation, other professional services for work performed in conjunction with its cloud-based software, and sale of hardware. The Company enters into contracts with its customers whereby it grants a non-exclusive cloud-based license for the use of its proprietary software and for professional services. The contracts may also provide for on-going services for a specified price, which may include maintenance services, designated support, and enhancements, upgrades and improvements to the software, depending on the contract. Licenses for cloud software provide the customer with a right to use the software as it exists when made available to the customer. All software provides customers with the same functionality and differs mainly in the duration over which the customer benefits from the software.
License Subscription Revenue Recognition (Software As A Service)
With respect to sales of the Company's license agreements, customers generally pay fixed annual fees in advance in exchange for the Company's software service provided via electronic means, which are generally recognized ratably over the license term. Some agreements allow the customer to terminate their subscription contracts before the end of the applicable term, and in such cases the customer is generally entitled to a refund pro-rata but only for the elapsed time remaining at the point of termination, which would approximate the deferred revenue at such time. The Company's performance obligation is satisfied over time as the services are provided continuously throughout the service period. The Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous access to its service. The Company's customers generally pay within 30 to 60 days from the receipt of a customer approved invoice.
The timing of the Company's revenue recognition related to the licensing revenue stream is dependent on whether the software licensing agreement entered into represents a service. Software that relies on an entity's IP and is delivered only through a hosting arrangement, where the customer cannot take possession of the software, is a service. Customers may subscribe to licenses for monthly or annual periods.
Renewals or extensions of licenses are evaluated as distinct licenses and revenue attributed to the distinct service is not recognized until: (1) the entity provides the distinct license (or makes the license available) to the customer and (2) the customer is able to use and benefit from the distinct license. Renewal contracts are not combined with original contracts, and, as a result, the renewal right is evaluated in the same manner as all other additional rights granted after the initial contract. The revenue is not recognized until the customer can begin to use and benefit from the license, which is typically at the beginning of the license renewal period. The Company recognizes revenue resulting from renewal of licensed software over time.
Hardware Revenue Recognition
For sales of hardware, the Company's performance obligation is fulfilled when the products are shipped to the customer, transferring title and ownership risks. Deliveries occur via drop-shipment by a third-party vendor and the Company leverages drop-ship arrangements with many of its vendors and suppliers to deliver products to customers without having to physically hold the inventory at its warehouse. The Company negotiates sale prices, pays suppliers directly, manages credit risk, and ensures product acceptability, acting as the principal in the transaction and recording revenue on a gross basis. Customers typically pay within 30 to 60 days of invoice receipt. The Company has elected the practical expedient to expense the costs of obtaining a contract when they are incurred because the amortization period of the asset that otherwise would have been recognized is less than a year.
Managed Advertising, Growth Marketing Advisory and Subscription Services Revenue Recognition
Following the acquisition of EngineRoom, the Company derives revenue from managed advertising services, and growth marketing advisory services. Managed advertising services primarily include performance and search marketing, customer engagement, communications and data services, campaign management and related digital marketing services. Growth marketing advisory services include website development and related advisory, network development, data-driven marketing insights and related consulting services. Subscription based revenue includes access to the EngineRoom platform and strategic advertising and access to search-engine optimization solutions. EngineRoom Platform generally represents an input used by the Company to deliver its services and is not a separately transferred software license.
The Company evaluates the goods and services promised in each customer contract to determine whether they are distinct performance obligations. A service is accounted for as a separate performance obligation when the customer can benefit from the service on its own or together with other readily available resources and the service is separately identifiable from the other promises in the contract. Multiple services are combined into a single performance obligation when the Company provides a significant integration service or when the services are highly interdependent or interrelated and are not separately identifiable in the context of the contract. Accordingly, the determination of whether managed advertising, subscription and growth marketing advisory services represent separate performance obligations or a single combined performance obligation is based on the specific terms of each customer contract.
Managed advertising, subscription and growth marketing advisory services generally represent a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. Revenue from these services is recognized over time because the customer simultaneously receives and consumes the benefits as the Company performs. Fixed recurring fees are recognized ratably over the applicable service period when the services are provided evenly throughout that period. The Company uses an elapsed-time output method because the recurring services are transferred to the customer in a consistent pattern over the service period.
Variable or activity-based consideration, including amounts related to advertising spend, campaign activity or other usage-based services, is recognized as the related activity is performed and the amount becomes known or determinable, to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur.
