424B3 1 q1fy22424b-3.htm 424B3 Q1FY22 424B-3

Filed pursuant to Rule 424(b)(3)
Registration No. 333-260415
PROSPECTUS SUPPLEMENT NO. 1
(to Prospectus dated April 5, 2022)

image_0.jpg
Velo3D, Inc.
161,028,936 Shares of Common Stock
4,450,000 Warrants to Purchase Shares of Common Stock
13,075,000 Shares of Common Stock Underlying Warrants
____________________
This prospectus supplement supplements the prospectus dated April 5, 2022 (the “Prospectus”), which forms a part of our registration statement on Form S-1 (No. 333-260415), as amended. This prospectus supplement is being filed to update and supplement the information in the Prospectus with the information contained in our quarterly report on Form 10-Q for the period ended March 31, 2022, filed with the Securities and Exchange Commission on May 16, 2022 (the “Q1 2022 Quarterly Report”). Accordingly, we have attached the Q1 2022 Quarterly Report to this prospectus supplement.
The Prospectus and this prospectus supplement relate to the offer and sale from time to time by the selling securityholders named in the Prospectus (the “Selling Securityholders”) of (A) up to 161,028,936 shares of our common stock, par value $0.00001 per share (our “common stock”), consisting of (i) up to 7,381,428 shares of our common stock issued in a private placement of 15,500,000 shares of our common stock (the “PIPE shares”) pursuant to subscription agreements each entered into on March 22, 2021 (the “PIPE Financing”); (ii) up to 8,625,000 shares of our common stock (the “Founder Shares”) issued in connection with the consummation of the Merger (as defined in the Prospectus), in exchange for our Class B ordinary shares originally issued in a private placement to Spitfire Sponsor LLC (the “Sponsor”); (iii) up to 140,572,508 shares of our common stock issued or issuable to certain former stockholders and equity award holders of Legacy Velo3D (the “Legacy Velo3D equity holders”) in connection with or as a result of the consummation of the Merger, consisting of (a) up to 123,058,076 shares of our common stock; (b) up to 1,902,945 shares of our common stock issuable upon the exercise of certain options; and (c) up to 15,611,487 shares of our common stock (the “Earn-Out Shares”) that certain Legacy Velo3D equity holders have the contingent right to receive upon the achievement of certain vesting conditions; and (iv) up to 4,450,000 shares of our common stock issuable upon the exercise of the private placement warrants (as defined below); and (B) up to 4,450,000 warrants (the “private placement warrants”) originally issued in a private placement to the Sponsor.
In addition, the Prospectus and this prospectus supplement relate to the offer and sale of: (i) up to 8,625,000 shares of our common stock that are issuable by us upon the exercise of 8,625,000 warrants (the “public warrants”) originally issued in our initial public offering (the “IPO”); and (ii) up to 4,450,000 shares of our common stock that are issuable by us upon the exercise of the private placement warrants.
Our common stock and public warrants are listed on the New York Stock Exchange (the “NYSE”) under the symbols “VLD” and “VLD WS”, respectively. On May 13, 2022, the last reported sales price of our common stock was $2.90 per share and the last reported sales price of our public warrants was $0.60 per warrant.
This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.
Investing in our securities involves risks. See the section entitled “Risk Factors” beginning on page 10 of the Prospectus to read about factors you should consider before buying our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is May 16, 2022



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q
_____________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number:        001-39757       
______________________________
Velo3D, Inc.
______________________________
(Exact name of registrant as specified in its charter)
Delaware98-1556965
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
511 Division Street, Campbell, CA
95008
(Address of Principal Executive Offices)(Zip Code)
(408) 610-3915
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.00001 per share
VLDNew York Stock Exchange
Warrants to purchase one share of common stock, each at an exercise price of $11.50 per shareVLD WSNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes ☒     No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes ☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes ☐     No ☒
As of May 10, 2022, the registrant had 183,859,249  shares of common stock, $0.00001 per share outstanding.



TABLE OF CONTENTS
Page
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)12





Explanatory Note – Certain Defined Terms
Unless otherwise stated in this Quarterly Report or the context otherwise requires, references to:
“Board” or “Board of Directors” means the board of directors of the Company.
“Bylaws” means the restated bylaws of the Company.
“Business Combination Agreement” means that certain Business Combination Agreement, dated as of March 22, 2021, by and among JAWS Spitfire, Merger Sub and Legacy Velo3D, as amended by Amendment #1 to Business Combination Agreement dated as of July 20, 2021.
“Certificate of Incorporation” means the restated certificate of incorporation of the Company.
“common stock” means the shares of common stock, par value $0.00001 per share, of the Company.
“Class A ordinary shares” means the Class A ordinary shares, par value $0.0001 per share, of JAWS Spitfire, prior to the Domestication, which automatically converted, on a one-for-one basis, into shares of common stock in connection with the Closing.
“Class B ordinary shares” means the Class B ordinary shares, par value $0.0001 per share, of JAWS Spitfire, prior to the Domestication, which automatically converted, on a one-for-one basis, into shares of common stock in connection with the Closing.
“Closing” means the closing of the Merger.
“Closing Date” means September 29, 2021.
“Code” means the Internal Revenue Code of 1986, as amended.
“Domestication” means the domestication contemplated by the Business Combination Agreement, whereby JAWS Spitfire effected a deregistration and a transfer by way of continuation from the Cayman Islands to the State of Delaware, pursuant to which JAWS Spitfire’s jurisdiction of incorporation was changed from the Cayman Islands to the State of Delaware.
“DGCL” means the General Corporation Law of the State of Delaware.
“Earnout Shares” means up to 21,758,148 shares of our common stock issuable pursuant to the Business Combination Agreement to certain Legacy Velo3D equity holders upon the achievement of certain vesting conditions.
“Equity Incentive Plan” means the Velo3D, Inc. 2021 Equity Incentive Plan.
“ESPP” means the Velo3D, Inc. 2021 Employee Stock Purchase Plan.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Founder Shares” means the 8,625,000 shares of our common stock issued to the Sponsor and the other Initial Stockholders in connection with the automatic conversion of the Class B ordinary shares in connection with the Closing.
“GAAP” means United States generally accepted accounting principles.

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“Initial Stockholders” means the Sponsor together with Andy Appelbaum, Mark Vallely and Serena J. Williams.
“IPO” means the Company’s initial public offering, consummated on December 7, 2020, of 34,500,000 units (including 4,500,000 units that were issued to the underwriters in connection with the exercise in full of their over-allotment option) at $10.00 per unit.
“JAWS Spitfire” refers to JAWS Spitfire Acquisition Corporation, a Cayman Islands exempted company, prior to the Closing.
“Legacy Velo3D” means Velo3D, Inc., a Delaware corporation (n/k/a Velo3D US, Inc.), prior to the Closing.
“Legacy Velo3D equity holder” means certain former stockholders and equity award holders of Legacy Velo3D.
“Merger” and “Reverse Recapitalization” mean the merger contemplated by the Business Combination Agreement, whereby Merger Sub merged with and into Legacy Velo3D, with Legacy Velo3D surviving the merger as a wholly-owned subsidiary of the Company on the Closing Date.
“Merger Sub” means Spitfire Merger Sub, Inc., a Delaware corporation.
“NYSE” means the New York Stock Exchange.
“PIPE Financing” means the private placement pursuant to which the PIPE Investors collectively subscribed for 15,500,000 shares of our common stock at $10.00 per share, for an aggregate purchase price of $155,000,000, on the Closing.
“PIPE Investors” means certain institutional investors that invested in the PIPE Financing.
“PIPE Shares” means the 15,500,000 shares of our common stock issued in the PIPE Financing.
“private placement warrants” means the 4,450,000 warrants originally issued to the Sponsor in a private placement in connection with our IPO.
“public shares” means the Class A ordinary shares included in the units issued in our IPO.
“public shareholders” means holders of public shares.
“public warrants” means the 8,625,000 warrants included in the units issued in our IPO.
“Sarbanes-Oxley Act” or “SOX” means the Sarbanes-Oxley Act of 2002.
“SEC” means the United States Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.
“Sponsor” means Spitfire Sponsor LLC, a Delaware limited liability company.
“Subscription Agreements” means, collectively, those certain subscription agreements, entered into on March 22, 2021, between the Company and the PIPE Investors.
“Trust Account” means the trust account of the Company that held the proceeds from the IPO and a portion of the proceeds from the sale of the private placement warrants.
“Velo3D” refers to Velo3D, Inc., a Delaware corporation (f/k/a JAWS Spitfire Acquisition Corporation, a Cayman Islands exempted company), and its consolidated subsidiary following the Closing.
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In addition, unless otherwise indicated or the context otherwise requires, references in this Quarterly Report to the “Company,” “we,” “us,” “our,” and similar terms refer to Legacy Velo3D prior to the Merger and to Velo3D and its consolidated subsidiary after giving effect to the Merger.

