NOTE 2 - Summary of Significant Accounting Policies

Liquidity

As of June 30, 2026, the Company had cash and cash equivalents of approximately $11,675 thousand and working capital of approximately $5,258 thousand. For the three and six months ended June 30, 2026, the Company incurred net losses of approximately $8,620 thousand and $12,623 thousand, respectively. During the six months ended June 30, 2026, the Company used approximately $4,455 4,455 thousand of cash for operating activities. The Company has historically incurred recurring losses and negative cash flows from operations. These conditions and events, considered in the aggregate, raised substantial doubt about the Company’s ability to continue as a going concern.

Management evaluated plans intended to address these conditions, including reductions in discretionary expenditures, vendor and professional-fee reductions, hiring controls, active accounts-receivable management and available financing arrangements. Certain of the Company’s financing sources are dependent on market conditions, including the Company’s stock price, trading volume, registration effectiveness and compliance with contractual conditions. Accordingly, the contractual capacity of those arrangements may differ from the amount practically available to the Company.

Based on the Company’s cash on hand, forecast cash collections, planned operating expenditures and management’s plans that were considered probable of implementation and effective mitigation, management concluded that its plans alleviate the substantial doubt for at least one year from the date these unaudited condensed consolidated financial statements are issued.

On March 27, 2026, the Company entered into a Securities Purchase Agreement (“SPA”) with Avondale Capital, LLC, (“Avondale”) under which the Company may issue and sell one or more Pre-Paid Purchase Agreements for up to an aggregate of $40,000 thousand in exchange for shares of its common stock. The initial Pre-Paid Purchase, in the principal amount of $1,050 thousand, closed on March 27, 2026, the Company received net proceeds of approximately $990 thousand. A second tranche was received on May 26, 2026, with a principal amount of $5,250 thousand and net proceeds of approximately $5,000 thousand. As of June 30, 2026, approximately $33,700 thousand remained available under this agreement.

On March 26, 2025, the Company entered into a SPA with Avondale Capital, LLC, under which the Company may issue and sell one or more Pre-Paid Purchase Agreements for up to an aggregate of $20,000 thousand in exchange for shares of its common stock. The initial Pre-Paid Purchase, in the principal amount of $4,200 thousand, closed on April 8, 2025, the Company received net proceeds of approximately $3,990 thousand. A second tranche was received on August 7, 2025, with a principal amount of $3,150 thousand and net proceeds of approximately $3,000 thousand. The third tranche of the SPA was issued on October 17, 2025 with the principal amount of $5,250 thousand, of which, the Company received net proceeds of $5,000 thousand. The fourth tranche of the SPA was issued on December 30, 2025 with the principal amount of $4,200 thousand, of which, the Company received net proceeds of $4,000 thousand. As of June 30, 2026, approximately $3,200 thousand remained available under this agreement.

Additionally, under the SPA with Streeterville Capital, LLC, entered into on May 22, 2024, the Company had access to up to $10,000 thousand in funding. As of June 30, 2026 and December 31, 2025, the Company had $3,520 thousand in remaining available funding under this agreement.

On August 11, 2025, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”), authorizing the future offering and sale of up to $150,000 thousand of various securities. Concurrently, the Company filed a prospectus supplement allowing for the issuance of up to $7,959 thousand of common stock under this registration. This amount is included within the total aggregate offering authorized.

The Company commenced sales of its common stock pursuant to the shelf registration. These sales were facilitated through a third-party arrangement with Maxim Group LLC, acting as the Company’s agent under an equity distribution agreement under its At-The-Market (“ATM”) offering program. During the six months ended June 30, 2026, the Company received $2,464 thousand and issued 7,995,651 shares of class A Common Stock, which are intended to be used for general working capital and other general corporate purposes. Although the Company has remaining capacity under its ATM program, the program represents a market-dependent source of financing, and the Company’s ability to generate additional liquidity through future ATM sales is subject to factors outside its control, including market conditions and trading activity. Accordingly, no assurance can be provided regarding the amount or timing of any future proceeds.

