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 the financial condition and results of operations of Veea should be read together with the "Item 1. Business" section and our audited financial statements as of the years ended December 31, 2025 and 2024, and related notes and other information included elsewhere in this Annual Report.

In addition to our historical consolidated financial information, this discussion includes forward-looking information regarding our business, results of operations and cash flows, and contractual obligations and arrangements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from any future results expressed or implied by such forward-looking statements as a result of various factors, including, but not limited to, those discussed in the sections of this Annual Report entitled "Cautionary Note Regarding Forward-Looking Information" below and "Risk Factors" included elsewhere in this Annual Report.

Unless the context otherwise requires, references in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" to "Veea," "we", "us", "our", and the "Company" are intended to refer to (i) following the Business Combination, the business and operations of Veea Inc. and its consolidated subsidiaries, and (ii) prior to the Business Combination, Private Veea (the predecessor entity in existence prior to the consummation of the Business Combination) and its consolidated subsidiaries.

Company Overview

We are dedicated to simplifying the journey towards creating a world in which virtually everyone and everything is intelligently connected, while bringing applications and AI to the edge of the network. Most service providers, equipment suppliers, system integrators and even hyperscalers have adopted or advocated for similar solutions to various degrees either independently or in collaboration with the Company. However, to our knowledge, we are the first to market with patented technologies that a) bring virtualized data center capabilities to the far edge of the network, commonly referred to as the Device Edge, where all wired and wireless devices connect to the network, b) spawns hyperconvergence of computing, multiaccess communications and storage, c) provides for Cloud-managed applications at the Edge, d) enables machine learning with AI training, inferencing, and agentic AI at the Edge including AI-driven cybersecurity for heterogenous networks. Such networks are given rise through any combination of our developed devices and third-party devices, with CPUs, GPUs, TPUs, DPUs and/or NPUs, that run the VeeaONE platform ☐ software stack.

Veea has developed several generations of highly integrated all-in-one devices that incorporate a Linux server, with a virtualized software environment, supporting our patented secured docker containers, together with a Wi-Fi Access Point (AP) with a mesh router, a firewall, an IoT gateway, NVMe data storage and 4G/5G modules, referred to as the "VeeaHub" product. With an extensive patent portfolio of 123 granted patents and 32 pending patent applications that cover 26 patent families, our end-to-end Hybrid Edge-Cloud Computing platform represents a new product category that has the potential for wide scale customer adoption in large segments of consumer and enterprise markets.

VeeaONE platform's products, applications, and services with a distributed computing architecture, offered as a Platform-as-a-Service capability, empower companies to capitalize on the transformative potential of Edge AI, where most of the data from smartphones, tablets, laptops, cameras, sensors, and other devices is generated, with data privacy and sovereignty, reliability, low latency for real-time decisions, bandwidth efficiency, scalability, and reduced costs compared to alternatives.

VeeaHub products, about the size of a typical Wi-Fi Access Point (AP), are offered in variety of forms with different capabilities for indoor and outdoor coverage and are both locally- and cloud-managed. VeeaONE platform architecture and business model, VeeaHub ☐ and third-party devices on VeeaONE platform with Hybrid Edge-Cloud Computing and AI-enabled applications and services resemble the Android OS platform architecture and business model for Android devices.

The VeeaONE platform offers a complement, and in some cases an alternative, to cloud computing by enabling the formation of highly secure, but easily accessible, private clouds and networks across one or multiple user(s) or enterprise location(s) across the globe. Benefits of the VeeaONE platform include optimal latency, lower data transport costs, data privacy, security and ownership, Edge AI, as well as "always-on" availability for mission critical applications, and contextual awareness for people, devices and things connected to the Internet.

Recent Developments

Transfer of Listing Application

In response to the Nasdaq deficiency notices received by the Company on September 29, 2025, on March 27, 2026, the Company submitted an application to transfer the listing of its Listed Securities from The Nasdaq Global Market to The Nasdaq Capital Market. In connection with the submission to transfer the Company's listing, the Company requested a second period of 180 calendar days, or until September 30, 2026, to regain compliance with the Minimum Bid Price Requirement for continued listing.

On April 7, 2026, Nasdaq Staff approved the Company's request to transfer the listing of the Company's publicly traded securities from The Nasdaq Global Select Market to The Nasdaq Capital Market. The transfer took effect at the opening of business on April 9, 2026 and did not have any immediate effect on trading in the Listed Securities. The Listed Securities continue to trade uninterruptedly under the symbol "VEEA" and "VEEAW", respectively. The Nasdaq Capital Market operates in substantially the same manner as The Nasdaq Global Market, and companies on The Nasdaq Capital Market must meet certain financial and corporate governance requirements to qualify for continued listing.

As a result of the transfer to The Nasdaq Capital Market, Nasdaq granted the Company a second period of 180 calendar days, or until September 28, 2026, to regain compliance with the minimum bid price requirement for continued listing. To regain compliance, the closing bid price of the Company's shares must meet or exceed $1.00 per share for a minimum of 10 consecutive business days on or prior to September 28, 2026. Nasdaq's determination to grant the additional 180-day compliance period was in part based on, among other things, the Company meeting the continued listing requirements of The Nasdaq Capital Market with the exception of the minimum bid price requirement, and the Company having provided written notice of its intention to cure the deficiency during the additional compliance period, including by effecting a reverse stock split if necessary. Following Nasdaq's approval of the extended compliance period, the Company intends to continue to actively monitor the minimum bid price requirement and, as appropriate, will consider available options to resolve any deficiencies and regain compliance, including by effecting a reverse stock split if necessary.

