zSpace, Inc.

Previous wording

We are a leading provider of augmented and virtual reality educational technology solutions. We believe that we are a recognized brand in the education market with a current focus on both United States K-12 schools and the CTE markets.

Current wording

We are a leading provider of augmented and virtual reality educational technology solutions. We believe that we are a recognized brand in the education market with a current focus on both United States K-12 schools and the Career and Technical Education (“CTE”) markets.

Previous wording

From a technology perspective, graphics and speed of computing have increased exponentially over time, but the physical computing experience has remained largely static since the introduction of the mouse and touchscreen in the 1980s. We believe limiting the user experience to the confines of a screen creates inherent limitations such as slowing technological breakthroughs, discouraging engagement and hampering creativity, particularly when utilizing technology as a learning tool. We were founded with the goal of eliminating that barrier between students and content and reinventing the student experience. We hope to accomplish this through a range of proprietary innovations in hardware and software that comprise the foundation of our educational platform. We believe that these innovations help to eliminate a barrier between digital content and students so that students can be immersed in content: manipulate it, experience it, and interact with it as if it were real. We sell our platform directly to United States school districts, both as a primary educational tool in K-12 classrooms and as a career training solution for higher grade levels, as well as to community college customers through both a direct sales and support team as well as regional resellers. Internationally, we rely exclusively on resellers to bring our products to those markets. Today, our platform is implemented in more than 3,500 of the approximately 13,000 United States public school districts. Our K-12 platform is currently deployed in over 80% of the largest 100 K-12 public school districts in the United States, as measured by student enrollment, and our CTE solutions have been deployed in approximately 73% of those public school districts we serve. Our CTE solutions have also been deployed in approximately 2% of United States community and technical colleges. In addition, we have partnered with over 25 resellers and have expanded our customer network into over 50 countries.

Current wording

Graphics and speed of computing have increased exponentially over time, but the physical computing experience has remained largely static since the introduction of the mouse and touchscreen in the 1980s. We believe limiting the user experience to the confines of a screen creates inherent limitations such as slowing technological breakthroughs, discouraging engagement and hampering creativity, particularly when utilizing technology as a learning tool. We were founded with the goal of eliminating that barrier between students and content and reinventing the student experience. We hope to accomplish this through a range of proprietary innovations in hardware and software that comprise the foundation of our educational platform. We believe that these innovations help to eliminate a barrier between digital content and students so that students can be immersed in content: manipulate it, experience it, and interact with it as if it were real. We sell our platform directly to United States school districts, both as a primary educational tool in K-12 classrooms and as a career training solution for higher grade levels, as well as to community college customers through both a direct sales and support team as well as regional resellers. Internationally, we rely exclusively on resellers to bring our products to those markets. Today, our platform is implemented in more than 3,500 of the approximately 13,000 United States public school districts. Our K-12 platform is currently deployed in over 80% of the largest 100 K-12 public school districts in the United States, as measured by student enrollment, and our CTE solutions have been deployed in approximately 73% of those public school districts we serve. Our CTE solutions have also been deployed in approximately 2% of United States community and technical colleges. In addition, we have partnered with over 25 resellers and have expanded our customer network into over 50 countries.

Previous wording

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,

Current wording

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

Previous wording

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.

Current wording

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.

Previous wording

We generate revenue by selling hardware, software and services to customers, who are primarily K-12 schools, as well as community colleges, technical colleges and trade colleges. Our hardware product includes our flagship product, the Inspire laptop which works together with our patented stylus product to create an interactive AR/VR experience. Our software consists of a series of educational applications that run on our hardware to provide interactive experiences. Our

Current wording

We generate revenue by selling hardware, software and services to customers, who are primarily K-12 schools, as well as community colleges, technical colleges and trade colleges. Our hardware product includes our flagship product, the Inspire laptop which works together with our patented stylus product to create an interactive AR/VR experience. Our software consists of a series of educational applications that run on our hardware to provide interactive experiences. Our services consist of support services from our professional development team. We are focused on driving substantial annual growth in software applications revenue and product revenue while maintaining modest growth in services revenue.

Previous wording

Our platform is designed to work with a wide range of learning applications, for both K-12 education and CTE, that come to life by having 3D models projected out of the screen. Our flagship product is the Inspire line of products, our latest laptop product built in partnership with a major PC OEM. It is our first product offering 3D stereo visualization without the need to utilize glasses/eyewear. Our initial original edition product offerings (OE) used a proprietary passive circular polarized display to create comfortable 3D stereo using lightweight eyewear. We are no longer producing our OE products, although we continue to sell existing inventory outside of the US. Product revenue accounted for 57% and 66% of our total revenue for the three months ended March 31, 2025 and 2024, respectively.

