Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Historical results may not be indicative of future performance. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and all other non-historical statements in this discussion are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly in “Risk Factors” or in other sections of this report.
In this discussion, we use certain non-GAAP financial measures. Explanation of these non-GAAP financial measures and reconciliation to the most directly comparable accounting principles generally accepted in the United States of America (“GAAP”) financial measures are included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Investors should not consider non-GAAP financial measures in isolation or as substitutes for financial information presented in compliance with GAAP.
Overview
We are a leading provider of augmented and virtual reality educational technology products, focusing primarily on United States K-12 schools, the Career and Technical Education sector, and select international markets. Our proprietary hardware and software platform delivers interactive, stereoscopic three-dimensional (3D) learning experiences without the need for VR goggles or specialty glasses. We generate revenue through the sale of our hardware (such as our Inspire and Imagine laptops and tracked styluses), and software licenses for STEM and CTE applications, and implementation and professional development services.
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For the year ended December 31, 2025, our total revenue decreased by 27% to $27.9 million, primarily driven by a decline in hardware revenues. Our operations and financial results in 2025 were significantly impacted by shifts in government spending. Actions by the federal government in early 2025—specifically freezing and delaying U.S. Department of Education grants and funds—created severe budgetary uncertainty for our public school district customers. This forced many districts to freeze discretionary spending, resulting in extended sales cycles, decreased capital expenditures, and a decline in our revenue from this sector.
We expect that our future results will continue to be sensitive to the cyclical nature of state and federal education budgets. In this context, we are focused on scaling execution across a carefully selected set of growth vectors. These include:
Targeted software growth via additional application acquisition. We intend to pursue additional software applications in order to increase the growth of our software offerings. Such acquisitions, if completed, are intended to be accretive to earnings and materially increase our software revenue.
Continued Focus in the United States education market . We expect to continue to drive growth by expanding use cases and introducing new applications within the United States. We are particularly focused on acquiring and retaining both K-12 and CTE users while expanding our sales with our Inspire products. With our large content library and pioneering AR/VR capabilities, we pride ourselves on our ability to deliver value across the education landscape including K-12 schools, community colleges, technical colleges and trade colleges. Going forward, we plan to continue to expand our content library and platform to address the needs of our current and future customers.
As of December 31, 2025 and 2024, we had an accumulated deficit of $316.3 million and $290.4 million, respectively. Our net losses were $25.9 million and $20.8 million for the years ended December 31, 2025 and 2024, respectively. A portion of our net losses in the years ended December 31, 2025 and 2024 related to $7.6 million and $7.7 million, respectively, in stock compensation and RSU expense from RSUs and options issued during the period.
As of December 31, 2025 and 2024, we had cash and cash equivalents of $1.0 million and $4.9 million, respectively. In the years ended December 31, 2025 and 2024, we raised $22.6 million and $18.5 million, respectively, for an aggregate of $41.1 million through debt and financing arrangements, including the $5.6 million of net proceeds from our equity line, $7.5 million of net proceeds from our initial public offering (“the IPO”), $9.3 million under loan and security agreements with Fiza, $18.0 million in convertible notes and $10.6 million in other debt issuances. In May 2024 and June 2024, we entered into multiple loan agreements from an existing lender to borrow a total of $3.5 million secured by certain of our assets. Our accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business. Our financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should we be unable to continue as a going concern. The recurring losses and negative cash flows from operations, working capital deficiency, the need for additional financing and uncertainties frequently encountered by companies in the technology industry are factors that raise substantial about our ability to continue as a going for the twelve-month period from the date the financial statements included herein were issued. See Note 1 (Description of Business and Basis of Presentation) to our consolidated financial statements for the year ended December 31, 2025 included elsewhere in this Annual Report on Form 10-K for additional information on our assessment.
Our Business Model
We generate revenue by selling software to customers, selling our products, including our flagship product, the Inspire laptop, and by providing services to customers from our professional development team. We are focused on driving substantial annual growth in software applications revenue and product revenue while maintaining modest growth in services revenue.
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Hardware Product Revenue
Our platform is designed to work with a wide range of learning applications, for both K-12 education and CTE, that come to life by having 3D models projected out of the screen. Our flagship product is Inspire, our latest laptop product built in partnership with a major PC OEM. Hardware product revenue accounted for between 51% and 58% of our total revenue for the years ended December 31, 2025 and 2024.
Software Applications Revenue
We derive software applications revenue from the sale of licenses and subscription plans to the software applications available on our platform.
Our software applications are priced based on the number of devices or users and length of the contract. We offer discount programs based on increases in volume of devices or users and the length of the contract. We believe the wide variety and flexibility of our software applications help us retain existing customers and acquire additional customers. Software applications revenue accounted for between 34% and 38% of our total revenue for the years ended December 31, 2025 and 2024. We expect that going forward our software applications revenue will grow faster in absolute dollars and as a percentage of our total revenue than our product or service revenues.