Issuance and Designation of Series A Preferred

In connection with the Company's application to transfer its listing to The Nasdaq Capital Market, to ensure the Company's compliance with the listing requirements of The Nasdaq Capital Market, on March 30, 2026, the Company entered into separate conversion agreements with each of NLabs and 83^rd Street LLC ("83^rd Street") pursuant to which (i) NLabs agreed to convert (x) $16,876,400 principal and accrued interest of outstanding under certain promissory notes evidencing loans made by NLabs to the Company (the "NLabs 2025 Notes") into 168,764 shares of Series A preferred stock, par value $0.0001 per share, of the Company ("Series A Preferred") and (y) $2,000,000 of the accrued rent owed to it in respect of the 164 East 83rd Street office lease into 20,000 shares of Series A Preferred and (ii) 83^rd Street agreed to convert $2,323,600 of the accrued rent owed to it in respect of the 166 East 83rd Street office lease into 23,236 shares of Series A Preferred. Under the terms of the conversion agreements, NLabs and 83^rd Street are each entitled to certain registration rights with respect to the shares of common stock issuable upon conversion of shares of the Series A Preferred.

In connection with the conversion, on March 30, 2026, the Company filed a Certificate of Designation of Series A Convertible Preferred Stock (the "Certificate of Designation") with the Secretary of State of the State of Delaware to designate Series A Preferred. Each share of Series A Preferred is entitled to vote on an as converted basis along with the common stock, and holders of Preferred Stock are entitled to receive dividends that are economically equivalent to any dividends declared with respect to the common stock. Each share of Series A Preferred is convertible into 198 shares of common stock, at the option of the holder.

Each share of Series A Preferred is entitled to vote on an as converted basis along with the common stock, and holders of Series A Preferred are entitled to receive dividends that are economically equivalent to any dividends declared with respect to the common stock. Further each share of Series A Preferred is convertible into common stock, at the option of the holder, in an amount equal to a price per share of $100 (as adjusted for certain stock splits) divided by $0.503.

Issuance of Warrants to NLabs

On March 30, 2026, in connection with the execution of the note conversion agreement and in consideration of NLabs's entering into the note conversion agreement, the Company and NLabs entered into the No. 1 Amendatory Agreement to the NLabs 2025 Notes, pursuant to which (i) the face amount of each NLabs 2025 Note was amended to adjust such face amount, prior to conversion, to equal the "Adjusted Face Amount" of such NLabs 2025 Notes reflected on Schedule I thereof and (ii) the Company issued to NLabs a warrant to purchase 33,551,486 shares of the common stock at an exercise price of $0.503 per share (the "NLabs 2026 Warrants").

Secured Term Loans

On February 17, 2026, Private Veea, entered into a Loan Agreement (the "Secured Term Loan Agreement") with Pasadena Private Lending, Inc. (the "Secured Lender"), pursuant to which the Secured Lender agreed to extend, on the terms provided in the Secured Term Loan Agreement, a secured term loan facility in an aggregate principal amount of up to $10,550,000. The initial loan amount of $5,500,000 (the "Initial Term Loan Amount") was borrowed by Private Veea on February 17, 2026 (the "Initial Secured Loan Closing Date") and is evidenced by a promissory note, dated the Initial Secured Loan Closing Date (the "Secured Term Loan Note"). The Initial Term Loan Amount matures on the fifth anniversary of the Initial Secured Loan Closing Date and bears interest at a rate per annum equal to the prime rate (subject to a floor of 5.75%) plus an applicable margin of 4.50% (subject to adjustment based on the balance in the Cash Collateral Account defined below). Interest is payable monthly in arrears. Principal is payable in monthly installments of $58,000 commencing March 17, 2027, with any remaining outstanding principal and accrued interest due at maturity. VeeaSystems intends to use the loan proceeds for general corporate and working capital purposes.

Private Veea has the ability, by written notice to the Secured Lender at any time prior to the one-year anniversary of the Initial Secured Loan Closing Date, to request that the Initial Term Loan Amount be increased by additional term loans (the "Accordion Term Loans" and collectively with the Initial Loan Amount, the "Secured Loans") in an aggregate principal amount $2,500,000 each, with the total Accordion Term Loans not to exceed $5,000,000. The making of the Accordion Term Loans are subject to the conditions provided in the Secured Loan Agreement; and, once made, will be subject to the same terms and conditions as the Initial Loan Amount, including, without limitation, with respect to interest rate, maturity, guaranties, and security.

Private Veea's obligations under the Secured Term Loan Agreement are separately guarantied (a) by the Company (b) jointly and severally by Allen Salmasi, Chairman and Chief Executive Officer of the Company, and his spouse (the "Individual Guarantors"), and (iii) the domestic subsidiaries of Private Veea. Private Veea's obligations are secured by first-priority liens and securities interests in favor of the Secured Lender by (i) a pledge by the Company of 100% of the issued and outstanding equity interests of VeeaSystems, ); (ii) a pledge by Private Veea of 100% of the issued and outstanding equity interests of each of its domestic subsidiaries. The Secured Lender has further been granted first-priority liens and securities interest in (i) substantially all of Private Veea's personal property, including accounts receivable, inventory, equipment, intellectual property, investment property, general intangibles, deposit accounts, and proceeds thereof). Further, until such time as Private Veea achieves a Debt Service Coverage Ratio (as defined in the Secured Term Loan Agreement) of at least 3.0 to 1.0, tested as of the most recently completed fiscal quarter end, Private Veea is required to maintain a minimum aggregate balance equal to the greater of (i) $550,000 and (ii) 10% of the then outstanding aggregate principal amount of the Secured Term Loans, in cash, liquid securities, and marketable securities, in a reserve account (the "Cash Collateral Account").

