zSpace, Inc 10-Q for FY2026 Q3
zSpace, Inc. (ZSPC)
About this 10-Q
zSpace, Inc filed this 10-Q on November 13, 2026, covering the quarter ended September 30, 2026 (FY2026 Q3).
zSpace reported total revenue of $3,593 thousand for the three months ended September 30, 2026, down 59% from $8,793 thousand, while net loss narrowed to $(1,240) thousand from $(6,169) thousand; gross margin rose to 61% from 51%. AI summary
Headline figures
Quarter ended September 30, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.59M
- down 59.1% from $8.79M a year earlier
- Net loss
- $1.24M
- compared with a net loss of $6.17M a year earlier
- Diluted EPS
- -$0.03
- compared with -$6.42 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
(Address of principal executive offices) | (Zip code) |
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (
Title of Each Class | | Trading symbol | | Name of Each Exchange on which registered |
| | * |
* On October 5, 2026, the Company’s common stock was delisted from The Nasdaq Stock Market LLC following the effectiveness of the Company’s Form 25. The registration of the common stock under Section 12(b) of the Securities Exchange Act of 1934 will terminate 90 days after the filing of the Form 25. The common stock is quoted on the OTCQB Venture Market under the symbol “ZSPC.”
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 9, 2026, there were
TABLE OF CONTENTS
| | | | Page |
|---|---|---|---|---|
| | | | |
| | 4 | ||
| | | | |
| | 4 | ||
| | | | |
| | Condensed Consolidated Balance Sheets as of September 30, 2026 and December 31, 2025 (Unaudited) | | 4 |
| | | | |
| | | 5 | |
| | | | |
| | | 6 | |
| | | | |
| | | 7 | |
| | | | |
| | Notes to Condensed Consolidated Financial Statements (Unaudited) | | 8 |
| | | | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 29 | |
| | | | |
| | 47 | ||
| | | | |
| | 48 | ||
| | | | |
| | 49 | ||
| | | | |
| | 49 | ||
| | | | |
| | 49 | ||
| | | | |
| | 54 | ||
| | | | |
| | 54 | ||
| | | | |
| | 54 | ||
| | | | |
| | 54 | ||
| | | | |
| | 55 | ||
| | | | |
| 55 | |||
| | | | |
| 57 | |||
2
ZSpace, Inc.
Quarterly Report on Form 10-Q
For the quarterly period ended September 30, 2026
In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “zSpace,” and “the Company” refer to zSpace, Inc., together with its consolidated subsidiaries, unless the context requires otherwise.
Cautionary Note on Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Many of the forward-looking statements are located in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “anticipate,” “believe,” “envision,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “ongoing,” “contemplate” and similar terms. Forward-looking statements are not guarantees of future performance and actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the subsection entitled “Risk Factors” under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, as filed with the Securities and Exchange Commission (“SEC”) on March 30, 2026 (the “2025 Form 10-K”) and Part II, Item 1A of this Quarterly Report. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future developments or otherwise.
3
Part I. FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited)
zSpace, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
| | September 30, | | December 31, | | ||
| | 2026 | | 2025 | | ||
ASSETS | | | | | | | |
Current assets |
| | |
| | | |
Cash, cash equivalents and restricted cash | | $ | | | $ | | |
Accounts receivable, net of allowance for credit losses of $ | |
| | |
| | |
Inventory | |
| | |
| | |
Prepaid expenses and other current assets | |
| | |
| | |
Total current assets | |
| | |
| | |
Property and equipment, net | |
| | |
| | |
Capitalized software, net | | | | | | | |
Other assets | | | | | | | |
Total assets | | $ | | | $ | | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
| | |
| | |
Current liabilities | |
| | |
| | |
Accounts payable | | $ | | | $ | | |
Accrued expenses and other current liabilities | |
| | |
| | |
Convertible debt | |
| | |
| | |
Other current debt | |
| | |
| | |
Current accrued interest | |
| | |
| | |
Deferred revenue, current portion | |
| | |
| | |
Total current liabilities | |
| | |
| | |
Series P and P-2 Preferred Stock liability | | | | | | — | |
Convertible debt, noncurrent | | | | | | | |
Other noncurrent debt | |
| | |
| | |
Noncurrent accrued interest | |
| — | |
| | |
Deferred revenue, net of current portion | |
| | |
| | |
Total liabilities | |
| | |
| | |
Commitments and contingencies (Note 11) | |
| | |
| | |
Stockholders’ deficit: | |
| | |
| | |
Common stock, $ | |
| | |
| — | |
Additional paid-in capital | |
| | |
| | |
Accumulated other comprehensive income | |
| ( | |
| | |
Accumulated deficit | |
| ( | |
| ( | |
Total stockholders’ deficit | |
| ( | |
| ( | |
Total liabilities and stockholders’ deficit | | $ | | | $ | | |
See accompanying notes to condensed consolidated financial statements.
4
zSpace, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share data)
(Unaudited)
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
| | 2026 | | 2025 | | 2026 | | 2025 | | ||||
Revenue | | $ | | | $ | | | $ | | | $ | | |
Cost of goods sold | |
| | |
| | |
| | |
| | |
Gross profit | |
| | |
| | |
| | |
| | |
Operating expenses: | |
| | |
| | |
| | |
| | |
Research and development | |
| | |
| | |
| | |
| | |
Selling and marketing | |
| | |
| | |
| | |
| | |
General and administrative | |
| | |
| | |
| | |
| | |
Gain from settlement of vendor claims | |
| — | |
| — | |
| ( | |
| — | |
Total operating expenses | |
| | |
| | |
| | |
| | |
Loss from operations | |
| ( | |
| ( | |
| ( | |
| ( | |
Other (expense) income: | |
| | |
| | |
| | |
| | |
Interest expense | |
| ( | |
| ( | |
| ( | |
| ( | |
Other income, net | |
| | |
| | |
| | |
| | |
Gain on extinguishment of convertible and other debt | | | — | | | — | | | | | | — | |
Gain on change in fair value of Series P and P-2 Preferred Stock liability | |
| | |
| — | |
| | |
| — | |
Gain (loss) on change in fair value of convertible debt | |
| | |
| ( | |
| ( | |
| ( | |
Loss before income taxes | |
| ( | |
| ( | |
| ( | |
| ( | |
Income tax (benefit) expense | |
| — | |
| ( | |
| | |
| | |
Net loss | |
| ( | |
| ( | |
| ( | |
| ( | |
Other comprehensive loss, net of tax: | |
| | |
| | |
| | |
| | |
Foreign currency translation adjustment | |
| ( | |
| ( | |
| ( | |
| ( | |
Comprehensive loss | | $ | ( | | $ | ( | | $ | ( | | $ | ( | |
| | | | | | | | | | | | | |
Net loss available to common shareholders used in basic and diluted earnings per share | | $ | ( | | $ | ( | | $ | ( | | $ | ( | |
| | | | | | | | | | | | | |
Net loss per common share – basic and diluted | | $ | ( | | $ | ( | | $ | ( | | $ | ( | |
| | | | | | | | | | | | | |
Weighted-average common shares outstanding – basic and diluted | | | | | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements.
5
zSpace, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Amounts in thousands, except for share amounts)
(Unaudited)
| | | | | | | | | | | Accumulated | | | | | | |
| | | | | | | Additional | | | Other | | | | | Total | ||
| | Common Stock | | Paid-in | | | Comprehensive | | Accumulated | | Stockholders’ | ||||||
| | Shares | | Amount | | Capital | | | Income | | Deficit | | Deficit | ||||
Three Months Ended September 30, 2025: | | | | | | | | | | | | | | | | | |
Balance, July 1, 2025 | | | $ | — | | $ | | | $ | | | $ | ( | | $ | ( | |
Stock based compensation | | | | | — | | | | | | — | | | — | | | |
Issuance of common stock from options exercised |
| | | | — |
| | |
| | — |
| | — |
| | |
Issuance of common stock for note conversions for convertible debt |
| | | | — |
| | |
| | — |
| | — |
| | |
Issuance of common stock under equity line of credit | | | | | — | | | | | | — | | | — | | | |
Net loss |
| — | | | — |
| | — |
| | — |
| | ( |
| | ( |
Foreign currency translation adjustments |
| — | | | — |
| | — |
| | ( |
| | — |
| | ( |
Balance, September 30, 2025 |
| | | $ | — | | $ | | | $ | | | $ | ( | | $ | ( |
| | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2026: | | | | | | | | | | | | | | | | | |
Balance, July 1, 2026 | | | | $ | | | $ | | | | | | $ | ( | | $ | ( |
Stock based compensation |
| | |
| — | |
| | | | — | |
| — | |
| |
Net loss |
| — | |
| — | |
| — | | | — | |
| ( | |
| ( |
Foreign currency translation adjustments |
| — | |
| — | |
| — | | | ( | |
| — | |
| ( |
Balance, September 30, 2026 |
| | | $ | | | $ | | | | ( | | $ | ( | | $ | ( |
| | | | | | | | | | | Accumulated | | | | | | |
| | | | | | | Additional | | | Other | | | | | Total | ||
| | Common Stock | | Paid-in | | | Comprehensive | | Accumulated | | Stockholders’ | ||||||
| Shares | | Amount | | Capital | | | Income | | Deficit | | Deficit | |||||
Nine Months Ended September 30, 2025: | | | | | | | | | | | | | | | | | |
Balance, January 1, 2025 | | | $ | — | | $ | | | $ | | | $ | ( | | $ | ( | |
Stock based compensation | | | | | — | | | | | | — | | | — | | | |
Issuance of common stock from options exercised |
| | | | — |
| | |
| | — |
| | — |
| | |
Issuance of common stock for note conversions for convertible debt | | | | | — | | | | | | — | | | — | | | |
Issuance of common stock under equity line of credit | | | | | — | | | | | | — | | | — | | | |
Net loss |
| — | | | — |
| | — |
| | — |
| | ( |
| | ( |
Foreign currency translation adjustments |
| — | | | — |
| | — |
| | ( |
| | — |
| | ( |
Balance, September 30, 2025 |
| | | $ | — | | $ | | | $ | | | $ | ( | | $ | ( |
| | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2026: | | | | | | | | | | | | | | | | | |
Balance, January 1, 2026 | | | | — | | | | | | | ( | | $ | ( | |||
Stock based compensation |
| | |
| | |
| | | — | |
| — | |
| ||
Issuance of common stock for note conversions for convertible debt |
| | |
| — | |
| | | — | |
| — | |
| ||
Issuance of common stock under equity line of credit, net | | | | | — | | | | | — | | | — | | | ||
Obligation to issue common stock in connection with abeyance shares | | — | | | — | | | | | — | | | — | | | ||
Issuance of common stock for debt restructuring (Note 5) | | | | | — | | | | | — | | | — | | | ||
Issuance of Series P Preferred stock warrants | | — | | | — | | | | | — | | | — | | | ||
Net loss |
| — | |
| — | |
| — | | | — | |
| ( | |
| ( |
Foreign currency translation adjustments |
| — | |
| — | |
| — | | | ( | |
| — | |
| ( |
Balance, September 30, 2026 |
| | | $ | | | $ | | | | ( | | $ | ( | | $ | ( |
See accompanying notes to condensed consolidated financial statements.
6
zSpace, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | Nine Months Ended September 30, | | ||||
| | 2026 | | 2025 | | ||
Cash flows from operating activities: |
| | |
| | | |
Net loss | | $ | ( | | $ | ( | |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | |
| | |
Change in fair value of Series P Preferred Stock liability | | | ( | | | — | |
Change in fair value of convertible debt | | | | | | | |
Non-cash amortization of debt discount | |
| | |
| | |
Provision for excess and obsolete inventory | |
| — | |
| | |
Stock-based compensation expense | | | | | | | |
Depreciation | |
| | |
| | |
Bad debt expense | |
| | |
| | |
Gain on extinguishment of convertible debt | |
| ( | |
| — | |
Gain from settlement of vendor claims | | | ( | | | — | |
Changes in operating assets and liabilities: | |
| | |
| | |
Accounts receivable | |
| ( | |
| ( | |
Inventory | |
| | |
| | |
Prepaid expenses and other assets | |
| ( | |
| ( | |
Accounts payable | |
| | |
| ( | |
Accrued expenses | |
| ( | |
| | |
Deferred revenue | |
| | |
| ( | |
Accrued interest | |
| | |
| | |
Net cash used in operating activities | |
| ( | |
| ( | |
Cash flows from investing activities: | |
| | |
| | |
Capital expenditures | |
| ( | |
| ( | |
Net cash used in investing activities | |
| ( | |
| ( | |
Cash flows from financing activities: | |
| | |
| | |
Proceeds from issuance of Preferred Stock Series P | | | | | | — | |
Proceeds from convertible debt | |
| | |
| | |
Repayments of convertible debt | |
| ( | |
| ( | |
Proceeds from other debt issuances | |
| | |
| | |
Fees paid for debt issuance | |
| ( | |
| ( | |
Repayment of other debt issuances | |
| ( | |
| ( | |
Proceeds from issuance of common stock from equity line-of-credit | |
| | |
| | |
Proceeds from exercise of common stock options | |
| — | |
| | |
Net cash provided by financing activities | |
| | |
| | |
Effects of exchange rate changes on cash and cash equivalents | |
| ( | |
| ( | |
Net decrease in cash, cash equivalents and restricted cash | |
| ( | |
| ( | |
Cash, cash equivalents and restricted cash, beginning of period | |
| | |
| | |
Cash, cash equivalents and restricted cash, end of period | | $ | | | $ | | |
Supplemental disclosure of cash flow information: | |
| | |
| | |
Cash paid for interest | | $ | | |
| | |
Cash paid for income taxes | | $ | — | |
| | |
Non-cash investing and financing activities: | |
| | |
| | |
Leased assets obtained in exchange for new operating lease liabilities | | $ | | | $ | — | |
Conversion of convertible debt principal and interest payments into common stock | | $ | | | $ | | |
Issuance of common stock for debt restructuring | | $ | | | $ | — | |
See accompanying notes to condensed consolidated financial statements.
7
ZSPACE, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2026
(Unaudited)
1. | DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
Description of Business
zSpace, Inc. (“zSpace” or the “Company”) was incorporated in the state of Delaware in 2006 and is headquartered in San Jose, California with wholly owned subsidiaries in China and Japan. The Company is the developer of full-service augmented reality/virtual reality (“AR/VR”) solutions built for K-12 education and career technical education. zSpace’s primary product is a mixed reality hardware device that provides an immersive, collaborative, and interactive learning experience. zSpace generates revenues via hardware sales in addition to recurring software revenue for access to zSpace interactive learning applications. The Company’s customer base includes federal, state, and local governments who are making large investments in education technology.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and include the assets, liabilities, results of operations and cash flows of the Company.
