SPRINGBIG HOLDIN(SBIG) - 2025 Q2 - Quarterly Report

Part I – Financial Information Forward Looking Statements This section cautions that forward-looking statements are subject to risks and uncertainties, and actual results may differ materially, with no obligation to update unless legally required - Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions that are difficult to predict[9] - Factors that could cause actual results to differ materially include trends in regulated industries, market size, growth prospects, new product offerings, security prices, ability to implement business plans, and other SEC-filed risks[10][12] Item 1. Financial Statements (Unaudited) This section presents SpringBig Holdings, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, operations, equity changes, cash flows, and explanatory notes - Financial statements are unaudited and prepared in conformity with SEC rules for Form 10-Q, not including all disclosures necessary for a complete GAAP presentation[34] - The Company has incurred losses, resulting in an accumulated deficit of approximately $40.3 million as of June 30, 2025, and a working capital deficit of $2.8 million. Management estimates sufficient liquidity for the next twelve months[36][38] Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | ASSETS (in thousands) | June 30, 2025 (unaudited) | December 31, 2024 | | :-------------------- | :------------------------ | :---------------- | | Cash and cash equivalents | $ 1,383 | $ 1,179 | | Accounts receivable, net | 2,136 | 2,213 | | Contract assets | 162 | 188 | | Prepaid expenses and other current assets | 453 | 284 | | Total current assets | 4,134 | 3,864 | | Right of use asset | 470 | 2,757 | | Property and equipment, net | 25 | 204 | | Total assets | $ 4,629 | $ 6,825 | | LIABILITIES AND STOCKHOLDERS' DEFICIT (in thousands) | | | | Accounts payable | $ 806 | $ 924 | | Accrued expenses and other current liabilities | 3,963 | 2,630 | | Deferred payroll tax credits | 1,979 | 1,751 | | Operating lease liability, current | 218 | 365 | | Total current liabilities | 6,966 | 5,670 | | Long-term debt, non-current | 8,730 | 8,364 | | Operating lease liability, non-current | 249 | 2,551 | | Warrant liabilities | 11 | 11 | | Total liabilities | 15,956 | 16,596 | | Total stockholders' deficit | (11,327) | (9,771) | | Total liabilities and stockholders' deficit | $ 4,629 | $ 6,825 | - Total assets decreased from $6.825 million at December 31, 2024, to $4.629 million at June 30, 2025[14] - Total liabilities decreased from $16.596 million at December 31, 2024, to $15.956 million at June 30, 2025[14] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share data) | (in thousands, except share and per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net revenues | $ 5,837 | $ 6,422 | $ 11,350 | $ 12,818 | | Cost of revenues | 1,499 | 1,725 | 2,705 | 3,441 | | Gross profit | 4,338 | 4,697 | 8,645 | 9,377 | | Total operating expenses | 5,064 | 4,754 | 9,799 | 9,716 | | Loss from operations | (726) | (57) | (1,154) | (339) | | Interest income | 33 | 2 | 33 | 6 | | Interest expense | (317) | (544) | (640) | (1,419) | | Loss on asset disposal | (131) | - | (131) | - | | Gain on note repurchase | - | - | - | 1,573 | | Change in fair value of warrants | - | (48) | - | (51) | | Loss before income taxes | $ (1,141) | $ (647) | $ (1,892) | $ (230) | | Income taxes expense | - | - | - | - | | Net loss | $ (1,141) | $ (647) | $ (1,892) | $ (230) | | Net loss per common share: Basic and diluted | $ (0.02) | $ (0.01) | $ (0.04) | $ (0.01) | - Net revenues decreased by 9% YoY for the three months ended June 30, 2025, and by 11% YoY for the six months ended June 30, 2025[16] - Net loss increased significantly, from $0.647 million to $1.141 million for the three months ended June 30, 2025, and from $0.230 million to $1.892 million for the six months ended June 30, 2025[16] Condensed Consolidated Statements of Changes in Stockholder's Deficit Condensed Consolidated Statements of Changes in Stockholder's Deficit (Three Months Ended June 30, 2025) | (in thousands) | Common Stock Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | | :------------------------ | :------------------ | :------------------ | :------------------------- | :------------------ | :---------- | | Balance at March 31, 2025 | 46,470,682 | $ 4 | $ 28,829 | $ (39,192) | $ (10,359) | | Stock-based compensation | - | - | 173 | - | 173 | | Restricted stock units vesting | 388,813 | - | - | - | - | | Net loss | - | - | - | (1,141) | (1,141) | | Balance at June 30, 2025 | 46,859,495 | $ 4 | $ 29,002 | $ (40,333) | $ (11,327) | Condensed Consolidated Statements of Changes in Stockholder's Deficit (Six Months Ended June 30, 2025) | (in thousands) | Common Stock Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | | :------------------------ | :------------------ | :------------------ | :------------------------- | :------------------ | :---------- | | Balance at December 31, 2024 | 46,348,351 | $ 4 | $ 28,666 | $ (38,441) | $ (9,771) | | Stock-based compensation | - | - | 336 | - | 336 | | Restricted stock units vesting | 511,144 | - | - | - | - | | Net loss | - | - | - | (1,892) | (1,892) | | Balance at June 30, 2025 | 46,859,495 | $ 4 | $ 29,002 | $ (40,333) | $ (11,327) | - Total stockholders' deficit increased from $(9.771) million at December 31, 2024, to $(11.327) million at June 30, 2025, primarily due to net losses[20] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Net cash provided by (used in) operating activities | $ 218 | $ (1,919) | | Net cash used in investing activities | (14) | (63) | | Net cash provided by financing activities | - | 2,375 | | Net increase in cash and cash equivalents | 204 | 393 | | Cash and cash equivalents, at beginning of period | 1,179 | 331 | | Cash and cash equivalents, at end of period | $ 1,383 | $ 724 | - Cash provided by operating activities significantly improved, moving from a use of $1.919 million in H1 2024 to a provision of $0.218 million in H1 2025[26] - Net cash provided by financing activities was $0 in H1 2025, compared to $2.375 million in H1 2024, which included proceeds from convertible and term notes[26] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering business, accounting policies, financial items, debt, equity, and recent events NOTE 1 – DESCRIPTION OF BUSINESS - SpringBig Holdings, Inc. provides marketing and customer engagement software platforms to retailers in regulated industries (US and Canada), offering loyalty plans and rewards via internet portals and mobile apps[27] - The Company's common stock ("SBIG") and warrants ("SBIGW") were delisted from Nasdaq Capital Market on September 5, 2023, and now trade on the OTCQB® Venture Market and OTC Pink Market, respectively[31][32] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The financial statements are prepared on a going concern basis, despite an accumulated deficit of $40.3 million and a working capital deficit of $2.8 million as of June 30, 2025. Management projects sufficient liquidity for the next twelve months[36][38] - The Company manages its business as a single operating segment, with the CEO as the chief operating decision maker[42][124] - Key accounting estimates include income taxes, equity-based compensation, warrants, imputed interest on operating lease liabilities, valuation of secured notes, and allowance for credit losses[40] NOTE 3 – ACCOUNTS RECEIVABLE Accounts Receivable, Net (in thousands) | (in thousands) | June 30, 2025 (unaudited) | December 31, 2024 | | :---------------------- | :------------------------ | :---------------- | | Accounts receivable | $ 1,521 | $ 1,945 | | Unbilled receivables | 824 | 694 | | Total receivables | 2,345 | 2,639 | | Less allowance for credit loss | (209) | (426) | | Accounts receivable, net | $ 2,136 | $ 2,213 | - Accounts receivable, net decreased from $2.213 million at December 31, 2024, to $2.136 million at June 30, 2025[52] - Credit loss expense was $220,000 for the six months ended June 30, 2025, up from $167,000 in the prior year period[52] NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid Expenses and Other Current Assets (in thousands) | (in thousands) | June 30, 2025 (unaudited) | December 31, 2024 | | :------------------------ | :------------------------ | :---------------- | | Prepaid insurance | $ 162 | $ 30 | | Other prepaid expense | 229 | 165 | | Deposits | 62 | 89 | | Total | $ 453 | $ 284 | - Prepaid expenses and other current assets increased from $0.284 million at December 31, 2024, to $0.453 million at June 30, 2025, primarily due to higher prepaid insurance and other prepaid expenses[55] NOTE 5 – PROPERTY AND EQUIPMENT Property and Equipment, Net (in