ZSPC 10-K & 10-Q changes, risk factors and insider trading
zSpace, Inc. · OTC · Services-Prepackaged Software · CIK 1637147 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Changes to the U.S. Department of Education and the elimination, freezing or impoundment of federal funding have created significant budgetary uncertainty for our customers, which could materially adversely affect our liquidity, results of operations and financial condition.”
New heading “We will require additional capital to fund our operations and growth, and such capital may not be available on favorable terms or at all.”
New heading “Our existing and future levels of indebtedness could adversely affect our financial health, ability to obtain financing in the future, and ability to fulfill our obligations under such indebtedness.”
New heading “We have been, and expect to continue to be, adversely affected by changes in U.S. and international trade policies, as well as ongoing uncertainty regarding the current administration’s trade agenda.”
New heading “Failure to comply with applicable laws and regulations, including export controls, anti-corruption, and education-specific data privacy regulations, could subject us to significant liability and adversely affect our business.”
New heading “If our common stock fails to comply with the continued listing requirements of the Nasdaq Capital Market, we would face possible delisting, which would result in a limited public market for our common stock and make obtaining future debt or equity financing more difficult for us.”
Removed heading “We have a limited operating history at the current scale of our business, which makes it difficult to evaluate our current business and future prospects, and we may not be able to scale our business for future growth.”
Removed heading “Our business could face increased competition from new entrants or new technology.”
Removed heading “If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customers’ needs or requirements, our platform may become less competitive.”
Removed heading “Certain of our market opportunity estimates, growth forecasts, and key metrics could prove to be inaccurate, and any real or perceived inaccuracies may harm our reputation and negatively affect our business.”
Removed heading “We expect to incur research and development costs to develop new products, which could significantly reduce our profitability and may never result in revenue.”
Removed heading “If we do not successfully anticipate market needs and develop products, services and software enhancements that meet those needs, or if those products, services and software enhancements do not gain market acceptance, our business, operating results and financial condition will be adversely impacted.”
Removed heading “If we need additional capital in the future, it may not be available on favorable terms or at all.”
Removed heading “Our existing and future levels of indebtedness could adversely affect our financial health, ability to obtain financing in the future, ability to react to changes in our business and ability to fulfill our obligations under such indebtedness.”
Removed heading “Adverse general and industry-specific economic and market conditions, reductions in IT spending, supply chain disruptions, geopolitical conflicts, rising fuel prices, inflation, increasing interest rates, instability in the global banking system or changes in the spending policies or budget priorities for government funding of K-12 schools may reduce demand for our products and platform, which could harm our results of operations.”
Removed heading “We have benefitted from the United States federal government’s stimulus packages focused on educational initiatives approved as a result of the COVID-19 pandemic. However, additional funding may not be approved, which may adversely affect our business, financial condition and results of operations.”
Removed heading “We depend on a limited number of third-party partners to produce, resell and distribute our products.”
Removed heading “If currency exchange rates fluctuate substantially in the future, our operating results, which are reported in United States dollars, could be adversely affected.”
Removed heading “We could be subject to changes in tax rates, the adoption of new United States or international tax legislation, or exposure to additional tax liabilities.”
Removed heading “Changes in U.S. and international trade policies, including the export and import controls and laws, may adversely impact our business and operating results.”
Removed heading “State or local legislation could be adopted that would limit or ban instruction in public schools that includes or promotes subjects included in our platform.”
Removed heading “Our failure to comply with laws and regulations that are or may become applicable to us as a technology provider for K-12 schools, community colleges and other educators could adversely affect our business and results of operations, increase costs and impose constraints on the way we conduct our business.”
Removed heading “We are susceptible to illegal or improper uses of our educational platform, which could expose us to additional liability and harm our business.”
Removed heading “The legal system of the PRC is not fully developed and there are inherent uncertainties that may affect the protection afforded to our business.”
Removed heading “The enforcement of the PRC Labor Contract Law and other labor-related regulations in the PRC may adversely affect our business and our results of operations.”
Removed heading “We are subject to laws and regulations, including governmental export and import controls, sanctions and anti-corruption laws, that could subject us to liability if we are not in full compliance with applicable laws.”
Removed heading “Efforts to reduce the U.S. federal deficit could adversely affect our results of operations and financial condition.”
Removed heading “Future sales of our common stock could cause the market price of our common stock to decline.”
Largest changes
“We are subject to laws and regulations, including governmental export and import controls, that could subject us to liability. Our products are subject to United States export controls, including the United States Department of Commerce’s Export Administration Regulations (“EAR”), and we and our employees, representatives, distributors, resellers, contractors, agents, intermediaries, and other third parties are also subject to various economic and trade sanctions regulations administered by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). …”see in full comparison
“We are also subject to the United States Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the United Kingdom Bribery Act 2010 (the “Bribery Act”), and other anti-corruption, sanctions, anti-bribery, anti-money laundering and similar laws in the United States and other countries in which we operate. …”see in full comparison
“The PRC Labor Contract Law became effective and was implemented on January 1, 2008, which was amended on December 28, 2012. It has reinforced the protection of employees who, under the PRC Labor Contract Law, have the right, among others, to have written labor contracts, to enter into labor contracts with no fixed terms under certain circumstances, to receive overtime wages and to terminate or alter terms in labor contracts. …”see in full comparison
“We operate in a highly regulated environment subject to U.S. export controls (EAR), economic sanctions (OFAC), and anti-corruption laws (including the FCPA and UK Bribery Act). Because we rely heavily on third-party distributors and agents to conduct business internationally, we face increased risk of liability for their actions; we may be held responsible for corrupt or illegal activities by these partners even if we do not explicitly authorize them. Violations of these laws could result in criminal penalties, loss of export privileges, and severe fines.”see in full comparison
“Adverse general and industry-specific economic and market conditions, reductions in IT spending, supply chain disruptions, geopolitical conflicts, rising fuel prices, inflation, increasing interest rates, instability in the global banking system or changes in the spending policies or budget priorities for government funding of K-12 schools may reduce demand for our products and platform, which could harm our results of operations.”see in full comparison
“In addition, the agreements governing our indebtedness contain, and any future debt instruments likely will contain, financial and operating covenants that limit our flexibility in operating our business. Our ability to comply with these covenants may be affected by events beyond our control, and we may be unable to satisfy them. A breach of any of these covenants could result in a default under the applicable debt instrument, which could cause all of our outstanding debt to become immediately due and payable. …”see in full comparison
Full comparison: every changed paragraph (127)
An investment in our common stock involves risks. You should carefully consider each of the following risks and all of the other information set forth in this reportAnnual andReport inon otherForm documents we file with the SEC10-K, before deciding to invest in our common stock. The risks and uncertainties described below are not the only ones we face. If any of the following risks and uncertainties develop into actual events, our business, financial condition, results of operations and cash flows could be materially adversely affected. In that case, the price of our common stock could decline, and you may lose all or part of your investment.
Changes to the U.S. Department of Education and the elimination, freezing or impoundment of federal funding have created significant budgetary uncertainty for our customers, which could materially adversely affect our liquidity, results of operations and financial condition.
A significant portion of our customers are public school districts, state education agencies, and higher education institutions whose budgets are heavily dependent on federal funding. Recent administrative actions by the federal government—specifically the U.S. Department of Education—have introduced substantial volatility into the education market. For example:
As a result of this uncertainty, we have observed and may continue to experience extended sales cycles, the loss of sales, the reduction in the size of anticipated purchases and a lack of visibility or certainty into our anticipated revenue. In addition, any other reductions in government structure or spending, such as the elimination of the U.S. Department of Education, could result in a decrease in funds available to our customers for the purchase of our products. Further, there is ongoing uncertainty regarding the federal budget and federal spending levels, including the possible impacts of a failure to increase the “debt ceiling.” Any future shutdown of the federal government, failure to enact annual appropriations or continued disruption in our customers’ funding sources could have a material adverse impact on our liquidity, results of operations and financial condition.
We will require additional capital to fund our operations and growth, and such capital may not be available on favorable terms or at all.
We have historically relied on outside financing to fund our operations, capital expenditures and expansion. We expect that we will require additional capital from equity or debt financing in the near future to support our growth, fund our operations or to respond to competitive pressures or strategic opportunities. We may not be able to secure additional financing on favorable terms or at all.
Because we will likely need to raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our stockholders, including you, could suffer significant dilution in their percentage ownership of us, and any new securities that we issue could have rights, preferences and privileges senior to those of holders of our common stock. Any debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, including the ability to pay dividends. This may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms that are satisfactory to us, if and when required, our ability to grow or support our business and to respond to business challenges that we may face could be significantly limited.
We have a limited operating history at the current scale of our business, which makes it difficult to evaluate our current business and future prospects, and we may not be able to scale our business for future growth.
We began offering our education products and solutions in 2014 and we have limited operating history at the current scale of our business. We have encountered, and will likely continue to encounter, risks and difficulties frequently experienced by growing companies in rapidly evolving industries, including challenges related to accurate financial planning and forecasting, increasing competition and expenses as we continue to grow our business, and attracting and retaining customers. You should consider our business and prospects in light of the risks and difficulties that we may encounter as a business with a limited operating history. We may not be successful in addressing these and other challenges we may face in the future, and our business, operating results, and financial condition may be adversely affected if we do not manage these risks successfully.
Our consolidated revenue for the year ended December 31, 20232025 increaseddecreased over 22%27% as compared to the year ended December 31, 2022.2024 However,and consolidated revenue for the year ended December 31, 2024 decreased 13% as compared to the year ended December 31, 2023. To grow revenue, we must continue to implement our operational plans and strategies and generate increased demand for our products.