The Company has prepared its unaudited condensed consolidated financial statements in accordance with GAAP in the United States of America (“GAAP”) and the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Certain information or note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and notes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in our 2025 Form 10-K.
Certain reclassifications have been made to the amounts in prior periods in order to conform to the current period’s presentation. All intercompany accounts and transactions have been eliminated in consolidation.
8
Liquidity Risk and Going Concern
For the nine months ended September 30, 2026, the Company incurred a net loss of approximately $
The unaudited condensed consolidated financial statements have been prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business and does not include any adjustments to reflect the outcome of this uncertainty.
Foreign Operations
Operations outside the United States include subsidiaries in China and Japan. Foreign operations are subject to risks inherent in operating under different legal systems and various political and economic environments. Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional currency, are translated to U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting translation adjustments directly recorded to a separate component of Accumulated Other Comprehensive Income. Income and expense accounts are translated at average exchange rates during the periods presented.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements are disclosed in the notes to the consolidated financial statements for the fiscal year ended December 31, 2025 and have not changed significantly since those consolidated financial statements were issued.
Cash, Cash Equivalents, and Restricted Cash
The Company considers cash on hand, deposits in banks, and investments with original maturities of three months or less, such as the Company’s money market funds, to be cash and cash equivalents.
9
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the condensed consolidated balance sheet as of September 30, 2026 and December 31, 2025, to the amounts reported on the condensed consolidated statement of cash flows (in thousands):
| | September 30, | | December 31, | | | ||
| | 2026 | | 2025 | | | ||
Cash | | $ | | | $ | | | |
Cash equivalents | | | | | | | | |
Restricted cash | |
| | |
| | | |
Total cash, cash equivalents and restricted cash | | $ | | | $ | | | |
The restricted cash is legally restricted to secure credit card charges incurred by the Company.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are customer obligations due under normal trade terms. Expected credit losses include losses expected based on known credit issues with specific customers as well as a general expected credit loss allowance based on relevant information, including historical loss rates, current conditions, and reasonable economic forecasts that affect collectability. The Company updates its allowance for credit losses on a quarterly basis with changes in the allowance recognized in loss from operations. The Company reserves for any accounts receivable balances that are determined to be uncollectible in the allowance for credit losses.
After all attempts to collect accounts receivable balances have failed, the balance is written off against the allowance for credit losses. As of September 30, 2026 and December 31, 2025, the Company reported an allowance for credit losses balance of $
Series P and Series P-2 Preferred Stock Liability
In accordance with Accounting Standards Codification (“ASC”) 480-10-25-14, the Company determined that the Series P and P-2 Preferred Stock should be classified as a liability and recorded at fair value as a non-current liability as of September 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 Volume Weighted Average Price (“VWAP”) of the Company’s common stock).
The Series P and P-2 Preferred Stock is 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 Payment-in-Kind (“PIK”) dividends at the
10
Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents, and restricted cash, accounts receivable, accrued liabilities, and accounts payable approximate fair value due to their relatively short-term maturities and are classified as short-term assets and liabilities in the accompanying balance sheets.
| | As of September 30, 2026 | ||||||||||
(in thousands) | | Level 1 | | Level 2 | | Level 3 | | Total | ||||
Money market funds | | $ | | | $ | — | | $ | — | | $ | |
Total financial assets | | $ | | | $ | — | | $ | — | | $ | |
| | | | | | | | | | | | |
Convertible debt subject to credit risk analysis | | $ | — | | $ | | | $ | — | | $ | |
Series P and P-2 Preferred Stock liability | | | — | | | — | | | | | | |
Total financial liabilities | | $ | — | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
| | As of December 31, 2025 | ||||||||||
(in thousands) | | Level 1 | | Level 2 | | Level 3 | | Total | ||||
Money market funds | | $ | | | $ | — | | $ | — | | $ | |
Total financial assets | | $ | | | $ | — | | $ | — | | $ | |
| | | | | | | | | | | | |
Convertible debt subject to credit risk analysis | | $ | — | | $ | | | $ | — | | $ | |
Total financial liabilities | | $ | — | | $ | | | $ | — | | $ | |
The following table presents the roll-forward of the Series P and Series P-2 Preferred Stock liability balance for the nine months ended September 30, 2026 (in thousands):
(in thousands) | | Series P Amount | | Series P-2 Amount | | Total Series Preferred Stock Liability Amount | |||
Balance at December 31, 2025 | | $ | | | $ | | | $ | |
Initial recognition | | | | | | | | ||
Change in fair value | | | ( | | | ( | | | ( |
Balance at September 30, 2026 | | $ | | | $ | | | $ | |
The Company measures its convertible debt at fair value on a quarterly basis. The fair value of the Company’s debt approximates book value as of September 30, 2026 utilizing a Monte Carlo simulation using observable market conditions for items such as interest free rates, discount rates and volatility assumptions. The fair value of the convertible debt has been categorized as a Level 2 item as of September 30, 2026.
The Company measures its Series P and Series P 2-Preferred Stock liability at fair value on a quarterly basis. The fair value of the Company’s liability is calculated using a Probability Weighted Expected Return Method (“PWERM”) Model which included a Monte Carlo simulation of the share price and volume weighted average price at exit. The scenario probabilities for change in control, maturity expiration and dissolution assumptions are provided by management. The fair value of the Series P and Series P-2 convertible stock has been categorized as a Level 3 item as of September 30, 2026.
11
The following table provides the inputs used to measure the Series P and Series P-2 Preferred Stock at the issuance date and September 30, 2026:
| | Series P | | | Series P-2 | | ||
Share price at issuance date | | $ | | | | $ | | |
Share price at September 30, 2026 | | $ | | | | $ | | |
Discount rate at issuance date | | | | % | | | % | |
Discount rate at September 30, 2026 | | | | % | | | % | |
Volatility at issuance date | | | | % | | | % | |
Volatility at September 30, 2026 | | | | % | | | % | |
Risk free rate at issuance date | | | | % | | | % | |
Risk free rate at September 30, 2026 | | | | % | | | % | |
Dividend yield at issuance date and September 30, 2026 | | | % | | | % | ||
Probability of a change in control at issuance date and September 30, 2026 | | | % | | | % | ||
Probability of a dissolution scenario at issuance date and September 30, 2026 | | | % | | | % | ||
Probability of a maturity expiration scenario at issuance date and September 30, 2026 | | | % | | | % | ||
Timing of a change in control scenario at issuance date (in years) | | | | | | | ||
Timing of a change in control scenario at September 30, 2026 (in years) | | | | | | | ||
Timing of a dissolution scenario at issuance date (in years) | | | | | | | ||
Timing of a dissolution scenario at September 30, 2026 (in years) | | | | | | | ||
Timing of a maturity expiration scenario at issuance date (in years) | | | | | | | ||
Timing of a maturity expiration scenario at September 30, 2026 (in years) | | | | | | | ||
During the three and nine months ended September 30, 2026, there were no transfers of financial assets and liabilities between Levels 1, 2 or 3.
Revenue
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. The revenue recognition guidance provides a single model to determine when and how revenue is recognized. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company recognizes revenue using a five-step model resulting in revenue being recognized as performance obligations within a contract have been satisfied. The steps within that model include: (i) identifying the existence of a contract with a customer; (ii) identifying the performance obligations within the contract; (iii) determining the contract’s transaction price; (iv) allocating the transaction price to the contract’s performance obligations; and (v) recognizing revenue as the contract’s performance obligations are satisfied. Judgment is required to apply the principles-based, five-step model for revenue recognition. Management is required to make certain estimates and assumptions about the Company’s contracts with its customers, including, among others, the nature and extent of its performance obligations, its transaction price amounts and any allocations thereof, the events which constitute satisfaction of its performance obligations, and when control of any promised goods or services is transferred to its customers. The standard also requires certain incremental costs incurred to obtain or fulfill a contract to be deferred and amortized on a systematic basis consistent with the transfer of goods or services to the customer.
The Company assesses the goods and/or services promised in each customer contract and separately identifies a performance obligation for each promise to transfer to the customer a distinct good or service. The Company then allocates the transaction price to each performance obligation in the contract using relative Standalone Selling Price (“SSP”). The Company determines standalone selling prices based on the price at which a good or service is sold separately. If the standalone selling price is not observable through historic data, the Company estimates the standalone selling price by considering the cost-plus margin approach, along with all reasonably available information, including peer-company selling information while taking into consideration market conditions and other factors, such as customer size, volume purchased, market and industry conditions, product specific factors and historical sales of the deliverables.
12
The Company sells proprietary augmented reality and virtual reality hardware, software, and related installation and training services to education customers. The Company has contractual agreements with customers that set forth the general terms and conditions of the relationship, including pricing of goods and services, payment terms and contract duration. Revenue is recognized when the obligation under the terms of the Company’s contract with its customer is satisfied and is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services.
The Company offers standard warranty coverage on substantially all products which provides the customer with assurance that the product will function as intended during the first year. This standard warranty coverage is accounted for as an assurance warranty and is not considered to be a separate performance obligation. Returns and repairs under the Company’s general assurance warranty of products have not been material.
Payment is generally due within 30 days of invoice issuance. The Company uses the practical expedient and does not recognize a significant financing component for payment considerations of less than one year.
Hardware: Hardware sales represent separate performance obligations, all of which are satisfied at a point in time when the hardware is delivered to the customer, which is typically FOB shipping point.
Software: Software sales consist of licenses of functional intellectual property that are satisfied at a point in time when key codes are provided to allow customers to access the software, which is the contract start date.
In transactions where the Company provides user-based software licenses to a customer, zSpace recognizes software revenue ratably on a straight-line basis. These fees charged to its customers are recognized on a gross basis as zSpace has determined that it is the principal in the transaction. As a principal to the transaction, the Company obtains control of the third-party software licenses before control is transferred to the customer. The fees paid to third parties for software licenses are recognized as transaction expenses and recorded in cost of goods sold in the condensed consolidated statements of operations and comprehensive income (loss).
Services: The Company offers installation and/or training services for its products, both of which are separate performance obligations and typically are satisfied within a short period of time, often less than one month. Additionally, the Company offers - and
Contract Liabilities: The Company typically bills in advance of providing goods and services, including for installation and training services, PCS, and extended warranties, resulting in contract liabilities (i.e., deferred revenue). Contract liabilities are classified as current or noncurrent based on the nature of the underlying contractual rights and obligations.
Contract Costs: The Company incurs incremental contract commission costs to obtain contracts with customers which are expected to be recoverable through the term of those contracts. The Company allocates contract costs among the underlying performance obligations to which they relate and amortizes those costs on a systematic basis consistent with the pattern of the transfer of the goods and services. Contract cost assets are typically completely amortized soon after initial recognition as the majority of the Company’s revenue on the underlying performance obligations is recognized upon delivery of the goods or services.
13
Cost of Goods Sold
The Company includes within cost of goods sold those costs related to the manufacture and distribution of its AR/VR products, as well as the cost to purchase third-party software. Specifically, the Company includes in cost of goods sold each of the following: material costs, labor and employee benefit costs related to the manufacture of our products, and freight and shipping costs. Costs are expensed as incurred, or as control of products is transferred, except for costs incurred to fulfill a contract, which are capitalized and amortized on a straight-line basis over the expected period of performance. The Company does not incur significant incremental costs to acquire contracts.
New Accounting Pronouncements
As of September 30, 2026 there are no new accounting pronouncements affecting the Company other than those discussed in the financial statements in the Company’s 2025 Form 10-K.
3. | REVENUE |
Disaggregation of Revenue
The Company earns revenue through the sale of products and services. Product and service revenue are the disaggregation of revenue primarily used by management, as this disaggregation allows for the evaluation of market trends and certain product lines and services vary in renewing versus non-renewing nature.
The following table disaggregates revenue by recognition method for the three and nine months ended September 30, 2026 and 2025 (in thousands):
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
| | 2026 | | 2025 | | 2026 | | 2025 | | ||||
Point in time | | $ | | | $ | | | $ | | | $ | | |
Over time | | | | | | | | | | | | | |
Total | | $ | | | $ | | | $ | | | $ | | |
The following table disaggregates revenue by type of products and services for the three and nine months ended September 30, 2026 and 2025 (in thousands):
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
| | 2026 | | 2025 | | 2026 | | 2025 | | ||||
Hardware | | $ | | | $ | | | $ | | | $ | | |
Software | |
| | |
| | |
| | |
| | |
Services | |
| | | | | |
| | | | | |
Total | | $ | | | $ | | | $ | | | $ | | |
The following table disaggregates revenue by geographic area for the three and nine months ended September 30, 2026 and 2025 (in thousands):
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
| | 2026 | | 2025 | | 2026 | | 2025 | | ||||
United States | | $ | | | $ | | | $ | | | $ | | |
International | |
| | |
| | |
| | |
| | |
Total | | $ | | | $ | | | $ | | | $ | | |
The amount of deferred revenue as of September 30, 2026 and December 31, 2025 reflects the revenue expected to be recognized in future periods related to remaining performance obligations as the Company collects payment in advance of satisfaction of performance obligations.