thousands) | (in thousands) | June 30, 2025 (unaudited) | December 31, 2024 | | :---------------------------------- | :------------------------ | :---------------- | | Computer equipment | $ 380 | $ 452 | | Furniture and fixtures | 15 | 178 | | Data warehouse | 286 | 286 | | Software | 196 | 196 | | Total cost | 877 | 1,112 | | Less accumulated depreciation and amortization | (852) | (908) | | Property and equipment, net | $ 25 | $ 204 | - Property and equipment, net significantly decreased from $0.204 million at December 31, 2024, to $0.025 million at June 30, 2025, largely due to asset disposals[56] - The Company recorded a loss of $131,000 on asset disposal for the three and six months ended June 30, 2025, related to vacated office space[58] NOTE 6 – ACCRUED EXPENSES AND OTHER LIABILITIES Accrued Expenses and Other Current Liabilities (in thousands) | (in thousands) | June 30, 2025 (unaudited) | December 31, 2024 | | :------------------------------------------ | :------------------------ | :---------------- | | Accrued wages, commission and bonus | $ 409 | $ 254 | | Accrued professional fees | 46 | 110 | | Accrued interest on 2024 Secured Convertible and Term Notes | 563 | 460 | | Sales tax payable | 568 | 504 | | Deferred financial advisory fees | 1,000 | 1,000 | | Lease termination fee | 275 | - | | Technology services fee | 281 | - | | Accrued Severance | 548 | - | | Other liabilities | 273 | 302 | | Total | $ 3,963 | $ 2,630 | - Accrued expenses and other current liabilities increased by $1.333 million to $3.963 million at June 30, 2025, driven by new lease termination fees, technology services fees, and accrued severance[59] NOTE 7 – RELATED PARTY TRANSACTIONS - Former CEO Jeffrey Harris and former CFO Paul Sykes participated in the January 2024 debt financing, purchasing 2024 Secured Convertible and Term Notes[60] - Jeffrey Harris and Paul Sykes sold portions of their notes to Mark Silver, a director of the Company, in January and May 2025, respectively[61][62] - Mr. Harris stepped down as CEO on March 31, 2025, leading to litigation over a separation agreement that includes restricted stock units, revenue share from gaming customers, and a consulting fee. The Company has accrued for a settlement[64][100] - Mr. Sykes' separation agreement was amended on May 7, 2025, accelerating his separation date and revising his bonus to $120,000, payable in installments, while unvested RSUs were no longer accelerated[65] NOTE 8 – LONG-TERM DEBT Components of Outstanding Debt (in thousands) | (in thousands) | June 30, 2025 (unaudited) | December 31, 2024 | | :------------------------------------------ | :------------------------ | :---------------- | | 2024 Secured Term Notes - related parties | $ 1,386 | $ 1,386 | | 2024 Secured Term Notes | 214 | 214 | | 2024 Secured Convertible Notes - related parties | 6,274 | 5,987 | | 2024 Secured Convertible Notes | 967 | 923 | | Total | 8,841 | 8,510 | | Less deferred financing fees, net | (111) | (146) | | Total Long-term debt, non-current | $ 8,730 | $ 8,364 | - Long-term debt, net increased from $8.364 million at December 31, 2024, to $8.730 million at June 30, 2025[66] - The 2024 Secured Term Notes and Convertible Notes' maturity date was extended to January 23, 2027, and interest rates increased to 17% and 13% respectively, with potential reductions based on Adjusted EBITDA performance[68][69] - The change to the 2024 Secured Convertible Notes was treated as an extinguishment, resulting in a $0.6 million loss in 2024, while the Term Notes were a modification[73] NOTE 9 – 6% SENIOR SECURED CONVERTIBLE NOTES - The Company repurchased the outstanding 6% Senior Secured Convertible Note and associated warrants for $2.9 million on January 23, 2024, resulting in a $1.6 million gain on repurchase for the three months ended June 30, 2024[75] - No interest expense was recorded for these notes for the three and six months ended June 30, 2025, compared to $14,000 for the three months ended June 30, 2024[76] NOTE 10 – WARRANT LIABILITIES - Warrant liabilities are recorded at fair value as liabilities, with changes recognized in the statement of operations[79] - The estimated fair value of warrants remained at $11,200 as of June 30, 2025, and December 31, 2024, resulting in no change in fair value recognized for the three and six months ended June 30, 2025[80] NOTE 11 – REVENUE