Quarterly Report for Quarter Ending June 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 six months ended June 30, 2026 and 2025.

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 six months ended June 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 38.5% year-over-year revenue growth during the quarter, despite the contribution from the EngineRoom acquisition being limited to less than one month of operations beginning June 3, 2026. 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.

Margin Decline through Cost Discipline: Gross profit was $1,071 thousand and $1,861 thousand for the three and six months ended June 30, 2026, respectively, compared with $1,052 thousand and $2,126 thousand for the corresponding periods in 2025. Gross margin was 63.22% and 70.39% for the three and six months ended June 30, 2026, respectively, compared with 86.02% and 86.88% for the corresponding periods in 2025. The decrease primarily reflected a shift in revenue mix following the inclusion of EngineRoom's managed advertising and growth marketing advisory services beginning June 3, 2026, which 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

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Gross margin decreased to 63.22% for the three months ended June 30, 2026 from 86.02% for the three months ended June 30, 2025. The decrease primarily reflected the inclusion of EngineRoom's 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

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During the three months ended June 30, 2026, operating expenses remained essentially flat at $5,190 thousand compared to $5,163 thousand for the three months ended June 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.

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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 June 30, 2026, cash and cash equivalents were $11,675 thousand, compared with $11,101 thousand as of December 31, 2025.

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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.

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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.

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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

Convertible Debt Conversion

On May 26, 2026, the Company issued an unsecured Pre-Paid Purchase to Avondale Capital, LLC with an original principal amount of $5,250 thousand. The Company received net proceeds of approximately $5,000 thousand after an original issue discount of $250 thousand.

Following the quarter ended June 30, 2026, the Company converted a portion of its outstanding 2025 Avondale Prepaid Purchase #4 Convertible Notes into Class A common stock. These conversions were part of the Company's ongoing efforts to reduce debt and strengthen its equity structure.

As the transactions occurred after the reporting date, they are classified as non-recognized subsequent events. In total, the Company issued approximately 7,673,664 shares of Class A common stock in connection with these conversions.

Business Combination

On June 3, 2026, the Company, through its wholly owned subsidiary CXAI Australia Pty Ltd, acquired 100% of the outstanding equity interests of Virtus Digital Marketing Pty Ltd, doing business as EngineRoom. EngineRoom provides managed advertising and growth marketing advisory services. EngineRoom's results of operations have been included in the Company's condensed consolidated financial statements from June 3, 2026. See Note 12, Business Combination, for additional information.

RESULTS OF OPERATIONS

Comparison of the results of operations for the three months ended June30, 2026 and June30, 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 June 30, 2026				Three months ended June 30, 2025
		(unaudited)				(unaudited)
Condensed Consolidated Statements of Operations Data
Revenues		$	1,694			$	1,223
Cost of revenues			(623	)			(171	)
Gross profit			1,071				1,052
Operating expenses			(5,190	)			(5,163	)
Loss from operations			(4,119	)			(4,111	)
Other income (expense), net			(5,152	)			973
Deferred tax benefit, provision (expense)			651				(1	)
Net loss		$	(8,620	)		$	(3,139	)

Revenues

The Company derives revenue from subscription software as a service (SaaS), design, deployment and implementation services for its enterprise apps business. Revenue was $1,694 thousand for the three months ended June 30, 2026, compared to $1,223 thousand for the three months ended June 30, 2025. The increase in revenue of $471 thousand, for the comparative quarters ended June 30, 2026 and June 30, 2025 was primarily contributed by the newly acquired subsidiary, EngineRoom, which added new revenue streams through managed advertising and growth marketing advisory services. 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 an decrease in the revenue from licenses during this period however, it was compensated by increase in Professional Services revenue.

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 following

		Three months ended June 30, 2026								Six months ended June 30, 2026
(in thousands)		Amount				% of Total				Amount				% of Total
Recurring revenue		$	1,557				92	%		$	2,491				94	%
Non-recurring revenue		$	137				8	%		$	153				6	%
Total revenue		$	1,694				100	%		$	2,644				100	%

Of the $1,557 thousand and $2,491 thousand for the three and six months, period ended June 30, 2026, of Recurring Revenue includes software platform, managed advertising, growth marketing advisory or other continuing services. The $137 thousand and $153 thousand for the three and six months, period ended June 30, 2026, of Non-recurring revenue consists of one-time projects, hardware and professional services.

