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DEBT AND RELATED PARTY DEBT | 3 Months Ended
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Mar. 31, 2026
DEBT AND RELATED PARTY DEBT |
DEBT AND RELATED PARTY DEBT |
5. | DEBT AND RELATED PARTY DEBT
As of March 31, 2026 and December 31, 2025, debt and related party debt is comprised of the following (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ ​ ​ | March 31, | ​ | December 31,
​ | ​ | 2026 | ​ ​ ​ | 2025
Short-term debt: |  | ​ | ​ |  | ​ | ​
Other term loans | ​ | $ | 609 | ​ | $ | 1,405
Total other current debt | ​ |  | 609 | ​ |  | 1,405
Convertible debt | ​ | ​ | 2,371 | ​ | ​ | 6,199
Total short-term debt | ​ | $ | 2,980 | ​ | $ | 7,604
Noncurrent debt: | ​ |  | ​ | ​ |  | ​
Convertible debt | ​ | $ | 11,729 | ​ | $ | 8,923
Other term loans | ​ | ​ | 8,557 | ​ | ​ | 8,809
Less: debt issuance costs | ​ |  | (25) | ​ |  | (19)
Less: current portion | ​ |  | (2,980) | ​ |  | (7,604)
Total Noncurrent debt | ​ | $ | 17,281 | ​ | $ | 10,109
​ All issuance costs related to the convertible debt issued during the three months ended March 31, 2026 were expensed as incurred. As of March 31, 2026, future principal payments for long-term debt, including the current portion, are summarized as follows (in thousands):
​ | ​ | ​ | ​
Year Ending December 31, | ​ | Amount
2026 | ​ | $ | 2,980
2027 | ​ |  | 10,569
2028 | ​ | ​ | 7,379
Less adjustment to fair value of Senior Secured Convertible Debt | ​ | ​ | (667)
Total | ​ | $ | 20,261
​ During the three months ended March 31, 2026 and 2025, the Company capitalized $31,000 and $30,500, respectively (rounded to thousands), of debt discount and issuance costs on term loans incurred. 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”) and authorized the issuance of up to 5,000,000 shares of Series P Preferred Stock, par value $0.00001 per share. As of March 31, 2026, 1,500,000 shares of Series P Preferred Stock issued and outstanding. Each share of Series P Preferred Stock has a stated value of $2.00, subject to adjustment as set forth in the Series P COD (the “Stated Value”). Holders of Series P Preferred Stock are entitled to receive cumulative dividends at a rate of eighteen percent (18%) per annum, payable annually. Dividends accrue and compound annually and are payable solely in additional shares of Series P Preferred Stock. In the event of any liquidation, dissolution, or winding-up of the Company, or a Change of Control Transaction (as defined in the Series P COD), holders of Series P Preferred Stock are entitled to receive, prior to any distribution to holders of junior securities, an amount per share equal to the Stated Value plus any accrued and unpaid dividends. The Series P Preferred Stock votes together with the Company’s common stock on an as-converted basis. Additionally, as long as any shares of Series P Preferred Stock remain outstanding, the Company cannot take certain actions without the affirmative vote of the holders of a majority of the outstanding Series P Preferred Stock. These actions include, among others: (a) adversely altering the rights of the Series P Preferred Stock; (b) creating any class of stock senior to or pari passu with the Series P Preferred Stock; or (c) amending the Company’s Certificate of Incorporation in a manner that adversely affects the holders. Beginning on the third anniversary of the Original Issue Date (as defined in the Series P COD), holders may opt to convert their shares of Series P Preferred Stock into shares of common stock. The conversion rate is determined by dividing the Stated Value (plus accrued unpaid dividends) by the “Conversion Price.” The initial “Conversion Price” was the Stated Value ($2.00) and is subject to adjustment for stock splits, reverse stock splits, stock dividends, and similar events. In connection with the reverse stock split of the Company’s common stock effective April 20, 2026, the Conversion Price was proportionately adjusted from $2.00 to $50.00 in accordance with Section 5(c) of the Series P COD. All outstanding shares of Series P Preferred Stock will automatically convert into shares of common stock on the fifth anniversary of the Original Issue Date. For the automatic conversion occurring on the fifth anniversary of the Original Issue Date, the conversion rate is the lower of (y) the Conversion Price and (z) 80% of the 90-Day VWAP of the Company’s common stock. As a result of the Reverse Stock Split on April 20, 2026, the Series P Preferred Stock is convertible into 60,000 shares of common stock, subject to future adjustments. The Series P Preferred Stock may not be converted if such conversion would result in the holder (together with its affiliates) beneficially owning in excess of 4.99% of the Company’s outstanding common stock. A holder may increase or decrease this limitation upon notice to the Company, up to a maximum of 9.99%, provided that any increase will not be effective until the 61st day after such notice. The Company is prohibited from issuing shares of