RECOGNITION Revenues Disaggregated by Type (in thousands) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Retail revenue | $ 5,756 | $ 6,311 | $ 11,193 | $ 12,648 | | Brand revenue | 81 | 111 | 157 | 170 | | Total Revenue | $ 5,837 | $ 6,422 | $ 11,350 | $ 12,818 | - Total revenue decreased by 9% for the three months ended June 30, 2025, and by 11% for the six months ended June 30, 2025, primarily due to a decline in retail revenue[82] - United States revenue accounted for approximately 98% of total revenue for the three and six months ended June 30, 2025[83] NOTE 12 – CONTRACT ASSETS Contract Assets (in thousands) | (in thousands) | June 30, 2025 (unaudited) | December 31, 2024 | | :---------------------- | :------------------------ | :---------------- | | Deferred sales commissions | $ 162 | $ 188 | - Contract assets, primarily deferred sales commissions, decreased from $0.188 million at December 31, 2024, to $0.162 million at June 30, 2025[86] NOTE 13 – STOCK BASED COMPENSATION - The 2022 Incentive Plan's authorized shares increased to 7,442,566 as of June 30, 2025, due to automatic annual increases[90] - Stock-based compensation expense for the 2022 Incentive Plan was $173,000 for Q2 2025 and $336,000 for H1 2025[93] - As of June 30, 2025, 17,047,306 Restricted Stock Units (RSUs) were outstanding, with a weighted average fair value of $0.08 per share[93] NOTE 14 – LEASES - The Company terminated an existing lease in June 2025, incurring a $550,000 termination penalty, and entered into a new 36-month lease for new office space effective May 1, 2025[95] Operating Lease Liabilities (in thousands) | (in thousands) | June 30, 2025 (unaudited) | December 31, 2024 | | :-------------------------------- | :------------------------ | :---------------- | | Right of use asset | $ 470 | $ 2,757 | | Operating lease liability, current | 218 | 365 | | Operating lease liability, non-current | 249 | 2,551 | | Total operating lease liability | $ 467 | $ 2,916 | - Operating lease cost for the six months ended June 30, 2025, was $401,000, up from $321,000 in the prior year period[96] NOTE 15 – COMMITMENTS AND CONTINGENCIES - The Company is involved in litigation with its former CEO, Mr. Harris, stemming from his separation agreement, and has accrued a settlement within current liabilities[100] - The Company received a civil investigative demand regarding its $790,000 PPP Loan, with a potential contingent loss of up to $1.6 million if its software supports marijuana-related activities. A loss is reasonably possible but not probable[99] - The Company received an additional $0.3 million in employee retention payroll tax credits during Q2 2025, with $1.9 million remaining recognized in current liabilities[101] - In May 2025, the Company committed to a specified minimum monthly spend with its largest vendor for the next 34 months, with additional 1-year renewals[102] NOTE 16 – FAIR VALUE MEASUREMENTS - The fair value of public warrants, classified as Level 2 liabilities, remained at $11,200 as of June 30, 2025, and December 31, 2024, with no change in fair value recognized during the six months ended June 30, 2025[106][107][111][112] - Fair value hierarchy classifies assets/liabilities into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs requiring significant judgment)[104][105] NOTE 17 – STOCKHOLDERS' DEFICIT - An aggregate of 1,000,000 Sponsor Earnout Shares are held in escrow, to be released if the common stock price reaches $12.00 per share within five years of the Closing Date[113] - Legacy SpringBig common stock holders and engaged option holders are entitled to receive up to 10,500,000 contingent shares if the Company's common stock reaches specified price targets ($12.00, $15.00, $18.00) within 60 months of the Closing Date[114][118] NOTE 18 – NET LOSS PER SHARE Net Loss Per Common Share (in thousands, except share and per share data) | (in thousands, except share and per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net loss | $ (1,141) | $ (647) | $ (1,892) | $ (230) | | Weighted average common shares outstanding (Basic and diluted) | 46,829,586 | 45,721,610 | 46,609,898 | 45,576,941 | | Net loss per common share (Basic and diluted) | $ (0.02) | $ (0.01) | $ (0.04) | $ (0.01) | - Basic and diluted net loss per share was the same for all periods presented due to net losses, making potential common