14
As of September 30, 2026 and December 31, 2025, the Company has $
As of December 31, 2025 approximately $
As of September 30, 2026 and December 31, 2025, the Company had
4. | BALANCE SHEET COMPONENTS |
Inventory
At September 30, 2026 and December 31, 2025, inventory, net of reserve, consisted of the following (in thousands):
| | September 30, | | December 31, | | ||
| | 2026 | | 2025 | | ||
Finished goods | | $ | | | $ | | |
Raw materials | |
| | |
| | |
Inventory | | $ | | | $ | | |
Prepaid and other current assets
Prepaid expenses and other current assets consisted of the following at September 30, 2026 and December 31, 2025 (in thousands):
| | September 30, | | December 31, | | ||
| | 2026 | | 2025 | | ||
Advances to suppliers | | $ | | | $ | | |
Deferred software costs | |
| | |
| | |
Prepaid operating expense | |
| | |
| | |
Total prepaid expenses and other current assets | | $ | | | $ | | |
Accrued expenses and other liabilities
Accrued expenses and other current liabilities consisted of the following at September 30, 2026 and December 31, 2025 (in thousands):
| | September 30, | | December 31, | | ||
| | 2026 | | 2025 | | ||
Accrued purchases | | $ | — | | $ | | |
Accrued compensation | |
| | |
| | |
Other current liabilities | |
| | |
| | |
Total accrued expenses and other current liabilities | | $ | | | $ | | |
During the nine months ended September 30, 2026, the Company settled
15
5. | DEBT AND RELATED PARTY DEBT |
As of September 30, 2026 and December 31, 2025, debt and related party debt is comprised of the following (in thousands):
| | September 30, | | December 31, | ||
| | 2026 | | 2025 | ||
Short-term debt: |
| | |
| | |
Other term loans | | $ | | | $ | |
Total other current debt | |
| | |
| |
Convertible debt | | | | | | |
Total short-term debt | | $ | | | $ | |
Noncurrent debt: | |
| | |
| |
Convertible debt | | $ | | | $ | |
Other term loans | | | | | | |
Less: debt issuance costs | |
| ( | |
| ( |
Less: current portion | |
| ( | |
| ( |
Total Noncurrent debt | | $ | | | $ | |
All issuance costs related to the convertible debt issued during the three and nine months ended September 30, 2026 were expensed as incurred.
As of September 30, 2026, future principal payments for long-term debt, including the current portion, are summarized as follows (in thousands):
Year Ending December 31, | | Amount | |
2026 | | $ | |
2027 | |
| |
2028 | | | |
Less adjustment to fair value of Senior Secured Convertible Debt | | | ( |
Total | | $ | |
During the nine months ended September 30, 2026 and 2025, the Company capitalized $
3i and Fiza Debt Restructuring
On May 29, 2026, the Company entered into a series of related agreements and corporate actions to restructure approximately $
16
3i Debt Restructuring Agreement
On May 29, 2026 (the “Closing Date”), the Company converted an aggregate of $
The conversion price for the shares of Common Stock issuable to 3i pursuant to the 3i Agreement was $
Simultaneously, the Second Note (as reduced by the converted amounts described above) was amended effective as of the Closing Date (as so amended, the “Amended Note”). Under the Amended Note, 3i will be subject to a nine (
The 3i Agreement also included customary representations and warranties of the parties, a limitation on the beneficial ownership of 3i in the Company’s Common Stock of
Under Section 6(a) of the 3i Agreement, in the event that any issuance of Conversion Shares to 3i would otherwise cause 3i to exceed a beneficial ownership limitation equal to
As of September 30, 2026,
17
Fiza Debt Conversion
On May 29, 2026, the Company converted an aggregate amount of $
Series P Preferred Stock
On January 27, 2026, the Company filed a Certificate of Designations of Series P Convertible Preferred Stock (the “Series P COD”) with the Secretary of State of the State of Delaware. The Series P COD established a new series of preferred stock designated as “Series P Convertible Preferred Stock” (the “Series P Preferred Stock”). On May 29, 2026, the Company filed an Amendment to the Certificate of Designations of Series P Convertible Preferred Stock of zSpace, Inc. As of September 30, 2026,
Designation and Amount. Up to
Dividends. Each share of Series P Preferred is entitled to cumulative dividends at a rate of
Voting Rights. Series P Preferred votes on an as-converted basis together with the Common Stock. So long as any shares of Series P Preferred remain outstanding, the Company may not, without the affirmative vote of a majority of the outstanding shares of Series P Preferred, (a) alter or change the powers, preferences or rights of the Series P Preferred, (b) authorize or create any class of stock ranking senior to or pari passu with the Series P Preferred, (c) amend the Certificate of Incorporation in any manner adversely affecting Series P Preferred holders, (d) increase the authorized shares of preferred stock, or (e) enter into any agreement with respect to the foregoing.
Liquidation. Upon any liquidation, dissolution, winding-up, or Change of Control Transaction (as defined in the Series P COD), holders of Series P Preferred are entitled to receive, for each share, before any distribution to holders of junior shares, an amount equal to the stated value plus accrued and unpaid dividends and other amounts due.
Optional Conversion. Beginning on the third anniversary of the original issue date, each share of Series P Preferred is convertible at the option of the holder into the number of shares of Common Stock equal to the stated value ($
Required conversion. All outstanding shares of Series P Preferred will automatically convert into Common Stock on the fifth anniversary of the original issue date, January 27, 2031 (the “Required Conversion Date”). The conversion will be made at a rate equal to the lower of (i) the then-applicable conversion price and (ii) 80% of the VWAP of the Common Stock for the 90 consecutive trading days immediately preceding the Required Conversion Date. If the Common Stock is not then listed or quoted on a trading market, the fair market value determined in good faith by the Board is used instead of the 90-day VWAP.
18
Amendment to Series P Convertible Preferred Stock
In connection with the foregoing transactions, on May 28, 2026, the Board of Directors of the Company (the “Board”), with the prior written consent of the holder of all of the outstanding shares of Series P Convertible Preferred Stock, approved, and directed the Company to file with the Secretary of State of the State of Delaware, a Certificate of Amendment to the Certificate of Designations of Series P Convertible Preferred Stock of zSpace, Inc. (the “Series P Amendment”). The Series P Amendment: (i) reduced the authorized number of shares of Series P Convertible Preferred Stock from
Series P-2 Convertible Preferred Stock
On May 29, 2026, the Company filed a Certificate of Designations of Series P-2 Convertible Preferred Stock of zSpace, Inc. (the “Series P-2 COD”), creating a new series of preferred stock designated as “Series P-2 Convertible Preferred Stock” upon filing with the Secretary of State of the State of Delaware. The principal terms of the Series P-2 Preferred are as follows:
Designation and Amount. Up to
Dividends. Each share of Series P-2 Preferred is entitled to cumulative dividends at a rate of
Voting Rights. Series P-2 Preferred votes on an as-converted basis together with the Common Stock. So long as any shares of Series P-2 Preferred remain outstanding, the Company may not, without the affirmative vote of a majority of the outstanding shares of Series P-2 Preferred, (a) alter or change the powers, preferences or rights of the Series P-2 Preferred, (b) authorize or create any class of stock ranking senior to or pari passu with the Series P-2 Preferred (other than Series P), (c) amend the Certificate of Incorporation in any manner adversely affecting Series P-2 Preferred holders, (d) increase the authorized shares of preferred stock, or (e) enter into any agreement with respect to the foregoing.
Liquidation. Upon any liquidation, dissolution, winding-up, or Change of Control Transaction (as defined in the Series P-2 COD), holders of Series P-2 Preferred are entitled to receive, for each share, before any distribution to holders of junior shares, an amount equal to the greater of (a) the stated value plus accrued and unpaid dividends and other amounts due, or (b) the amount such holder would receive if the share had been converted into Common Stock at the then-applicable conversion price immediately prior to such event.
Optional Conversion. Beginning on the third anniversary of the original issue date, each share of Series P-2 Preferred is convertible at the option of the holder into the number of shares of Common Stock equal to the stated value ($
Required conversion. All outstanding shares of Series P-2 Preferred will automatically convert into Common Stock on the fifth anniversary of the original issue date, May 29, 2031 (the “P-2 Required Conversion Date”). The conversion will be made at a rate equal to the lower of (i) the then-applicable conversion price and (ii) 80% of the VWAP of the Common Stock for the 90 consecutive trading days immediately preceding the P-2 Required Conversion Date. If the Common Stock is not then listed or quoted on a trading market, the fair market value determined in good faith by the Board is used instead of the 90-day VWAP.
19
Classification and Measurement of Series P and P-2 Preferred Stock Liability
In accordance with ASC 480-10-25-14, the Company 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 September 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).
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
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 Stock 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 September 30, 2026 and 2025, was a gain of approximately $
As of September 30, 2026, there are
Term Debt
Fiza Amendment
As discussed above, on May 29, 2026, the outstanding principal balance of the Fiza loans of $
Itria Refinancing
On March 19, 2026, the Company entered into a new Loan and Security Agreement the (“New Loan Agreement”) with Itria Ventures LLC (the “Lender”) in connection with the refinancing of all of its outstanding debt with the Lender. Pursuant to the New Loan Agreement, the Lender agreed to provide the Company with a term loan in the principal amount of $
The proceeds of the New Loan were used to refinance and pay off in full the
The Company may prepay the New Loan in full at any time after the first month of the term, subject to a prepayment fee equal to
20
Agreement contains standard representations, warranties and affirmative covenants, including relating to use of proceeds and information rights.
In addition, the New Loan Agreement contains certain customary negative covenants, including that the Company may not incur additional indebtedness other than certain permitted indebtedness. The New Loan Agreement also contains customary events of default, including, but not limited to, upon non-payment, the occurrence of material adverse changes to the Company’s business, or bankruptcy. Upon the occurrence of an event of default, the applicable interest rate would increase by five percentage points and the Lender may declare the outstanding principal and accrued interest immediately due and payable.
Conversion of Principal and Interest amounts into Common Stock
During the nine months ended September 30, 2026, the Company reduced its obligations under the Initial Senior Secured Convertible Note by $
In accordance with ASC 825-10-45-5, the Company determined that the changes in fair value of the Note during the periods presented were primarily attributable to changes in market interest rates 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 net income rather than other comprehensive income. The net impact for the three months ended September 30, 2026 and 2025, was a gain of approximately $
6. | STOCKHOLDERS’ DEFICIT |
The Company has shares reserved and available for future issuance of common stock as follows as of the periods indicated:
| | September 30, | | December 31, |
| | 2026 | | 2025 |
Warrants | | | | |
Awards outstanding under the 2017 and 2007 Equity Incentive Plans | | | | |
Awards outstanding under the 2024 Equity Incentive Plan | | | | |
Shares available for future issuance under convertible debt notes | | | | |
Shares available for future issuance under equity line-of-credit agreement | | — | | |
Shares available for future issuance under the 2024 Equity Incentive Plan | | | | |
Shares available for future conversion of Series P and P-2 Preferred Stock | | | | — |
Shares reserved for abeyance of common stock | | | | — |
Shares authorized and available for future issuance | | | | |
Total shares reserved and available for future issuance of common stock | | | | |
Conversion Shares Held in Abeyance
As of September 30, 2026,
21
Reverse Stock Split
On April 16, 2026, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Company’s Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split of its issued common stock, par value $
All references to common stock, restricted stock units, warrants, preferred stock, and options to purchase common stock share data, per share data and related information contained in the unaudited condensed consolidated financial statements and the accompanying notes have been retroactively adjusted to reflect the effect of the Reverse Stock Split.
Nasdaq Delisting Proceedings
On April 21, 2026 the Company received a determination from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) to delist the Company’s common stock pursuant to Nasdaq Listing Rule 5810(c)(3)(A)(iii), following the closing bid price of the common stock being $0.10 or less for ten consecutive trading days as of April 17, 2026. Trading in the Company’s common stock was suspended at the opening of business on April 28, 2026, and the common stock has since been quoted on the OTC Markets under the symbol “ZSPC.” The Company requested a hearing before a Nasdaq Hearings Panel (the “Panel”), which stayed the filing of a Form 25 and the removal of the common stock from listing, but did not stay the suspension of trading.
On August 6, 2026, the Panel issued a decision determining to delist the Company’s common stock. Because Nasdaq did not file a Form 25 following the Panel’s decision, after providing written notice to Nasdaq and issuing a press release on September 15, 2026, zSpace filed a Form 25 with the SEC on September 25, 2026 to voluntarily delist its common stock from Nasdaq. The delisting became effective ten days after the Form 25 was filed, on October 5, 2026. The registration of the common stock under Section 12(b) of the Exchange Act, will terminate 90 days after that filing, on or about December 24, 2026. The Company will remain subject to the reporting requirements of the Exchange Act through and after that date.
7. | STOCK BASED COMPENSATION EXPENSE |
Equity incentive plans
As of September 30, 2026, the Company had adopted three equity incentive plans in 2007 (the “2007 Plan”), 2017 (the “2017 Plan”) and 2024 (the “2024 Plan”), and together with the 2007 Plan and the 2017 Plan, (the “Stock Plans”) to provide for the grant of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units and other stock or cash-based awards to our directors, employees, non-employee directors and service providers. Equity awards are granted with an exercise price per share equal to at least the estimated fair value of the underlying common stock on the date of grant. The vesting period is determined through individual award agreements. Awards generally expire
As of September 30, 2026, a total of
22
Since December 6, 2024, we have not granted and do not intend to grant any further awards under the 2007 Plan or the 2017 Plan.
Time-Based Restricted Stock
Time-based restricted stock units (RSUs) granted to employees under the 2024 Plan typically vest over to
The following table summarizes the activity related to RSUs subject to time-based vesting requirements for the nine months ended September 30, 2026:
| | RSUs | |||
| | Number of Shares | | | Weighted Average Grant Date Fair Value |
Non-vested as of December 31, 2025 | | | | $ | |
Granted | | | | | |
Vested | | ( | | | |
Forfeited | | ( | | | |
Non-vested as of September 30, 2026 | | | | $ | |
As of September 30, 2026, total unrecognized stock-based compensation cost for RSUs was approximately $
Determination of fair value of stock options
As of September 30, 2026 and December 31, 2025, the Company had approximately
A summary of the Company’s stock option plan and the changes during the period ended September 30, 2026 is presented below:
| | | | | | | Weighted | | | |
|
| | | | Weighted | | Average | | | |
| |
| | Number of | | Average | | Remaining | | Aggregate |
| ||
| | Outstanding | | Exercise | | Contractual | | Intrinsic |
| ||
| | Options | | Price | | Years | | Value |
| ||
Balance, December 31, 2025 |
| | | $ | |
|
| | | | |
Expired |
| ( | | | |
| |
| | | |
Forfeited | | ( | | | | | | | | | |
Balance, September 30, 2026 |
| | | $ | |
| | $ | — | (1) | |
Vested and Exercisable, September 30, 2026 |
| | | $ | |
| | $ | — | (1) | |
Vested and Expected to Vest, September 30, 2026 |
| | | $ | |
| | $ | — | (1) | |
(1) The Company’s closing stock price as of September 30, 2026 is $
As of September 30, 2026, there was no significant unrecognized stock-based compensation cost for stock options granted.