The growth and expansion of our business and our product offerings in the future will place significant demands on our management. The growth of our business may require significant additional resources, which may not scale in a cost-effective manner or may negatively affect the quality of our customers’ experience. We are also required to manage multiple relationships with customers and other third parties. Further growth of our operations, our information technology (“IT”) systems or our internal controls and procedures may not be adequate to support our operations. We will need to continue to improve our operational, financial and management controls and reporting systems and procedures. Failure to manage growth effectively could result in difficulties or delays in attracting new customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing or enhancing products and services, loss of customers, information security vulnerabilities or other operational difficulties, internal controls over financial reporting and procedures being inadequate to support our operations, any of which could adversely affect our business performance and operating results.
To remain competitive and stimulate demand, we must continue to develop new products and services andproducts, successfully manage frequent product introductions and transitions.transitions and adapt to rapid technological change and evolving industry standards.
DueTo to the highly volatile andremain competitive nature of the industries in whichour we compete,industry, we must continually introduce new products and services, enhance existing products and services, and effectively stimulate customer demand for new and upgraded products. We cannot be sure that any new products or services will be widely accepted and purchased by our customers or that we will be able to successfully manage product introductions and transitions. Failure by our customers to accept our new products and services, or our failure to manage product introductions and transitions, could adversely affect our operating results.
As we develop new products, we may not be able to anticipate future market needs or be able to improve our products or platform or to develop new products, services or software enhancements to meet such needs on a timely basis, if at all. Our ability to successfully develop new products is also subject to the risk of future disruptive technologies. If new technologies emerge that deliver AR/VR learning tools at lower prices, more efficiently, more conveniently or more securely than ours, and if we fail to adopt such technologies or do so in a timely manner, our ability to compete effectively would be adversely affected.
Competitors in the education technology ecosystem include:
Outside the United States, certain Chinese companies have produced replicas of our original edition hardware products that require specialty eyewear, which we no longer produce or sell in the United States. We have also found imitation products being sold at a small scale in the Middle East and Turkey. We are currently not aware of any other companies producing or selling solutions substantially similar to our products.
We may not be able to compete successfully against our competitors. In addition, competition may intensify as our competitors raise additional capital and as established companies in other market segments or geographic markets seek to expand into our market segments or geographic markets. If we cannot compete successfully against our competitors, our ability to grow our business and achieve profitability could be impaired.
Our business could face increased competition from new entrants or new technology.
OurOther competitorscompanies andin the industry may develop products that are more directly competitive with ours. In addition, new entrants to the education technology market may revise and improve their business models. If these or other market participants introduce new or improved education technology solutions or platforms and technology-enabled services that are more compelling or widely accepted than ours, our ability to grow our revenue and achieve profitability could suffer. Several new and existing companies in the education technology industry provide or may provide offerings similar to what we offer with our products, and these companies may pursue relationships with our reseller partners or software developer partners, which may make it more difficult to obtain new customers or reduce the content our software developer partners produce for our platform.ours. In addition, our customers may choose to continue using or to develop their own educational tools or training solutions in-house, rather than pay for our products.
If we cannot compete successfully against our current competitors and new entrants or new technology in the market, our ability to grow our business and achieve profitability could be impaired.
Some of our competitors and potential competitors have significantly greater resources than us. Increased competition may result in pricing pressure for us in terms of the price of the products and solutions we offer to our customers. The competitive landscape may also result in a longer and more complex process of recruiting and maintaining current and prospective resellers or a decrease in our market share, any of which could negatively affect our revenue and future operating results and our ability to grow our business. If we cannot compete successfully against our current competitors and new entrants or new technology in the market, our ability to grow our business and achieve profitability could be impaired.
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customers’ needs or requirements, our platform may become less competitive.
Our future success depends on our ability to adapt and enhance our platform. To attract new customers and increase revenue from existing customers, we will need to continuously enhance and improve our offerings to meet customers’ and end users’ needs at prices that our customers are willing to pay. Such efforts will require adding new functionality and responding to technological advancements, which will increase our research and development costs. If we and our software developer partners are unable to develop content that addresses customers’ and end users’ needs or enhance and improve our platform in a timely manner, we may not be able to maintain or increase market acceptance of our platform. Further, many of our competitors expend a considerably greater amount of funds on their research and development programs. If we fail to maintain adequate research and development resources or to compete effectively with the research and development programs of our competitors, our business could be harmed. Our ability to grow is also subject to the risk of future disruptive technologies. If new technologies emerge that are able to deliver AR/VR learning tools at lower prices, more efficiently, more conveniently or more securely than ours, and if we fail to adopt such technologies or do so in a timely manner, our ability to compete would be adversely affected.
Certain of our market opportunity estimates, growth forecasts, and key metrics could prove to be inaccurate, and any real or perceived inaccuracies may harm our reputation and negatively affect our business.
Market opportunity estimates, growth forecasts and key metrics, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The estimates and forecasts relating to the size and expected growth of our market opportunity may prove to be inaccurate. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage estimate will generate any particular level of revenues. Even if the markets in which we compete meet our size estimates and growth forecasts, our business could fail to grow at expected rates, if at all, for a variety of reasons outside of our control. Furthermore, in order for us to successfully address this broader market opportunity, we will need to successfully expand within our current geographic markets and into new geographic regions where we do not currently operate. Our key metrics are calculated using internal company data and have not been validated by an independent third-party. We have in the past implemented, and may in the future implement, new methodologies for calculating these metrics which may result in the metrics from prior periods changing, decreasing or not being comparable to prior periods. As our business develops, we may revise or cease reporting metrics if we determine that such metrics are no longer appropriate measures of our performance. Our key metrics may also differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology. If investors or analysts do not perceive our metrics to be sufficient or accurate representations of our business, or if we discover material inaccuracies in our metrics, our stock price, reputation and prospects would be adversely affected.
We expect to incur research and development costs to develop new products, which could significantly reduce our profitability and may never result in revenue.
Our future growth depends on penetrating new markets, adapting existing products to new applications and customer requirements, and introducing new products and solutions that achieve market acceptance. We have incurred, and plan to continue to incur, significant research and development costs in the future as part of our efforts to design, develop, manufacture and introduce new products and enhance existing products. Our research and development efforts may not produce successful results, and our new products may not achieve market acceptance, create additional revenue or become profitable.
In addition, our business may be subject to interruptions, delays, or failures resulting from earthquakes, fires, floods, adverse weather conditions, other natural disasters, power loss, terrorism, pandemics, geopolitical conflict (such as the war in Ukraine), other physical security threats, cyber-attacks, or other catastrophic events. If such an event were to occur, our customers may be subject to service disruptions or outages and we may not be able to recover our technical infrastructure and customer data in a timely manner to restart or provide our services, which may adversely affect our financial results. The substantial majority of our employees are based in our headquarters located in San Jose, California. If there is a catastrophic failure involving our systems or major disruptive event affecting our headquarters or the San Jose area in general, we may be unable to operate our solutions.
We have experienced significant net losses since we began operations in 2014, including a net loss of approximately $(20.8) million for the year ended December 31, 2024 and approximately $(13.0) million for the year ended December 31, 2023. We have an accumulated deficit of $(290.4) million and a total stockholders’ deficit of $(14.7) million as of December 31, 2024. We anticipate that our operating expenses will increase in the foreseeable future as we continue to invest in acquiring additional customers, expanding our platform and operations, hiring additional employees, developing and enhancing our platform and application and solutions offerings, marketing and sales, and enhancing our infrastructure. Our expansion efforts may prove more expensive than we anticipate, and we may not succeed in increasing our revenues sufficiently to offset these higher expenses. Given the significant operating and capital expenditures associated with our business, we expect to continue to incur net losses for the foreseeable future and cannot assure you that we will be able to achieve profitability.
Due to the size and nature of our arrangements with customers, one or a few customers have in the past and may in the future represent a substantial portion of our consolidated revenues and gross profits in any one year or over a period of several consecutive years. In 2023,2025, our five largest customers accounted for $10.0approximately $4.1 million of revenue and our largest customer accounted for $2.2$1.9 million of revenue, representing approximately 23%15% and 5%7% of our total 20232025 revenue, respectively. In 2024, our five largest customers accounted for approximately $9.8 million of revenue and our largest customer accounted for $4.9 million of revenue, representing approximately 26% and 13% of our total 2024 revenue, respectively. We cannot predict whether any of these customers will have a significant downturn in funding, and whether any such downturn, or any loss of funding or delay in payment from any one of these customers resulting therefrom, would have a material adverse effect on our business, results of operations, cash flows and financial condition.
A number of factors influence the time and effort required for us to make sales, including, for example, the purchasing approval processes of potential customers,customers (which are typically public school districts with a large number of stakeholders involved in decision-making,decision-making), the need to educate potential customers about the uses and benefits of our products, the discretionary nature of potential customers’ purchasing and budget cycles and fluctuations in the needs of potential customers. WeThe recent changes in funding allocations and priorities from the U.S. Department of Education have exacerbated these challenges. These changes have created budgetary uncertainty for our customers, often resulting in extended evaluation periods, additional layers of required approval, or the freezing of funds previously earmarked for our category of products. Consequently, we may incur significant sales and marketing expenses and invest significant time and effort in anticipation of a sale that may never occur.
Our future revenues and operating results will be harmed if we are unable to acquire new customers, if our customers do not renew their contracts with us, or if we are unable to expand sales to our existing customers or develop new products that achieve market acceptance.customers.
To continue to grow our business, it is important that we attract new customers to purchase and use our products. Our success in attracting new customers depends on numerous factors, including our ability to:
If we do not successfully anticipate market needs and develop products, services and software enhancements that meet those needs, or if those products, services and software enhancements do not gain market acceptance, our business, operating results and financial condition will be adversely impacted.