shares anti-dilutive[117] - Anti-dilutive securities excluded from diluted EPS calculation for H1 2025 include 1.45 million stock options, 48.28 million convertible notes stock conversion shares, 16 million warrant conversion shares, 10.5 million contingent earn-out shares, and 17.05 million restricted stock units[120] NOTE 19 – BENEFIT PLAN - Company matching contributions to the 401(k) plan were $165,000 for the six months ended June 30, 2025, a decrease from $289,000 in the prior year period[121] NOTE 20 – INCOME TAXES - The Company's effective tax rate for the three and six months ended June 30, 2025, and 2024, is 0%[122] - The Company has concluded there are no uncertain tax positions requiring recognition of a liability or disclosure as of June 30, 2025, and 2024[199] NOTE 21 – SEGMENT REPORTING - The Company operates and reports as a single operating segment, as the CEO reviews financial information at an entity level and products/services are similar[123][124] Selected Financial Information by Segment (in thousands) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net revenue | $ 5,837 | $ 6,422 | $ 11,350 | $ 12,818 | | Cost of revenue | 1,499 | 1,725 | 2,705 | 3,441 | | Gross profit | $ 4,338 | $ 4,697 | $ 8,645 | $ 9,377 | | Loss from operations | $ (726) | $ (57) | $ (1,154) | $ (339) | | Net loss | $ (1,141) | $ (647) | $ (1,892) | $ (230) | NOTE 22 – SUBSEQUENT EVENTS - The Company announced its intent to acquire VICE CRM, an AI-enabled performance marketing platform, and appointed Jaret Christopher (VICE CRM founder) as CEO, effective April 1, 2025. The acquisition was completed on July 31, 2025[127] - The U.S. government passed the "One Big Beautiful Bill Act" after Q2 2025, introducing provisions for R&D expense deductions, bonus depreciation, and international tax rule updates, which the Company is currently assessing[128] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results, covering business overview, key metrics, revenue, expenses, and liquidity, alongside market challenges and strategic initiatives Business Overview - SpringBig is a market-leading software platform offering customer loyalty and marketing automation solutions to retailers and brands in regulated industries across the US and Canada[129] - The platform enables clients to increase brand awareness, engage customers, improve retention, and access actionable consumer feedback, driving new customer acquisition, spend, and retail foot traffic[129] - SpringBig serves approximately 825 clients across over 2,100 retail locations, distributing around 600 million messages annually, and accounted for over $6.6 billion in gross merchandise value in the last year[130] Recent Developments - No recent developments were reported in this section[133] Key Operating and Financial Metrics Key Operating and Financial Metrics (in thousands) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Revenue | $ 5,837 | $ 6,422 | $ 11,350 | $ 12,818 | | Net loss | (1,141) | (647) | (1,892) | (230) | | Adjusted EBITDA | 285 | 330 | 610 | 480 | | Number of retail clients | 762 | 1,113 | 762 | 1,113 | | Net revenue retention | 78% | 86% | 78% | 86% | | Number of messages (million) | 151 | 158 | 284 | 298 | - Revenue decreased, net loss increased, and Adjusted EBITDA decreased for the three months ended June 30, 2025, compared to the prior year[133] - Number of retail clients decreased from 1,113 to 762, and net revenue retention rate declined from 86% to 78% YoY for the periods ended June 30, 2025[133] Revenue - Revenue is generated from monthly subscriptions for platform access and communication credits, with additional revenue from "excess use" when message volumes exceed subscription limits[134][136] - Revenue growth is driven by new clients, client subscription upgrades (often soon after onboarding), and excess use[136] Other Key Operating Metrics - The number of retail clients is a key metric for assessing business performance, as it drives growth and strengthens the value proposition[138] - Net revenue retention rate, calculated on a rolling basis for subscription revenue, tracks revenue maintenance and growth from existing clients. It decreased to 78% for the twelve months ended June 30, 2025, from 86% in the prior year[139][160] - The volume of messages sent (text, email, push notifications) indicates platform usage frequency