Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto which are included elsewhere in this Annual Report on Form 10-K (this "Report"). Unless the context otherwise requires, all references in this section to "we," "us," "our," the "Company" or "BEN" refer to Brand Engagement Network Inc., a Delaware corporation. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025 ("2025 Annual Report") and with the consolidated financial statements and related notes thereto presented in this Report.

Overview

We are an emerging provider of conversational artificial intelligence ("AI") assistants, with the purpose of transforming engagement and analytics for businesses through our security-focused, multimodal communication and human-like AI assistants. Our AI assistants are built on proprietary natural language processing, anomaly detection, multisensory awareness, sentiment and environmental analysis, as well as real-time individuation and personalization capabilities. We believe these powerful tools will empower businesses to elevate customer experiences, optimize cost management and supercharge operational efficiency. Our platform is designed to configure, train and operate AI assistants that engage with professionals and consumers through multiple channels, boosting customer experience and providing instant personalized assistance for consumers in the automotive and healthcare markets.

We still hold significant intellectual property in the form of a patent portfolio that we believe will be a cornerstone of our artificial intelligence solutions for certain industries that we expect to target, including the automotive, healthcare, and financial services industries.

Recent Events

Financing Registration Statements

We currently do not have an effective registration statement on file with the Securities and Exchange Commission other than our Registration Statement on Form S-8 (File No. 333-292748) and our Registration Statement on Form S-4 (file No. 333-275058).

Key Factors and Trends Affecting our Business

Productions and Operations

We expect to continue to incur significant operating costs that will impact our future profitability, including research and development expenses as we introduce new products and improves existing offerings; capital expenditures for the expansion of our development and sales capacities and driving brand awareness; additional operating costs and expenses for production ramp-up; general and administrative expenses as we scale our operations; interest expense from debt financing activities; and selling and distribution expenses as we build our brand and market our products. To date, we have not yet sold any of our products beyond their pilot stage. As a result, we will require substantial additional capital to develop products and fund operations for the foreseeable future.

Revenues

We are a development stage company and have not generated any significant revenue to date.

Public Company Costs

We expect to hire additional staff and implement new processes and procedures to address public company requirements, particularly with respect to internal controls compliance and public company reporting obligations. We also expect to incur substantial additional expenses for, among other things, directors' and officers' liability insurance, director compensation and fees, listing fees, SEC registration fees, and additional costs for investor relations, accounting, audit, legal and other functions.

If we cease to become an emerging growth company, we will become subject to the provisions and requirements under Section 404(b) of the Sarbanes-Oxley Act of 2002, which will require us to undergo audits of our internal controls over financial reporting as part of our yearly financial statement audits, resulting in a significant increase in consultant and audit costs over previous levels going forward.

Components of Results of Operations

Operating expenses

General and administrative expenses

General and administrative expenses consist of employee-related expenses including salaries, benefits, and stock-based compensation as well as fees paid for legal, accounting and tax services, consulting fees and facilities costs not otherwise included in research and development expense. We have and expect to further incur significant expenses as a result of becoming a public company, including expenses related to compliance with the rules and regulations of the SEC and Nasdaq, additional insurance, investor relations and other administrative expenses and professional services.

Depreciation and amortization

Depreciation expense relates to property and equipment which consists of equipment, furniture and capitalized software. Amortization expense relates to intangible assets.

Research and development cost

Costs incurred in connection with research and development activities are expensed as incurred. These costs include rent for facilities, hardware and software equipment costs, consulting fees for technical expertise, prototyping, and testing.

Interest expense

Interest expense consists of interest on our related party note payable and short-term debt.

Interest income

Interest income consists of interest earned on our excess cash.

Change in fair value of warrant liabilities

Change in fair value of warrant liabilities reflected the non-cash charge for changes in the fair value of the warrant liability that is subject to re-measurement at each balance sheet date.

Other expenses

Other expenses primarily consists of foreign currency gains or losses as a result of exchange rate fluctuations on transactions denominated in Korean won.

Results of Operations

Comparison of the years Ended December 31, 2025 and 2024

		Years Ended December 31,								Increase
		2025				2024				(Decrease)
Revenues		$	275,120			$	99,790			$	175,330
Operating expenses:
General and administrative			8,872,915				19,242,571				(10,369,656	)
Research and development			162,973				1,127,779				(964,806	)
Impairment of deferred customer acquisition costs			-				13,475,000				(13,475,000	)
Depreciation and amortization			3,865,381				2,728,411				1,136,970
Total operating expenses			12,901,269				36,573,761				(23,672,492	)
Loss from operations			(12,626,149	)			(36,473,971	)			23,847,822
Other income (expenses):
Interest expense			(410,460	)			(202,945	)			(207,515	)
Change in fair value of warrant liabilities			197,292				994,687				(797,395	)
Gain (loss) on debt extinguishment			4,191,074				1,946,310				2,244,764
Other			22,808				20,490				2,318
Other income (expenses), net			4,000,714				2,758,542				1,242,172
Net loss		$	(8,625,435	)		$	(33,715,429	)		$	25,089,994

Revenues

During the years ended December 31, 2025 and 2024, revenue was immaterial.

