OTC: ZSPC

We sell our products directly to United States school districts, both as a primary educational tool in K-12 classrooms and as a career training solution, as well as to community college customers through both a direct sales and support team as well as regional resellers. Internationally, we rely exclusively on resellers to bring our products to those markets. Today, our platform is implemented in more than 3,500 of the approximately 13,000 United States public school districts. Our K-12 platform is currently deployed in over 80% of the largest 100 K-12 public school districts in the United States, as measured by student enrollment, and our CTE solutions have been deployed in approximately 73% of those public school districts we serve. In addition, we have partnered with over 25 resellers and have expanded our customer network into over 50 countries. We believe the applicability of our products in education environments provides an opportunity for significant scale.

From a technology perspective, graphics and speed of computing have increased exponentially over time, but the physical computing experience has remained largely static since the introduction of the mouse and touchscreen in the 1980s. We believe limiting the user experience to the confines of a screen creates inherent limitations such as slowing technological breakthroughs, discouraging engagement and hampering creativity, particularly when utilizing technology as a learning tool. We were founded with the goal of eliminating that barrier between students and content and reinventing the student experience. You can find additional information on our website at www.zspace.com. The information contained on, or that can be accessed through, our website is not part of, and is not incorporated into, this Annual Report on Form 10-K.

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Our Products

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

●Hardware. Our proprietary hardware is the enabler of the 3D learning experience on our platform, allowing students to interact directly with complex, spatial, and abstract concepts. We work closely with original equipment manufacturers (OEMs) to produce devices that deliver a 3D experience.

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●Inspire Laptops. Inspire is our current generation laptop product, built in partnership with a major PC OEM. It incorporates and delivers autostereoscopic 3D graphics not requiring any eyewear or headset. With a specialized optical lens and eye-tracking technology, a set of images for each eye is created and directly projected through the lens to where the eyes are looking for a unique 3D experience. We deliver each Inspire laptop with our patented hand-held stylus.

●Imagine Laptops. Our Imagine laptops are focused on elementary school students. They also were built in partnership with a major PC OEM. Like the Inspire, the Imagine delivers autostereoscopic 3D graphics not requiring any eyewear or headset and uses the zSpace hand-held stylus. The Imagine, built with safety and comfort in mind for young learners, is smaller and lighter than the Inspire, making it easier for younger learners to use in the classroom. It also features a smaller screen, but similar CPU performance.

●Tracked styluses. Our patented tracked styluses allow users to interact with the projection of the 3D information from our laptops to provide a comfortable and realistic experience as well as the precise interaction with the virtual objects in open space. It allows students to bring objects out of the screen and interact with them as if they were real objects. Our styluses, working together with the eye-tracking technology in our products to read the position of the user’s body and respond to movements throughout the interaction, creating a natural, comfortable and effortless experience. Each stylus includes three buttons designed to map the buttons on a traditional mouse to provide a familiar interface model for the user. The buttons on the stylus perform different actions depending on the application. The styluses also support haptic feedback allowing applications to provide a physical response to engagement in the learning process, enhancing realism and providing distinct feedback to the user.

●Software. We develop and deliver both platform management software, enabling the easy distribution, licensing and management of web enabled applications, and end user applications that students use on our devices. Our platform offers a full range of applications, developed both in-house and by third-party application developers, that provide learning experiences designed for the K-12 STEM and CTE markets. In the K-12 market, we offer applications in areas such as Science, Health and Math, and in the CTE markets we provide applications in key areas such as Automotive, Advanced Manufacturing, Health and Agri-Sciences.

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●Services. Implementation and professional development services are part of the overall solution we offer to our customers so they can quickly use, and be fully trained on, our products. We have developed a network of trainers in the United States with education experience with the goal of making our customers’ experience with our products positive and effective. Internationally, we rely exclusively on resellers to provide these services to our customers.

Manufacturing and Suppliers

We utilize an outsourced manufacturing model for the production of our hardware and peripheries. We do not own or operate any manufacturing facilities. Instead, we rely on third-party contract manufacturers and original equipment manufacturers (OEMs) to produce our products in accordance with our specifications. We believe this asset-light approach allows us to minimize capital expenditures, scale production to meet demand, and leverage the purchasing power and supply chain expertise of our partners.

For our core Inspire laptop, we rely on major personal computer OEMs. By partnering with established PC manufacturers, we are able to leverage their extensive global supply chain networks, component purchasing power, and quality control certifications. This relationship allows us to deliver high-performance hardware without the overhead of managing a bespoke computer manufacturing line.

We rely on a specific third-party manufacturing partner located in China to assemble our proprietary stylus. This partner is responsible for component procurement, final assembly, and quality assurance testing based on our proprietary designs. Because our stylus utilizes specialized tracking technology that is integral to the zSpace user experience, this manufacturing relationship is critical to our product delivery.

In addition, we rely on third-party software developers to create and maintain appropriate software products for our platform. We engage these external development firms and contractors to augment our internal engineering teams, specifically to assist in the creation of educational content applications and system integrations. Relying on these third parties allows us to accelerate our content roadmap and offer a broader library of curriculum-aligned modules to our K-12 and CTE customers without bearing the full fixed costs of a large in-house content development staff.

Sales and Marketing

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

Competitive Business Conditions

According to market analysis by Grand View Research, the global education technology market was valued at $163.5 billion in 2024 and is expected to grow at a compound annual growth rate (CAGR) of 13.3% from 2025 to 2030. Further, according to The Insight Partners, the global AR, VR and mixed reality market is expected to grow at a 37% CAGR to $647 billion by 2031 compared to $52 billion in 2023. Markets and Markets Research predicts that spending on AR and VR in the education market globally will grow to $14.2 billion by 2028 (CAGR of 30% from 2023).