and client engagement[140] EBITDA and Adjusted EBITDA - EBITDA is a non-GAAP measure calculated as net income before interest, taxes, depreciation, and amortization. Adjusted EBITDA further adjusts for unusual, infrequent, or non-cash items like credit loss expense and stock-based compensation[141] Reconciliation of Net Loss to Non-GAAP EBITDA and Adjusted EBITDA (in thousands) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net loss | $ (1,141) | $ (647) | $ (1,892) | $ (230) | | Interest income | (33) | (2) | (33) | (6) | | Interest expense | 317 | 544 | 640 | 1,419 | | Income tax expense | - | - | - | - | | Depreciation expense | 29 | 47 | 62 | 101 | | EBITDA | (828) | (58) | (1,223) | 1,284 | | Stock-based compensation | 173 | 200 | 336 | 395 | | Credit loss expense | 130 | 80 | 220 | 167 | | Gain on repurchase of convertible debt | - | - | - | (1,573) | | Lease termination fee | 550 | - | 550 | - | | Severance and related payments | 260 | 60 | 727 | 156 | | Change in fair value of warrants | - | 48 | - | 51 | | Adjusted EBITDA | $ 285 | $ 330 | $ 610 | $ 480 | - Adjusted EBITDA decreased to $0.285 million for Q2 2025 from $0.330 million for Q2 2024, and increased to $0.610 million for H1 2025 from $0.480 million for H1 2024[144] Factors Affecting Our Performance - Overall economic trends, including consumer spending, significantly impact the business, as economic weakness can negatively affect customer sales and revenue[145] - Growth and retention of customers are crucial, achieved through a comprehensive product suite, differentiated loyalty programs, consistent communication, and reliable customer service[146] - The legalization and maturation of cannabis markets present significant growth opportunities, with the Company intending to expand into new jurisdictions and potentially engage in fintech, payments, and e-commerce if federal regulations change[148] - Competition is expected to intensify, and maintaining brand identity and reputation is critical, as negative publicity could adversely impact the business[149][151] Components of Our Results of Operations - Revenue is derived from monthly subscriptions for proprietary software access and optional purchases of additional communication credits[153] - Cost of revenue primarily consists of payments to message distributors across cellular networks and integrations[154] - Selling, servicing, and marketing expenses include salaries, benefits, travel, incentive compensation for sales/marketing staff, business acquisition marketing, events, branding, and advertising[155] - Technology and software development costs cover salaries and benefits for engineering teams, with limited capitalization of costs for platform enhancements[156] - General and administrative expenses include payroll for corporate functions (finance, HR, investor relations), software/equipment costs, rent, insurance, professional services (legal, audit), and stock compensation[157] Results of Operations This section details financial performance for the three and six months ended June 30, 2025, compared to 2024, highlighting changes in revenue, gross profit, operating expenses, and other income/expenses Comparison of Three Months Ended June 30, 2025, compared to Three Months Ended June 30, 2024 Results of Operations (Three Months Ended June 30, in thousands) | (in thousands) | 2025 | 2024 | Increase (decrease) | % Change | | :-------------------------------- | :----- | :----- | :------------------ | :------- | | Revenue | $ 5,837 | $ 6,422 | $ (585) | -9% | | Cost of revenue | 1,499 | 1,725 | (226) | -13% | | Gross profit | 4,338 | 4,697 | (359) | -8% | | Total operating expenses | 5,064 | 4,754 | 310 | 7% | | Loss from operations | (726) | (57) | (669) | Nm | | Interest expense | (317) | (544) | 227 | 42% | | Loss on asset disposal | (131) | - | (131) | Nm | | Change in fair value of warrants | - | (48) | 48 | Nm | | Loss before taxes | (1,141) | (647) | (494) | -76% | - Revenue decreased by $0.6 million (9%) YoY, with subscription revenue declining 11% and excess use revenue declining 5%, attributed to the uncertain economy and client budget consciousness[159] - Gross profit decreased by $0.4 million (8%) YoY, despite a 1% improvement in gross profit margin to 74% due to lower messaging distribution costs[161] - Operating expenses increased by $0.3 million (7%) YoY, driven