Website development, platform enhancements and similar project-based deliverables are not included within advisory services merely because they may be sold together with advisory or marketing services. The Company evaluates these deliverables separately to determine whether they are distinct performance obligations. Revenue is recognized over time when the applicable criteria for over-time recognition are met, primarily where the services performed create no alternative use to the Company and the Company has an enforceable right to payment for work completed to date.
For managed advertising services, it is an integrated managed marketing campaign that combines campaign design, keyword and bid management, budget deployment, optimization, monitoring, reporting and third-party advertising inputs. The Company generally acts as principal when it controls that integrated service before transfer, is primarily responsible for fulfillment and the acceptability of the campaign, selects and directs the third-party providers, controls the media-buying process, contracts directly with the providers, remains obligated for provider costs regardless of customer collection, and has discretion in establishing the price charged to the customer. Therefore, the Company presents the customer billings, including advertising spend and other third-party inputs, as revenue on a gross basis.
Liquidity and Capital Resources
Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our cash flows from operations and their sufficiency to fund our operating and investing activities.
As of September 30, 2026, the Company had a working capital surplus of approximately $3,717 thousand and cash and cash equivalents of approximately $8,986 thousand. For the nine months ended September 30, 2026, the Company incurred a net loss of approximately $15,775 thousand and used approximately $7,091 thousand of cash for operating activities.
Management continues to implement expense-management and working-capital initiatives and evaluate available financing sources. Certain financing sources depend on market and contractual conditions, including the Company's stock price, trading volume, continued effectiveness of applicable registration statements and compliance with contractual issuance limitations. Accordingly, the contractual capacity of these arrangements may differ from the amounts practically available to the Company. See Note 2, Summary of Significant Accounting Policies, for additional information concerning liquidity and management's going-concern assessment.
The Company's net cash flows used in operating, investing and financing activities and certain balances are as follows (in thousands):
|
Nine Months Ended September 30, 2026 |
Nine Months Ended September 30, 2025 |
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| Cash flows (used in) provided by | ||||||||
| Net cash used in operating activities | $ | (7,091 | ) | $ | (6,750 | ) | ||
| Net cash used in investing activities | (3,302 | ) | (21 | ) | ||||
| Net cash provided by financing activities | 8,308 | 6,990 | ||||||
| Effect of exchange rates on cash | (30 | ) | (11 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | $ | (2,115 | ) | $ | 208 | |||
|
September 30, 2026 |
December 31, 2025 |
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| Cash and cash equivalents | $ | 8,986 | $ | 11,101 | ||||
| Working capital surplus | $ | 3,717 | $ | 7,075 | ||||
Operating Activities for the nine months ended September 30, 2026 and September 30, 2025
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Nine Months Ended September 30, 2026 |
Nine Months Ended September 30, 2025 |
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| Net loss | $ | (15,775 | ) | $ | (7,912 | ) | ||
| Non-cash expenses | 8,347 | 956 | ||||||
| Net change in operating assets and liabilities | 337 | 206 | ||||||
| Net cash used in operating activities | $ | (7,091 | ) | $ | (6,750 | ) | ||
For the nine months ended September 30, 2026 the non-cash expenses was approximately $8,347 thousand and for the nine months ended September 30, 2025 the non-cash expenses was approximately $956 thousand:
|
Nine Months Ended September 30, 2026 |
Nine Months Ended September 30, 2025 |
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| Depreciation | $ | 30 | $ | 35 | ||||
| Amortization of intangible assets | 2,241 | 2,049 | ||||||
| Amortization of right of use asset | 249 | 280 | ||||||
| Original issue discount and transaction costs on convertible debt | 310 | 431 | ||||||
| Deferred income taxes | (20 | ) | - | |||||
| Stock-based compensation expense | 1,115 | 2,250 | ||||||
| Allowance for expected credit losses | 53 | - | ||||||
| Earn-out compensation expense | 88 | - | ||||||
| (Gain)/loss on change in fair value of derivative liability | 4,148 | (3,963 | ) | |||||
| Loss on debt extinguishment | - | 48 | ||||||
| Loss on contract to issue common stock | - | 20 | ||||||
| Loss on asset disposal | - | 4 | ||||||
| Gain (loss) on foreign currency transactions | 133 | (198 | ) | |||||
| Total non-cash expenses | $ | 8,347 | $ | 956 | ||||