General and administrative expenses

General and administrative expenses for the year ended December 31, 2025 were approximately $8,872,915, decrease of approximately $10,369,656, compared to the year ended December 31, 2024. The decrease was primarily due to transaction costs of $3.1 million incurred in connection with the Business Combination in the prior period. We have only recently begun to raise proceeds through the offering of our Common Stock and convertible notes to investors and therefore expect, in the near term at a minimum, to continue to utilize the issuance of equity-based instruments as compensation to reduce our cash outlays.

Depreciation and amortization expenses

Depreciation and amortization expenses for the year ended December 31, 2025 were approximately $3,865,381 an increase of approximately $1,136,970 compared to the year ended December 31, 2024. The increase was primarily due to the amortization expense associated with the developed technology placed into service in mid-2024.

Research and development expenses

Research and development expenses for the year ended December 31, 2025 were approximately $162,973 a decrease of approximately $964,806, compared to the year ended December 31, 2024. The decrease in research and development expenses was primarily due to the sponsorship agreement with Korea University no longer being active and a decrease in stock compensation expense.

Gain on debt extinguishment

Gain on extinguishment of debt for the year ended December 31, 2025 was approximately $4,191,074, related to settlement of accounts payable through the issuance of shares of Common Stock and negotiated cash settlement.

Change in fair value of warrant liabilities

Change in fair value of the warrant liabilities for the year ended December 31, 2025 was approximately $197,292 loss associated with the non-cash charge for changes in the fair value of the warrant liabilities that is subject to re-measurement at each balance sheet date. The change in the fair value of the warrant liabilities during the year ended December 31, 2024 was $994,687 associated with the non-cash charge for changes in the fair value of the warrant liabilities that is subject to re-measurement at each balance sheet date.

Liquidity and Capital Resources

Capital Resources and Available Liquidity

As of December 31, 2025, our principal source of liquidity was cash of approximately $172,124. We have financed operations to date with proceeds from the Yorkville Promissory Note, transactions with AFG, sales of our Common Stock, warrant exercises and debt issuances to related and non-related parties. As described in Note A of our consolidated financial statements, we have incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of approximately $55,642,584 at December 31, 2025. We expect losses and negative cash flows to continue for the foreseeable future, primarily as a result of increased general and administrative expenses, continued product research and development and marketing efforts. Management anticipates that significant additional expenditures will be necessary to develop and expand our business, including through stock and asset acquisitions, before significant positive operating cash flows can be achieved. Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations. Current available funds are insufficient to complete our business plan and as a consequence, we will need to seek additional funds, primarily through the issuance of debt or equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in the case of equity financing. Our history of losses, our negative cash flow from operations, our limited cash resources on hand and our dependence on our ability to obtain additional financing to fund our operations after the current cash resources are exhausted raises substantial doubt about our ability to continue as a going concern. Our management concluded that our recurring losses from operations, and the fact that we have not generated significant revenue or positive cash flows from operations, raised substantial doubt about our ability to continue as a going concern for the next 12 months after issuance of our financial statements. Our auditors also included an explanatory paragraph in their report to our consolidated financial statements as of and for the year ended December 31, 2025 with respect to this uncertainty.

The Company will need to raise additional capital to continue to fund operations and product research and development. The Company believes that it will be able to obtain additional working capital through equity financings, additional debt, or other arrangements to fund future operations, and it intends to raise capital through equity or debt investments in the Company by third parties, including through public offerings or private placements. However, the Company cannot conclude these are probable of being implemented or, if probable of being implemented, being in sufficient enough amounts to satisfy our contractual amounts as they presently exist that are coming due over the next 12 months as of the date of such filing.

Cash Exercise of Warrants

There is no assurance that the holders of our warrants described under this section will elect to exercise for cash any or all of such warrants, especially when the trading price of our Common Stock is less than the exercise price per share of such warrants. We believe the likelihood that warrant holders will exercise their respective warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our Common Stock. If the trading price for our Common Stock is less than the exercise price per share of a warrant, we expect that a warrant holder would not exercise their warrants. To the extent that any warrants are exercised on a "cashless basis" under certain conditions, we would not receive any proceeds from the exercise of such warrants.

We intend to seek additional funds, primarily through the issuance of debt or equity securities for cash to operate our business, including through the business development activities discussed above to continue to support our operations. Therefore, the availability or unavailability of any proceeds from the exercise of our warrants is not expected to affect our ability to fund our operations. We will continue to evaluate the probability of warrant exercise over the life of our warrants and the merit of including potential cash proceeds from the exercise thereof in our liquidity sources and capital resources planning.