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PART I. FINANCIAL INFORMATION
Forward-looking Statements
Certain statements in this Quarterly Report may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “can,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Quarterly Report may include, for example, statements about:
our market opportunity;
the ability to maintain the listing of our common stock and the public warrants on the NYSE, and the potential liquidity and trading of such securities;
the ability to recognize the anticipated benefits of the Merger, which may be affected by, among other things, competition, the ability of the combined company to grow and manage growth profitably and retain its key employees;
changes in applicable laws or regulations;
the inability to develop and maintain effective internal control over financial reporting;
our ability to raise financing in the future;
our success in retaining or recruiting, or changes required in, our officers, key employees or directors;
the period over which we anticipate our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements;
the potential for our business development efforts to maximize the potential value of our portfolio;
regulatory developments in the United States and foreign countries;
the impact of laws and regulations;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our financial performance;
the effect of COVID-19, and variant strains of the virus, on the foregoing; and
other factors detailed under the section entitled “Risk Factors”.
The forward-looking statements contained in this Quarterly Report are based on current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the section entitled “Risk Factors”. Should one or more of these risks or uncertainties materialize, or should any of our
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assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some of these risks and uncertainties may in the future be amplified by the COVID-19 outbreak and there may be additional risks that we consider immaterial or which are unknown. It is not possible to predict or identify all such risks. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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Item 1. Financial Statements
Velo3D, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
March 31,December 31,
20222021
Assets
Current assets:
Cash and cash equivalents$104,426 $207,602 
Short-term investments81,725 15,483 
Accounts receivable, net10,196 12,778 
Inventories42,820 22,479 
Contract assets1,430 274 
Prepaid expenses and other current assets9,449 9,458 
Total current assets250,046 268,074 
Property and equipment, net12,438 10,046 
Equipment on lease, net9,601 8,366 
Other assets15,389 16,231 
Total assets$287,474 $302,717 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$19,609 $9,882 
Accrued expenses and other current liabilities12,121 9,414 
Debt – current portion5,116 5,114 
Contract liabilities19,386 22,252 
Total current liabilities56,232 46,662 
Long-term debt – less current portion2,422 2,956 
Contingent earnout liabilities (Note 10)142,719 111,487 
Warrant liabilities (Note 10)27,719 21,705 
Other noncurrent liabilities8,778 9,492 
Total liabilities237,870 192,302 
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock, $0.00001 par value - 500,000,000 shares authorized at March 31, 2022 and December 31, 2021, 183,557,946 and 183,232,494 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
Additional paid-in capital345,418 340,294 
Accumulated other comprehensive loss(608)(14)
Accumulated deficit(295,208)(229,867)
Total stockholders’ equity49,604 110,415 
Total liabilities and stockholders’ equity$287,474 $302,717 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Velo3D, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except share and per share data)
Three months ended March 31,
20222021
Revenue
3D Printer$10,184 $234 
Recurring payment925 263 
Support services1,109 675 
Total Revenue12,218 1,172 
Cost of revenue
3D Printer10,479 583 
Recurring payment718 187 
Support services1,006 792 
Total cost of revenue12,203 1,562 
Gross profit/(loss)15 (390)
Operating expenses
Research and development12,915 4,695 
Selling and marketing5,983 2,023 
General and administrative9,290 4,786 
Total operating expenses28,188 11,504 
Loss from operations(28,173)(11,894)
Interest expense(141)(120)
Loss on fair value of warrants(6,014)(1,514)
Loss on fair value of contingent earnout liabilities(31,232)— 
Other income/(expense), net219 (20)
Loss before provision for income taxes(65,341)(13,548)
Provision for income taxes— — 
Net loss$(65,341)$(13,548)
Net loss per share attributable to common stockholders, basic and diluted$(0.36)$(0.85)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted183,498,082 16,019,559 
Net loss$(65,341)$(13,548)
Net unrealized holding loss on available-for-sale investments(594)— 
Total comprehensive loss$(65,935)$(13,548)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Velo3D, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three months ended March 31,
20222021
Cash flows from operating activities
Net loss$(65,341)$(13,548)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization1,019 363 
Amortization of deferred loan costs— 
Stock-based compensation4,957 315 
Loss on fair value of warrants6,014 1,514 
Loss on fair value of contingent earnout liabilities31,232 — 
Changes in assets and liabilities
Accounts receivable2,582 (4,814)
Inventories(16,302)374 
Contract assets(1,156)2,549 
Prepaid expenses and other current assets5,036 324 
Other assets842 20 
Accounts payable1,880 2,894 
Accrued expenses and other liabilities2,707 979 
Contract liabilities(2,866)6,155 
Other noncurrent liabilities(713)233 
Net cash used in operating activities(30,107)(2,642)
Cash flows from investing activities
Purchase of property and equipment(4,060)(120)
Production of equipment for lease to customers(1,707)(3,326)
Purchases of available-for-sale investments(66,942)— 
Net cash used in investing activities(72,709)(3,446)
Cash flows from financing activities
Proceeds from loan issuance— 2,400 
Repayment of property and equipment loan— (992)
Proceeds from convertible notes— 5,000 
Repayment of equipment loans(534)— 
Issuance of common stock upon exercise of stock options167 39 
Net cash (used in) provided by financing activities(367)6,447 
Effect of exchange rate changes on cash and cash equivalents— 
Net change in cash and cash equivalents(103,176)359 
Cash and cash equivalents and restricted cash at beginning of period208,402 15,517 
Cash and cash equivalents and restricted cash at end of period$105,226 $15,876 
Supplemental disclosure of cash flow information
Cash paid for interest$86 $120 
Supplemental disclosure of non-cash information
Issuance of common stock warrants in connection with financing $— $68 
Unpaid liabilities related to property and equipment$(636)$— 
Transfers between inventories and property and equipment$150 $— 
The following table provides a reconciliation of cash, cash equivalents, and restricted cash shown on the condensed consolidated statements of cash flows:
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March 31,
20222021
(In thousands)
Cash and cash equivalents$104,426 $15,876 
Restricted cash (Other assets)800 — 
Total cash and cash equivalents and restricted cash$105,226 $15,876 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Velo3D, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
(In thousands, except share data)
Redeemable Convertible Preferred StockCommon StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance as of December 31, 2020
117,734,383 $123,704 16,003,558 $1 $14,954 $ $(122,776)$(107,821)
Issuance of common stock upon exercise of stock options— — 39,387 — 39 — — 39 
Issuance of common stock warrants in connection with financing— — — — 68 — — 68 
Stock-based compensation— — — — 315 — — 315 
Net loss— — — — — — (13,548)(13,548)
Balance as of March 31, 2021
117,734,383 $123,704 16,042,945 $1 $15,376 $ $(136,324)$(120,947)
Balance as of December 31, 2021
 $ 183,232,494 $2 $340,294 $(14)$(229,867)$110,415 
Issuance of common stock upon exercise of stock options— — 325,452 — 167 — — $167 
Stock-based compensation— — — — 4,957 — — $4,957 
Net loss— — — — — — (65,341)$(65,341)
Other comprehensive loss     (594) (594)
Balance as of March 31, 2022
 $ 183,557,946 $2 $345,418 $(608)$(295,208)$49,604 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Description of Business and Basis of Presentation
Velo3D, Inc., a Delaware corporation (“Velo3D” ), formerly known as JAWS Spitfire Acquisition Corporation (“JAWS Spitfire”), produces metal additive three dimensional printers (“3D Printers”) which enable the production of components for space rockets, jet engines, fuel delivery systems and other high value metal parts, which it sells or leases to customers for use in their businesses. The Company also provides support services (“Support Services”) for an incremental fee. Velo3D’s subsidiary, Velo3D US, Inc., formerly known as Velo3D, Inc. (“Legacy Velo3D”), was founded in June 2014 as a Delaware corporation headquartered in Campbell, California. The first commercially developed 3D Printer was delivered in the fourth quarter of 2018.
Unless otherwise stated herein or unless the context otherwise requires, references in these notes to the “Company” refer to (i) Legacy Velo3D prior to the consummation of the Merger (as defined below); and (ii) Velo3D and its consolidated subsidiary following the consummation of the Merger.
On September 29, 2021 (the “Closing Date” or the “Reverse Recapitalization Date”), JAWS Spitfire completed the previously announced merger with Legacy Velo3D, with Legacy Velo3D surviving as a wholly-owned subsidiary of JAWS Spitfire (the “Merger” or the “Reverse Recapitalization”). In connection with the Merger, JAWS Spitfire was renamed “Velo3D, Inc.”, and Legacy Velo3D was renamed “Velo3D US, Inc.”
Accordingly, all historical financial information prior to the Closing Date presented in the unaudited condensed consolidated financial statements of Velo3D represents the accounts of Legacy Velo3D. The shares and Net loss per share attributable to common stockholders, basic and diluted, prior to the Merger, have been retroactively restated as shares reflecting the exchange ratio (the “Exchange Ratio”) established in the Merger (0.8149 shares of Velo3D common stock, par value $0.00001 (the “common stock”) for 1 share of Legacy Velo3D common stock). All fractional shares were rounded.
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial reporting. Intercompany balances and transactions have been eliminated in consolidation. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”) and the related notes, which provide a more complete discussion of the Company’s accounting policies and certain other information. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements of the Company. These condensed consolidated financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022, or for any other interim period or for any other future year.
Financial Condition and Liquidity and Capital Resources
The condensed consolidated financial statements are unaudited and have been prepared on the basis of continuity of operations, the realization of assets and satisfaction of liabilities in the ordinary course of business. On September 29, 2021, the Company consummated the Merger, which resulted in the Company receiving approximately $278.3 million in total net proceeds, including $155.0 million from the private placement of
11


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
15,500,000 shares of common stock at $10.00 per share (the “PIPE Financing”). Since inception, the Company has not achieved profitable operations or generated positive cash flows from operations. The Company’s operating plan may change as a result of many factors currently unknown and there can be no assurance that the current operating plan will be achieved in the time frame anticipated by the Company, and it may need to seek additional funds sooner than planned. If adequate funds are not available to the Company on a timely basis, it may be required to delay, limit, reduce, or terminate certain commercial efforts, or pursue merger or acquisition strategies, all of which could adversely affect the holdings or the rights of the Company’s stockholders. The Company has incurred net operating losses and negative cash flows from operations in every year since inception and expects this to continue for the foreseeable future. As of March 31, 2022, the Company had an accumulated deficit of $295.2 million.
As of May 16, 2022, the issuance date of the unaudited condensed consolidated financial statements, the Company believes that the cash and cash equivalents on hand and cash the Company obtained from the Merger and the PIPE Financing, together with cash the Company expects to generate from future operations, will be sufficient to meet the Company’s working capital and capital expenditure requirements for a period of at least twelve months.
Note 2. Summary of Significant Accounting Policies
For a detailed discussion about the Company’s significant accounting policies and for further information on accounting updates adopted in the prior year, see Note 2, Summary of Significant Accounting Policies, to the audited consolidated financial statements in the 2021 Form 10-K. During the three months ended March 31, 2022, there were no significant updates to the Company’s significant accounting policies other than as described below.
Revenue - Variable Consideration
The sales of 3D Printer systems under certain contracts may include variable consideration such that the Company is entitled to a rate per print hour used on the 3D Printer systems. The Company makes certain estimates in calculating the variable consideration, including amount of hours, the estimated life of the equipment and the discount rate. Although estimates may be made on a contract-by-contract basis, whenever possible, the Company uses all available information including historical customer usage and collection patterns to estimate variable consideration.
The Company intends to update its estimates of variable consideration on a quarterly basis based on the latest data available, and adjust the transaction price accordingly by recording an adjustment to net revenue and contract assets. The Company has recognized the estimate of variable consideration to the extent that it is probable that a significant reversal will not occur as a result from a change in estimation.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Topic 326”)”, and has since released various amendments including ASU No. 2019-04. The guidance modifies the measurement of expected credit losses on certain financial instruments. This guidance is effective for the Company for the fiscal year beginning after December 15, 2022. Early adoption is permitted. The Company is currently assessing the impact of the guidance on its consolidated financial statements and disclosures.
In July 2021, the FASB issued ASU 2021-05, “Leases (“Topic 842”) Lessors — Certain Leases with Variable Lease Payments”, that amends the lessor’s lease classification for leases that include any amount of variable lease payments that are not variable lease payments that do not depend on an index or a rate as an operating lease at lease commencement if classifying the lease as a sales-type lease or a direct financing lease would result in the recognition of a selling loss. This guidance is effective for the Company for the fiscal year beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted the new guidance in the first quarter of 2022. The effect on the consolidated financial statements and related disclosures is not material.
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Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3. Basic and Diluted Net Loss per Share
The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders:
Three months ended March 31,
20222021
(In thousands, except share and per share data)
Numerator:
Net loss$(65,341)$(13,548)
Denominator:
Weighted average shares used in computing net loss per share – basic and diluted183,498,082 16,019,559 
Net loss per share – basic and diluted.$(0.36)$(0.85)
The following potentially dilutive shares of common stock equivalents “on an as-converted basis” were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have had an antidilutive effect:
Three months ended March 31,
20222021
(share data)
Redeemable convertible preferred stock— 147,876,672 
Convertible promissory note— 6,756,757 
Redeemable convertible preferred stock warrants— 408,729 
Common stock warrants13,075,000 229,297 
Restricted stock units issued and outstanding4,549,179 — 
Common stock options issued and outstanding20,786,579 21,183,188 
Total potentially dilutive common share equivalents38,410,758 176,454,643 
Total potentially dilutive common share equivalents for the three months ended March 31, 2022, excludes 21,758,148 shares related to the earnout liability as these shares are contingently issuable upon meeting certain triggering events.

13


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4. Fair Value Measurements
The Company’s assets and liabilities that were measured at fair value on a recurring basis were as follows:
Fair Value Measured as of March 31, 2022
Level 1Level 2Level 3Total
(In thousands)
Assets
Money market funds (i)$104,352 $— $— $104,352 
U.S. Treasury securities (ii)43,471 — — 43,471 
Corporate bonds (ii)— 38,254 — 38,254 
Total financial assets$147,823 $38,254 $— $186,077 
Liabilities
Common stock warrant liabilities (Public) (iii)$18,285 $— $— $18,285 
Common stock warrant liabilities (Private Placement) (iii)— — 9,434 9,434 
Contingent earnout liabilities— — 142,719 142,719 
Total financial liabilities$18,285 $— $152,153 $170,438 
Fair Value Measured as of December 31, 2021
Level 1Level 2Level 3Total
(In thousands)
Assets
Money market funds (i)$207,471 $— $— $207,471 
U.S. Treasury securities (ii)8,141 — — 8,141 
Corporate bonds (ii)— 7,342 — 7,342 
Total financial assets$215,612 $7,342 $— $222,954 
Liabilities
Common stock warrant liabilities (Public) (iii)$14,318 $— $— $14,318 
Common stock warrant liabilities (Private Placement) (iii)— — 7,387 7,387 
Contingent earnout liabilities— — 111,487 111,487 
Total financial liabilities$14,318 $— $118,874 $133,192 
(i)     Included in cash and cash equivalents on the condensed consolidated balance sheets.
(ii)     Included in short-term investments on the condensed consolidated balance sheets.
(iii)    Included in warrant liabilities on the condensed consolidated balance sheets.
The money market funds were classified as cash and cash equivalents on the condensed consolidated balance sheets. The aggregate fair value of the Company’s money market funds approximated amortized cost and, as such, there were no unrealized gains or losses on money market funds as of March 31, 2022 and December 31, 2021. Realized gains and losses, net of tax, were not material for any of the periods presented.
As of March 31, 2022 and December 31, 2021, the Company had no investments with a contractual maturity of greater than one year.
14


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table presents a rollforward of the Level 3 assets and liabilities measured fair value on a recurring basis:
Redeemable convertible preferred stock warrant liabilitiesPrivate placement warrant liabilitiesContingent earnout liabilities
(In thousands)
Fair value as of January 1, 2022$ $7,387 $111,487 
Change in fair value2,047 31,232 
Fair value as of March 31, 2022
$ $9,434 $142,719 
Redeemable convertible preferred stock warrant liabilitiesPrivate placement warrant liabilitiesContingent earnout liabilities
(In thousands)
Fair value as of January 1, 2021$181 $ $ 
Change in fair value1,514 — — 
Fair value as of March 31, 2021
$1,695 $ $ 
The fair value of the private placement warrant liability, redeemable convertible preferred stock warrant liability and contingent earnout liability are based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. In determining the fair value of the private placement warrant liability, the Company used the Binomial-Lattice Model that assumes optimal exercise of the Company’s redemption option at the earliest possible date. In determining the fair value of the redeemable convertible preferred stock warrant liability, the Company used the Black-Scholes option pricing model to estimate the fair value using unobservable inputs including the expected term, expected volatility, risk-free interest rate and dividend yield (see Note 10, Equity Instruments). In determining the fair value of the contingent earnout liability, the Company used the Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over the applicable earnout period using the most reliable information available (see Note 10, Equity Instruments).