23
Stock-based compensation included in the condensed consolidated statements of operations was as follows:
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2026 | | 2025 | | 2026 | | 2025 | ||||
Cost of goods sold | | $ | | | $ | | | $ | | | $ | |
Research and development |
| | | | | | | | | | | |
Selling and marketing |
| | | | | | |
| | |
| |
General and administrative | | | | | | | |
| | | | |
Total stock-based compensation expense |
| $ | | | $ | | | $ | | | $ | |
8. | TAXES |
The Company estimates an annual effective tax rate of (
Due to the Company’s history of losses since inception, there is not enough evidence at this time to support that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a full valuation allowance, since the Company does not currently believe that realization of its deferred tax assets is more likely than not. As of September 30, 2026, the Company has
9. | NET INCOME (LOSS) PER SHARE |
Net loss per common share (“EPS”) is presented for both Basic EPS and Diluted EPS. Basic EPS is based on the weighted-average number of common shares outstanding during the period. Diluted EPS is based on the weighted-average number of common shares and common shares equivalents outstanding during the period. Diluted shares outstanding includes the dilutive effect of in-the-money options and convertible securities. The dilutive effect of such equity awards is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options and the amount of compensation cost for future service that has not yet been recognized are collectively assumed to be used to repurchase shares. Diluted EPS for convertible securities is calculated using the ‘if-converted’ method, assuming all convertible securities outstanding during the period were converted into common stock at the beginning of the reporting period, resulting in an adjustment to both the numerator net income (loss) and denominator (weighted average shares outstanding) to reflect the potential dilution from such conversions.
When an entity has a loss from operations, including potential shares in the denominator of diluted per share computations will generally be anti-dilutive, even if the entity has net income after adjusting for discontinued operations. That is, including potential shares in the denominator of the earnings per share calculation for a loss-making entity will generally decrease the loss per share and, therefore, those shares should be excluded from calculations of diluted earnings per share.
In computing the net loss available to common shareholders, adjustments to the carrying value of preferred shares as a result of a modification accounted for as an extinguishment during a period should be subtracted or added to the net loss in arriving at the net loss available to common shareholders.
The
24
The following data show the amounts used in computing EPS and the effect on income and the weighted average number of shares for the three months ended September 30, 2026 and 2025:
| | | Three Months Ended September 30, | |||
(in thousands, except share and per share data) | | 2026 | | 2025 | ||
Net loss available to common shareholders used in basic and diluted earnings per share | | $ | ( | | $ | ( |
Weighted average number of common shares used in basic and diluted earnings per share | |
| | |
| |
Net loss per common share – basic and diluted | | $ | ( | | $ | ( |
The following data show the amounts used in computing EPS and the effect on income and the weighted average number of shares for the nine months ended September 30, 2026 and 2025:
| | Nine Months Ended September 30, | ||||
(in thousands, except share and per share data) | | 2026 | | 2025 | ||
Net loss available to common shareholders used in basic and diluted earnings per share | | $ | ( | | $ | ( |
Weighted average number of common shares used in basic and diluted earnings per share | |
| | |
| |
Net loss per common share – basic and diluted | | $ | ( | | $ | ( |
For the nine months ended September 30, 2026 and 2025, the following items have been excluded from the computation of diluted net loss per share because the effect of including these would have been anti-dilutive:
Nine Months Ended September 30: | | 2026 | | 2025 |
Incentive stock options |
| |
| |
Restricted stock units | | | | |
Warrants | | | | |
Shares available for future issuance under the Series P Preferred Stock | | | | — |
Shares available for future issuance under the convertible debt note | | | | — |
Total |
| |
| |
10. | RELATED PARTY TRANSACTIONS |
Gulf Islamic Investments Holding, LLC (“GII”)
In connection with the hiring in 2023 of the Company’s Chief Financial Officer, Erick DeOliveira, the Company has expensed and accrued $
Fiza
During the three and nine months ended September 30, 2026 and 2025, there were no related party transactions with Fiza other than the financing transactions and conversions described in Note 5.
11. | COMMITMENTS AND CONTINGENCIES |
Litigation
From time to time, the Company may be involved in lawsuits, claims, investigations, and proceedings consisting of intellectual property, commercial, employment, and other matters, which arise in the ordinary course of business. In accordance with ASC Topic 450, Contingencies, the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
25
On May 16, 2022, we entered into a merger agreement (the “EdtechX Merger Agreement”) with EdtechX Holdings Acquisition Corp II (“EdtechX”), a Special Purpose Acquisition Company (“SPAC”). The EdtechX Merger Agreement was terminated on June 21, 2023. On July 12, 2024, EdtechX filed a complaint in the Superior Court of the State of Delaware in connection with the termination of the EdtechX Merger Agreement, claiming breaches of contract and the implied covenant of good faith and fair dealing and seeking damages of approximately $
Purchase Obligations
The Company has agreements with hardware suppliers to purchase inventory. As of September 30, 2026, the Company had $
12.MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE
The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:
For the three months ended September 30, 2026 and 2025, there were
As of September 30, 2026,
13. | EMPLOYEE BENEFITS |
The Company maintains a qualified 401(k) plan (the “401(k) Plan”) which allows participants to defer from
26
14. | SEGMENT REPORTING |
The Company’s chief operating decision maker is its chief executive officer who reviews financial information presented on a consolidated basis for the purposes of making operating decisions, assessing financial performance, and allocating resources. The Company’s chief operating decision maker reviews segment performance and allocates resources based upon revenues and expenses. As the Company has only
The following table presents selected financial information about revenues, expenses and net loss for the three and nine months ended September 30, 2026 and 2025 for the Company’s
| | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| ||||||||
| | 2026 | | 2025 | | 2026 | | 2025 | |
| ||||
Revenues: | | | | | | | | | | | | | | |
Hardware | | $ | | | $ | | | $ | | | $ | | | |
Software | | | | | | | | | | | | | | |
Services | | | | | | | | | | | | | | |
Total revenues | | | | | | | | | | | | | | |
Cost of goods sold | | | | | | | | | | | | | | |
Hardware | | | | | | | | | | | | | | |
Software | | | | | | | | | | | | | | |
Services | | | | | | | | | | | | | | |
Excess and obsolete | | | | | | | | | | | | | | |
Total cost of goods sold | | | | | | | | | | | | | | |
Gross profit | |
| | |
| | |
| | |
| | | |
Operating expenses: | |
| | |
| | |
| | |
| | | |
Research and development | |
| | |
| | |
| | |
| | | |
Software engineering | | | | | | | | | | | | | | |
Platform engineering | | | | | | | | | | | | | | |
Sales | |
| | |
| | |
| | |
| | | |
General and administrative | |
| | |
| | |
| | |
| | | |
Marketing and business development | |
| | |
| | |
| | |
| | | |
International sales | | | | | | | | | | | | | | |
Gain from settlement of vendor claims | | | — | | | — | | | ( | | | — | | |
Total operating expenses | |
| | |
| | |
| | |
| | | |
Loss from operations | |
| ( | |
| ( | |
| ( | |
| ( | | |
Other (expense) income: | |
| | |
| | |
| | |
| | | |
Interest expense | |
| ( | |
| ( | |
| ( | |
| ( | | |
Other income, net | |
| | |
| | |
| | |
| | | |
Gain on extinguishment of debt | | | — | | | — | | | | | | — | | |
Gain on change in fair value of Series P and P-2 Preferred Stock liability | | | | | | — | | | | | | — | | |
Gain (loss) on change in fair value of convertible debt | | | | | | ( | | | ( | | | ( | | |
Loss before income taxes | |
| ( | |
| ( | |
| ( | |
| ( | | |
Income tax expense | |
| — | |
| ( | |
| | |
| | | |
Segment net loss | | $ | ( | | $ | ( | | $ | ( | | $ | ( | | |
15. | SUBSEQUENT EVENTS |
Management has evaluated subsequent events and has determined that there were no subsequent events that required recognition or disclosure in the financial statements as of and for the period ended September 30, 2026, except as follows.
27
NASDAQ Delisting
As described in Note 6, on September 25, 2026, the Company filed a Form 25 with the SEC under Rule 12d2-2(c) of the Exchange Act to delist its common stock from The Nasdaq Stock Market LLC (“Nasdaq”). The delisting became effective on October 5, 2026, ten days after the Form 25 was filed. The registration of the Company’s common stock under Section 12(b) of the Exchange Act will terminate on or about December 24, 2026, 90 days after the Form 25 was filed. The Company’s common stock continues to be quoted on the OTCQB Venture Market tier of OTC Markets under the symbol “ZSPC.” The Company remains subject to the reporting requirements of the Exchange Act.
Bridge Note
On October 6, 2026, the Company issued a Senior Secured Note (the “Bridge Note”) to an investor (the “Bridge Investor”). The Bridge Note provides for advances of up to $
The Bridge Note bears interest at
The Bridge Note is secured by substantially all of the assets of the Company and its domestic subsidiaries, including their intellectual property. Under an intercreditor agreement with the Senior Lender, the senior sub-tranches rank pari passu in payment and lien priority with the Amended Note, and the subordinated sub-tranches rank junior to it. Neither the Senior Lender nor the Bridge Investor may take enforcement action without the other’s consent until the earliest of May 15, 2027, the termination of a related pending transaction and the commencement of an insolvency proceeding involving the Company. Under a separate intercreditor agreement, Itria’s lien is subordinated to the Bridge Investor’s. Itria may continue to receive scheduled payments. Until the Bridge Note is repaid, Itria may not declare a default or modify its loan documents. Until the earlier of May 15, 2027 and repayment of the Bridge Note, Itria may not take enforcement action.
28
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Historical results may not be indicative of future performance. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and all other non-historical statements in this discussion are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly in “Risk Factors” or in other sections of this report.
In this discussion, we use certain non-GAAP financial measures. Explanation of these non-GAAP financial measures and reconciliation to the most directly comparable GAAP financial measures are included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Investors should not consider non-GAAP financial measures in isolation or as substitutes for financial information presented in compliance with GAAP.
Overview
We are a leading provider of augmented and virtual reality educational technology products, focusing primarily on United States K-12 schools, the Career and Technical Education sector, and select international markets. Our proprietary hardware and software platform delivers interactive, stereoscopic three-dimensional (3D) learning experiences without the need for VR goggles or specialty glasses. We generate revenue through the sale of our hardware (such as our Inspire and Imagine laptops and tracked styluses), and software licenses for STEM and CTE applications, and implementation and professional development services.
Our Business Model
We generate revenue by selling our hardware products, software and professional development services to our customers.
Hardware Product Revenue
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 47% and 52% of our total revenue for the nine months ended September 30, 2026 and 2025, respectively.
Software Applications Revenue
We derive software applications revenue from the sale of licenses and subscription plans to the software applications available on our platform.
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 43% and 38% of our total revenue for the nine months ended September 30, 2026 and 2025, respectively. We expect that going forward our software applications revenue will grow faster in absolute dollars and as a percentage of our total revenue than our product or service revenues.
We typically invoice our customers annually in advance of providing software and services. Software sales consist of licenses of our functional intellectual property that are materially satisfied at a point in time when key codes are provided to allow customers to access the software. In transactions where a third-party is involved in providing software licenses to a customer, we recognize the revenue from the third-party ratably over-time on a straight-line basis.
29
Services Revenue
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 10% and 11% of our total revenue for the nine months ended September 30, 2026 and 2025, respectively.
Key Metrics
We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. The calculation of the key metrics discussed below may differ significantly from other similarly titled metrics used by other companies, analysts, investors and other industry participants.
Bookings Growth
We track the bookings growth in our business very closely and we believe this is a key indicator of our business. Bookings represent customer orders that have hardware, software and service components. Bookings indicate future revenue, which lags based on product shipping date, monthly recognition of certain subscription revenue and service delivery completion. Our bookings growth is represented below for each of the periods presented:
| | Three Months ended September 30, | | Nine months ended September 30, | | ||||||||
(in thousands) | | 2026 | | 2025 | | 2026 | | 2025 | | ||||
Bookings | | $ | 4,142 | | $ | 6,790 | | $ | 16,160 | | $ | 22,064 | |
United States CTE & K-12 Bookings
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 50% and 53% for the three months ended September 30, 2026 and 2025, respectively, while K-12 bookings accounted for approximately 50% and 47%, for the three months ended September 30, 2026 and 2025, respectively. CTE bookings accounted for approximately 48% and 32% for the nine months ended September 30, 2026 and 2025, respectively, while K-12 bookings accounted for approximately 52% and 68%, for the nine months ended September 30, 2026 and 2025, respectively.
International Bookings
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 31% and 17% for the three months ended September 30, 2026 and 2025, respectively. International bookings accounted for approximately 17% and 14% for the nine months ended September 30, 2026 and 2025, respectively.
30
Software Subscription Renewable Revenue Growth
We believe that our ability to renew and increase the software revenues on our platform from existing customers is an indicator of market penetration, adoption, the growth of our business and future revenue trends. Software sales of our solutions are purchased on an annual or multi-year basis, as well as one-time licenses to allow (i) an unlimited number of users on a particular device or (ii) a particular number of users to access our applications. We include subscriptions for both device and user-based applications and services in our measure of renewing revenue. Our customers typically enter into annual licenses or subscriptions with us, although some enter into multi-year agreements. Customers have no contractual obligation to renew their licenses or subscriptions with us after the completion of their initial term.
We believe the level of renewing revenue is an important indicator of future business success, as it is an indicator of sales growth of customer expansion accounts, utilization of our platform and future margin improvement. Our renewing revenue includes:
| (i) | renewal of prior customer agreements in whole or in part, plus |
| (ii) | additional software titles added to existing customer agreements, and |
| (iii) | software revenues related to sales of new systems as part of an expansion of the customer footprint. |
The above aspects of software revenue are captured in the annualized contract value (“ACV”) and net dollar revenue retention rate (“NDRR”) metrics described below under “Retention and Expansion of Customers.” We believe that these annualized measures provide important context to understanding the strength and growth of our software license revenue. We expect to accelerate the transition of our revenue mix to software from hardware through continued improvement in renewing revenue from the retention and expansion of our customers.
Retention and Expansion of Customers
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.
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 nine months ended September 30, 2026 and 2025 was approximately $7.7 million and $10.2 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 September 30, 2026 and 2025, our NDRR on customers with at least $50,000 of ACV was 68% and 77%, respectively.
Average Term Length
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.
31
Non-GAAP Financial Measures
We use non-GAAP financial measures in addition to our results of operations reported in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools when assessing our operating performance and should not be considered in isolation or as a substitute for GAAP measures, including gross profit and net income (loss). We may calculate or present our non-GAAP financial measures differently than other companies who report measures with similar titles and, as a result, the non-GAAP financial measures we report may not be comparable with those of companies in our industry or in other industries.