Current wording

Our platform is designed to work with a wide range of learning applications, for both K-12 education and CTE, that come to life by having 3D models projected out of the screen. Our flagship product is the Inspire line of products, our latest laptop product built in partnership with a major PC OEM. It is our first product offering 3D stereo visualization without the need to utilize glasses/eyewear. Our initial original edition product offerings (OE) used a proprietary passive circular polarized display to create comfortable 3D stereo using lightweight eyewear. We are no longer producing our OE products, although we continue to sell existing inventory outside of the US. Product revenue accounted for 57% and 61% of our total revenue for the six months ended June 30, 2025 and 2024, 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 29% and 25% of our total revenue for the three months ended March 31, 2025 and 2024, 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 31% and 30% of our total revenue for the six months ended June 30, 2025 and 2024, 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

Our services are a “turn-key” solution that aids customers with configuring purchased products with software and license keys specific to the customer’s use. This service allows the applicable school to quickly get started with an out-of-the-box ready system. 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 14% and 9% of our total revenue for the three months ended March 31, 2025 and 2024, respectively.

Current wording

Our services are a “turn-key” solution that aids customers with configuring purchased products with software and license keys specific to the customer’s use. This service allows the applicable school to quickly get started with an out-of-the-box ready system. 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 12% and 9% of our total revenue for the six months ended June 30, 2025 and 2024, 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 29% and 35% for the three months ended March 31, 2025 and 2024, respectively, while K-12 bookings accounted for approximately 71% and 65%, for the three months ended March 31, 2025 and 2024, 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 35% and 28% for the three months ended June 30, 2025 and 2024, respectively, while K-12 bookings accounted for approximately 65% and 72%, for the three months ended June 30, 2025 and 2024, respectively. CTE bookings accounted for approximately 32% and 30% for the six months ended June 30, 2025 and 2024, respectively, while K-12 bookings accounted for approximately 68% and 70%, for the six months ended June 30, 2025 and 2024, respectively.

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 23% and 30% for the three months ended March 31, 2025 and 2024, respectively.

Current wording

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 2% and 3% for the three months ended June 30, 2025 and 2024, respectively. International bookings accounted for approximately 13% and 10% for the six months ended June 30, 2025 and 2024, respectively.

Previous wording

Our ability to increase revenue depends in part on retaining our existing customers and expanding their use of our platform. We offer an integrated, comprehensive set of solutions that cover K-12/STEM and CTE. We have a variety of

Current wording

Our ability to increase revenue depends in part on retaining our existing customers and expanding their use of our platform. We offer an integrated, comprehensive set of solutions that cover K-12/STEM and CTE. We have a variety of software bundles targeted at different areas of learning and grade levels. Retaining and expanding our existing customer base is critical to our success.

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 annualized contract value (“ACV”). Our ACV for the three months ended March 31, 2025 and 2024 was approximately $11.6 million and $10.6 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, 2025 and 2024, our NDRR on customers with at least $50,000 of ACV was 97% and 112%, respectively.

Current 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 annualized contract value (“ACV”). Our ACV for the six months ended June 30, 2025 and 2024 was approximately $10.9 million and $9.9 million, respectively. We calculate our Dollar-Based Retention Rate as of a given period end by starting with the ACV from all customers as of 12 months prior to such period end (“Prior Period ACV”) and calculating the ACV from these same customers as of the current period end (“Current Period ACV”). Current Period ACV includes any upsells and is net of contraction or attrition over the trailing 12 months but excludes revenue from new customers in the current period. We then divide the total Current Period ACV by the total Prior Period ACV to arrive at our Dollar- Based Retention Rate. For the trailing twelve-month period ended June 30, 2025 and 2024, our NDRR on customers with at least $50,000 of ACV was 131% and 104%, respectively.

Previous wording

We measure the ACV dollar-weighted term length of our renewable software license agreements. We believe, an increase in term length is a signal that customers are adopting our products for long-term use, which decreases the risk that a customer will choose not to renew their software licenses. CTE agreements are typically longer-term than K-12 agreements, and as a result, the dollar-weighted term length measure can reflect a mix shift of license agreements between these product lines.