We may not be able to anticipate future market needs or be able to improve our products or platform or to develop new products, services or software enhancements to meet such needs on a timely basis, if at all. In addition, our inability to diversify beyond our current offerings could adversely affect our business. Any new products, applications or software enhancements that we introduce, including by way of acquisitions, may not achieve a significant degree of market acceptance from current or potential customers, which would adversely affect our business, operating results, financial condition and profitability. In addition, the introduction of new products, applications or software enhancements may decrease customers and user engagement with our platform or future purchases of our hardware or software, thereby offsetting the benefit of even a successful product or service introduction. Any of the foregoing could adversely impact our business, operating results and financial condition.
Our business requires us to manage a large volume of inventory, including a large number of stock-keeping units (“SKUs”) stored at multiple sites globally. We depend on our forecasts of demand for, and popularity of, various products to make purchasing decisions and to manage our supply and inventory of SKUs. To assist in management of manufacturing operations and in order to minimize inventory costs, we forecast anticipated product sales to predict our inventory needs up to six months (and for certain select items, up to twelve months) in advance and enter into purchase orders on the basis of these forecasts, subject to limitations on the lead time of our product components and items with long lead times. We also acceptmaintain safety stock of long lead time items. If we overestimate our requirements, we and our contract manufacturers will have excess inventory, increasing our costs and the amount of our capital tied up in inventory. If we underestimate our requirements, we and our OEM partners and/or contract manufacturers may have inadequate components and materials inventory, which could interrupt, delay or prevent delivery of our products to our customers. The occurrence of any of these risks related to inventory and supply chain management could adversely affect our business, operating results and financial condition.
We believe that building a strong reputation and brand as an innovative and effective educational tool and continuing to increase the strength of our customer base is critical to our future success. The successful development of our reputation and brand will depend on a number of factors, many of which are outside our control. Negative perception of us or our platform may harm our reputation and brand, and affect our ability to achieve results of operations at the levels we expect.
Negative perception of us or our platform may harm our reputation and brand, and affect our ability to achieve results of operations at the levels we expect.
AAnother regional or global health pandemic, such as the COVID-19 pandemic, could severely affect our business, results of operations and financial condition.
AAnother regional or global health pandemic, depending upon its duration and severity, could have a material adverse effect on our business. For example, the COVID-19 pandemic has had numerous effects on the global economy. Governmental authorities around the world implemented measures to reduce the spread of COVID-19 and these measures, including shutdowns and “shelter-in-place” orders suggested or mandated by governmental authorities or otherwise elected by companies as a preventive measure, adversely affected workforces, customers, consumer sentiment, economies and financial markets, and, along with decreased consumer spending, led to an economic downturn.
In response to the COVID-19 pandemic, we modified our business practices (including employee travel, recommending that all non-essential personnel work from home and canceling or reducing physical participation in meetings, events and conferences), and implemented additional safety protocols for essential workers. If significant portions of our workforce are unable to work effectively, including due to illness, quarantines, social distancing, government actions or other restrictions in connection with a regional or global health pandemic, our operations will be negatively impacted. Further, it is possible that an increase in the remote working environment could have a negative impact on the execution of our business plans and operations.
If we need additional capital in the future, it may not be available on favorable terms or at all.
We have historically relied on outside financing to fund our operations, capital expenditures and expansion. We expect to continue to require additional capital from equity or debt financing in the future to support our growth, fund our operations or to respond to competitive pressures or strategic opportunities. We may not be able to secure additional financing on favorable terms or at all. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our stockholders, including you, could suffer significant dilution in their percentage ownership of us, and any new securities that we issue could have rights, preferences and privileges senior to those of holders of our common stock. Any debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, including the ability to pay dividends. This may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms that are satisfactory to us, if and when required, our ability to grow or support our business and to respond to business challenges that we may face could be significantly limited.
Our existing and future levels of indebtedness could adversely affect our financial health, ability to obtain financing in the future, ability to react to changes in our business and ability to fulfill our obligations under such indebtedness.
As of December 31, 2024, we had outstanding indebtedness in the aggregate principal amount of approximately $12.0 million with maturity dates ranging from May 2025 through June 2026. This level of indebtedness could:
Any of the foregoing impacts could have a material adverse effect on us.
Our business depends largely on our ability to attract and retain talented employees, including senior management. If we lose the services of Paul Kellenberger, our Chief Executive Officer, or other members of our senior management team or other key personnel, we may not be able to execute on our business strategy.
Our future success also depends in large part on the continued services of our senior management and other key personnel. In particular, we are dependent on the services of Paul Kellenberger, our Chief Executive Officer, who is critical to the future vision and strategic direction of our business. We rely on our leadership team and key employees in the areas of engineering, sales and product development, design, marketing, operations, strategy, security, and general and administrative functions. Even though we have employment agreements with our executive officers, our executive officers and other key personnel are all employed on an at-will basis, which means that they could terminate their employment with us at any time, for any reason, and without notice. We do not currently maintain key-person life insurance policies on any of our officers or employees. If we lose the services of senior management or other key personnel, our business, operating results, and financial condition could be adversely affected.
Adverse general and industry-specific economic and market conditions, reductions in IT spending, supply chain disruptions, geopolitical conflicts, rising fuel prices, inflation, increasing interest rates, instability in the global banking system or changes in the spending policies or budget priorities for government funding of K-12 schools may reduce demand for our products and platform, which could harm our results of operations.
Our revenue, results of operations and cash flows depend on the overall demand for our platform and solutions. Concerns about the systemic impact of a potential widespread recession (in the United States or internationally) and instability in the global banking system, geopolitical conflicts, inflation or the availability and cost of credit could lead to increased market volatility, decreased consumer confidence and diminished growth expectations in the United States economy and abroad, which in turn could result in reductions in spending by our existing and prospective customers. Prolonged economic slowdowns may result in customers delaying purchases or canceling subscriptions with us, choosing to focus on less expensive educational tools or seeking to lower their costs by requesting to renegotiate existing contracts on terms less advantageous to us or defaulting on payments due on existing contracts or not renewing at the end of existing contract terms. Economic uncertainty and associated macroeconomic conditions may also make it difficult for us and our customers to accurately forecast and plan future activities. As a result, an economic downturn could harm our business, revenue, results of operations and cash flows.
Further, a significant portion of our revenue is derived from sales to K-12 schools, which are heavily dependent on federal, state, and local government funding. In addition, the school appropriations process is often slow, unpredictable and subject to many factors outside of our control. Budget cuts, curtailments, delays, changes in leadership, shifts in priorities or general reductions in funding could reduce or delay our revenue. Funding difficulties experienced by schools, which have been exacerbated by the recent economic downturn, the impacts of the COVID-19 pandemic and state budget deficits, could also slow or reduce purchases, which in turn could materially harm our business.
Our business may be adversely affected by changes in available educational funding, resulting from changes in legislation, both at the federal and state levels, changes in the state procurement process, changes in government leadership, declines in K-12 school enrollment, emergence of other priorities and changes in the condition of the local, state or United States economies. Moreover, future reductions in federal funding and the state and local tax bases could create an unfavorable environment, leading to budget shortfalls resulting in a decrease in educational funding. Any decreased funding for schools may harm our revenue renewals and new business materially.
Additionally, permanent shifts in student enrollment from traditional K-12 education models toward online and home schooling or other alternative educational models that do not use our solutions could materially harm our business. In addition, our revenue coming from career training education might decline if such organizations experience a decline in enrollment rates.
We have benefitted from the United States federal government’s stimulus packages focused on educational initiatives approved as a result of the COVID-19 pandemic. However, additional funding may not be approved, which may adversely affect our business, financial condition and results of operations.
As a result of the COVID-19 pandemic, the United States federal government approved certain fiscal stimulus packages, including $82.0 billion in December 2020 and $130.0 billion in March 2021, in part, to support reopening plans for K-12 schools and $35.0 billion in March 2021, in part, for public Higher Education institutions to assist in reopening efforts, such as distance learning programs, the implementation of safety protocols and emergency financial assistance (together, the “COVID Stimulus Funds”). Many of our current and potential customers were the recipients of COVID Stimulus Funds. We expect that in the absence of future stimulus packages similar to the COVID Stimulus Funds, our customers will be able to obtain funds from other sources; however, there can be no guarantee that this will be the case or that our customers will choose to use any such funds to purchase our products. In addition, we are unable to predict the extent, implementation and effectiveness of any government-funded benefit programs and stimulus packages in the future and the corresponding effect on demand for our platform. If such government-funded benefit programs and stimulus packages are not approved, our results may not be comparable to past or future periods. Further, as a result of the stimulus packages, if potential competitors are attracted to our industry and develop and market new technologies that render our existing or future solutions less competitive, unmarketable or obsolete, our business and operating results may be adversely affected.
We depend on a limited number of third-party partners to produce, resell and distribute our products.
We rely on a limited number of third parties to produce the hardware and software for our platform and solutions and rely on certain third-party resellers and distributors to resell and distribute our products. If we are unsuccessful in maintaining existing relationships with third parties and, if needed, establishing new relationships with third parties, our ability to efficiently operate existing services or develop new products and services could be impaired, and as a result, our competitive position or our results of operations could suffer. In August 2021, we entered into an agreement to work with a major PC OEM to build Inspire, a proprietary laptop, which allowed us to leverage the OEM’s supply chain network. Our master agreement with this PC OEM partner is subject to a one-year automatic renewal term, and 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. In addition, during 2023, we entered into an agreement with another PC OEM for the manufacture of Imagine. If either PC OEM partner, decides to discontinue its partnership with us and we are unable to replace the products manufactured by such partner with another PC OEM that we currently work with or a new PC OEM partner, our business, operating results and financial condition 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 or resellers and distributors 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 adversely impacted.
Our existing and future levels of indebtedness could adversely affect our financial health, ability to obtain financing in the future, and ability to fulfill our obligations under such indebtedness.