15


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5. Investments
Available-for-sale Investments
The Company began investing in available-for-sale (“AFS”) investments in the fourth quarter of 2021. The following table summarizes our AFS investments. These are classified as "Short-term investments" on the condensed consolidated balance sheets.
March 31, 2022
Amortized CostGross Unrealized GainGross Unrealized LossFair Value
(In thousands)
U.S. Treasury securities$43,790 $— $(319)$43,471 
Corporate bonds38,529 (276)38,254 
Total available-for-sale investments$82,319 $$(595)$81,725 
December 31, 2021
Amortized CostGross Unrealized GainGross Unrealized LossFair Value
(In thousands)
U.S. Treasury securities$8,154 $— $(13)$8,141 
Corporate bonds7,343 (2)7,342 
Total available-for-sale investments$15,497 $$(15)$15,483 
The following table presents the breakdown of the available-for-sale investments in an unrealized loss position as of March 31, 2022 and December 31, 2021, respectively.
March 31, 2022
December 31, 2021
Fair ValueGross Unrealized LossFair ValueGross Unrealized Loss
(In thousands)
U.S. Treasury securities
Less than 12 months$43,471 $319 $8,141 $13 
Total$43,471 $319 $8,141 $13 
Corporate bonds
Less than 12 months$36,753 $276 $5,640 $
Total$36,753 $276 $5,640 $
The Company does not believe these AFS investments to be other-than-temporarily impaired as of March 31, 2022 and December 31, 2021.
There were no realized gains or losses on AFS investments during the three months ended March 31, 2022 and March 31, 2021.
16


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
All remaining contractual maturities of AFS investments held at March 31, 2022 are as follows:
March 31, 2022
Amortized CostFair Value
(In thousands)
Due in 1 year or less$48,223 $48,134 
Due in 1-2 years34,09633,591
Total$82,319 $81,725 
Actual maturities may differ from the contractual maturities because the Company may sell these investments prematurely.
Note 6. Balance Sheet Components
Accounts Receivable, Net
Accounts receivable, net consisted of the following:
March 31,December 31,
20222021
(In thousands)
Trade Receivables$10,263 $12,845 
Less: Allowances for Doubtful Accounts(67)(67)
Total$10,196 $12,778 
Inventories
Inventories consisted of the following:
March 31,December 31,
20222021
(In thousands)
Raw materials$32,089 $16,594 
Work-in-progress10,731 5,885 
Total$42,820 $22,479 
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
March 31,December 31,
20222021
(In thousands)
Prepaid insurance and other$3,780 $5,326 
Vendor prepayments5,669 4,132 
Total$9,449 $9,458 

17


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Property and Equipment, Net
Property and equipment, net consisted of the following:
March 31,December 31,
20222021
(In thousands)
Computers and software$1,677 $1,397 
R&D lab equipment2,609 2,283 
Equipment and other114 — 
Furniture and fixtures88 88 
Leasehold improvements10,948 2,771 
Construction in progress210 6,273 
Total property, plant and equipment15,646 12,812 
Less accumulated depreciation and amortization(3,208)(2,766)
Property, plant and equipment, net$12,438 $10,046 
Depreciation expense for the three months ended March 31, 2022 and 2021 was $0.5 million and $0.2 million, respectively.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
March 31,December 31,
20222021
(In thousands)
Accrued expenses$5,344 $3,015 
Accrued salaries and benefits4,142 4,143 
Lease liability – current portion2,635 2,256 
Total Accrued expenses and other current liabilities$12,121 $9,414 
Other noncurrent liabilities consisted of the following:
March 31,December 31,
20222021
(In thousands)
Lease liabilities - noncurrent portion$8,531 $9,184 
Other noncurrent liabilities247 308 
Total other noncurrent liabilities$8,778 $9,492 
Please refer to Note 10, Equity Instruments, for further details of the contingent earnout liability and warrant liabilities.
Note 7. Equipment on Lease, Net
The equipment leased to customers had a cost basis of $10.9 million and accumulated depreciation of $1.4 million as of March 31, 2022. The equipment leased to customers had a cost basis of $9.3 million and accumulated depreciation of $0.9 million as of December 31, 2021.
18


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Total lease revenue earned for the three months ended March 31, 2022 and 2021 was $0.9 million and $0.4 million, respectively. The total depreciation expense was $0.5 million and $0.2 million included in cost of revenue for the three months ended March 31, 2022 and 2021, respectively.
The Company entered into debt secured by certain leased equipment to customers. See Note 9, Long-term Debt, for a description of these financing arrangements.
Note 8. Leases
The Company leases its office and manufacturing facilities under four non-cancellable operating leases which expire in 2023 to 2027 and one month to-month operating lease. The agreements include a provision for renewal at the then market rate for terms specified in each lease.
Total right-of-use (“ROU”) assets and lease liabilities are as follows:
March 31,December 31,
20222021
(In thousands)
Right-of-use assets:
Net book value (Other assets)$10,400 $11,073 
Operating lease liabilities:
Current (Accrued expense and other current liabilities)$2,601 $2,222 
Noncurrent (Other noncurrent liabilities)8,499 9,143 
11,100 11,365 
Financing lease liabilities:
Current (Accrued expense and other current liabilities)$34 $33 
Noncurrent (Other noncurrent liabilities)32 41 
$66 $74 
Total lease liabilities$11,166 $11,439 
There were no impairments recorded related to these assets as of March 31, 2022 and December 31, 2021.
Information about lease-related balances were as follows:
Three months ended March 31,
20222021
(In thousands)
Operating lease expense$717$143
Financing lease expense93
Short-term lease expense9915
Total lease expense$825$161
Cash paid for leases$281$163
Weighted – average remaining lease term – operating leases (years)4.61.63
Weighted – average discount rate – operating leases4.4%4.5%
Maturity of operating lease liabilities as of March 31, 2022 are as follows:
(In thousands)
Remainder of 2022
$2,342 
20232,732 
20242,676 
20252,232 
19


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
20262,315 
Thereafter598 
Total operating lease payments$12,895 
Less portion representing imputed interest(1,729)
Total operating lease liabilities$11,166 
Less current portion2,635 
Long-term portion$8,531 
Note 9. Long-Term Debt
Long-term debt consisted of the following:
March 31,December 31,
20222021
(In thousands)
Revolving credit line$3,000 $3,000 
Equipment loan4,555 5,089 
Deferred financing costs(17)(19)
Total$7,538 $8,070 
Debt – current portion5,116 5,114 
Long-term debt – less current portion$2,422 $2,956 
The Company’s banking arrangements include three facilities and a revolving credit line with its primary bank. For a full description of these banking arrangements, see Note 15, Long-Term Debt, in the audited consolidated financial statements included in the 2021 Form 10-K. These loans contain customary representations and warranties, reporting covenants, events of default and termination provisions. The affirmative covenants include, among other things, that the Company furnish monthly financial statements, a yearly budget, timely files taxes, maintains good standing and government compliance, maintains liability and other insurance and furnishes audited financial statements no later than the date of delivery to the Board of Directors.
The Company amortizes deferred financing costs over the life of the borrowing. As of March 31, 2022 and December 31, 2021, the remaining unamortized balance of deferred financing costs was less than $0.1 million for both periods and was included in Debt — current portion on the balance sheets.
Revolving Credit Line — In May 2021, the Company executed the third amended and restated loan and security agreement and a mezzanine loan and security agreement, which included a $10.0 million revolving credit line and an $8.5 million secured equipment loan facility (see below).
In August 2021, the Company drew $3.0 million on the $10.0 million revolving credit facility, with a variable interest rate of the greater of 5.75% or Prime plus 2.50% and a term of 10 months. The Company has $7.0 million of the revolving credit line undrawn as of March 31, 2022. The effective interest rate was 4.6% for the three months ended March 31, 2022. The deferred loan fees were less than $0.1 million as of March 31, 2022.
Equipment Loan On December 17, 2020, the Company executed the second amended and restated loan and security agreement, which included an equipment loan facility for up to $8.5 million secured by the equipment leased to customers. The facility has a variable interest rate of the greater of Prime rate or 3.25%.
During the year ended December 31, 2021, the Company executed seven additional advances on the facility for $5.6 million secured by equipment leased to customers. For the three months ended March 31, 2022, $0.5 million in principal payments were paid. As of March 31, 2022, the outstanding balance was $4.6 million. As of March 31, 2022, the deferred loans fees associated with the debt issuance was less than $0.1 million. The effective interest rate was 3.24% and 2.7% for the three months ended March 31, 2022 and 2021, respectively.
20


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The future minimum aggregate payments for the above borrowings are as follows as of March 31, 2022:
(In thousands)
Less than 1 year$5,116 
1-3 years2,422 
$7,538 
Note 10. Equity Instruments
Common stock
The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders but are not entitled to cumulative voting rights, have the right to appoint two directors to the Company’s Board of Directors, are entitled to receive ratably such dividends as may be declared by the Company’s Board of Directors out of funds legally available therefor subject to preferences that may be applicable to any shares of redeemable convertible preferred stock currently outstanding or issued in the future, are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding redeemable convertible preferred stock in the event of the Company’s liquidation, dissolution, or winding up, have no preemptive rights and no right to convert their common stock into any other securities, and have no redemption or sinking fund provisions applicable to the common stock.
Common Stock Reserved for Future Issuance
Shares of common stock reserved for issuance on an “as if converted” basis were as follows:
March 31,December 31,
20222021
(share data)
Common stock warrants13,075,000 13,075,000 
Restricted stock units issued and outstanding4,549,179 4,041,346 
Stock options issued and outstanding20,786,579 21,191,226 
Shares available for future grant under 2021 Equity Incentive Plan26,207,150 17,533,471 
Reserved for employee stock purchase plan5,495,601 3,663,277 
Total shares of common stock reserved
70,113,509 59,504,320 
    
The shares available for future grant under the Company’s 2021 Equity Incentive Plan include un-exercised stock options (vested and unvested) and unvested restricted stock units (RSUs) as of March 31, 2022 and December 31, 2021.

21


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Warrant liabilities
Warrants for common stock of 13,075,000 were exercisable 1-to-1 as of March 31, 2022 and December 31, 2021, respectively. Warrants - Common Stock are equity classified and recorded at fair value on the issue date without further remeasurement. Private Placement Warrants and Public Warrants on common stock (as defined below) are liability classified and recorded at fair value on the issue date with periodic remeasurement. Warrants for shares of common stock consisted of the following:
March 31, 2022
Issue DateExpiration DateNumber of WarrantsExercise Price per warrantFair Value on Issue Date per warrant
Fair Value on March 31, 2022
(In thousands)
Private placement warrants - Common Stock12/02/202009/29/20264,450,000 $11.50$2.009,434 
Public warrants - Common Stock12/02/202009/29/20268,625,000 $11.50$3.3018,285 
13,075,000 $27,719 
December 31, 2021
Issue DateExpiration
Date
Number of
Warrants
Exercise
Price per warrant
Fair Value on Issue Date per warrant
Fair Value on December 31, 2021
(In thousands)
Private placement warrants - Common Stock12/02/202009/29/20264,450,000 $11.50$2.007,387 
Public warrants - Common Stock12/02/202009/29/20268,625,000 $11.50$3.3014,318 
13,075,000 $21,705 
Private Placement Warrants - Common Stock
Concurrently with JAWS Spitfire’s initial public offering (“IPO”), 4,450,000 warrants (the “Private Placement Warrants”) were issued to Spitfire Sponsor LLC (the “Sponsor”) at $2.00 per warrant. Each Private Placement Warrant is exercisable to purchase one share of common stock at a price of $11.50 per share. Subject to certain exceptions, the Private Placement Warrants have terms and provisions that are identical to those of the Public Warrants. As of March 31, 2022, the number of Private Placement Warrants issued was 4,450,000.
Public Warrants - Common Stock
In conjunction with the JAWS Spitfire IPO, 34,500,000 units were issued to public investors at $10.00 per unit. Each unit consisted of one JAWS Spitfire Class A ordinary share and one-fourth of one warrant (the “Public Warrants”). Each Public Warrant is exercisable to purchase shares of common stock at $11.50 per share. As of March 31, 2022, the number of Public Warrants issued was 8,625,000.
Public Warrants may only be exercised for a whole number of shares. The Public Warrants became exercisable on December 7, 2021. The Public Warrants will expire 5 years after the completion of the Merger or earlier upon redemption or liquidation.

