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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
 3 Months Ended
Mar. 31, 2026
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  
Cash, Cash Equivalents, and Restricted Cash

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.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the condensed consolidated balance sheet as of March 31, 2026 and December 31, 2025, to the amounts reported on the condensed consolidated statement of cash flows (in thousands):

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​

​

​

​

​

​

​

​

​

  ​ ​ ​

March 31, 

​

December 31, 

​

​

​

​

2026

  ​ ​ ​

2025

​

​

Cash

​

$

508

​

$

538

​

​

Cash equivalents

​

​

2,042

​

​

174

​

​

Restricted cash

​

 

308

​

 

309

​

​

Total cash, cash equivalents and restricted cash

​

$

2,858

​

$

1,021

​

​

​

The restricted cash is legally restricted to secure credit card charges incurred by the Company.
Accounts Receivable and Allowance for Credit Losses

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 March 31, 2026 and December 31, 2025, the Company reported an allowance for credit losses balance of $0.1 million.

Series P Preferred Stock Liability

Series P Preferred Stock Liability

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.
Fair Value of Financial Instruments

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. The following table represents the fair value hierarchy for the financial assets and liabilities held by the Company measured at fair value on a recurring basis (in thousands):

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As of March 31, 2026

(in thousands)

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Level 1

  ​ ​ ​

Level 2

  ​ ​ ​

Level 3

  ​ ​ ​

Total

Money market funds

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$

2,042

​

$

 —

​

$

 —

​

$

2,042

Total financial assets

​

$

2,042

​

$

—

​

$

—

​

$

2,042

​

​

​

​

​

​

​

​

​

​

​

​

​

Convertible debt subject to credit risk analysis

​

$

—

​

$

11,729

​

$

—

​

$

11,729

Series P Preferred Stock liability

​

​

—

​

​

—

​

​

2,550

​

​

2,550

Total financial liabilities

​

$

—

​

$

11,729

​

$

2,550

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$

14,279

​

​

​

​

​

​

​

​

​

​

​

​

​

​

  ​ ​ ​

As of December 31, 2025

(in thousands)

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Level 1

  ​ ​ ​

Level 2

  ​ ​ ​

Level 3

  ​ ​ ​

Total

Money market funds

​

$

174

​

$

 —

​

$

 —

​

$

174

Total financial assets

​

$

174

​

$

—

​

$

—

​

$

174

​

​

​

​

​

​

​

​

​

​

​

​

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Convertible debt subject to credit risk analysis

​

$

—

​

$

8,923

​

$

—

​

$

8,923

Total financial liabilities

​

$

—

​

$

8,923

​

$

—

​

$

8,923

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The following table presents the roll-forward of the Series P Preferred Stock liability balance for the three months ended March 31, 2026 (in thousands):

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​

​

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(in thousands)

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Amount

Balance at December 31, 2025

​

$

—

Initial recognition

​

​

2,791

Change in fair value

​

​

(241)

Balance at March 31, 2026

​

$

2,550

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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 March 31, 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 March 31, 2026.

The Company measures its Series P 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 convertible stock has been categorized as a Level 3 item as of March 31, 2026.

The significant inputs to the model were as follows:

-Share price of $0.53 at issuance date of January 27, 2026 and $0.11 at March 31, 2026;
-Discount rate of 22.72% at issuance date of January 27, 2026 and 23.14% at March 31, 2026;
-Volatility of 88.05% at issuance date of January 27, 2026 and 99.11% at March 31, 2026;
-Risk free rate of 3.75% at issuance date of January 27, 2026 and 3.84% at March 31, 2026;
-Dividend yield of 0.00% at issuance date of January 27, 2026 and at March 31, 2026;
-Probability of a change in control scenario of 50% at issuance date of January 27, 2026 and at March 31, 2026;
-Probability of a dissolution scenario of 10% at issuance date of January 27, 2026 and at March 31, 2026;
-Probability of a maturity expiration scenario of 40% at issuance date of January 27, 2026 and at March 31, 2026;
-Timing of a change in control scenario of 1 year at issuance date of January 27, 2026 and 0.83 years at March 31, 2026;
-Timing of a dissolution scenario of 2 years at issuance date of January 27, 2026 and 1.83 years at March 31, 2026; and,
-Timing of a maturity expiration scenario of 5 years at issuance date of January 27, 2026 and 4.83 years at March 31, 2026;

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During the three months ended March 31, 2026, there were no transfers of financial assets and liabilities between Levels 1, 2 or 3.
Revenue

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.

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 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 (loss) income.

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 one-and two-year extended warranty contracts that customers can purchase at their option, which are also separate performance obligations. All warranty-related performance obligations are generally fulfilled evenly throughout the contract term. Services also includes post-contract support (“PCS”) which is akin to a stand-ready performance obligation that is provided throughout the contract term. For all services related performance obligations, the Company believes that the passage of time corresponds directly to the satisfaction of the performance obligations; therefore, an output method of measuring progress based on time elapsed during the contract period is used to recognize revenue ratably on a straight-line basis.

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.
Cost of Goods Sold

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

New Accounting Pronouncements

As of March 31, 2026 there are no new accounting pronouncements affecting the Company other than those discussed in the financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 30, 2026.