Management’s assessment of the Company’s ability to continue as a going concern is based on its current cash position, expected operating cash requirements, and the availability of these financing sources. While access to certain capital sources is dependent on market conditions, including the Company’s stock price, trading volume, and continued effectiveness of its registration statement, management believes that its existing liquidity, combined with planned cost management initiatives and access to external capital, will be sufficient to fund operations and meet obligations as they come due for at least twelve months from the issuance date of these unaudited condensed consolidated financial statements.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates consist of:

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting U.S. GAAP applicable to interim financial information and the rules and regulations of the SEC. Accordingly, these unaudited condensed consolidated financial statements do not include all information and disclosures required by U.S. GAAP for complete annual financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the interim periods presented have been included. Such adjustments consist of normal recurring adjustments. The operating results for the three and six months ended June 30, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026 or any other interim period.

The condensed consolidated balance sheet as of December 31, 2025 was derived from the Company’s audited consolidated financial statements as of that date. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 30, 2026.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, including CXAI Australia Pty Ltd and its wholly owned subsidiary Virtus Digital Marketing Pty Ltd from June 3, 2026. All intercompany balances have been eliminated in consolidation.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, and accounts receivable. The Company’s cash is placed with high-credit-quality financial institutions, which periodically exceed federally insured limits. The Company’s cash equivalents are certificates of deposit held by a number of banks limited to $250 thousand per bank with a duration of 90 days or less. The Company has not realized any losses relating to its cash, cash equivalents, and accounts receivable. However, a material loss resulting from the failure of one or more financial institutions, or from a significant default in accounts receivable, could have a substantial adverse effect on the Company’s liquidity, financial position, and operating results. Given the concentration of these financial instruments, any unexpected credit event could impair the Company’s ability to meet its short-term obligations and fund ongoing operations. As of June 30, 2026, one customer accounted for approximately 30% of the Company’s consolidated gross accounts receivable. The concentration was attributable to accounts receivable associated with EngineRoom.

Goodwill

The Company tests goodwill for potential impairment at least annually, or more frequently if an event or other circumstance indicates that the Company may not be able to recover the carrying amount of the net assets of the reporting unit. The Company has identified one reporting unit for purposes of goodwill impairment testing based on its operating-segment structure and management’s assessment of the components that constitute businesses. In evaluating goodwill for impairment, the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If the Company bypasses the qualitative assessment, or if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.

The Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. For the market approach, the Company uses internal analyses based primarily on market comparable, including public company method, guideline transaction method, and market price method.

During the quarter ended June 30, 2026, management evaluated the qualitative factors in (“ASC 350-20, Intangibles - Goodwill and Other - Goodwill.”) ASC 350-20-35-3C, including the Company’s market capitalization, stock-price performance, recurring operating losses, cash-flow trends, prior-period impairment, industry conditions and the EngineRoom acquisition. Based on the totality of the available evidence, management concluded that it was not more likely than not that the fair value of the reporting unit was less than its carrying amount. Accordingly, a quantitative interim goodwill impairment test was not required. Accordingly, no goodwill impairment charges were recorded for the six months ended June 30, 2026. The Company had completed both qualitative and quantitative goodwill impairment assessments as of December 31, 2025, and concluded that the carrying amount of goodwill exceeded its estimated fair value. Accordingly, the Company recognized a goodwill impairment charge of $2,148 thousand for the year ended December 31, 2025. As of June 30, 2026 and December 31, 2025, the Company’s goodwill balance was $7,681 thousand and $ 6,589 thousand. During the year ended December 31, 2025, the Company recorded a goodwill impairment charge as a result of its annual impairment assessment.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Income tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain.

Australian Research and Development Tax Incentive

EngineRoom participates in the Australian Research and Development Tax Incentive program. The Company recognizes benefits relating to qualifying research and development expenditures when there is reasonable assurance that the income will be received, the relevant expenditure has been incurred and the consideration can be reliably measured. The ultimate amount of the benefit is subject to completion of the filing process and review by the applicable Australian authorities.

Management has assessed the Company’s research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the tax incentive regime described above. At each period end management estimates the refundable tax offset available to the Company based on available information at the time. This estimate is also reviewed by external tax advisors on an annual basis. For the period ended June 30, 2026, the Company has recorded research and development tax incentive income of $ 92 thousand for the three and six months ended June 30, 2026, and reported under other income in the statements of operations and comprehensive loss.

Comprehensive Loss and Foreign Currency Translation

The Company reports comprehensive loss and its components in its unaudited condensed consolidated financial statements. Comprehensive loss consists of net loss and foreign currency translation adjustments, affecting stockholders’ equity that, under GAAP, are excluded from net loss.