22


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Private Placement Warrant and Public Warrant Liabilities - Common Stock
The issuance of the Private Placement Warrant and Public Warrant liabilities were accounted for upon the reverse recapitalization. See Note 3, Reverse Recapitalization, in the audited consolidated financial statements included in the 2021 Form 10-K for further discussion. The liability for private placement and public warrants on common stock carried at fair value was as follows for the three months ended March 31, 2022:
March 31,
2022
(In thousands)
Beginning Balance$21,705 
Loss on fair value of warrants$6,014 
Ending Balance$27,719 
The liability associated with the Private Placement Warrants was subject to remeasurement at each balance sheet date using the Level 3 fair value inputs and the Public Warrants was subject to remeasured at each balance sheet date using Level 1 fair value inputs for the three months ended March 31, 2022.
As of March 31, 2022, the fair value of the common stock warrant liabilities were estimated using the Monte-Carlo simulation. The fair value of the common stock warrants takes into account the traded stock price as the valuation date used as the underlying stock input, the contract terms, as well as multiple unobservable inputs such as risk-free interest rates, and expected volatility.
The fair value assumptions used in the Monte Carlo simulation model for the recurring valuation of the private placement common stock warrants and public common stock warrant liability were as follows:
As of March 31, 2022As of December 31, 2021
Current stock price$9.31 $7.81 
Expected volatility34.8 %40.5 %
Risk-free interest rate2.4 %1.2 %
Dividend rate— %— %
Expected Term (years)4.54.75
Expected volatility: The volatility is determined iteratively, such that the concluded value of the Public Warrant is equal to the traded price.
Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities corresponding to the expected term of the common stock warrants.
Expected dividend yield: The expected dividend rate is zero as the Company currently has no history or expectation of declaring dividends on its common stock.
Expected term: The expected term represents the period that the Company’s common stock warrants are expected to be outstanding and is determined using the simplified method, which deems the term to be the average of the time to vesting and the contractual life of the common stock warrants.
23


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Redeemable Convertible Preferred Stock Warrants
Warrants on redeemable convertible preferred stock of Legacy Velo3D were issued to lenders in connection with borrowings. The fair value on the date of issue is recorded as a debt issue cost (contra-liability) and a liability because the warrant was liability classified. The fair value of the warrants are remeasured each reporting period using Level 3 inputs with the increase or decrease recorded in other income (expense), net in the statements of operations.
The liability for warrants on redeemable convertible preferred stock (carried at fair value) was as follows for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
20222021
(in thousands)
Beginning Balance$— $181 
Issuance of new warrant— — 
Change in fair value (Other income (expense), net)— 1,514 
Exercise of warrants (Redeemable preferred convertible stock)— — 
Ending Balance$— $1,695 
Contingent Earnout Liabilities
In connection with the Reverse Recapitalization and pursuant to the Business Combination Agreement, eligible former Legacy Velo3D equity holders are entitled to receive additional shares of common stock upon the Company achieving certain Earnout Triggering Events (as described in the Business Combination Agreement) (the “Earnout Shares”).See Note 18, Equity Incentive Plans & Stock-Based Compensation, in the audited consolidated financial statements included in the 2021 Form 10-K for further discussion on the contingent earnout liability.
The change in fair value of contingent earnout liabilities are recognized in the condensed consolidated statement of operations. The rollforward for the contingent earnout liabilities was as follows for the three months ended March 31, 2022:
March 31,
2022
(In thousands)
Beginning Balance$111,487 
Gain on fair value of contingent earnout liabilities31,232 
Ending Balance$142,719 
Assumptions used in the fair value of the contingent earnout liabilities are described below.
As of March 31, 2022As of December 31, 2021
Current stock price$9.31$7.81
Expected volatility50.8%52.5%
Risk-free interest rate2.4%1.2%
Dividend yield—%—%
Expected Term (years)4.504.75
24


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Expected volatility: The expected volatility was derived from the implied volatility of Velo3D’s Public Warrants. The implied volatility is determined iteratively, such that the concluded value of the Public Warrant is equal to the traded price using a Monte Carlo Simulation. Additionally, the historical traded prices of the Guideline Public Comparables (“GPC”) are relied upon to calculate an estimate of volatility for the Company. Volatility for each comparable is calculated as the annualized standard deviation of continuously compounded returns. The selected GPC have been identified as comparables as they operate in a similar industry to that of Velo3D. An average of the two different volatility conclusions is utilized to arrive at the conclusion. Additionally, the Company’s trading volatility was considered, but ultimately not given any weight as there is limited trading data available as of the valuation date. This assumption will be reevaluated in subsequent quarters.
Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities corresponding to the expected term of the Earnout Shares.
Expected dividend yield: The expected dividend rate is zero as the Company currently has no history or expectation of declaring dividends on its common stock.
Expected term: The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is determined using the simplified method, which deems the term to be the average of the time to vesting and the contractual life of the Earnout Shares.
Note 11. Equity Incentive Plans and Stock-Based Compensation
In 2014, the Company adopted its 2014 equity incentive plan (the “2014 Plan”), which provided for the granting of stock options, restricted stock awards and stock appreciation rights to employees, directors, and consultants of the Company.
Awards granted under the 2014 Plan generally expire 10 years from the date of grant, or earlier if services are terminated. The exercise price of stock options grants shall not be less than 110% of the estimated fair value of the shares on the date of grant, respectively, as determined by Legacy Velo3D’s Board of directors. Awards generally vest based on continuous service over four years. Awards forfeited, cancelled, or repurchased generally are returned to the pool of shares of common stock available for issuance under the 2021 Plan (as defined below).
In 2021, the Company adopted its 2021 Equity Incentive Plan (the “2021 EIP”), which provides for the granting of stock options, restricted stock units (“RSUs”) and stock appreciation rights to employees, directors, and consultants of the Company. As of March 31, 2022, the Company has reserved 51,542,908 shares of its common stock for issuance under the 2021 EIP.
In addition, in 2021, the Company adopted its 2021 Employee Stock Purchase Plan (“2021 ESPP”). As of March 31, 2022, the Company has reserved 5,495,601 shares of its common stock for issuance under the 2021 ESPP. As of March 31, 2022, the Company had not begun any offering periods for the 2021 ESPP.
Awards granted under both the 2021 EIP generally expire 10 years from the date of grant, or earlier if services are terminated. The exercise price of stock options grants shall not be less than 110% of the estimated fair value of the shares on the date of grant, respectively, as determined by the Company’s Board of Directors. Awards generally vest based on continuous service over 4 years. Awards forfeited, cancelled, or repurchased generally are returned to the pool of shares of common stock available for issuance under the 2021 Plan.
25


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Stock options
Activity under the Company’s stock option plans is set forth below:
OptionsWeighted-Average Exercise PriceWeighted-Average Remaining
Contractual Term
in years
(In thousands)(Per share data)(Years)
Outstanding as of December 31, 2020
21,471 $0.33 9.3
Granted— $— 
Exercised(39)$0.98 
Forfeited or expired(249)$0.67 
Outstanding as of March 31, 2021
21,183 $0.33 8.9
Options vested and expected to vest as of March 31, 2021
21,183 $0.33 
Vested and exercisable as of March 31, 2021
2,904 $0.93 
Outstanding as of December 31, 2021
21,191 $0.58 8.2
Granted— $— 
Exercised(325)$0.47 
Forfeited or expired(79)$5.50 
Outstanding as of March 31, 2022
20,787 $0.56 8.0
Options vested and expected to vest as of March 31, 2022
20,787 $0.56 
Vested and exercisable as of March 31, 2022
10,306 $0.62 
The aggregate intrinsic value of options outstanding was $181.7 million and $153.2 million, respectively, as of March 31, 2022 and December 31, 2021. Intrinsic value of options exercised for the three months ended March 31, 2022 and 2021 was $1.7 million and less than $0.1 million, respectively. The weighted-average grant date fair value of options granted in the three months ended March 31, 2022 and 2021 was $— per share and $— per share, respectively. The total grant date fair value of options vested was $0.7 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively.
As of March 31, 2022, total unrecognized compensation cost related to options was $2.7 million related to 10.5 million unvested options and is expected to be recognized over a weighted-average period of 2.0 years.
For the three months ended March 31, 2021, the Company used the Black-Scholes option pricing model to determine the fair value of stock options. The fair value of each stock option grant is estimated on the date of the grant. The fair value of the Legacy Velo3D common stock underlying the stock options had historically been determined by the Legacy Velo3D board of directors, as there was no public market for Legacy Velo3D’s common stock prior to Merger closing. Therefore, the Legacy Velo3D board of directors had determined the fair value of the common stock at the time of the stock option grant by considering a number of objective and subjective factors including independent third-party valuation reports, valuations of comparable companies, sales of convertible
26


Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
preferred stock and common stock to unrelated third parties, operating and financial performance, lack of liquidity of capital stock and general and industry-specific economic outlook, among other factors.
For the three months ended March 31, 2022, there were no options granted. The weighted-average assumptions in the Black-Scholes option-pricing model used to determine the fair value of stock options granted were as follows:
Three months ended March 31,
20222021
Expected volatility— %60 %
Risk-free interest rate
—% – —%
0.4% – 0.5%
Dividend yield— %— %
Expected term (in years)06.04
Discount for Lack of Marketability— %23.5 %
Expected volatility: As Legacy Velo3D was not publicly traded at the time the awards were granted, the expected volatility for the Company’s stock options was determined by using a review of historical volatilities of selected industry peers deemed to be comparable to the Company’s business corresponding to the expected term of the awards.
Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities corresponding to the expected term of the awards.
Expected dividend yield: The expected dividend rate is zero as the Company currently has no history or expectation of declaring dividends on its common stock.
Expected term: The Company uses the simplified method available under U.S. GAAP to determine the expected term due to having insufficient history upon which to base an assumption about the term.
Discount for Lack of Marketability ("DLOM"): The DLOM is meant to account for the lack of marketability of stock that was not publicly traded and therefore does not apply for the three months ended March 31, 2022.
Restricted Stock Units
The fair value of RSUs under the Company’s 2021 EIP is estimated using the value of the Company’s common stock on the date of grant.
The following table summarizes outstanding and expected to vest RSUs as of March 31, 2022 and their activity during the three months ended March 31, 2022:
Number of SharesWeighted-Average Grant Date Fair ValueAggregate Intrinsic Value
(In thousands)(Per share data)(In thousands)
Balance as of December 31, 20214,041 $7.26 $31,563 
Granted567 6.98 4,110 
Released(59)7.15 583 
Cancelled— — — 
Balance as of March 31, 2022 4,549 $7.23 $42,353 
Expected to vest as of March 31, 20224,549 $7.23 $42,353 
The aggregate intrinsic value of outstanding RSUs is calculated based on the closing price of the Company’s common stock as of the date outstanding. As of March 31, 2022, there was $30.5 million of unrecognized
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Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
compensation cost related to 4.5 million unvested RSUs, which is expected to be recognized over a weighted average period of approximately 3.5 years.
Earnout Shares - Employees
The Earnout Shares issuable to holders of employee stock options are accounted as stock-based compensation expense as they are subject to forfeiture based on the satisfaction of certain employment conditions. The estimated fair values of the Earnout Shares associated with vested stock options are recognized as an expense and determined by the Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over the five-year earnout period. The portion of the Earnout Shares associated with unvested stock options are recognized as an expense and considers the vesting continuing employment requirements.
Stock-based Compensation Expense
The following sets forth the total stock-based compensation expense by type of award included in the statements of operations:
Three Months Ended
March 31,
20222021
(In thousands)
Restricted stock units$2,440 $— 
Stock options575 315 
Earnout shares - employees1,942 — 
$4,957 $315 
The following sets forth the total stock-based compensation expense for the stock options included in the statements of operations:
Three Months Ended March 31,
20222021
(In thousands)
Research and development$2,591 $165 
Selling and marketing1,113 65 
General and administrative1,253 85 
$4,957 $315 
Note 12. Income Taxes
The income tax provision is calculated for an interim period by distinguishing between elements recognized in the income tax provision through applying an estimated annual effective tax rate (the “ETR”) to a measure of year-to-date operating results referred to as “ordinary income (or loss),” and discretely recognizing specific events referred to as “discrete items” as they occur. The income tax provision or benefit for each interim period is the difference between the year-to-date amount for the current period and the year-to date amount for the period prior. Under ASC 740-270-30-36, entities subject to income taxes in multiple jurisdictions should apply one overall ETR instead of separate ETRs for each jurisdiction when calculating the interim-period income tax or benefit related to ordinary income (or loss) for the year-to-date interim period, except in certain circumstances. The Company’s effective tax rates for the three months ended March 31, 2022 and 2021 differ from the federal statutory rate of 21% principally as a result of valuation allowances expected to be applied to net operating loss carry-forwards which will not meet the threshold for recognition as deferred tax assets.
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Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 13. Commitments and Contingencies
The Company may be involved in various lawsuits, claims, and proceedings, including intellectual property, commercial, securities, and employment matters that arise in the normal course of business. The Company accrues a liability when management believes information available prior to the issuance of the condensed consolidated financial statements indicates it is probable a loss has been incurred as of the date of the condensed consolidated financial statements and the amount of loss can be reasonably estimated. The Company adjusts its accruals to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Legal costs are expensed as incurred. As of March 31, 2022 and December 31, 2021, the Company is not aware of any litigation, claim or assessment in which the outcome, individually or in the aggregate, would have a material adverse effect on its financial positions, results of operations, cash flows or future earnings.
The Company’s purchase obligations per terms and conditions with suppliers and vendors are cancellable in whole or in part prior to shipment. If inventory is shipped, the Company will accrue a liability under accrued expenses. The Company has no other commitment and contingencies, except for the operating leases. See Note 8, Leases, for further discussion.
Purchase commitments (purchase orders) of $67.9 million for parts and assemblies are non-cancellable and are due upon receipts with standard payment terms and will primarily be delivered by in the second half of 2022.
Note 14. Employee Defined-Contribution Plans
The Company has a defined-contribution plan intended to qualify under Section 401 of the Internal Revenue Code (the “401(k) Plan”). The Company contracted with a third-party provider to act as a custodian and trustee, and to process and maintain the records of participant data. Substantially all of the expenses incurred for administering the 401(k) Plan are paid by the Company. Accrued salaries and benefits included accruals related to the 401(k) plans the Company offers to its employees. In order to qualify for these plans, employees must meet the minimum age requirement (21 years) and begin participating on their entry date which is the first paycheck date in the month following the month of eligibility described above. Employee and employer contributions are immediately 100% fully vested. The plans offer employer contributions of 3.0% of an employee’s eligible compensation following safe-harbor rules. The Company’s contribution to the 401(k) plan was $0.3 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively.
The Company has a defined-contribution plan intended to qualify under Section 401 of the Internal Revenue Code (the “401(k) Plan”). The Company contracted with a third-party provider to act as a custodian and trustee, and to process and maintain the records of participant data. Substantially all of the expenses incurred for administering the 401(k) Plan are paid by the Company. The Company has paid all matching contributions as of March 31, 2022.

