VEEA INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of the financial condition and results of operations of Veea Inc. (the “Company” or “Veea”) should be read together with our audited consolidated financial statements and unaudited consolidated condensed financial statements. In addition to our historical consolidated financial information, this discussion includes forward-looking information regarding our business, results of operations and cash flows, and contractual obligations and arrangements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from any future results expressed or implied by such forward-looking statements as a result of various factors, including, but not limited to, those discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the SEC on April 15, 2026. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “Veea,” “we”, “us”, “our”, and the “Company” are intended to refer to the business and operations of Veea Inc. and its consolidated subsidiaries. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995, including statements regarding, among other things, the plans, strategies and prospects, both business and financial, of the Company. These statements are based on the beliefs and assumptions, whether or not identified in this Quarterly Report, of the management of the Company. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, and any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements may be preceded by, followed by or include the words “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “project,” “scheduled,” “seek,” “should,” “will” or similar expressions, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about the ability of the Company to: ● failure to maintain adequate operational and financial resources or raise additional capital or generate sufficient cash flows; ● risks related to its current growth strategy and the Company’s ability to generate revenue and become profitable; ● market acceptance of its platform and products; ● the length and unpredictable nature of its sales cycles; ● Veea’s reliance on distribution and partnering arrangements and third-party manufacturers; ● cybersecurity incidents, security vulnerabilities, and real or perceived errors, failures, defects, or bugs in its platforms or products; ● the ability to maintain the listing of our Common Stock and the warrants on Nasdaq, and the potential liquidity and trading of such securities; ● our public securities’ potential liquidity and trading; ● macroeconomic conditions; and ● each of the other factors detailed under the section entitled “Risk Factors.” Forward-looking statements are provided for illustrative purposes only and are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. You should understand that the factors discussed under the heading “Risk Factors” and elsewhere in this Quarterly Report and as disclosed on the 2025 10-K, could affect the future results of the Company, and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements in this Quarterly Report. 29 In addition, the risks described under the heading “Risk Factors” in this Quarterly Report are not exhaustive. Other sections of this Quarterly Report describe additional factors that could adversely affect the businesses, financial conditions, or results of operations of the Company. New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can the Company assess the impact of all such risk factors on the business of the Company, or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to the Company or persons acting on their behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, this Quarterly Report contains statements of belief and similar statements that reflect the beliefs and opinions of the Company on the relevant subject. These statements are based upon information available to the Company as of the date of this Quarterly Report, and while the Company believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and statements should not be read to indicate that the Company has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements. Company Overview We are dedicated to simplifying the journey towards creating a world in which virtually everyone and everything is intelligently connected, while bringing applications and AI to the edge of the network. Most service providers, equipment suppliers, system integrators and even hyperscalers have adopted or advocated for similar solutions to various degrees either independently or in collaboration with the Company. However, to our knowledge, we are one of the first to market with patented technologies that a) bring virtualized data center capabilities to the far edge of the network, commonly referred to as the Device Edge, where all wired and wireless devices connect to the network, b) spawns hyperconvergence of computing, multiaccess communications and storage, c) provides for Cloud-managed applications at the Edge, d) enables machine learning with AI training, inferencing, and agentic AI at the Edge including AI-driven cybersecurity for heterogenous networks. Such networks are given rise through any combination of our developed devices and third-party devices, with CPUs, GPUs, TPUs, DPUs and/or NPUs, that run the VeeaONE platform software stack. Veea has developed several generations of highly integrated all-in-one devices that incorporate a Linux server, with a virtualized software environment, supporting our patented secured docker containers, together with a Wi-Fi Access Point (AP) with a mesh router, a firewall, an IoT gateway, NVMe data storage and 4G/5G modules, referred to as the “VeeaHub” product. With an extensive patent portfolio of 123 granted patents and 32 pending patent applications that cover 26 patent families, our end-to-end Hybrid Edge-Cloud Computing platform represents a new product category that has the potential for wide scale customer adoption in large segments of consumer and enterprise markets. VeeaONE — a Differentiated Transformative Platform VeeaWare is the full-stack edge-to-cloud software platform of VeeaONE networks. Its middleware is made portable to run on a variety of devices such as X86- and Arm-based Linux servers, with or without accelerated compute (e.g., GPUs, NPUs, TPUs and DPUs), the NVIDIA Jetson family of devices and a variety of third-party routers, gateways and hubs. It also extends its Wi-Fi mesh across a number of third-party Wi-Fi access points (“APs”). Moreover, VeeaCloud delivers functionality similar to the backend cloud platforms of iOS and Android, but serves multi-user environments at the edge with devices, cameras, sensors and machines (e.g., robots, drones, trucks and tractors) over hyperconverged Edge AI-capable private network(s) at one or many locations. This capability delivers VeeaCloud-managed heterogeneous private networks, with any combination of hundreds of VeeaWare-compatible third-party devices with or without VeeaHub products, with orchestration that can scale to thousands of connected systems of intelligence. Veea was formed based on management’s strong belief that true intelligence applicable to the edge use cases emerges from networks with real-world data and compute, and not the other way around. Everything in nature, including the formation of human societies, demonstrates that intelligence does not reside in a single node. It emerges when distributed “agents” (i.e., humans, elephants, zebras, ants, bees, mycelium, bacteria and viruses) exchange information, adapt, and coordinate toward shared outcomes. It is now becoming amply clear that advanced intelligence, accelerated by “manufactured” frontier AI models, is rapidly becoming abundant and widely available on an open-source basis, especially as they apply to the edge use cases supported by the Company. This has been evidenced recently by models such as (i) the open-source model released by NVIDIA, Nemotron 3 Ultra, a 550-billion-parameter open-weight frontier model optimized for advanced planning, code execution, and long-running AI agents providing for expert models and delivering high-speed inference, with up to a one million token context window, and (ii) the Kimi K3 open-source AI model, which matches the benchmark scores of Anthropic’s most advanced frontier model. 30 For AI models, especially for Physical AI at the edge, context is everything. With cameras, sensors and networked computing at the edge, VeeaONE can continuously deliver the ever-changing context for most use cases, which provides for fine-tuning of the models. Veea management believes that its leading end-to-end edge platform will facilitate the transition of AI creation from specialized teams to ordinary individuals and businesses with just simple prompts and Agentic AI. VeeaONE network capabilities support the migration of frontier-level capabilities from AI factories onto edge devices (e.g., gateways, hubs, servers, etc.), vehicles, robots, and others with Agentic AI Mixture of Experts (MoEs) at the edge. This will enable Edge AI models to become personalized for individuals and businesses with recursive self-improvement, ultimately, offering recommendations and predictions that can influence, or effectively make, economic, corporate, medical, and personal decisions. As an example of this type of Agentic AI adaptation at the edge, Mercedes-Benz has incorporated a Liquid AI agentic model that is only 600 MB in size and that, without relying on cloud services at all times, highly personalizes the car’s environment for its driver and passengers with recursive self-improvement. With VeeaONE, instead of managing networks, organizations manage intelligent business processes and locations. Instead of deploying point products, VeeaONE offers a VeeaCloud-managed platform that is expandable and scalable both horizontally and vertically at one or across thousands of sites. It continuously senses, collects data and creates a data flywheel, as a self-improving feedback loop for real-time fine-tuning of AI models deployed at the edge so they can adjust to new tasks and changing user needs. VeeaONE platform’s products, applications, and services with a distributed computing architecture, offered as a Platform-as-a-Service capability, empower companies to capitalize on the transformative potential of Edge AI, where most of the data from smartphones, tablets, laptops, cameras, sensors, and other devices is generated, with data privacy and sovereignty, reliability, low latency for real-time decisions, bandwidth efficiency, scalability, and reduced costs compared to alternatives. VeeaHub products, about the size of a typical Wi-Fi Access Point (AP), are offered in variety of forms with different capabilities for indoor and outdoor coverage and are both locally- and cloud-managed. VeeaONE platform architecture and business model, VeeaHub and third-party devices on VeeaONE platform with Hybrid Edge-Cloud Computing and AI-enabled applications and services resemble the Android OS platform architecture and business model for Android devices. The VeeaONE platform offers a complement, and in some cases an alternative, to cloud computing by enabling the formation of highly secure, but easily accessible, private clouds and networks across one or multiple user(s) or enterprise location(s) across the globe. Benefits of the VeeaONE platform include optimal latency, lower data transport costs, data privacy, security and ownership, Edge AI, as well as “always-on” availability for mission critical applications, and contextual awareness for people, devices and things connected to the Internet. 31 Recent Developments Transfer of Listing Application In response to the Nasdaq deficiency notices received by the Company on September 29, 2025, on March 27, 2026, the Company submitted an application to transfer the listing of its common stock and publicly trade warrants (collectively, the “Listed Securities”) from The Nasdaq Global Market to The Nasdaq Capital Market. In connection with the submission to transfer the Company’s listing, the Company requested a second period of 180 calendar days, or until September 30, 2026, to regain compliance with the minimum bid price requirement for continued listing on the Nasdaq Global Market under Nasdaq Lising Rule 5550(a)(2) (“Minimum Bid Price Requirement”) for continued listing. On April 7, 2026, Listing Qualifications Department of Nasdaq (the “Nasdaq Staff”) approved the Company’s request to transfer the listing of the Company’s publicly traded securities from The Nasdaq Global Select Market to The Nasdaq Capital Market. The transfer took effect at the opening of business on April 9, 2026 and did not have any immediate effect on trading in the Listed Securities. The Listed Securities continue to trade uninterruptedly under the symbol “VEEA” and “VEEAW”, respectively. The Nasdaq Capital Market operates in substantially the same manner as The Nasdaq Global Market, and companies on The Nasdaq Capital Market must meet certain financial and corporate governance requirements to qualify for continued listing. As a result of the transfer to The Nasdaq Capital Market, Nasdaq granted the Company a second period of 180 calendar days, or until September 28, 2026, to regain compliance with the Minimum Bid Price Requirement for continued listing. To regain compliance, the closing bid price of the Company’s shares must meet or exceed $1.00 per share for a minimum of 10 consecutive business days on or prior to September 28, 2026. Nasdaq’s determination to grant the additional 180-day compliance period was in part based on, among other things, the Company meeting the continued listing requirements of The Nasdaq Capital Market with the exception of the Minimum Bid Price Requirement, and the Company having provided written notice of its intention to cure the deficiency during the additional compliance period, including by effecting a reverse stock split if necessary. Following Nasdaq’s approval of the extended compliance period, the Company intends to continue to actively monitor the Minimum Bid Price Requirement and, as appropriate, will consider available options to resolve any deficiencies and regain compliance, including by effecting a reverse stock split if necessary. Executive Management Changes On April 13, 2026, the Company entered into a transition agreement with Janice K. Smith, the Executive Vice President and Chief Operating Officer (the “Smith Transition Agreement”). Pursuant to the Smith Transition Agreement, effective as of April 30, 2026, Ms. Smith resigned from her current roles as the Executive Vice President and Chief Operating Officer of the Company and has served as Senior Operations Advisor for a period commencing on April 30, 2026 and ending on December 31, 2026. Ms. Smith is entitled certain equity awards and cash bonus. Components of Results of Operations Revenue, net The Company recognizes revenue based on the satisfaction of distinct obligations to transfer goods and services to customers. The Company generates revenue from hardware sales and the sale of licenses and subscriptions. The Company applies a five-step approach as defined in ASC 606, Revenue from Contracts with Customers, in determining the amount and timing of revenue to be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when a corresponding performance obligation is satisfied. Most contracts with customers are to provide distinct products or services within a single contract. However, if a contract is separated into more than one performance obligation, the total transaction price is allocated to each performance obligation in an amount based on the estimated relative standalone selling price. For licenses of technology, recognition of revenue is dependent upon whether the Company has delivered rights to the technology, and whether there are future performance obligations under the contract. Revenue from non-refundable upfront payments is recognized when the license is transferred to the customer and the Company has no other performance obligations. Revenue for licenses delivered under a subscription model having terms between one and twelve-months are recognized over-time. Subscription revenue is generated through sales of monthly subscriptions. Customers pay in advance for the licenses and subscriptions. Revenue is initially deferred and is recognized using the straight-line method over the term of the applicable subscription period. Cost of Goods Sold Cost of goods sold consists primarily of the cost of finished goods, components purchased for manufacturing and freight. Cost of goods sold also includes third-party vendor costs related to cloud hosting fees. 32 Operating Expenses We classify our operating expenses into the following categories: ● Product development expenses . Product development expenses primarily consist of employee compensation, employee benefits, stock-based compensation related to technology developers and product management employees, as well as fees paid for outside services and materials. ● Sales and marketing expenses. Sales and marketing expenses consist of compensation and other employee-related costs for personnel engaged in selling, marketing and sales support functions. Selling expenses also include marketing and the costs associated with customer evaluations. The Company does not currently incur advertising costs. ● General and administrative expenses. General and administrative expenses consist of compensation expense (including stock-based compensation expense) for employees and executive management, and expenses associated with finance, tax, and human resources. General and administrative expenses also includes transaction costs, expenses associated with facilities, information technology, external professional services, legal costs and settlement of legal claims and other administrative expenses. ● Depreciation and amortization: Depreciation and amortization expense consists of depreciation of Veea’s property and equipment and amortization of Veea’s patents and other intellectual property. Results of Operations The following tables set forth the results of our operations for the periods presented, as well as the changes between periods. The period-to-period comparison of financial results is not necessarily indicative of future results. F or the three and six months ended June 30, 2026 compared to three and six months ended June 30, 2025 The following table sets forth Veea’s unaudited condensed consolidated statements of operations data for the three and six months ended June 30, 2026 and 2025, respectively. Veea has prepared the three month data on a consistent basis with the audited consolidated financial statements as of and for the years ended December 31, 2025 and 2024, included in the 2025 10-K. In the opinion of Veea’s management, the unaudited three month financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data. Three Months Ended June 30, 2026 2025 Change $ Change % Sales, net $ 176,221 $ 72,927 $ 103,294 142 % Cost of goods sold 38,838 4,587 34,251 747 % Gross profit 137,383 68,340 Operating expenses: Product development 94,220 53,417 40,803 76 % Sales and marketing 147,954 40,515 107,439 265 % General and administrative, net 6,759,222 4,750,744 2,008,478 42 % Transaction cost 73,024 - 73,024 100 % Depreciation and amortization 207,823 144,607 63,216 44 % Total operating expenses 7,282,243 4,989,283 Loss from operations (7,144,859 ) (4,920,943 ) Other income (expenses): Other income, net 537,445 461 536,984 116483 % Change in fair value of convertible note option liability - 730 (730 ) -100 % Change in fair value of warrant liability 1,925,145 (315,373 ) 2,240,518 -710 % Change in fair value of Earn-out share liability 1,341,800 (1,730,000 ) 3,071,800 -178 % Other expense (75,117 ) (12,635 ) (62,482 ) 495 % Interest expense (610,324 ) (433,098 ) (177,226 ) 41 % Total other income (expense) 3,118,949 (2,489,915 ) Net income (loss) $ (4,025,910 ) $ (7,410,858 ) $ 3,384,948 -46 % 33 Six Months Ended June 30, 2026 2025 Change $ Change % Sales, net $ 356,638 $ 87,168 $ 269,470 309 % Cost of goods sold 61,505 5,150 56,355 1094 % Gross profit 295,133 82,018 Operating expenses: Product development 242,820 171,068 71,752 42 % Sales and marketing 190,069 389,766 (199,697 ) -51 % General and administrative, net 11,551,506 9,987,637 1,563,869 16 % Transaction cost 73,024 - 73,024 100 % Depreciation and amortization 412,815 204,663 208,152 102 % Total operating expenses 12,470,234 10,753,134 Loss from operations (12,175,100 ) (10,671,116 ) Other income (expenses): Other income, net 777,790 1,233 776,557 62981 % Change in fair value of convertible note option liability - 59,730 (59,730 ) -100 % Change in fair value of warrant liability 2,384,248 105,124 2,279,124 2168 % Change in fair value of Earn-out share liability 1,900,400 8,800,000 (6,899,600 ) -78 % Other expense (165,294 ) (27,196 ) (138,098 ) 508 % Interest expense (1,421,000 ) (1,379,581 ) (41,419 ) 3 % Total other income (expense) 3,476,144 7,559,310 Net income (loss) $ (8,698,956 ) $ (3,111,806 ) $ (5,587,150 ) 180 % Revenue, net The Company generated revenue of approximately $0.2 million and approximately $0.1 million for the three months ended June 30, 2026 and 2025, respectively. The Company generated revenue of approximately $0.4 million and approximately $0.1 million for the six months ended June 30, 2026 and 2025, respectively. Revenue has been principally earned from paid pilots for our VeeaHub ® devices. Our focus over the past several years has been on field testing and refining our product to meet customer needs as well as market developments. As a result of these efforts, we expect revenue to grow over the next several quarters through the sales of our hardware, licenses and subscriptions. We are especially focused in four principal market opportunities: 1) Digital Equity and Inclusion, 2) Energy and Sustainability solutions for Smart Buildings and Climate Smart Agriculture, 3) Convergence of Fixed, Wireless, and 5G Networks, and 4) Smart Retail and Smart Warehouses. Cost of Goods Sold Cost of goods sold remained materially consistent for the three and six months ended June 30, 2026 as compared to the three and six months ended June 30, 2025. Given the lack of material revenues, management would not expect a significant fluctuation in cost of goods sold. Product Development Expense Product development expense increased approximately $41,000 for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 and increased approximately $72,000 for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 The increase in product development expenses was due to increased internal development costs during the period. Sales and Marketing Expense Sales and marketing expense increased approximately $0.1 million from approximately $41,000 for the three months ended June 30, 2025 to approximately $0.1 million for the three months ended June 30, 2026. Sales and marketing expense decreased approximately $0.2 million from approximately $0.4 million for the six months ended June 30, 2025 to approximately $0.2 million for the six months ended June 30, 2026. The changes are primarily due to the timing of customer pilots. General and Administrative Expense General and administrative expense increased approximately $2.0 million from approximately $4.8 million for the three months ended June 30, 2025 to approximately $6.8 million for the three months ended June 30, 2026. General and administrative expense increased approximately $1.6 million from approximately $10.0 million for the six months ended June 30, 2025 to approximately $11.6 million for the six months ended June 30, 2026. The increases are primarily related to the Company’s increased accounting and legal expenses related to meeting the Nasdaq listing requirements and the cost of executing the measures to cure such deficiencies. 34 Transaction costs Transaction costs were immaterial for both the three and six months ended June 30, 2026 and 2025. Depreciation and Amortization Depreciation and amortization increased approximately $0.1 million from $0.1 million for the three months ended June 30, 2025 to approximately $0.2 million for the three months ended June 30, 2026. This increase is due to additional amortization for the technology assets acquired from Crowdkeep, Inc. in May 2025, as well as additional acquisitions of patents during the reporting periods thereafter. Other income, net Other income, net increased approximately $0.5 million for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 and $0.8 million for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025. This increase is primarily due to the settlement of a vendor payable, resulting in a gain on the extinguishment of the liability. Change in fair value of derivative liabilities Change in fair value of derivative liabilities is comprised of the fair value adjustments to the convertible note option liability, SPAC Private Placement Warrants, the Earn-Out Share Liability, and the 2025 Investors Warrants at balance sheet date. The change in the fair value of conversion note option liability for the six months ended June 30, 2026, was determined using a Black-Scholes option pricing model, which yielded no change to the liability. The change in the fair value of the SPAC Private Placement Warrants and 2025 Investor Warrants was determined based on the trading value of the public warrants and the Black-Scholes option pricing model, respectively, which yielded a gain of approximately $1.9 million and a loss of $0.3 million for the three months ended June 30, 2026 and 2025, respectively. The change in the fair value of the SPAC Private Placement Warrants and 2025 Investor Warrants yielded a gain of $2.4 million and $0.1 million for the six months ended June 30, 2026 and 2025, respectively. The gain (loss) on the change in the fair value of the Earn-Out Share Liability of approximately $1.3 million and ($1.7 million) for the three months ended June 30, 2026 and 2025, respectively, and $1.9 million and $8.8 million for the six months ended June 30, 2026 and 2025, respectively, was determined using a Monte Carlo simulation of 100,000 simulations. A significant driver of the changes in fair value was due to the decline in the Company’s stock price. Other expense Other expenses relate to immaterial non-operating expenses incurred during the period. These amounts were immaterial for the three and six months ended June 30, 2026 and 2025. Interest expense Interest expense increased approximately $0.2 million from approximately $0.4 million for the three months ended June 30, 2025 to approximately $0.6 million for the three months ended June 30, 2026. Interest expense increased insignificantly from approximately $1.4 million for the six months ended June 30, 2025 to approximately $1.4 million for the six months ended June 30, 2026. The increase during the three and six months