zSpace, Inc.
For the period ended Jun 30, 2026. Filed Aug 14, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2026 · Filed Aug 14, 2026
ZSPC$0.15-16.6%Stored close · as of Jul 8, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2026-03-31; filed 2026-05-15.
0001104659-26-062781
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-06-30; filed 2026-08-14.
0001104659-26-096098
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 143 previous paragraphs and 170 current paragraphs.
85 unchanged; 40 reworded; 32 added; 17 removed; 1 previous and 13 current paragraphs rearranged.
Tables are not compared: 13 previous and 17 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (32)
Current report
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.
Current report
Software revenue decreased by $0.2 million or 10%, to $2.2 million for the three months ended June 30, 2026, from $2.4 million for the three months ended June 30, 2025. For the three months ended June 30, 2026 and 2025, software revenue as a percentage of total revenue was 40% and 32%, respectively.
Current report
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.
Current report
General and administrative expenses decreased by $0.5 million or 11%, to $3.8 million for the three months ended June 30, 2026, from $4.3 million for the three months ended June 30, 2025. The decrease in expenses was primarily
Current report
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.
Current report
Gain on Extinguishment of Convertible and Other Debt
Current report
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.
Current report
(Loss) Gain on Change in Fair Value of Convertible Debt
Current report
(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.
Current report
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.
Current report
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.
Current report
For the six months ended June 30, 2026 and 2025, hardware gross margin was 45% and 34%, respectively.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
For the six months ended June 30, 2026, interest expense decreased by $0.2 million, or 27%, to $0.6 million, from $0.8 million for the six months ended June 30, 2025. The decrease in interest expense was primarily attributable to lower debt outstanding in the three months ended June 30, 2026 compared to the three months ended June 30, 2025.
Current report
Gain on Extinguishment of Convertible and Other Debt
Current report
Gain on extinguishment of convertible and other debt was approximately $4.1 million in the six months ended June 30, 2026, with no amount in the prior period.
Current report
(Loss) Gain on Change in Fair Value of Convertible Debt
Current report
(Loss) Gain on Change in Fair Value of Convertible Debt was a loss of approximately $3.6 million and a gain of approximately $0.5 million in the six 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.
Current report
Income Tax Expense
Current report
The Company had three outstanding loans through May 28, 2026 with Fiza Investments Limited, (“Fiza”) with a total outstanding principal balance of $7.2 million. On May 28, 2026, the Company converted an aggregate amount of $10,003,916, consisting of $7,201,695 in principal (the “Principal”) and $2,802,221 in accrued interest (the “Interest”) as follows (i) the Principal into shares of Common Stock at a fixed conversion price equal to $0.2385 per share, 150% of the closing price of the Common Stock on the OTC Markets on the trading day immediately preceding the Closing Date; and (ii) the Interest into shares of the newly created Series P-2 Preferred at a fixed conversion price of $1.00 per share, resulting in the issuance of 2,802,221 shares of Series P-2 Preferred to Fiza. No cash was paid in connection with the conversion. As of June 30, 2026, no amounts remain outstanding under the Fiza loans, and the Company recognized a gain on extinguishment of $3.1 million during the three and six months ended June 30, 2026.
Current report
May 28, 2026 Restructuring
Current report
On May 28, 2026, the Company and the Senior Lender entered into a Debt Restructuring Agreement pursuant to which the Senior Lender converted $2,000,000 of outstanding principal and other amounts owed into shares of common stock at a fixed conversion price of $0.2385 per share. The converted amount consisted of $789,110 under the Initial Senior Secured Convertible Note, which fully satisfied and discharged that note, with the balance drawn from interest and Make-Whole Amounts under the Additional Senior Secured Convertible Note. The Company recognized a gain on extinguishment of $1.0 million during the three and six months ended June 30, 2026. The Additional Senior Secured Convertible Note, as reduced, was amended and restated (the “Amended Note”).
Current report
Terms of the Amended Note
Current report
As of June 30, 2026, $2,000,000 of principal remained outstanding. The Senior Lender is subject to a nine-month conversion moratorium expiring February 28, 2027, after which the Amended Note is repayable in nine equal monthly installments of combined principal, interest and Make-Whole Amounts, with the final installment due November 28, 2027. The note matures March 15, 2028, was issued with a 7.0% original issue discount, accrues interest at 6.0% per annum guaranteed through maturity, and is secured by a first priority lien on substantially all of the Company's assets, including intellectual property. It is convertible at $7.00 per share, subject to a $1.25 floor price and to beneficial ownership limitations of 4.99% (9.99% on or after June 20, 2026). Installments paid in shares are priced at the lesser of the conversion price or 95% of the lowest VWAP over the preceding ten trading days.