The net cash provided in the change in operating assets and liabilities were approximately $337 thousand, for the nine months ended September 30, 2026 and net cash provided in the change in operating assets and liabilities were approximately $206 thousand for the nine months ended September 30, 2025:
| Changes in Operating Assets and Liabilities |
Nine Months Ended September 30, 2026 |
Nine Months Ended September 30, 2025 |
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| Accounts receivable and other receivables | $ | 378 | $ | 1,514 | ||||
| Prepaid expenses and other current assets | (177 | ) | (221 | ) | ||||
| Accounts payable | (390 | ) | 435 | |||||
| Accrued liabilities | 818 | (96 | ) | |||||
| Operating lease liabilities | (250 | ) | (295 | ) | ||||
| Deferred revenue | (78 | ) | (1,112 | ) | ||||
| Other current liabilities | 23 | - | ||||||
| Other assets | 13 | (19 | ) | |||||
| Net cash provided in the changes in operating assets and liabilities | $ | 337 | $ | 206 | ||||
Cash Flows from Investing Activities for the nine months ended September 30, 2026 and September 30, 2025
Net cash flows used in investing activities were $3,302 thousand for the nine months ended September 30, 2026, compared to net cash flows used in investing activities of $21 thousand for the nine months ended September 30, 2025. The cash flows used in investing activities for the nine months ended September 30, 2026 primarily reflected cash paid for the acquisition of EngineRoom, net of cash acquired, of $3,217 thousand, and purchases of property and equipment and capitalized software of $85 thousand.
Cash Flows from Financing Activities for the nine months ended September 30, 2026 and September 30, 2025
Net cash flows provided by financing were approximately $8,308 thousand and $6,990 thousand during the nine months ended September 30, 2026 and September 30, 2025, respectively. These cash inflows were primarily attributable to proceeds from debt and equity financings. Specifically, the first tranche of the issuance of convertible debt under the Securities Purchase Agreement ("SPA") was issued on March 27, 2026, with a principal amount of $1,050 thousand, resulting in net proceeds to the Company of approximately $990 thousand, followed by the second tranche of the issuance of convertible debt under the SPA was issued in May 26, 2026, with a principal amount of $5,250 thousand, resulting in net proceeds of the company of approximately $5,000 thousand. In addition, under its effective shelf registration statement on Form S-3, the Company commenced sales of its Class A common stock pursuant to an equity distribution agreement with Maxim Group LLC, acting as sales agent. During the period, the Company received net proceeds of approximately $2,464 thousand from the issuance of 159,913 shares of Class A common stock. The proceeds from these financing activities are intended to be used for general working capital and other general corporate purposes.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Contractual Obligations and Commitments
Contractual obligations are cash that we are obligated to pay as part of certain contracts that we have entered during our course of business. Our contractual obligations consist of operating lease liabilities that are included in our balance sheet. As of September 30, 2026, the present value of operating lease liabilities was approximately $328 thousand, consisting of $208 thousand classified as current and $120 thousand classified as noncurrent. Undiscounted lease payments due during the remainder of 2026 were $58 thousand.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. Actual results could differ materially from those estimates.
Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies. There were no significant changes during the nine months ended September 30, 2026 to the critical accounting estimates described in our Annual Report on Form 10-K for the year ended December 31, 2025, other than estimates arising from the EngineRoom acquisition, including the preliminary valuation of acquired assets and assumed liabilities, acquired intangible assets, goodwill, deferred taxes and the classification and measurement of the earn-out arrangement.
Critical Accounting Policies
Our significant accounting policies are discussed in Note 2 of the unaudited condensed consolidated financial statements which are included elsewhere in this filing.
Critical Accounting Estimates
We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on our unaudited condensed consolidated financial statements.
The acquisition of EngineRoom on June 3, 2026 introduced additional critical accounting estimates and judgments relating to the preliminary purchase-price allocation, including the valuation and useful lives of acquired intangible assets, deferred income taxes and provisional goodwill, as well as the determination of whether revenue from certain media and advertising arrangements should be presented on a gross or net basis. These estimates remain subject to refinement during the measurement period. Except for these matters, there were no significant changes during the nine months ended September 30, 2026 to the critical accounting estimates described in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
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