As of December 31, 2025, we had outstanding indebtedness in the aggregate principal amount of approximately $17.7 million with maturity dates ranging from 2026 through 2027. This level of indebtedness could:
In addition, the agreements governing our indebtedness contain, and any future debt instruments likely will contain, financial and operating covenants that limit our flexibility in operating our business. Our ability to comply with these covenants may be affected by events beyond our control, and we may be unable to satisfy them. A breach of any of these covenants could result in a default under the applicable debt instrument, which could cause all of our outstanding debt to become immediately due and payable. If our debt were to be accelerated, we may not have sufficient cash or be able to borrow sufficient funds to refinance the debt or repay it, which would have a material adverse effect on our business, financial condition and results of operations.
Management's Discussion & Analysis (MD&A)
New heading “Series P Preferred Stock Agreements”
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“As of December 31, 2024, these material weaknesses have not been fully remediated. Although we are targeting completion of the remediation measures within twelve months of the date of this Annual Report on Form 10-K, we cannot be certain that our efforts will successfully remediate our material weaknesses by this date, or at all, or prevent restatements of our financial statements in the future. …”see in full comparison
“The COVID-19 pandemic, and its persisting effects, significantly altered the supply chain delivery capability that existed prior to the onset of the pandemic and on which suppliers of physical products previously relied. During the COVID-19 pandemic, our manufacturing partners experienced challenges delivering against our product demand, given component shortages, labor shortages and ongoing intermittent lockdowns in China, the primary country where our products or components are manufactured. …”see in full comparison
“In March 2024, we entered into a convertible promissory note to borrow an additional $5.0 million from Fiza. The loan had an annual interest rate of 20% that is accrued daily, compounds annually, and was due on March 11, 2026, subject to acceleration in an event of default. The convertible promissory note automatically converted into 1,176,471 shares of our common stock immediately prior to the closing of the IPO at a conversion rate equal to 85% of the price to the public of our common stock issued in the IPO, subject to the terms and conditions of the convertible promissory note.”see in full comparison
“During May and June 2024, we entered into multiple loan agreements from an existing lender to borrow a total of $3.5 million secured by certain assets. In May 2024, the loans totaled $2.0 million at an annual interest rate of 17.0%. The June 2024 loan was for $1.5 million and has an annual interest rate of 18.0%. The interest on the May loan is subject to adjustment for default and on the June loan for prepayment and default. The loans have periodic principal and interest payments of 24 equal monthly payments beginning in June and July 2024.”see in full comparison
“Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. To date, we have enhanced our business documentation process and are providing training to help with management’s self-assessment and testing of internal controls. …”see in full comparison
“In April 2023, we signed an additional agreement to borrow $0.7 million (“Term Loan 3”) at an interest rate of 18.0% per year. Term Loan 3 is secured with our assets and expected proceeds from Employee Retention Tax Credits (“ERTC”). The loan will mature by April 17, 2026, but it must be repaid upon receipt of the ERTC in an amount sufficient to fully repay the loan. No terms of the Term Loan 1 or Term Loan 2 were changed as a result of the April 2023 agreement. …”see in full comparison
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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.
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.
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:
We are a leading provider of augmented and virtual reality educational technology solutions. We believe that we are a recognized brand in the education market with a current focus on both United States K-12 schools and the CTE markets.
From a technology perspective, graphics and speed of computing have increased exponentially over time, but the physical computing experience has remained largely static since the introduction of the mouse and touchscreen in the 1980s. We believe limiting the user experience to the confines of a screen creates inherent limitations such as slowing technological breakthroughs, discouraging engagement and hampering creativity, particularly when utilizing technology as a learning tool. We were founded with the goal of eliminating that barrier between students and content and reinventing the student experience. We hope to accomplish this through a range of proprietary innovations in hardware and software that comprise the foundation of our educational platform. We believe that these innovations help to eliminate a barrier between digital content and students so that students can be immersed in content: manipulate it, experience it, and interact with it as if it were real. We sell our platform directly to United States school districts, both as a primary educational tool in K-12 classrooms and as a career training solution for higher grade levels, as well as to community college customers through both a direct sales and support team as well as regional resellers. Internationally, we rely exclusively on resellers to bring our products to those markets. Today, our platform is implemented in more than 3,500 of the approximately 13,000 United States public school districts. Our K-12 platform is currently deployed in over 80% of the largest 100 K-12 public school districts in the United States, as measured by student enrollment, and our CTE solutions have been deployed in approximately 73% of those public school districts we serve. Our CTE solutions have also been deployed in approximately 2% of United States community and technical colleges. In addition, we have partnered with over 25 resellers and have expanded our customer network into over 50 countries.
Since 2014, we have been developing and delivering hardware and software technology focused on improving education in K-12 and CTE classrooms. We believe that our platform leads to (i) deeper understanding of content, (ii) increased motivation of students to learn (iii) additional engagement of students with content and (iv) improved preparedness for the workforce. We believe that we have significant growth potential and that we have demonstrated a repeatable value proposition and the ability to scale our sales growth model. With a mature and tested go-to-market playbook and team in place, we are focused on scaling execution across a carefully selected set of growth vectors, including scaling in the United States, expanding internationally, investing in R&D, and acquiring software, both specific software applications and third party software developers, 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 revenues.
We estimate using data from national government sources specifying the number of schools within their regions that our total addressable market (TAM) for the K-12 market is approximately $21.4 billion in the United States, $29.0 billion in Europe, Middle East and Africa region (EMEA) and $5.6 billion in the Asia Pacific region (APAC) and that our TAM for the CTE market is approximately $6.2 billion in the United States, $5.4 billion in EMEA and $0.8 billion in APAC, with an overall global TAM of greater than $68 billion. Our TAM for the K-12 market is an estimate of the revenue that we would receive over a five year period assuming that each public school in the applicable region purchases one “lab” (consisting of 25 laptops and one cart) at our current prices. Such estimates include recurring annual revenue per laptop based on the average software subscription revenue we receive per unit per year from K-12 customers and assumes an 80% renewal rate. Our TAM for the CTE market is an estimate of the revenue that we would receive over a five year period assuming that each school that offers vocational/CTE programs (including community colleges) in the applicable region purchases one “lab” (consisting of 27 laptops and one cart) at our current prices. Such estimates include recurring annual revenue based on the average software subscription revenue we receive per unit per year from CTE customers in such region and assumes an 80% renewal rate. We have estimated the number of schools in the K-12 market and the CTE market in the US/Canada region, EMEA region and APAC region based on data sourced from third parties, including the Institute of Education Science, the British Educational Suppliers Association, Statista, various governmental instrumentalities, articles and published papers.
As of December 31, 20242025 and 2023,2024, we had an accumulated deficit of $290.4$316.3 million and $269.6$290.4 million, respectively. Our net losses were $(20.8)$25.9 million and $(13.0)$20.8 million for the years ended December 31, 20242025 and 2023,2024, respectively. A portion of our net losses in the yearyears ended December 31, 2025 and 2024 related to $7.6 million and $7.7 millionmillion, respectively, in stock compensation and RSU expense from RSUs and options issued during the period and $1.7 million of our net losses in the year ended December 31, 2023 resulted from costs incurred in connection with our terminated EdtechX Merger Agreement.period.
As of December 31, 20242025 and 2023,2024, we had cash and cash equivalents of $4.9$1.0 million and $3.1$4.9 million, respectively. In the years ended December 31, 20242025 and 2023,2024, we raised $18.5$22.6 million and $11.4$18.5 million, respectively, for an aggregate of $29.9$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,IPO”), $9.3 million under loan and security agreements with Fiza, $5.0$18.0 million in convertible notes and $5.6$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 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. See Note 1 (Description of Business and Basis of Presentation) to our consolidated financial statements for the year ended December 31, 20242025 included elsewhere in this Annual Report on Form 10-K for additional information on our assessment.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports in a timely manner. In connection with the preparation of our financial statements for the years ended December 31, 2023 and 2024, we concluded that there were five material weaknesses in our internal control over financial reporting. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses that were identified related to:
We are currently in the process of implementing measures designed to improve our internal control over financial reporting to remediate these material weaknesses, including:
As of December 31, 2024, these material weaknesses have not been fully remediated. Although we are targeting completion of the remediation measures within twelve months of the date of this Annual Report on Form 10-K, we cannot be certain that our efforts will successfully remediate our material weaknesses by this date, or at all, or prevent restatements of our financial statements in the future. Due to the nature of the remediation process and the need to allow adequate time after implementation to evaluate and test the effectiveness of the controls, no assurance can be given as to the timing and cost of full remediation. The material weaknesses will be fully remediated when, in the opinion of our management, the revised control processes have been operating for a sufficient period of time.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. To date, we have enhanced our business documentation process and are providing training to help with management’s self-assessment and testing of internal controls. We are implementing new workflow functionality and accounting systems that will help with ongoing account reconciliation, variance analysis and efficient review of significant financing transactions. With the hire of additional financial personnel, allocating other employees’ and consultants’ time to the implementation of user access controls and increased accounting oversight and implementation of new accounting system applications, we have incurred approximately $0.2 million and we expect to incur approximately $0.4 million in additional costs over the next twelve months to remediate these control deficiencies, though we cannot be certain that our efforts will be successful at remediating the material weaknesses or at avoiding potential future material weaknesses. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. If we are unable to successfully remediate our existing or any future material weaknesses in our internal control over financial reporting, or if we identify any additional material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, and our stock price may decline as a result. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our stock price and make it more difficult for us to effectively market and sell our products to new and existing customers.
We serve K-12 schools, as well as community colleges, technical colleges and trade colleges, and we see opportunities for growth across all of our current customer segments. We are particularly focused on increasing sales efficiency, driving customer growth, particularly in the CTE market, and renewable revenue growth, particularly through our software offerings.
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. It is our firstHardware product offering 3D stereo visualization without the need to utilize glasses/eyewear. Our initial original edition product offerings (OE) used a proprietary passive circular polarized display to create comfortable 3D stereo using lightweight eyewear. We are no longer producing our OE products, although we continue to sell existing inventory outside of the US. Product revenue accounted for between 58%51% and 63%58% of our total revenue for the periodsyears presented.ended December 31, 2025 and 2024.
