Executive Summary / Key Takeaways

• The Glimpse Group (NASDAQ:VRAR) has undergone a significant strategic pivot, focusing on its high-potential "Spatial Core" offering, which integrates AI, cloud, and spatial computing for enterprise and government clients.
• This strategic shift, coupled with operational restructuring and cost controls, has driven a notable financial turnaround, resulting in positive cash flow from operations for two consecutive quarters and achieving positive EBITDA and net income in Q2 FY2025.
• Recent contract wins, particularly a multi-million dollar DoD contract and new seven-figure Spatial Core deals, underpin management's strong revenue outlook, projecting 15-25% growth for FY2025 and profitability in Q4 FY2025.
• Despite this operational and financial progress, management perceives a significant disconnect between the company's intrinsic value and its public market valuation, prompting exploration of strategic options to unlock shareholder value.
• Key risks include potential delays in government contract awards due to budgetary processes and the need to maintain Nasdaq listing compliance amidst share price pressure.

The Glimpse Group's Strategic Pivot Towards Spatial Core

The Glimpse Group, founded in 2016, established itself as a diversified platform company in the burgeoning Immersive Technology sector, encompassing Virtual Reality (VR), Augmented Reality (AR), and Spatial Computing. Its initial model aimed to build scale and an ecosystem through a collection of subsidiary companies, targeting a broad range of enterprise and B2B2C applications while remaining hardware-agnostic. This foundational period saw early acquisitions like QReal, setting the stage for a portfolio approach to the market.

However, recognizing the evolving landscape and the increasing demand for integrated, data-driven solutions, Glimpse undertook a significant strategic shift in fiscal year 2024. The company realigned its focus towards "Spatial Core," an enterprise-scale offering centered on Spatial Computing, Cloud, and Artificial Intelligence. This pivot represents a move towards higher-value, potentially recurring software solutions, departing from a legacy base that included more marketing-oriented immersive applications. This strategic response was also influenced by challenging market headwinds and a general slowdown in corporate discretionary spending within the immersive industry over the past two years.

The Technological Engine: Spatial Core and Its Edge

At the heart of Glimpse's renewed strategy is Spatial Core, positioned as an operating system for spatial computing. This technology is designed to integrate data and AI directly into 3D environments, enabling sophisticated cloud compute capabilities and the creation of complex simulations. A key benefit highlighted by management is its ability to provide valuable insights derived from real "source of truth" data, effectively "supercharging big data" by presenting it in an actionable 3D format.

Spatial Core has transformative applications across various fields, including robotics, drones, and digital twins. The technology facilitates the conversion of traditional 2D information into actionable 3D data that can be interacted with by both AI and human users. For instance, in training scenarios, AI can be integrated into multi-person platforms to simulate complex interactions with AI avatars, allowing users to practice challenging real-world situations.

While specific, quantifiable performance metrics comparing Spatial Core directly against all alternatives are not extensively detailed, the company emphasizes its ability to deliver scalable immersive simulations rapidly, potentially setting a new industry standard. Partnerships with technology leaders like NVIDIA (NVDA) and Cesium are leveraged to enhance capabilities, particularly in areas like GPU-enabled cloud computing, streaming, and visualization. These relationships, while not exclusive, are described as having unique elements that help drive the business forward and contribute to building a competitive moat in a fast-evolving space. The company's R&D efforts are focused on incorporating enabling AI elements across its product base, aiming to capitalize on the significant progress seen in AI to bring immersive interactions to life.

Navigating the Competitive Terrain

The immersive technology market is a competitive and rapidly evolving landscape. Glimpse Group operates alongside a diverse set of players, ranging from large technology giants with broad platforms and hardware ecosystems to more specialized software providers. Key competitors include large entities like Meta Platforms (META), which dominates consumer and enterprise VR hardware and is building extensive software ecosystems, and NVIDIA, a leader in the underlying graphics and AI processing technology crucial for immersive experiences. More direct software-focused competitors include companies like Unity Software (U), a major provider of development tools, and PTC (PTC), which has a strong presence in industrial AR solutions.

Compared to giants like Meta and NVIDIA, Glimpse operates at a significantly smaller scale. While Meta leverages hardware integration and ecosystem depth, and NVIDIA excels in raw processing power, Glimpse's strength lies in its diversified, niche-focused subsidiary model and its strategic emphasis on the integrated Spatial Core offering for enterprise and government. The competitive analysis suggests that while Meta's scale and R&D speed pose a challenge, Glimpse's specialized software, such as QReal's photorealism capabilities (noted for efficiency in rendering time compared to some tools), can offer advantages in specific applications. Similarly, against Unity's broad development platform, Glimpse's enterprise-specific solutions and integrated AI applications offer differentiation, although Unity benefits from a vast developer network. In the industrial AR space, PTC's mature solutions may have lower operating costs due to scale, but Glimpse's agility in custom AR applications could provide an edge.