For the three and six months, period ended June 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 $623 thousand for the three months ended June 30, 2026 compared to $171 thousand for the three months ended June 30, 2025. The gross profit margin was 63.22% for the three months ended June 30, 2026 compared to 86.02% for the three months ended June 30, 2025. This increase in cost of revenues of approximately $452 thousand, or approximately 264%, for the comparative periods ended June 30, 2026 and June 30, 2025, was attributable to higher service mix that resulted in higher direct costs during the period.

Operating Expenses

Operating expenses consist primarily of research and development, sales and marketing, and general and administrative expenses. Total operating expenses were $5,190 thousand for the three months ended June 30, 2026, compared to $5,163 thousand for the three months ended June 30, 2025.

The increase of $27 thousand period over period was primarily the result of acquisition related cost of $208 thousand incurred for acquisition of EngineRoom. Other than that, the research and development decreased by approximately $505 thousand, sales and marketing was decreased by $109 thousand which was offset by increase in general and administrative expenses of approximately $391 thousand and increase in amortization of intangibles by approximately $42 thousand.

Other Income/Expense

Other income/expenses was an expense of $5,152 thousand for the three months ended June 30, 2026 and an income of $973 for the three months ended June 30, 2025. This change was primarily attributable to changes in fair value of derivative liabilities and warrant of $5,885 thousand and increase in interest expenses of $5 thousand and other expenses of $235 thousand during the three months ended June 30, 2026.

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, non-recurring 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 June 30, 2026				Six Months Ended June 30, 2026				Three Months Ended June 30, 2025				Six Months Ended June 30, 2025
Net loss		$	(8,620	)		$	(12,623	)		$	(3,139	)		$	(4,755	)
Interest and other expense			167				186				163				194
Deferred income tax (benefit)/provision			(651	)			(649	)			1				1
Depreciation and amortization			736				1,428				695				1,390
EBITDA			(8,368	)			(11,658	)			(2,280	)			(3,170	)
Adjusted for:
Changes in fair value of derivative and warrant liabilities			5,005				4,827				(880	)			(3,076	)
Loss on debt extinguishment			-				-				-				48
Unrealized (gain) loss			85				122				(291	)			(287	)
Loss on contract to issue common stock			-				-				21				21
Stock-based compensation - compensation and related benefits			420				811				754				1,378
Adjusted EBITDA		$	(2,858	)		$	(5,898	)		$	(2,676	)		$	(5,086	)

We rely on Adjusted EBITDA, which is a non-GAAP financial measure for the following:

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To compare our current operating results with corresponding periods and with the operating results of other companies in our industry;

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As a basis for allocating resources to various projects;

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As a measure to evaluate potential economic outcomes of acquisitions, operational alternatives and strategic decisions; and

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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 income (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:

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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 including acquisition transaction and financing costs, impairment, unrealized gains, stock-based compensation, interest income and expense, and income tax benefit.

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We believe that it is useful to provide to investors with a standard operating metric used by management to evaluate our operating performance; and

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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 income (loss) and the other condensed consolidated statement of operations and comprehensive loss data prepared in accordance with GAAP. Some of these limitations include the fact that:

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Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

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Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

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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;

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Adjusted EBITDA does not reflect income or other taxes or the cash requirements to make any tax payments; and

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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 $4,455 thousand for the six months ended June 30, 2026, reflecting a net loss of $12,623 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 June 30, 2026, the Company had cash and cash equivalents of $11,675 thousand and working capital surplus of $5,258 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 electronic 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 purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software.

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.

Revenue from performance marketing, search-engine optimization, customer engagement, network-development, advisory and website-development services. Revenue recognition is determined based on the performance obligations and transfer pattern established in the applicable customer contracts.

Professional Services Revenue Recognition

The Company provides integration and software customization professional services to its customers.

Professional services under milestone contracts are accounted for using the percentage of completion method. As soon as the outcome of a contract can be estimated reliably, contract revenue is recognized in the condensed consolidated statement of operations and comprehensive loss in proportion to the stage of completion of the contract. Contract costs are expensed as incurred. Contract costs include all amounts that relate directly to the specific contract, are attributable to contract activity, and are specifically chargeable to the customer under the terms of the contract.

Professional services are also contracted on the fixed fee and in some cases on a time and materials basis. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. The Company's time and materials contracts are paid weekly or monthly based on hours worked. Revenue on time and material contracts is recognized based on a fixed hourly rate as direct labor hours are expended. Materials, or other specified direct costs, are reimbursed as actual costs and may include markup. The Company has elected the practical expedient to recognize revenue for the right to invoice because the Company's right to consideration corresponds directly with the value to the customer of the performance completed to date. For fixed fee contracts provided by in house personnel, the Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous service. Because the Company's contracts have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations. Anticipated losses are recognized as soon as they become known.