Our platform allows for immersive experiential learning experiences across science, math technology, engineering and career training applications. We derive software applications revenue from the sale of licenses and subscription plans to the software applications available on our platform.
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.
Subsequent to fiscal year 2023,2024, we experienced significant cancellations ("debooks") of previously reported customer commitments that affect full year bookings performance. These debooks, totaling $1.2 million and $1.6 million$1.7 for the yearsyear ended December 31, 2024 and 2023, respectively,2024, primarily occurred in the last three quarters of fiscal year 2024. The primary factors contributing to these debooks were customer financial constraints.
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% and 17% of our total bookings for theeach yearsyear ended December 31, 20242025 and 2023, respectively.2024.
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.
To monitor our ability to retain and grow our customer base for our software we monitor the annualized contract valueACV of active software licenses, with particular attention to customers with at least $50,000 in annualized contract value (“ACV”).ACV. Our ACV for the year ended December 31, 20242025 and December 31, 20232024 was approximately $11.3$9.9 million and $10.6$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, 20242025 and December 31, 2023,2024, our Net Dollar Retention Rate (“NDRR”) on customers with at least $50,000 of ACV was 92%71% and 112%,92%, respectively.
We calculate Adjusted EBITDA as GAAP net loss adjusted for interest expense, depreciation and amortization expense, write-offstock-based compensation, loss on change in fair value of deferredconvertible offering costs, stock-based compensation,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.
Supply Chain Challenges
The COVID-19 pandemic, and its persisting effects, significantly altered the supply chain delivery capability that existed prior to the onset of the pandemic and on which suppliers of physical products previously relied. During the COVID-19 pandemic, our manufacturing partners experienced challenges delivering against our product demand, given component shortages, labor shortages and ongoing intermittent lockdowns in China, the primary country where our products or components are manufactured. During 2023, global supply chain challenges have become less severe, but any future disruption of global supply chains may have a material impact on our business and operations.
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. Following the December 2024 closing of our IPO, we expect toWe 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.
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.
Total revenue decreased by $5.8 million, or 13%, to $38.1 million for the year ended December 31, 2024, from $43.9 million for the year ended December 31, 2023. This decrease in revenue is primarily attributable to constraint of available working capital to fund hardware purchases to fulfill order backlog during the year as a result of our IPO not being completed until December 6, 2024. As of December 31, 2024, the backlog of unfilled orders remains high, compared to prior years, at $11.3 million due to lack of sufficient working capital to increase product fulfillment. These unfilled orders remain unrecognized as revenue and do not appear in our key operating metrics.
Hardware revenue decreased by $5.5$7.8 million or 20%,35%, to $14.2 million for the year ended December 31, 2025, from $22.0 million for the year ended December 31, 2024,2024. fromThe $27.5decrease millionin 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, 2023. The2025.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, 20242025 and 2023,2024, hardware revenue as a percentage of total revenue is 58%51% and 63%,58%, respectively.
Software revenue decreased by $0.4 million or 3%, to $12.9 million for the year ended December 31, 2024, from $13.2 million for the year ended December 31, 2023. The decrease in revenue is attributable to third-party annual software sales. Our key retention metrics are as follows: (1) ACV for the year ended December 31, 2024 increased to $11.3 million as compared to the year ended December 31, 2023 of $10.6 million and (2) NDRR for the trailing twelve-month period ended December 31, 2024 was 92% and for December 31, 2023 was 112%. For the years ended December 31, 2024 and 2023, software revenue as a percentage of total revenue is 34% and 30%, respectively.
ServiceSoftware revenue increaseddecreased by $18,000$2.3 million or 1%,18%, to $3.3$10.6 million for the year ended December 31, 2024,2025, from $3.2$12.9 million for the year ended December 31, 2023.2024. 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 increasedecrease in revenue is attributable to increasedthird-party salesannual ofsoftware extended warranty and technology support services.sales. For the years ended December 31, 20242025 and 2023,2024, servicessoftware revenue as a percentage of total revenue is 9%38% and 7%,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%.
For the year ended December 31, 2024, total cost of goods sold decreased by $4.5 million, or 17%, to $22.5 million as compared to $27.0 million for the year ended December 31, 2023. The decrease in cost of goods sold is primarily attributable to a decrease in the volumes shipped of Inspire laptops. For the years ended December 31, 2024 and 2023, gross margin is 41% and 38%, respectively.
Cost of hardware sold decreased by $3.8 million, or 19%, to $16.0 million for the year ended December 31, 2024, from $19.7 million for the year ended December 31, 2023. The decrease in cost of hardware sold is attributable to the 20% decrease in hardware revenue driven primarily by a decrease in the volumes shipped of Inspire laptops. For the years ended December 31, 2024 and 2023, hardware gross margin is 27% and 28%, respectively.
Cost of software sold decreased by $0.5 million or 9%, to $5.0 million for the year ended December 31, 2024, from $5.5 million for the year ended December 31, 2023. The decrease in cost of software sold corresponds to decreased sales of point-in-time software. For the years ended December 31, 2024 and 2023, software gross margin is 61% and 58%, respectively.
CostService ofrevenue services sold increaseddecreased by $0.4$0.2 million or 48%,5%, to $1.2$3.1 million for the year ended December 31, 2024,2025, from $0.8$3.3 million for the year ended December 31, 2023.2024. The increasedecrease in cost of services soldrevenue is attributable to purchasesdecreased sales of extended warranty contracts and delivery costs for increased sales of Inspire laptops and technology support services, respectively.services. For the years ended December 31, 20242025 and 2023,2024, services grossrevenue marginas a percentage of total revenue is 65%11% and 76%,9%, respectively.
Excess and obsolete write-downs decreased by $0.5 million or 58% to $0.4 million for the year ended December 31, 2024, from $0.9 million for the year ended December 31, 2023. The decrease in write-downs is attributable to less product and component inventory supply disruptions correlated to the reduced impact of the COVID-19 pandemic.
For the year ended December 31, 2024,2025, total operatingcost expensesof increasedgoods sold decreased by $7.7$7.9 million, or 30%,35%, to $33.2$14.6 million,million fromas $25.5compared to $22.5 million for the year ended December 31, 2023.2024. TheThis increasedecrease in expenses iswas primarily attributable to $7.6reduced millionhardware costs of stock-based$6.6 compensation expensemillion due to grantsfewer toshipments employeesof Inspire units, a decrease in Marchsoftware costs of $1.9 million and May 2024 to purchase a totaldecrease in excess and obsolete inventory of approximately$0.2 5.1million, millionpartially sharesoffset by an increase in service cost of common$0.8 stockmillion. at an exercise price of $2.57 per share, which was not present inFor the periodyears ended December 31, 2023.2025 and 2024, gross margin is 48% and 41%, respectively.
The stock-based compensation expense included in research and development, sales and marketing, and general and administrative expense for the year ended December 31, 2024 was $0.8 million, $2.8 million, and $4.0 million, respectively. After removing the stock-based compensation expense from the totals for the year ended December 31, 2024, the remaining adjusted operating expenses totaled $25.6 million and resulted in an increase of $0.1 million or 0.4%, from the $25.5 million total operating expenses for the year ended December 31, 2023. This net increase was primarily due to increased costs in personnel and professional expenses throughout 2024 related to preparing the Company for the IPO and additional selling and marketing activities.
Research and development expenses increased by $0.7 million or 16%, to $4.9 million for the year ended December 31, 2024, from $4.2 million for the year ended December 31, 2023. The increase in expenses is primarily attributable to an increase in stock-based compensation expense of $0.8 million due to grants to employees in March and May 2024.
Selling and marketing expenses increased by $3.0 million or 23%, to $15.9 million for the year ended December 31, 2024, from $12.9 million for the year ended December 31, 2023. The increase in expenses is primarily attributable to an increase in stock-based compensation expense of $2.8 million due to grants to employees in March and May 2024.
GeneralCost andof administrativehardware expensessold increaseddecreased by $5.7$6.6 millionmillion, or 85%,41%, to $12.4$9.4 million for the year ended December 31, 2024,2025, from $6.7$16.0 million for the year ended December 31, 2023.2024. The increasedecrease in expensescost isof hardware sold was primarily attributable to a $4.0 million increasedecrease in stockthe compensationvolumes expensesshipped dueof toInspire grantslaptops, toas employeeswell as reductions in Marchthe andbill Mayof 2024,materials andcosts of the new Inspire 2 laptop relative to the increasedInspire costs1 inmodel personnelwhich was sold during the year ended December 31, 2024. For the years ended December 31, 2025 and professional2024, expenseshardware throughoutgross 2024margin relatedis to34% preparingand the27%, Company for the IPO.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.
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.
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.
Other operating expenses decreased by $1.7 million or 100%, to zero for the year ended December 31, 2024, from $1.7 million for the year ended December 31, 2023. The decrease in expenses is due to expensed deferred offering costs recognized in 2023 related to the terminated EdtechX Merger Agreement, which were previously capitalized.
For the year ended December 31, 2024,2025, interest expense decreased by $0.1$1.3 million, or 3%,47%, to $2.8$1.5 million, from $2.9$2.8 million for the year ended December 31, 2023.2024. The decrease in interest expense iswas attributable to the continuingconvertible declineloans converted into our common stock as part of the IPO in outstandingDecember principal2024 and a lower interest rate on the convertible debt throughentered into in April 2025 compared to the yeardebt endedpaid Decemberoff 31,with 2024.a portion of the proceeds from the convertible debt.
Income Tax Expense (Benefit)
The increasedecrease in income tax expense for the year ended December 31, 20242025 was immaterial. The United States federal statutory rate is 21% while our effective tax rate for the years ended December 31, 20242025 and 20232024 was 0.1% and zero,0.1%, respectively. No federal or state income taxes are expected outside of immaterial state tax payments.