common stock upon conversion of the Series P Preferred Stock if such issuance would breach the Company’s obligations under the rules of Nasdaq, unless shareholder approval is obtained. Classification and Measurement In accordance with ASC 480-10-25-14, the Company determined that the Series P Preferred Stock should be classified as a liability and recorded at fair value as a non-current liability as of March 31, 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 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 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 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 March 31, 2026 and 2025, was a gain of approximately $0.4 million and $0, respectively. Term Debt Fiza Amendment The Company has three outstanding loans as of March 31, 2026 with Fiza Investments Limited, (“Fiza”) with a total outstanding principal balance of $7.2 million. On April 10, 2025, in connection with the Senior Secured Convertible Note Financing, the maturity date of the Fiza loans were amended to be the latter to occur of December 31, 2027 or the date in which there is no debt outstanding under the Initial Senior Secured Convertible Note (as defined below). As of March 31, 2026 and December 31, 2025, gross principal amounts due on the Fiza term debt is $7.2 million and have been classified as non-current other term loans on the balance sheet. On March 22, 2026, the Company and Fiza entered into an Amendment No. 4 (the “Fiza Amendment”) to Loan and Security Agreement dated July 11, 2024 (as amended, the “Fiza Loan Agreement”). Pursuant to the Fiza Amendment, the parties agreed to a moratorium on the payment of interest by the Company pursuant to the Fiza Loan Agreement until December 31, 2026 (the “Moratorium Period”). During the Moratorium Period, interest will continue to accrue on the outstanding principal balance at the applicable interest rate and will be deferred and capitalized (added to the outstanding principal balance) on each corresponding accrual date. Following the Moratorium Period, the Company shall continue monthly interest-only payments to Fiza pursuant to the terms of the Fiza Loan Agreement. 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 $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 the two existing Loan and Security Agreements with the Lender dated August 20, 2025, which had original principal amounts of $1,000,000 each. In connection with this refinancing, the Company, the Lender, and the Company’s existing Senior Lender, entered into an amended intercreditor agreement (the “Intercreditor Agreement”) to maintain the subordinated status of the New Loan, pursuant to which, among other things, Itria subordinated its security interest in the assets of the Company to the security interest of the Senior Lender and agreed to certain covenants limiting its ability to declare an event of default under the New Loan Agreement. 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 1.5% of the unpaid principal balance if the New Loan is prepaid within the first 12 months of the term. The New Loan is secured by a second priority lien on substantially all of the Company’s assets and is guaranteed by the Company’s two wholly owned subsidiaries -- zSpace Technologies (Shanghai) Ltd. and zSpace K.K. The New Loan 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. Additional Senior Secured Convertible Note Financing On March 16, 2026, the Company entered into an amendment (the “Amendment”) to the Securities Purchase Agreement dated April 11, 2025 (the “Note SPA”) providing for, among other things, multiple closings pursuant to the Note SPA, rather than a total of two closings (collectively, the “Senior Secured Convertible Note Financing”). In addition, the Company and the investor (the “Senior Lender”) agreed in the Amendment 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”). 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. The Additional Senior Secured Convertible Note is substantially similar to the form of the original Senior Secured Convertible Note issued by the Company on April 11, 2025 to the Senior Lender in the principal amount of $13,978,495 (the “Initial Senior Secured Convertible Note”), except that the maturity date of the Additional Senior Secured Convertible Note is March 15, 2028, the Initial Conversion Price is $0.28 per share, and the Additional Senior Secured Convertible Note is subject to a floor price of $0.05 per share. Conversion of Principal and Interest amounts into Common Stock During the three months ended March 31, 2026, the Company reduced its obligations under the Initial Senior Secured Convertible Note by $1.8 million through the conversion of principal and interest into 278,374 shares of common stock at conversion prices ranging between $3.00 per share to $15.00 per share. 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 March 31, 2026 and 2025, was a loss of approximately $2.6 million and $0, respectively.

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