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Velo3D, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 15. Revenue
Customer Concentration
The customer concentration for balances greater than 10% of revenues and 10% of accounts receivables, net, respectively, are presented below:
Total RevenueAccounts Receivable, Net
Three Months Ended March 31,March 31,December 31,
2022202120222021
(as a percentage)
Customer 165.4 %56.0 %34.3 %71.2 %
Customer 213.5 %— %<10 %— %
Customer 3<10 %23.8 %<10 %<10 %
Customer 4<10 %— %20.9 %<10 %
Revenue by Geographic Area
The Company currently sells its products in the Americas and other locations as follows:
March 31,
20222021
(In thousands)
Americas$12,104 $1,141 
Other114 31 
Total$12,218 $1,172 
Contract Assets and Liabilities
The amount of revenue recognized during the three months ended March 31, 2022 included in contract liabilities as of December 31, 2021 was $0.8 million. The amount of revenue recognized during the three months ended March 31, 2021 included in contract liabilities as of December 31, 2020 was $0.3 million. The change in contract assets reflects the difference in timing between our satisfaction of remaining performance obligations and our contractual right to bill our customers. The Company had no material asset impairment charges related to contract assets in the periods presented.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our results of operations and financial condition. This discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 and our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report. This discussion contains forward-looking statements based upon our current expectations, estimates and projections, and involves numerous risks and uncertainties. Actual results may differ materially from those contained in any forward-looking statements due to, among other considerations, the matters discussed in the sections titled “Risk Factors” and “Forward-looking Statements” herein.
Overview
We seek to fulfill the promise of additive manufacturing, also referred to as 3D printing (“AM”), to deliver breakthroughs in performance, cost and lead time in the production of high-value metal parts.
We produce a full-stack hardware and software solution based on our proprietary laser powder bed fusion (“L-PBF”) technology, which enables support-free production. Our technology enables the production of highly complex, mission-critical parts that existing AM solutions cannot produce without the need for redesign or additional assembly. Our products give our customers who are in space, aviation, defense, energy, and industrial markets the freedom to design and produce metal parts with complex internal features and geometries that had previously been considered impossible for AM. We believe our technology is years ahead of competitors
Our technology is novel compared to other AM technologies based on its ability to deliver high-value metal parts that have complex internal channels, structures and geometries. This affords a wide breadth of design freedom for creating new metal parts and it enables replication of existing parts without the need to redesign the part to be manufacturable with AM. Because of these features, we believe our technology and product capabilities are highly valued by our customers. Our customers are primarily original equipment manufacturers (“OEMs”) and contract manufacturers who look to AM to solve issues with traditional metal parts manufacturing technologies. Those traditional manufacturing technologies rely on processes, including casting, stamping and forging, that typically require high volumes to drive competitive costs and have long lead times for production. Our customers look to AM solutions to produce assemblies that are lighter, stronger and more reliable than those manufactured with traditional technologies. Our customers also expect AM solutions to drive lower costs for low-volume parts and substantially shorter lead times. However, many of our customers have found that legacy AM technologies failed to produce the required designs for the high-value metal parts and assemblies that our customers wanted to produce with AM. As a result, other AM solutions often require that parts be redesigned so that they can be produced and frequently incur performance losses for high-value applications. For these reasons, AM solutions of our competitors have been largely relegated to tooling and prototyping or the production of less complex, lower-value metal parts.
In contrast, our technology can deliver complex high-value metal parts with the design advantages, lower costs and faster lead times associated with AM, and generally avoids the need to redesign the parts. As a result, our customers have increasingly adopted our technology into their design and production processes. We believe our value is reflected in our sales patterns, as most customers purchase a single machine to validate our technology and purchase additional systems over time as they embed our technology in their product roadmap and manufacturing infrastructure. We consider this approach a “land and expand” strategy, oriented around a demonstration of our value proposition followed by increasing penetration with key customers.
The unaudited condensed consolidated financial statements and disclosures reflect the effects of the Reverse Recapitalization which was consummated on September 29, 2021. The number of shares of redeemable convertible preferred stock and common stock presented in the financial statements and elsewhere in this Quarterly Report for periods prior to the Reverse Recapitalization have been retroactively adjusted to reflect the Merger’s exchange ratio similar to the presentation of a stock-split.
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See “Explanatory Note- Certain Defined Terms” for the definitions of certain terms used throughout this Quarterly Report.
Key Financial and Operational Metrics
We believe that our performance and future success depend on many factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section of this Quarterly Report titled “Risk Factors.”
Three months ended March 31,
20222021
Revenue ($ in millions)$12.2 $1.2 
Bookings76
Total Shipments84
New Customers (by shipments)23
Bookings
For the three months ended March 31, 2022 and 2021, we had 7 and 6 bookings, respectively. A booking is a confirmed order for a 3D printer system.
Shipments
For the three months ended March 31, 2022, we shipped 8 3D printers (6 3D printers sold to customers and 2 3D printers leased under the Recurring Payment model described below). For the three months ended March 31, 2021, we shipped 4 3D printers (zero 3D printers sold to customers and 4 3D printers leased under the Recurring Payment model described below).     
Customers
For the three months ended March 31, 2022, we had 2 new customers and 20 cumulative system customers. A new customer is defined as receiving a 3D printer system for the first time during the calendar year. For the three months ended March 31, 2021, we had 3 new customers and 11 cumulative system customers. As of March 31, 2022, we had shipped a total of 54 3D printer systems to 20 customers.
Customer Concentration
Our operating results for the foreseeable future will continue to depend on sales to a small group of customers. For the three months ended March 31, 2022, sales to the top three customers accounted for 87.5% and for the three months ended March 31, 2021, sales to the top three customers, different for the comparable period, accounted for 83.9% of our revenue, respectively. While our objective is to diversify our customer base, we believe that we could continue to be susceptible to risks associated with customer concentration. See “Risk Factors - Risks Related to Our Business - Risks Related to Our Financial Position and Need for Additional Capital - We expect to rely on a limited number of customers for a significant portion of our near-term revenue” in this Quarterly Report and see Note 2, Summary of Significant Accounting Policies - Concentration of Credit Risk and Other Risks and Uncertainties, in the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Continued Investment and Innovation
Since our founding, we have been a customer-focused company working to develop innovative solutions to address customers’ needs. We believe this process has contributed significantly to our development of the most advanced metal AM systems in the world. We focus on our customers to identify the most impactful areas for
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research and development as we seek to further improve the capabilities of our AM solutions. We believe that continued investments in our products are important to our future growth and, as a result, we expect our research and development expenses to continue to increase, which may adversely affect our near-term profitability.
Impact of COVID-19 and Other World Events
We continue to operate our business through the COVID-19 pandemic and have taken additional precautions to ensure the safety of our employees, customers, and vendors with which we operate. The impact of COVID-19 on our operating results has added uncertainty in timing of customer orders creating longer lead times for sales and marketing. We continue to experience various supply chain constraints due to the pandemic, which could lead to delays in shipment of our products to our customers. Furthermore, if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures, remote working or other restrictions in connection with the COVID-19 pandemic, our operations will likely be adversely impacted.
General economic and political conditions such as recessions, interest rates, fuel prices, inflation, foreign currency fluctuations, international tariffs, social, political and economic risks and acts of war or terrorism (including, for example, the ongoing military conflict between Ukraine and Russia and the economic sanctions related thereto), have added uncertainty in timing of customer orders and supply chain constraints.
Climate Change
Material pending or existing climate change-related legislation, regulations, and international accords could have an adverse effect on our business, financial condition, and results of operations, including: (1) material past and/or future capital expenditures for climate-related projects; (2) material indirect consequences of climate-related regulation or business trends, such as the following: decreased/increased demand for goods or services that produce significant greenhouse gas emissions or are related to carbon-based energy sources; increased competition to develop innovative new products that result in lower emissions; increased demand for generation and transmission of energy from alternative energy sources; and any anticipated reputational risks resulting from operations or products that produce material greenhouse gas emissions; and (3) material increased compliance costs related to climate change.
Components of Results of Operations
Revenue
Our revenue is primarily derived from our AM full-stack solution product, which includes the Flow™ print preparation software, Sapphire® and Sapphire® XC metal AM printers using our support-free L-PBF technology and Assure™ quality validation software (collectively referred to as the “3D Printer”). Contracts for 3D Printers also include post-sale customer support services (“Support Services”), except for our distributor partners, which are qualified to perform support services.
We sell our AM full-stack solution product through two types of transaction models: a 3D Printer sale transaction and a recurring payment transaction (“Recurring Payment”). We define our Recurring Payment transactions as operating leases. 3D Printer sale transactions are structured as a payment of a fixed purchase price for the system. The timeframe from order to completion of the site acceptance test occurs normally over three to six months. As we scale our production, we expect to reduce this timeframe. Contract consideration allocated to the 3D Printer is recognized at a point in time, which occurs upon transfer of control to the customer at shipment.
The initial sales of 3D Printers and Support Services are included in one contract and are invoiced together. Contract consideration is allocated between the two performance obligations based on relative fair value. This allocation involves judgement and is periodically updated as new relevant information becomes available.
In addition, the sales of 3D Printer systems under certain contracts may include variable consideration such that we are entitled to a rate per hour used on the 3D Printer systems. Sales with variable consideration represented a small percentage of revenue during the three months ended March 31, 2022 and none of our revenue during the three
33