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, 2023, our operating activities used cash of $6.4 million, primarily due to our net loss of $13.0 million partially offset by changes in our operating assets and liabilities of $2.3 million and adjustments for non-cash charges including provision for excess and obsolete inventory of $0.8 million, non-cash amortization of other debt discount of $0.1 million, write-off of deferred offering costs of $1.7 million, cancellation of purchase obligations of $0.1 million, and loss on extinguishment of debt of $1.5 million. The change in our operating assets and liabilities was primarily the result of a decrease in accounts receivable of $1.8 million and an increase in accounts payable of $0.6 million, accrued expenses of $0.7 million and accrued interest of $1.3 million, partially offset by an increase in inventory of $0.2 million and prepaid expenses and other assets of $0.5 million, and a decrease in deferred revenue of $1.4 million.
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, 2023, net cash provided by financing activities was $5.6 million primarily due to proceeds from other debt issuances of $11.4 million partially offset by repayment of revolving credit line of $3.0 million, repayment of other debt issuances of $2.2 million, and fees paid for deferred offering costs of $0.4 million.
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.
What changed in the latest 10-Q
Risk Factors
Largest changes
“Our common stock has been suspended from trading on Nasdaq and will be delisted, which has reduced the liquidity of our common stock and may impair our ability to raise capital.”see in full comparison
“Both our Amended Note and our Series P and Series P-2 Preferred Stock may be settled in a variable number of shares of common stock determined by reference to the market price of our common stock. Installment payments under the Amended Note may be made in shares priced at the lesser of the $7.00 conversion price and 95% of the lowest volume-weighted average price of our common stock during the preceding ten trading days, subject to a floor price of $1.25 per share. If the market price of our common stock declines, the number of shares issuable in respect of these obligations would increase. …”see in full comparison
“Delisting has other consequences. Our common stock will cease to be a “covered security” for purposes of the National Securities Markets Improvement Act, so that future issuances of our common stock will be subject to the securities laws of individual states rather than federal preemption, which may increase the cost and complexity of financing transactions. Our common stock is also likely to lose eligibility for purchase on margin, which may cause brokers to require holders who hold our shares in margin accounts to liquidate their positions. …”see in full comparison
“On April 21, 2026, we received a determination from Nasdaq to delist our common stock under Nasdaq Listing Rule 5810(c)(3)(A)(iii), following the closing bid price of our common stock being $0.10 or less for ten consecutive trading days. Trading in our common stock was suspended at the opening of business on April 28, 2026. We requested a hearing before a Nasdaq Hearings Panel, and on August 6, 2026 the Panel issued a decision determining to delist our common stock. …”see in full comparison
“During the six months ended June 30, 2026, the number of shares of our common stock issued and outstanding increased from 1,294,142 to 37,058,212, primarily as a result of the conversion of outstanding indebtedness into common stock. This included the issuance of 30,195,786 shares on May 28, 2026 at a fixed conversion price of $0.2385 per share in connection with the conversion of principal outstanding under our loans with Fiza Investments Limited. Our existing stockholders experienced substantial dilution as a result of these issuances, and may experience further substantial dilution.”see in full comparison
“Since April 28, 2026, our common stock has been quoted on the OTC Markets rather than on a national securities exchange. Quotation on the OTC Markets is generally characterized by wider spreads between bid and asked prices, lower trading volume, greater price volatility and less publicly available information than a listing on a national securities exchange. As a result, our stockholders may find it more difficult to dispose of shares of our common stock at prices they consider acceptable, or at all.”see in full comparison
Full comparison: every changed paragraph (9)
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, which could materially affect our business, financial condition, or future operating results and cash flows. WeThe dofollowing notrisk believefactors thatupdate, and to the extent inconsistent supersede, the risk factors set forth in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. Except as set forth below, there have been anyno material changes to thethose risk factorsfactors. disclosedThese risks, and those described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. The risks described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 20252025, are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition, operating results and/or cash flows.
Our common stock has been suspended from trading on Nasdaq and will be delisted, which has reduced the liquidity of our common stock and may impair our ability to raise capital.
On April 21, 2026, we received a determination from Nasdaq to delist our common stock under Nasdaq Listing Rule 5810(c)(3)(A)(iii), following the closing bid price of our common stock being $0.10 or less for ten consecutive trading days. Trading in our common stock was suspended at the opening of business on April 28, 2026. We requested a hearing before a Nasdaq Hearings Panel, and on August 6, 2026 the Panel issued a decision determining to delist our common stock. We expect Nasdaq to file a Form 25 with the SEC, following which delisting will become effective ten days later, and the registration of our common stock under Section 12(b) of the Exchange Act will terminate 90 days thereafter.
Since April 28, 2026, our common stock has been quoted on the OTC Markets rather than on a national securities exchange. Quotation on the OTC Markets is generally characterized by wider spreads between bid and asked prices, lower trading volume, greater price volatility and less publicly available information than a listing on a national securities exchange. As a result, our stockholders may find it more difficult to dispose of shares of our common stock at prices they consider acceptable, or at all.
Delisting has other consequences. Our common stock will cease to be a “covered security” for purposes of the National Securities Markets Improvement Act, so that future issuances of our common stock will be subject to the securities laws of individual states rather than federal preemption, which may increase the cost and complexity of financing transactions. Our common stock is also likely to lose eligibility for purchase on margin, which may cause brokers to require holders who hold our shares in margin accounts to liquidate their positions. Certain institutional investors are prohibited by policy from holding securities that are not listed on a national securities exchange, and our ability to raise capital through the sale of equity securities has been and is likely to continue to be adversely affected.
We have issued a substantial number of shares of common stock, and we have limited authorized share capacity available to satisfy our obligations under our outstanding convertible securities.
During the six months ended June 30, 2026, the number of shares of our common stock issued and outstanding increased from 1,294,142 to 37,058,212, primarily as a result of the conversion of outstanding indebtedness into common stock. This included the issuance of 30,195,786 shares on May 28, 2026 at a fixed conversion price of $0.2385 per share in connection with the conversion of principal outstanding under our loans with Fiza Investments Limited. Our existing stockholders experienced substantial dilution as a result of these issuances, and may experience further substantial dilution.
Our certificate of incorporation authorizes 100,000,000 shares of common stock. As of June 30, 2026, 37,058,212 shares were issued and outstanding, and a significant portion of the balance of our authorized common stock was reserved for or committed to issuance upon conversion of our outstanding convertible note and preferred stock, upon exercise of outstanding options and warrants, and under our equity incentive plans. We therefore have limited capacity to issue additional shares of common stock.
Both our Amended Note and our Series P and Series P-2 Preferred Stock may be settled in a variable number of shares of common stock determined by reference to the market price of our common stock. Installment payments under the Amended Note may be made in shares priced at the lesser of the $7.00 conversion price and 95% of the lowest volume-weighted average price of our common stock during the preceding ten trading days, subject to a floor price of $1.25 per share. If the market price of our common stock declines, the number of shares issuable in respect of these obligations would increase. If we do not have a sufficient number of authorized and unreserved shares available when required, we may be obligated to settle these obligations in cash, which we may not have sufficient resources to do, or to seek stockholder approval to increase our authorized shares, which we may not be able to obtain on a timely basis or at all. A failure to deliver shares when required could constitute an event of default under the Amended Note, permitting the holder to accelerate the amounts owed and to require redemption at a premium, which would have a material adverse effect on our business, financial condition and results of operations.
Management's Discussion & Analysis (MD&A)
New heading “Gain on Extinguishment of Convertible and Other Debt”
New heading “Comparison of financial results for the six months ended June 30, 2026 and 2025”
New heading “Operating Expenses”
New heading “Interest Expense”
New heading “Gain on Extinguishment of Convertible and Other Debt”
New heading “Income Tax Expense”
New heading “May 28, 2026 Restructuring”
New heading “Series P and P 2 Preferred Stock”
Removed heading “Cost of Goods Sold”
Largest changes
“In addition, if an Event of Default (as defined in the Senior Secured Convertible Notes) has occurred under the Senior Secured Convertible Notes, the Senior Lender may elect to convert all or a portion of the Senior Secured Convertible Notes into shares of common stock at a price equal to the lesser of (i) 80% of the VWAP of the shares of common stock as of the trading day immediately preceding the delivery or deemed delivery of an applicable Event of Default notice and (ii) 80% of the average VWAP of common stock for the five trading days with the lowest VWAP of the shares of common stock …”see in full comparison
“The Company has three outstanding loans as of March 31, 2026 with Fiza Investments Limited, (“Fiza”) with a total outstanding principal balance of $7.2 million. …”see in full comparison
“Upon the occurrence of an Event of Default, the Company is required to deliver written notice to the Senior Lender within one business day. At any time after the earlier of (a) the Senior Lender’s receipt of an Event of Default notice, and (b) the Senior Lender becoming aware of an Event of Default, the Senior Lender may require the Company to redeem all or any portion of the Senior Secured Convertible Notes a 10% premium. Upon an Event of Default, the Senior Secured Convertible Notes shall bear interest at a rate of 11.0% per annum.”see in full comparison
“Upon an event of default, the Senior Lender may require redemption at a 10% premium, interest accrues at 11.0% per annum, and the Senior Lender may convert at a discount to prevailing VWAP. In connection with a change of control, the Senior Lender may require redemption in cash at 110% of principal, accrued interest and make-whole amounts. The Company has elected the fair value option for the Amended Note, and changes in fair value are recognized in earnings. See Note 5 — Debt and Related Party Debt.”see in full comparison
As ofsee in full comparisonMarchJune31,30, 2026 and December 31, 2025, we had cash and cash equivalents of$2.9$0.5 million and $1.0 million, respectively. In April 2025, we raised $14.0 million in a Senior Secured Convertible Note Financing. See Note 5 – Debt and Related Party Debt to our condensed consolidated financial statements for the three months endedMarchJune31,30, 2026 elsewhere in this report for additional information. In the three months endedMarchJune31,30, 2026 and the year ended December 31, 2025, we raised $7.0 million and $18.5 million, respectively, for an aggregate total all-time of $50.5 million through debt and financing arrangements, including $13.0 million of convertible debt, $7.5 million of net proceeds from the IPO, $9.3 million under loan and security agreements with Fiza, $5.0 million in convertible notes and $5.6 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 industryand the dependency on closing this offeringare 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. See Note 1 to our condensed consolidated financial statements for the three months endedMarchJune31,30, 2026 included elsewhere in this report for additional information on our assessment.