We typically invoice our customers annually in advance of providing software and services. Software sales consist of licenses of our functional intellectual property that are materially satisfied at a point in time when key codes are provided to allow customers to access the software. In transactions where a third-party is involved in providing software licenses to a customer, we recognize the revenue from the third-party ratably over-time on a straight-line basis.
Services Revenue
Our services are a “turn-key” solution that aids customers with configuring purchased products with software and license keys specific to the customer’s use. This service allows the applicable school to quickly get started with an out-of-the-box ready system. We derive services revenue from installation and/or training services for products, both of which are separate performance obligations and typically are satisfied within a short period of time, often less than one month delivered remotely or on-site at the customer’s location. Additionally, we offer one-and two-year extended warranty contracts that customers can purchase at their option, which are also separate performance obligations. Services revenue accounted for between 9% and 11% of our total revenue for the years ended December 31, 2025 and 2024.
Key Metrics
We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. The calculation of the key metrics discussed below may differ significantly from other similarly titled metrics used by other companies, analysts, investors and other industry participants.
Bookings Growth
We track the bookings growth in our business very closely and we believe this is a key indicator of our business. Bookings represent customer orders that have hardware, software and service components. Bookings indicate future revenue, which lags based on product shipping date, monthly recognition of certain subscription revenue and service delivery completion. Our bookings growth is represented below for each of the periods presented:
Year Ended December 31,
(in thousands)
Bookings
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United States CTE & K-12 Bookings
We believe our ability to retain and grow our product and software revenue will be dependent on our ability to grow in both our United States CTE and K-12 market segments. We track our performance in this area by measuring our bookings from customers in each of these markets. We calculate this metric on a quarterly basis by comparing the aggregate number of bookings in each market for the most recent quarter divided by the number of bookings attributable to the same market for the same quarter in the previous fiscal year. CTE bookings accounted for approximately 41% and 37% of our total United States bookings for the years ended December 31, 2025 and 2024, respectively, while K-12 bookings accounted for approximately 59% and 63% of our total United States bookings for the years ended December 31, 2025 and 2024, respectively.
Subsequent to fiscal year 2024, we experienced significant cancellations ("debooks") of previously reported customer commitments that affect full year bookings performance. These debooks, totaling $1.7 for the year ended December 31, 2024, primarily occurred in the last three quarters of fiscal year 2024. The primary factors contributing to these debooks were customer financial constraints .
Management believes the disclosure of these material debooks provides investors with important context for evaluating business performance. While we do not routinely adjust previously reported bookings figures for normal course cancellations, the magnitude of these debooks was deemed material enough to warrant specific disclosure in this Annual Report on Form 10-K.
International Bookings
We track our performance in international sales by measuring bookings from our international reseller partners relative to total bookings. We calculate this metric on a quarterly basis by comparing the aggregate amount of bookings attributable to international partners for the most recent quarter compared to the number of bookings attributable to international partners for the same quarter in the previous fiscal year and the prior quarter. International bookings accounted for approximately 15% of our total bookings for each year ended December 31, 2025 and 2024.
Software Subscription Renewable Revenue Growth
We believe that our ability to renew and increase the software revenues on our platform from existing customers is an indicator of market penetration, adoption, the growth of our business and future revenue trends. Software sales of our solutions are purchased on an annual or multi-year basis, as well as one-time licenses to allow (i) an unlimited number of users on a particular device or (ii) a particular number of users to access our applications. We include subscriptions for both device and user-based applications and services in our measure of renewing revenue. Our customers typically enter into annual licenses or subscriptions with us, although some enter into multi-year agreements. Customers have no contractual obligation to renew their licenses or subscriptions with us after the completion of their initial term.
We believe the level of renewing revenue is an important indicator of future business success, as it is an indicator of sales growth of customer expansion accounts, utilization of our platform and future margin improvement. Our renewing revenue includes:
renewal of prior customer agreements in whole or in part, plus
additional software titles added to existing customer agreements, and
(iii)
software revenues related to sales of new systems as part of an expansion of the customer footprint.
The above aspects of software revenue are captured in the annualized contract value (“ACV”) and net dollar revenue retention rate (“NDRR”) metrics described below under “Retention and Expansion of Customers.” We believe that these annualized measures provide important context to understanding the strength and growth of our software license revenue. We expect to accelerate the transition of our revenue mix to software from hardware through continued improvement in renewing revenue from the retention and expansion of our customers.
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Retention and Expansion of Customers
Our ability to increase revenue depends in part on retaining our existing customers and expanding their use of our platform. We offer an integrated, comprehensive set of solutions that cover K-12/STEM and CTE. We have a variety of software bundles targeted at different areas of learning and grade levels. Retaining and expanding our existing customer base is critical to our success.