Current wording

We measure the ACV dollar-weighted term length of our renewable software license agreements. We believe, an increase in term length is a signal that customers are adopting our products for long-term use, which decreases the risk that a customer will choose not to renew their software licenses. CTE agreements are typically longer-term than K-12

Previous wording

Prior to our most recent laptop product, Inspire, we worked exclusively with tier-one Original Development Manufacturers (“ODMs”) to manufacture our products. In 2021, we made the strategic decision to partner with a major PC OEM, working together to build Inspire, a proprietary laptop product, which allowed us to leverage the OEM’s supply chain network and volumes. As of March 31, 2025, approximately 19,400 Inspires have been shipped under our agreement with this PC OEM. Our master agreement with our PC OEM partner is subject to an initial one-year term, with automatic renewal for subsequent one-year terms. Either party is permitted to terminate the agreement upon written notice delivered to the other party not later than three months prior to the expiration of the applicable term. During 2023, we entered into an agreement with another PC OEM for the manufacture of an additional laptop product. If either PC OEM decided to discontinue their relationship with us, our business could be materially and adversely impacted. We also rely upon one third-party partner located in China to manufacture our stylus. If our manufacturing partners that we rely upon decide to discontinue their relationship with us and we are unable to replace such parties on similar terms or at all, our business could be materially and adversely impacted.

Current wording

PC OEM, working together to build Inspire, a proprietary laptop product, which allowed us to leverage the OEM’s supply chain network and volumes. As of June 30, 2025, approximately 20,600 Inspires have been shipped under our agreement with this PC OEM. Our master agreement with our PC OEM partner is subject to an initial one-year term, with automatic renewal for subsequent one-year terms. Either party is permitted to terminate the agreement upon written notice delivered to the other party not later than three months prior to the expiration of the applicable term. During 2023, we entered into an agreement with another PC OEM for the manufacture of an additional laptop product. If either PC OEM decided to discontinue their relationship with us, our business could be materially and adversely impacted. We also rely upon one third-party partner located in China to manufacture our stylus. If our manufacturing partners that we rely upon decide to discontinue their relationship with us and we are unable to replace such parties on similar terms or at all, our business could be materially and adversely impacted.

Previous wording

*Hardware Revenue —*Hardware revenue is generated from the sale of our learning stations bundled with pre-loaded perpetual license software, accessories necessary for full use of our products, including stylus, eyewear (if needed) and power adapters, and a standard assurance type warranty. Hardware accessories are also sold on a stand-alone basis. Customers place orders for the hardware and we fulfill the order and ship the hardware directly to the customer or authorized resellers. Generally, we receive payment from customers or authorized resellers at the time of hardware delivery; however, in certain circumstances our United States customers may remit payment at a later date pursuant to the terms of their agreement with us. We recognize hardware revenue associated with a sale in full at the time of shipment. Customers purchasing hardware from us also typically purchase our enabled software applications for use on their devices.

Current wording

*Hardware Revenue —*Hardware revenue is generated from the sale of our learning stations bundled with pre-loaded perpetual license software, accessories necessary for full use of our products, including stylus, eyewear (if needed) and power adapters, and a standard assurance type warranty. Hardware accessories are also sold on a stand-alone basis. Customers place orders for the hardware and we fulfill the order and ship the hardware directly to the customer or authorized resellers. Generally, we receive payment from customers or authorized resellers at the time of hardware delivery; however, in certain circumstances our United States customers may remit payment at a later date pursuant to the

Previous wording

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 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.

Previous wording

Income tax benefit (expense) consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business. We record income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are recorded based on the estimated future tax effects of differences between the financial statement and income tax basis of existing assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to apply to taxable income for the years in which differences are expected to reverse. We recognize the effect on deferred income taxes of a change in tax rates in income in the period that includes the enactment date.

Current wording

Income tax benefit (expense) consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business.

Previous wording

The following table sets forth our results of operations for the three months ended March 31, 2025 and 2024:

Current wording

The following table sets forth our results of operations for the three and six months ended June 30, 2025 and 2024:

Previous wording

Total revenue decreased by $1.1 million, or 14%, for the three months ended March 31, 2025 to $6.8 million as compared to the three months ended March 31, 2024. This decrease in revenue is primarily attributable to lower hardware revenues and attributable to uncertainty in our K12 end-user markets where funding sources have been disruptive, causing longer than usual sales cycles, and in some cases prompting customers to delay receipt of confirmed order bookings. Potential tariff volatility surcharges have also contributed to potentially elongated sales cycles as we communicate these pricing impacts to customers in revised quotes.