The functional currencies of the Company’s foreign subsidiaries include the Philippine peso, Canadian dollar and Australian dollar. Assets and liabilities of foreign operations are translated into U.S. dollars using period-end exchange rates, and revenues and expenses are translated using average exchange rates for the applicable periods. Gains or losses resulting from transactions denominated in foreign currencies are included in general and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive loss. The Company engages in foreign currency denominated transactions with customers that operate in functional currencies other than the U.S. dollar. The aggregate foreign currency net translation loss was approximately $137 thousand and $110 thousand for the three months and six months ended June 30, 2026, and the aggregate foreign currency net translation loss of approximately $301 thousand and $302 thousand for the three and six months ended June 30, 2025, respectively.

Convertible Debt

The Company issued convertible debt in the form of Pre-Paid Purchases during December 2024, March 2025 (Settled in April 2025), August 2025, October 2025, December 2025, March 2026 and May 2026 and evaluated such instruments to determine whether they contain features that qualify as embedded derivatives in accordance with ASC 815 “Derivatives and Hedging” (“ASC 815”). Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract and the features of the derivatives. In accounting for the issuance of the convertible debt, the Company elected the fair value option under ASC 825 “Financial Instruments” (“ASC 825”). Under the fair value option election, the convertible debt is initially measured at its issuance date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis. The estimated fair value adjustment is presented within change in fair value of derivative liability in the condensed consolidated statements of Operations and comprehensive loss. The Company classifies its convertible debt that are being valued under the fair value option election as Level 3 due to the lack of relevant observable market data over fair value inputs, such as the probability weighting of the various scenarios that can impact settlement of the arrangement. The Company recognized an unrealized loss on the changes in the estimated fair value of the convertible debt of approximately $4,479 thousand and $4,679 thousand, respectively, and $382 thousand and $500 thousand, respectively, for the three and six months ended June 30, 2026 and June 30, 2025, respectively.

Debt Issuance Costs

Under the fair value option election, costs directly associated with the borrowing are expensed as incurred.

Note Conversion

Convertible notes that are exchanged for equity pursuant to their original contractual terms are accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options. Upon conversion, the carrying amount of the convertible debt is reclassified to equity. No gain or loss is recognized in earnings, as the conversion is executed under the original terms of the instrument.

If the debt is settled under modified terms, the transaction is accounted for in accordance with ASC 470-50, “Debt - Modifications and Extinguishments” (“ASC 470-50”). In such cases, a gain or loss is recognized equal to the difference between the reacquisition price and the net carrying amount of the extinguished debt.

Revenue Recognition

The Company recognizes revenue, in accordance with ASC 606 “Revenue from Contracts with Customers” (“ASC 606”), when control is transferred of the promised products or services 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 and other professional services for work performed in conjunction with its cloud-based software. 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.

The standard introduces a five-step model for revenue recognition. The five steps are shown below:

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 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.

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.

Contract Balances

The timing of the Company’s revenue recognition may differ from the timing of invoicing to and payment by its customers. The Company records an unbilled receivable when revenue is recognized prior to invoicing and the Company has an unconditional right to payment. Alternatively, when invoicing a customer precedes the Company providing of the related services, the Company records deferred revenue until the performance obligations are satisfied.

The Company had deferred revenue of approximately $1,365 thousand and $1,465 thousand as of June 30, 2026 and December 31, 2025, respectively, related to customer invoices rendered in advance for software licenses and professional services provided by the Company’s technical staff. The Company expects to satisfy its remaining performance obligations for the deferred revenue associated with professional services, and recognize the deferred revenue related to licenses generally over the remaining contract term which is generally twelve months following the commencement of the license.

The Company recognized revenue in the reporting periods of $445 thousand and $1,087 thousand, $787 thousand and $1,778 thousand, that was included in the contract liability balance at the beginning of the period, for the three and six months ended June 30, 2026 and June 30, 2025, respectively.

Costs to Obtain a Contract

The Company recognizes eligible sales commissions as an asset within prepaid expenses and other current assets as the commissions are an incremental cost of obtaining a contract with the customer and the Company expects to recover these costs. The capitalized costs are amortized over the expected contract term. The Company has elected the practical expedient to recognize incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that otherwise would have been recognized is one year or less.