To monitor our ability to retain and grow our customer base for our software we monitor the ACV of active software licenses, with particular attention to customers with at least $50,000 in ACV. Our ACV for the year ended December 31, 2025 and December 31, 2024 was approximately $9.9 million and $11.3 million, respectively. We calculate our Dollar-Based Retention Rate as of a given period end by starting with the ACV from all customers as of 12 months prior to such period end (“Prior Period ACV”) and calculating the ACV from these same customers as of the current period end (“Current Period ACV”). Current Period ACV includes any upsells and is net of contraction or attrition over the trailing 12 months but excludes revenue from new customers in the current period. We then divide the total Current Period ACV by the total Prior Period ACV to arrive at our Dollar-Based Retention Rate. For the years ended December 31, 2025 and December 31, 2024, our NDRR on customers with at least $50,000 of ACV was 71% and 92%, respectively.
Average Term Length
We measure the ACV dollar-weighted term length of our renewable software license agreements. We believe, an increase in term length is a signal that customers are adopting our products for long-term use, which decreases the risk that a customer will choose not to renew their software licenses. CTE agreements are typically longer-term than K-12 agreements, and as a result, the dollar-weighted term length measure can reflect a mix shift of license agreements between these product lines.
Non-GAAP Financial Measures
We use non-GAAP financial measures in addition to our results of operations reported in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools when assessing our operating performance and should not be considered in isolation or as a substitute for GAAP measures, including gross profit and net income (loss). We may calculate or present our non-GAAP financial measures differently than other companies who report measures with similar titles and, as a result, the non-GAAP financial measures we report may not be comparable with those of companies in our industry or in other industries.
Adjusted EBITDA
We calculate Adjusted EBITDA as GAAP net loss adjusted for interest expense, depreciation and amortization expense, stock-based compensation, loss on change in fair value of convertible debt, loss on debt extinguishment and income tax expense. We believe this measure provides our management and investors with consistency and comparability with our past financial performance and is an important indicator of the performance and profitability of our business.
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The following table presents our Adjusted EBITDA from operations for each of the periods presented:
Year Ended December 31,
GAAP Net Loss
Add back (deduct):
Interest expense
Depreciation and amortization
Income tax expense
Stock-based compensation
Loss on change in fair value of convertible debt
Loss on extinguishment of debt
Adjusted EBITDA
Factors Affecting Our Performance
We believe that our growth and financial performance are dependent upon many factors, including the key factors described below which are in turn subject to significant risks and challenges, including those discussed below and in the section of this report entitled “ Risk Factors .”
Retention of Key Employees
In 2020, in response to concerns relating to the COVID-19 pandemic, we made significant changes to our business, including changes to our structure and employee base. We moved to a remote working environment at the onset of the pandemic and have transitioned to a hybrid working environment. In many respects, we believe these changes have better positioned our workforce and our company for profitability. However, we believe we have many employees that are key to our operations, and in the event some of these key employees were to leave our company, it would have a detrimental effect on our business and operations.
Strategic PC OEM Partnerships
Prior to our most recent laptop product, Inspire, we worked exclusively with tier-one Original Development Manufacturers (“ODMs”) to manufacture our products. In 2021, we made the strategic decision to partner with a major PC OEM, working together to build Inspire, a proprietary laptop product, which allowed us to leverage the OEM’s supply chain network and volumes. As of December 31, 2025, approximately 21,700 Inspires have been shipped under our agreement with this PC OEM. Our master agreement with our PC OEM partner is subject to an initial one-year term, with automatic renewal for subsequent one-year terms. Either party is permitted to terminate the agreement upon written notice delivered to the other party not later than three months prior to the expiration of the applicable term. During 2023, we entered into an agreement with another PC OEM for the manufacture of an additional laptop product. If either PC OEM decided to discontinue their relationship with us, our business could be materially and adversely impacted. We also rely upon one third-party partner located in China to manufacture our stylus. If our manufacturing partners that we rely upon decide to discontinue their relationship with us and we are unable to replace such parties on similar terms or at all, our business could be materially and impacted.
Scaling in the United States
Our fundamental go-to-market model is built upon a solution-oriented selling approach. We believe it is critical that we continue to grow and scale our business in the United States in order to be successful. School districts can at times be prone to long sales cycles as a result of the bureaucratic purchasing process. In addition, education funding is subject to change based on political, policy or economic variables at the federal, state or local level, which can impact a school district’s funding, both positively and negatively, and impact our business in the United States.
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Software Acquisitions for Growth
An important component to our future growth plan going forward is the acquisition of key software companies and/or intellectual property in specific areas within the education market. We believe that the completion and successful integration of such companies and assets will be important to our success.
Components of Results of Operations
Revenue
Our revenue consists of hardware revenue, software applications revenue and services revenue. We recognize revenue at the amount to which we expect to be entitled when control of the products, software or services is transferred to its customers as described below. We have elected to record revenue net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded within other current liabilities until remitted to the relevant government authority.