Current wording

Total revenue decreased by $44,000, or 1%, for the three months ended June 30, 2025 to $7.5 million as compared to the three months ended June 30, 2024. This decrease in revenue is primarily attributable to lower 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.

Previous wording

Our key software retention metrics are as follows: (1) ACV as of March 31, 2025 improved to $11.6 million as compared to March 31, 2024 of $10.6 million and (2) NDRR for the trailing twelve-month period ended March 31, 2025 was 97%, as compared to 112% for the trailing twelve-month period ended March 31, 2024.

Current wording

Our key software retention metrics are as follows: (1) ACV as of June 30, 2025 improved to $10.9 million as compared to June 30, 2024 of $9.9 million and (2) NDRR for the trailing twelve-month period ended June 30, 2025 was 131%, as compared to 104% for the trailing twelve-month period ended June 30, 2024.

Previous wording

Service revenue increased by $0.3 million or 43%, to $1.0 million for the three months ended March 31, 2025, from $0.7 million for the three months ended March 31, 2024. The increase in revenue is attributable to increased sales of extended warranty and technology support services. For the three months ended March 31, 2025 and 2024, services revenue as a percentage of total revenue is 14% and 9%, respectively.

Current wording

Service revenue increased by $0.1 million or 16%, to $0.7 million for the three months ended June 30, 2025, from $0.6 million for the three months ended June 30, 2024. The increase in revenue was primarily attributable to increased sales of extended warranty and technology support services. For the three months ended June 30, 2025 and 2024, services revenue as a percentage of total revenue was 10% and 9%, respectively.

Previous wording

For the three months ended March 31, 2025, total cost of goods sold decreased by $1.6 million, or 31%, to $3.6 million compared to $5.1 million for the three months ended March 31, 2024. This decrease was primarily attributable to reduced hardware costs of $1.4 million due to fewer shipments of Inspire units, and a decrease in software costs of $0.3 million, partially offset by an increase in service cost of $0.1 million. For the three months ended March 31, 2025 and 2024, gross margin is 47% and 34%, respectively.

Current wording

For the three months ended June 30, 2025, total cost of goods sold decreased by $0.2 million, or 4%, to $4.3 million compared to $4.5 million for the three months ended June 30, 2024. This decrease was primarily attributable to reduced hardware costs of $0.3 million due to higher margins of Inspire units, and a decrease in software costs of $0.1 million, partially offset by an increase in excess and obsolete cost of $0.2 million. For the three months ended June 30, 2025 and 2024, gross margin was 43% and 40%, respectively.

Previous wording

Cost of software sold decreased by $0.3 million or 33%, to $0.7 million for the three months ended March 31, 2025, from $1.0 million for the three months ended March 31, 2024. The decrease in cost of software sold corresponds to decreased sales of third party point-in-time software and overall software application sales. The decrease in third-party point-in-time software costs is also related to success in acquiring software applications on which the company formerly incurred revenue share. For the three months ended March 31, 2025 and 2024, software gross margin is 66% and 49%, respectively.

Current wording

Cost of software sold decreased by $0.1 million or 9%, to $0.8 million for the three months ended June 30, 2025, from $0.8 million for the three months ended June 30, 2024. The decrease in cost of software sold corresponded to decreased sales of third party point-in-time software and overall software application sales. The decrease in third-party point-in-time software costs was also related to success in acquiring software applications on which the company formerly incurred revenue share. Software gross margin was 68% for both of the three month periods ended June 30, 2025 and 2024.

Previous wording

For the three months ended March 31, 2025, interest expense decreased by $0.2 million, or 31%, to $0.5 million, from $0.7 million for the three months ended March 31, 2024. The decrease in interest expense is attributable to the convertible loans converted into common stock as part of the IPO in December 2024.

Current wording

For the three months ended June 30, 2025, interest expense decreased by $0.6 million, or 67%, to $0.3 million, from $0.9 million for the three months ended June 30, 2024. The decrease in interest expense was primarily attributable to the convertible loans converted into Common Stock as part of the IPO in December 2024 and 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.

