zSpace, Inc.

Our Company

We are a leading provider of augmented reality (AR) and virtual reality (VR) 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 Career & Technical Education (CTE) markets. Our proprietary hardware and software platform provides the unique ability to deliver an interactive, stereoscopic three-dimensional (3D) learning experience to our users without the need to utilize VR goggles or specialty glasses. Our hands-on “learning by doing” solutions have been shown to enhance the learning process and drive higher student test scores, as evidenced by a study on the utility of 3D virtual reality technologies for student knowledge gains published in the Journal of Computer Assisted Learning in 2021. We allow students and teachers to experience learning in the classroom that may otherwise be dangerous, impossible, counterproductive, or expensive using traditional techniques. Our platform serves a broad range of critical educational tools designed for K-12 science, technology, engineering and math (STEM) lessons as well as training skilled trades in areas such as health sciences, automotive engineering/repair, Unity3D® software programming and advanced manufacturing.

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, 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. We believe the applicability of our platform in education environments provides an opportunity for significant scale.

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 execution across a carefully selected set of growth vectors, including scaling in the United States, expanding internationally, investing in research and development (“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.

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. You can find additional information on our website atwww.zspace.com. The information contained on, or that can be accessed through, our website is not part of, and is not incorporated into, this Annual Report on Form 10-K.

Our Industry and Market Opportunity

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.

According to market analysis by Grand View Research, the global education technology market was valued at $142.4 billion in 2023 and is expected to grow at a compound annual growth rate (CAGR) of 13.6% from 2023 to 2030. Further, according to Insight Partners, the global AR, VR and mixed reality market is expected to grow at a 37% CAGR to $252 billion by 2028 compared to $28 billion in 2021. Markets and Markets Research predicts that spending on AR and VR in the education market globally will grow to $14.2 billion by 2028 (CAGR of 30% from 2023).

Over the past several years, a significant portion of our revenue was generated in the United States. For the year ended December 31, 2023, our revenue in the United States was $38.7 million and our revenue outside of the United States was $5.2 million, representing 88% and 12% of our total revenue, respectively. For the year ended December 31, 2024, our revenue in the United States was $33.5 million and our revenue outside of the United States was $4.6 million, representing 88% and 12% of our total revenue, respectively. In 2023, our revenue in China was $2.8 million, representing 6% of our total revenue and in 2024, our revenue in China was $0.9 million, representing 2% of our total revenue. We are in the process of focusing on expanding our business in the United States and elsewhere, and we expect the percentage of our total revenue generated from China in 2025 to be lower than in 2024.

Our Learning Platform

Key elements of our platform include:

The ability for users to easily understand abstract concepts. Our products have the ability to deliver an interactive, autostereoscopic 3D experience, allowing students to interact directly with complex, spatial, and abstract concepts. Our products integrate the latest AR/VR technology with science, math, and career training applications that empower students to learn in a 3D world without the fear of making mistakes.

An immersive 3D experience using familiar hardware. Traditionally, AR/VR technology has required complicated hardware, including glasses or goggles, that is difficult to incorporate into a classroom setting and limits collaboration. Our 3D experience uses a laptop without the need for any external eyewear. Using our patented hand-held stylus device, which functions like a pen, interactions are designed to be simple and familiar so customers can feel more comfortable bringing the latest technology into classrooms. Our platform is designed to work with natural gestures and movements to allow learners to manipulate objects in a 360-degree experience outside the confines of the screen.

Effective kinesthetic learning tools. Our products leverage hands on, kinesthetic learning (i.e., using body movements to interact with learning environments). With built-in eye-tracking technology and our patented hand-held stylus device, learners naturally move their heads and rotate their wrists as they pick-up, dissect, and interact with virtual objects. We believe that engaging tactile learning with movement, testing, and trial and error in a non-traditional learning environment can support retention and recall of information.

Our Products

Our platform consists of three key components — proprietary hardware, software and services.

Our hand-held stylus device is designed to leverage the experience all students have with using a pen/ pencil. It is sized to be comfortable for both adult and child users when held like a pen/pencil in either the right or left hand. Because the stylus is wired, charging is unnecessary and removal of the stylus from our devices is discouraged. The stylus also supports haptic feedback, allowing applications to provide a physical response to engaging in the learning process, enhancing realism and providing distinct feedback to the user.

Our Competitive Strengths

We believe that we have a number of competitive strengths that will enable us to grow our business. Our competitive strengths include:

grade learners and college students. Our growing range of software content, developed both in house and by third-party software developers, includes hundreds of STEM, Game Design and CTE lessons, including Physical Science, Math, Health, Automotive, Unity3D® Programming, and Advanced Manufacturing.

Our Growth Strategies

We believe that we have significant growth potential. We believe 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. These include:

Our Customers

We sell to education institutions, ranging from K-12 schools to community colleges, technical colleges and trade colleges, both directly and through our resellers. The majority of our customer base is comprised of United States public school districts, who purchase products as a primary K-12 educational tool and also to support career training education at the higher grade levels. With a customer base of over 3,500 United States public school districts as well as a growing number of community colleges and other technical institutions, we believe we are well positioned to strengthen our educational brand and increase our penetration in the education market. We have multi-year relationships with many of the largest public school districts in the United States. 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. We expect our global user base to continue to grow as we seek to further establish our platform as the standard for innovative hands-on, experiential learning using evidence-based AR/VR technology.