Adjusted EBITDA
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.
The following table presents our Adjusted EBITDA from operations for each of the periods presented:
| | Three Months Ended September 30, | | Nine Months Ended September 30, | |||||||||
| | 2026 | | 2025 | | 2026 | | 2025 | | ||||
GAAP Net Loss | | $ | (1,240) | | $ | (6,169) | | $ | (7,510) | | $ | (18,103) | |
Add back (deduct): | |
| | |
| | |
| | |
| | |
Interest expense | |
| 59 | |
| 306 | |
| 644 | |
| 1,109 | |
Depreciation and amortization | |
| 3 | |
| 6 | |
| 10 | |
| 7 | |
Income tax expense (benefit) | |
| — | |
| (1) | |
| 9 | |
| 12 | |
Offering costs | | | — | | | — | | | 146 | | | — | |
Stock-based compensation | |
| 1,573 | |
| 2,742 | |
| 4,717 | |
| 5,582 | |
Gain on extinguishment of debt | | | — | | | — | | | (4,052) | | | — | |
(Gain) loss on change in fair value of convertible debt | |
| (1,160) | |
| 1,148 | |
| 2,474 | |
| 623 | |
Gain on change in fair value of Series P and P-2 Preferred Stock liability | |
| (1,957) | |
| — | |
| (2,164) | |
| — | |
Adjusted EBITDA | | $ | (2,722) | | $ | (1,968) | | $ | (5,726) | | $ | (10,770) | |
Components of Results of Operations
Revenue
Our revenue consists of hardware revenue, software applications revenue and services revenue. We recognize revenue at the amount to which we expect to be entitled when control of the products, software or services is transferred to its customers as described below. We have elected to record revenue net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded within other current liabilities until remitted to the relevant government authority.
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.
32
Software Applications Revenue — Software applications revenue is generated from the sale of internally developed and third-party applications enabled for use on our products licensed over specified contractual terms. Most software applications reside on our products and require license keys to activate, although certain applications are web-based and require user log-ins. Customers who license our software use it on our products under different subscription terms based on the number of devices or users and length of the contract. We do not require customers to license software applications when purchasing our products.
We typically invoice our customers annually in advance based on their subscription. Software sales that consist of licenses of functional intellectual property are satisfied at a point in time when key codes are provided to allow customers to access the software. In transactions where we provide user-based software licenses to a customer, we recognize software revenue ratably on a straight-line basis. For the sale of third-party applications where we obtain control of the application before transferring it to the customer, we recognize revenue based on the gross amount billed to customers.
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.
Cost of Goods Sold
Cost of goods sold consists of cost of hardware sold, cost of software sold and cost of services sold. Overall cost of revenue is largely dependent on a combination of revenue types, hardware component supply and pricing and cost of third-party software applications.
Cost of Hardware Sold — Cost of hardware sold consists primarily of costs associated with the manufacture of our products and personnel-related expenses associated with manufacturing employees, including salaries, benefits, bonuses, overhead and stock-based compensation.
All of our products are manufactured by manufacturers located primarily in China. We have entered into agreements for the supply of many components; however, there can be no guarantee that we will be able to extend or renew these agreements on similar terms, or at all. Although most components in the products essential to our business are generally available from multiple sources, certain custom and new technology components are currently obtained from single or limited sources. We compete for various components with other participants in the markets for personal computers, tablets and accessories. Therefore, many components, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant commodity pricing fluctuations.
Cost of hardware sold also includes costs of acquiring third-party devices and components, and costs associated with shipping devices to customers. We have outsourced much of our transportation and logistics management for the distribution of products. While these arrangements can lower operating costs, they also reduce our direct control over distribution. During the COVID-19 pandemic, certain of our logistical service providers experienced disruptions. Refer to “Supply Chain Challenges” for more information.
Cost of goods sold related to delivered hardware and bundled software, including estimated standard warranty costs, are recognized at the time of sale.
Cost of Software Sold — Cost of software sold consists primarily of fees paid to third parties for software licenses, costs associated with the technical support of software applications and the cost of our customer success operations. Costs incurred to provide product-related bundled services and unspecified software upgrade rights are recognized as cost of sales as incurred.
33
Cost of Services Sold — Cost of services sold consists primarily of personnel costs associated with the development and delivery of the services. Some of these costs are internal resources while others are associated with third parties engaged to develop or deliver the services. Other costs include travel and technology used in the development or delivery of the services. Cost of services revenue, including those for extended service type warranty and repair expenses relating to our products, are recognized as cost of sales as incurred or upon completion of the service obligation.
Operating Expenses
Our operating expenses consist primarily of selling, general and administrative expenses and product engineering and R&D expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation and sales commissions. Operating expenses also include overhead costs, including rent, utilities, insurance, legal and office supplies.
Selling and marketing — Selling and marketing expenses consist of labor and other costs directly related to the promotion of our products, including compensation for our marketing team and travel expense incurred in connection with promotional efforts.
General and administrative expenses — General, and administrative expenses consist primarily of personnel-related expenses associated with our finance, legal, information technology, human resources, facilities and administrative employees, including salaries, benefits, bonuses, sales commissions and stock-based compensation. Commissions paid on the sale of hardware and short-term software licenses are recognized upon delivery. Commissions paid on the sale in which at least a portion of the goods and services will be satisfied over a period of time (services primarily consisting of extended warranties) are not material and are expensed when incurred. General and administrative expenses also include external legal, accounting and other professional services fees, operational software and subscription services and other corporate expenses.
Research and development expenses — Research and development expenses consist primarily of product engineering and personnel-related expenses associated with our hardware and software engineering employees, including salaries, benefits, bonuses and stock-based compensation. R&D expenses also include third-party contractor or professional services fees, and software and subscription services dedicated for use by our engineering organization. We expect that our R&D expenses will increase in absolute dollars as our business grows, particularly as we incur additional costs related to continued investments in our platform and products. In addition, R&D expenses that qualify as internal-use software development costs are capitalized, the amount of which may fluctuate significantly from period-to-period.
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.
Interest Expense
Interest expense consists primarily of changes in accrued interest expense, interest payments and amortization of debt issuance costs for our debt facilities. See “Liquidity and Capital Resources — Debt and Financing Arrangements.”
Income Tax Expense (Benefit)
Income tax expense (benefit) consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business.
34
Results of Operations
The following table sets forth our results of operations for the three and nine months ended September 30, 2026 and 2025:
| | Three Months Ended September 30, | | Change | | | Nine Months Ended September 30, | | Change | | | ||||||||||||||
(in thousands) | | 2026 | | 2025 | | $ | | % | | | 2026 | | 2025 | | $ | | % | | | ||||||
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | |
Hardware |
| | 1,049 | | $ | 3,768 | | $ | (2,719) | | (72) | % |
| | 6,703 | | $ | 11,908 | | $ | (5,205) | | (44) | % | |
Software |
| | 2,016 | |
| 4,319 | |
| (2,303) | | (53) | % |
| | 6,128 | |
| 8,667 | |
| (2,539) | | (29) | % | |
Services |
| | 528 | |
| 706 | |
| (178) | | (25) | % |
| | 1,409 | |
| 2,436 | |
| (1,027) | | (42) | % | |
Total Revenues |
| | 3,593 | |
| 8,793 | |
| (5,200) | | (59) | % |
| | 14,240 | |
| 23,011 | |
| (8,771) | | (38) | % | |
Cost of goods sold(1) |
| | 1,410 | |
| 4,294 | |
| (2,884) | | (67) | % |
| | 6,226 | |
| 12,132 | |
| (5,906) | | (49) | % | |
Gross profit |
| | 2,183 | |
| 4,499 | |
| (2,316) | | (51) | % |
| | 8,014 | |
| 10,879 | |
| (2,865) | | (26) | % | |
Operating expenses: |
| | | |
| | |
| | | | |
| | | |
| | |
| | | | | |
Research and development(1) |
| | 865 | |
| 1,568 | |
| (703) | | (45) | % |
| | 2,671 | |
| 3,937 | |
| (1,266) | | (32) | % | |
Selling and marketing(1) |
| | 2,480 | |
| 4,340 | |
| (1,860) | | (43) | % |
| | 7,055 | |
| 12,290 | |
| (5,235) | | (43) | % | |
General and administrative(1) |
| | 3,257 | |
| 3,385 | |
| (128) | | (4) | % |
| | 10,375 | |
| 11,159 | |
| (784) | | (7) | % | |
Gain from settlement of vendor claims |
| | — | |
| — | |
| — | | — | |
| | (1,198) | |
| — | |
| (1,198) | | N/A | | |
Total operating expenses |
| | 6,602 | |
| 9,293 | |
| (2,691) | | (29) | % |
| | 18,903 | |
| 27,386 | |
| (8,483) | | (31) | % | |
Loss from operations |
| | (4,419) | |
| (4,794) | |
| 375 | | (8) | % |
| | (10,889) | |
| (16,507) | |
| 5,618 | | (34) | % | |
Other (expense) income: |
| | | |
| | |
| | | | |
| | | |
| | |
| | | | | |
Interest expense |
| | (59) | |
| (306) | |
| 247 | | 81 | % |
| | (644) | |
| (1,109) | |
| 465 | | 42 | % | |
Other income, net |
| | 121 | |
| 78 | |
| 43 | | 55 | % |
| | 290 | |
| 148 | |
| 142 | | 96 | % | |
Gain on extinguishment of convertible and other debt | | | — | | | — | | | — | | N/A | | | | 4,052 | | | — | | | 4,052 | | N/A | | |
Gain on change in fair value of Series P and P-2 Preferred Stock liability |
| | 1,957 | |
| — | |
| 1,957 | | N/A | |
| | 2,164 | |
| — | |
| 2,164 | | N/A | | |
Gain (loss) on change in fair value of convertible debt |
| | 1,160 | |
| (1,148) | |
| 2,308 | | (201) | % |
| | (2,474) | |
| (623) | |
| (1,851) | | 297 | % | |
Loss before income taxes |
| | (1,240) | |
| (6,170) | |
| 4,930 | | (80) | % |
| | (7,501) | |
| (18,091) | |
| 10,590 | | (59) | % | |
Income tax expense |
| | — | |
| (1) | |
| 1 | | N/A | % |
| | 9 | |
| 12 | |
| (3) | | (25) | % | |
Net loss | | $ | (1,240) | | $ | (6,169) | | $ | 4,929 | | (80) | % | | $ | (7,510) | | $ | (18,103) | | $ | 10,593 | | (59) | % | |
| (1) | Includes stock-based compensation expense as follows: |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
(in thousands) | | 2026 | | 2025 | | 2026 | | 2025 | | ||||
| | (unaudited) | | | | | | | | ||||
Cost of goods sold | | $ | 20 | | $ | 26 | | $ | 60 | | $ | 58 | |
Research and development | |
| 85 | |
| 183 | |
| 251 | |
| 360 | |
Sales and marketing | |
| 384 | |
| 930 | |
| 1,166 | |
| 1,739 | |
General and administrative | |
| 1,084 | |
| 1,603 | |
| 3,240 | |
| 3,425 | |
Total stock-based compensation expense | | $ | 1,573 | | $ | 2,742 | | $ | 4,717 | | $ | 5,582 | |
35
Comparison of financial results for the three months ended September 30, 2026 and 2025
Revenue
| | Three Months Ended September 30, | | Change |
| |||||||
(in thousands) | | 2026 | | 2025 | | $ | | % |
| |||
Revenues: | | | | | | | | | | | | |
Hardware | | $ | 1,049 | | $ | 3,768 | | $ | (2,719) | | (72) | % |
Software | |
| 2,016 | |
| 4,319 | |
| (2,303) | | (53) | % |
Services | |
| 528 | |
| 706 | |
| (178) | | (25) | % |
Total Revenues | | $ | 3,593 | | $ | 8,793 | | $ | (5,200) | | (59) | % |
Retention and Expansion Metrics | |
| | |
| | |
| | | | |
Annualized Contract Value (ACV) | | $ | 7,700 | | $ | 10,172 | | $ | (2,472) | | (24) | % |
Net Dollar Retention Rate (NDRR) | |
| 68 | % |
| 77 | % | | (9) | % | | |
Total revenue decreased by $5.2 million, or 59%, for the three months ended September 30, 2026 to $3.6 million from $8.8 million for the three months ended September 30, 2025.
Hardware revenue decreased by $2.7 million or 72%, to $1.0 million for the three months ended September 30, 2026, from $3.8 million for the three months ended September 30, 2025. The decrease was primarily due to lower unit volume, which we believe resulted from a combination of factors, including reduced customer demand, reduced sales coverage following reductions in our sales headcount in December 2025, and lower marketing spend. In addition, our limited liquidity constrained our ability to purchase inventory, which we believe may have limited our ability to drive customer orders during the period. For the three months ended September 30, 2026 and 2025, hardware revenue as a percentage of total revenue was 29% and 43%, respectively.
Software revenue decreased by $2.3 million or 53%, to $2.0 million for the three months ended September 30, 2026, from $4.3 million for the three months ended September 30, 2025. For the three months ended September 30, 2026 and 2025, software revenue as a percentage of total revenue was 56% and 49%, respectively.
Our key software retention metrics are as follows: (1) ACV as of September 30, 2026 decreased to $7.7 million as compared to September 30, 2025 of $10.2 million and (2) NDRR for the trailing twelve-month period ended September 30, 2026 was 68%, as compared to 77% for the trailing twelve-month period ended September 30, 2025.
Service revenue decreased by $0.2 million or 25%, to $0.5 million for the three months ended September 30, 2026, from $0.7 million for the three months ended September 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 Q3 FY 25. For the three months ended September 30, 2026 and 2025, services revenue as a percentage of total revenue was 15% and 8%, respectively.
Cost of Goods Sold
| | Three Months Ended September 30, | | Change | | |||||||
(in thousands) | | 2026 | | 2025 | | $ | | % | | |||
Cost of goods sold: | | | | | | | | | | | | |
Hardware | | $ | 504 | | $ | 2,665 | | $ | (2,161) | | (81) | % |
Software | |
| 414 | |
| 1,081 | |
| (667) | | (62) | % |
Services | |
| 483 | |
| 501 | |
| (18) | | (4) | % |
Excess and obsolete | |
| 9 | |
| 47 | |
| (38) | | (81) | % |
Total cost of goods sold | | $ | 1,410 | | $ | 4,294 | | $ | (2,884) | | (67) | % |
For the three months ended September 30, 2026, total cost of goods sold decreased by $2.9 million, or 67%, to $1.4 million from $4.3 million for the three months ended September 30, 2025. This decrease was primarily attributable
36
to reduced hardware costs of $2.2 million due to fewer units sold. For the three months ended September 30, 2026 and 2025, gross margin was 61% and 51%, respectively.