Previous wording

Income tax expense (benefit) for the three months ended March 31, 2025 and 2024 was immaterial. We estimate an annual effective tax rate for the year ending December 31, 2025 of 0.20% as we incurred losses for the three months ended March 31, 2025 andexpect to continue to incur losses through the reminder of our fiscal year, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2025. The United States federal statutory rate is 21% while our effective tax rate for the years ended December 31, 2024 and 2023 was 0.1% and zero, 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, 2025 and 2024 was immaterial. We estimate an annual effective tax rate for the year ending December 31, 2025 of 0.11% as we incurred losses for the three months ended June 30, 2025 andexpect to continue to incur losses through the reminder of our fiscal year, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2025. The United States federal statutory rate is 21% while our effective tax rate for the years ended December 31, 2024 and 2023 was 0.1% and zero, respectively. No federal or state income taxes are expected outside of immaterial state tax payments.

Previous wording

Hardware revenue decreased by $1.4 million or 26%, to $3.8 million for the three months ended March 31, 2025, from $5.2 million for the three months ended March 31, 2024. The decrease in hardware revenue is primarily attributable to tariff and trade policy uncertainty, as well as uncertainty in federal funding sources for education available to our K12 segment customers, and the resulting impact on laptop shipments, during the quarter ended March 31, 2025. For the three months ended March 31, 2025 and 2024, hardware revenue as a percentage of total revenue is 57% and 66%, respectively.

Current wording

Hardware revenue decreased by $1.3 million or 13%, to $8.1 million for the six months ended June 30, 2025, from $9.4 million for the six months ended June 30, 2024. The decrease in hardware revenue was primarily attributable to tariff and trade policy uncertainty, as well as uncertainty in federal funding sources for education available to our K-12 segment customers, and the resulting impact on laptop shipments, during six months ended June 30, 2025. For the six months ended June 30, 2025 and 2024, hardware revenue as a percentage of total revenue was 57% and 61%, respectively.

Previous wording

Software revenue remained relatively flat at $2.0 million for each of the three months ended March 31, 2025 and 2024. Notwithstanding adverse factors affecting hardware shipments, and software content purchased on new unit deployments, retention of existing software licenses revenue, and increases in the sales price of software, generated an improvement in software revenue relative to the decline in hardware revenue. For the three months ended March 31, 2025 and 2024, software revenue as a percentage of total revenue is 29% and 25%, respectively.

Current wording

Software revenue decreased by $0.3 million or 6%, to $4.3 million for the six months ended June 30, 2025 from $4.6 million for the six months ended June 30, 2024. Notwithstanding adverse factors affecting hardware shipments, and software content purchased on new unit deployments, retention of existing software licenses revenue, and increases in the sales price of software, generated an improvement in software revenue relative to the decline in hardware revenue. For the six months ended June 30, 2025 and 2024, software revenue as a percentage of total revenue was 31% and 30%, respectively.

Previous wording

Cost of hardware sold decreased by $1.4 million, or 36%, to $2.4 million for the three months ended March 31, 2025, from $3.8 million for the three months ended March 31, 2024. The decrease in cost of hardware sold is attributable to the 26% decrease in hardware revenue driven primarily by a decrease in the volumes shipped of Inspire laptops, as well as reductions in the bill of materials costs of the new Inspire 2 laptop, which comprised 100% of the shipments in the quarter ending March 31, 2025, relative to the Inspire 1 model which was sold during the three months ended March 31, 2024. For the three months ended March 31, 2025 and 2024, hardware gross margin is 37% and 27%, respectively.

Current wording

Cost of hardware sold decreased by $1.7 million, or 24%, to $5.3 million for the six months ended June 30, 2025, from $7.0 million for the six months ended June 30, 2024. The decrease in cost of hardware sold was primarily attributable to the 13% decrease in hardware revenue driven primarily by a decrease in the volumes shipped of Inspire laptops, as well as reductions in the bill of materials costs of the new Inspire 2 laptop relative to the Inspire 1 model which was sold during the six months ended June 30, 2024.

Previous wording

Cost of services sold increased by $0.1 million or 39%, to $0.5 million for the three months ended March 31, 2025, from $0.3 million for the three months ended March 31, 2024. The increase in cost of services sold is attributable to increased sales of technology support services. For the three months ended March 31, 2025 and 2024, services gross margin is 53% and 51%, respectively

Current wording

Cost of services sold increased by $0.1 million or 18%, to $0.5 million for the six months ended June 30, 2025, from $0.3 million for the six months ended June 30, 2024. The increase in cost of services sold was primarily attributable to increased sales of technology support services. For the six months ended June 30, 2025 and 2024, services gross margin was 49% and 44%, respectively.

