NOTE 6 - Stock Option Plan and Stock-Based Compensation

Employee Stock Options

To calculate the stock-based compensation resulting from the issuance of options, the Company uses the Black-Scholes option pricing model, which is affected by the Company’s fair value of its stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

On April 4, 2025, the Board approved the award of 350,000 options to purchase common stock pursuant to the 2023 Equity Incentive plan to Khurram Sheikh, the Chief Executive Officer of the Company and Joy Mbanugo, the Chief Financial Officer of the Company. The options have an exercise price of $1.00 per share and expire on May 23, 2035. The stock options were valued using the Black-Scholes option valuation model and the fair value of the awards granted was determined to be $0.56 per option on the grant date. The fair value of the common stock as of the grant date utilized in the Black-Scholes options valuation model was $1.00 per share.

During the six months ended June 30, 2026, the Company granted stock options to its Chief Executive Officer that include a market-based vesting condition. Vesting of the market-condition portion of the award is contingent upon satisfaction of the applicable market-based target specified in the award agreement, together with the continued-service requirements of the award.

The effect of the market condition is incorporated into the grant-date fair value of the award using an appropriate valuation technique that reflects the probability of satisfying the market condition. The significant valuation assumptions include the Company’s common-stock price on the grant date, the exercise price, expected stock-price volatility, risk-free interest rate, expected dividend yield and contractual term.

Stock-based compensation expense associated with the market-condition award is recognized over the requisite or derived service period when the applicable service condition is rendered, regardless of whether the market condition is ultimately achieved. Compensation expense is not reversed solely because the market condition is not satisfied. The Company has not recognized any stock-based compensation expense related to market-based awards, as the associated market conditions are not considered probable of achievement as of the reporting date.

On April 13, 2026, the Board approved the award of 2,160,000 stock options to purchase the Company’s common stock, granted to employees and consultants of the Company pursuant to the 2023 Equity Incentive Plan. Of the options granted, 2,035,000 were incentive stock options (ISOs) issued to employees and 125,000 were non-statutory stock options (NSOs) issued to consultants. The options have a life of ten years, an exercise price of $0.16 per share, and expire on April 13, 2036. The options vest as to one-third on the first anniversary of the grant date, with the remaining two-thirds vesting in substantially equal monthly installments over the following 24 months. The stock options were valued using the Black-Scholes option valuation model, and the weighted-average fair value of the awards granted during the period was determined to be $0.11 per option on the grant date.

During the six months ended June 30, 2026, options to purchase 403,332 shares of common stock were forfeited following the termination of service of Joy Mbanugo, the Company’s former Chief Financial Officer, before the options vested. The forfeited options had a weighted-average exercise price of $0.79 per share and a weighted-average grant-date fair value of $0.52 per option. No stock options granted to any other employee were forfeited during the period. Previously recognized compensation expense related to the unvested forfeited options was reversed during the period.

See below for a summary of the stock options granted under the Incentive Plan for the three and six months ended June 30, 2026.

Non-cash stock-based compensation expenses related to stock option were recorded in the unaudited condensed consolidated financial statements as summarized below:

As of June 30, 2026, the remaining unrecognized stock compensation expense related to unvested stock options was approximately $490 thousand, which is expected to be recognized over weighted-average remaining periods of approximately 2.11 years.

The Company estimates the grant-date fair value of stock options containing service-based vesting conditions using the Black-Scholes option-pricing model. The Black-Scholes model incorporates assumptions regarding the fair value of the Company’s common stock, exercise price, expected term, expected stock-price volatility, risk-free interest rate and expected dividend yield. For stock options containing market-based vesting conditions, the Company uses an appropriate valuation technique that incorporates the effect of the market condition into the grant-date fair value. For the six months ended June 30, 2026 and June 30, 2025, are as follows:

Restricted Stock Units

The grant date fair value for Restricted Stock Units (‘RSU’) are valued using the closing price of the Company’s common stock on the date of grant.

On May 23, 2025, a total of 1,000,000 restricted stock units of the Company’s common stock were granted to directors of the Company under the 2023 Equity Incentive Plan.

During the six months ended June 30, 2026, the Company granted 3,037,386 restricted stock units under the Amended and Restated CXApp Inc. 2023 Equity Incentive Plan, including awards granted to its Chief Executive Officer and members of its Board of Directors. The restricted stock units had a weighted-average grant-date fair value of $0.26 per unit, determined based on the closing price of the Company’s common stock on the applicable grant dates. The awards contain service-based vesting conditions and generally vest over periods ranging from two to three years. Compensation expense is recognized over the applicable requisite service period.

The fair value of the common stock as of the various grant dates was determined to be $0.01 to $0.20 per restricted stock unit, for a weighted average fair value of $0.35 per restricted stock unit.

The following summarizes our RSUs transaction activity for three and six months ended June 30, 2026:

The total fair value of RSUs vested as of June 30, 2026 and December 31, 2025 was $1,015 thousand and $2,226 thousand, respectively.

Non-cash stock-based compensation expenses related to restricted stock units recorded in the unaudited condensed consolidated financial statements is summarized below:

As of June 30, 2026 and June 30, 2025, the Company has approximately $735 thousand and $914 thousand of unrecognized restricted stock unit compensation to be expensed over a weighted average period of 0.89 years and 0.86 years, respectively.