Cost of hardware sold decreased by $2.2 million, or 81%, to $0.5 million for the three months ended September 30, 2026, from $2.7 million for the three months ended September 30, 2025. The decrease in cost of hardware sold was primarily attributable to a decrease in the volumes shipped of Inspire laptops.
For the three months ended September 30, 2026 and 2025, hardware gross margin was 52% and 29%, respectively.
Cost of software sold decreased by $0.7 million or 62%, to $0.4 million for the three months ended September 30, 2026, from $1.1 million for the three months ended September 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 September 30, 2026 and 2025, software gross margin was 79% and 68%, respectively.
Cost of services sold decreased by $18,000 or 4%, to $0.5 million for the three months ended September 30, 2026, from $0.5 million for the three months ended September 30, 2025. For the three months ended September 30, 2026 and 2025, services gross margin was 9% and 25%, respectively.
Operating Expenses
| | Three Months Ended September 30, | | Change |
| |||||||
(in thousands) | | 2026 | | 2025 | | $ | | % |
| |||
| | (unaudited) | | | | | | | ||||
Operating Expenses: | | | | | | | | | | | |
|
Research and development | | $ | 865 | | $ | 1,568 | | $ | (703) | | (45) | % |
Selling and marketing | |
| 2,480 | |
| 4,340 | |
| (1,860) | | (43) | % |
General and administrative | |
| 3,257 | |
| 3,385 | |
| (128) | | (4) | % |
Total operating expenses | | $ | 6,602 | | $ | 9,293 | | $ | (2,691) | | (29) | % |
For the three months ended September 30, 2026, operating expenses decreased by $2.7 million, or 29%, to $6.6 million from $9.3 million for the three months ended September 30, 2025. The decrease in expenses was primarily due to decreased costs in personnel expenses, marketing, travel related expenses and consulting expenses and fees incurred through the three months ended September 30, 2026.
Research and development expenses decreased by $0.7 million or 45%, to $0.9 million for the three months ended September 30, 2026, from $1.6 million for the three months ended September 30, 2025. The decrease in expenses was primarily attributable to a decrease in compensation costs resulting from lower headcount.
Selling and marketing expenses decreased by $1.9 million or 43%, to $2.5 million for the three months ended September 30, 2026, from $4.3 million for the three months ended September 30, 2025. The decrease in expenses was mainly due to lower compensation and commission expenses associated with the reduced sales team and fewer sales, and less travel related expenses, reflecting decreased staff size and fewer performance-based incentives being reached.
General and administrative expenses decreased by $0.1 million or 4%, to $3.3 million for the three months ended September 30, 2026, from $3.4 million for the three months ended September 30, 2025. The decrease in expenses was primarily attributable to lower compensation expenses and lower consulting related expenses primarily related to lower audit costs and the fees incurred for the issuance of convertible debt in April 2025.
37
Interest Expense
| Three Months Ended | | | | | | | ||||
| September 30, | | | Change | | ||||||
(in thousands) | | 2026 | | | 2025 | | | $ | | % | |
Interest expense | $ | (59) | | $ | (306) | | $ | 247 | | 81 | % |
For the three months ended September 30, 2026, interest expense decreased by $0.2 million, or 81%, to $0.1 million, from $0.3 million for the three months ended September 30, 2025. The decrease in interest expense was primarily attributable to lower debt outstanding in the three months ended September 30, 2026 compared to the three months ended September 30, 2025.
Gain on Change in Fair Value of Series P and P-2 Preferred Stock Liability
Gain on Change in Fair Value of Series P and P-2 Preferred Stock Liability was approximately $2.0 million and $0 in the three months ended September 30, 2026 and 2025, respectively. This is a result of the changing inputs into the fair value model for the preferred stock liability for which the Company has elected the fair value option.
Gain (loss) on Change in Fair Value of Convertible Debt
Gain (loss) on Change in Fair Value of Convertible Debt was approximately $1.2 million and ($1.1) million in the three months ended September 30, 2026 and 2025, respectively. This is a result of the changing inputs into the fair value model for the convertible debt for which the Company has elected the fair value option.
Income Tax Expense
Income tax expense for each of the three months ended September 30, 2026 and 2025 was immaterial. We estimate an annual effective tax rate of (0.06)% for the year ending December 31, 2026. Although the Company generated estimated taxable income for the nine months ended September 30, 2026, it expects to incur losses during the remainder of the fiscal year, resulting in a projected full-year loss for tax purposes. The United States federal statutory rate is 21% while our effective tax rate for the years ended December 31, 2025 and 2024 was 0.1% and 0.1%, respectively. No federal or state income taxes are expected outside of immaterial state tax payments.
Comparison of financial results for the nine months ended September 30, 2026 and 2025
Revenue
| | Nine Months Ended September 30, | | Change |
| |||||||
(in thousands) | | 2026 | | 2025 | | $ | | % |
| |||
Revenues: | | | | | | | |
| | | | |
Hardware | | $ | 6,703 | | $ | 11,908 | | $ | (5,205) | | (44) | % |
Software | |
| 6,128 | |
| 8,667 | |
| (2,539) | | (29) | % |
Services | |
| 1,409 | |
| 2,436 | |
| (1,027) | | (42) | % |
Total Revenues | | $ | 14,240 | | $ | 23,011 | | $ | (8,771) | | (38) | % |
Retention and Expansion Metrics | |
| | |
| | |
| | | | |
Annualized Contract Value (ACV) | | $ | 7,700 | | $ | 10,172 | | $ | (2,472) | | (24) | % |
Net Dollar Retention Rate (NDRR) | |
| 68 | % |
| 77 | % |
| (9) | % | | |
Total revenue decreased by $8.8 million, or 38%, for the nine months ended September 30, 2026 to $14.2 million from $23.0 million for the nine months ended September 30, 2025. The decrease in revenue was primarily due to lower hardware and software revenues.
38
Hardware revenue decreased by $5.2 million or 44%, to $6.7 million for the nine months ended September 30, 2026, from $11.9 million for the nine months ended September 30, 2025. The decrease in hardware revenue was primarily due to lower unit volume, which we believe resulted from a combination of factors, including reduced customer demand, reduced sales coverage following reductions in our sales headcount in December 2025, and lower marketing spend. In addition, our limited liquidity constrained our ability to purchase inventory, which we believe may have limited our ability to drive customer orders during the nine months ended September 30, 2026. For the nine months ended September 30, 2026 and 2025, hardware revenue as a percentage of total revenue was 47% and 52%, respectively.
Software revenue decreased $2.5 million or 29%, to $6.1 million for the nine months ended September 30, 2026, from $8.7 million for the nine months ended September 30, 2025. The decrease was primarily due to lower hardware sales, as customers typically purchase software licenses for use with newly purchased hardware. For the nine months ended September 30, 2026 and 2025, software revenue as a percentage of total revenue was 43% and 38%, respectively.
Our key software retention metrics are as follows: (1) ACV as of September 30, 2026 decreased to $7.7 million as compared to September 30, 2025 of $10.2 million and (2) NDRR for the trailing twelve-month period ended September 30, 2026 was 68%, as compared to 77% for the trailing twelve-month period ended September 30, 2025.
Service revenue decreased by $1.0 million or 42%, to $1.4 million for the nine months ended September 30, 2026, from $2.4 million for the nine months ended September 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 nine months ended September 30, 2025. For the nine months ended September 30, 2026 and 2025, services revenue as a percentage of total revenue was 10% and 11%, respectively.
Cost of Goods Sold
| | Nine Months Ended September 30, | | Change |
| |||||||
(in thousands) | | 2026 | | 2025 | | $ | | % |
| |||
Cost of goods sold: | | | | | | | | | | | | |
Hardware | | $ | 3,605 | | $ | 8,010 | | $ | (4,405) | | (55) | % |
Software | |
| 1,624 | |
| 2,520 | |
| (896) | | (36) | % |
Services | |
| 971 | |
| 1,375 | |
| (404) | | (29) | % |
Excess and obsolete | |
| 26 | |
| 227 | |
| (201) | | (89) | % |
Total cost of goods sold | | $ | 6,226 | | $ | 12,132 | | $ | (5,906) | | (49) | % |
For the nine months ended September 30, 2026, total cost of goods sold decreased by $5.9 million, or 49%, to $6.2 million compared to $12.1 million for the nine months ended September 30, 2025. This decrease was primarily attributable to reduced hardware costs of $4.4 million due to fewer units sold partially, as well as reduced costs of software, services and excess and obsolete expenses during the nine months ended September 30, 2026. For the nine months ended September 30, 2026 and 2025, gross margin was 56% and 47%, respectively.
Cost of hardware sold decreased by $4.4 million, or 55%, to $3.6 million for the nine months ended September 30, 2026, from $8.0 million for the nine months ended September 30, 2025. The decrease in cost of hardware sold was primarily attributable to a decrease in the volumes shipped of Inspire laptops.
For the nine months ended September 30, 2026 and 2025, hardware gross margin was 46% and 33%, respectively.
Cost of software sold decreased by $0.9 million or 36%, to $1.6 million for the nine months ended September 30, 2026, from $2.5 million for the nine months ended September 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 nine months ended September 30, 2026 and 2025, software gross margin was 73% and 71%, respectively.
39
Cost of services sold decreased by $0.4 million or 29%, to $1.0 million for the nine months ended September 30, 2026, from $1.4 million for the nine months ended September 30, 2025. For the nine months ended September 30, 2026 and 2025, services gross margin was 31% and 44%, respectively.
Excess and obsolete expense decreased $0.2 million or 89%, to $26,000 for the nine months ended September 30, 2026, from $0.2 million in the nine months ended September 30, 2025. The decrease was attributable to the write-off of third-party software licenses in the nine months ending September 30, 2025.
Operating Expenses
| | Nine Months Ended September 30, | | Change |
| |||||||
(in thousands) | | 2026 | | 2025 | | $ | | % |
| |||
| | (unaudited) | | | | | | | ||||
Operating Expenses: | | | | | | | | | | | |
|
Research and development | | $ | 2,671 | | $ | 3,937 | | $ | (1,266) | | (32) | % |
Selling and marketing | |
| 7,055 | |
| 12,290 | |
| (5,235) | | (43) | % |
General and administrative | |
| 10,375 | |
| 11,159 | |
| (784) | | (7) | % |
Gain from settlement of vendor claims | | | (1,198) | | | — | | | (1,198) | | N/A | % |
Total operating expenses | | $ | 18,903 | | $ | 27,386 | | $ | (8,483) | | (31) | % |
For the nine months ended September 30, 2026, operating expenses decreased by $8.5 million, or 31%, to $18.9 million from $27.4 million for the nine months ended September 30, 2025. The decrease in expenses was primarily due to decreased costs in personnel expenses, travel related expenses and consulting expenses and fees incurred through the nine months ended September 30, 2026.
Research and development expenses decreased by $1.3 million or 32%, to $2.7 million for the nine months ended September 30, 2026, from $3.9 million for the nine months ended September 30, 2025. The decrease in expenses was primarily attributable to a decrease in compensation costs resulting from lower headcount.
Selling and marketing expenses decreased by $5.2 million or 43%, to $7.1 million for the nine months ended September 30, 2026, from $12.3 million for the nine months ended September 30, 2025. The decrease in expenses was mainly due to lower compensation and commission expenses associated with the reduced sales team and fewer sales, and less travel related expenses, reflecting decreased staff size and fewer performance-based incentives being reached.
General and administrative expenses decreased by $0.8 million or 7%, to $10.4 million for the nine months ended September 30, 2026, from $11.2 million for the nine months ended September 30, 2025. The decrease in expenses was primarily attributable to lower consulting related expenses primarily related to lower audit costs and the fees incurred for the issuance of convertible debt in March 2025.
Gain from settlement of vendor claims reflects a one-time settlement of litigation matters relating to former vendors, for which the vendor customer relationship has previously ceased.
Interest Expense
| Nine Months Ended | | | | | | | ||||
| September 30, | | | Change | | ||||||
(in thousands) | | 2026 | | | 2025 | | | $ | | % | |
Interest expense | $ | (644) | | $ | (1,109) | | $ | 465 | | 42 | % |
For the nine months ended September 30, 2026, interest expense decreased by $0.5 million, or 42%, to $0.6 million, from $1.1 million for the nine months ended September 30, 2025. The decrease in interest expense was primarily attributable to lower debt outstanding in the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025.
40
Gain on Extinguishment of Convertible and Other Debt
Gain on extinguishment of convertible and other debt was approximately $4.1 million in the nine months ended September 30, 2026, with no amount in the prior period.
Gain on Change in Fair Value of Series P and P-2 Preferred Stock Liability
Gain on Change in Fair Value of Series P and P-2 Preferred Stock Liability was approximately $2.2 million and $0 in the nine months ended September 30, 2026 and 2025, respectively. This is a result of the changing inputs into the fair value model for the preferred stock liability for which the Company has elected the fair value option.
Loss on Change in Fair Value of Convertible Debt
Loss on Change in Fair Value of Convertible Debt was approximately $2.5 million and approximately $0.6 million in the nine months ended September 30, 2026 and 2025, respectively. This is a result of the changing inputs into the fair value model for the convertible debt for which the Company has elected the fair value option.
Income Tax Expense
Income tax expense for each of the nine months ended September 30, 2026 and 2025 was immaterial. We estimate an annual effective tax rate of (0.06)% for the year ending December 31, 2026. Although the Company generated estimated taxable income for the nine months ended September 30, 2026, it expects to incur losses during the remainder of the fiscal year, resulting in a projected full-year loss for tax purposes. 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.