Current report
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.
Current report
Series P and P 2 Preferred Stock
Current report
We have issued convertible Series P Preferred Stock and determined that the Series P and Series P 2 Preferred Stocks should be classified as a liability and recorded at fair value as a non-current liability as of June 30, 2026 on the condensed consolidated balance sheet. This classification reflects the embedded obligation to issue a variable number of common shares upon automatic conversion, based predominantly on a measure other than the fair value of the Company’s equity shares (the lower of the Conversion Price or 80% of the 90-Day VWAP of the Company’s common stock).
Current report
The Series P and Series P 2 Preferred Stocks are measured at fair value at each reporting date, with changes in fair value recognized in earnings. The fair value measurement incorporates the present value of all contractual cash flows, including accrued PIK dividends at the 18% stated rate through the Required Conversion date. No separate dividend accrual is recognized.
Current report
In accordance with ASC 480-10-25-14, the Company determined that the changes in fair value of the Series P and Series P 2 Preferred Stocks liability during the periods presented were primarily attributable to changes in the price of the Company’s common stock and the discount rate used in the valuation model, rather than changes in the Company's own credit risk. Accordingly, the change in fair value was recognized in consolidated net loss rather than other comprehensive income (loss). The net impact for the three months ended June 30, 2026 and 2025, was a loss of approximately $34,000 and $0, respectively. The net impact for the six months ended June 30, 2026 and 2025, was a gain of approximately $0.2 million and $0, respectively.
Removed paragraphs (17)
Previous report
Revenue
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Cost of Goods Sold
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Operating Expenses
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Interest Expense
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Revenue
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Operating Expenses
Previous report
Interest Expense
Previous report
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. On April 10, 2025, in connection with the Initial Senior Secured Convertible Note (as defined) in Note 5 – Debt and Related Party Debt to the condensed consolidated financial statements, the maturity date of the Fiza loans were amended to be the latter to occur of December 31, 2027 or the date in which there is no debt outstanding under the Senior Secured Convertible Note (as defined in Note 5 – Debt and Related Party Debt to the condensed consolidated financial statements). The repayment schedule for the Fiza loans is such that beginning on the latter to occur of December 31, 2027 or the date in which there is no debt outstanding under the Initial Senior Secured Convertible Note (the “Convertible Note Repayment Date”), the Company will repay all remaining principal and interest under the Fiza loans over twelve equal monthly installments. In addition, the interest rate of the Fiza loans dated July 11, 2024 was lowered from 25% to 20% and the Company is only required to make payments of interest under such loans until the Convertible Note Repayment Date. As of March 31, 2026 and December 31, 2025, gross principal amounts due on the Fiza term debt is $7.2 million and have been classified as non-current other term loans on the balance sheet.
Previous report
Description of the Senior Secured Convertible Notes
Previous report
The Senior Secured Convertible Notes were issued with an original issue discount of 7.0% and accrues interest at a rate of 6.0% per annum. The Initial Senior Secured Convertible Note matures on April 11, 2027, unless extended pursuant to the terms thereof. The Additional Senior Secured Convertible Note is matures on March 15, 2028, unless extended pursuant to the terms thereof. Interest on the Initial Senior Secured Convertible Note is guaranteed through April 11, 2027 regardless of whether the Initial Senior Secured Convertible Note is earlier converted or redeemed. Interest on the Additional Senior Secured Convertible Note is guaranteed through March 15, 2028 regardless of whether the Additional Senior Secured Convertible Note is earlier converted or redeemed. The Senior Secured Convertible Notes are secured by a first priority security interest in substantially all the assets of the Company, including its intellectual property.