For the six months ended June 30, 2026 and June 30, 2025, the Company did not incur any such losses. These amounts are based on known and estimated factors.

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 June 30, 2026, the Company had a working capital surplus of approximately $5,258 thousand and cash and cash equivalents of approximately $11,675 thousand. For the six months ended June 30, 2026, the Company incurred a net loss of approximately $12,623 thousand and used approximately $4,455 thousand of cash for operating activities.

The Company's net cash flows used in operating, investing and financing activities and certain balances are as follows (in thousands):

		Six Months Ended June 30, 2026				Six Months Ended June 30, 2025
Cash flows (used in) provided by
Net cash used in operating activities		$	(4,455	)		$	(3,991	)
Net cash used in investing activities			(3,273	)			(16	)
Net cash provided by financing activities			8,308				3,990
Effect of exchange rates on cash			(6	)			(9	)
Net increase (decrease) in cash and cash equivalents		$	574			$	(26	)

		June 30, 2026				December 31, 2025
Cash and cash equivalents		$	11,675			$	11,101
Working capital surplus		$	5,258			$	7,075

Operating Activities for the six months ended June 30, 2026 and June 30, 2025

		Six Months Ended June 30, 2026				Six Months Ended June 30, 2025
Net loss		$	(12,623	)		$	(4,755	)
Non-cash income and expenses			7,059				(65	)
Net change in operating assets and liabilities			1,109				829
Net cash used in operating activities		$	(4,455	)		$	(3,991	)

For the six months ended June 30, 2026 the non-cash loss was approximately $7,059 thousand and for the six months ended June 30, 2025 the non-cash income was approximately $65 thousand:

		Six Months Ended June 30, 2026				Six Months Ended June 30, 2025
Depreciation		$	20			$	24
Amortization of intangible assets			1,408				1,366
Amortization of right of use asset			189				193
Accrued interest expense on promissory note and convertible debt			310				281
Stock-based compensation expense			811				1,378
Deferred tax			(651	)			-
Allowance for expected credit losses			2				-
Earn-out compensation expense			21				-
(Gain)/loss on change in fair value of derivative liability			4,827				(3,076	)
Loss on debt extinguishment			-				48
Loss on contract to issue common stock			-				20
(Loss) Gain on foreign currency transactions			122				(299	)
Total non-cash (income) / expenses		$	7,059			$	(65	)

The net cash provided in the change in operating assets and liabilities were approximately $1,109 thousand, for the six months ended June 30, 2026 and net cash provided in the change in operating assets and liabilities were approximately $829 thousand for the six months ended June 30, 2025:

Changes in Operating Assets and Liabilities		Six Months Ended June 30, 2026				Six Months Ended June 30, 2025
Accounts receivable and other receivables		$	456			$	869
Prepaid expenses and other current assets			148				(39	)
Accounts payable			30				414
Accrued liabilities and other liabilities			724				(38	)
Operating lease liabilities			(189	)			(203	)
Deferred revenue			(100	)			(155	)
Other current liabilities			23				-
Other assets			17				(19	)
Net cash provided in the changes in operating assets and liabilities		$	1,109			$	829

Cash Flows from Investing Activities for the six months ended June 30, 2026 and June 30, 2025

Net cash flows used in investing activities were $3,273 thousand for the six months ended June 30, 2026, compared to net cash flows used in investing activities of $16 thousand for the six months ended June 30, 2025. Investing activities during the six months ended June 30, 2026 related to purchase price allocation of new subsidiary, EngineRoom.

Cash Flows from Financing Activities for the six months ended June 30, 2026 and June 30, 2025

Net cash flows provided by financing were approximately $8,308 thousand and $3,990 thousand during the six months ended June 30, 2026 and June 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 7,995,651 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 June 30, 2026, the present value of operating lease liabilities was approximately $428 thousand, consisting of $258 thousand classified as current and $170 thousand classified as noncurrent. Undiscounted lease payments due during the remainder of 2026 were $143 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 six months ended June 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 Company believes there have been no significant changes during the six months ended June 30, 2026 to the items disclosed as critical accounting estimates in management's discussion and analysis in the Company's Annual Report on Form 10-K for the year ended December 31, 2025 that was filed with the SEC on March 30, 2026.