The Secured Term Loan Agreement contains customary affirmative and negative covenants, including without limitation, on indebtedness, liens, fundamental changes, asset sales, investments, and restricted payments. Further (i) commencing on the Initial Secured Loan Closing Date until June 30, 2027, (x) Private Veea is required to maintain a "Maximum Total Liabilities to Total Tangible Assets" (as defined in the Secured Term Loan Agreement) of no greater than 70.00%; and (y) the Individual Guarantors maintain "Liquidity" (as defined in the Secured Term Loan Agreement) in an amount greater than or equal to 2x the outstanding principal amount of the Secured Term Loans and (ii) thereafter, Private Veea is required to maintain (x) a "Senior Debt to EBITDA Ratio" (as defined in the Secured Term Loan Agreement) of no greater than 3.00 to 1.00 and (y) a minimum "Debt Service Coverage Ratio" (as defined in the Secured Term Loan Agreement) of at least 2.00 to 1.00. The covenants are each tested quarterly.

The Secured Term Loan Agreement and the Secured Term Loan Note contain customary events of default, including payment defaults, covenant defaults, breaches of representations and warranties, cross-defaults to other material indebtedness, bankruptcy events affecting Private Veea or the Company, material judgments, and change of control. Upon the occurrence of an event of default, the Secured Lender may accelerate the Secured Term Loans and exercise remedies against the collateral, including foreclosure on the pledged equity interests and the personal property collateral.

White Lion Private Placement

White Lion Note Purchase Agreement

On January 14, 2026, the Company and White Lion entered into the White Lion Note Purchase Agreement. Pursuant to the White Lion Note Purchase Agreement, the Company agreed to issue, and White Lion agreed to purchase, at one or more closings, on the terms and conditions contained in the White Lion Note Purchase Agreement, unsecured promissory notes in the aggregate funded amount of up to $2,500,000 and the White Lion Warrants to purchase shares of the Company's common stock. The first closing occurred on January 14, 2026 at which the Company issued, and White Lion purchased, a White Lion Note with a face amount of $555,556 and warrant to purchase 990,099 shares of common stock with an exercise price of $0.505 per share. At the first closing, the Company received cash proceeds of $475,000, net of original issuance discount and certain transaction expenses.

The White Lion Notes mature 12-months from the date of issuance and accrue interest at an annual rate of five (5) percent per annum. The White Lion Notes are convertible, in whole or in part, into shares of common stock at the option of White Lion, at a price per share equal to the lesser of (i) $0.75 per share and (ii) 90% of the lowest VWAP (calculated as set forth in the White Lion Notes) for the prior consecutive ten (10) trading-day period, in each case subject to certain equitable adjustments. The White Lion Notes contain ownership limitations pursuant to which White Lion does not have the right to exercise any portion of its White Lion Notes if it would result in White Lion (together with its affiliates) beneficially owning more than 4.99% (or, at the election of White Lion, 9.99%) of the outstanding common stock. The White Lion Notes are repayable by the Company at any time, in whole or in part, without premium or penalty, other than the White Lion Notes issued at the first closing. Upon an event of default, the outstanding principal amount of the outstanding White Lion Notes, plus accrued but unpaid interest will become immediately due and payable in full. Events of default include, among others, failure to pay any principal or interest amounts under the White Lion Notes, failure to perform covenants in the White Lion Notes and certain bankruptcy and insolvency conditions of the Company.

Under the terms of the White Lion Note Purchase Agreement, the Company agreed to sell at each closing, in addition to a White Lion Note one accompanying White Lion Warrant at a price per share equal to the common stock's closing price on such closing date, subject to certain adjustments. The White Lion Warrants expire five years from the date of issuance. The White Lion Warrants, contain ownership limitations pursuant to which White Lion does not have the right to exercise any portion of such warrants if it would result in White Lion (together with its affiliates) beneficially owning more than 4.99% (or, at the election of White Lion, 9.99%) of the outstanding common stock. The Company may elect, by written notice to White Lion, (the "Call Notice"), to cause White Lion to exercise its unexercised White Lion Warrants, at the then effective exercise price, at any time that (i) all shares of common stock underlying the White Lion Warrants are fully registered for resale pursuant to an effective registration statement and (ii) the closing price of the common stock has been greater than $3.00 per share for at least thirty (30) consecutive trading days preceding the date of the Call Notice.

Concurrently with the White Lion Note Purchase Agreement, the Company entered into a related Registration Rights Agreement (the "White Lion 2026 RRA") with White Lion, pursuant to which the Company agreed to file, within 60 days following the first closing on January 14, 2026, a Registration Statement with the SEC registering for resale by White Lion of the number of the shares of common stock underlying the White Lion Notes and the White Lion Warrants. The White Lion 2026 RRA also contains usual and customary damages provisions for failure to file and failure to have the Registration Statement declared effective by the SEC within the time periods specified therein. The White Lion Note Purchase Agreement, the White Lion Notes, the White Lion Warrants, and the White Lion 2026 RRA include other customary terms and conditions.