Previous report
The Senior Secured Convertible Notes are convertible (in whole or in part) at any time prior to their maturity into the number of shares of common stok equal to (x) the sum of (i) the portion of the principal amount to be converted or redeemed, (ii) all accrued and unpaid interest with respect to such principal amount, and (iii) all accrued and unpaid late charges with respect to such principal and interest amounts, if any, divided by (y) a conversion price of $309.75 per share (for the Initial Senior Secured Convertible Note) or a conversion price of $7.00 (for the Additional Senior Secured Convertible Note) (each, the “Initial Conversion Price” and such shares issuable upon conversion of the Senior Secured Convertible Notes, the “Conversion Shares”). In addition, upon the effectiveness of the registration statement covering the resale of the Conversion Shares and before the 90 th day after the applicable closing, the Senior Lender has the right to convert up to $750,000 (or a higher amount mutually agreed upon by the parties) principal per month, priced at 97% of the lowest volume-weighted average price of the Common Stock (“VWAP”) in the 10 trading days prior to the conversion. Pursuant to the Note SPA, in certain cases, the Senior Lender must limit the selling of common stock to the higher of (i) 15% of the daily trading volume or (ii) $100,000 per trading day. At no time may the Senior Lender hold or be required to take more than 4.99% (or up to 9.99% at the election of the Senior Lender pursuant to the Senior Secured Convertible Notes) of the outstanding common stock.
Previous report
The conversion price of the Initial Senior Secured Convertible Note was subject to a floor price of $49.50, which was amended on October 15, 2025, to $15.00. The conversion price of the Additional Senior Secured Convertible Note is subject to a floor price of $1.25.
Previous report
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 during the ten consecutive trading day period ending and including the trading day immediately preceding the delivery or deemed delivery of an applicable Event of Default notice.
Previous report
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.
Previous report
Beginning 90 days after April 11, 2025, and every month thereafter, the Company must repay the Senior Lender $665,643 towards the principal balance of Initial Senior Secured Convertible Note and any accrued and unpaid interest in cash or, provided certain conditions are satisfied, shares of common stock, at the Company’s option and beginning 90 days after March 16, 2026, and every month thereafter, the Company must repay the Senior Lender $204,413 towards the principal balance of Additional Senior Secured Convertible Note and any accrued and unpaid interest in cash or, provided certain conditions are satisfied, shares of common stock, at the Company’s option (collectively, the “Installment Amount”). The Senior Lender also has the right to accelerate monthly repayment obligations by receiving shares of common stock. For any Installment Amount paid in the form of shares of common stock, the applicable conversion price will be equal to the lesser of (a) the Initial Conversion Price, and (b) 95% of the lowest VWAP in the ten trading days immediately prior to such conversion.
Previous report
In connection with a “Change of Control” (as defined in the Senior Secured Convertible Notes), the Senior Lender will have the right to require the Company to redeem all or any portion of the Senior Secured Convertible Notes in cash at a price equal to 110% times the sum of (i) the portion of the principal amount to be converted or redeemed, (ii) all accrued and unpaid interest with respect to such principal amount, (iii) a “make-whole” amount to ensure that, if paid, the Senior Lender will have received the guaranteed interest pursuant to the Note and (iv) all accrued and unpaid late charges with respect to the amounts described in (i), (ii) and (iii), if any.
Previous report
The Additional Senior Secured Convertible Note is substantially similar to the form of the Initial Senior Secured Convertible Note, except that the maturity date of the Additional Senior Secured Convertible Note is March 15, 2028, the Initial Conversion Price is $0.28 per share, and the Additional Senior Secured Convertible Note is subject to a floor price of $0.05 per share.
Reworded paragraphs (40)
Previous wording
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 three months ended March 31, 2026 and 2025, respectively.
Current wording
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 six months ended June 30, 2026 and 2025, respectively.
Previous wording
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% and 29% of our total revenue for the three months ended March 31, 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.
Current wording
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 39% and 31% of our total revenue for the six months ended June 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.
Previous wording
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% and 14% of our total revenue for the three months ended March 31, 2026 and 2025, respectively.
Current wording
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 8% and 12% of our total revenue for the six months ended June 30, 2026 and 2025, respectively.
Previous wording
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% and 29% for the three months ended March 31, 2026 and 2025, respectively, while K-12 bookings accounted for approximately 57% and 71%, for the three months ended March 31, 2026 and 2025, respectively.
Current wording
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 53% and 35% for the three months ended June 30, 2026 and 2025, respectively, while K-12 bookings accounted for approximately 47% and 65%, for the three months ended June 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.
Previous wording
Subsequent to March 31, 2025, we experienced significant cancellations ("debooks") of previously reported customer commitments that affect full year bookings performance. These debooks totaled $1.7 million for the three months ended March 31, 2025. The primary factors contributing to these debooks were customer financial constraints.