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

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Competitors in the education technology ecosystem include:

●Companies that provide technology solutions and services to educators and students, such as Chegg, Coursera, Docebo, Duolingo, Instructure, Kahoot, Powerschool, and Udemy;

●CTE companies such as Degreed, Inc., LinkedIn Corporation through its LinkedIn Learning services and Pluralsight, Inc.;

●Companies that operate in the virtual technology market, such as Apple, Google, Meta Platforms, Matterport Inc and Unity Software;

●Providers of free educational resources such as Khan Academy, Inc., The Wikipedia Foundation, Inc. and Google LLC through its YouTube services; and

●AR/VR focused companies such as Avantis Education, Prisms VR, Interplay Learning, Umety Solutions Ltd, Transfr VR and Victory XR.

Outside the United States, certain Chinese companies have produced replicas of our original edition hardware products that require specialty eyewear, which we no longer produce or sell in the United States. We have also found imitation products being sold at a small scale in the Middle East and Turkey. We are currently not aware of any other companies producing or selling solutions substantially similar to our products.

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

●Breadth and depth of our platform. Our platform is focused on delivering virtual interactive learning capabilities across the worldwide education spectrum. The same platform can be used by third grade learners and college students. Our growing range of software content, developed both in house and by third-party software developers, includes hundreds of STEM, Game Design and CTE lessons, including Physical Science, Math, Health, Automotive, Unity3D® Programming, and Advanced Manufacturing.

●Highly Differentiated and Proprietary Technology. Our product offerings are designed to facilitate intuitive, responsive, and comfortable learner experiences, with hardware that includes built-in eye-tracking technology that allows for 3D images without the use of specialized glasses and a hand-held stylus device that allows users to bring objects out of the screen and manipulate them as if they were real objects. We believe our proprietary platform offers a unique solution to educators interested in effective kinesthetic learning tools.

●Brand recognition. We believe we are a trusted brand in the K-12 education market that has a track record of attracting and maintaining customers. We believe we are recognized as a market leader in AR/VR and the “eduverse” for schools. We expect to continue to leverage our position and increase our brand awareness to grow our customer base.

Recent Developments

The majority of our customer base consists of United States public school districts, who purchase products as a primary K-12 educational tool and also to support career training education at the higher grade levels. These schools frequently rely on funding from the U.S. Department of Education (“US DoE”) for specific populations of students or strategic initiatives. When this funding is unavailable, schools rarely cut the core classes and services; instead, they cut the specialized support services that federal money supports.

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Our business in the United States K-12 market is significantly influenced by the availability of government funding. In previous years, our revenue growth was supported by substantial federal stimulus funding allocated to schools, such as the Elementary and Secondary School Emergency Relief (ESSER) funds. However, as these specific funding programs have expired or been fully allocated, the budgetary environment for our K-12 customers has tightened. In addition, in January 2025, the current administration moved to make significant changes at the US DoE, including freezing federal grants and loans that many of our customers relied upon to purchase our products and services.

The operational disruptions and funding freezes initiated at the U.S. DoE in early 2025 created a volatile contracting environment for the education technology sector. As the administration moved to withhold federal grants and signal a potential dissolution of the agency, school districts—already grappling with the expiration of pandemic-era ESSER funds—adopted a defensive spending posture, freezing capital outlays to preserve cash for essential operations. This resulted in extended sales cycles for zSpace and a decrease in capital expenditures by schools, which has caused a decline in our revenue from this sector. We expect that our future results will continue to be sensitive to the cyclical nature of state and federal education budgets.

In this context, we are focused on scaling execution across a carefully selected set of growth vectors. These include:

●Targeted software growth via additional application acquisition. We intend to pursue additional software applications in order to increase the growth of our software offerings. Such acquisitions, if completed, are intended to be accretive to earnings and materially increase our software revenue.

●Continued Focus in the United States education market. We expect to continue to drive growth by expanding use cases and introducing new applications within the United States. We are particularly focused on acquiring and retaining both K-12 and CTE users while expanding our sales with our Inspire products. With our large content library and pioneering AR/VR capabilities, we pride ourselves on our ability to deliver value across the education landscape including K-12 schools, community colleges, technical colleges and trade colleges. Going forward, we plan to continue to expand our content library and platform to address the needs of our current and future customers.

Research and Development

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

Intellectual Property

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

As of December 31, 2025, we had over 80 patents issued, and more than ten United States and foreign patent applications that are pending.

Human Capital Resources

Our employees are critical to our success. As of December 31, 2025, we had 54 full-time employees. We also employ part-time subject matter experts and engage consultants and contractors to supplement our permanent workforce. To date, we have not experienced any work stoppages and consider our relationship with our employees to be in good standing. None of our employees are represented by a labor union or subject to a collective bargaining agreement. Our human capital resources objectives include identifying, recruiting, retaining, incentivizing and integrating our existing

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and additional employees. We believe we offer competitive compensation and benefits packages, the principal purposes of which are to attract, retain and motivate our employees.

Facilities

Our corporate headquarters is located in a leased facility in San Jose, California. The facility is approximately 6,464 square feet, and our lease of this facility expires in October 2027. We believe this facility is adequate for the needs of our business.

Government Regulation

We are subject to various federal, state, local and foreign laws and regulations that affect our business, including those related to the education industry, data privacy, and data security. Because our hardware supply chain and sales reach international markets, we are also subject to complex trade restrictions. These include economic sanctions administered by the U.S. Treasury’s Office of Foreign Assets Control (OFAC), U.S. export control laws, and anti-corruption regulations such as the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act.

These laws prohibit business with certain embargoed countries, sanctioned persons, and restricted entities. As U.S. export policies evolve, particularly regarding technology manufacturing in Asia, we may face increased compliance costs or administrative burdens.