Hardware Revenue — Hardware revenue is generated from the sale of our learning stations bundled with pre-loaded perpetual license software, accessories necessary for full use of our products, including stylus, eyewear (if needed) and power adapters, and a standard assurance type warranty. Hardware accessories are also sold on a stand-alone basis. Customers place orders for the hardware and we fulfill the order and ship the hardware directly to the customer or authorized resellers. Generally, we receive payment from customers or authorized resellers at the time of hardware delivery; however, in certain circumstances our United States customers may remit payment at a later date pursuant to the terms of their agreement with us. We recognize hardware revenue associated with a sale in full at the time of shipment. Customers purchasing hardware from us also typically purchase our enabled software applications for use on their devices.
Software Applications Revenue — Software applications revenue is generated from the sale of internally developed and third-party applications enabled for use on our products licensed over specified contractual terms. Most software applications reside on our products and require license keys to activate, although certain applications are web-based and require user log-ins. Customers who license our software use it on our products under different subscription terms based on the number of devices or users and length of the contract. We do not require customers to license software applications when purchasing our products.
We typically invoice our customers annually in advance based on their subscription. Software sales that consist of licenses of functional intellectual property are satisfied at a point in time when key codes are provided to allow customers to access the software, which is the contract start date and we recognize revenue ratably over the length of the contract. In transactions where we provide user-based software licenses to a customer, we recognize software revenue ratably on a straight-line basis. For the sale of third-party applications where we obtain control of the application before transferring it to the customer, we recognize revenue based on the gross amount billed to customers.
Services Revenue — We derive services revenue from implementation, professional development and technical services delivered remotely or on-site at the customer’s location and extended service type warranties. Services are either delivered by our personnel or our qualified third-party representatives. Under the third-party arrangements, we will pay the third-party for their delivery services and bill the customer directly. We will also repair our products for a fee if the nature of the repair is outside the scope of the applicable warranty, but this is not a significant source of revenue. Each service type does not significantly impact the functionality of the others, or the hardware/software being provided. Services are typically invoiced in advance and revenue is recognized based on the passage of time during the contract period. We believe that the passage of time corresponds directly to the satisfaction of the performance obligations.
Cost of Goods Sold
Cost of goods sold consists of cost of hardware sold, cost of software sold and cost of services sold. Overall cost of revenue is largely dependent on a combination of revenue types, hardware component supply and pricing and cost of third-party software applications.
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Cost of Hardware Sold — Cost of hardware sold consists primarily of costs associated with the manufacture of our products and personnel-related expenses associated with manufacturing employees, including salaries, benefits, bonuses, overhead and stock-based compensation.
All of our products are manufactured by manufacturers located primarily in China. We have entered into agreements for the supply of many components; however, there can be no guarantee that we will be able to extend or renew these agreements on similar terms, or at all. Although most components in the products essential to our business are generally available from multiple sources, certain custom and new technology components are currently obtained from single or limited sources. We compete for various components with other participants in the markets for personal computers, tablets and accessories. Therefore, many components, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant commodity pricing fluctuations.
Cost of hardware sold also includes costs of acquiring third-party devices and components, and costs associated with shipping devices to customers. We have outsourced much of our transportation and logistics management for the distribution of products. While these arrangements can lower operating costs, they also reduce our direct control over distribution. During the COVID-19 pandemic, certain of our logistical service providers experienced disruptions. Refer to “ Supply Chain Challenges ” for more information.
Cost of goods sold related to delivered hardware and bundled software, including estimated standard warranty costs, are recognized at the time of sale.
Cost of Software Sold — Cost of software sold consists primarily of fees paid to third parties for software licenses, costs associated with the technical support of software applications and the cost of our customer success operations. Costs incurred to provide product-related bundled services and unspecified software upgrade rights are recognized as cost of sales as incurred.
Cost of Services Sold — Cost of services sold consists primarily of personnel costs associated with the development and delivery of the services. Some of these costs are internal resources while others are associated with third parties engaged to develop or deliver the services. Other costs include travel and technology used in the development or delivery of the services. Cost of services revenue, including those for extended service type warranty and repair expenses relating to our products, are recognized as cost of sales as incurred or upon completion of the service obligation.
Operating Expenses
Our operating expenses consist primarily of selling, general and administrative expenses and product engineering and R&D expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation and sales commissions. Operating expenses also include overhead costs, including rent, utilities, insurance, legal and office supplies.
Research and development expenses — Research and development expenses consist primarily of product engineering and personnel-related expenses associated with our hardware and software engineering employees, including salaries, benefits, bonuses and stock-based compensation. R&D expenses also include third-party contractor or professional services fees, and software and subscription services dedicated for use by our engineering organization. We expect that our R&D expenses will increase in absolute dollars as our business grows, particularly as we incur additional costs related to continued investments in our platform and products. In addition, R&D expenses that qualify as internal-use software development costs are capitalized, the amount of which may fluctuate significantly from period-to-period.