Cash Flows
The following table summarizes our cash flows for the periods presented:
| | Nine Months Ended September 30, | | ||||
(in thousands) | | 2026 | | 2025 | | ||
Net cash used in operating activities | | $ | (4,871) | | $ | (14,025) | |
Net cash used in investing activities | | $ | (22) | | $ | (21) | |
Net cash provided by financing activities | | $ | 4,786 | | $ | 13,709 | |
Operating Activities
For the nine months ended September 30, 2026, our operating activities used cash of $4.9 million, primarily due to our net loss of $7.5 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 $2.2 million partially offset by the changes in our operating assets and liabilities of $2.6 million, adjustments for non-cash charges, including stock-based compensation expense of $4.7 million, the change in fair value of convertible debt of $2.5 million, non-cash amortization of debt discount of $0.2 million, and bad debt expense of $42,000. The change in our operating assets and liabilities was primarily the result of a decrease in inventory of $0.8 million and an increase in accounts payable of $1.4 million and deferred revenue of $1.1 million, and accrued interest of $0.2 million, partially offset by an increase in accounts receivable of $0.4 million and prepaids and other assets of $0.3 million and a decrease in accrued expenses of $0.2 million.
41
For the nine months ended September 30, 2025, our operating activities used cash of $14.0 million, primarily due to our net loss of $18.1 million and the changes in our operating assets and liabilities of $2.4 million, partially offset by adjustments for non-cash charges, including stock-based compensation expense of $5.2 million, the change in fair value of convertible debt of $0.6 million, issuance of restricted stock units of $0.4 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 $0.5 million and prepaid and other assets of $1.0 million and a decrease in accounts payable of $1.7 million and deferred revenue of $0.6 million, partially offset by a decrease in inventory of $0.7 million and an increase in accrued expenses of $0.1 million and accrued interest of $0.7 million.
Investing Activities
For the nine months ended September 30, 2026 and 2025, net cash used in investing activities was immaterial due to our low capital equipment requirements.
Financing Activities
For the nine months ended September 30, 2026, net cash provided by financing activities was $4.8 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 $1.9 million.
For the nine months ended September 30, 2025, net cash provided by financing activities was $13.7 million primarily due to proceeds from convertible debt of $13.0 million, other debt issuances of $4.0 million, proceeds from issuance of common stock from equity line-of-credit of $3.6 million, and proceeds from exercise of stock options of $0.2 million partially offset by repayment of other debt issuances of $6.8 million, and fees paid for debt issuance of $0.1 million.
Liquidity and Capital Resources
As of September 30, 2026 and December 31, 2025, we had an accumulated deficit of $323.3 million and $315.8 million, respectively. Our net losses were $7.5 million and $18.1 million for the nine months ended
September 30, 2026 and 2025, respectively.
As of September 30, 2026 and December 31, 2025, we had cash, cash equivalents and restricted cash of $0.7 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 nine months ended September 30, 2026 elsewhere in this report for additional information. In the nine months ended September 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 nine months ended September 30, 2026 included elsewhere in this report for additional information on our assessment.
42
During the nine months ended September 30, 2026, we incurred a net loss of $7.5 million, had Adjusted EBITDA of ($5.7) million and had negative cash flows from operations of $4.9 million. For the year 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, cash equivalents and restricted cash of $0.7 million and $1.0 million as of September 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 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.
Management has projected cash on hand may not be sufficient to allow us to continue operations and there is substantial doubt about our ability to continue as a going concern within 12 months from the date of issuance of the financial statements if we are unable to raise additional funding for operations. We expect our working capital needs to increase in the future as we continue our operations. Our ability to raise additional funds for working capital through equity or debt financings or other sources may depend on the financial success of our business and successful implementation of our key strategic initiatives, financial, economic and market conditions and other factors, some of which are beyond our control. Further financings may have a dilutive effect on stockholders and any debt financing, if available, may require restrictions to be placed on our future financing and operating activities. If we require additional capital and are unsuccessful in raising that capital at a reasonable cost and at the required times, or at all, we may not be able to continue our business operations or we may be unable to advance our growth initiatives, either of which could adversely impact our business, financial condition and results of operations.
Sources of Liquidity
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.
Debt and Financing Arrangements
Fiza Term Debt.
The Company had three outstanding loans through May 29, 2026 with Fiza Investments Limited, (“Fiza”) with a total outstanding principal balance of $7.2 million. On May 29, 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 September 30, 2026, no amounts remain outstanding under the Fiza loans, and the Company recognized a gain on extinguishment of $3.1 million during the nine months ended September 30, 2026.
43
Other Term Loans.
On August 20, 2025, the Company entered into two Loan and Security Agreements with Itria Ventures LLC (“Itria”) in the principal amounts of $1,000,000 each (“Term Loans 10 and 11”) for an aggregate total of $2,000,000 at a rate of 18.00% to 18.99% per year. On March 19, 2026, the Company entered into a new Loan and Security Agreement the (“New Loan Agreement”) with Itria in connection with the refinancing of all of its outstanding debt with Itria. Pursuant to the New Loan Agreement, the Lender agreed to provide the Company with a term loan in the principal amount of $1,344,500 (the “New Loan”) at an interest rate of 18.99% per year. The New Loan is payable on a monthly basis in 24 equal installments, maturing on the 24-month anniversary of the funding date. The proceeds of the New Loan were used to refinance and pay off in full Term Loans 10 and 11. See Note 5 – Debt and Related Party Debt for more information.
The outstanding balance of all Itria loans as of September 30, 2026 and December 31, 2025 is $1.0 million and $1.6 million, respectively.
Senior Secured Convertible Note Financing.
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 29, 2026, as described below.
In addition, the Company and Senior Lender agreed in an amendment to the SPA to conduct a second closing pursuant to the Note SPA, which occurred on March 16, 2026 (the “Second Closing”). On the Second Closing, the Company issued an additional senior secured convertible promissory note in the original principal amount of $4,301,075 (the “Additional Senior Secured Convertible Note,” and together with the Initial Senior Secured Convertible Note, the “Senior Secured Convertible Note”). The Company used the net proceeds from the issuance of the Additional Senior Secured Convertible Note to repay approximately $2,000,000 of existing debt owed to the Senior Lender, and for working capital and general corporate purposes.
May 28, 2026 Restructuring
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 nine months ended September 30, 2026. The Additional Senior Secured Convertible Note, as reduced, was amended and restated (the “Amended Note”).
Terms of the Amended Note
As of September 30, 2026, $4,301,075 of principal remained outstanding, consisting of $2,301,075 of interest-bearing principal and $2,000,000 of non-interest-bearing principal. 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
44
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.
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.
Investor Bridge Note.
On October 6, 2026, after the end of the quarter, we issued a senior secured note (the “Bridge Note”) to an investor (the “Bridge Investor”) providing for advances of up to $5,000,000, each at the Bridge Investor’s sole discretion. As of the date of this report, $350,000 has been advanced. The Bridge Note bears interest at 18.99% per annum, payable in kind unless we elect to pay in cash, and matures on December 31, 2027. At maturity we must also pay a make-whole amount equal to the interest that would have accrued through maturity. The Bridge Note is secured by substantially all of our assets. Under intercreditor agreements, it ranks partly pari passu with and partly junior to the Amended Note, and senior to the Itria loan. Because further advances are at the Bridge Investor’s discretion, there can be no assurance that we will receive additional funding under the Bridge Note. See Note 15 – Subsequent Events.
Contractual Obligations
Our principal commitments consist of obligations for office space under a non-cancelable operating lease that expires in August 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 September 30, 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.
Critical Accounting Estimates
As discussed in our 2025 Form 10-K, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those consolidated financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition, including Standalone Selling Price (“SSP”) and the allocation of the transaction price; leases; impairment of intangible assets; impairment of long-lived assets; valuation of accounts receivable; valuation of inventory; valuation of debt and embedded features; stock compensation; and income taxes (including uncertain tax positions). There have been no significant changes to the Company’s accounting policies subsequent to December 31, 2025.
Revenue Recognition
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.
For contracts with multiple performance obligations, the transaction price is allocated based on SSP, with list prices typically used for most items. For post-contract support services (“PCS”) significant judgement is involved based on factors such as specific services offered, business models and operational efficiency. The Company regularly reassesses this estimate as changes could materially impact revenue recognition timing and amounts.
45
Discounts in certain contracts with customers are deemed variable consideration but are known at the time of revenue recognition.
Inventory
Our inventory, which includes raw materials and finished goods is valued using the weighted average cost method for hardware inventory while software inventory is recorded at actual cost. We periodically review the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold.
Convertible Debt
We have issued convertible promissory notes and evaluate embedded features for potential bifurcation as derivatives.
For the recent convertible note described in Note 5 – Debt and Related Party Debt, we elected the fair value option under ASC 825, measuring the entire instrument at fair value with changes recognized in earnings. This election is irrevocable and applied to the whole instrument, consistent with ASC 825-10 guidance. Key estimates include the valuation of original issue discount, accrued interest, and make-whole provisions, which require assumptions about discount rates, credit risk, and market conditions. The fair value option under ASC 825 simplifies the accounting by eliminating the need to bifurcate embedded derivatives under ASC 815 and aligns with the principles outlined in ASC 470 for debt instruments. This approach requires ongoing reassessment of fair value inputs and assumptions, which can significantly affect reported earnings and liabilities. All fees related to the convertible note were expensed as incurred and not recorded as debt issuance costs.
Series P and P-2 Preferred Stock
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 September 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).
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.
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 Stock 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 September 30, 2026 and 2025, was a gain of approximately $2.0 million and $0, respectively. The net impact for the nine months ended September 30, 2026 and 2025, was a gain of approximately $2.2 million and $0, respectively.
46
Income Taxes
We use the asset and liability method under FASB ASC Topic 740, Income Taxes, when accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the deferred tax asset and liability.
We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income, and ongoing tax planning strategies in assessing the need for a valuation allowance.
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.
JOBS Act
The JOBS Act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore, we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
We are also a smaller reporting company meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. To the extent we continue to qualify as a smaller reporting company after we cease to qualify as an emerging growth company, we will continue to be permitted to make certain reduced disclosures in our periodic reports and other documents that we file with the SEC. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this item.
47
Item 4. Controls and Procedures
Internal Control Over Financial Reporting
Evaluation of disclosure controls and procedures
As required by Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2026, our disclosure controls and procedures were ineffective to provide reasonable assurance that information required to be disclosed in our Exchange Act filings is recorded, processed, summarized, and reported within the time periods required.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
The Company has identified material weaknesses in our internal control over financial reporting as of September 30, 2026, relating to: (i) the lack of segregation of duties; (ii) account reconciliation and cutoff; and (iii) the lack of a formal risk assessment policy for entity level controls. As such, management determined that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective as of September 30, 2026.
The process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligation. Even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.
These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our financial statements may not be prevented or detected on a timely basis. In light of these material weaknesses, we performed additional analyses and procedures in order to conclude that our financial statements for the three and nine months ended September 30, 2026 included in this Quarterly Report on Form 10-Q were fairly stated in accordance with GAAP. Accordingly, management believes that despite our material weaknesses, our financial statements for the quarter ended September 30, 2026 are fairly stated, in all material respects, in accordance with GAAP.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives. However, the effectiveness of any internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Because of the inherent limitations in all control systems,
48
no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are from time to time subject to claims, lawsuits and other legal and administrative proceedings arising in the ordinary course of business. Defending such proceedings is costly and can impose a significant burden on management and employees. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
The information concerning legal proceedings set forth in Note 11 — Commitments and Contingencies to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in “Part I, Item 1A. Risk Factors” of our 2025 Form 10-K, which could materially affect our business, financial condition, or future operating results and cash flows. The following risk factors update, and to the extent inconsistent supersede, the risk factors set forth in “Part I, Item 1A. Risk Factors” of our 2025 Form 10-K. Except as set forth below, there have been no material changes to those risk factors. The risks described below and in “Part I, Item 1A. Risk Factors” of our 2025 Form 10-K, are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition, operating results and/or cash flows.
Our common stock has been delisted from Nasdaq, which has reduced the liquidity of our common stock and may impair our ability to raise capital.
On April 21, 2026, we received a determination from Nasdaq to delist our common stock under Nasdaq Listing Rule 5810(c)(3)(A)(iii), following the closing bid price of our common stock being $0.10 or less for ten consecutive trading days. Trading in our common stock was suspended at the opening of business on April 28, 2026. We requested a hearing before a Nasdaq Hearings Panel, and on August 6, 2026 the Panel issued a decision determining to delist our common stock. Because Nasdaq did not file a Form 25 following the Panel’s decision, after providing written notice to Nasdaq and issuing a press release on September 15, 2026, filed a Form 25 with the SEC on September 25, 2026 to voluntarily delist its common stock from Nasdaq. The delisting became effective ten days after the Form 25 was filed, on October 5, 2026. The registration of the common stock under Section 12(b) of the Exchange Act, will terminate 90 days after that filing, on or about December 24, 2026.
Since April 28, 2026, our common stock has been quoted on the OTC Markets rather than on a national securities exchange. Quotation on the OTC Markets is generally characterized by wider spreads between bid and asked prices, lower trading volume, greater price volatility and less publicly available information than a listing on a national securities exchange. As a result, our stockholders may find it more difficult to dispose of shares of our common stock at prices they consider acceptable, or at all.
49
Delisting has other consequences. Our common stock has ceased to be a “covered security” for purposes of the National Securities Markets Improvement Act, so that future issuances of our common stock will be subject to the securities laws of individual states rather than federal preemption, which may increase the cost and complexity of financing transactions. Our common stock is also likely to lose eligibility for purchase on margin, which may cause brokers to require holders who hold our shares in margin accounts to liquidate their positions. Certain institutional investors are prohibited by policy from holding securities that are not listed on a national securities exchange, and our ability to raise capital through the sale of equity securities has been and is likely to continue to be adversely affected.
We have issued a substantial number of shares of common stock, and we have limited authorized share capacity available to satisfy our obligations under our outstanding convertible securities.
During the nine months ended September 30, 2026, the number of shares of our common stock issued and outstanding increased from 1,294,142 to 37,068,058, primarily as a result of the conversion of outstanding indebtedness into common stock. This included the issuance of 30,195,786 shares on May 29, 2026 at a fixed conversion price of $0.2385 per share in connection with the conversion of principal outstanding under our loans with Fiza Investments Limited. Our existing stockholders experienced substantial dilution as a result of these issuances, and may experience further substantial dilution.
Our certificate of incorporation authorizes 100,000,000 shares of common stock. As of September 30, 2026, 37,068,058 shares were issued and outstanding, and a significant portion of the balance of our authorized common stock was reserved for or committed to issuance upon conversion of our outstanding convertible note and preferred stock, upon exercise of outstanding options and warrants, and under our equity incentive plans. We therefore have limited capacity to issue additional shares of common stock.
