As of June 30, 2026 and December 31, 2025, debt and related party debt is comprised of the following (in thousands):

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All issuance costs related to the convertible debt issued during the three and six months ended June 30, 2026 were expensed as incurred.

As of June 30, 2026, future principal payments for long-term debt, including the current portion, are summarized as follows (in thousands):

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During the three and six months ended June 30, 2026 and 2025, the Company capitalized $31,000 and $30,500, respectively, of debt discount and issuance costs on term loans incurred.

3i and Fiza Debt Restructuring

On May 28, 2026, the Company entered into a series of related agreements and corporate actions to restructure approximately $12.0 million of outstanding indebtedness owed to two noteholders: 3i, LP, a Delaware limited partnership (“3i”), and Fiza Investments Limited, a Cayman Islands entity (“Fiza” and, together with 3i, the “Holders”). The transactions consist of (i) the conversion of a portion of the amounts owed to 3i and all amounts owed to Fiza into shares of the Company’s common stock, par value $0.00001 per share (“Common Stock”), and a newly created series of preferred stock designated as Series P-2 Convertible Preferred Stock (“Series P-2 Preferred”), (ii) the amendment of 3i’s remaining senior convertible note, (iii) the amendment of the Certificate of Designations of the Company’s Series P Convertible Preferred Stock, and (iv) the creation of the new Series P-2 Preferred, each as described in more detail below.

3i Debt Restructuring Agreement

On May 28, 2026 (the “Closing Date”), the Company converted an aggregate of $2,000,000 of outstanding principal and other owed amounts under its senior secured convertible notes into shares of Common Stock. Specifically, the converted amount consisted of (i) $789,110 (the “First Note Converted Amount”) of outstanding principal and other owed amounts under a senior secured convertible note originally issued on April 11, 2025 in the original principal amount of $13,978,495 (the “First Note”), and (ii) an amount of interest and Make-Whole Amounts (as defined in the Second Note) equal to $2,000,000 minus the First Note Converted Amount, drawn from a senior secured convertible note issued on March 16, 2026 in the original principal amount of $4,301,075 (the “Second Note”). Conversion of the First Note

Converted Amount fully satisfies and discharges all obligations under the First Note. In connection with the 3i debt restructuring, the Company recorded a gain on debt extinguishment of $1.2 million during the three and six months ended June 30, 2026.

The conversion price for the shares of Common Stock issuable to 3i pursuant to the 3i Agreement is $0.2385 per share, a fixed price equal to 150% of the closing price of the Common Stock on the OTC Markets on the trading day immediately preceding the Closing Date. The number of shares of Common Stock issuable to 3i pursuant to the 3i Agreement is equal to $2,000,000 divided by such conversion price, rounded up to the nearest whole share.

Simultaneously, the Second Note (as reduced by the converted amounts described above) was amended effective as of the Closing Date (as so amended, the “Amended Note”). Under the Amended Note, 3i will be subject to a nine (9)-month conversion moratorium during which it may not exercise any conversion right. Commencing on the date that is nine (9) months after the Closing Date, the Company will be obligated to repay the Amended Note in nine (9) equal consecutive monthly installments of combined principal, interest and Make-Whole Amounts (as defined in the Amended Note), with the final installment due eighteen (18) months after the Closing Date.

The 3i Agreement also includes customary representations and warranties of the parties, a limitation on the beneficial ownership of 3i in the Company’s Common Stock of 4.99% of the total outstanding Common Stock immediately after giving effect to such issuance (increasing to 9.99% on or after June 20, 2026), and a 60-day standstill on 3i’s ability to declare an Event of Default (as defined in the Amended Note) as a result of the Company’s Common Stock being suspended from trading on Nasdaq.

Under Section 6(a) of the 3i Agreement, in the event that any issuance of Conversion Shares to 3i would otherwise cause 3i to exceed a beneficial ownership limitation equal to 4.99% (or 9.99% on or after June 20, 2026) of the number of shares of Common Stock outstanding immediately after giving effect to such issuance (the "Beneficial Ownership Limitation"), the Company shall only issue such number of Conversion Shares as would not cause 3i to exceed the maximum number of Conversion Shares permitted under Section 6(a), as directed by 3i, with the balance to be held in abeyance until notice from 3i that the balance, or a portion thereof, may be issued in compliance with such limitations. The abeyance is evidenced through the 3i Agreement. 3i may, upon notice to the Company, increase or decrease the Beneficial Ownership Limitation, provided that it shall in no event exceed 9.99% of the outstanding shares of Common Stock, and any increase is not effective until the sixty-first day after such notice is delivered to the Company. 

As of June 30, 2026, 6,321,912 Conversion Shares were held in abeyance under Section 6(a). The Company is obligated to issue those Conversion Shares upon notice from 3i, and 3i is not entitled to cash or any other consideration in lieu of those shares. Because the obligation is to issue a fixed number of Conversion Shares in respect of consideration settled at the Closing, and neither the 3i Agreement nor the Amended Note permits or requires settlement in cash or other assets, the obligation is classified within permanent stockholders' equity and is not subsequently remeasured. The Conversion Shares held in abeyance are excluded from shares issued and outstanding as of June 30, 2026 and are included in the weighted-average number of shares used to compute basic net income (loss) per share from the Closing Date. 

 Fiza Debt Conversion

 On May 28, 2026, the Company converted an aggregate amount of $10,003,916, consisting of $7,201,695 in principal (the “Principal”) and $2,802,221 in accrued interest (the “Interest”) as follows (i) the Principal into shares of Common Stock at a fixed conversion price equal to $0.2385 per share, 150% of the closing price of the Common Stock on the OTC Markets on the trading day immediately preceding the Closing Date; and (ii) the Interest into shares of the newly created Series P-2 Preferred at a fixed conversion price of $1.00 per share, resulting in the issuance of 2,802,221 shares of Series P-2 Preferred to Fiza.

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”). On May 28, 2026,

the Company filed an Amendment to the Certificate of Designations of Series P Convertible Preferred Stock of zSpace, Inc.  As of June 30, 2026, 1,500,000 shares of Series P Preferred Stock were issued and outstanding. The principle terms of the Series P Preferred are as follows:

Designation and Amount. Up to 2,000,000 shares of Series P Preferred are authorized, par value $0.00001 per share, with a stated value of $1.00 per share. Series P Preferred ranks pari passu with the Series P-2 Convertible Preferred Stock and senior to Common Stock and all other junior shares as to payment of dividends, distribution of assets upon liquidation, and redemption rights.

Dividends. Each share of Series P Preferred is entitled to cumulative dividends at a rate of 18% per annum, payable annually, compounding annually from the original issue date. Dividends are payable only in shares of Series P Preferred. No dividends may be paid on shares junior to the Series P Preferred unless dividends on Series P Preferred have first been paid in full.

Voting Rights. Series P Preferred votes on an as-converted basis together with the Common Stock. So long as any shares of Series P Preferred remain outstanding, the Company may not, without the affirmative vote of a majority of the outstanding shares of Series P Preferred, (a) alter or change the powers, preferences or rights of the Series P Preferred, (b) authorize or create any class of stock ranking senior to or pari passu with the Series P Preferred, (c) amend the Certificate of Incorporation in any manner adversely affecting Series P Preferred holders, (d) increase the authorized shares of preferred stock, or (e) enter into any agreement with respect to the foregoing.

Liquidation. Upon any liquidation, dissolution, winding-up, or Change of Control Transaction (as defined in the Series P COD), holders of Series P Preferred are entitled to receive, for each share, before any distribution to holders of junior shares, an amount equal to the greater of (a) the stated value plus accrued and unpaid dividends and other amounts due, or (b) the amount such holder would receive if the share had been converted into Common Stock at the then-applicable conversion price immediately prior to such event.

Conversion. Each share of Series P Preferred is convertible into Common Stock at the option of the holder beginning on the third anniversary of the original issue date. The conversion price is equal to the stated value ($1.00) plus accrued dividends, divided by the then-applicable conversion price (initially $1.00 per share of Common Stock, subject to customary anti-dilution adjustments). Conversion is subject to a 4.99% (or 9.99% at the holder’s election) beneficial ownership limitation.

Amendment to Series P Convertible Preferred Stock

In connection with the foregoing transactions, on May 28, 2026, the Board of Directors of the Company (the “Board”), with the prior written consent of the holder of all of the outstanding shares of Series P Convertible Preferred Stock, approved, and directed the Company to file with the Secretary of State of the State of Delaware, a Certificate of Amendment to the Certificate of Designations of Series P Convertible Preferred Stock of zSpace, Inc. (the “Series P Amendment”). The Series P Amendment: (i) reduces the authorized number of shares of Series P Convertible Preferred Stock from 5,000,000 to 2,000,000 shares; and (ii) reduces the current Conversion Price of the Series P Convertible Preferred Stock to $1.00 per share. All other terms of the Certificate of Designations of Series P Convertible Preferred Stock were not affected by the Series P Amendment.

Series P-2 Convertible Preferred Stock

 On May 29, 2026, the Company filed a Certificate of Designations of Series P-2 Convertible Preferred Stock of zSpace, Inc. (the “Series P-2 COD”), creating a new series of preferred stock designated as “Series P-2 Convertible Preferred Stock” upon filing with the Secretary of State of the State of Delaware. The principal terms of the Series P-2 Preferred are as follows:

 Designation and Amount. Up to 3,000,000 shares of Series P-2 Preferred are authorized, par value $0.00001 per share, with a stated value of $1.00 per share. Series P-2 Preferred ranks pari passu with the Series P Convertible Preferred

Stock and senior to Common Stock and all other junior shares as to payment of dividends, distribution of assets upon liquidation, and redemption rights.

 Dividends. Each share of Series P-2 Preferred is entitled to cumulative dividends at a rate of 18% per annum, payable annually, compounding annually from the original issue date. Dividends are payable only in shares of Series P-2 Preferred. No dividends may be paid on shares junior to the Series P-2 Preferred unless dividends on Series P-2 Preferred have first been paid in full.

 Voting Rights. Series P-2 Preferred votes on an as-converted basis together with the Common Stock. So long as any shares of Series P-2 Preferred remain outstanding, the Company may not, without the affirmative vote of a majority of the outstanding shares of Series P-2 Preferred, (a) alter or change the powers, preferences or rights of the Series P-2 Preferred, (b) authorize or create any class of stock ranking senior to or pari passu with the Series P-2 Preferred (other than Series P), (c) amend the Certificate of Incorporation in any manner adversely affecting Series P-2 Preferred holders, (d) increase the authorized shares of preferred stock, or (e) enter into any agreement with respect to the foregoing.

 Liquidation. Upon any liquidation, dissolution, winding-up, or Change of Control Transaction (as defined in the Series P-2 COD), holders of Series P-2 Preferred are entitled to receive, for each share, before any distribution to holders of junior shares, an amount equal to the greater of (a) the stated value plus accrued and unpaid dividends and other amounts due, or (b) the amount such holder would receive if the share had been converted into Common Stock at the then-applicable conversion price immediately prior to such event.

 Conversion. Each share of Series P-2 Preferred is convertible into Common Stock at the option of the holder beginning on the third anniversary of the original issue date. The conversion price is equal to the stated value ($1.00) plus accrued dividends, divided by the then-applicable conversion price (initially $1.00 per share of Common Stock, subject to customary anti-dilution adjustments). Conversion is subject to a 4.99% (or 9.99% at the holder’s election) beneficial ownership limitation.

Classification and Measurement of Series P and P 2 Preferred Stock Liability

In accordance with ASC 480-10-25-14, the Company determined that the Series P and Series P 2 Preferred Stocks should be classified as a liability and recorded at fair value as a non-current liability as of June 30, 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 and Series P 2 Preferred Stocks are 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 and Series P 2  Preferred Stocks 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 June 30, 2026 and 2025, was a loss of approximately $34,000 and $0, respectively. The net impact for the six months ended June 30, 2026 and 2025, was a gain of approximately $0.2 million and $0, respectively.

As of June 30, 2026, there are 1,500,000 and 2,802,221 shares outstanding of the Series P and Series P 2 Preferred stock, respectively.

Term Debt

Fiza Amendment

As discussed above, on May 28, 2026, the outstanding principal balance of the Fiza loans of $7.2 million were restructured and converted into common stock. The outstanding accrued interest balance of $2.8 million was converted into Series P 2 Preferred Stock. In connection with the conversion of principal and accrued interest under the Fiza loans, the Company recorded a gain on debt extinguishment of $3.1 million during the three and six months ended June 30, 2026. As of June 30, 2026, there remains no outstanding amounts under the Fiza loans.

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.

Conversion of Principal and Interest amounts into Common Stock

During the six months ended June 30, 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 June 30, 2026 and 2025, was a loss of approximately $1.0 million and a gain of approximately $0.5 million, respectively. The net impact for the six months ended June 30, 2026 and 2025, was a loss of approximately $3.6 million and a gain of approximately $0.5 million, respectively.