Selling and marketing — Selling and marketing expenses consist of labor and other costs directly related to the promotion of our products, including compensation for our marketing team and travel expense incurred in connection with promotional efforts.
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General and administrative expenses — General, and administrative expenses consist primarily of personnel-related expenses associated with our finance, legal, information technology, human resources, facilities and administrative employees, including salaries, benefits, bonuses, sales commissions and stock-based compensation. Commissions paid on the sale of hardware and short-term software licenses are recognized upon delivery. Commissions paid on the sale in which at least a portion of the goods and services will be satisfied over a period of time (services primarily consisting of extended warranties) are not material and are expensed when incurred. General and administrative expenses also include external legal, accounting and other professional services fees, operational software and subscription services and other corporate expenses.
Other operating expenses — Other operating expenses consist of offering costs incurred as part of the terminated EdtechX Merger Agreement that were initially deferred but then expensed upon termination of the EdtechX Merger Agreement. We incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to remediating our material weaknesses and compliance and reporting obligations, and increased expenses for insurance, investor relations and professional services. In addition, we expect that our selling, general and administrative expenses will increase in absolute dollars as our business grows.
Interest Expense
Interest expense consists primarily of changes in accrued interest expense, interest payments and amortization of debt issuance costs for our debt facilities. See “ Liquidity and Capital Resources — Debt and Financing Arrangements .”
Income Tax Expense
Income tax expense consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business. We record income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are recorded based on the estimated future tax effects of differences between the financial statement and income tax basis of existing assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to apply to taxable income for the years in which differences are expected to reverse. We recognize the effect on deferred income taxes of a change in tax rates in income in the period that includes the enactment date.
We record a valuation allowance to reduce our deferred tax assets and liabilities to the net amount that we believe is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing tax planning strategies in assessing the need for a valuation allowance.
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Results of Operations
The following table sets forth our results of operations for the years ended December 31, 2025 and 2024 :
Year Ended December 31,
Change
(in thousands)
Revenues:
Hardware
Software
Services
Total Revenues
Cost of goods sold (1)
Gross profit
Operating expenses:
Research and development (1)
Selling and marketing (1)
General and administrative (1)
Total operating expenses
Loss from operations
Other (expense) income:
Interest expense
Other income (expense), net
Loss on extinguishment of debt
Loss on change in fair value of convertible debt
Loss before income taxes
Income tax expense
Net loss
Includes stock-based compensation expense as follows:
Year Ended December 31,
(in thousands)
Cost of goods sold
Research and development
Sales and marketing
General and administrative
Total stock-based compensation expense
Revenue
Year Ended December 31,
Change
(in thousands)
Revenues:
Hardware
Software
Services
Total Revenues
Retention and Expansion Metrics
Annualized Contract Value (ACV)
Net Dollar Retention Rate (NDRR)
Total revenue decreased by $10.2 million, or 27%, to $27.9 million for the year ended December 31, 2025, from $38.1 million for the year ended December 31, 2024. This decrease in revenue was primarily attributable to lower hardware revenues and uncertainty in the Company’s K-12 end-user markets where funding sources have been disruptive, causing longer than usual sales cycles, and in some cases prompting customers to delay receipt of confirmed order bookings. Potential tariff volatility surcharges have also contributed to potentially elongated sales cycles as we communicate these pricing impacts to customers in revised quotes.
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Hardware revenue decreased by $7.8 million or 35%, to $14.2 million for the year ended December 31, 2025, from $22.0 million for the year ended December 31, 2024. The decrease in hardware revenue was primarily attributable to tariff and trade policy uncertainty, as well as uncertainty in federal funding sources for education available to our K-12 segment customers, and the resulting impact on laptop shipments, during the year ended December 31, 2025.The decrease in hardware revenue is primarily attributable to constraint of available working capital to fund hardware purchases to fulfill order backlog. For the years ended December 31, 2025 and 2024, hardware revenue as a percentage of total revenue is 51% and 58%, respectively.
Software revenue decreased by $2.3 million or 18%, to $10.6 million for the year ended December 31, 2025, from $12.9 million for the year ended December 31, 2024. Notwithstanding adverse factors affecting hardware shipments, and software content purchased on new unit deployments, retention of existing software licenses revenue, and increases in the sales price of software, generated an improvement in software revenue relative to the decline in hardware revenue. The decrease in revenue is attributable to third-party annual software sales. For the years ended December 31, 2025 and 2024, software revenue as a percentage of total revenue is 38% and 34%, respectively.
Our key retention metrics are as follows: (1) ACV for the year ended December 31, 2025 decreased to $9.9 million as compared to the year ended December 31, 2024 of $11.3 million and (2) NDRR for the trailing twelve-month period ended December 31, 2025 was 71% and for December 31, 2024 was 92%.
Service revenue decreased by $0.2 million or 5%, to $3.1 million for the year ended December 31, 2025, from $3.3 million for the year ended December 31, 2024. The decrease in revenue is attributable to decreased sales of extended warranty and technology support services. For the years ended December 31, 2025 and 2024, services revenue as a percentage of total revenue is 11% and 9%, respectively.