Both our Amended Note and our Series P and Series P-2 Preferred Stock may be settled in a variable number of shares of common stock determined by reference to the market price of our common stock. Installment payments under the Amended Note may be made in shares priced at the lesser of the $7.00 conversion price and 95% of the lowest volume-weighted average price of our common stock during the preceding ten trading days, subject to a floor price of $1.25 per share. If the market price of our common stock declines, the number of shares issuable in respect of these obligations would increase. If we do not have a sufficient number of authorized and unreserved shares available when required, we may be obligated to settle these obligations in cash, which we may not have sufficient resources to do, or to seek stockholder approval to increase our authorized shares, which we may not be able to obtain on a timely basis or at all. A failure to deliver shares when required could constitute an event of default under the Amended Note, permitting the holder to accelerate the amounts owed and to require redemption at a premium, which would have a material adverse effect on our business, financial condition and results of operations.
We are in default under our senior secured convertible note, and if the holder exercises its remedies, we may be unable to continue operations.
Our Amended Note held by 3i, LP (“3i”) is secured by a first-priority lien on substantially all of our assets, including our intellectual property. As of September 30, 2026, $4.3 million of principal was outstanding, and the Amended Note was recorded at a fair value of $4.7 million. The suspension of trading of our common stock on Nasdaq on April 28, 2026 constituted an event of default under the Amended Note. The delisting of our common stock from Nasdaq, effective October 5, 2026, and the quotation of our common stock on the OTC Markets, constitutes an additional event of default. In connection with the May 28, 2026 restructuring of our indebtedness, 3i agreed not to declare an event of default as a result of the trading suspension for 60 days. That standstill period has expired, and the default has not been cured. As of the date of this Quarterly Report, 3i has not declared an event of default or exercised any remedies. However, 3i has not waived the default and may exercise its remedies at any time, and its ability to exercise remedies is only temporarily restricted, as described below.
If 3i declares an event of default, it may:
| ● | require us to redeem the Amended Note at a premium of 10% to principal, accrued interest and make-whole amounts; |
50
| ● | charge interest at the default rate of 11.0% per annum; |
| ● | convert the Amended Note at a discount to the prevailing market price of our common stock, which would cause substantial additional dilution; and |
| ● | foreclose on our assets, including our intellectual property. |
We do not have sufficient cash to redeem the Amended Note. An event of default under the Amended Note may also constitute a default under our other indebtedness, including our loan from Itria Ventures LLC and the Bridge Note. Under intercreditor agreements entered into in connection with the Bridge Note, 3i, the Bridge Investor and Itria have agreed to temporary restrictions on enforcement that expire no later than May 15, 2027 and may terminate earlier. See Note 15 – Subsequent Events. Because the holder of the Amended Note may exercise its remedies at any time, we have classified $0.6 million outstanding under the Amended Note as a current liability. Any exercise of remedies by 3i, the Bridge Investor or Itria would have a material adverse effect on our business, financial condition and results of operations. It could require us to curtail or cease operations, sell some or all of our assets, or seek protection under applicable bankruptcy laws. In any of those events, holders of our common stock could lose all or substantially all of their investment.
We may deregister our common stock under the Exchange Act and suspend our SEC reporting obligations. If we do, significantly less information about us will be publicly available, and the liquidity and market price of our common stock could decline significantly.
Our common stock was delisted from Nasdaq effective October 5, 2026, and its registration under Section 12(b) of the Exchange Act will terminate on or about December 24, 2026. As of November 9, 2026, there were approximately 165 holders of record of our common stock. Because there are fewer than 300 holders of record, we may be eligible to terminate the registration of our common stock and suspend our reporting obligations under the Exchange Act by filing a Form 15 with the SEC. Our Board of Directors is evaluating whether to do so as part of its efforts to reduce costs. We would not need stockholder approval, and we could act with little or no advance notice to stockholders.
If we deregister, we would no longer file annual, quarterly or current reports with the SEC. We would also no longer be subject to:
| ● | the SEC’s proxy rules; |
| ● | the certification and internal-control requirements of the Sarbanes-Oxley Act of 2002; and |
| ● | the other disclosure and governance requirements that apply to reporting companies. |
In addition, our directors, officers and principal stockholders would no longer be required to report their transactions in our securities under Section 16 of the Exchange Act. As a result, stockholders and potential investors would have significantly less information about our business, financial condition, results of operations and management. They would also have fewer of the protections that federal securities laws give holders of securities of reporting companies.
Deregistration would also likely reduce, possibly significantly, the liquidity and market price of our common stock:
| ● | OTC quotation. Our common stock is currently quoted on the OTCQB Venture Market Tier of OTC Markets. Without current public information, our common stock could become ineligible for quotation on any tier other than the Expert Market, where quotations are not publicly available. |
| ● | Broker-dealer quotes. Broker-dealers may be unable to publish quotations for our common stock in compliance with Rule 15c2-11 under the Exchange Act. Many brokers may decline to accept deposits of, or effect trades in, our common stock. |
51
| ● | Rule 144. Holders of restricted securities, and our affiliates, may be unable to resell under Rule 144, which requires current public information about the issuer. |
Once we deregister, we may not be able, or may choose not, to re-register our common stock or resume reporting. Holders of our common stock may therefore find it difficult or impossible to sell their shares at an acceptable price, or at all.
We are exploring strategic alternatives, including a sale of the Company or of all or substantially all of our assets. We may not complete any transaction, and holders of our common stock may receive little or no value in any transaction we do complete.
Our Board of Directors is exploring strategic alternatives in light of our liquidity position, our indebtedness and the delisting of our common stock. These alternatives include a sale of the Company, a sale of all or substantially all of our assets, a merger or other business combination, a recapitalization, or other transactions. We have not entered into any definitive agreement for a strategic transaction. We may not be able to identify or negotiate a transaction on acceptable terms, or at all. Any transaction we do agree to may not be completed. Completion may depend on conditions outside our control, including:
| ● | the consent of our secured lenders and the holders of our preferred stock; |
| ● | stockholder approval, where required; and |
| ● | the availability of financing to fund our operations until closing. |
Any transaction may also be completed through a sale process under the U.S. Bankruptcy Code.
Even if we complete a transaction, holders of our common stock may receive little or no value. Our capital structure is heavily weighted toward claims and preferences that rank ahead of the common stock:
| ● | The Amended Note. The holder of the Amended Note has a first-priority lien on substantially all of our assets, including our intellectual property. In a change of control, it may require us to redeem the note in cash at 110% of principal, accrued interest and make-whole amounts. |
| ● | Itria. Our loan from Itria Ventures LLC is secured by a second-priority lien on substantially all of our assets. |
| ● | Other creditors. We have significant trade payables and other obligations, including $16.2 million of inventory purchase obligations scheduled to come due on or before December 31, 2026. |
| ● | Series P and Series P-2 Preferred Stock. On a liquidation, dissolution or change of control, holders of our preferred stock are entitled to a preference before any distribution to holders of common stock. For the Series P Preferred Stock, the preference equals the stated value plus accrued and unpaid dividends, which accrue at 18% per annum. For the Series P-2 Preferred Stock, the preference equals the greater of: |
| ● | the stated value plus accrued and unpaid dividends, which accrue at 18% per annum; and |
| ● | the amount the holder would receive on an as-converted basis. |
In a sale of our assets, proceeds would be paid first to satisfy our liabilities. Any amounts remaining for stockholders would generally be distributable only through a dissolution of the Company. A dissolution would involve additional costs and delays, and would require us to make provision for known and contingent claims, including the claims asserted in the EdtechX litigation. As a result, the value realized in a transaction may be insufficient to pay our creditors and the holders of our preferred stock in full, and holders of our common stock may receive nothing.
52
The process of exploring strategic alternatives is also costly. It diverts management’s attention and may create uncertainty among our employees, customers, resellers and suppliers. That could harm our business and reduce the value we are able to realize in any transaction. We do not intend to disclose developments regarding this process until we enter into a definitive agreement or otherwise determine that disclosure is appropriate or required.
Our limited liquidity has adversely affected our ability to purchase inventory and fulfill customer orders, and may continue to do so.
We depend on third-party manufacturers and suppliers, located primarily in China, for our hardware products. Our limited cash resources have constrained our ability to pay our suppliers on a timely basis and to purchase and take delivery of inventory. As a result, we have had limited inventory available for sale, which we believe may have limited our ability to drive customer orders and impaired our sales team’s ability to close sales, particularly during the three months ended September 30, 2026, and may have contributed to the decline in our hardware revenue. As of September 30, 2026, we had:
| ● | $1.4 million of advances to suppliers; |
| ● | $4.9 million of accounts payable; and |
| ● | $16.2 million of inventory purchase obligations scheduled to come due on or before December 31, 2026. |
We do not currently have sufficient cash to satisfy these purchase obligations.
If we are unable to pay our suppliers when due, they may:
| ● | require prepayment or other less favorable terms; |
| ● | suspend or cancel shipments; |
| ● | assert claims against us for amounts owed under our purchase commitments; or |
| ● | decline to continue doing business with us. |
Any of these actions could prevent us from obtaining the products we need to fulfill customer orders. Delays or failures in fulfillment have resulted, and may continue to result, in order cancellations, deferral of revenue, damage to our relationships with customers and resellers, and harm to our reputation. That is particularly true in the K-12 market, where customer purchasing is often tied to funding deadlines and school calendars.
We are a defendant in litigation brought by EdtechX Holdings Acquisition Corp. II, which is scheduled for trial in January 2027. An adverse judgment could likely exceed our ability to pay and could force us to seek bankruptcy protection.
In July 2024, EdtechX sued us in the Superior Court of the State of Delaware in connection with our termination of our 2022 merger agreement with EdtechX. EdtechX asserts claims for breach of contract and breach of the implied covenant of good faith and fair dealing. In its amended complaint, EdtechX alleges that its damages may exceed $60 million, and it also seeks interest, attorneys’ fees and costs. Trial is scheduled to begin on January 20, 2027.
We believe EdtechX’s claims are without merit, and we intend to defend ourselves vigorously. However, the outcome of litigation, and of a trial in particular, is inherently uncertain. We cannot predict how the court will rule on liability or, if we are found liable, the amount of damages that may be awarded.
The damages EdtechX seeks are many times greater than our available cash and other resources. If EdtechX obtains a significant judgment against us, even in an amount substantially less than the damages it seeks, we would not be able to pay it. We also would not be able to post the bond that would likely be required to stay enforcement of the judgment while
53
we pursue an appeal. In that event, we expect that we would need to seek protection under applicable bankruptcy laws, and we could be forced to cease operations. Holders of our common stock could lose all or substantially all of their investment.
Even if we prevail, defending this litigation through trial will require significant expense and management attention at a time when our liquidity is severely constrained. Our litigation counsel has advised us that they intend to move to withdraw, and we are in the process of retaining new trial counsel on an expedited basis. Any delay or difficulty in doing so could impair our defense.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There have been no unregistered sales of securities by the Company during the period covered by this report that have not been previously reported in a Current Report on Form 8-K.
Item 3. Defaults Upon Senior Securities
The suspension of trading of our common stock on Nasdaq on April 28, 2026 constituted an event of default under the Amended Note held by 3i, LP, our senior secured lender. The delisting of our common stock from Nasdaq, effective October 5, 2026, and the quotation of our common stock on the OTC Markets constitute an additional event of default. In connection with the May 29, 2026 restructuring, 3i agreed not to declare an event of default as a result of the trading suspension for 60 days. That standstill period has expired, and the default has not been cured or waived. As of September 30, 2026, $4.3 million of principal was outstanding under the Amended Note, which was recorded at a fair value of $4.7 million. There has been no default in the payment of principal or interest under the Amended Note. As of the date of this report, 3i has not declared an event of default or exercised any remedies. See “Risk Factors — We are in default under our senior secured convertible note…” and Note 5 – Debt and Related Party Debt.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
54
Item 6. Exhibits
The documents listed in the Index to Exhibits of this Quarterly Report on Form 10-Q are incorporated by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).
EXHIBIT INDEX
Exhibit | | Description |
|---|---|---|
3.1 | | |
| | |
3.2 | | |
| | |
3.3 | | |
| | |
3.4 | | |
| | |
3.5 | | |
| | |
3.6 | | |
| | |
3.7 | | |
| | |
4.1 | | |
| | |
4.2 | | |
| | |
4.3 | | |
| | |
4.4 | | |
| | |
4.5 | | |
| | |
4.6 | | |
| | |
55
Exhibit | | Description |
|---|---|---|
4.7 | | |
| | |
31.1* | | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| ||
31.2* | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| ||
32.1** | | |
| ||
32.2** | | |
| | |
101.INS* | | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| ||
101.SCH* | | XBRL Taxonomy Extension Schema Document |
| ||
101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document |
| ||
101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document |
| ||
101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document |
| ||
101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
104 | | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
* | Filed herewith. |
** | Furnished herewith. |
56
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.
Date: November 13, 2026
| ZSPACE, INC. | ||
| | | |
| By: | /s/ Paul Kellenberger | |
| Name: | Paul Kellenberger | |
| Title: | Chief Executive Officer and Director | |
| | (Principal Executive Officer) | |
| | | |
| By: | /s/ Erick DeOliveira | |
| Name: | Erick DeOliveira | |
| Title: | Chief Financial Officer | |
| | (Principal Financial Officer and Principal Accounting Officer) | |
| | | |
57
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Paul Kellenberger certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of zSpace, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: November 13, 2026 | By: | /s/ Paul Kellenberger | |
| | Name: | Paul Kellenberger |
| | Title: | Chief Executive Officer |
| | | (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Erick DeOliveira, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of zSpace, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: November 13, 2026 | By: | /s/ Erick DeOliveira | |
| | Name: | Erick DeOliveira |
| | Title: | Chief Financial Officer |
| | | (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of zSpace, Inc. (the “Company”) hereby certifies, to the best of my knowledge, that:
| (i) | the accompanying Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2026 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; and |
| (ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: November 13, 2026 | By: | /s/ Paul Kellenberger | |
| | Name: | Paul Kellenberger |
| | Title: | Chief Executive Officer |
| | | (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of zSpace, Inc. (the “Company”) hereby certifies, to the best of my knowledge, that:
| (i) | the accompanying Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2026 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; and |
| (ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: November 13, 2026 | By: | /s/ Erick DeOliveira | |
| | Name: | Erick DeOliveira |
| | Title: | Chief Financial Officer |
| | | (Principal Financial Officer) |