Previous wording

For the three months ended March 31, 2025, operating expenses decreased by $5.5 million, or 39%, to $8.6 million from $14.1 million for the three months ended March 31, 2024. The decrease in expenses is primarily attributable to a decrease of $6.2 million of stock-based compensation expense due to grants to employees in March 2024 to purchase a total of approximately 5.0 million shares of common stock at an exercise price of $2.57 per share. The additional stock-based compensation expense included in research and development, sales and marketing, and general and administrative expense for the three months ended March 31, 2024 was $0.6 million, $2.3 million, and $3.3 million, respectively. After removing the stock-based compensation expense from the totals, for the three months ended March 31, 2025, the adjusted operating expenses totaled $7.6 million and resulted in an increase of $0.7 million or 9.7%, from the $7.0 million total operating expenses for the three months ended March 31, 2024 . This net increase was primarily due to increased costs in personnel and professional expenses through the three months period ended March 31, 2025 andadditional selling and marketing activities.

Current wording

For the six months ended June 30, 2025, operating expenses decreased by $2.6 million, or 12%, to $18.1 million from $20.7 million for the six months ended June 30, 2024. The decrease in expenses was primarily attributable to a decrease of $4.4 million of stock-based compensation expense due to grants to employees in March 2024 to purchase a total of approximately 5.0 million shares of Common Stock at an exercise price of $2.57 per share. The additional stock-based compensation expense included in research and development, sales and marketing, and general and administrative expense for the six months ended June 30, 2024 was $0.5 million, $1.8 million, and $2.1 million, respectively. After removing the stock-based compensation expense of $2.8 million and $7.2 million for the six months ended June 30, 2025 and 2024, respectively, from the totals, for the six months ended June 30, 2025, the adjusted operating expenses totaled $15.3 million and resulted in an increase of $1.9 million or 14.0%, from the $13.4 million total operating expenses for the six months ended June 30, 2024 . This net increase was primarily due to increased costs in personnel and professional expenses through the six months ended June 30, 2025 andadditional selling and marketing activities.

Previous wording

Selling and marketing expenses decreased by $1.5 million or 27%, to $4.0 million for the three months ended March 31, 2025, from $5.5 million for the three months ended March 31, 2024. The decrease in expenses is primarily attributable to a decrease in stock-based compensation expense of $2.3 million due to grants to employees in March 2024, partially offset by increased headcount and compensation expense.

Current wording

Selling and marketing expenses decreased by $0.9 million or 10%, to $8.0 million for the six months ended June 30, 2025, from $8.9 million for the six months ended June 30, 2024. The decrease in expenses was primarily attributable to a decrease in stock-based compensation expense of $1.8 million due to grants to employees in March 2024, partially offset by increased headcount and compensation expense.

Previous wording

General and administrative expenses decreased by $3.1 million or 47%, to $3.5 million for the three months ended March 31, 2025, from $6.6 million for the three months ended March 31, 2024. The decrease in expenses is primarily attributable to a $3.3 million decrease in stock compensation expenses due to grants to employees in March 2024, partially offset by the increased costs in personnel and professional expenses in 2025 related to being a public Company.

Current wording

General and administrative expenses decreased by $1.0 million or 11%, to $7.8 million for the six months ended June 30, 2025, from $8.7 million for the six months ended June 30, 2024. The decrease in expenses was primarily attributable to a $2.1 million decrease in stock compensation expenses due to grants to employees in March 2024, partially offset by the increased costs in personnel and professional expenses in 2025 related to being a public Company.

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 charges, 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, accrued expenses of $0.1 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 an increase in deferred revenue of $0.5 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, 2024, our operating activities used cash of $5.4 million, primarily due to our net loss of $12.2 million and changes in our operating assets and liabilities of $0.5 million, partially offset by an adjustment for non-cash charge of stock-based compensation expense of $7.3 million. The change in our operating assets and liabilities was primarily the result of an increase in accounts receivable of $1.4 million, inventory of $0.5 million, and prepaid and other current assets of $0.2 million, partially offset by and an increase in accounts payable of $0.5 million, accrued expenses of $0.3 million, deferred revenue of $0.7 million, and accrued interest of $0.3 million.