Year Ended December 31,
Change
(in thousands)
Cost of goods sold:
Hardware
Software
Services
Excess and obsolete
Total cost of goods sold
For the year ended December 31, 2025, total cost of goods sold decreased by $7.9 million, or 35%, to $14.6 million as compared to $22.5 million for the year ended December 31, 2024. This decrease was primarily attributable to reduced hardware costs of $6.6 million due to fewer shipments of Inspire units, a decrease in software costs of $1.9 million and a decrease in excess and obsolete inventory of $0.2 million, partially offset by an increase in service cost of $0.8 million. For the years ended December 31, 2025 and 2024, gross margin is 48% and 41%, respectively.
Cost of hardware sold decreased by $6.6 million, or 41%, to $9.4 million for the year ended December 31, 2025, from $16.0 million for the year ended December 31, 2024. The decrease in cost of hardware sold was primarily attributable to a decrease in the volumes shipped of Inspire laptops, as well as reductions in the bill of materials costs of the new Inspire 2 laptop relative to the Inspire 1 model which was sold during the year ended December 31, 2024. For the years ended December 31, 2025 and 2024, hardware gross margin is 34% and 27%, respectively.
Cost of software sold decreased by $1.9 million or 38%, to $3.1 million for the year ended December 31, 2025, from $5.0 million for the year ended December 31, 2024. The decrease in cost of software sold corresponded to decreased sales of third party point-in-time software and overall software application sales. The decrease in third-party point-in-time software costs was also related to success in acquiring software applications on which the company formerly incurred revenue share. For the years ended December 31, 2025 and 2024, software gross margin is 71% and 61%, respectively.
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Cost of services sold increased by $0.8 million or 69%, to $1.9 million for the year ended December 31, 2025, from $1.2 million for the year ended December 31, 2024. The increase in cost of services sold is attributable to purchases of extended warranty contracts and increased delivery costs for sales of Inspire laptops and technology support services, respectively. For the years ended December 31, 2025 and 2024, services gross margin is 37% and 65%, respectively.
Excess and obsolete write-downs decreased by $0.2 million or 55% to $0.2 million for the year ended December 31, 2025, from $0.4 million for the year ended December 31, 2024. The decrease was attributable to the write-off of inventory costs in the year ending December 31, 2024.
Year Ended December 31,
Change
(in thousands)
Operating Expenses:
Research and development
Selling and marketing
General and administrative
Total operating expenses
For the year ended December 31, 2025, total operating expenses increased by $2.2 million, or 7%, to $35.4 million, from $33.2 million for the year ended December 31, 2024. The increase in expenses was primarily attributable to increased costs in personnel.
Research and development expenses increased by $0.4 million or 8%, to $5.3 million for the year ended December 31, 2025, from $4.9 million for the year ended December 31, 2024. The increase in expenses was primarily attributable to an increase in compensation costs resulting from higher headcount, as well as expanded R&D project activities including new product development and outside services.
Selling and marketing expenses increased by $0.3 million or 2%, to $16.2 million for the year ended December 31, 2025, from $15.9 million for the year ended December 31, 2024. The increase in expenses was primarily attributable to increased headcount and compensation expense partially offset by a decrease in stock-based compensation expense of $0.7 million due to grants to employees in March 2024.
General and administrative expenses increased by $1.5 million or 12%, to $13.9 million for the year ended December 31, 2025, from $12.4 million for the year ended December 31, 2024. The increase in expenses was primarily attributable to increased costs in personnel and professional expenses in 2025 related to being a public company and a $0.5 million increase in stock compensation expenses due to grants to employees in April 2025.
Interest Expense
Year Ended
December 31,
Change
(in thousands)
Interest expense
For the year ended December 31, 2025, interest expense decreased by $1.3 million, or 47%, to $1.5 million, from $2.8 million for the year ended December 31, 2024. The decrease in interest expense was attributable to the convertible loans converted into our common stock as part of the IPO in December 2024 and a lower interest rate on the convertible debt entered into in April 2025 compared to the debt paid off with a portion of the proceeds from the convertible debt.
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Income Tax Expense
The decrease in income tax expense for the year ended December 31, 2025 was immaterial. The United States federal statutory rate is 21% while our effective tax rate for the years ended December 31, 2025 and 2024 was 0.1% and 0.1%, respectively. No federal or state income taxes are expected outside of immaterial state tax payments.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Year ended December 31,
(in thousands)
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Operating Activities
For the year ended December 31, 2025, our operating activities used cash of $18.0 million, primarily due to our net loss of $25.9 million and the changes in our operating assets and liabilities of $2.0 million, partially offset by adjustments for non-cash charges, including stock-based compensation expense of $7.1 million, the change in fair value of convertible debt of $1.9 million, issuance of restricted stock units of $0.5 million, provision for excess and obsolete inventory of $0.2 million, and non-cash amortization of other debt discount of $0.1 million. The change in our operating assets and liabilities was primarily the result of an increase in prepaid and other assets of $0.5 million and a decrease in accounts payable of $1.6 million, accrued expenses of $1.6 million and deferred revenue of $1.4 million, partially offset by a decrease in accounts receivable of $1.6 million and inventory of $0.7 million and an increase in accrued interest of $0.8 million.
For the year ended December 31, 2024, our operating activities used cash of $8.9 million, primarily due to our net loss of $20.8 million and change in the fair value of embedded derivative of $0.2 million, partially offset by changes in our operating assets and liabilities of $3.6 million and adjustments for non-cash charges, including stock-based compensation expense of $7.7 million, provision for excess and obsolete inventory of $0.4 million, non-cash amortization of other debt discount of $0.1 million, and loss on extinguishment of debt of $0.4 million. The change in our operating assets and liabilities was primarily the result of a decrease in accounts receivable of $1.9 million and an increase in accounts payable of $0.9 million, deferred revenue of $0.6 million, and accrued interest of $1.6 million, partially offset by an increase in inventory of $0.1 million and prepaid expenses and other assets of $0.3 million, and a decrease in accrued expenses of $1.1 million.
Investing Activities
For the years ended December 31, 2025 and December 31, 2024, net cash used in investing activities was immaterial due to our low capital equipment requirements.
Financing Activities
For the year ended December 31, 2025, net cash provided by financing activities was $14.4 million primarily due to proceeds from convertible debt of $13.0 million, other debt issuances of $4.0 million, proceeds from issuance of common stock from equity line-of-credit of $5.6 million, and proceeds from exercise of stock options of $0.2 million partially offset by repayment of other debt issuances of $7.2 million, and fees paid for debt issuance of $0.1 million.
For the year ended December 31, 2024, net cash provided by financing activities was $10.5 million primarily due to proceeds from initial public offering of $10.0 million, convertible notes of $5.0 million, and other debt issuances of $3.5 million partially offset by repayment of other debt issuances of $5.7 million, and fees paid for deferred offering costs of $2.5 million.
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Liquidity and Capital Resources
For the years ended December 31, 2025 and 2024, we incurred net losses of $25.9 million and $20.8 million, respectively, and incurred negative cash flows from operations of $18.0 million and $8.9 million, respectively. We had combined cash and cash equivalents of $1.0 million and $4.9 million as of December 31, 2025 and December 31, 2024, respectively. We have incurred operating losses and negative cash flows from operations since inception. In January 2026, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which the Company agreed to issue and sell to the institutional investor shares of the Company’s Series P Preferred Stock, and five-year warrants, that provided us initially with $3.0 million in financing. In addition, on March 16, 2026, we issued an additional senior secured convertible note to an institutional investor pursuant to a securities purchase agreement dated April 10, 2025, which provided us with an additional $4.0 million in financing. See Note 15 (Subsequent Events) of the consolidated financial statements for more information.
Management has projected cash on hand may not be sufficient to allow us to continue operations and there is substantial doubt about our ability to continue as a going concern within 12 months from the date of issuance of the financial statements if we are unable to raise additional funding for operations. We expect our working capital needs to increase in the future as we continue to expand and enhance our operations. Our ability to raise additional funds for working capital through equity or debt financings or other sources may depend on the financial success of our business and successful implementation of our key strategic initiatives, financial, economic and market conditions and other factors, some of which are beyond our control. Further financings may have a dilutive effect on stockholders and any debt financing, if available, may require restrictions to be placed on our future financing and operating activities. If we require additional capital and are unsuccessful in raising that capital at a reasonable cost and at the required times, or at all, we may not be able to continue our business operations or we may be to advance our growth initiatives, either of which could impact our business, financial condition and results of operations.
Sources of Liquidity
We have historically funded our operations through the issuance of common stock and preferred stock to private investors, our IPO and debt financing. Our accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business. The recurring losses and negative cash flows from operations, working capital deficiency, the need for additional financing, and the uncertainties frequently encountered by companies in the technology industry are factors that raise substantial doubt about our ability to continue as a going concern for the twelve-month period from the date the financial statements included herein were issued. The conditions identified above raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not contain any adjustments that might result if we are unable to continue as a going concern.
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Issuance of Common Stock
On December 6, 2024, we completed our IPO of 2.2 million shares of common stock at a price of $5.00 per share, which included 0.3 million shares sold to the underwriters pursuant to their option to purchase additional shares. After underwriting discounts and commissions of $0.8 million and offering expenses of $2.5 million, we received net proceeds from the IPO of $7.5 million. In connection with the IPO, 4.0 million outstanding shares of preferred stock were converted into 18.7 million shares of common stock. See Note 1 (Description of Business and Basis of Presentation) and Note 6 (Temporary Redeemable Preferred Stock and Stockholders’ Equity) for more information.