Cost to Fulfill a Contract

The Company incurs costs to fulfill their obligations under a contract once it has obtained the contract. These costs are generally not significant and are recorded to expense as incurred.

Multiple Performance Obligations

The Company enters into contracts with customers for its technology that include multiple performance obligations. Each distinct performance obligation was determined by whether the customer could benefit from the good or service on its own or together with readily available resources. The Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company’s process for determining standalone selling price considers multiple factors including the Company’s internal pricing model and market trends that may vary depending upon the facts and circumstances related to each performance obligation.

Sales and Use Taxes

The Company presents transactional taxes such as sales and use tax collected from customers and remitted to government authorities on a net basis.

Shipping and Handling Costs

Shipping and handling costs are expensed as incurred as part of cost of revenues. These costs were deemed to be de minimis during each of the reporting periods.

Business Combinations

The Company accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC 805”) “Business Combinations” using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair value is recorded as goodwill. All acquisition costs are expensed as incurred. Upon acquisition, the accounts and results of operations are included as of and subsequent to the acquisition date. Provisional amounts may be adjusted during the measurement period as additional information about facts and circumstances existing as of the acquisition date becomes available.

Segments

The Company identifies operating segments based on the components for which separate financial information is available and whose operating results are regularly reviewed by the chief operating decision maker. The Company’s Chief Executive Officer has been identified as its chief operating decision maker. The Company evaluates a reporting unit by first identifying its operating segments under Segment Reporting (“ASC 280”). The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has one operating segment and reporting unit. The Company is organized and operated as one business. Management reviews its business as a single operating segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate.

Stock-based Compensation

The Company measures the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The Company has issued stock-based compensation awards in the form of options and restricted stock units. The grant date fair value is recognized over the requisite service period during which an employee and non-employee is required to provide service in exchange for the award.

The grant date fair value of options is estimated using the Black-Scholes option pricing model based on the average of the high and low stock prices at the grant date for awards under the CXApp Inc. 2023 Equity Incentive Plan (the “Incentive Plan”). The risk-free interest rate assumptions were based upon the observed interest rates appropriate for the expected term of the equity instruments. The expected dividend yield is assumed to be zero as the Company has not paid any dividends since its inception and does not anticipate paying dividends in the foreseeable future. The Company uses the simplified method to estimate the expected term.

For stock-based awards that contain a market condition, including vesting conditions based on the Company’s stock price or total stockholder return, the effect of the market condition is reflected in the grant-date fair value of the award. The grant-date fair value of such awards is estimated using an appropriate valuation technique, such as a Monte Carlo simulation model, that incorporates the probability of satisfying the market condition.

Compensation expense for an award containing a market condition is recognized over the applicable requisite service period when the requisite service is rendered, regardless of whether the market condition is ultimately achieved. Compensation cost is not subsequently reversed solely because the market condition is not satisfied.

The grant date fair value for restricted stock units is valued using the closing price of the Company’s common stock on the date of grant.

The Company estimates forfeitures at the time of grant and revises these estimates in subsequent periods if actual forfeitures differ from those estimates.

Earnings Per Share

The Company computes basic and diluted earnings per share by dividing net income by the weighted average number of common shares outstanding during the periods. Diluted earnings per share are similarly calculated with the inclusion of dilutive common stock equivalents. For the six months ended June 30, 2026 and June 30, 2025, basic and dilutive net loss per common share were the same since the inclusion of common shares issuable pursuant to the exercise of options, warrants, and vesting of restricted units in the calculation of diluted net loss per common shares would have been anti-dilutive.

The following table summarizes the number of common shares and common share equivalents excluded from the calculation of diluted net loss per common share for the six months ended June 30, 2026 and June 30, 2025.

Fair Value Measurements

FASB ASC 820, “Fair Value Measurements” (“ASC 820”), provides guidance on the development and disclosure of fair value measurements. The Company follows this authoritative guidance for fair value measurements, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States, and expands disclosures about fair value measurements. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management. The fair value of the warrants has been measured based on the listed market price of such warrants, a Level 1 measurement. The fair value of the private placement warrants is measured using the quoted market price of the public warrants as an observable input, a Level 2 measurement, because the private placement warrants are not actively traded and there are no observable market inputs specific to those warrants. The Company recognized in the condensed consolidated Statements of Operations and Comprehensive Loss, an unrealized loss on its warrant liabilities (comprising both public and private placement warrants) of $526 thousand and $148 thousand, respectively, for the three and six months ended June 30, 2026 and an unrealized gain of $1,262 thousand and $3,576 thousand, respectively, for the three and six months ended June 30, 2025 respectively.

The following table presents information about the Company’s financial liabilities that were measured at fair value on a recurring basis as of June 30, 2026 and December 31, 2025, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

The Company accounts for its public and private warrants as a derivative liability initially measured at its fair values and remeasured in the condensed consolidated statements of operations and comprehensive loss at the end of each reporting period. When the warrants are exercised, the corresponding derivative liability is de-recognized at the underlying fair value of the Class A common stock that is issued to the warrant holder less any cash paid in accordance with the warrant agreement. Upon either cash or cashless exercise, the de-recognized derivative liability results in an increase in additional paid in capital equal to the difference between the fair value of the underlying Class A common stock and its par value. A cashless exercise results in the warrant holder surrendering Class A common stock equal to the stated warrant exercise price based on the contractual terms in the warrant agreement that governs the cashless conversion.

The following table shows the changes in fair value of the liabilities for the six months ended June 30, 2026 and June 30, 2025:

The Company accounts for convertible debt under the fair value option election using Level 3 inputs. For the three and six months ended June 30, 2026 and June 30, 2025, the Company recognized an unrealized loss in the condensed consolidated Statements of Operations and Comprehensive Loss of $4,479 thousand and $4,679 thousand, respectively, and $382 thousand and $500 thousand, respectively, which are presented as a change in fair value of derivative liability. See additional details within Note 7, Convertible debt.

The significant inputs in the valuation models for each of the three issuances were as follows:

Avondale (2025)

Pre-Paid Purchase #4

Avondale (2026)

Pre-Paid Purchase #1

Avondale (2026)

Pre-Paid Purchase #2

Streeterville

Pre-Paid Purchase #3

Avondale (2025)

Pre-Paid Purchase #1

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts receivable, unbilled and other receivables and accounts payable. The Company determines the estimated fair value of such financial instruments presented in the unaudited condensed consolidated financial statements is equal to its carrying value due to their short-term nature.

Carrying Value, Recoverability and Impairment of Long-Lived Assets

The Company follows FASB ASC 360 “Property, Plant, and Equipment” (“ASC 360”) for its long-lived assets. Pursuant to ASC 360-10-35-17, an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC 360-10-35-20 if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited.

Pursuant to ASC 360-10-35-21, the Company’s long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The Company considers the following to be some examples of such events or changes in circumstances that may trigger an impairment review: (a) significant decrease in the market price of a long-lived asset (asset group); (b) a significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition; (c) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator; (d) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group); (e) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group); and (f) a current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company tests its long-lived assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

Based on its assessments, the Company recorded no impairment charges on long-lived assets for the six months ended June 30, 2026 and June 30, 2025.

Recently Adopted Accounting Pronouncement

In November 2024, the FASB issued ASU No. 2024-04 “Debt—Debt with Conversion and Other Options (Subtopic 470-20)”. The amendment requires companies to apply a preexisting contract approach. Under this approach, a settlement qualifies for induced conversion accounting if the inducement offer preserves the form of consideration and results in an amount of consideration that is no less than that issuable pursuant to the preexisting conversion privileges. The ASU is effective for annual and interim reporting periods in fiscal years beginning after December 15, 2025, with early adoption permitted for entities that have adopted the amendments in ASU 2020-06. The Company adopted this guidance effective January 1, 2026. The adoption of ASU 2024-04 did not have a material impact on the Company’s unaudited condensed consolidated financial statements for the six months ended June 30, 2026.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. The practical expedient allows companies to assume the current conditions as of the balance sheet date do not change for the remaining life of the asset when measuring credit losses. The amendments in ASU 2025‑05 are effective for annual reporting periods beginning after December 15, 2025, and interim periods within those annual reporting periods. The Company adopted this guidance effective January 1, 2026. The adoption of ASU 2025‑05 did not have a material impact on the Company’s unaudited condensed consolidated financial statements for the six months ended June 30, 2026.

Recently Issued Accounting Standards Not Yet Adopted

In November 2024, the FASB issued ASU No. 2024-03 “Disaggregation of Income Statement Expenses”. The amendment requires more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, amortization, and depletion) included in certain expense captions presented on the face of the income statement. This ASU is effective for fiscal years beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to unaudited condensed consolidated financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the unaudited condensed consolidated financial statements. We are currently evaluating the impact this ASU will have on our disclosures.

In May 2025, the FASB issued ASU 2025-04, “Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer”. The amendments clarify the accounting for share-based consideration payable to a customer in connection with the sale of goods or services, including the measurement date, vesting conditions and recognition of the resulting reduction in the transaction price. The amendments are effective for annual and interim reporting periods in fiscal years beginning after December 15, 2026, with early adoption permitted. The Company is currently evaluating the impact of adopting this guidance on its condensed consolidated financial statements and related disclosures.

In September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which modernizes the accounting for internal-use software to current development practices, clarifies when to begin capitalizing costs, and enhances disclosure requirements. The amendments in ASU 2025-06 are effective for annual periods beginning after December 15, 2027, and interim periods within those annual reporting periods. Early adoption is permitted. The Company is currently evaluating the impact of this standard on the Company’s unaudited condensed consolidated financial statements.

In December 2025, the FASB issued ASU 2025-11, “Interim Reporting (Topic 270): Narrow-Scope Improvements”. The amendments improve the organization and clarity of the interim reporting guidance and establish a principle requiring disclosure of events and changes since the end of the most recent annual reporting period that have a material effect on an entity. The amendments are effective for interim periods beginning after December 15, 2027 for public business entities, with early adoption permitted. The Company is currently evaluating the impact of adopting this guidance on its interim financial statement disclosures.

NOTE 1 - Organization, Nature of Business and Basis of Presentation

CXApp Inc. and its subsidiaries (“CXApp” or the “Company”) is in the business of delivering intelligent enterprise workplace experiences. The CXApp SaaS platform is anchored on the intersection of customer experience (CX) and artificial intelligence (AI) providing digital transformation for the physical workplace for enhanced experiences across people, places and things.

The CXApp SaaS platform offers a suite of leading-edge technology workplace experience solutions including an enterprise employee application, indoor mapping, on-device positioning, augmented reality technologies, generative AI applications and an AI-based analytics platform, targeting the emerging hybrid workplace market. CXApp creates a connected workplace by reducing app overload, data fragmentation, and complex workflows and streamlines all capabilities through The Workplace SuperApp. All features, services and integrations are housed in one easy-to-access platform allowing businesses to deliver a more holistic employee experience in a hybrid workplace.

On June 3, 2026, the Company, through its subsidiary CXAI Australia Pty Ltd, acquired 100% of the outstanding equity interests of Virtus Digital Marketing Pty Ltd, doing business as EngineRoom (“EngineRoom”). EngineRoom provides managed advertising and growth marketing advisory services. Its results of operations have been included in the Company’s unaudited condensed consolidated financial statements from the acquisition date. See Note 12, Business Combination.

NOTE 7 - Convertible Debt

Securities Purchase Agreement with Avondale Capital, LLC - March 2025

On March 26, 2025, the Company entered into a Securities Purchase Agreement (“SPA”) with Avondale Capital, LLC (“Avondale”), pursuant to which the Company may issue and sell up to $20,000 thousand of Pre-Paid Purchase agreements (“Pre-Paid Purchases”) in tranches over time. The initial Pre-Paid Purchase (“Pre-Paid Purchase #1”) included a $4,200 thousand Pre-Paid Purchase, structured with a $200 thousand original issue discount (“OID”) and $10 thousand in transaction-related fees, resulting in net proceeds of $3,990 thousand, received on April 8, 2025.

In connection with the initial closing, the Company was required to issue 80,000 commitment shares to Avondale. On March 26, 2025, the Company recorded a liability of $69 thousand for the shares to be issued under the contract to issue common stock. On May 8, 2025, the Company issued the Class A Common Stock and recognized a loss of $20 thousand upon issuance.

The Avondale convertible Pre-Paid Purchase #1 accrues interest on the outstanding balance at 5% per annum. Avondale may convert all or any part of the outstanding balance of the Avondale convertible Pre-Paid Purchase #1 at any time following earlier of six months from the purchase price date and the effectiveness of the Initial Registration Statement by providing a written notice, in cash or converting into shares of the Company’s common stock at a price equal to the lower of (a) Fixed Price of $1.106 and (b) Market Price which is 91% multiplied by the lowest daily volume weighted average price (“VWAP”) during the ten (10) consecutive trading days immediately prior to the written notice date, but in any event not lower than the Floor Price of $0.1843, subject to certain adjustments and ownership limitations specified in the Avondale convertible Pre-Paid Purchase #1. For the three and six months ended June 30, 2026, the Company recognized an unrealized loss on change in fair value of Pre-Paid Purchase #1 of $0 and $78 thousand. For the three months and six months ended June 30, 2025, the Company recognized an unrealized loss on change in fair value of Pre-Paid Purchase #1 of $195 thousand.

On August 7, 2025, the Company issued an unsecured convertible Pre-Paid Purchase #2 to Avondale, pursuant to the SPA. The convertible Pre-Paid Purchase #2 has the original principal amount of $3,150 thousand and Avondale gave consideration of $3,000 thousand, reflecting original issue discount of $150 thousand. On August 7, 2025, the Company received the net proceeds from Avondale.

The Avondale convertible Pre-Paid Purchase #2 accrues interest on the outstanding balance at 5% per annum. Avondale may convert all or any part of the outstanding balance of the Avondale convertible Pre-Paid Purchase #2 at any time following earlier of six months from the purchase price date and the effectiveness of the Initial Registration Statement by providing a written notice, and converting into shares of the Company’s common stock at a price equal to the lower of (a) Fixed Price of $1.0957 and (b) Market Price which is 91% multiplied by the lowest daily volume weighted average price (“VWAP”) during the ten (10) consecutive trading days immediately prior to the written notice date, but in any event not lower than the Floor Price of $0.1826, subject to certain adjustments and ownership limitations specified in the Avondale convertible Pre-Paid Purchase #2. For the three and six months ended June 30, 2026, the Company recognized an unrealized loss on change in fair value of Pre-Paid Purchase #2 of $24 thousand and $501 thousand.

On October 17, 2025, the Company issued an unsecured convertible Pre-Paid Purchase #3 to the Lender, pursuant to the SPA. The convertible Pre-Paid Purchase #3 has the original principal amount of $5,250 thousand and Lender gave consideration of $5,000 thousand, reflecting original issue discount of $250 thousand. On October 17, 2025, the Company received the net proceeds from the Lender.

The convertible Pre-Paid Purchase #3 accrues interest on the outstanding balance at 5% per annum. The Lender may convert all or any part of the outstanding balance of the convertible Pre-Paid Purchase #3, at any time following earlier of six months from the purchase price date and the effectiveness of the Initial Registration Statement by providing a written notice, and converting into shares of the Company’s common stock at a price equal to the lower of (a) Fixed Price of $0.9142 and (b) Market Price which is 91% multiplied by the lowest daily volume weighted average price (“VWAP”) during the ten (10) consecutive trading days immediately prior to the written notice date, but in any event not lower than the Floor Price of $0.1524, subject to certain adjustments and ownership limitations specified in the convertible Pre-Paid Purchase. As of December 31, 2025, Pre-Paid Purchase #3 is recorded at fair value of $4,683 and is within convertible debt on the accompanying unaudited condensed consolidated balance sheets. For the three and six months ended June 30, 2026, the Company recognized an unrealized loss on change in fair value of Pre-Paid Purchase #3 of $903 thousand and $727 thousand, respectively.

On December 30, 2025, the Company issued an unsecured convertible Pre-Paid Purchase #4 to the Lender, pursuant to the SPA. The convertible Pre-Paid Purchase #4 has the original principal amount of $4,200 thousand and Lender gave consideration of $4,000 thousand, reflecting original issue discount of $200 thousand. On December 31, 2025, the Company received the net proceeds from the Lender.