Current wording
Subsequent to June 30, 2025, we experienced significant cancellations ("debooks") of previously reported customer commitments that affect full year bookings performance. These debooks totaled $1.9 million for the six months ended June 30, 2025. The primary factors contributing to these debooks were customer financial constraints.
Previous wording
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% and 3% for the three months ended March 31, 2026 and 2025, respectively.
Current wording
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 2% for the three months ended June 30, 2026 and 2025, respectively. International bookings accounted for approximately 12% and 13% for the six months ended June 30, 2026 and 2025, respectively.
Previous wording
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 three months ended March 31, 2026 and 2025 was approximately $10.1 million and $11.6 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 March 31, 2026 and 2025, our NDRR on customers with at least $50,000 of ACV was 65% and 97%, respectively.
Current wording
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 June 30, 2026 and 2025, our NDRR on customers with at least $50,000 of ACV was 66% and 97%, respectively.
Previous wording
We calculate Adjusted EBITDA as GAAP net loss adjusted for interest expense, depreciation and amortization expense, offering costs related to financing activities, stock-based compensation, change in fair value of convertible debt, change in fair value of Series P Preferred Stock liability 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.
Current wording
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 and the change in fair value of Series P and P 2 Preferred Stock 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.
Previous wording
*Services Revenue —*We derive services revenue from implementation, professional development and technical services delivered remotely or on-site at the customer’s location and extended service type warranties. Services are either delivered by our personnel or our qualified third-party representatives. Under the third-party arrangements, we will pay the third-party for their delivery services and bill the customer directly. We will also repair our products for a fee if the nature of the repair is outside the scope of the applicable warranty, but this is not a significant source of revenue. Each service type does not significantly impact the functionality of the others, or the hardware/software being provided. Services are typically invoiced in advance and revenue is recognized based on the passage of time during the contract period. We believe that the passage of time corresponds directly to the satisfaction of the performance obligations.
Current wording
*Services Revenue —*We derive services revenue from implementation, professional development and technical services delivered remotely or on-site at the customer’s location and extended service type warranties. Services are either delivered by our personnel or our qualified third-party representatives. Under the third-party arrangements, we will pay the third-party for their delivery services and bill the customer directly. We will also repair our products for a fee if the nature of the repair is outside the scope of the applicable warranty, but this is not a significant source of revenue. Each
Previous wording
The following table sets forth our results of operations for the three months ended March 31, 2026 and 2025:
Current wording
The following table sets forth our results of operations for the three and six months ended June 30, 2026 and 2025:
Previous wording
Total revenue decreased by $1.5 million, or 22%, for the three months ended March 31, 2026 to $5.3 million as compared to the three months ended March 31, 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.
Current wording
Total revenue decreased by $2.1 million, or 28%, for the three months ended June 30, 2026 to $5.4 million as compared to the three months ended June 30, 2025. This decrease in revenue is primarily attributable to lower hardware, software and service 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.
Previous wording
Hardware revenue decreased by $1.0 million or 27%, to $2.8 million for the three months ended March 31, 2026, from $3.8 million for the three months ended March 31, 2025. The decrease in hardware revenue was primarily attributable to a decrease in units shipped. For the three months ended March 31, 2026 and 2025, hardware revenue as a percentage of total revenue was 53% and 57%, respectively.
Current wording
Hardware revenue decreased by $1.5 million or 34%, to $2.9 million for the three months ended June 30, 2026, from $4.3 million for the three months ended June 30, 2025. The decrease in hardware revenue was primarily attributable to a decrease in units shipped. For the three months ended June 30, 2026 and 2025, hardware revenue as a percentage of total revenue was 53% and 58%, respectively.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
For the three months ended March 31, 2026 and 2025, hardware gross margin was 43% and 37%, respectively.
Current wording
For the three months ended June 30, 2026 and 2025, hardware gross margin was 47% and 32%, respectively.
Previous wording
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.
Current wording
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.
Previous wording
Cost of services sold decreased by $0.2 million or 41%, to $0.3 million for the three months ended March 31, 2026, from $0.5 million for the three months ended March 31, 2025. For the three months ended March 31, 2026 and 2025, services gross margin was 44% and 53%, respectively.
Current wording
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.