Full comparison: every changed paragraph (98)
Our laptops are 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 the Inspire, our latest laptop product built in partnership with a major PC OEM. Hardware Product revenue accounted for 53% and 57% of our total revenue for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively.
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 37%39% and 29%31% of our total revenue for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. 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 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 9%8% and 14%12% of our total revenue for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively.
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 43%53% and 29%35% for the three months ended MarchJune 31,30, 2026 and 2025, respectively, while K-12 bookings accounted for approximately 57%47% and 71%,65%, for the three months ended MarchJune 31,30, 2026 and 2025, respectively. CTE bookings accounted for approximately 48% and 32% for the six months ended June 30, 2026 and 2025, respectively, while K-12 bookings accounted for approximately 52% and 68%, for the six months ended June 30, 2026 and 2025, respectively.
Subsequent to MarchJune 31,30, 2025, we experienced significant cancellations ("debooks") of previously reported customer commitments that affect full year bookings performance. These debooks totaled $1.7$1.9 million for the threesix months ended MarchJune 31,30, 2025. The primary factors contributing to these debooks were customer financial constraints.
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 10%15% and 3%2% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. International bookings accounted for approximately 12% and 13% for the six months ended June 30, 2026 and 2025, respectively.
To monitor our ability to retain and grow our customer base for our software we monitor the annualized contract value of active software licenses, with particular attention to customers with at least $50,000 in ACV. Our ACV for the threesix months ended MarchJune 31,30, 2026 and 2025 was approximately $10.1$9.4 million and $11.6$10.9 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 trailing twelve-month period ended MarchJune 31,30, 2026 and 2025, our NDRR on customers with at least $50,000 of ACV was 65%66% and 97%, respectively.
We measure the ACV dollar-weighted term length of our renewable software license agreements. We believe,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.
We calculate Adjusted EBITDA as GAAP net income (loss) adjusted for interest expense, depreciation and amortization expense, income tax expense, offering costs related to financing activities, stock-based compensation, gain on extinguishment of debt, change in fair value of convertible debt,debt and the change in fair value of Series P and P 2 Preferred Stock liability and income tax expense.liability. 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.
Cost of Goods Sold
Gain from settlement of vendor claims — Gain from settlement of vendor claims consists of litigation matters relating to former vendors, for which the vendor customer relationship has previously ceased.
The following table sets forth our results of operations for the three and six months ended MarchJune 31,30, 2026 and 2025:
Comparison of financial results for the three months ended MarchJune 31,30, 2026 and 2025
Total revenue decreased by $1.5$2.1 million, or 22%,28%, for the three months ended MarchJune 31,30, 2026 to $5.3$5.4 million as compared to the three months ended MarchJune 31,30, 2025. This decrease in revenue is primarily attributable to lower hardwarehardware, software and softwareservice revenues attributable to uncertainty in our K-12 end-user markets where funding sources have been disrupted, 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.
Hardware revenue decreased by $1.0$1.5 million or 27%,34%, to $2.8$2.9 million for the three months ended MarchJune 31,30, 2026, from $3.8$4.3 million for the three months ended MarchJune 31,30, 2025. The decrease in hardware revenue was primarily attributable to a decrease in units shipped. For the three months ended MarchJune 31,30, 2026 and 2025, hardware revenue as a percentage of total revenue was 53% and 57%,58%, respectively.
Software revenue remained relatively flat at $2.0 million for the three months ended March 31, 2026 and 2025. For the three months ended March 31, 2026 and 2025, software revenue as a percentage of total revenue is 37% and 29%, respectively.
Our key software retention metrics are as follows: (1) ACV as of March 31, 2026 decreased to $10.1 million as compared to March 31, 2025 of $11.6 million and (2) NDRR for the trailing twelve-month period ended March 31, 2026 was 65%, as compared to 97% for the trailing twelve-month period ended March 31, 2025.
Service revenue decreased by $0.5 million or 49%, to $0.5 million for the three months ended March 31, 2026, from $1.0 million for the three months ended March 31, 2025. The decrease in revenue was primarily attributable to decreased sales of extended warranty and technology support services and reflects the revenue recognition of expiring contracts in Q1 FY 25. For the three months ended March 31, 2026 and 2025, services revenue as a percentage of total revenue was 9% and 14%, respectively.
For the three months ended March 31, 2026, total cost of goods sold decreased by $1.1 million, or 31%, to $2.5 million compared to $3.6 million for the three months ended March 31, 2025. This decrease was primarily attributable to reduced hardware costs of $0.8 million due to fewer units sold partially and the lower cost of laptops and accessories, including the launch of zStylus 1 in December 2025. For the three months ended March 31, 2026 and 2025, gross margin was 53% and 47%, respectively.
Cost of hardware sold decreased by $0.8 million, or 34%, to $1.6 million for the three months ended March 31, 2026, from $2.4 million for the three months ended March 31, 2025. The decrease in cost of hardware sold was primarily attributable to a decrease in the volumes shipped of Inspire laptops.
For the three months ended March 31, 2026 and 2025, hardware gross margin was 43% and 37%, respectively.
Cost of software sold decreased by $0.1 million or 12%, to $0.6 million for the three months ended March 31, 2026, from $0.7 million for the three months ended March 31, 2025. The decrease in cost of software sold corresponded to decreased sales of third-party point-in-time software and overall software application sales. For the three months ended March 31, 2026 and 2025, software gross margin was 70% and 66%, respectively.
CostSoftware of services soldrevenue decreased by $0.2 million or 41%,10%, to $0.3$2.2 million for the three months ended MarchJune 31,30, 2026, from $0.5$2.4 million for the three months ended MarchJune 31,30, 2025. For the three months ended MarchJune 31,30, 2026 and 2025, servicessoftware grossrevenue marginas a percentage of total revenue was 44%40% and 53%,32%, respectively.
Our key software retention metrics are as follows: (1) ACV as of June 30, 2026 decreased to $9.4 million as compared to June 30, 2025 of $10.9 million and (2) NDRR for the trailing twelve-month period ended June 30, 2026 was 66%, as compared to 64% for the trailing twelve-month period ended June 30, 2025.
Service revenue decreased by $0.4 million or 49%, to $0.4 million for the three months ended June 30, 2026, from $0.8 million for the three months ended June 30, 2025. The decrease in revenue was primarily attributable to decreased sales of extended warranty and technology support services and reflects the revenue recognition of expiring contracts in Q2 FY 25. For the three months ended June 30, 2026 and 2025, services revenue as a percentage of total revenue was 7% and 10%, respectively.
For the three months ended June 30, 2026, total cost of goods sold decreased by $1.9 million, or 45%, to $2.4 million compared to $4.3 million for the three months ended June 30, 2025. This decrease was primarily attributable to reduced hardware costs of $1.4 million due to fewer units sold. For the three months ended June 30, 2026 and 2025, gross margin was 56% and 43%, respectively.
Cost of hardware sold decreased by $1.4 million, or 49%, to $1.5 million for the three months ended June 30, 2026, from $2.9 million for the three months ended June 30, 2025. The decrease in cost of hardware sold was primarily attributable to a decrease in the volumes shipped of Inspire laptops.
For the three months ended June 30, 2026 and 2025, hardware gross margin was 47% and 32%, respectively.
Cost of software sold decreased by $0.2 million or 27%, to $0.6 million for the three months ended June 30, 2026, from $0.8 million for the three months ended June 30, 2025. The decrease in cost of software sold corresponded to decreased sales of third-party point-in-time software and overall software application sales. For the three months ended June 30, 2026 and 2025, software gross margin was 72% and 68%, respectively.
Cost of services sold decreased by $0.1 million or 33%, to $0.3 million for the three months ended June 30, 2026, from $0.4 million for the three months ended June 30, 2025. For the three months ended June 30, 2026 and 2025, services gross margin was 29% and 46%, respectively.
Excess and obsolete expense decreased $0.2 million or 91%, to $17,000 for the three months ended June 30, 2026, from $0.2 million in the three months ended June 30, 2025. The decrease was attributable to the write-off of third-party software licenses in the three months ending June 30, 2025.
For the three months ended MarchJune 31,30, 2026, operating expenses decreased by $1.9$2.7 million, or 22%,29%, to $6.7$6.8 million from $8.6$9.5 million for the three months ended MarchJune 31,30, 2025. The decrease in expenses was primarily due to decreased costs in personnel expenses, marketing, travel related expenses and consulting expenses and fees incurred through the three months ended MarchJune 31,30, 2026.
Research and development expenses decreased by $0.1$0.5 million or 9%,36%, to $1.0$0.8 million for the three months ended MarchJune 31,30, 2026, from $1.1$1.3 million for the three months ended MarchJune 31,30, 2025. The decrease in expenses was primarily attributable to a decrease in compensation costs resulting from lower headcount.
Selling and marketing expenses decreased by $1.6$1.8 million or 40%,45%, to $2.4$2.2 million for the three months ended MarchJune 31,30, 2026, from $4.0$3.9 million for the three months ended MarchJune 31,30, 2025. The decrease in expenses was mainly due to lower compensation and commission expenses associated with the reduced sales team and fewer sales, and less travel related expenses, reflecting decreased staff size and fewer performance-based incentives being reached.