by a 14% increase in general and administrative expenses (including $0.3 million for CFO separation and $0.6 million lease termination fee), partially offset by a 3% decrease in technology and software development expenses[162][163][164] - Interest expense decreased by 42% YoY to $0.3 million due to the repayment of high interest-bearing cash advances[165] Comparison of Six Months Ended June 30, 2025, compared to Six Months Ended June 30, 2024 Results of Operations (Six Months Ended June 30, in thousands) | (in thousands) | 2025 | 2024 | Increase (decrease) | % Change | | :-------------------------------- | :----- | :----- | :------------------ | :------- | | Revenue | $ 11,350 | $ 12,818 | $ (1,468) | -11% | | Cost of revenue | 2,705 | 3,441 | (736) | -21% | | Gross profit | 8,645 | 9,377 | (732) | -8% | | Total operating expenses | 9,799 | 9,716 | 83 | 1% | | Loss from operations | (1,154) | (339) | (815) | Nm | | Interest expense | (640) | (1,419) | 779 | 55% | | Gain on note repurchase | - | 1,573 | (1,573) | Nm | | Loss on asset disposal | (131) | - | (131) | Nm | | Change in fair value of warrants | - | (51) | 51 | Nm | | Loss before taxes | (1,892) | (230) | (1,662) | -723% | - Revenue decreased by $1.5 million (11%) YoY, with subscription revenue declining 11% and excess use revenue declining 5%, due to economic uncertainty in regulated industries[168][169] - Gross profit decreased by $0.7 million (8%) YoY, despite a 3% improvement in gross profit margin to 76% due to lower messaging distribution costs[170] - Operating expenses increased marginally by $0.1 million (0%) YoY, with a 23% increase in general and administrative expenses (including $0.7 million for CEO/CFO separation and $0.6 million lease termination fee), offset by decreases in selling, servicing, marketing (17%) and technology and software development (15%) expenses[171][172][173] - Interest expense decreased by 55% YoY to $0.6 million due to the repayment of high interest-bearing cash advances[174] Liquidity & Capital Resources - The Company has historically incurred net losses and negative operating cash flows, financing operations through equity sales, cash advances, and the issuance of $8.0 million Term Notes and Convertible Notes in January 2024[177] - In January 2024, the Company repurchased the 6% Senior Secured Notes for $2.9 million and issued $6.4 million in 2024 Convertible Notes and $1.6 million in 2024 Term Notes, generating $7.2 million net cash proceeds[181][182] - The 2024 Convertible and Term Notes' maturity was extended to January 2027, with increased interest rates (17% and 13% respectively) and restrictive covenants limiting additional indebtedness, liens, dividends, asset sales, and equity issuance[184][185][187] Cash, Accounts Receivable, and Working Capital (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Cash and cash equivalents | $ 1,383 | $ 1,179 | | Accounts receivable, net | 2,136 | 2,213 | | Working capital | (2,832) | (1,806) | - Working capital deficit increased from $(1.806) million at December 31, 2024, to $(2.832) million at June 30, 2025[187] Cash Flows Summary of Cash Flows (Six Months Ended June 30, in thousands) | (in thousands) | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Total cash provided by (used in): | | | | Operating activities | $ 218 | $ (1,919) | | Investing activities | (14) | (63) | | Financing activities | - | 2,375 | | Net increase in cash and cash equivalents | $ 204 | $ 393 | - Cash provided by operating activities improved significantly to $0.218 million in H1 2025 from a use of $1.919 million in H1 2024, primarily due to a decrease in working capital and non-cash items[188][190] - No cash flows from financing activities occurred in H1 2025, compared to $2.375 million provided in H1 2024, which included proceeds from new notes and repayment of old debt and cash advances[193][194] - Investing activities used $14,000 in H1 2025, primarily for computer equipment and office furniture, reflecting low capital investment requirements[192] Off-Balance Sheet Arrangements - As of June 30, 2025, there were no material off-balance sheet arrangements[195] Critical Accounting Policies and Estimates - Critical accounting policies and estimates include income taxes, equity-based compensation (including market-based RSUs valued using Monte Carlo simulation), and allowance for