Previous wording
For the three months ended March 31, 2026, operating expenses decreased by $1.9 million, or 22%, to $6.7 million from $8.6 million for the three months ended March 31, 2025. The decrease in expenses was primarily dueto decreased costs in personnel expenses, travel related expenses and consulting expenses and fees incurred through the three months ended March 31, 2026.
Current wording
For the three months ended June 30, 2026, operating expenses decreased by $2.7 million, or 29%, to $6.8 million from $9.5 million for the three months ended June 30, 2025. The decrease in expenses was primarily dueto decreased costs in personnel expenses, marketing, travel related expenses and consulting expenses and fees incurred through the three months ended June 30, 2026.
Previous wording
Research and development expenses decreased by $0.1 million or 9%, to $1.0 million for the three months ended March 31, 2026, from $1.1 million for the three months ended March 31, 2025. The decrease in expenses was primarily attributable to a decrease in compensation costs resulting from lower headcount.
Current wording
Research and development expenses decreased by $0.5 million or 36%, to $0.8 million for the three months ended June 30, 2026, from $1.3 million for the three months ended June 30, 2025. The decrease in expenses was primarily attributable to a decrease in compensation costs resulting from lower headcount.
Previous wording
Selling and marketing expenses decreased by $1.6 million or 40%, to $2.4 million for the three months ended March 31, 2026, from $4.0 million for the three months ended March 31, 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.
Current wording
Selling and marketing expenses decreased by $1.8 million or 45%, to $2.2 million for the three months ended June 30, 2026, from $3.9 million for the three 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.
Previous wording
For the three months ended March 31, 2026, interest expense decreased by $0.2 million, or 31%, to $0.3 million, from $0.5 million for the three months ended March 31, 2025. The decrease in interest expense was primarily attributable to a lower interest rate on the convertible debt entered into in April 2025 compared to the debt paid off with a portion of the proceeds from the convertible debt.
Current wording
For the three months ended June 30, 2026, interest expense decreased by $0.1 million, or 20%, to $0.2 million, from $0.3 million for the three months ended June 30, 2025. The decrease in interest expense was primarily attributable to lower debt outstanding in the three months ended June 30, 2026 compared to the three months ended June 30, 2025.
Previous wording
Income tax expense for each of the three months ended March 31, 2026 and 2025 was immaterial. We estimate an annual effective tax rate for the year ending December 31, 2026 of (0.07)% as we incurred losses for the three months ended March 31, 2026 andexpect 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.
Current wording
Income tax expense for each of the three months ended June 30, 2026 and 2025 was immaterial. We estimate an annual effective tax rate for the year ending December 31, 2026 of (0.08)% as we incurred losses for the six months ended June 30, 2026 andexpect 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.
Previous wording
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.
Current wording
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.
Previous wording
General and administrative expenses decreased by $0.2 million or 5%, to $3.3 million for the three months ended March 31, 2026, from $3.5 million for the three months ended March 31, 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.
Current wording
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.
Previous wording
For the three months ended March 31, 2026, our operating activities used cash of $3.0 million, primarily due to our net loss of $6.6 million and the changes in our operating assets and liabilities of $0.5 million, partially offset by adjustments for non-cash charges, including stock-based compensation expense of $1.6 million, the change in fair value of convertible debt of $2.0 million, non-cash amortization of debt discount of $0.1 million, and bad debt expense of $30,000. The change in our operating assets and liabilities was primarily the result of an increase in accounts receivable of $1.2 million and prepaid and other assets of $0.3 million and a decrease in accounts payable of $0.2 million, partially offset by the change in fair value of the Series P Preferred Stock liability of $0.2 million, a decrease in inventory of $0.4 million and an increase in accrued expenses of $0.2 million, deferred revenue of $0.5 million and accrued interest of $0.3 million.
Current wording
For the six months ended June 30, 2026, our operating activities used cash of $5.0 million, primarily due to our net loss of $6.3 million, the gain on extinguishment of debt of $4.1 million, the gain from settlements of vendor claims of $1.2 million, the change in fair value of the Series P Preferred Stock liability of $0.2 million and the changes in our operating assets and liabilities of $0.2 million, partially offset by adjustments for non-cash charges, including stock-based compensation expense of $3.1 million, the change in fair value of convertible debt of $3.6 million, non-cash amortization of debt discount of $0.1 million, and bad debt expense of $47,000. The change in our operating assets and liabilities was primarily the result of an increase in accounts receivable of $1.2 million and an increase in prepaid expenses and other assets of $0.2 million and a decrease in accounts payable of $0.1 million and accrued expenses of $0.1 million, partially offset by a decrease in inventory of $0.4 million and other assets of $2,000, and an increase in deferred revenue of $0.9 million and accrued interest of $0.2 million.