Financially, Glimpse's recent performance, while showing improvement, still lags behind the profitability and scale of larger competitors like Meta and PTC. Its recent revenue trends and operating margins reflect the challenges of its strategic transition and operating at a smaller scale compared to these established players. However, Glimpse maintains a clean balance sheet with no debt, contrasting with some competitors who carry debt. The company's strategy to focus on high-value Spatial Core contracts, particularly with government entities, is a direct response to positioning itself in segments where its integrated AI and 3D data capabilities can provide a distinct advantage, rather than competing head-to-head on broad consumer platforms or general development tools. Management views competitors not just as rivals but also potential partners in building the overall immersive industry.

Strategic Execution and Operational Realignment

The strategic shift to Spatial Core was accompanied by significant operational changes aimed at streamlining the business and focusing resources. A key part of this was the divestiture of non-core assets. In December 2023, Glimpse divested PulpoAR due to its poor performance and lack of strategic alignment. More significantly, effective October 1, 2024, the company divested QReal and its related Turkey operations. The rationale for the QReal divestiture was multifaceted: management believed the virtual try-on business had greater growth potential as an independent entity, the divestiture was expected to generate approximately $4 million in net cash value to Glimpse over two years (including $1.2M-$1.5M in annual cash savings), it simplified operations by reducing headcount and eliminating country risk, and Glimpse retained revenue from QReal's largest customer initially, along with receiving a $1.56 million senior secured convertible note and a minority equity stake in the new entity.

These restructuring efforts, including headcount reductions and corporate administrative cost controls, were crucial in reducing the company's cash operating expense base, which management reported as less than $0.9 million per month as of the Q2 FY25 call. This operational discipline, combined with the strategic focus on higher-margin Spatial Core work, has been instrumental in the recent financial improvements.

Financial Performance and Liquidity

The financial results for the period ended March 31, 2025 (Q3 FY25), and the preceding nine months reflect the impact of Glimpse's strategic pivot and operational changes. Total revenue for Q3 FY25 was $1.42 million, a 25% decrease compared to $1.90 million in Q3 FY24. Management attributed this quarterly decrease primarily to the timing of revenue recognition for certain projects and license renewals. However, for the nine months ended March 31, 2025, total revenue was $7.03 million, essentially flat compared to $7.08 million in the same period of FY24. This nine-month performance reflects the strategic transition, where revenue from new Spatial Core customers began replacing that from certain legacy, non-Spatial Core clients.

Breaking down the revenue segments, Software Services revenue decreased 13% in Q3 FY25 to $1.28 million but increased 2% for the nine months to $6.64 million, driven by the new Spatial Core customer impact. Software License revenue saw a more significant decrease, falling 67% in Q3 FY25 to $138,948 and 32% for the nine months to $387,886, primarily due to the timing of license renewals and the QReal divestiture.

Despite the fluctuations in top-line revenue during the transition, gross profit margins showed improvement. The gross margin was approximately 72% in Q3 FY25, up from 70% in Q3 FY24, reflecting a revenue mix with less labor costs. For the nine months, the gross margin improved to 71% from 66%, attributed to a revenue mix with less third-party costs. Management expects going-forward gross margins to be in the 55% to 75% range, an increase from previous guidance, driven by a larger portion of revenue from Spatial Core and software license sales.

Operating expenses decreased by 11% in Q3 FY25 to $2.60 million but increased slightly by 4% for the nine months to $7.58 million. However, excluding non-cash items like the change in fair value of acquisition contingent consideration and intangible asset impairment (which significantly impacted FY24 figures), operating expenses decreased substantially (20% in Q3, 30% in 9M). This reduction reflects the benefits of the Strategic Shift, QReal divestiture, and other cost controls across R&D, G&A, and Sales & Marketing.

The impact of these strategic and operational changes is most evident in the company's cash flow and profitability trends. Net cash used in operating activities improved dramatically, from $4.28 million used in the nine months ended March 31, 2024, to only $0.13 million used in the same period of 2025. This 97% improvement was driven by improved profit margins and expense reductions. The company achieved positive net operating cash flow in both Q2 and Q3 FY25, marking its second consecutive positive quarter.

Net loss for Q3 FY25 was $1.50 million, slightly better than the $1.54 million loss in Q3 FY24. For the nine months, net loss was $2.49 million, compared to $2.40 million in the prior year. However, when excluding the large non-cash gains from contingent consideration and impairment in FY24, the underlying operating loss showed significant improvement in FY25. Adjusted EBITDA loss also improved substantially for the nine months, from $3.50 million in FY24 to $1.22 million in FY25, reflecting the positive impact of the Strategic Shift and cost reductions.