Series P Preferred Stock Agreements
On January 23, 2026, the Company entered into a Securities Purchase Agreement with an institutional investor for the issuance and sale of Series P Convertible Preferred Stock (the "Series P Preferred Stock") and five-year warrants to purchase common stock. At the initial closing held on January 27, 2026, the investor purchased 1,500,000 shares of Series P Preferred Stock and warrants to purchase 1,000,000 shares of common stock for an aggregate purchase price of $3,000,000. The initial purchase price per share of Series P Preferred Stock was $2.00. The initial exercise price for the warrants is $3.00 per share, subject to standard and customary adjustments. The Series P Preferred Stock entitles holders to cumulative dividends at an annual rate of 18%, payable in additional shares of Series P Preferred Stock, and feature a liquidation preference equal to the stated value plus accrued dividends. Under the terms of the agreement, the Company and the purchaser may mutually agree to additional closings within one year, up to a total aggregate limit of $10.0 million for all cumulative purchases.
Contractual Obligations
Our principal commitments consist of obligations for office space under a non-cancelable operating lease that expires in January 2026, as well as repayment of borrowings under other financing arrangements as described above under “— Liquidity and Capital Resources — Debt and Financing Arrangements .” In addition, we have agreements with certain hardware suppliers to purchase inventory; as of December 31, 2025, we had approximately $10.4 million in purchase obligations outstanding under such agreements, all of which are scheduled to come due on or before December 31, 2026.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. We evaluated the development and selection of our critical accounting estimates and believe that the following involve a higher degree of judgement or complexity and are most significant to reporting our results of operations and financial position and are therefore discussed as critical. The following critical accounting estimates reflect the significant estimates and judgements used in the preparation of our consolidated financial statements. Actual results could differ materially from those estimates and assumptions, and those differences could be material to our consolidated financial statements.
We re-evaluate our estimates on an ongoing basis. For information on our significant accounting policies, refer to Note 2 — Summary of Significant Accounting Policies to our consolidated financial statements contained elsewhere in this report.
Revenue Recognition
We recognize revenue from signed contracts with customers, change orders (approved and unapproved) and claims on those contracts that we conclude to be enforceable under the terms of the signed contracts. Some of our contracts have one clearly identifiable performance obligation. However, many contracts provide the customer several promises that include hardware, software and professional services. The determination of the number of performance obligations in a contract requires significant judgment and could change the timing of the amount of revenue recorded for a given period.
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For contracts with multiple performance obligations, the transaction price is allocated based on standalone selling prices (“SSP”), with list prices typically used for most items. For post-contract support services (“PCS”) significant judgement is involved based on factors such as specific services offered, business models and operational efficiency. The Company regularly reassesses this estimate as changes could materially impact revenue recognition timing and amounts.
Discounts in certain contracts with customers are deemed variable consideration but are known at the time of revenue recognition.
Inventory
Our inventory, which includes raw materials and finished goods is valued using the weighted average cost method for hardware inventory while software inventory is recorded at actual cost. We periodically review the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold.
Convertible Debt
We have issued convertible debt under numerous convertible promissory notes. We evaluate embedded conversion and other features within convertible debt to determine whether any embedded features should be bifurcated from the host instrument and accounted for as a derivative at fair value, with changes in fair value recorded in the consolidated statement of operations. No material embedded features have been bifurcated as of the financial statement dates.
For the recent convertible note described in Note 5 (Debt and Related Party Debt), we elected the fair value option under accounting Standards Codification (“ASC”) 825, Financial Instruments , (“ASC 825”) measuring the entire instrument at fair value with changes recognized in earnings. This election is irrevocable and applied to the whole instrument, consistent with ASC 825-10 guidance. Key estimates include the valuation of original issue discount, accrued interest, and make-whole provisions, which require assumptions about discount rates, credit risk, and market conditions. The fair value option under ASC 825 simplifies the accounting by eliminating the need to bifurcate embedded derivatives under ASC 815, Derivatives and Hedging (“ASC 815”) and aligns with the principles outlined in ASC 470, Debt (“ASC 470”) for debt instruments. This approach requires ongoing reassessment of fair value inputs and assumptions, which can significantly affect reported earnings and liabilities . All fees related to the convertible note were expensed as incurred and not recorded as debt issuance costs.
Income Taxes
We use the asset and liability method under FASB ASC Topic 740, Income Taxes , when accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the deferred tax asset and liability.
We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income, and ongoing tax planning strategies in assessing the need for a valuation allowance.
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we will make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
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JOBS Act
The JOBS Act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore, we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
We are also a smaller reporting company meaning that the market value of our stock held by non-affiliates is less than $700.0 million and our annual revenue was less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue was less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. To the extent we continue to qualify as a smaller reporting company after we cease to qualify as an emerging growth company, we will continue to be permitted to make certain reduced disclosures in our periodic reports and other documents that we file with the SEC. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