Previous wording
For the three months ended March 31, 2025, our operating activities used cash of $4.6 million, primarily due to our net loss of $5.8 million partially offset by changes in our operating assets and liabilities of $0.2 million and adjustments for non-cash charge, including stock-based compensation expense of $1.0 million. The change in our operating assets and liabilities was primarily the result of a decrease in inventory of $1.2 million and an increase in accounts payable of $0.4 million, and accrued interest of $0.3 million, partially offset by an increase in accounts receivable of $0.7 million and prepaid expenses and other assets of $0.7 million, and a decrease in accrued expenses of $0.2 million, deferred revenue of $0.5 million and accrued interest of $0.3 million.
Current wording
For the six months ended June 30, 2025, our operating activities used cash of $11.6 million, primarily due to our net loss of $11.9 million, the change in fair value of convertible debt of $0.5 million and changes in our operating assets and liabilities of $2.2 million, partially offset by adjustments for non-cash charges, including stock-based compensation expense of $2.8 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 accounts receivable of $1.5 million and prepaid and other assets of $1.2 million and a decrease in accounts payable of $0.4 million, partially offset by a decrease in inventory of $0.5 million and an increase in deferred revenue of $0.1 million and accrued interest of $0.4 million.
Previous wording
For the three months ended March 31, 2026 and 2025, net cash used in investing activities was immaterial due to our low capital equipment requirements.
Current wording
For the six months ended June 30, 2026 and 2025, net cash used in investing activities was immaterial due to our low capital equipment requirements.
Previous wording
For the three months ended March 31, 2026, net cash provided by financing activities was $4.9 million primarily due to proceeds from convertible debt of $4.0 million, proceeds from other debt issuances of $1.3 million, proceeds from issuance of common stock from equity line-of-credit of $0.1 million, and proceeds from issuance of Preferred Stock Series P of $3.0 million partially offset by repayment of convertible debt of $2.0 million and other debt issuances of $1.6 million.
Current wording
For the six months ended June 30, 2026, net cash provided by financing activities was $4.9 million primarily due to proceeds from convertible debt of $4.0 million, proceeds from other debt issuances of $1.3 million, proceeds from issuance of common stock from equity line-of-credit of $0.1 million, and proceeds from issuance of Preferred Stock Series P of $3.0 million partially offset by repayment of convertible debt of $1.8 million and other debt issuances of $1.7 million.
Previous wording
For the three months ended March 31, 2025, net cash provided by financing activities was $1.0 million due to proceeds from other term debt issuances of $2.0 million partially offset by repayment of other debt issuances of $1.0 million, and fees paid for debt issuance of $30,000.
Current wording
For the six months ended June 30, 2025, net cash provided by financing activities was$8.3 million primarily due to proceeds from convertible debt of $13.0 million, other debt issuances of $2.0 million, and proceeds from exercise of stock options of $0.1 million partially offset by repayment of other debt issuances of $6.8 million, and fees paid for debt issuance of $30,000.
Previous wording
As of March 31, 2026 and December 31, 2025, we had an accumulated deficit of $322.3 million and $315.8 million, respectively. Our net losses were $6.6 million and $5.8 million for the three months ended March 31, 2026 and 2025, respectively.
Current wording
As of June 30, 2026 and December 31, 2025, we had an accumulated deficit of $322.1 million and $315.8 million, respectively. Our net losses were $6.3 million and $11.9 million for the six months ended June 30, 2026 and 2025, respectively.
Previous wording
As of March 31, 2026 and December 31, 2025, we had cash and cash equivalents of $2.9 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 ended March 31, 2026 elsewhere in this report for additional information. In the three months ended March 31, 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, uncertainties frequently encountered by companies in the technology industry and the dependency on closing this offering 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 to our condensed consolidated financial statements for the three months ended March 31, 2026 included elsewhere in this report for additional information on our assessment.
Current wording
As of June 30, 2026 and December 31, 2025, we had cash and cash equivalents of $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 ended June 30, 2026 elsewhere in this report for additional information. In the three months ended June 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. 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 to our condensed consolidated financial statements for the three months ended June 30, 2026 included elsewhere in this report for additional information on our assessment.