Liquidity has been significantly bolstered by financing activities. In December 2024 and January 2025, Glimpse completed a Securities Purchase Agreement with an institutional investor, raising approximately $6.79 million in net cash proceeds. This increased the company's cash and cash equivalents balance to $7.06 million as of March 31, 2025, up from $1.85 million at June 30, 2024. The company maintains a clean balance sheet with no outstanding debt or preferred stock.

Outlook and Growth Catalysts

Management's outlook is optimistic, projecting continued revenue growth and a move towards sustained profitability based on current momentum and pipeline visibility. For Q4 fiscal year 2025, ending June 30, 2025, revenue is expected to be in the $3.2 million to $3.8 million range. This is anticipated to be the highest revenue quarter in the past two fiscal years and is expected to be profitable, driven by the delivery and recognition of the final stage of the large $4+ million Department of Defense contract for Spatial Core.

For the full fiscal year 2025, management expects aggregate revenues to be in the $10 million to $11 million range, representing a 15% to 25% increase compared to FY2024 revenue of $8.8 million, despite the divestiture of multiple subsidiary companies. This growth is expected to be primarily driven by the increase in Spatial Core revenues. Management also anticipates being about EBITDA breakeven for the full fiscal year 2025, a marked improvement from the significant adjusted EBITDA loss in FY2024.

Looking beyond the current fiscal year, Glimpse expects to confirm additional seven-figure Spatial Core opportunities in the coming months, particularly with government and DoD entities, subject to the resolution of federal budgeting processes. They also see increasing opportunities in the enterprise segment for Spatial Core. Management expects to generate positive cash flow in each of the remaining quarters of fiscal year 2025 and does not intend to raise capital in the foreseeable future, anticipating that operations will grow the cash balance. The strategic transition to Spatial Core is largely complete, and the company is increasingly incorporating AI elements across its product base, positioning itself to capitalize on the vast potential in the immersive technology space as it moves closer to mass adoption.

Risks and Challenges

Despite the positive momentum, Glimpse faces several risks and challenges. The reliance on government contracts, while a significant growth driver, exposes the company to potential delays in contract awards due to factors like the US government's continuing resolution and the lack of a federal budget, as experienced in early 2025. While management is well-positioned for multiple opportunities, the timing of these awards remains uncertain.

The immersive industry itself, while promising long-term potential, has faced challenging headwinds and a slowdown in corporate spending, which could impact the pace of enterprise adoption. Competitive pressures from larger, well-funded players like Meta, Unity, PTC, and NVIDIA, who possess greater scale, R&D resources, and established ecosystems, remain a constant factor. Glimpse must continue to innovate and execute effectively in its niche areas to maintain its competitive positioning.

The company also received a notice from Nasdaq in September 2024 regarding non-compliance with the minimum bid price requirement ($1.00 per share). While Glimpse regained compliance in December 2024, maintaining the bid price remains a factor to monitor for continued listing. Management may consider measures like utilizing its share buyback plan or highlighting business developments, but the share price is subject to market dynamics. Contingent consideration related to past acquisitions, while significantly reduced, still carries some potential future cash obligations, although the likelihood of triggering the remaining revenue targets for the BLI acquisition is considered remote.

Finally, management perceives a sharp disconnect between the company's intrinsic value and its current public company valuation. This valuation disconnect is seen as having a negative effect on the company's ability to execute its growth strategy and is prompting the Board to explore aggressive strategic options to unlock value for shareholders.

Conclusion

The Glimpse Group has demonstrably pivoted its strategy towards the high-growth potential of Spatial Core, leveraging the convergence of AI, cloud computing, and immersive technologies for enterprise and government applications. This strategic focus, combined with disciplined operational restructuring and cost controls, has initiated a significant financial turnaround, marked by consecutive quarters of positive operating cash flow and the achievement of positive EBITDA and net income in Q2 FY2025. Recent contract wins, particularly within the Department of Defense, provide concrete validation of the Spatial Core strategy and underpin management's confident outlook for substantial revenue growth and profitability in the near term, projecting FY2025 revenues to increase by 15-25% and Q4 FY2025 to be profitable.

While the company operates in a competitive landscape dominated by larger players, its niche focus, diversified subsidiary model, and proprietary Spatial Core technology offer differentiated capabilities. The clean balance sheet, bolstered by recent financing, provides a solid foundation. However, the perceived disconnect between the company's operational progress and its public valuation, alongside risks such as government budget uncertainties and market headwinds, remain critical factors for investors to consider. The success of the Spatial Core strategy in converting pipeline opportunities into sustained, potentially recurring revenue will be key to realizing the company's growth potential and addressing the current valuation dynamics.