months ended March 31, 2021. For more information, see “—Critical Accounting Policies and Significant Estimates—Revenue – Variable Consideration” below.
The Recurring Payment transactions, which are structured as operating leases, represented a small percentage of revenue during the three months ended March 31, 2022 and 2021. Under this model, the customer typically pays a base rent and variable payments based on usage in excess of a defined threshold. Most of our leases have a 12-month term, though in certain cases the lease term is longer.
Support Services are included with most 3D Printer sale transactions and Recurring Payment transactions. Support services consist of field service engineering, phone and email support, preventative maintenance, and limited on and off-site consulting support. A subsequent Support Service contract is available for renewal after the initial contract period based on the then-fair value of the service, which is paid for separately. Support Service revenue is recognized over the contract period beginning with customer performance test acceptance.
Other revenue included under 3D Printer sales includes parts and consumables, such as filters, powder or build plates, that are sold to customers and recognized when the customer takes title to the product. Other revenue was not material for the three months ended March 31, 2022 and 2021.
Cost of Revenue
Our cost of revenue includes the “Cost of 3D Printers,” “Cost of Recurring Payment” and “Cost of Support Services.”
Cost of 3D Printers includes the manufacturing cost of our components and subassemblies purchased from vendors for the assembly, as well as raw materials and assemblies, shipping costs and other directly associated costs. Cost of 3D Printers also includes allocated overhead costs from headcount-related costs, such as salaries, stock-based compensation, depreciation of manufacturing related equipment and facilities, and information technology costs.
Cost of Recurring Payment includes depreciation of the leased equipment over the useful life of five years less the residual value, and an allocated portion of Cost of Support Services.
Cost of Support Services includes the cost of spare or replacement parts for preventive maintenance, installation costs, headcount-related costs such as salaries, stock-based compensation, depreciation of manufacturing related equipment and facilities, and information technology costs. The headcount-related costs are directly associated with the engineers dedicated to remote and on-site support, training, travel costs and other services costs.
Gross Profit and Gross Margin
Our gross profit is revenue less cost of revenue and our gross margin is gross profit as a percentage of revenue. The gross profit and gross margin for our products are varied and are expected to continue to vary from period to period due to the mix of products sold through either a 3D Printer sale transaction or a Recurring Payment transaction, new product introductions and efforts to optimize our operational costs. Other factors affecting our gross profit include changes to our material costs, assembly costs that are themselves dependent upon improvements to yield, and any increase in assembly overhead to support a greater number of 3D Printers sold and markets served.
Research and Development Expenses
Our research and development expenses represent costs incurred to support activities that advance the development of innovative AM technologies, new product platforms and consumables, as well as activities that enhance the capabilities of our existing product platforms. Our research and development expenses consist primarily of salaries and related personnel costs for individuals working in our research and development departments, including stock-based compensation, prototypes, design expenses, information technology costs and software license amortization, consulting and contractor costs, and an allocated portion of overhead costs, including depreciation of property and equipment used in research and development activities.
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Selling and Marketing Expenses
Sales and marketing expenses consist primarily of salaries and related personnel costs for individuals working in our sales and marketing departments, including stock-based compensation, costs related to trade shows and events, advertising, marketing promotions, travel costs and an allocated portion of overhead costs, including information technology costs and costs for customer validation.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related personnel costs for individuals associated with our executive, administrative, finance, legal, information technology and human resources functions, including stock-based compensation, professional fees for legal, audit and compliance, accounting and consulting services, general corporate costs, facilities, rent, information technology costs, insurance, bad debt expenses and an allocated portion of overhead costs, including equipment and depreciation and other general and administrative expenses.
Interest Expense
Interest expense primarily consists of interest incurred under our outstanding debt and finance leases.
Gain/(Loss) on Fair Value of Warrants
Gain/(loss) on valuation of warrant liabilities relates to the changes in the fair value of warrant liabilities, including liabilities related to the public warrants and private placement warrants, which are subject to remeasurement at each balance sheet date.
Gain/(Loss) on Fair value of Contingent Earnout Liabilities
The change in fair value of the contingent earnout liabilities was a loss of $31.2 million for the three months ended March 31, 2022 and was related to the non-cash fair value change of the contingent earnout liabilities related to the Earnout Shares. There was no like expense in the three months ended March 31, 2021.
Other Income/(Expense), Net
Other income/(expense), net includes interest earned on our bank sweep account, gains and losses on disposals of fixed assets and other miscellaneous income/expenses.
Income Taxes
No provision for federal and state income taxes was recorded during the three months ended March 31, 2022 and 2021 because we incurred losses for both periods and maintained a full valuation allowance on the deferred tax assets as of March 31, 2022 and December 31, 2021.
We will continue to review our conclusions about the appropriate amount of the valuation allowance on a quarterly basis. If we were to generate profits, the U.S. valuation allowance position could be reversed in the foreseeable future. We expect a benefit to be recorded in the period the valuation allowance reversal is recorded and a higher effective tax rate in periods following the valuation allowance reversal.
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Results of Operations
Comparison of the Three Months Ended March 31, 2022 and 2021:
The following table summarizes our historical results of operations for the periods presented:
Three months ended March 31,
20222021Change%
(In thousands, except for percentages)
Revenue
3D Printer$10,184 $234 $9,950 4252.1 %
Recurring payment925 263 662 251.7 %
Support services1,109 675 434 64.3 %
Total Revenue12,218 1,172 11,046 942.5 %
Cost of revenue
3D Printer10,479 583 9,896 1697.4 %
Recurring payment718 187 531 284.0 %
Support services1,006 792 214 27.0 %
Total cost of revenue12,203 1,562 10,641 681.2 %
Gross profit/(loss)
15 (390)405 (103.8)%
Operating expenses
Research and development12,915 4,695 8,220 175.1 %
Selling and marketing5,983 2,023 3,960 195.7 %
General and administrative9,290 4,786 4,504 94.1 %
Total operating expenses28,188 11,504 16,684 145.0 %
Loss from operations(28,173)(11,894)(16,279)136.9 %
Interest expense(141)(120)(21)17.5 %
Loss on fair value of warrants
(6,014)(1,514)(4,500)297.2 %
Loss on fair value of contingent earnout liabilities
(31,232)— (31,232)100.0 %
Other income/(expense), net
219 (20)239 (1195.0)%
Loss before provision for income taxes(65,341)(13,548)(51,793)382.3 %
Provision for income taxes— — — — %
Net loss
$(65,341)$(13,548)$(51,793)382.3 %
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Revenue
The following table presents the revenue disaggregated by products and service type, as well as the percentage of total revenue.
Three months ended March 31,
20222021Change%
(In thousands, except for percentages)
3D Printer sales$10,184 83.3 %$234 20.0 %$9,950 4252.1 %
Recurring payment925 7.6 %263 22.4 %662 251.7 %
Support services1,109 9.1 %675 57.6 %434 64.3 %
Total Revenue$12,218 100.0 %$1,172 100.0 %$11,046 942.5 %
Total revenue for the three months ended March 31, 2022 and 2021 was $12.2 million and $1.2 million, respectively, an increase of $11.0 million, or 942.5%.
3D Printer sales were $10.2 million and $0.2 million, respectively, for the three months ended March 31, 2022 and 2021, an increase of $10.0 million, which was attributed to six 3D Printer sales compared to zero 3D Printer sales, respectively. The 3D Printer sales included parts and consumables revenue.
Recurring Payment, structured as an operating lease, was $0.9 million and $0.3 million, for the three months ended March 31, 2022 and 2021, respectively. The increase was primarily attributed to an increase from three to 12 3D Printer systems in service generating Recurring Payment revenue for the three months ended March 31, 2022 and 2021, respectively.
One and two of the systems shipped under the Recurring Payment were pending site acceptance testing (“SAT”) completion as of March 31, 2022 and 2021, respectively.
Our Support Service revenue was $1.1 million and $0.7 million for the three months ended March 31, 2022 and 2021, respectively. The increase was primarily attributed to 54 3D Printer systems in service as of March 31, 2022 compared to 27 3D Printers in service as of March 31, 2021.
We expect the demand for the Sapphire® and Sapphire® XC to increase our revenue in the future. As of March 31, 2022, our backlog for firm orders was $55.0 million for 3D Printers. Our focus for revenue remains on expanding our selling and marketing efforts and developing our existing customer network to increase demand.
Revenue trends from our largest customer, SpaceX, have historically been driven by the timing of its major orders for 3D Printers and the timing of the shipments under those orders. As a result of the anticipated shipment of the Sapphire® XC 3D Printers in 2022, we expect that SpaceX revenues as a percentage of our total revenues will increase in 2022 compared to 2021. We expect SpaceX to continue to be an important customer going forward. However, SpaceX’s contribution as a percentage of our total revenue will depend on the timing of shipments, as described above.