White Lion - Equity Line of Credit

On December 2, 2024, the Company entered into a common stock purchase agreement (as amended, the "ELOC Purchase Agreement") and related registration rights agreement (the "White Lion 2025 RRA") with White Lion. Pursuant to the ELOC Purchase Agreement, the Company has the right, but not the obligation, to direct White Lion to purchase up to $25.0 million in aggregate gross purchase price of newly issued shares of common stock, subject to certain limitations and conditions as described below (the "ELOC Program"), at a purchase price equal to (i) 96.5% of the volume weighted average stock price for the three consecutive business days after a purchase notice is given, (ii) 98% of the volume weighted average stock price on the day a notice is delivered, or (iii) the lowest traded price for a given purchase date.

The Company controls the timing and amount of any sales to White Lion, which depends on a variety of factors including, among other things, market conditions, the trading price of the Company's common stock, and determinations by the Company as to appropriate sources of funding for its business and operations. However, White Lion's obligation to purchase shares is subject to certain conditions, including the daily trading volume of the Company's common stock. In all instances, the Company may not sell shares of its common stock under the ELOC Purchase Agreement if it would result in White Lion and its affiliate beneficially owning more than 4.99% of its outstanding voting power or shares of common stock at any one point in time, or the aggregate number of shares of common stock would not exceed 19.99% of the voting power of the issued and outstanding common stock.

During the year ended December 31, 2025, the Company issued 27,498 shares of common stock as a commitment fee (the "ELOC Commitment Shares") to White Lion in payment of its commitment fee and sold 240,500 shares to White Lion under the ELOC Program for aggregate proceeds of $604,426, with the stock price of shares purchased by the White Lion ranging from $1.79 per share to $3.31 per share. The fair value of the ELOC Commitment Shares was $25,000, which pursuant to ASC 815, was recorded in transaction costs in the consolidated statement of operations and comprehensive loss of the Company for the year ended December 31, 2025. Further, the ELOC Purchase Agreement provided for the issuance of additional Commitment Shares to White Lion if the Company failed to sell at least $1,000,000 in gross proceeds to the White Lion by the sixth-month anniversary of signing of the ELOC Purchase Agreement.

White Lion has agreed that during the term of the ELOC Purchase Agreement, neither it nor any of its affiliates will engage in any short sales or hedging transactions involving the common stock. Effective of June 2, 2025, the Company and White Lion amended the ELOC Purchase Agreement effective of June 2, 2025 to provide for (i) an extension of the time period for the determination as to whether White Lion is entitled to additional ELOC Commitment Shares to December 15, 2025 and (ii) an increase the gross proceeds sold under the ELOC Purchase Agreement to $1,250,000. On January 14, 2026, the Company and White Lion further amended the ELOC Purchase Agreement (a) to provide for an extension of the ELOC Commitment Period from December 2, 2026 to June 30, 2027 and (b) to amend the provision relating to the issuance by the Company of additional ELOC Commitment Shares to White Lion such that White Lion is entitled to additional shares in amounts equal to (i) $25,000 at the time of the ELOC Amendment No. 2, (ii) $50,000, if the Company has not sold to White Lion under the ELOC Purchase Agreement an aggregate of $1,250,000 in gross proceeds of common stock through April 15, 2026, and (iii) $25,000, if the Company has not sold to White Lion under the ELOC Purchase Agreement an aggregate of $1,500,000 in gross proceeds of common stock through June 30, 2026. The number of shares of common stock issued in each instance is determined by dividing the dollar value of the shares of common stock to be issued by the average VWAP of the common stock for the ten-day trading period immediately prior to the issuance date.

Repayment of Line of Credit

On January 5, 2026, the Company repaid in full its line of credit (the "Line of Credit") with JP Morgan Chase (the "JPM") by making a cash payment to JPM of $14,076,218, representing the total outstanding principal and interest due as of January 5, 2026. See "Certain Relationships and Related Person Transactions - NLabs Demand Note" for more information.

Executive Management Changes

On April 13, 2026, the Company entered into a transition agreement with Janice K. Smith, the Executive Vice President and Chief Operating Officer. Pursuant to the agreement, effective as of April 30, 2026, Ms. Smith will step down from her current roles as the Executive Vice President and Chief Operating Officer of the Company and will serve as Senior Operations Advisor commencing on April 30, 2026 and ending on December 31, 2026. Ms. Smith will be entitled certain equity awards and cash bonus. See "Item 11. Executive Compensation - Existing NEO Employment Agreements - Smith Transition Agreement."

Components of Results of Operations

Revenue, net

The Company recognizes revenue based on the satisfaction of distinct obligations to transfer goods and services to customers. The Company generates revenue from hardware sales and the sale of licenses and subscriptions. The Company applies a five-step approach as defined in ASC 606, Revenue from Contracts with Customers, in determining the amount and timing of revenue to be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when a corresponding performance obligation is satisfied. Most contracts with customers are to provide distinct products or services within a single contract. However, if a contract is separated into more than one performance obligation, the total transaction price is allocated to each performance obligation in an amount based on the estimated relative standalone selling price.

For licenses of technology, recognition of revenue is dependent upon whether the Company has delivered rights to the technology, and whether there are future performance obligations under the contract. Revenue from non-refundable upfront payments is recognized when the license is transferred to the customer and the Company has no other performance obligations. Revenue for licenses delivered under a subscription model having terms between one and twelve-months are recognized over-time. Subscription revenue is generated through sales of monthly subscriptions. Customers pay in advance for the licenses and subscriptions. Revenue is initially deferred and is recognized using the straight-line method over the term of the applicable subscription period.

Cost of Goods Sold

Cost of goods sold consists primarily of the cost of finished goods, components purchased for manufacturing and freight. Cost of goods sold also includes third-party vendor costs related to cloud hosting fees.

Operating Expenses

We classify our operating expenses into the following categories:

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Product development expenses. Product development expenses primarily consist of employee compensation, employee benefits, stock-based compensation related to technology developers and product management employees, as well as fees paid for outside services and materials.

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Sales and marketing expenses. Sales and marketing expenses consist of compensation and other employee-related costs for personnel engaged in selling, marketing and sales support functions. Selling expenses also include marketing and the costs associated with customer evaluations. The Company does not currently incur advertising costs.

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General and administrative expenses. General and administrative expenses consist of compensation expense (including stock-based compensation expense) for employees and executive management, and expenses associated with finance, tax, and human resources. General and administrative expenses also includes transaction costs, expenses associated with facilities, information technology, external professional services, legal costs and settlement of legal claims and other administrative expenses.

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Depreciation and amortization: Depreciation and amortization expense consists of depreciation of Veea's property and equipment and amortization of Veea's patents and other intellectual property.

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Impairment: Impairment consists of impairment charges related to our in-process research and development ("IPR&D")

Results of Operations

The following tables set forth the results of our operations for the periods presented, as well as the changes between periods. The period-to-period comparison of financial results is not necessarily indicative of future results.

For the year ended December 31, 2025 compared to year ended December 31, 2024:

		Year Ended December 31,
		2025				2024				Variance $				Variance %
Sales, net		$	222,018			$	141,760			$	80,258				57	%
Cost of goods sold			69,981				83,290				(13,309	)			-16	%
Gross profit			152,037				58,470
Operating Expenses:
Product development			328,422				1,373,351				(1,044,929	)			-76	%
Sales and marketing			349,004				811,537				(462,533	)			-57	%
General and administrative, net			17,652,467				26,638,816				(8.986,349	)			-34	%
Transaction costs			25,000				55,038,544				(55,013,544	)			NM
Depreciation and amortization			632,479				273,772				358,707				131	%
Total operating expenses			18,987,372				84,136,020
Loss from operations			(18,835,335	)			(84,077,550	)
Other income (expense):
Other income, net			(5,537	)			21,390				(26,927	)			-126	%
UK R&D Tax Credit			1,202,554				1,251,243				(48,689	)			-4	%
Loss on initial issuance of convertible note			-				(1,770,933	)			1,770,933				-100	%
Change in fair value of convertible note option liability			60,000				840,933				(780,933	)			-93	%
Change in fair value of warrant liabilities			360,685				200,124				160,561				80	%
Change in fair value of Earn-out Share Liability			13,016,400				38,040,000				(25,023,600	)			-66	%
Other expense			(256,585	)			(244,732	)			(11,853	)			27	%
Interest expense			(2,202,220	)			(1,808,243	)			(393,977	)			22	%
Total other income			12,175,297				36,529,782
Net loss		$	(6,660,038	)		$	(47,547,768	)		$	40,887,730				-86	%

Revenue, net

The Company generated revenue of approximately $0.2 million and approximately $0.1 million for the years ended December 31, 2025 and 2024, respectively. Revenue has been principally earned from paid pilots for our VeeaHub^® devices.

Our focus over the past several years has been on field testing and refining our product to meet customer needs as well as market developments. As a result of these efforts, we expect revenue to grow over the next several quarters through the sales of our hardware, licenses and subscriptions. We are especially focused in four principal market opportunities: 1) Digital Equity and Inclusion, 2) Energy and Sustainability solutions for Smart Buildings and Climate Smart Agriculture, 3) Convergence of Fixed, Wireless, and 5G Networks, and 4) Smart Retail and Smart Warehouses.

Cost of Goods Sold

Cost of goods sold remained materially consistent for the year ended December 31, 2025 as compared to the year ended December 31, 2024. Given the lack of a material fluctuation in Revenue, net, management would not expect a significant fluctuation in Cost of goods sold.

Product Development Expense

Product development expense decreased by approximately $1.0 million, or 76%, from approximately $1.4 million for the year ended December 31, 2024 to approximately $0.3 million for the year ended December 31, 2025. The decrease in product development expenses was due to decreased internal development costs during the period.

Sales and Marketing Expense

Sales and marketing expense decreased by approximately $0.5 million, or 57%, from approximately $0.8 million for the year ended December 31, 2024 to approximately $0.3 million for the year ended December 31, 2025. The decrease is primarily due to a reduction in unpaid customer pilots.

General and Administrative Expense

General and administrative expense decreased by approximately $9.0 million, or 34%, from approximately $26.6 million for the year ended December 31, 2024 to approximately $17.7 million for the year ended December 31, 2025. The decrease is primarily due to a decline in share-based compensation expense as compared to the prior year of approximately $6.8 million.

Transaction costs including those incurred with Earn-Out Share Liability

Transaction costs were primarily incurred during the year ended December 31, 2024 associated with the contingent earn-out share liability during 2024. No material transaction costs were expected by management during the year ended December 31, 2025.

Depreciation and Amortization

Depreciation and amortization increased by approximately $0.3 million, or 131%, from approximately $0.3 million for the year ended December 31, 2024 to approximately $0.6 million for the year ended December 31, 2025. The increase was due to additional amortization for the technology assets acquired from Crowdkeep, Inc. in May 2025.

Other income, net

Other income, net relates to immaterial non-operating transactions incurred during the period. These amounts were immaterial for the years ended December 31, 2025 and 2024.

Change in fair value of derivative liabilities

Change in fair value of derivative liabilities is comprised of the fair value adjustments to the convertible note option liability, SPAC Private Placement Warrants, the Earn-Out Share Liability, and the 2025 Investors Warrants at balance sheet date. The loss on the change in fair value of conversion note option liability of $60 thousand for the year ended December 31, 2025, was determined using a Black-Scholes option pricing model. The gain on the change in fair value of the SPAC Private Placement Warrants of $0.4 million for the year ended December, 2025, was determined based on the trading value of the public warrants and the Black-Scholes option pricing model. The gain on the change in fair value of the Earn-Out Share Liability of $13.0 million for the year ended December 31, 2025, was determined using a Monte Carlo simulation of 100,000 simulations. A significant driver of the changes in fair value was due to the decline in the Company's stock price.

Other expense

Other expenses relate to immaterial non-operating expenses incurred during the period. These amounts were immaterial for the years ended December 31, 2025 and 2024.

Interest expense

Interest expense increased by approximately $0.4 million, or 22%, from approximately $1.8 million for the year ended December 31, 2024 to approximately $2.2 million for the year ended December 31, 2025. The increase was due to additional draws on our revolving line of credit and new related party notes entered throughout the year ended December 31, 2025.

Liquidity and Capital Resources

During the years ended December 31, 2025 and 2024, the Company incurred operating losses of approximately $18.8 million and $84.1 million, respectively, and had an accumulated deficit of $224.5 million as of December 31, 2025. Since its inception, it has incurred significant operating losses and negative cash flows. As of December 31, 2025, it had cash of approximately $0.1 million and outstanding debt of $19.8 million, of which $750,000 was outstanding under those unsecured convertible promissory notes issued by the Company and Private Veea to certain unaffiliated accredited investors pursuant to certain note purchase agreements entered into with such investors simultaneously with the Closing of the Business Combination for the sale of such notes (the "September 2024 Notes"), $1.0 million was outstanding under the Crowdkeep Convertible Notes, $14.0 million was outstanding under the working capital facility, $2.3 million was outstanding under a related party note payable, and $1.8 million was outstanding under a notes payable with an inventory vendor.

The Company plans to fund its operations and capital funding needs for the next 12 months with revenue generated from operations, including anticipated revenue generated under the Framework Agreement for the Licenses, Equipment and Services (the "Supply Agreement") that the Company entered into with RadioMovil Dipsa, S.A. De C.V. ("Telcel"), a Mexican wireless telecommunications company owned by América Móvil, effective August 7, 2025, and using proceeds from its existing financing arrangements under the ELOC Purchase Agreement, its new secured term loan facility with Pasadena Private Lending (as described above) and note purchase agreement with White Lion. Further, the Company could pursue other equity and debt financing from new or existing investors, including related parties, which may continue to include the Company's CEO and his affiliates.

Our principal sources of liquidity are proceeds from the issuance of notes, convertible notes, related party notes, and the issuance of common stock. The primary use of capital continues to be to invest for the long-term growth of the business. We regularly evaluate our cash and capital structure, including the size, pace, and form of capital return to stockholders.

The following table presents cash flows for the years ended December 31, 2025 and 2024, respectively:

		Year ended December 31,
		2025				2024
Net cash used in operating activities		$	(15,227,760	)		$	(25,595,008	)
Net cash used in investing activities		$	(247,337	)		$	(265,445	)
Net cash provided by financing activities		$	13,936,539			$	21,572,753

Cash used in operating activities

Cash used in operating activities for the year ended December 31, 2025 was driven by our net loss of approximately $6.7 million and the Change in the fair value of our earn-out liability of approximately $13.0 million. This was offset by approximately $0.6 million of depreciation and amortization, approximately $1.2 million of the amortization of debt issuance costs, and approximately $1.1 million of share based compensation. This loss was further offset by approximately $3.0 million of changes in working capital, which primarily consisted of cash provided by accounts payable and accrued liabilities of approximately $3.4 million and $0.5 million, respectively, due to the timing in payments of vendors, which was offset by cash used in operating activities pertaining to inventory purchases of approximately $0.7 million and payments relating to the Company's operating leases of approximately $0.1 million.

Cash used in operating activities for the year ended December 31, 2024 was driven by our net loss of approximately $47.5 million and the change in the fair value of our earn-out liability of approximately $38.0 million. This was offset by approximately $0.3 million of depreciation and amortization, approximately $0.3 million of the amortization of debt issuance costs, the initial loss on the earn-out liability of approximately $53.6 million, and approximately $6.7 million of share based compensation. This loss was further increased by approximately $1.2 million of changes in working capital, which primarily consisted of cash provided by the timing of payment of accrued interest of approximately $1.4 million which was offset by cash used in operating activities relating to inventory purchases of approximately $0.1 million, the timing of purchases of other current assets of approximately $0.4 million and the timing of vendor payments associated with the Company's accounts payable and accrued liability balances of approximately $1.3 million, and payments relating to the Company's operating leases of approximately $0.8 million.

Cash used in investing activities

Cash used in investing activities for the years ended December 31, 2025 and 2024 relate to the Company's investment in patents and long-lived assets.

Cash provided by financing activities

Cash provided by financing activities for the year ended December 31, 2025 was driven by approximately $1.3 million of proceeds from the Company's revolving line of credit, approximately $5.5 million of proceeds from the issuance of related party notes, approximately $1.0 million of proceeds from the issuance of convertible notes, approximately $0.8 million from the issuance of common shares under the Company's equity line of credit, and approximately $4.3 million from the issuance of the Company's common shares.

