S-1/A: zSpace Eyes Nasdaq Debut with $10 Million IPO, Existing Shareholders to Offer Additional Shares

zSpace, a provider of AR/VR educational technology, is planning an initial public offering of 2,000,000 shares of common stock, with existing shareholders potentially offering an additional 2,219,970 shares, aiming for a Nasdaq listing under the symbol ZSPC.

Summary

• zSpace, Inc., an augmented and virtual reality (AR/VR) educational technology company, has filed an amendment to its S-1 registration statement for an initial public offering (IPO).
• The company plans to offer 2,000,000 shares of its common stock to the public.
• Certain selling stockholders are registering for resale up to 2,219,970 shares of common stock.
• The anticipated IPO price range is between $4.50 and $5.50 per share.
• zSpace has applied to list its common stock on The Nasdaq Global Market under the symbol ZSPC.
• The company will not proceed with the offering if its common stock is not approved for listing on Nasdaq.
• zSpace is classified as an emerging growth company and a smaller reporting company, which allows it to comply with certain reduced public company reporting requirements.
• Controlling stockholders are expected to retain significant voting power after the IPO, leading to zSpace being a controlled company under Nasdaq listing standards.
• The company estimates net proceeds from the IPO to be approximately $7.0 million, which will be used for growth initiatives, software development, sales and marketing, and working capital.
• Preliminary unaudited revenue for the three months ended September 30, 2024, is expected to be approximately $14.2 million, a 4% increase compared to the same period in 2023.
• The company expects a gross profit margin of approximately 45% for the three months ended September 30, 2024, compared to 39% for the same period in 2023.
• As of September 30, 2024, the company expects backlog to be approximately $11.5 million, a decrease of approximately 7% compared to September 30, 2023.
• As of September 30, 2024, the company expects ACV of renewable software to be approximately $11.3 million, an increase of 13% compared to September 30, 2023.
• The company estimates a net loss of approximately $0.2 million for the three months ended September 30, 2024, compared to a net loss of $1.3 million for the same period in 2023.
• Adjusted EBITDA is estimated to be approximately $0.3 million for the three months ended September 30, 2024, compared to a loss of ($0.4) million for the same period in 2023.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While there's growth in certain areas and a focus on future expansion, there are also concerns about past losses, competition, and the company's ability to manage its growth effectively. The preliminary Q3 2024 results show some improvement, but the decrease in backlog and NDRR are concerning.

Positives

• The company's platform is implemented in more than 3,500 of the approximately 13,000 United States public school districts.
• The company estimates its total addressable market (TAM) for the K-12 and CTE markets is greater than $68 billion.
• Preliminary Q3 2024 revenue is expected to be $14.2 million, with a 45% gross profit margin.
• The company expects ACV of renewable software to be approximately $11.3 million as of September 30, 2024, an increase of 13% compared to September 30, 2023.
• The company estimates a net loss of approximately $0.2 million for the three months ended September 30, 2024.
• Adjusted EBITDA is estimated to be approximately $0.3 million for the three months ended September 30, 2024.

Negatives

• The company will not proceed with the offering if its common stock is not approved for listing on Nasdaq.
• Controlling stockholders are expected to retain significant voting power after the IPO, leading to zSpace being a controlled company under Nasdaq listing standards.
• As of September 30, 2024, the company expects backlog to be approximately $11.5 million, a decrease of approximately 7% compared to September 30, 2023.

Risks

• The company has a limited operating history at the scale of its business, which makes it difficult to evaluate its current business and future prospects.
• The company has a history of net losses and expects to continue to experience net losses in the future.
• The company faces intense competition in the education technology market.
• The company's future revenues and operating results will be harmed if it is unable to acquire new customers, if its customers do not renew their contracts, or if it is unable to expand sales to its existing customers or develop new products that achieve market acceptance.
• The company may not be able to maintain its revenue growth in the future or manage its growth effectively.
• The company is dependent on a limited number of third-party partners to produce, resell and distribute its products.
• The company was involved in a SPAC transaction that was terminated in June 2023, and the outcome of the termination remains uncertain.
• The company has identified material weaknesses in its internal control over financial reporting.
• There is uncertainty regarding the company's ability to continue as a going concern.
• The price of the company's common stock may be volatile.
• Investors in this offering will experience immediate dilution upon the closing of the offering.

Future Outlook

zSpace intends to use the net proceeds from this offering for growth initiatives, including funding product commitments, software development through acquisitions of applications and third-party software developers, sales and marketing, and for working capital and general corporate purposes.

Industry Context

The announcement aligns with the broader trend of growth in the education technology market, particularly in AR/VR and mixed reality, as highlighted by market analysis from Grand View Research and Insight Partners.

Comparison to Industry Standards

• The document mentions competitors such as Chegg, Coursera, Docebo, Duolingo, Instructure, Kahoot, Powerschool, and Udemy in the education technology space.
• It also names CTE companies like A Cloud Guru Ltd., Degreed, Inc., LinkedIn Corporation through its LinkedIn Learning services, Pluralsight, Inc. and Udacity, Inc.
• Virtual technology market competitors include Apple, Google, Meta Platforms, Matterport Inc and Unity Software.
• AR/VR focused companies such as ClassVR, Inception XR, Interplay Learning, Umety Solutions Ltd, Transfr VR Victory XR are also mentioned.
• The document does not provide specific comparisons of zSpace's financial results or metrics against these companies, but it positions zSpace as a leader in the AR/VR educational market.

Legal Proceedings

• EdtechX filed a complaint in the Superior Court of the State of Delaware alleging breaches of contract and the implied covenant of good faith and fair dealing in connection with the terminated merger agreement.

Related Party Transactions

• dSpace Investments Limited holds 3,874,946 shares of Series A preferred stock.
• bSpace Investments Limited owns 45,890 shares of NCNV 3 preferred stock.
• Fiza Investments Limited holds an aggregate of $10.0 million in principal amount of convertible notes and an aggregate of approximately $3.9 million in principal amount of non-convertible notes.

Stakeholder Impact

• Shareholders will experience immediate dilution upon the closing of the offering.
• The company's future success depends on its ability to attract, train, integrate and retain highly skilled personnel.
• The company's revenue, results of operations and cash flows depend on the overall demand for its platform and solutions.

Next Steps

• The company will seek approval for listing on Nasdaq.
• The company will use the net proceeds from the IPO for growth initiatives, software development, sales and marketing, and working capital.
• The company will continue to implement measures designed to improve its internal control over financial reporting to remediate material weaknesses.

Key Dates

Keywords

zSpace, IPO, initial public offering, AR, VR, augmented reality, virtual reality, education technology, K-12, CTE, Career & Technical Education, Nasdaq, ZSPC, stock, shares, preferred stock, financial results, Pankaj Gupta, Amit Jain, Roth Capital Partners, Northland Capital Markets, BDO USA, Fiza Investments Limited, dSpace Investments Limited, bSpace Investments Limited, Gulf Islamic Investments