Current wording

For the six months ended June 30, 2024, our operating activities used cash of $5.4 million, primarily due to our net loss of $12.2 million and changes in our operating assets and liabilities of $0.5 million, partially offset by an adjustment for non-cash charge of stock-based compensation expense of $7.3 million. The change in our operating assets and liabilities was primarily the result of an increase in accounts receivable of $1.4 million, inventory of $0.5 million, and prepaid and other current assets of $0.2 million, partially offset by and an increase in accounts payable of $0.5 million, accrued expenses of $0.3 million, deferred revenue of $0.7 million, and accrued interest of $0.3 million.

Previous wording

For the three months ended March 31, 2025 and 2024, net cash used in investing activities was immaterial due to our low capital equipment requirements.

Current wording

For the six months ended June 30, 2025 and 2024, net cash used in investing activities was immaterial due to our low capital equipment requirements.

Previous wording

For the three months ended March 31, 2025, net cash provided by financing activities was $1.0 million primarily due to proceeds from other 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

For the three months ended March 31, 2024, net cash provided by financing activities was $3.7 million primarily due to proceeds from convertible notes of $5.0 million partially offset by repayment of other debt issuances of $1.0 million and fees paid for deferred offering costs of $0.3 million.

Current wording

For the six months ended June 30, 2024, net cash provided by financing activities was $3.7 million primarily due to proceeds from convertible notes of $5.0 million partially offset by repayment of other debt issuances of $1.0 million and fees paid for deferred offering costs of $0.3 million.

Previous wording

As of March 31, 2025 and December 31, 2024, we had an accumulated deficit of $296.2 million and $290.4 million, respectively. Our net losses were $5.8 million and $12.2 million for the three months ended March 31, 2025 and 2024, respectively. A portion of our net losses in the three months ended March 31, 2024 related to $7.3 million in stock compensation expense from options issued during the period.

Current wording

As of June 30, 2025 and December 31, 2024, we had an accumulated deficit of $302.3 million and $290.4 million, respectively. Our net losses were $11.9 million and $17.0 million for the six months ended June 30, 2025 and 2024, respectively. A portion of our net losses in the six months ended June 30, 2024 related to $7.5 million in stock compensation expense from options issued during the period.

Previous wording

As of March 31, 2025 and December 31, 2024, we had cash and cash equivalents of $1.1 million and $4.9 million, respectively. In April 2025, we raised $14.0 million in a Convertible Note Financing. See Note 15 to our condensed consolidated financial statements for the three months ended March 31, 2025 elsewhere in this report for additional information. In the three months ended March 31, 2025 and the years ended December 31, 2024 and 2023, we raised $2.0 million, $18.5 million and $11.4 million, respectively, for an aggregate of $31.9 million through debt and financing arrangements, including the $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 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, 2025 included elsewhere in this report for additional information on our assessment.

Current wording

As of June 30, 2025 and December 31, 2024, we had cash and cash equivalents of $1.4 million and $4.9 million, respectively. In April 2025, we raised $14.0 million in a Senior Secured Convertible Note Financing. See Note 5 to our condensed consolidated financial statements for the six months ended June 30, 2025 elsewhere in this report for additional information. In the six months ended June 30, 2025 and the years ended December 31, 2024 and 2023, we raised $15.0 million, $18.5 million and $11.4 million, respectively, for an aggregate of $44.9 million through debt and financing arrangements, including the $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 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 and six months ended June 30, 2025 included elsewhere in this report for additional information on our assessment.

Previous wording

During the three months ended March 31, 2025, we incurred a net loss of $5.8 million and had Adjusted EBITDA of ($4.4) million and negative cash flows from operations of $4.6 million. For the years ended December 31, 2024 and 2023, we incurred net losses of $20.8 million and $13.0 million, respectively, and incurred negative cash flows from operations of $8.9 million and $6.4 million, respectively. We had combined cash and cash equivalents of $1.1 million and $4.9 million as of March 31, 2025 and December 31, 2024, 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. See Note 15 (Subsequent Events) for more information.

Current wording

During the six months ended June 30, 2025, we incurred a net loss of $11.98 million and had Adjusted EBITDA of ($10.0) million and negative cash flows from operations of $11.6 million. For the years ended December 31, 2024 and 2023, we incurred net losses of $20.8 million and $13.0 million, respectively, and incurred negative cash flows from operations of $8.9 million and $6.4 million, respectively. We had combined cash and cash equivalents of $1.4 million and $4.9 million as of June 30, 2025 and December 31, 2024, 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. See Note 15 (Subsequent Events) for more information.