CID Holdco, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Please read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included in this filing. Some of the information contained in this discussion and analysis, including information regarding our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should carefully consider the substantial risks and uncertainties that could impact our business, results of operations, and financial condition. In particular, we encourage you to review the risks and uncertainties described under “Risks Relating to Our Business and Industry” in our Annual Report on Form 10-K filed with the SEC on March 11, 2026, as well as other risk factors disclosed elsewhere in that filing and in this Quarterly Report. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this Form 10-Q or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition, or results of operations. These statements speak only as of their respective dates (unless otherwise indicated), and we undertake no obligation to update or revise them in light of future developments, except as required by law. Overview CID Holdco, Inc. (the “Company”, or “CID Holdco”, or “CID”), formerly known as SEE ID Inc., dba Dot AI (the “Legacy Company” or “SEE ID”), was incorporated in Delaware with its headquarters in Las Vegas, Nevada. The Company helps businesses transform their operations by optimizing safety, security, and efficiency of operations through real-time tracking of resources. Through the Company’s extensive research and development initiatives, the Company’s main focus includes areas such as Industrial IoT, Indoor and Outdoor tracking with seamless transitions, Passive RFID (including Bluetooth and 5G), Collision Avoidance, real-time locating system, Dolly Management, and related supported software applications. The Company is the developer of an asset tracking platform intended to push the limits of near real-time precision-based location technology. The Company’s platform leverages the technologies including the patented passive and active RFID tracking solutions, low power edge camera platforms utilizing artificial intelligence, enabling users to give accuracy to all mapping technologies in areas that are troublesome. Through its technological solutions, the Company serves multiple industries including construction, military, mining, retail, warehousing, and manufacturing. The Company is headquartered in Las Vegas, NV with our management and administrative staff located in Bethesda, MD for East Coast customer engagements and government lobbying activity. We also manufacture hardware in Puerto Rico through our wholly owned subsidiary Dot Works. Our development team and Design for Manufacturing (“DFM”) capability is built around our Chief Technology Officer (“CTO”) in Worcester, MA and our core software team is in Bangalore, India. However, as part of measures implemented to preserve liquidity while the Company evaluated financing opportunities, effective May 25, 2026, the Company implemented a temporary furlough of its employees and suspended its manufacturing operations. Accordingly, as of June 30, 2026, the Company was not conducting active manufacturing operations. During the furlough period, the Company continued to maintain its executive team, whose members agreed to salary deferrals and reductions, as applicable, together with a limited number of independent contractors primarily based in India to service existing customers and support core initiatives. The Company intends to resume operations and recall employees as liquidity and operational circumstances permit. Throughout this Quarterly Report, unless otherwise noted or otherwise suggested by context, the “Company”, “we”, “us”, “our” refers to SEE ID and Dot Works, as applicable, prior to the consummation of the Business Combination (as defined below), and CID Holdco, SEE ID, and Dot Works, collectively, after the consummation of the Business Combination. 29 Reverse Stock Split On May 29, 2026, the Company effected a 1-for-25 reverse stock split of its common stock, as previously approved by the Company’s stockholders and Board of Directors. The Company’s common stock began trading on a split-adjusted basis on Nasdaq on June 1, 2026. The Reverse Stock Split reduced the Company’s outstanding common shares from approximately 30.26 million shares to approximately 1.21 million shares and did not change the par value or authorized number of shares. All share and per-share amounts presented in the condensed consolidated financial statements and related disclosures have been retrospectively adjusted, where applicable, to reflect the Reverse Stock Split. Business Combination On June 18, 2025 (the “Closing Date”) the Company consummated the Business Combination transactions by and among the Company, ShoulderUp Technology Acquisition Corp (“SUAC” or “ShoulderUp”), ShoulderUp Merger Sub, Inc., SEI Merger Sub, Inc., and SEE ID, Inc. Pursuant to the Business Combination Agreement, on the Closing Date, (i) ShoulderUp Merger Sub merged with and into SUAC (the “ShoulderUp Merger”), with SUAC surviving the ShoulderUp Merger as a wholly-owned subsidiary of the Company; and (ii) simultaneously with the ShoulderUp Merger, SEI Merger Sub merged with and into SEE ID (“the SEE ID Merger”), with SEE ID surviving the SEE ID Merger as a wholly-owned subsidiary of the Company (the ShoulderUp Merger and the SEE ID Merger, together the “Mergers” and together with the other transactions contemplated by the Business Combination Agreement, the “Business Combination”). In connection with the Business Combination, CID Holdco filed a registration statement on Form S-4 (File No. 333-282600) (as amended, the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC”). On June 18, 2025, the Registration Statement was declared effective by the SEC. At Closing, the assets and liabilities of Legacy Company were combined with the assets and liabilities ShoulderUp Technology Acquisition Corp on a historical cost basis. All Legacy Company Common Stock was exchanged for Common Stock of the Company based upon the exchange ratio as defined in the Business Combination Agreement as Aggregate Merger Consideration (13,000,000 CID Holdco shares, equivalent to 520,000 shares after giving effect to the Company’s 1-for-25 reverse stock split.) divided by the Company’s Fully Diluted Common Stock (159,915,641, equivalent to approximately 6,396,626 shares after giving effect to the reverse stock split). Stock options of Legacy Company were not exercised and remain outstanding after giving effect to the exchange ratio. In connection with the Business Combination, we incurred transaction costs, settled certain SUAC related party notes through the issuance of common shares, converted SAFE notes into Common Stock of the Company, and raised cash proceeds from PIPE investors. Additional information regarding the Business Combination and Reverse Recapitalization is provided in Note 4 to the condensed consolidated financial statements. Factors Affecting Our Performance Acquiring New Customers We believe that we have a substantial opportunity to grow our customer base. We intend to drive new customer acquisition by continuing to invest significantly in sales and marketing to engage our prospective customers, increase brand awareness, and drive adoption of our Dot Cloud platform. Our ability to attract new customers depends on a number of factors, including the effectiveness of our sales and marketing efforts, macroeconomic factors and their impact on our customers’ businesses, and the success of our efforts to expand internationally. 30 Expanding Within Our Existing Customer Base We believe that there is a significant opportunity to expand sales to existing customers following their initial adoption of our Dot Cloud. We will expand our customer base by selling more applications and expanding use of existing applications across geographies and divisions. Our ability to expand within our customer base will depend on a number of factors, including our customers’ satisfaction, pricing, competition, macroeconomic factors, and changes in our customers’ spending levels. While there are many factors involved in this expansion, the Customer Success department will be the key internal driver to retention and expansion of customer revenue. At this juncture, it is not a significant part of our operational expense but will be built out as our bookings increase and our channel support requirements come online. Investments in Innovation and Future Growth Our market leadership is supported by continuous innovation in our Dot Cloud, our inventions in IoT data collection and our advances in applying AI to our customer problem sets. We will continuously invest in adding new applications and methods to our solutions. As such, spending on research and development will always be an important part of our strategy, however, the driving force that will fuel our company is market growth. Our recent pivot to move most of our spending to Sales and Marketing shows a commitment to our go-to-market strategy. We recognize the need to increase adoption and expand brand awareness as we increase market share. Adding additional compliance and oversight resources as we grow, and especially as we adapt to operating as a public entity, is a natural and essential step. In addition, our small operations team will continue to grow as the demand increases from our maturing sales pipeline. Components of Results of Operations Revenue We will provide access to our Dot Cloud through subscription arrangements, where the customer is charged a per-subscription fee for access for a specified term. Subscription agreements will contain multiple service elements for one or more of our cloud-based Applications via mobile app(s) or a website that enables data collection and provides access to the cellular network, IoT devices (which we also refer to as connected devices), and support services delivered over the term of the arrangement. Our subscription contracts will typically have an initial term of three to five years and are generally non-cancellable and non-refundable, subject to limited exceptions under our standard terms of service and other exceptions for public sector customers, who are often subject to annual budget appropriations cycles. Our Connected Dot Cloud and IoT devices are highly integrated with the subscription service and together will represent a single performance obligation. Revenues attributable to this combined performance obligation are recognized over time as the services are delivered. We also provide professional services including onboarding (implementation) services, marketing services, and product consulting. These services were evaluated to be distinct and are treated as separate performance obligations from the subscription services. Revenue related to these services are recognized over time as services are performed. Allocation of Overhead Costs Overhead costs that are not directly attributable to a specific functional group are allocated based on relative usage. These costs include expenses related to warehouse lease and cloud hosting services. 31 Cost of Goods Sold Cost of goods sold consists primarily of cellular-related costs, third-party cloud infrastructure expenses, customer support costs, warranty charges, employee-related costs directly associated with our customer support and operations, including salaries, employee benefits and share-based compensation, amortization of internal-use software development, certain cloud computing implementation costs, expenses related to shipping and handling, packaging, fulfillment, warehousing, write-downs of excess and obsolete inventory, and allocated overhead costs. As our customers expand and increase the use of our Dot Cloud driven by additional IoT devices and Applications, our cost of goods sold may vary from quarter to quarter as a percentage of our revenue due to the timing and extent of these expenses. We intend to continue to invest additional resources in our Dot Cloud and customer support and operations personnel as we grow our business. The level and timing of investment in these areas will affect our cost of goods sold in the future. Operating Expenses Research and development Research and development expenses consist primarily of employee-related costs, including salaries, employee benefits and share-based compensation, depreciation and other expenses related to prototyping IoT devices, product initiatives, software subscriptions, hosting used in research and development, and allocated overhead costs. We continue to focus our research and development efforts on adding new features and products and enhancing the utility of our Dot Cloud. We capitalize the portion of our internal-use software development costs that meets the criteria for capitalization. We expect our research and development expenses to generally increase in absolute dollars for the foreseeable future as we continue to invest in research and development efforts to enhance our Dot Cloud. Our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses. Sales and marketing Sales and marketing expenses consist primarily of employee-related costs directly associated with our sales and marketing activities, including salaries, employee benefits and share-based compensation, and sales commissions. Sales and marketing expenses also include expenditures related to advertising, media, marketing, promotional costs, free trial expenses, brand awareness activities, business development, corporate partnerships, travel, conferences and events, professional services, and allocated overhead costs. We also have a heavy reliance on contracted services in these areas which are reflected in the department spend. We plan to continue to invest in sales and marketing to grow our customer base and increase our brand awareness. As a result, we expect our sales and marketing expenses to increase in absolute dollars for the foreseeable future. Our sales and marketing expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses. General and administrative General and administrative expenses consist of employee-related costs for executive, finance, legal, human resources, facilities, and certain IT personnel, including salaries, employee benefits and share-based compensation, professional fees for external legal, accounting, recruiting and other consulting services, credit losses, allocated overhead costs, and unallocated lease costs. We expect our general and administrative expenses to continue to increase in absolute dollars for the foreseeable future to support our growth as well as additional costs associated with legal, accounting, compliance, insurance, investor relations, and other areas associated with being a public company. Our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses. 32 Interest expense Interest expense consists primarily of interest incurred for our short-term loans. Change in fair value of SAFE agreements The change in the fair value of SAFE agreements represents the unrealized gains or losses resulting from the fluctuations in the estimated fair value of the outstanding SAFE agreements, or reevaluation of updated market conditions and company-specific factors. A SAFE agreements were converted to common shares in 2025. Results of Operations Revenue, Cost of Goods Sold, Gross Profit, and Gross Margin Our total revenue, cost of goods sold, gross profit, and gross margin for the three and six months ended June 30, 2026 and 2025 are summarized as follows: For the Three Months Ended June 30, 2026 2025 $ Change % Change Revenue $ 12,398 $ 126,833 $ (114,435 ) (90.2 )% Cost of goods sold 6,638 67,194 (60,556 ) (90.1 )% Gross profit $ 5,760 $ 59,639 $ (53,879 ) (90.3 )% Gross margin % 46.5 % 47.0 % For the Six Months Ended June 30, 2026 2025 $ Change % Change Revenue $ 24,612 $ 479,331 $ (454,719 ) (94.9 )% Cost of goods sold 9,304 84,272 (74,968 ) (89.0 )% Gross profit $ 15,308 $ 395,059 $ (379,751 ) (96.1 )% Gross margin % 62.2 % 82.4 % Revenue decreased by $114,435, or 90.2%, and $454,719, or 94.9%, for the three and six months ended June 30, 2026, respectively, compared to the corresponding periods in 2025. Revenue for the three and six months ended June 30, 2026 was primarily comprised of SaaS subscription revenue generated from the Company’s internally developed software platform, while revenue for the corresponding periods in 2025 was primarily derived from the sale and delivery of hardware products, including bridges, labels and gateways, as well as feasibility studies provided to customers. Cost of goods sold decreased by $60,556, or 90.1%, and $74,968, or 89.0%, for the three and six months ended June 30, 2026, respectively, compared to the corresponding periods in 2025. The decreases were primarily attributable to the lower level of revenue and the related reduction in costs associated with the products and services provided during the periods. Gross profit decreased by $53,879, or 90.3%, and $379,751, or 96.1%, for the three and six months ended June 30, 2026, respectively, compared to the corresponding periods in 2025. Gross margin was 46.5% and 62.2% for the three and six months ended June 30, 2026, respectively, compared to 47.0% and 82.4% for the corresponding periods in 2025. The decreases in gross margin were primarily attributable to changes in the mix of revenue and related costs between the periods. 33 Research and Development Research and development expenses for the three and six months ended June 30, 2026 and 2025 are summarized as follows: For the Three Months Ended June 30, 2026 2025 $ Change % Change Research and development $ 394,769 $ 181,641 $ 213,128 117.3 % Percentage of revenue 3,184.1 % 143.2 % For the Six Months Ended June 30, 2026 2025 $ Change % Change Research and development $ 1,006,074 $ 575,505 $ 430,569 74.8 % Percentage of revenue 4,087.7 % 120.1 % Research and development expense increased by $213,128, or 117.3%, and $430,569, or 74.8%, for the three and six months ended June 30, 2026, respectively, compared to the corresponding periods in 2025. The increases were primarily driven by higher labor and cloud-related research and development costs, partially offset by lower compliance and testing expenses. Sales and Marketing Sales and marketing expenses for the three and six months ended June 30, 2026 and 2025 are summarized as follows: For the Three Months Ended June 30, 2026 2025 $ Change % Change Sales and marketing $ 373,695 $ 770,247 $ (396,552 ) (51.5 )% Percentage of revenue 3,014.2 % 607.3 % For the Six Months Ended June 30, 2026 2025 $ Change % Change Sales and marketing $ 1,286,840 $ 1,452,996 (166,156 ) (11.4 )% Percentage of revenue 5,228.5 % 303.1 % Sales and marketing expenses decreased by $396,552, or 51.5%, and $166,156, or 11.4%, for the three and six months ended June 30, 2026, respectively, compared to the corresponding periods in 2025. The decreases were primarily attributable to lower spending on brand-related marketing activities, events and sponsorships, as well as reduced expenditures for customer relationship management and other marketing software tools. 34 General and Administrative General and administrative expenses for the three and six months ended June 30, 2026 and 2025 are summarized as follows: For the Three Months Ended June 30, 2026 2025 $ Change % Change General and administrative $ 2,099,979 $ 824,204 $ 1,275,775 154.8 % Percentage of revenue 16,938.0 % 649.8 % For the Six Months Ended June 30, 2026 2025 $ Change % Change General and administrative $ 4,516,691 $ 1,441,935 $ 3,074,756 213.2 % Percentage of revenue 18,351.6 % 300.8 % General and administrative expenses increased by $1,275,775, or 154.8%, and $3,074,756, or 213.2%, for the three and six months ended June 30, 2026, respectively, compared to the corresponding periods in 2025. The increases were primarily attributable to higher costs associated with operating as a public company, including legal, auditing, accounting and board of director fees, as well as increased labor costs associated with the continued expansion of the Company’s operations. Liquidity and Capital Resources Funding Requirements and Going Concern Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations. To date, we have funded our operations primarily with proceeds from the issuance of shares of our Common Stock to PIPE investors contemporaneously with the close of the Business Combination, proceeds from bridge loans and other short-term borrowings. Our future capital requirements will depend on many factors, including, but not limited to, our growth, our ability to attract and retain customers, the continued market acceptance of our solution, the timing and extent of spending necessary to support our efforts to develop our Dot Cloud and meet our performance obligations related to subscription sales of the same, the expansion of sales and marketing activities, and the impact of macroeconomic conditions on us and our customers’ and partners’ businesses. Further, we may enter into arrangements to acquire or invest in businesses, products, services, and technologies. We will need to raise additional capital in the future to finance our operations and expand our business. In connection with the Company’s assessment of going concern considerations in accordance with the Financial Accounting Standards Board (“FASB”) ASC Topic 205-40, Presentation of Financial Statements — Going Concern, management anticipates the Company will continue to incur substantial operating losses for the next several years and will need to obtain additional near-term financing in order to continue its research and development activities. Our ability to continue as a going concern is dependent on our ability to raise additional capital to fund research and development activities and meet obligations on a timely basis; however, there can be no assurance that sufficient funding will be available to allow us to successfully continue our research and development activities and commercialize our products. If the Company is unable to obtain necessary funds through its business operations and the proceeds realized through the Business Combination, significant reductions in spending and the delay or cancellation of planned activities may be necessary. These actions would have a material adverse effect on our business, results of operations, and prospects. These conditions raise substantial doubt about our ability to continue as a going concern within one year from the date these condensed consolidated financial statements are issued. 35 As of June 30, 2026 and December 31, 2025, we had cash of $456,069 and $865,624, respectively, deficits in working capital of $9,475,752 and $1,730,095, respectively, and accumulated deficits of $69,687,375 and $61,451,334, respectively. Sources of Liquidity To date, we have funded our operations primarily through proceeds from the issuance of common shares to PIPE investors in connection with the closing of the Business Combination, totaling $10,837,643, proceeds from bridge loans and other short-term borrowings. In the future, we expect to finance our cash needs through a combination of equity, debt financings, and improvement of cash from operations derived from selling subscriptions to our platform. As part of its funding efforts, on June 18, 2025, the Company entered into a Standby Equity Purchase Agreement (“SEPA”) with New Circle Principal Investment LLC (“New Circle”), which provides the Company the right, but not the obligation, to direct New Circle from time to time to purchase up to $50 million of shares of the Company’s Common Shares during the commitment period ending June 18, 2028, at a discount of the VWAP over a defined pricing period. Under the SEPA, the Company may sell shares to New Circle at a price based on either: option 1 – 97% of the lowest daily VWAP over the three trading days following the purchase notice, or option 2 – the greater of 85% of the VWAP or the lowest sale price on a specific trading day determined by the timing of the notice. Any purchase would be subject to certain limitations, including that New Circle shall not purchase any shares that would result in it and its affiliates beneficially owning more than 4.99% of the then outstanding voting power or number of shares of Common Stock or any shares that would exceed 19.99% of all shares of Common Stock of the Company outstanding on the date of the SEPA, unless Company shareholder approval was obtained allowing for issuances in excess of such amount (the “Exchange Cap”). The Exchange Cap will not apply under certain circumstances, including where the average purchase price of all applicable sales of Common Shares equals or exceeds the lower of (i) the Nasdaq Official Closing Price immediately preceding the Effective Date; or (ii) the average Nasdaq Official Closing Price for the five Trading Days immediately preceding the Effective Date. The Company had the option to satisfy the $350,000 commitment fee under the SEPA through the issuance of a variable number of shares of Common Stock or by payment in cash. On September 24, 2025, the Company paid the commitment fee through the issuance of 106,383 shares of Common Stock, valued at $3.29 per share, which was determined based on the closing price of the Common Stock on September 18, 2025, the date the Form S-1 was declared effective by the SEC. The commitment fee of $350,000 was expensed in September 2025. Before the Company elects to sell shares by issuing a purchase notice, the SEPA represents a purchased put option on the Company’s equity. Once the Company delivers a purchase notice under the SEPA, the related number of shares to be issued constitutes a forward contract to issue shares of Common Stock. As the feature is embedded in an equity host, meets the definition of a derivative, and does not qualify for the equity scope exception under ASC 815, Derivatives and Hedging , it must be bifurcated and accounted for separately as a derivative asset or liability, depending on changes in the underlying stock price relative to the pegged discounted VWAP. The derivative is measured at fair value, with changes in fair value recognized in net income. The fair value of the purchased put option was determined to be de minimis as of June 30, 2026, and therefore was not recorded on the Company’s balance sheet as of that date. 36 On October 13, December 30, December 31, 2025, and February 10, 2026, the Company delivered purchase notices for 30,000, 500,000, 1,000,000, and 20,000 shares, respectively, at settlement prices of $2.62, $0.32, $0.32, and $0.26 per share, respectively. After giving effect to the Company’s 1-for-25 reverse stock split, these amounts are equivalent to 1,200, 20,000, 40,000, and 800 shares, respectively, at split-adjusted settlement prices of $65.50, $8.00, $8.00, and $6.50 per share, respectively. This resulted in gross proceeds of $78,516, $159,500, $317,000, and $5,164, respectively. The Company issued 30,000 shares in October 2025, 1,000,000 shares in December 2025, 500,000 shares in January 2026, and 20,000 shares in February 2026, equivalent to 1,200, 40,000, 20,000, and 800 shares, respectively, after giving effect to the 1-for-25 reverse stock split. Because the shares were issued to New Circle at prices determined using a discounted VWAP formula, the cash proceeds received were below the fair value of the shares on the respective issuance dates. The Company measured the shares at fair value on the date cash was received and recognized the difference between (i) the fair value of the shares issued and (ii) the proceeds calculated pursuant to the discounted VWAP pricing terms. For the three and six months ended June 30, 2026, the Company recognized losses of $0 and $1,256, respectively, related to share issuances under the New Circle ELOC in the condensed consolidated statements of operations. On December 5, 2025, the Company entered into a loan agreement with J.J. Astor & Co. (“J.J. Astor”) for up to $5,000,000 in senior secured convertible loans, consisting of an initial $2,000,000 tranche and up to three additional $1,000,000 tranches. The initial tranche was issued as a $2,000,000 convertible note, of which $1,810,000 was funded, net of fees. The note matures on November 30, 2026 and is repayable in twelve monthly installments, consisting of an initial payment of $108,334 followed by eleven monthly payments of approximately $226,515, totaling $2,600,000. Each additional tranche, if funded at the lender’s discretion and subject to specified conditions (including equity line of credit (“ELOC”) availability, Nasdaq listing, minimum stock price, and trading volume requirements), will be issued as a $1,000,000 convertible note with $960,000 funded net of fees and accompanied by a warrant. The Company is required to use proceeds from its ELOC to make monthly payments, with 80% of ELOC proceeds remitted directly to the lender. Certain extraordinary receipts must also be applied toward repayment. In connection with the initial funding, the Company issued a warrant to purchase 230,770 shares at $1.69 per share, equivalent to approximately 9,231 shares at an exercise price of $42.25 per share after giving effect to the Company’s 1-for-25 reverse stock split. Additional tranches, if funded, would include similar convertible notes and warrants. The agreement also requires the use of ELOC proceeds for repayment, with 80% of such proceeds remitted directly to the lender, and certain extraordinary receipts applied to outstanding balances. See “Derivative Liabilities” below for further discussion of the accounting for the warrant and embedded features. For the three and six months ended June 30, 2026, the Company paid $794,078 and $1,568,894, respectively, to J.J. Astor. Including the initial repayment of $108,334 in December 2025, the Company had repaid $1,677,228 as of June 30, 2026, leaving an outstanding balance of $922,772. On June 23, 2026, J.J. Astor & Co. entered into a Note Purchase and Assignment Agreement with LHT I, LLC, pursuant to which LHT I, LLC acquired J.J. Astor’s remaining rights and interests under the loan agreement and assumed the related lender obligations under the existing terms. In connection with the assignment, LHT I, LLC paid $924,616 directly to J.J. Astor. Accordingly, the Company recorded the remaining obligation as a short-term loan payable to LHT I, LLC as of June 30, 2026. On April 17, 2026, the Company entered into a Common Stock Purchase Agreement with White Lion, pursuant to which the Company has the right, but not the obligation, to sell to White Lion from time to time up to an aggregate of $10.0 million of the Company’s common stock during the commitment period, subject to the terms, conditions, and limitations set forth in the agreement. The Company may initiate purchases by delivering either a Rapid Purchase Notice or a VWAP Purchase Notice to White Lion. For each purchase, the Company is required to deliver the applicable shares to White Lion’s designated brokerage account through the Depository Trust Company’s DWAC system. The purchase price and investment amount are determined in accordance with the pricing provisions applicable to the selected purchase mechanism, including, for VWAP purchases, the volume-weighted average market price of the Company’s common stock during the applicable valuation period. Each purchase is subject to customary closing conditions, applicable beneficial ownership limitations, and certain restricted periods during which purchase notices may not be delivered. Generally, White Lion is required to remit the applicable purchase amount to the Company no later than one business day following the applicable purchase notice date or, in the case of a VWAP purchase, the applicable VWAP valuation period. The Company may not deliver a subsequent purchase notice until the prior purchase has closed, unless White Lion waives such restriction in writing. 37 Throughout June 2026, the Company delivered multiple purchase notices to White Lion and received aggregate proceeds of $640,192 in exchange for the issuance of 329,898 shares of common stock. Because the shares were issued at prices determined using a discounted VWAP formula, the proceeds received were less than the fair value of the shares on the respective issuance dates. Accordingly, the Company measured the shares issued at fair value and recognized the difference between the fair value of the shares and the related cash proceeds as a loss on issuance. For both the three and six months ended June 30, 2026, the Company recognized a loss of $600 related to share issuances under the White Lion ELOC in the condensed consolidated statements of operations. In addition, White Lion had exercised $180,000 of warrants, resulting in the issuance of 65,596 shares of common stock. In addition, the Company entered into a note purchase agreement pursuant to which White Lion agreed to purchase senior secured convertible promissory notes with an aggregate principal amount of up to $2.875 million, reflecting a 20% original issue discount on aggregate cash proceeds of up to $2.3 million. The notes are secured by substantially all of the Company’s assets, and are convertible into common stock at a discount to the market price, subject to further reductions in the conversion price upon certain events of default. In connection with the financing, White Lion is also entitled to commitment shares valued at $120,000 and warrants to purchase up to $2.0 million of common stock at an exercise price equal to 99% of the closing market price on the trading day immediately preceding the applicable exercise date. Aggregate share issuances under the agreements are subject to a 19.99% cap on the Company’s outstanding common stock unless stockholder approval is obtained. As of June 30, 2026, White Lion had funded $690,000 to the Company under the convertible note arrangement, net of $172,500 of issuance costs. As of June 30, 2026, Edmund Nabrotzky, Chief Executive Officer of the Company, Charles Maddox, Chief Financial Officer and Chief Operating Officer of the Company, and Vijayan Nambiar, Chief Technology Officer of the Company loaned the Company an aggregate of $349,996 and may make additional loans to the Company up to an aggregate amount of $600,000 (collectively, the “Executive Loans”). The Executive Loans have been made, on the terms and conditions of an unsecured, subordinated promissory note (the “Executive Notes”). The Executive Notes accrue interest at a rate of 7.5% per annum, and will be paid in quarterly installments on July 1, 2026, October 1, 2026 with a final payment by December 31, 2026. All of the Company’s obligations and payments under the Executive Notes are subordinated to the Company’s obligations under the loan agreement with J.J. Astor & Co. For additional information regarding events subsequent to June 30, 2026, refer to Subsequent event (Note 21) in the condensed consolidated financial statements. Cash Flows Comparison of six months ended June 30, 2026 and 2025 The following table shows a summary of the cash flow for the periods presented: For the Six Months Ended June 30, 2026 2025 Net cash (used in) operating activities $ (1,706,742 ) $ (6,392,742 ) Net cash (used in) investing activities (39,296 ) (743,798 ) Net cash provided by financing activities $ 1,336,483 $ 12,908,154 Operating Activities Our primary uses of cash in operating activities include employee-related expenditures, sales and marketing activities, inventory purchases, and research and development activities. We have historically supplemented our liquidity and working capital through proceeds from the issuance of equity securities and borrowings. 38 Net cash used in operating activities was $1.7 million for the six months ended June 30, 2026, compared to $6.4 million for the six months ended June 30, 2025. For the six months ended June 30, 2026, net cash used in operating activities consisted of a net loss of $8.2 million, partially offset by net non-cash adjustments of $1.2 million and a $5.3 million net source of cash from changes in operating assets and liabilities. Non-cash adjustments primarily included depreciation expense of $0.3 million, amortization of debt origination fees of $0.3 million, $0.3 million of interest expense, $0.1 million of shares issued for debt origination fees, and $0.1 million of shares issued for services. Changes in operating assets and liabilities were primarily attributable to a $3.6 million decrease in accounts receivable and a $2.5 million increase in accounts payable, partially offset by a $1.2 million increase in inventory. For the six months ended June 30, 2025, net cash used in operating activities consisted of a net loss of $30.1 million, partially offset by net non-cash adjustments of $19.9 million and a $3.8 million net source of cash from changes in operating assets and liabilities. Non-cash adjustments were primarily attributable to a $17.4 million change in the fair value of SAFE notes and a $5.7 million loss on debt extinguishment, partially offset by a $3.3 million adjustment related to the reverse recapitalization transaction. Changes in operating assets and liabilities were primarily attributable to a $3.9 million increase in accrued taxes and a $1.0 million increase in accrued expenses, partially offset by decreases in accounts payable and other working capital changes. The decrease in net cash used in operating activities in 2026 compared to 2025 was primarily attributable to the lower net loss and favorable changes in working capital, particularly collections of accounts receivable and increases in accounts payable. Investing Activities Net cash used in investing activities was $39,296 for the six months ended June 30, 2026, compared to $743,798 for the six months ended June 30, 2025, representing a decrease of $704,502, or 94.7%. For the six months ended June 30, 2026, net cash used in investing activities consisted entirely of $39,296 of capitalized software development costs related to qualifying development activities, including costs associated with version 4 of the Company’s internally developed software. For the six months ended June 30, 2025, net cash used in investing activities consisted of $636,598 of capitalized software development costs and $107,200 of purchases of property and equipment. The decrease in cash used in investing activities was primarily attributable to lower capitalized software development costs and the absence of property and equipment purchases during the six months ended June 30, 2026. Financing Activities Net cash provided by financing activities was $1.3 million for the six months ended June 30, 2026, compared to $12.9 million for the six months ended June 30, 2025. 39 For the six months ended June 30, 2026, net cash provided by financing activities was primarily attributable to $1.2 million of proceeds from short-term loans, $0.6 million of proceeds from the issuance of common stock, $0.3 million of proceeds from short-term loans from related parties, and $0.2 million of proceeds from warrant exercises, partially offset by $1.0 million of repayments of short-term loans. For the six months ended June 30, 2025, net cash provided by financing activities was primarily attributable to $10.8 million of proceeds from PIPE investments, $5.6 million of proceeds from trust accounts, and $2.85 million of proceeds from short-term loans. These cash inflows were partially offset by $5.0 million used to purchase common stock and $1.4 million used to repay bridge loans. The decrease in net cash provided by financing activities for the six months ended June 30, 2026 compared to the corresponding period in 2025 was primarily attributable to the absence of PIPE investment and trust account proceeds received in 2025, partially offset by proceeds from short-term borrowings, common stock issuances, and warrant exercises in 2026. Contractual Obligations and Commitments Our estimated future obligations consist of leases and non-cancellable purchase commitments as of June 30, 2026. For additional discussion on our leases and other commitments, refer to Note 14 – Leases and Note 18 – Commitments and Contingencies to our condensed consolidated financial statements for the three and six months ended June 30, 2026 included elsewhere in this Quarterly Report on Form 10-Q. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosures. Actual results may differ from those estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K filed with the SEC on March 11, 2026. Refer to the section titled “Critical Accounting Policies and Estimates” included in that filing for a discussion of our significant judgments and estimates. Recently Issued and Adopted Accounting Pronouncements We describe the recently issued accounting pronouncements that apply in Note 2 of the condensed consolidated financial statements as of and for the three and six months ended June 30, 2026. Emerging Growth Company Status Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised accounting standard at the time private companies adopt the new or revised standard. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable. 40