The convertible Pre-Paid Purchase #4 accrues interest on the outstanding balance at 5% per annum. The Lender may convert all or any part of the outstanding balance of the convertible Pre-Paid Purchase #4, at any time following earlier of six months from the purchase price date and the effectiveness of the Initial Registration Statement by providing a written notice, and converting into shares of the Company’s common stock at a price equal to the lower of (a) Fixed Price of $0.3677 and (b) Market Price which is 91% multiplied by the lowest daily volume weighted average price (“VWAP”) during the ten (10) consecutive trading days immediately prior to the written notice date, but in any event not lower than the Floor Price of $0.0613, subject to certain adjustments and ownership limitations specified in the convertible Pre-Paid Purchase. As of June 30, 2026, Pre-Paid Purchase #4 is recorded at fair value of $4,028 thousand and is within convertible debt on the accompanying condensed consolidated balance sheets. For the three and six months ended June 30, 2026, the Company recognized an unrealized loss on change in fair value of Pre-Paid Purchase #4 of $206 thousand and $32 thousand, respectively.

Securities Purchase Agreement with Avondale Capital, LLC – March 2026

On March 27, 2026, the Company entered into a Securities Purchase Agreement (“SPA”) with Avondale Capital, LLC (“Avondale”), pursuant to which the Company may issue and sell up to $40,000 thousand of Pre-Paid Purchase agreements (“Pre-Paid Purchases”) in tranches over time. The initial Pre-Paid Purchase (“Pre-Paid Purchase #1”) included a $1,050 thousand Pre-Paid Purchase, structured with a $50 thousand original issue discount (“OID”) and $10 thousand in transaction-related fees, resulting in net proceeds of $990 thousand, received on March 27, 2026.

On March 27, 2026, the Company issued an unsecured convertible Pre-Paid Purchase #1 to the Lender, pursuant to the SPA. The convertible Pre-Paid Purchase #1 has the original principal amount of $1,050 thousand and Lender gave consideration of $990 thousand, reflecting an original issue discount of $50 thousand and $10 thousand of transaction-related fees. On March 27, 2026, the Company received the net proceeds from the Lender.

The convertible Pre-Paid Purchase #1 accrues interest on the outstanding balance at 5% per annum. The Lender may convert all or any part of the outstanding balance of the convertible Pre-Paid Purchase #1, at any time following earlier of six months from the purchase price date and the effectiveness of the Initial Registration Statement by providing a written notice, and converting into shares of the Company’s common stock at a price equal to the lower of (a) Fixed Price of $0.2614 and (b) Market Price which is 91% multiplied by the lowest daily volume weighted average price (“VWAP”) during the ten (10) consecutive trading days immediately prior to the written notice date, but in any event not lower than the Floor Price of $0.0436, subject to certain adjustments and ownership limitations specified in the convertible Pre-Paid Purchase. As of June 30, 2026, Pre-Paid Purchase #1 is recorded at fair value of $1,162 thousand and is within convertible debt on the accompanying condensed consolidated balance sheets. For the three and six months ended June 30, 2026, the Company recognized an unrealized loss on change in fair value of Pre-Paid Purchase #1 of $118 thousand and $112 thousand.

On May 26, 2026, the Company issued an unsecured convertible Pre-Paid Purchase #2 to the Lender, pursuant to the SPA. The convertible Pre-Paid Purchase #2 has the original principal amount of $5,250 thousand and Lender gave consideration of $5,000 thousand, reflecting an original issue discount of $250 thousand. On May 26, 2026, the Company received the net proceeds from the Lender.

The convertible Pre-Paid Purchase #2 accrues interest on the outstanding balance at 5% per annum. The Lender may convert all or any part of the outstanding balance of the convertible Pre-Paid Purchase #2, at any time following earlier of six months from the purchase price date and the effectiveness of the Initial Registration Statement by providing a written notice, and converting into shares of the Company’s common stock at a price equal to the lower of (a) Fixed Price of $0.2087 and (b) Market Price which is 91% multiplied by the lowest daily volume weighted average price (“VWAP”) during the ten (10) consecutive trading days immediately prior to the written notice date, but in any event not lower than the Floor Price of $0.035, subject to certain adjustments and ownership limitations specified in the convertible Pre-Paid Purchase. As of June 30, 2026, Pre-Paid Purchase #2 is recorded at fair value of $4,872 thousand and is within convertible debt on the accompanying condensed consolidated balance sheets. For the three months ended June 30, 2026, the Company recognized an unrealized gain on change in fair value of Pre-Paid Purchase #2 of $378 thousand.

The following table presents changes in convertible debt measured at fair value as of June 30, 2026 and December 31, 2025.