Previous wording
During the three months ended March 31, 2026, we incurred a net loss of $6.6 million, had Adjusted EBITDA of ($2.1) million and had negative cash flows from operations of $3.0 million. For the years ended December 31, 2025, we incurred a net loss of $25.4 million, and incurred negative cash flows from operations of $18.0 million. We had combined cash and cash equivalents of $2.9 million and $1.0 million as of March 31, 2026 and December 31, 2025, respectively. We have incurred operating losses and negative cash flows from operations since inception. Our prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the technology industry. These risks include, but are not limited to, the uncertainty of successfully developing our products, availability of additional financing, gaining customer acceptance and uncertainty of achieving future profitability among other factors discussed under “Cautionary Note Regarding Forward - Looking Statements”. Our success depends on the outcome of our research and development activities, scale-up and successful partnering and commercialization of our products and product candidates. In February 2025, we entered into two Loan and Security agreements that provided us with $2.0 million in financing. In April 2025, we entered into a convertible debt agreement that may provide us with up to $20.0 million in financing. In July 2025, we entered into an equity line-of-credit agreement that may provide us with up to $30.0 million in equity. In August 2025, we entered into new debt loans that provided us with $2.0 million in financing.
Current wording
During the six months ended June 30, 2026, we incurred a net loss of $6.3 million, had Adjusted EBITDA of ($3.0) million and had negative cash flows from operations of $5.0 million. For the years ended December 31, 2025, we incurred a net loss of $25.4 million, and incurred negative cash flows from operations of $18.0 million. We had combined cash and cash equivalents of $0.9 million and $1.0 million as of June 30, 2026 and December 31, 2025, respectively. We have incurred operating losses and negative cash flows from operations since inception. Our prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the technology industry. These risks include, but are not limited to, the uncertainty of successfully developing our products, availability of additional financing, gaining customer acceptance and uncertainty of achieving future profitability among other factors discussed under “Cautionary Note Regarding Forward - Looking Statements”. Our success depends on the outcome of our research and development activities, scale-up and successful partnering and commercialization of our products and product candidates. In February 2025, we entered into two Loan and Security agreements that provided us with $2.0 million in financing. In April 2025, we entered into a convertible debt agreement that may provide us with up to $20.0 million in financing. In July 2025, we entered into an equity line-of-credit agreement that may provide us with up to $30.0 million in equity. In August 2025, we entered into new debt loans that provided us with $2.0 million in financing.
Previous wording
We have historically funded our operations through the issuance of common stock and preferred stock to private investors, our IPO in December 2024, and debt financing. Our accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business. The recurring losses and negative cash flows from operations, working capital deficiency, the need for additional financing, uncertainties frequently encountered by companies in the technology industry and the dependency on closing this offering are factors that raise substantial doubt about our ability to continue as a going concern for the twelve-month period from the date the financial statements included herein were issued. The conditions identified above raise substantial doubt about our ability to continue as a going concern. Our condensed consolidated financial statements do not contain any adjustments that might result if we are unable to continue as a going concern.
Current wording
We have historically funded our operations through the issuance of common stock and preferred stock to private investors, our IPO in December 2024, and debt financing. Our accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business. The recurring losses and negative cash flows from operations, working capital deficiency, the need for additional financing, and uncertainties frequently encountered by companies in the technology industry are factors that raise substantial doubt about our ability to continue as a going concern for the twelve-month period from the date the financial statements included herein were issued. The conditions identified above raise substantial doubt about our ability to continue as a going concern. Our condensed consolidated financial statements do not contain any adjustments that might result if we are unable to continue as a going concern.
Previous wording
On April 10, 2025, the Company entered into a securities purchase agreement (the “Note SPA”) with an investor, (the “Senior Lender”), pursuant to which the Company sold, and the Senior Lender purchased, a senior secured convertible note issued by the Company (the “Initial Senior Secured Convertible Note,” and such financing, the “Senior Secured Convertible Note Financing”) in the original principal amount of $13,978,495, which is convertible into shares of the Company’s common stock. The Senior Secured Convertible Note Financing initially closed on April 11, 2025. The gross proceeds to the Company from the Initial Senior Secured Convertible Note Financing, prior to the payment of legal fees and transaction expenses, was $13,000,000.