General and administrative expenses decreased by $0.2$0.5 million or 5%,11%, to $3.3$3.8 million for the three months ended MarchJune 31,30, 2026, from $3.5$4.3 million for the three months ended MarchJune 31,30, 2025. The decrease in expenses was primarily attributable to lower compensation expenses and lower consulting related expenses primarily related to lower audit costs and the fees incurred for the issuance of convertible debt in MarchJune 2025.
Gain from settlement of vendor claims reflects a one-time settlement of litigation matters relating to former vendors, for which the vendor customer relationship has previously ceased.
For the three months ended MarchJune 31,30, 2026, interest expense decreased by $0.2$0.1 million, or 31%,20%, to $0.3$0.2 million, from $0.5$0.3 million for the three months ended MarchJune 31,30, 2025. The decrease in interest expense was primarily attributable to a lower interestdebt rateoutstanding onin the convertiblethree debtmonths enteredended intoJune in30, April 20252026 compared to the debtthree paidmonths offended withJune a30, portion of the proceeds from the convertible debt.2025.
Gain on Extinguishment of Convertible and Other Debt
Gain on extinguishment of convertible and other debt was approximately $4.1 million in the three months ended June 30, 2026, with no amount in the prior period.
(Loss) Gain on Change in Fair Value of Convertible Debt (Loss) Gain on Change in Fair Value of Convertible Debt was a loss of approximately $1.0 million and a gain of approximately $0.5 million in the three months ended June 30, 2026 and 2025, respectively. This is a result of the changing inputs into the fair value model for the convertible debt for which the Company has elected the fair value option.
Income tax expense for each of the three months ended MarchJune 31,30, 2026 and 2025 was immaterial. We estimate an annual effective tax rate for the year ending December 31, 2026 of (0.070.08)% as we incurred losses for the threesix months ended MarchJune 31,30, 2026 and expect to continue to incur losses through the remainder of our fiscal year, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2026. 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.
Comparison of financial results for the six months ended June 30, 2026 and 2025
Total revenue decreased by $3.6 million, or 25%, for the six months ended June 30, 2026 to $10.6 million as compared to the six months ended June 30, 2025. This decrease in revenue is primarily attributable to lower hardware and software revenues attributable to uncertainty in our K-12 end-user markets where funding sources have been disrupted, 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.
Hardware revenue decreased by $2.5 million or 31%, to $5.7 million for the six months ended June 30, 2026, from $8.1 million for the six months ended June 30, 2025. The decrease in hardware revenue was primarily attributable to a decrease in units shipped. For the six months ended June 30, 2026 and 2025, hardware revenue as a percentage of total revenue was 53% and 57%, respectively.
Software revenue decreased $0.2 million or 5%, to $4.1 million for the six months ended June 30, 2026, from $4.3 million for the six months ended June 30, 2025. For the six months ended June 30, 2026 and 2025, software revenue as a percentage of total revenue was 39% and 31%, respectively.
Our key software retention metrics are as follows: (1) ACV as of June 30, 2026 decreased to $9.4 million as compared to June 30, 2025 of $10.9 million and (2) NDRR for the trailing twelve-month period ended June 30, 2026 was 66%, as compared to 64% for the trailing twelve-month period ended June 30, 2025.
Service revenue decreased by $0.8 million or 49%, to $0.9 million for the six months ended June 30, 2026, from $1.7 million for the six months ended June 30, 2025. The decrease in revenue was primarily attributable to decreased sales of extended warranty and technology support services and reflects the revenue recognition of expiring contracts in the first half of FY 25. For the six months ended June 30, 2026 and 2025, services revenue as a percentage of total revenue was 8% and 12%, respectively.
For the six months ended June 30, 2026, total cost of goods sold decreased by $3.0 million, or 39%, to $4.8 million compared to $7.8 million for the six months ended June 30, 2025. This decrease was primarily attributable to reduced hardware costs of $2.2 million due to fewer units sold partially, as well as reduced costs of software, services and excess and obsolete expenses during the six months ended June 30, 2026. For the six months ended June 30, 2026 and 2025, gross margin was 55% and 45%, respectively.
Cost of hardware sold decreased by $2.2 million, or 42%, to $3.1 million for the six months ended June 30, 2026, from $5.3 million for the six months ended June 30, 2025. The decrease in cost of hardware sold was primarily attributable to a decrease in the volumes shipped of Inspire laptops.
For the six months ended June 30, 2026 and 2025, hardware gross margin was 45% and 34%, respectively.
Cost of software sold decreased by $0.3 million or 20%, to $1.1 million for the six months ended June 30, 2026, from $1.4 million for the six months ended June 30, 2025. The decrease in cost of software sold corresponded to decreased sales of third-party point-in-time software and overall software application sales. For the six months ended June 30, 2026 and 2025, software gross margin was 74% and 67%, respectively.
Cost of services sold decreased by $0.3 million or 37%, to $0.5 million for the six months ended June 30, 2026, from $0.9 million for the six months ended June 30, 2025. For the six months ended June 30, 2026 and 2025, services gross margin was 38% and 49%, respectively.
Excess and obsolete expense decreased $0.2 million or 91%, to $17,000 for the six months ended June 30, 2026, from $0.2 million in the six months ended June 30, 2025. The decrease was attributable to the write-off of third-party software licenses in the three months ending June 30, 2025.
Operating Expenses
For the six months ended June 30, 2026, operating expenses decreased by $4.6 million, or 25%, to $13.5 million from $18.1 million for the six months ended June 30, 2025. The decrease in expenses was primarily due to decreased costs in personnel expenses, travel related expenses and consulting expenses and fees incurred through the six months ended June 30, 2026.
Research and development expenses decreased by $0.6 million or 24%, to $1.8 million for the six months ended June 30, 2026, from $2.4 million for the six months ended June 30, 2025. The decrease in expenses was primarily attributable to a decrease in compensation costs resulting from lower headcount.
Selling and marketing expenses decreased by $3.4 million or 42%, to $4.6 million for the six months ended June 30, 2026, from $8.0 million for the six months ended June 30, 2025. The decrease in expenses was mainly due to lower compensation and commission expenses associated with the reduced sales team and fewer sales, and less travel related expenses, reflecting decreased staff size and fewer performance-based incentives being reached.
General and administrative expenses decreased by $0.7 million or 8%, to $7.1 million for the six months ended June 30, 2026, from $7.8 million for the six months ended June 30, 2025. The decrease in expenses was primarily attributable to lower consulting related expenses primarily related to lower audit costs and the fees incurred for the issuance of convertible debt in March 2025.
Gain from settlement of vendor claims reflects a one-time settlement of litigation matters relating to former vendors, for which the vendor customer relationship has previously ceased.
Interest Expense
ZSPC insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 1 Form 4 filing (1 insider, 1 trade date, 860,716 shares, about $60.3K) and open-market sales in 1 filing (1 insider, 2 trade dates, 7,278 shares, about $513). Net open-market shares: 853,438 (purchases minus sales); net value about $59.7K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-10-01 | Pande Abhay |
Option exercise | 135 | — | — |
| 2026-10-01 | Swift Jane |
Option exercise | 135 | — | — |
| 2026-10-01 | Kellenberger Paul |
Option exercise | 1,340 | — | — |
| 2026-10-01 | Kellenberger Paul |
Option exercise | 2,680 | — | — |
| 2026-10-01 | Harper Michael S |
Option exercise | 680 | — | — |
| 2026-10-01 | Harper Michael S |
Option exercise | 1,360 | — | — |
| 2026-10-01 | Jain Amit S |
Option exercise | 135 | — | — |
| 2026-10-01 | Deoliveira Erick |
Option exercise | 680 | — | — |
| 2026-10-01 | Deoliveira Erick |
Option exercise | 164 | — | — |
| 2026-10-01 | Deoliveira Erick |
Option exercise | 1,360 | — | — |
| 2026-10-01 | Morris Joanna |
Option exercise | 135 | — | — |
| 2026-07-06 | Deoliveira Erick |
Shares withheld for tax | 792 | $0.21 | $166 |
| 2026-07-06 | Kellenberger Paul |
Shares withheld for tax | 1,443 | $0.21 | $303 |
| 2026-07-06 | Harper Michael S |
Shares withheld for tax | 498 | $0.21 | $105 |
| 2026-07-01 | Kellenberger Paul |
Option exercise | 1,340 | — | — |
| 2026-07-01 | Kellenberger Paul |
Option exercise | 2,680 | — | — |
| 2026-07-01 | Deoliveira Erick |
Option exercise | 1,360 | — | — |
| 2026-07-01 | Deoliveira Erick |
Option exercise | 164 | — | — |
| 2026-07-01 | Deoliveira Erick |
Option exercise | 680 | — | — |
| 2026-07-01 | Harper Michael S |
Option exercise | 1,360 | — | — |
| 2026-07-01 | Harper Michael S |
Option exercise | 680 | — | — |
| 2026-07-01 | Swift Jane |
Option exercise | 135 | — | — |
| 2026-07-01 | Pande Abhay |
Option exercise | 135 | — | — |
| 2026-07-01 | Jain Amit S |
Option exercise | 135 | — | — |
| 2026-07-01 | Morris Joanna |
Option exercise | 135 | — | — |
| 2026-04-16 | Aqr Capital Management Llc |
Open-market sale | 161 | $0.09 | $14 |
| 2026-04-15 | Aqr Capital Management Llc |
Open-market sale | 7,117 | $0.07 | $498 |
| 2026-04-15 | Aqr Capital Management Llc |
Open-market purchase | 860,716 | $0.07 | $60.3K |
Well-known investors holding ZSPC (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 407,930 | $46.3K | — | Sold out |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 61,756 | $7.0K | — | Sold out |