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Cost of Revenue
The following table presents the Cost of Revenue disaggregated by product and service type, as well as the percentage of total revenue.
Three months ended March 31,
20222021
(In thousands, except for percentages)
Cost of Revenue
Cost of 3D Printers$10,479 85.9 %$583 37.3 %
Cost of Recurring Payment718 5.9 %187 12.0 %
Cost of Support Services1,006 8.2 %792 50.7 %
Total Cost of Revenue$12,203 100.0 %$1,562 100.0 %
Total cost of revenue for the three months ended March 31, 2022 and 2021 was $12.2 million and $1.6 million, respectively, an increase of $10.6 million, or 681.2%.
Cost of 3D Printers was $10.5 million and $0.6 million for the three months ended March 31, 2022 and 2021, respectively. The increase of $9.9 million was due to 6 3D Printers sold in the three months ended March 31, 2022 compared to zero 3D Printers sold in the three months ended March 31, 2021. For the three months ended March 31, 2022, cost of 3D Printers per unit increased compared to the prior quarter in 2021, due to higher material, labor and factory overhead costs associated with higher production volumes.
Cost of Recurring Payment was $0.7 million and $0.2 million for the three months ended March 31, 2022 and 2021, respectively. This increase of $0.5 million was due to an increase in depreciation of the equipment on lease and allocable Cost of Support Services as a result of more 3D Printers in service in 2022 compared to 2021.
Cost of Support Services was $1.0 million and $0.8 million for the three months ended March 31, 2022 and 2021, respectively. This increase of $0.2 million was primarily attributable to the costs for preventative maintenance, costs incurred to enhance system reliability performance, and field service engineering labor costs due to more 3D Printers in service in 2022 as compared to 2021.
Cost of revenue as a percentage of revenue was 99.9% and 133.3%, for the three months ended March 31, 2022 and 2021, respectively. This was primarily due to the costs for preventative maintenance, costs incurred to enhance system reliability performance, and field service engineering labor costs due to more 3D Printers in service in 2022 as compared to 2021.
Gross Profit and Gross Margin
Total gross profit (loss) was less than $0.1 million and $(0.4) million, for the three months ended March 31, 2022 and 2021, respectively. As a percentage of revenue, the gross margin was 0.0% and (33.3%), for the three months ended March 31, 2022 and 2021, respectively. The low gross profit was primarily attributable to six 3D printer system sales, offset by the impact of launch customer pricing for Sapphire® XC, the higher material costs, and labor and overhead for these systems for the three months ended March 31, 2022 as compared to zero sales for the three months ended March 31, 2021.
Our gross profit and gross margin are influenced by a number of factors, including:
New product introduction pricing strategies and market conditions that may impact our pricing;
•     Production volumes that may impact factory overhead absorption; and
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•     Cost of our Support Services and product support may be influenced by product mix changes, including new product introductions, and other factors.
Research and Development Expenses
Research and development expenses were $12.9 million and $4.7 million, for the three months ended March 31, 2022 and 2021, respectively, an increase of $8.2 million. The research and development expenses have increased due to the development of the Sapphire® XC system.
The increases in research and development expenses in 2022 were related to a $2.5 million increase in components design and engineering testing and validation for the Sapphire® XC large format AM system, a $2.2 million increase for additional headcount, salaries and employee-related expenses, a $2.4 million increase in stock-based compensation and a $1.1 million increase in product development expenses for new parts for the Sapphire® family of systems.
We expect research and development costs to begin to stabilize over time as our Sapphire® systems mature, while we continue to invest in enhancing and advancing our portfolio of AM solutions. In the near term, we expect a slight increase to be driven by research and development expenses for the product development of the Sapphire® XC system.
Selling and Marketing Expenses
Selling and marketing expenses were $6.0 million and $2.0 million for the three months ended March 31, 2022 and 2021, respectively, an increase of $4.0 million. This increase was attributable to a $1.7 million increase for additional headcount, salaries and employee-related expenses, a $1.0 million increase in stock-based compensation, a $0.5 million increase in trade show expense and a $0.8 million increase in new marketing initiatives and branding expenses.
We expect selling and marketing expenses to increase over time as we expand our headcount, initiate new marketing campaigns with the launch of the Sapphire® XC, focus on our European markets and increase attendance of additive manufacturing conferences to build product awareness.
We expect the selling and marketing activities to increase for travel, trade shows, new product launch initiatives, and increase advertising campaigns and market awareness.
General and Administrative Expenses
General and administrative expenses were $9.3 million and $4.8 million, for the three months ended March 31, 2022 and 2021, respectively, an increase of $4.5 million. The increase was attributable to a $4.0 million increase for additional headcount, salaries and employee-related benefits, a $1.2 million increase in stock-based compensation, a $1.5 million increase in public company related expenses in advisory, legal and accounting fees and insurance, and offset by $1.9 million less Merger related expenses and $0.3 million reduction in general and administrative expenses.
We expect general and administrative expenses to slightly increase as a result of the expected increase in the scale of our operations and the increased costs of operating as a public company.
Interest Expense
Interest expense was less than $0.1 million for both the three months ended March 31, 2022 and 2021, respectively.
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(Loss)/gain on Fair Value of Warrants
The change in fair value of warrants resulted in a loss of $6.0 million and $1.5 million for the three months ended March 31, 2022 and 2021, respectively, and was related to the non-cash fair value change of the warrant liabilities.
(Loss)/gain on Fair value of Contingent Earnout Liabilities
The change in fair value of the contingent earnout liability was a loss of $31.2 million for the three months ended March 31, 2022 and was related to the non-cash fair value change of the contingent earnout liabilities.
Other Income (Expense), Net
Other income (expense), net was $0.2 million and less than $(0.1) million, for the three months ended March 31, 2022 and 2021, respectively. Interest income earned from available-for-sale investments was immaterial for the three months ended March 31, 2022.
Income Taxes
No provision for federal and state income taxes was recorded because we incurred losses for both the three months ended March 31, 2022 and 2021 and maintained a full valuation allowance on the deferred tax assets as of March 31, 2022 and December 31, 2021.
We will continue to review on a quarterly basis our conclusions about the appropriate amount of the valuation allowance. If we were to generate profits in 2022 and beyond, the U.S. valuation allowance position could be reversed in the foreseeable future. We expect a benefit to be recorded in the period the valuation allowance reversal is recorded and a higher effective tax rate in periods following the valuation allowance reversal.
Liquidity and Capital Resources
As of March 31, 2022, we had raised net proceeds of $428.3 million, comprised of approximately $278.3 million from the Merger and the PIPE Financing, which closed on September 29, 2021, and $150.0 million from the issuance of redeemable convertible preferred stock (series A to series D), third-party financing and convertible notes. We have incurred net losses of $65.3 million and $13.6 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021, we had $186.2 million and $223.1 million in cash and cash equivalents and short-term investments, respectively, and an accumulated deficit of $295.2 million and $229.9 million, respectively. Our business requires substantial amounts of cash for operating activities, including salaries and wages paid to our employees, component and sub-assembly purchases, general and administrative expenses, and others.
Our purchase commitments per our standard terms and conditions with our suppliers and vendors are cancellable in whole or in part with or without cause prior to delivery. If we terminate an order, we will have no liability beyond payment of any balances owing for goods and services delivered previously. Certain Sapphire® and Sapphire® XC purchase orders for parts and assemblies are non-cancellable and are due upon receipts with standard payment terms and will primarily be delivered over the next two quarters of 2022.
We may require additional funds to respond to business challenges and opportunities, including the need to provide working capital, develop new features or enhance our products, expand our manufacturing capacity, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds if our existing sources of cash and any funds generated from operations do not provide us with sufficient capital, including seeking additional capital from public or private offerings of our equity or debt securities, electing to repay, restructure or refinance our existing indebtedness, or electing to borrow additional amounts under new credit lines or from other sources. We may also seek to raise additional capital, including from offerings of our equity or debt securities, on an opportunistic basis when we believe there are suitable opportunities for doing so.
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Term Loan
In May 2021, we entered into a third amended and restated loan and security agreement and a mezzanine loan and security agreement providing for certain debt facilities comprised of a $35.0 million term loan, a $10.0 million revolving credit line and a $8.5 million secured equipment loan facility. For more information, see Note 15, Long-Term Debt in the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
In August 2021, we drew on the working capital revolver line of credit in the amount of $3.0 million, with a variable interest rate of the greater of 5.75% of Prime plus 2.50% and a term of 10 months. The outstanding balance on the revolver as of March 31, 2022 was $3.0 million. We do not hedge our exposure to changes in interest rates. A 10% change in interest rates would not have a material impact on annualized interest expense.
Equipment Loans Secured by Leased Equipment
The equipment loan secured by leased equipment has a variable interest rate of the greater of Prime rate, or 3.25%, and terms of three years. As of March 31, 2022, we had $4.6 million outstanding on the equipment loan. We do not hedge our exposure to changes in interest rates. A 10% change in interest rates would not have a material impact on annualized interest expense.
Facilities Expansion
As of March 31, 2022, we have invested $8.2 million into lab equipment and leasehold improvements for our Sapphire® XC manufacturing facility. We will invest an additional $2.0 million to $3.0 million in factory equipment and leasehold improvements to complete the Sapphire® XC system manufacturing facility by the first half of 2022.
Cash Flow Summary
The following table summarizes our cash flows for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,Change
20222021
(In thousands)
Net cash used in operating activities
$(30,107)$(2,642)$(27,465)
Net cash used in investing activities
$(72,709)$(3,446)$(69,263)
Net cash (used in) / provided by financing activities
$(367)$6,447 $(6,814)
Operating Activities
Net cash used in operating activities for the three months ended March 31, 2022 was $30.1 million, consisting primarily of a net loss of $65.3 million and a decrease in net operating assets of $8.0 million, primarily comprised of increases in prepaid expenses of $5.0 million related to insurance and vendor prepayments, increases in accounts receivable of $2.6 million due to timing of customer payments, increases in accrued expenses and other current liabilities of $2.7 million, increases in accounts payable of $1.9 million, offset by decreases in inventories of $16.3 million for Sapphire® and Sapphire® XC system production and decreases in contract liabilities of $2.9 million and decreases in other net operating assets of $1.0 million. The noncash charges of $43.2 million primarily consisted of the change in fair value related to the warrants of $6.0 million, change in fair value related to the contingent earnout liabilities of $31.2 million and depreciation and amortization and stock-based compensation expense.
Net cash used in operating activities for the three months ended March 31, 2021 was $2.6 million, consisting primarily of net loss of $13.5 million and an increase in net operating assets of $8.7 million, primarily due to decreases in contract liabilities of $6.2 million, decreases in accounts payable of $2.9 million, increases in contract
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assets for committed orders of $2.5 million, increases in other net operating assets of $ 1.9 million, and offset by decreases in accounts receivable of $4.8 million. The noncash charges of $2.2 million primarily consisted of the change in fair value related to the warrants of $1.5 million, depreciation and amortization and stock-based compensation expense.
We expect our cash used in operating activities to increase in the remainder of 2022 driven by working capital requirements and operating expenses as we significantly increase the scale of our operations.
Investing Activities
Net cash used in investing activities during the three months ended March 31, 2022 was $72.7 million, consisting of property and equipment purchases of $4.1 million, production of equipment for lease to customers of $1.7 million and purchases of available-for-sale investments of $66.9 million.
Net cash used in investing activities during the three months ended March 31, 2021 was $3.4 million, consisting of property and equipment purchases of $0.1 million and production of equipment for the equipment on lease, net of $3.3 million.
We expect our capital expenditures, excluding purchases of available-for-sale investments to increase slightly in the remainder of 2022 as we expand existing operations, and complete the build out of our new manufacturing facility.
Financing Activities
Net cash used in financing activities during the three months ended March 31, 2022 was $0.4 million, consisting of financing activities resulting primarily from $0.2 million of proceeds from the issuance of common stock upon exercise of stock options. This was offset by repayments of $0.5 million for equipment loans.
Net cash provided by financing activities during the three months ended March 31, 2021 was $6.4 million, consisting of financing activities resulting primarily from the proceeds from the issuance of convertible notes of $5.0 million, proceeds from the issuance of debt of $2.4 million, and proceeds from the issuance of common stock upon exercise of stock options of $0.1 million, offset by repayment of debt of $1.0 million.
We expect to provide cash by financing activities by issuing new equity or incurring new debt to continue operations. Our future cash requirements and the adequacy of available funds will depend on many factors, including those set forth in the section of this Quarterly Report titled “Risk Factors.”
Off-Balance Sheet Arrangements
As of March 31, 2022 and December 31, 2021, we did not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on Velo3D’s condensed consolidated financial statements, see Note 2, Summary of Significant Accounting Policies, in the notes to the condensed consolidated financial statements in this Quarterly Report.
Implications of Being an Emerging Growth Company
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. We are an “emerging growth
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company” as defined in Section 2(A) of the Securities Act and has elected to take advantage of the benefits of this extended transition period.
We will elect to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public business entities and nonpublic business entities until the earlier of the date we (a) are no longer an emerging growth company or (b) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. Please refer to Note 2. Summary of Significant Accounting Policies, of the condensed consolidated financial statements of Velo3D included elsewhere in this Quarterly Report for the recent accounting pronouncements adopted and the recent accounting pronouncements not yet adopted for the three months ended March 31, 2022 and 2021.
We will remain an emerging growth company under the JOBS Act until the earliest of (a) December 31, 2025, (b) the last date of our fiscal year in which we have total annual gross revenue of at least $1.07 billion, (c) the last date of our fiscal year in which we are deemed to be a “large accelerated filer” under the rules of the SEC or (d) the date on which we have issued more than $1.0 billion in nonconvertible debt securities during the previous three years.
Implications of Being a Smaller Reporting Company
We are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited consolidated financial statements.
We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We will remain a smaller reporting company and may take advantage of certain scaled disclosures available to smaller reporting companies until the last day of the fiscal year in which (a) the market value of our voting and nonvoting common stock held by non-affiliates equals or exceeds $250.0 million measured on the last business day of that year’s second fiscal quarter and (b) our annual revenue equals or exceeds $100.0 million during the most recently completed fiscal year or our voting and nonvoting common stock held by non-affiliates equals or exceeds $700.0 million measured on the last business day of that year’s second fiscal quarter.
Critical Accounting Policies and Significant Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. We evaluated the development and selection of our critical accounting policies and estimates and believe that the following involve a higher degree of judgement or complexity and are most significant to reporting our results of operations and financial position and are therefore discussed as critical. The following critical accounting policies reflect the significant estimates and judgements used in the preparation of our condensed consolidated financial statements. Actual results could differ materially from those estimates and assumptions, and those differences could be material to our condensed consolidated financial statements. We re-evaluate our estimates on an ongoing basis. For more information, see Note 2, Summary of Significant Accounting Policies, included in the notes to the condensed consolidated financial statements in this Quarterly Report, and Critical Accounting Policies and Significant Estimates in Part II Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.
Revenue - Variable Consideration
The sales of 3D Printer systems under certain contracts may include variable consideration such that the Company is entitled to a rate per print hour used on the 3D Printer systems. The Company makes certain estimates in calculating the variable consideration, including amount of hours, the estimated life of the equipment and the discount rate. Although estimates may be made on a contract-by-contract basis, whenever possible, the Company
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uses all available information including historical customer usage and collection patterns to estimate variable consideration.
The Company intends to update its estimates of variable consideration on a quarterly basis based on the latest data available, and adjust the transaction price accordingly by recording an adjustment to net revenue and contract assets. The Company has recognized the estimate of variable consideration to the extent that it is probable that a significant reversal will not occur as a result from a change in estimation.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined in Rule 12b-2 under the Exchange Act. As a result, pursuant to Item 305(e) of Regulation S-K, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our management, with participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule(s) 13a-15(e) and 15d-15(e) under the Exchange Act as of March 31, 2022. Based upon this evaluation our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2022, our disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.
Material Weaknesses in Internal Control over Financial Reporting
As described Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2021, we previously identified material weaknesses in our internal control over financial reporting. These material weaknesses have not been remediated as of March 31, 2022. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis. These material weaknesses are as follows:
We did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we did not maintain a sufficient complement of personnel with an appropriate degree of internal controls and accounting knowledge, experience, and training commensurate with our accounting and financial reporting requirements. Additionally, the lack of a sufficient complement of personnel resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in our finance and accounting functions. This material weakness contributed to the following additional material weaknesses:
• We did not design and maintain effective controls over the segregation of duties related to journal entries and account reconciliations. Specifically, certain personnel have the ability to both (i) create and post journal entries within our general ledger system and (ii) prepare and review account reconciliations.
• We did not design and maintain effective controls over the accounting and valuation for debt and equity instruments, specifically, the recording of redeemable convertible preferred stock arrangements, contingent earnout liabilities and warrants. Additionally, we did not design and maintain effective controls over the completeness and presentation of accrued inventory purchases; and we did not design and maintain effective controls over the presentation of contract assets and liabilities. These material weaknesses resulted in audit adjustments to accounts receivable, inventory, other current assets, current and non-current contract liabilities, accrued expenses and other current liabilities, redeemable convertible preferred stock, share-based compensation expense, additional paid-in capital and accumulated deficit, which were recorded prior to the issuance of the consolidated financial statements as of and for the years ended December 31, 2019, 2020 and 2021; and as of and for the interim periods ended September 30, 2021 and December 31, 2021, and immaterial misstatements to current and non-current contract liabilities, accounts payable, accrued expenses and other current liabilities, additional paid-in capital and
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accumulated deficit as of and for the interim period ended March 31 2022. The material weakness related to accounting for warrants resulted in the restatement of the previously issued consolidated financial statements of JAWS Spitfire as part of the September 29, 2021 merger agreement related to warrant liabilities, ordinary shares subject to possible redemption, and transaction costs allocated to warrant liabilities. Additionally, these material weaknesses could result in a misstatement of substantially all of our accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
• We did not design and maintain effective controls over certain information technology (“IT”) general controls for information systems that are relevant to the preparation of our consolidated financial statements. Specifically, we did not design and maintain effective:
◦ user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate company personnel; and
◦ program change management controls to ensure that information technology program and data changes affecting certain financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately.
These IT deficiencies did not result in a misstatement to the consolidated financial statements, however, the deficiencies, when aggregated, could impact maintaining effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all consolidated financial statement accounts and disclosures that would not be prevented or detected. Accordingly, management has determined these deficiencies in the aggregate constitute a material weakness.
Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting
We intend to take measures to remediate these material weaknesses, including the following: hiring additional accounting and IT personnel to bolster our reporting, technical accounting and IT capabilities; providing ongoing training for our personnel on accounting, financial reporting and internal control over financial reporting; engaging a third-party to assist in designing and implementing controls, including controls related to segregation of duties and IT general controls; designing and implementing controls to formalize roles and review responsibilities to align with our team’s skills and experience and designing and implementing controls over segregation of duties; designing and implementing controls over the preparation and review of journal entries and account reconciliations, controls over accounting and valuation for debt and equity instruments, controls over accrued inventory purchases, and controls over the presentation of contract assets and liabilities; and designing and implementing IT general controls, including controls over the review and update of user access rights and privileges and program change management controls.
During the three months ended March 31, 2022, we have engaged an IT consulting firm to address the IT general controls that impact financial reporting. The material weaknesses will not be considered remediated until our management completes the design and implementation of the measures described above and our controls operate for a sufficient period of time and our management has concluded, through testing, that these controls are effective.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in various disputes and litigation matters that arise in the ordinary course of business. We are currently not a party to any material legal proceedings.

