S-1: zSpace Files for Resale of Up to 7.9 Million Shares Following Convertible Note Transaction

zSpace, Inc. has filed a registration statement for the potential resale of up to 7,899,048 shares of its common stock by 3i, LP, following a recent convertible note agreement.

Summary

• zSpace, Inc. has filed a Form S-1 registration statement with the SEC regarding the potential resale of up to 7,899,048 shares of its common stock.
• These shares are issuable to 3i, LP upon conversion of a senior secured convertible promissory note.
• zSpace will not receive any proceeds from the sale of these shares by the selling stockholder, 3i, LP.
• The selling stockholder will determine the terms of the sale, which may occur through ordinary brokerage transactions or other means.
• The company's common stock is listed on The Nasdaq Global Market under the symbol ZSPC, with the last reported closing price on April 17, 2025, at $8.70 per share.
• zSpace is identified as an emerging growth company and a smaller reporting company, which allows it to comply with certain reduced public company reporting requirements.
• Fiza Investments Limited, dSpace Investments Limited and bSpace Investments Limited, our controlling stockholders, control a majority of the voting power of our common stock.
• As a result, we are a controlled company under the listing standards of Nasdaq and the rules of the Securities and Exchange Commission (SEC), and, to the extent that we decide to rely on the controlled company exemption, we will be exempt from certain corporate governance requirements.

Sentiment

Score: 4

Explanation: The document presents a mixed sentiment. While it highlights the company's market position and growth strategies, it also acknowledges significant financial challenges, including net losses, material weaknesses in internal controls, and uncertainty regarding its ability to continue as a going concern. The potential for stock dilution and market volatility further contribute to a cautious outlook.

Positives

• Listing on Nasdaq provides liquidity for the common stock.
• Being an emerging growth company and a smaller reporting company allows for reduced disclosure obligations, potentially decreasing compliance costs.

Negatives

• The company will not receive any proceeds from the sale of shares by the selling stockholder.
• The sale of a large number of shares by the selling stockholder could negatively impact the stock price.
• The company is a controlled company, which may reduce corporate governance protections for other stockholders.

Risks

• The sale of shares by the selling stockholder could cause the market price of the common stock to decline.
• Investing in the company's securities is highly speculative and involves a high degree of risk.
• The company has a limited operating history at the scale of its business, making 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.
• There is uncertainty regarding the company's ability to continue as a going concern.
• The company has identified material weaknesses in its internal control over financial reporting.

Future Outlook

The company expects the percentage of total revenue generated from China in 2025 to be lower than in 2024 and is focusing on expanding its business in the United States and elsewhere.

Industry Context

The document notes that the global education technology market was valued at $142.4 billion in 2023 and is expected to grow at a CAGR of 13.6% from 2023 to 2030. The global AR, VR and mixed reality market is expected to grow at a 37% CAGR to $252 billion by 2028 compared to $28 billion in 2021. Spending on AR and VR in the education market globally will grow to $14.2 billion by 2028 (CAGR of 30% from 2023).

Comparison to Industry Standards

• The document mentions competitors in the education technology ecosystem such as Chegg, Coursera, Docebo, Duolingo, Instructure, Kahoot, Powerschool, and Udemy.
• It also lists CTE companies like A Cloud Guru Ltd., Degreed, Inc., LinkedIn Corporation through its LinkedIn Learning services, Pluralsight, Inc. and Udacity, Inc.
• Companies operating in the virtual technology market such as Apple, Google, Meta Platforms, Matterport Inc and Unity Software are also mentioned.
• AR/VR focused companies such as ClassVR, Inception XR, Interplay Learning, Umety Solutions Ltd, Transfr VR Victory XR are listed as competitors.

Legal Proceedings

• 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.
• The Company filed a motion to dismiss the complaint in Delaware Superior Court.

Related Party Transactions

• In November 2022, the company entered into a loan agreement with Fiza for a principal amount of $5.0 million.
• In May 2023, the company entered into an additional short form loan agreement with Fiza for a principal amount of $3.0 million.
• In November 2023, the company entered into a short form loan agreement with Fiza to borrow an additional $1.3 million.
• In March 2024, the company entered into a convertible promissory note to borrow an additional $5.0 million from Fiza.
• In May 2019, the company entered into a loan and security agreement (the LSA) with a related party, bSpace Investments Limited (bSpace).
• On December 29, 2023, dSpace acquired 47,250 shares of our NCNV 1 preferred stock and 2,750 shares of our NCNV 3 preferred stock from bSpace in exchange for a promissory note with an aggregate principal amount of $37.5 million, which is secured by the pledge of all of dSpaces equity in us.

Stakeholder Impact

• Shareholders may experience dilution if the convertible notes are converted into common stock.
• The company's ability to invest in growth initiatives may be limited by its financial challenges.
• Customers may be impacted by the company's ability to maintain and scale its hardware and software offerings.

Next Steps

• The company has agreed to hold a meeting of its stockholders within 90 days of the date of the Purchase Agreement for the purpose of obtaining stockholder approval for the issuance of all of the shares issuable upon conversion of the Notes in excess of 19.99% of the issued and outstanding shares of common stock as of the date of the Purchase Agreement.
• If Stockholder Approval is not obtained by such date, the Company has agreed to hold a meeting every three months thereafter until Stockholder Approval is obtained.

Key Dates

Keywords

resale, common stock, convertible note, 3i LP, ZSPC, emerging growth company, smaller reporting company, registration statement, zSpace