Current wording
On April 10, 2025, the Company entered into a securities purchase agreement (the “Note SPA”) with an investor, (the “Senior Lender”), pursuant to which the Company sold, and the Senior Lender purchased, a senior secured convertible note issued by the Company (the “Initial Senior Secured Convertible Note,” and such financing, the “Senior Secured Convertible Note Financing”) in the original principal amount of $13,978,495, which is convertible into shares of the Company’s common stock. The Senior Secured Convertible Note Financing initially closed on April 11, 2025. The gross proceeds to the Company from the Initial Senior Secured Convertible Note Financing, prior to the payment of legal fees and transaction expenses, was $13,000,000. All obligations under the Initial Senior Secured Convertible Note were satisfied and discharged on May 28, 2026, as described below.
Previous wording
Subject to the satisfaction of certain conditions contained in the Note SPA (including mutual agreement by the Company and the Senior Lender), the Company may issue additional senior secured convertible note to the Note Investor in the principal amount of $3,225,807 (for additional gross proceeds of $3,000,000).
Current wording
Subject to the satisfaction of certain conditions contained in the Note SPA (including mutual agreement by the Company and the Senior Lender), the Company may issue an additional senior secured convertible note to the lender in the principal amount of $3,225,807 (for additional gross proceeds of $3,000,000).
Previous wording
Our principal commitments consist of obligations for office space under a non-cancelable operating lease that expires in October 2027, as well as repayment of borrowings under other financing arrangements as described above under*“— Liquidity and Capital Resources — Debt and Financing Arrangements*.” In addition, we have agreements with certain hardware suppliers to purchase inventory; as of March 31, 2026, we had approximately $16.2 million in purchase obligations outstanding under such agreements, all of which are scheduled to come due on or before December 31, 2026.
Current wording
Our principal commitments consist of obligations for office space under a non-cancelable operating lease that expires in October 2027, as well as repayment of borrowings under other financing arrangements as described above under*“— Liquidity and Capital Resources — Debt and Financing Arrangements*.” In addition, we have agreements with certain hardware suppliers to purchase inventory; as of June 30, 2026, we had approximately $16.5 million in purchase obligations outstanding under such agreements, all of which are scheduled to come due on or before December 31, 2026.
Previous wording
We recognize revenue from signed contracts with customers, change orders (approved and unapproved) and claims on those contracts that we conclude to be enforceable under the terms of the signed contracts. Some of our contracts have one clearly identifiable performance obligation. However, many contracts provide the customer several promises that include hardware, software and professional services. The determination of the number of performance obligations in a contract requires significant judgment and could change the timing of the amount of revenue recorded for a given period.
Current wording
We recognize revenue from signed contracts with customers, change orders (approved and unapproved) and claims on those contracts that we conclude to be enforceable under the terms of the signed contracts. Some of our contracts have one clearly identifiable performance obligation. However, many contracts provide the customer several promises that
Previous wording
taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we will make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
Current wording
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we will make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
Rearranged current paragraphs (13)
Current report — wording carried from elsewhere
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 six months ended June 30, 2026 and 2025 was approximately $9.4 million and $10.9 million, respectively. We calculate our
Current report — wording carried from elsewhere
service type does not significantly impact the functionality of the others, or the hardware/software being provided. Services are typically invoiced in advance and revenue is recognized based on the passage of time during the contract period. We believe that the passage of time corresponds directly to the satisfaction of the performance obligations.
Current report — wording carried from elsewhere
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 June 2025.
Current report — wording carried from elsewhere
Comparison of financial results for the six months ended June 30, 2026 and 2025
Current report — wording carried from elsewhere
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 sixmonths 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.
Current report — wording carried from elsewhere
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.
Current report — wording carried from elsewhere
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.
Current report — wording carried from elsewhere
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.
Current report — wording carried from elsewhere
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.
Current report — wording carried from elsewhere
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 dueto decreased costs in personnel expenses, travel related expenses and consulting expenses and fees incurred through the six months ended June 30, 2026.
Current report — wording carried from elsewhere
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.
Current report — wording carried from elsewhere
Income tax expense for each of the six months ended June 30, 2026 and 2025 was immaterial. We estimate an annual effective tax rate for the year ending December 31, 2026 of (0.08)% as we incurred losses for the six months ended June 30, 2026 andexpect 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.
Current report — wording carried from elsewhere
include hardware, software and professional services. The determination of the number of performance obligations in a contract requires significant judgment and could change the timing of the amount of revenue recorded for a given period.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing