SecProbe.io

CORRESP
1
filename1.htm

M. ALI PANJWANI

Partner

Direct Tel: 212-326-0820

Fax: 212-326-0806

ali.panjwani@pryorcashman.com

August 9, 2024

Via Edgar

Uwem Bassey

Jan Woo

Dave Edgar

Chris Dietz

Securities and Exchange Commission

Division of Corporate Finance

100 F Street, N.E.

Washington, D.C. 20549

    Re:
    zSpace, Inc.

    Amendment No. 1 to Registration Statement
    on Form S-1

    Submitted July 22, 2024

    CIK No. 0001637147

    File No. 333-280427

Ladies and Gentlemen:

On behalf of our client, zSpace, Inc.,
a Delaware corporation (the “Company”), and pursuant to the applicable provisions of the Securities Act of 1933, as amended
(the “Securities Act”), and the rules promulgated thereunder, we hereby submit in electronic form the accompanying Amendment
No. 2 to Registration Statement on Form S-1 of the Company (as amended, the “Form S-1”), marked to indicate
changes from the Amendment No. 1 to Registration Statement on Form S-1 that was filed with the Securities and Exchange Commission
(the “Commission”) on July 22, 2024.

The Form S-1 reflects
the responses of the Company to comments received from the Staff of the Commission (the “Staff”) in a letter dated August 2,
2024 (the “Comment Letter”). The discussion below is presented in the order of the numbered comments in the Comment Letter.
Certain capitalized terms set forth in this letter are used as defined in the Form S-1. For your convenience, references in the responses
to page numbers are to the marked version of the Form S-1 and to the prospectus included therein.

The Company has asked us to
convey the following responses to the Staff:

Amendment No. 1 to Registration Statement on Form S-1
filed July 22, 2024

Cover Page

 1. Please disclose in the bolded header on the cover page that the selling shareholders are
offering 2,219,970 shares of common stock.

Securities and Exchange Commission

August 9, 2024

Page 2

 Response: In response to the Staff’s comment, the Company has revised the bolded header on the cover page of
the Form S-1.

Prospectus Summary

Recent Developments
and Recent Results, page 6

 2. Please revise to include a preliminary net income or loss amount or a range of net income or loss in
order to balance the preliminary revenue information presented. Also, revise to explain why the information provided is preliminary.

 Response: In response to the Staff’s comment, the Company has revised the Recent Developments and Recent and
Results disclosure on pages 6 – 7 of the Form S-1.

Summary Financial Data

Consolidated Statements of Operations, page 14

 3. You disclose in note (1) that unaudited pro forma as adjusted basic and diluted net loss per share
were computed to give effect to the issuance of 3,000,000 shares of your common stock in this offering however, you do not appear to have
included such shares in the denominator. Please revise as necessary.

    Response:
    In response to the Staff’s comment, the Company has revised the Pro forma as adjusted net loss per share and weighted average shares outstanding used in computing Pro forma as adjusted net loss per share, basic and diluted (unaudited)… to account for the 3,000,000 shares of common stock to be issued in this offering in the Consolidated Statements of Operations on page 15 of the Form S-1.

 4. Please tell us whether the numerator for pro forma as adjusted net loss per share contains an adjustment
to eliminate any interest expense associated with the notes that convert into your common stock upon an IPO. If such adjustment is not
included please revise to include or explain why it is not necessary.

    Response:
    In response to the Staff’s comment, the Company advises the Staff that it has included the elimination of $54,795 in accrued interest as of March 31, 2024 in the numerator for the calculation of pro forma as adjusted net loss per share pursuant to the terms of conversion of the Fiza convertible note dated March 9, 2024. As described in the following sections (pages); Controlling Stockholders (page 9), Debt and Financing Arrangements (page 75), and CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS (page 108), the principal amount of $5,000,000 will convert and all interest accrued on the note will be automatically waived if conversion occurs prior to December 31, 2024.

Use of Proceeds, page 51

 5. We note that you intend to use a portion of your net proceeds to expedite unfulfilled orders, software development, and sales and
marketing. To the extent known, please revise to disclose the approximate amount of proceeds you intend to allocate toward each of the
purposes identified in this section.

 Response: In response to the Staff’s comment, the Company advises the Staff
that we mention on page 51 that it cannot “specify with certainty…the amounts we actually spend on the uses set forth
above.” However, to address the Staff’s request, the Company has revised the disclosure to identify where the Company
anticipates a majority of the proceeds will be used. The Company cannot approximate a dollar amount of proceeds that will be used for
each category, as such amounts are not known with specificity.

Securities and Exchange Commission

August 9, 2024

Page 3

Capitalization, page 53

 6. Please revise to include total debt liabilities in the calculation of total capitalization.

    Response:
    In response to the Staff’s comment, the Company has revised the calculation of Total Capitalization to include Total Debt Liabilities on the capitalization table on page 55 of the Form S-1.

Dilution, page 54

 7. Revise the second line-item in the dilution per share table to remove the words "pro forma" as this line represents historical
net tangible book value (deficit) as of March 31,2024.

    Response:
    The Company acknowledges the Staff’s comment and has revised the referenced line item description on the dilution per share table on page 56 of the Form S-1.

Selling Stockholders

Plan of Distribution for Selling Stockholder Shares, page 115

 8. We note your disclosure that the selling securityholders may sell their securities directly or through one or more underwriters
or broker-dealers. Please confirm your understanding that the retention by a selling stockholder of an underwriter would constitute a
material change to your plan of distribution requiring a post-effective amendment. Refer to your undertaking provided pursuant to Item
512(a)(1)(iii) of Regulation S-K.

 Response: In response to the Staff’s comment, the Company advises the Staff that it understands that the
retention by a selling stockholder of an underwriter would constitute a material change to the Company’s plan of distribution requiring
the Company to file a post-effective amendment.

Condensed Consolidated Financial Statements

Note 7. Stock-based Compensation Expense

Determination of fair value of stock options, page F-20

 9. We continue to consider your letter dated July 31, 2024 and may have further comment(s).

    Response:

    In response to the Staff’s oral comments on a telephone call
on August 7, 2024, and a follow-up telephone call on August 8, 2024, the Company provides the following responses. The Company advises
the Staff that the following responses should be reviewed in conjunction with the Company’s prior correspondence on this matter
dated July 31, 2024 and the Company’s independent common stock valuation reports prepared by Carta Valuations LLC as of September
30, 2023, December 31, 2023 and March 31, 2024 included confidentially herewith (“Carta Valuations”). In the below comparisons,
the Company has focused on the most recent valuation periods of December 31, 2023 and March 31, 2024 as being most relevant to the Company’s
IPO activities. The information provided in the Carta Valuations, or referenced herein based on the Carta Valuations, are indicative of
the information at the time of the valuation and may not be the same information as presented in the Form S-1 as submitted.

      Because
of the commercially sensitive nature of the information contained within this response and within the Carta Valuations, this submission
is accompanied by the Company’s request for confidential treatment of selected portions of this letter pursuant to Rule 83 of the
Commission’s Rules on Information and Requests, 17 C.F.R. § 200.83 and the Freedom of Information Act.

Request:
For the referenced periods, provide a detailed analysis of factors that underly the differences in the fully marketable per share company
value in each of the going concern and the IPO scenarios. Describe the assumptions that differ between the scenarios and explain how they
resulted in quantifiable differences in the valuations.

Response: In
determining the December 31, 2023 and March 31, 2024 valuations, the Company used a hybrid method of the Going Concern (OPM) and IPO
(common stock equivalent) scenarios. The hybrid method was determined to be the appropriate method to model various exit scenarios
for purposes of valuing the Company’s common stock because of the stage of development of the Company and the expected timing
of an IPO, factoring in the inherent uncertainty associated with being able to complete the IPO. The resulting estimated fair value
of the Company’s common stock as of December 31, 2023 and March 31, 2024 was *****
and ***** per share, respectively, on a non-marketable, minority basis. The key
drivers in the fair values determined included the following:

Securities and Exchange Commission

August 9, 2024

Page 4

    December 31, 2023
    March 31, 2024

    The Company achieved $42.3 million in revenue in the last twelve months, representing 18.2% growth when compared to the prior twelve months revenue of $35.8 million;
    The Company achieved $43.6 million in revenue in the last twelve months, representing 17.3% growth when compared to the prior twelve months revenue of $37.1 million;

    The Company expected to exit via IPO as early as September 2024, depending on market conditions;
    The
    Company had filed two DRS amendments based on SEC comments in March 2024 and an annual audit and SEC comments were expected in early
    May 2024; and

    The
    Company had not selected a banker, but based on continued discussions, the Company expected an enterprise value of approximately
    ***** million; and

    The
    Company engaged Roth Capital Partners as its lead underwriter for the planned IPO, with a target listing by mid-August and
    the Company submitted its Nasdaq Application. The expected enterprise value remained at approximately ***** million;

    The Company converted approximately $128.6 million its existing NCNV Preferred shares and outstanding venture debt to NCNV Series 1, 2, and 3. These shares only convert in case of an IPO, otherwise they were treated as debt.

In
summary,  the Board determined the fair market value for each of the valuation dates was as follows. The footnote references (1)
 – (4) provide further details to each line item and correspond to the Staff’s other requests as provided herein.

    December 31, 2023
    March 31, 2024

    Going

 Concern

    IPO
    Going

 Concern

    IPO

    Company Equity Value ($ Millions)(1) (2)
     *****
     *****
     *****
     *****

    Common Value per Share

    Shares
      174,265
      28,236,741
      174,077
      30,659,169

    Fully Marketable Value (1) (2)
     *****
     *****
     *****
     *****

    DLOM (3)
      35.0 %
      25.0 %
      35.0 %
      18.0 %

    Non-marketable Fair Value
     *****
     *****
     *****
     *****

    PWERM Weighting (4)
      50.0 %
      50.0 %
      40.0 %
      60.0 %

    Concluded Fair Market Value
     *****
     *****

(1)
Company Equity Value - Going Concern

Company Equity value was determined as summarized below and
as more fully described in the GUIDELINE PUBLIC COMPANY METHOD CONCLUSION section (pages 12 – 17) of
the Carta Valuations, submitted herewith.

Securities and Exchange Commission

August 9, 2024

Page 5

· Multiples selection - In selecting multiples, consideration was given to the Company’s performance relative to its prior
expectations and to its size, growth and margins in conjunction with other quantitative and qualitative factors. As of the Valuation Dates,
the Company’s historical revenue growth was high in the range implied by the guideline companies. Additionally, management indicated
that the Company had performed well against forecasts in place as of the previous Valuation Date.

However, the Company's forecasted growth was
low in the range of the guideline companies. The Company ranked below industry comparables in terms of size, profitability and other key
operating metrics, and continued to generate significant operating losses, indicating a higher risk profile compared to publicly traded
comparable companies.

Given these factors, multiples between the
25th and median of the range were considered reasonable and applied to CY 2024 and CY 2025 revenue.

· Weighting - The Company had generally achieved its forecast targets and had anticipated
                                                                                                 meeting expectations for the then-coming year. In addition, the Company assumed that investors are generally more interested in the
                                                                                                 future performance of an investment than they are in historic performance. Consequently, full weighting was applied to
                                                                                                 forward-looking multiples.

    12/31/2023 (a)
    03/31/2024 (a)

    ($ Millions)
    Metric
    Multiple
    Weighting
    Weighted

 Value
    Metric
    Multiple
    Weighting
    Weighted

 Value

    2024 Revenue
    $ *****
      *****
      100 %
    $ *****
     *****
      *****
      50 %
    *****

    2025 Revenue

     *****
      *****
      50 %
    *****

    Business enterprise value

    $ *****

    *****

    Plus: Cash and cash equivalents

     *****

    *****

    Market value of invested capital

     *****

    *****

    Less: Interest-bearing liabilities (b)

     *****

    *****

    Equity value (rounded)

     *****

    *****

(a)
Carta Valuations pages 16 and 17, as of 12/31/23 and 03/31/24, respectively.

(b)
Includes NCNV Preferred Stock liquidation value.

Securities and Exchange Commission

August 9, 2024

Page 6

Request:
For the referenced periods, show how the number of shares used for the fully marketable value per common share amounts were calculated
and reconcile the amounts used in the going concern and the IPO scenarios as of each of the dates.

Response:

(2)
Company Equity Value (IPO) and Fully Marketable Value (Going Concern and IPO)

A. Going Concern

The Going Concern
scenario assumed an equity valuation determined by the OPM which was used to determine the value of each class of the Company’s
capital stock and a back-solve method based on a probability-weighted price of the preferred stock tied to its initial issuance price.
To calculate the estimated fair market value of the Company’s common stock, the Black-Scholes method was used, requiring a series
of variables, including the equity value of the Company, time to liquidity event, risk-free rate and volatility. For each valuation, the
Company used:

    December 31, 2023
    March 31, 2024

    An implied company equity value of approximately;
    *****
    *****

    A probability weighted time to exit after accounting for the Company’s approximation of the time it would take the Company to exit of;
    2.00 years
    2.00 years

    A risk-free interest rate based on the yield of U.S. Treasury bonds as of the valuation date, a maturity which closely approximated the forecasted liquidity horizon of the Company, of; and
    4.23%
    4.59%

    An estimate for expected volatility based on an