Our Principal Suppliers

We rely on certain third parties to produce our hardware and software in connection with our platform and solutions. In particular, in August 2021, we entered into an agreement to work with a major PC OEM to build our Inspire laptop for us, which allowed us to leverage the OEM’s supply chain network. In 2023, we entered into an agreement with another PC OEM for the manufacture of an additional laptop product. In addition, we rely upon a third-party partner located in China to manufacture our stylus. Certain components of our stylus sensor module are sourced in Asia and manufactured in the United States.

Sales and Marketing

We believe we have developed a scalable go-to-market business built upon the strength of our platform and a targeted sales approach designed for education customers. We have deployed a multi-channel sales approach to reach potential customers. In general, in the United States, we employ a combination of a direct sales approach and a channel partner approach to expand our reach with the aim of providing a frictionless, convenient purchase process for customers. In international markets, we exclusively utilize an indirect partner go-to-market approach, and we have found that these third-party resellers offer strong relationships in particular schools or geographies. We believe this structure allows us to market our solutions effectively and efficiently to public schools of all sizes across the world.

Competition

The markets that we serve are highly competitive. In our experience, potential buyers in the United States K-12 market are typically not evaluating an alternative AR/VR technology purchase, but rather whether to use any available funding for our products or for an entirely different class of purchase, such as student safety, IT products or standard computing devices. In the CTE market, we compete with physical training solutions, for example welding simulators. Additionally, potential customers might evaluate our products against a non-immersive alternative such as a 2D human anatomy web-based experience rather than the immersive content available on our platform.

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 are currently not aware of any other companies producing or selling solutions substantially similar to our products.

We believe that these alternatives either do not address or only address a portion of the functionality and value that our platform can provide for the education market, and in many cases these alternatives introduce challenges in the education environment. For example, head mounted displays technology is by definition isolating for the user, “removing” the learner from the teacher and other students and limiting the ability to collaborate or engage with others during the learning process. Those devices often also carry age warnings, limiting their use to students in higher grade levels. They also often require limiting the time used by a student to just a few minutes as a result of potential nausea or discomfort that can occur when used for longer periods of time. The content available on head-mounted displays is also often designed for an individual learner, which can be difficult for a teacher to integrate into their curriculum and deliver as a classroom experience. Collaboration within the classroom is also very difficult with the head-mounted displays.

Research and Development

Our R&D team is headquartered in San Jose, California, with engineering resources situated throughout the United States. The R&D team has extensive experience in many key engineering disciplines including electrical engineering, firmware development, software application development and quality assurance.

Intellectual Property

Our ability to drive innovation in our business depends in part upon our ability to protect our core technology and intellectual property. We attempt to protect our intellectual property rights, both in the United States and abroad, through a combination of patent, trademark, copyright and trade secret laws, as well as nondisclosure and invention assignment agreements with our consultants and employees and through non-disclosure agreements with our commercial partners and vendors. Unpatented research, development, know-how and engineering skills make an important contribution to our business, but we pursue patent protection when we believe it is possible and consistent with our overall strategy for safeguarding intellectual property.

As of December 31, 2024, we had 74 United States patents issued, six United States patent applications that are pending, 20 foreign patents that have been issued, and eight foreign patent applications that are pending.

Human Capital Resources

Our employees are critical to our success. As of December 31, 2024, we had 78 full-time employees. We also employ part-time subject matter experts and engage consultants and contractors to supplement our permanent workforce.

To date, we have not experienced any work stoppages and consider our relationship with our employees to be in good standing. None of our employees are represented by a labor union or subject to a collective bargaining agreement.

Our board of directors oversees matters relating to managing our human capital resources. Our human capital resources objectives include identifying, recruiting, retaining, incentivizing and integrating our existing and additional employees. We believe we offer competitive compensation and benefits packages, the principal purposes of which are to attract, retain and motivate our employees.

Facilities

Our corporate headquarters is located in a leased facility in San Jose, California. The facility is approximately 6,464 square feet, and our lease of this facility expires in January 2026. We believe this facility is adequate for the needs of our business.

Government Regulation

We are subject to various laws, regulations and permitting requirements of federal, state and local authorities, including those related to the education industry, conducting business on the Internet, data privacy and data security, export controls and other laws and regulations of general applicability to employers and companies in general.

We are further subject to various trade restrictions, including economic sanctions and export controls, imposed by governments around the world with jurisdiction over our operations. For example, in accordance with trade controls and economic sanctions administered by the United States Department of Treasury’s Office of Foreign Assets Control and the United States Department of Commerce, we are prohibited from engaging in certain transactions involving certain persons (individuals and entities) and certain designated countries or territories, including Cuba, Iran, Syria, North Korea, as well as the Crimea, Donestsk People’s Republic and Luhansk People’s Republic regions of Ukraine. In addition, our products are subject to export regulations that can involve significant compliance and administrative time to address. In recent years the United States government has a renewed focus on export matters. Our current and future products may be subject to these heightened regulations, which could increase our compliance costs. We are subject to anti-corruption laws and regulations imposed by governments around the world with jurisdiction over our operations, including the United States Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, as well as the laws of the countries where we do business.

The costs of complying with these laws and regulations are high and likely to increase in the future, as our business grows and our geographic scope expands. Further, the impact of these laws and regulations may disproportionately affect our business in comparison to our peers in the education technology sector that have greater resources. Any failure on our part to comply with these laws and regulations may subject us to significant liabilities or penalties, or otherwise adversely affect our business, financial condition or operating results. Further, it is possible that certain governments may seek to block or limit our products or otherwise impose other restrictions that may affect the accessibility or usability of any or all our products for an extended period of time or indefinitely.

Item 1A. Risk Factors