ended June 30, 2026 as compared to the three and six months ended June 30, 2025 is due to draws on the credit facility of Pasadena Private Lending Inc. during the six month period ended June 30, 2026. Liquidity and Capital Resources During the three and six months ended June 30, 2026 the Company incurred a net loss of approximately $4.0 million and $8.7 million, respectively, and had an accumulated deficit of $233.2 million as of June 30, 2026. Since its inception, it has incurred significant operating losses and negative cash flows. As of June, 2026, it had cash of approximately $1.9 million and outstanding debt of $14.5 million, of $1.0 million was outstanding under the Crowdkeep Convertible Notes (as defined below), $1.8 million was outstanding under a note payable with an inventory vendor, $10.6 million was outstanding under the PPL Loan (as defined below) (Note 6), and $1.2 million was outstanding under the White Lion Convertible Note (as defined below) (Note 6). 35 The Company plans to fund its operations and capital funding needs for the next 12 months with revenue generated from operations, including anticipated revenue generated under the Framework Agreement for the Licenses, Equipment and Services (the “Supply Agreement”) that the Company entered into with RadioMovil Dipsa, S.A. De C.V. (“Telcel”), a Mexican wireless telecommunications company owned by América Móvil, effective August 7, 2025, and using proceeds from its existing financing arrangements under the ELOC Purchase Agreement, its new secured term loan facility pursuant to a Loan Agreement that Private Veea entered into with Pasadena Private Lending, Inc. on February 17, 2026, and White Lion Note Purchase Agreement. Further, the Company could pursue other equity and debt financing from new or existing investors, including related parties, which may continue to include the Company’s CEO and his affiliates. Our principal sources of liquidity are proceeds from the issuance of notes, convertible notes, related party notes, and the issuance of common stock. The primary use of capital continues to be to invest for the long-term growth of the business. We regularly evaluate our cash and capital structure, including the size, pace, and form of capital return to stockholders. The following table presents cash flows for the six months ended June 30, 2026 and 2025, respectively: Six Months Ended June 30, 2026 2025 Cash provided by (used in): Operating activities $ (11,122,601 ) $ (7,065,145 ) Investing activities (366,020 ) (159,543 ) Financing activities 13,297,672 5,762,777 Effect of exchange rate changes on cash and cash equivalents (945 ) 14,286 Net increase (decrease) in cash and cash equivalents $ 1,808,106 $ (1,447,625 ) Non-GAAP Financial Measures To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use Adjusted EBITDA, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may differ from similarly titled measures used by other companies, is presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Adjusted EBITDA The primary financial measure we use is Adjusted EBITDA. EBITDA is defined as net (loss) income, before interest, taxes, depreciation, and amortization. We define Adjusted EBITDA as net (loss) income excluding income tax provision, interest expense, net of interest income from related party loans, depreciation and amortization, stock-based compensation expense and non-core expenses/losses (gains), including transaction-related costs, litigation-related costs, management fees, change in fair value of warrant liability, change in fair value of Earn-out Share Liability and other expense, which includes asset impairments. Our management uses this measure internally to evaluate the performance of our business and this measure is one of the primary metrics by which our internal budgets are based. We exclude the above items as some are non-cash in nature, and others are non-recurring that they may not be representative of normal operating results. This non-GAAP financial measure adjusts for the impact of items that we do not consider indicative of the operational performance of our business. While we believe that this non-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for the related financial information prepared and presented in accordance with GAAP. 36 The following table provides a reconciliation of net loss to adjusted EBITDA to net loss for the periods presented: Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 ADJUSTED EBITDA Net loss $ (4,025,910 ) $ (7,410,858 ) $ (8,698,956 ) $ (3,111,806 ) Adjustments: Interest expense 610,324 433,098 1,421,000 1,379,581 Depreciation and amortization 207,823 144,607 412,815 204,663 EBITDA (3,207,763 ) (6,833,153 ) (6,865,141 ) (1,527,562 ) Other income, net (537,445 ) (461 ) (777,790 ) (1,233 ) Other expense 75,117 12,635 165,294 27,196 Change in fair value of convertible note option liability - (730 ) - (59,730 ) Change in fair value of warrant liability (1,925,145 ) 315,373 (2,384,248 ) (105,124 ) Change in fair value of Earn-out share liability (1,341,800 ) 1,730,000 (1,900,400 ) (8,800,000 ) Transaction costs 73,024 - 73,024 - Stock-based compensation 772,898 389,913 1,067,833 439,913 ADJUSTED EBITDA $ (6,091,115 ) $ (4,386,423 ) $ (10,621,429 ) $ (10,026,540 ) Item 3. Quantitative and Qualitative Disclosures about Market Risk Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.