Cash provided by financing activities for the year ended December 31, 2024 was driven by approximately $3.7 million of proceeds from the Company's revolving line of credit, approximately $5.3 million of proceeds from the issuance of related party notes, approximately $1.5 million of proceeds from the issuance of convertible notes, approximately $1.1 million of proceeds from the reverse recapitalization transaction, and approximately $10.0 million of proceeds from the issuance of the Company's common shares.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use Adjusted EBITDA, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may differ from similarly titled measures used by other companies, is presented to enhance investors' overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

Adjusted EBITDA

The primary financial measure we use is Adjusted EBITDA. EBITDA is defined as net (loss) income, before interest, taxes, depreciation, and amortization. We define Adjusted EBITDA as net (loss) income excluding income tax provision, interest expense, net of interest income from related party loans, depreciation and amortization, stock-based compensation expense and non-core expenses/losses (gains), including transaction-related costs, litigation-related costs, management fees, change in fair value of warrant liability, change in fair value of Earn-out Share Liability and other expense, which includes asset impairments. Our management uses this measure internally to evaluate the performance of our business and this measure is one of the primary metrics by which our internal budgets are based. We exclude the above items as some are non-cash in nature, and others are non-recurring that they may not be representative of normal operating results. This non-GAAP financial measure adjusts for the impact of items that we do not consider indicative of the operational performance of our business. While we believe that this non-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for the related financial information prepared and presented in accordance with GAAP.

The following table provides a reconciliation of net loss to adjusted EBITDA to net loss for the periods presented:

		For the year ended
		December 31, 2025				December 31, 2024
ADJUSTED EBITDA
Net loss		$	(6,660,038	)		$	(47,547,768	)
Adjustments:
UK R&D tax credit			(1,202,554	)			(1,251,243	)
Interest expense			2,202,220				1,808,243
Depreciation and amortization			632,479				273,772
EBITDA			(5,027,893	)			(46,716,996	)
Other income, net			(5,537	)			(21,390	)
Other expense			256,585				244,732
Loss on initial issuance of convertible note			-				1,770,933
Change in fair value of conversion note liability			(60,000	)			(840,933	)
Change in fair value of warrant liabilities			(360,685	)			(200,124	)
Change in fair value of earn out share liability			(13,016,400	)			(38,040,000	)
Transaction costs			25,000				55,038,544
Share-based compensation			1,136,320				6,699,040
ADJUSTED EBITDA		$	(17,052,610	)		$	(22,066,194	)

Critical Accounting Policies and Estimates

Our management's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements which have been prepared in accordance with GAAP. In preparing our financial statements, we make estimates, assumptions, and judgments that can have a significant impact on our reported revenue, results of operations, and net loss, as well as on the value of certain assets and liabilities on our balance sheet during and as of the reporting periods. These estimates, assumptions, and judgments are necessary because future events and their effects on our results of operations and the value of our assets cannot be determined with certainty and are made based on our historical experience and on other assumptions that we believe to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged period of time. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates.

We believe that the assumptions and estimates associated with the following critical accounting policies involve significant judgment and thus have the most significant potential impact on our Consolidated Financial Statements.

Revenue Recognition

The Company recognizes revenue based on the satisfaction of distinct obligations to transfer goods and services to customers. The Company generates revenue from hardware sales and the sale of licenses and subscriptions. Most contracts with customers are to provide distinct products or services within a single contract. However, if a contract is separated into more than one performance obligation, the total transaction price is allocated to each performance obligation in an amount based on the estimated relative standalone selling price.

Revenue from all sales types is recognized at the transaction price - the amount management expects to be entitled to in exchange for transferring goods or providing services. Transaction price is calculated as selling price net of variable consideration which may include estimates for future returns, price protection, warranties, and other customer incentive programs based upon the Company's expectation and historical experience.

For licenses of technology, recognition of revenue is dependent upon whether the Company has delivered rights to the technology, and whether there are future performance obligations under the contract. Revenue from non-refundable upfront payments is recognized when the license is transferred to the customer and the Company has no other performance obligations. Revenue for licenses delivered under a subscription model having terms between one and twelve-months are recognized over-time. Subscription revenue is generated through sales of monthly subscriptions. Customers pay in advance for the licenses and subscriptions. Revenue is initially deferred and is recognized using the straight-line method over the term of the applicable subscription period.

Revenue from hardware sales is recognized at a point-in-time, which is generally at the point in time when products have been shipped, right to payment has been obtained and risk of loss has been transferred. Certain of the Company's product's performance obligations include proprietary operating system software, which typically is not considered separately identifiable. Therefore, sales of these products and the related software are considered one performance obligation.

The Company has service arrangements where net sales are recognized over time. These arrangements include a variety of post-contract support service offerings, which are generally recognized over time as the services are provided, including maintenance and support services, and professional services to help customers maximize their utilization of deployed systems. A contract liability for deferred revenue is recorded when consideration is received or is unconditionally due from a customer prior to transferring control of goods or services to the customer under the terms of a contract. Deferred revenue balances typically result from advance payments received from customers for product contracts or from billings in excess of revenue recognized on services arrangements.

Inventory

The Company values inventory at the lower of cost or net realizable value. Cost is computed using standard cost which approximates actual cost on a first-in, first-out basis. At each reporting period, the Company assesses the value of its inventory and writes down the cost of inventory to its net realizable value, if required, for estimated excess or obsolescence. Factors influencing these adjustments include changes in future demand forecasts, market conditions, technological changes, product life cycle and development plans, component cost trends, product pricing, physical deterioration, and quality issues. The write down for excess or obsolescence is charged to the provision for inventory, which is a component of cost of goods sold in the Company's consolidated statements of operations and comprehensive income (loss). At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Fair Value of Equity-Based Awards

We estimate the fair value of stock option awards granted using the Black-Scholes option pricing model, which uses as inputs the fair value of our common stock and subjective assumptions we make, including expected stock price volatility, the expected term of the award, the risk-free interest rate, and expected dividends. The historical volatility is generally calculated for a period of time commensurate with the expected term assumption. We use the simplified method to calculate the expected term for options granted to employees and directors. We utilize this method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is based on a U.S. treasury instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero, as we have never paid dividends and do not have current plans to pay any dividends on our common stock.

As there was no public market for Private Veea's common stock prior to the Closing of the Business Combination, the estimated fair value of our common stock was previously approved by our Board of Directors, with input from management, as of the date of each award grant, considering our most recently available independent third-party valuations of Private Veea's common stock and its board of directors' assessment of additional objective and subjective factors deemed relevant that may have changed from the date of the most recent valuation through the date of the grant.

Fair Value of Certain Debt and Liability Instruments, and the Fair Value Option of Accounting

When financial instruments contain various embedded derivatives which require bifurcation and separate accounting of those derivatives apart from the host instruments, if eligible, GAAP allows issuers to elect the fair value option ("FVO") of accounting for those instruments. The FVO allows the issuer to account for the entire financial instrument, including accrued interest, at fair value with subsequent remeasurements of that fair value recorded through the statements of operations. We elected the FVO of accounting for the September 2024 Notes, including contingently issuable common stock and accrued interest, as discussed in Note 3, Summary of Significant Accounting Policies and Note 4, Reverse Recapitalization to the accompanying consolidated financial statements included elsewhere in this Annual Report.

The September 2024 Notes, which include the related contingently issuable common stock, contain embedded derivatives, which require bifurcation and separate accounting under GAAP, for which the Company elected the FVO for the September 2024 Notes. The September 2024 Notes and accrued interest at their stated interest rates were initially recorded at fair value as liabilities on the consolidated balance sheets and are subsequently re-measured at fair value at the end of each reporting period presented within the consolidated financial statements. The changes in the fair value of the September 2024 Notes are recorded in changes in fair value of convertible debt, included as a component of other income and expenses, net, in the consolidated statements of operations. The change in fair value related to the accrued interest components is also included within the single line of change in fair value of September 2024 Notes on the consolidated statements of operations. See additional information on valuation methodologies and significant assumptions used in Note 7, Debt and Note 11, Fair Value Measurement to the accompanying consolidated financial statements included elsewhere in this Annual Report.

The Earn-out Share Liability

Certain shareholders of the Company are eligible to receive up to 4.5 million earnout shares of the Company's common stock, contingent upon the fulfillment of certain milestones. Each earnout is deemed achieved if, at any time within ten years following the Business Combination, (i) the volume-weighted average price of the Company's common stock reaches or exceeds either $12.50 or $15.00, in each case, for any twenty trading days within a thirty trading day period or (ii) a change of control occurs resulting in the shareholders receiving a per share price, or an implied value per share equal to or in excess of $12.50 or $15.00 per share. As the issuance of the earnout shares is contingent solely on meeting the earnout milestones, the Company's obligation to issue the earnout shares is recorded as a contingent liability on the Company's consolidated balance sheet. The Earn-out Share Liability was initially measured at fair value at the Closing of the Business Combination and subsequently remeasured at the end of each reporting period. The change in fair value of the Earn-out Share Liability is recorded as part of "Other income and (expense)" in the consolidated statement of operations. The estimated fair value of the Earn-out Share Liability was determined using a Monte Carlo analysis of 100,000 simulations of the future path of the Company's stock price over the earnout period. The assumptions utilized in the calculation are based on the achievement of certain stock price milestones including projected stock price, volatility, and the risk-free rate. See additional information on valuation methodologies and significant assumptions used in Note 2, Summary of Significant Accounting Policies and Note 4, Reverse Recapitalization, to the accompanying consolidated financial statements included elsewhere in this Annual Report.

Goodwill

Goodwill represents the excess of the aggregate purchase consideration over the fair value of the net assets acquired. Goodwill is reviewed for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. In conducting its annual impairment test, the Company first reviews qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If factors indicate that the fair value of the reporting unit is less than its carrying amount, the Company performs a quantitative assessment, and the fair value of the reporting unit is determined by analyzing the expected present value of future cash flows. If the carrying value of the reporting unit continues to exceed its fair value, the fair value of the reporting unit's goodwill is calculated and an impairment loss equal to the excess is recorded. The Company's goodwill was recorded in connection with an acquisition consummated by Private Veea in June 2018. See additional information on valuation methodologies and significant assumptions used in Note 2, Summary of Significant Accounting Policies and Note 6, Goodwill and Intangible Assets, to the accompanying consolidated financial statements included elsewhere in this Annual Report.

Impairment of Long-Lived Assets

Long-lived assets with finite lives consist primarily of property and equipment, operating lease right-of-use assets, and intangible assets which are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. See additional information on valuation methodologies and significant assumptions used in Note 2, Summary of Significant Accounting Policies and Note 6, Goodwill and Intangible Assets, to the accompanying consolidated financial statements included elsewhere in this Annual Report.

Recently Issued Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies to the accompanying consolidated financial statements included elsewhere in this Annual Report for a description of certain recently issued accounting standards which may impact our financial statements in future reporting periods.

Recently Adopted Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies to the accompanying consolidated financial statements included elsewhere in this Annual Report for a description of recently adopted accounting standards.

Recently Issued Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies to the accompanying consolidated financial statements included elsewhere in this Annual Report for a description of certain recently issued accounting standards which may impact our financial statements in future reporting periods.