credit losses[196][200][202][204] - Management's estimates and assumptions affect reported asset/liability amounts and disclosures, with changes potentially having a material impact on financial condition and results[196] Recent Accounting Pronouncements - The FASB issued ASU No. 2023-09 (Topic 740), Improvements to Income Tax Disclosures, effective for annual periods beginning after December 15, 2024, which the Company is currently evaluating for impact[206] Emerging Growth Company and Smaller Reporting Company Status - The Company is an "emerging growth company" and has elected to use the extended transition period for complying with new or revised accounting standards[207] - The Company is also a "smaller reporting company," allowing it to take advantage of scaled disclosures as long as its market value of non-affiliate common stock is less than $250 million or annual revenue is less than $100 million and market value is less than $700 million[208] Item 3. Quantitative and Qualitative Disclosure About Market Risk This section discusses the Company's exposure to market risks, including interest rate fluctuations, inflation, and exchange rate changes, and their management Interest Rate Fluctuation Risk - The Company's investment activities aim to preserve principal and maximize income, with its cash and cash equivalents having short maturities, making the portfolio relatively insensitive to interest rate changes[212] Inflation - Inflation has not had a material effect on the Company's business, financial condition, or results of operations, but it continues to monitor and minimize effects through pricing strategies, productivity, and cost reductions[213] Exchange Rate Risk - The Company has limited operations in Canada, and exchange rate translation risk is minimized by matching Canadian income and expenses with local currency invoicing, resulting in an immaterial risk to financial statements[214] Item 4. Controls and Procedures This section addresses the effectiveness of the Company's disclosure controls and procedures and any changes in internal controls over financial reporting Evaluation of Disclosure Controls and Procedures - The CEO and CFO concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2025, citing material weaknesses in internal control over financial reporting described in the 2024 Annual Report on Form 10-K[216] Changes in Internal Controls over Financial Reporting - No changes in internal control over financial reporting occurred during the three months ended June 30, 2025, that materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting[217] Part II – Other Information Item 1. Legal Proceedings This section refers to the detailed description of legal proceedings and contingencies provided within the notes to the financial statements - Developments in legal proceedings for the six months ended June 30, 2025, are described under "Litigation" in Note 15, "Commitments and Contingencies"[219] Item 1A. Risk Factors This section directs readers to the comprehensive discussion of risks in the Company's Annual Report on Form 10-K, emphasizing potential material impacts on the business - Investors should carefully consider the risks described in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2024, as well as risks in this 10-Q, as they could materially and adversely impact the Company's business[220] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - No unregistered sales of equity securities were reported[221] Item 3. Defaults Upon Senior Securities - No defaults upon senior securities were reported[222] Item 4. Mine Safety Disclosures - No mine safety disclosures were reported[223] Item 5. Other Information - No director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended June 30, 2025[225] Item 6. Exhibits This section lists all exhibits filed or incorporated by reference into the Quarterly Report on Form 10-Q, including organizational documents, offer letters, and certifications - The exhibits include the Certificate of Incorporation, By-Laws, offer letters for James Cabral and Jason Moos, Equity Purchase Agreement for VICE CRM, First Amendment to Paul Sykes' Separation Agreement, and Sarbanes-Oxley Act certifications[227] Signatures - The report is signed by Jaret Christopher, Chief Executive Officer, and Jason Moos, Chief Financial Officer, on August 13, 2025[230]