To the extent such warrants are exercised, additional Common Stock will be issued, which will result in dilution to the holders of our Common Stock and increase the number of shares of Common Stock eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our Common Stock, which increases the likelihood of periods when our Warrants will not be in the money prior to their expiration.

Cash Flows

The following table summarizes our cash flows for the periods presented:

		For the year ended December 31,
		2025				2024
Cash used in operating activities		$	(5,086,356	)		$	(14,039,704	)
Cash used in investing activities		$	(23,512	)		$	(281,390	)
Cash provided by financing activities		$	5,132,720			$	12,785,354
Net decrease in cash and cash equivalents		$	22,852			$	(1,535,740	)

Operating activities

Cash used in operating activities was approximately $(5,086,356) during the year ended December 31, 2025 primarily due to our net loss of approximately $(8,625,435) The net loss included non-cash charges of approximately $555,532 which consisted of approximately $3,865,381 of depreciation and amortization expense, $822,430 in equity-based compensation expense, including the issuance of restricted shares, and non-cash interest expense, offset by $(197,292) gain due to the change in fair value of warrant liabilities and a gain on forgiveness of debt of $(4,191,073) The net cash inflow of approximately $2,983,547 from changes in our operating assets and liabilities was primarily due to a decrease in accrued expenses of 620,283, decrease in accounts payable of $2,980,386, an decrease in prepaid expense and other current assets of $(168,379) and a decrease in operating lease liability of $(199,511).

Cash used in operating activities was approximately (14,039,704) during the year ended December 31, 2024 primarily due to our net loss of approximately $(33,715,429). The net loss included non-cash charges of approximately $17,209,820, which consisted of approximately $13,475,000 of impairment on deferred customer acquisition costs, $1,427,729 of write offs of deferred financing fees, $1,814,048 in equity-based compensation expense, including the issuance of restricted shares, $2,728,411 of depreciation and amortization expense, partially offset by $(1,946,310) in gains on debt extinguishment and $(994,687) in changes in fair value of the warrant liabilities. The net cash inflow of approximately $2,468,195 from changes in our operating assets and liabilities was primarily due to an increase in accounts payable of $6,012,259, partially offset by a decrease of accrued expenses of $(2,610,971), an decrease in prepaid expense and other current assets of $(824,281).

Investing activities

Cash used in investing activities during the year ended December 31, 2025 was approximately (786,228) which consisted primarily of capitalized internal-use software costs and purchase of fixed assets and equipment.

Cash used in investing activities during the year ended December 31, 2024 was approximately (281,390), which consisted primarily of capitalized internal-use software costs and purchase of fixed assets and equipment.

During the fourth quarter of 2025, the Company entered into an agreement with Skye Inteligencia LATAM, which included a preferred capital contribution with a contractual stated amount of $5,000,000 to the Company associated with the licensing and commercialization of its AI technology in Latin America. However, given Skye's financial condition, lack of operating history and the contingent nature of the instrument, the Company concluded the fair value at inception was nominal, recorded the preferred equity at nominal value under ASC 321, and did not recognize revenue under ASC 606 at that time.

Financing activities

Cash provided financing activities during the year ended December 31, 2025 was approximately 7,517,503, which consisted of proceeds received from the sale of Common Stock and proceeds from warrant exercises and short term loans.

Cash provided by financing activities during the year ended December 31, 2024 was approximately 12,785,354, consisted primarily of proceeds received from the sale of Common Stock.

Operating Results Improvement

During the year ended December 31, 2025, the Company reduced its net loss by approximately $25.1 million compared to 2024, reflecting improved operating performance. Net loss improved from $(33,715,429) to $(8,625,435).

This improvement was driven by both reduced operating expenses and the absence of certain non-recurring charges recognized in the prior year. Loss from operations improved from $(36,473,971) to $(12,626,149), and total operating expenses decreased from $36,573,761 to $12,901,269.

In particular, the Company reduced general and administrative expenses by approximately $10.3 million. In addition, the Company did not incur a $13.5 million impairment related to customer acquisition costs associated with AFG that was recognized in 2024.

Balance Sheet Improvement

The Company also reduced total liabilities from $15,505,376 as of December 31, 2024 to $11,842,656 as of December 31, 2025, representing a reduction of approximately $3.6 million.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reported period. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions.

During the year ended December 31, 2025, there were no material changes to our critical accounting policies and estimates from those described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations of BEN", found in our 2024 Annual Report.

Recent Accounting Pronouncements

See Note B to our consolidated financial statements, found in our 2024 Annual Report for a description of recent accounting pronouncements applicable to our consolidated financial statements.

Off-Balance Sheet Financing Arrangements

We have no obligations, assets or liabilities that would be considered off-balance sheet arrangements as of December 31, 2025. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

Emerging Growth Company Status

We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act ("JOBS Act"). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

We expect to elect to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.