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Item 1A. RISK FACTORS
Investing in our securities involves risks. You should consider carefully the risks and uncertainties described below, together with all of the other information in this Quarterly Report, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report, before deciding whether to purchase any of our securities. Our business, results of operations, financial condition, and prospects could also be harmed by risks and uncertainties that are not presently known to us or that we currently believe are not material. If any of these risks actually occur, our business, results of operations, financial condition, and prospects could be materially and adversely affected. Unless otherwise indicated, references in these risk factors to our business being harmed will include harm to our business, reputation, brand, financial condition, results of operations, and prospects. In such event, the market price of our securities could decline, and you could lose all or part of your investment.
Summary of Risk Factors
Risks Related to Our Financial Position and Need for Additional Capital
We are an early-stage company with a history of losses. We have not been profitable historically and may not achieve or maintain profitability in the future.
Our limited operating history and rapid growth makes evaluating our current business and future prospects difficult and may increase the investment risk.
We expect to rely on a limited number of customers for a significant portion of our near-term revenue.
We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.
We have invested and expect to continue to invest in research and development efforts that further enhance our products. Such investments may affect our operating results and liquidity, and, if the return on these investments is lower or develops more slowly than we expect, our revenue and operating results may suffer.
Risks Related to Our Business and Industry
We may experience significant delays in the design, production and launch of our additive manufacturing solutions, and we may be unable to successfully commercialize products on our planned timelines.
As part of our growth strategy, we intend to continue to acquire or make investments in other businesses, patents, technologies, products or services. Our failure to do so successfully could disrupt our business and have an adverse impact on our financial condition.
Our business activities have been and may continue to be, disrupted due to the outbreak of the ongoing COVID-19 pandemic.
Changes in our product mix may impact our gross margins and financial performance.
Our business model is predicated, in part, on building a customer base that will generate a recurring stream of revenues through the use of our additive manufacturing system and service contracts. If that recurring stream of revenues does not develop as expected, or if our business model changes as the industry evolves, our operating results may be adversely affected.
If demand for additive manufacturing products does not grow as expected, or if market adoption of additive manufacturing technology does not continue to develop, or develops more slowly than expected, our revenues may stagnate or decline, and our business may be adversely affected.
If we fail to meet our customers’ price expectations, demand for our products and product lines could be negatively impacted and our business and results of operations could suffer.
Declines in the prices of our products and services, or in our volume of sales, together with our relatively inflexible cost structure, may adversely affect our financial results.
Reservations for our Sapphire® XC solution may not convert to purchase orders.
Defects in our additive manufacturing system or in enhancements to our existing additive manufacturing systems that give rise to part failures for our customers, resulting in product liability or warranty or other
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claims that could result in material expenses, diversion of management time and attention and damage to our reputation.
The additive manufacturing industry in which we operate is characterized by rapid technological change, which requires us to continue to develop new products and innovations to meet constantly evolving customer demands and which could adversely affect market adoption of our products.
The additive manufacturing industry is competitive. We expect to face increasing competition in many aspects of our business, which could cause our operating results to suffer.
Our existing and planned global operations subject us to a variety of risks and uncertainties that could adversely affect our business and operating results. Our business is subject to risks associated with selling machines and other products in non-United States locations.
We have identified material weaknesses in our internal control over financial reporting and we may identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, which may result in material misstatements of our condensed consolidated financial statements or cause us to fail to meet our periodic reporting obligations or cause our access to the capital markets to be impaired and have a material adverse effect on our business.
Risks Related to Third Parties
We could be subject to personal injury, property damage, product liability, warranty and other claims involving allegedly defective products that we supply.
We may rely heavily on future collaborative and supply chain partners.
If our suppliers become unavailable or inadequate, our customer relationships, results of operations and financial condition may be adversely affected.
Risks Related to Operations
We operate primarily at two facilities, and any disruption at one facility could adversely affect our business and operating results.
Delays in the construction to expand our production facilities could severely impact our business, financial condition, results of operations and prospects.
Maintenance, expansion and refurbishment of our facilities, the construction of new facilities and the development and implementation of new manufacturing processes involve significant risks.
Risks Related to Compliance Matters
We are subject to U.S. and other anti-corruption laws, trade controls, economic sanctions and similar laws and regulations. Our failure to comply with these laws and regulations could subject us to civil, criminal and administrative penalties and harm our reputation.
We are subject to environmental, health and safety laws and regulations related to our operations and the use of our additive manufacturing systems and consumable materials, which could subject us to compliance costs and/or potential liability in the event of non-compliance.
Risks Related to Intellectual Property
Our business relies on technological and other innovations embodied in various forms of proprietary information and other intellectual property (IP) related information. Our failure to protect our IP rights could potentially harm our competitive advantages to an extent (e.g., with respect to the use, manufacturing, lease, sale or other commercialization of our processes, technologies and products), which may have an adverse effect on our results of operations and financial condition.
Third-party lawsuits and assertions to which we are subject alleging our infringement of patents, trade secrets or other IP rights may have a significant adverse effect on our financial condition.

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Risks Related to Our Business
Risks Related to Our Financial Position and Need for Additional Capital
We are an early-stage company with a history of losses. We have not been profitable historically and may not achieve or maintain profitability in the future.
We experienced net losses in each year from our inception, including net losses of $65.3 million and $13.5 million for the three months ended March 31, 2022 and 2021, respectively, and net losses of $107.1 million and $21.8 million for the years ended December 31, 2021 and 2020, respectively. We believe we will continue to incur operating losses and negative cash flow in the near-term as we continue to invest significantly in our business, in particular across our R&D efforts and sales and marketing programs. These investments may not result in increased revenue or growth in our business.
As a public company, we incur significant additional legal, accounting and other expenses that Legacy Velo3D did not incur as a private company. These increased expenditures may make it harder for us to achieve and maintain future profitability. Revenue growth and growth in our customer base may not be sustainable, and we may not achieve sufficient revenue to achieve or maintain profitability. While we have generated revenue in the past, we have only recently begun commercial shipments of several of our announced additive manufacturing solutions, some of which are expected to generate a substantial portion of our revenue going forward, and it is difficult for us to predict our future operating results. We may incur significant losses in the future for a number of reasons, including due to the other risks described in this Quarterly Report, and we may encounter unforeseen expenses, difficulties, complications and delays and other unknown events. As a result, our losses may be larger than anticipated, we may incur significant losses for the foreseeable future, and we may not achieve profitability when expected, or at all, and even if we do, we may not be able to maintain or increase profitability. Furthermore, if our future growth and operating performance fail to meet investor or analyst expectations, or if we have future negative cash flow or losses resulting from our investment in acquiring customers or expanding our operations, this could make it difficult for them to evaluate our current business and our future prospects and have a material adverse effect on our business, financial condition and results of operations.
Our limited operating history and rapid growth makes evaluating our current business and future prospects difficult and may increase the investment risk.
Much of our growth has occurred in recent periods. Our limited operating history may make it difficult to evaluate our current business and our future prospects, as we continue to grow our business. Our ability to forecast our future operating results is subject to a number of uncertainties, including our ability to plan for and model future growth. We have encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly evolving industries as we continue to grow our business. If our assumptions regarding these uncertainties, which we use to plan our business, are incorrect or change in reaction to changes in our markets, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, our business could suffer, and the trading price of our securities may decline.
It is difficult to predict our future revenues and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business. If actual results differ from our estimates or we adjust our estimates in future periods, our operating results and financial position could be materially affected.
We expect to rely on a limited number of customers for a significant portion of our near-term revenue.
We currently have purchase orders with a limited number of customers, from which we expect to generate most of our revenues in the near future. A majority of our revenue was generated by sales to our top three customers. We anticipate that a significant portion of our revenue will continue to be derived from sales through these customers in the foreseeable future. We have had a diverse number of customers for our 3D Printer sales. We continue to diversify our customer base. SpaceX is our largest customer and it accounts for a significant amount of our revenue.
Our 3D printer sales occur under purchase orders that are governed by our terms and conditions of sale. Our terms and conditions with SpaceX are consistent with all other customers and permit the customer to terminate our
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services at any time (subject to notice and certain other provisions). Accordingly, the sudden loss of SpaceX or one or more of our other significant customers, the renegotiation of a significant customer contract, a substantial reduction in their orders, their failure to exercise customer options, their unwillingness to extend contractual deadlines if we are unable to meet production requirements, their inability to perform under their contracts or a significant deterioration in their financial condition could harm our business, results of operations and financial condition. In particular, there has been recent media speculation that SpaceX may be facing production challenges that could adversely impact its business. If we fail to perform under the terms of these agreements, the customers could seek to terminate these agreements and/or pursue damages against us, including liquidated damages in certain instances, which could harm our business.
Because we rely on a limited number of customers for a significant portion of our revenues, we depend on the creditworthiness of these customers. If the financial condition of our customers declines, our credit risk could increase. Should one or more of our significant customers declare bankruptcy, be declared insolvent or otherwise be restricted by state or federal laws or regulation from continuing in some or all of their operations, this could adversely affect our ongoing revenues, the collectability of our accounts receivable and our net income.
We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges and opportunities, including the need to develop new features or enhance our products, expand our manufacturing capacity, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds if our existing sources of cash and any funds generated from operations do not provide us with sufficient capital, including seeking additional capital from public or private offerings of our equity or debt securities, electing to repay, restructure or refinance our existing indebtedness, or electing to borrow additional amounts under new credit lines or from other sources. We may also seek to raise additional capital, including from offerings of our equity or debt securities, on an opportunistic basis when we believe there are suitable opportunities for doing so. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. Our ability to raise additional capital when needed may be adversely affected by external factors beyond our control, including changes in the political climate, geopolitical actions, changes in market interest rates, and the COVID-19 pandemic. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges and opportunities could be significantly impaired, and our business may be adversely affected.
We have invested and expect to continue to invest in research and development efforts that further enhance our products. Such investments may affect our operating results and liquidity, and, if the return on these investments is lower or develops more slowly than we expect, our revenue and operating results may suffer.
We have invested and expect to continue to invest in research and development efforts that further enhance our products. These investments may involve significant time, risks and uncertainties, including the risk that the expenses associated with these investments may affect our margins, operating results and liquidity and that such investments may not generate sufficient revenues to offset liabilities assumed and expenses associated with these new investments. The AM industry changes rapidly as a result of technological and product developments, which may render our solutions less effective. We believe that we must continue to invest a significant amount of time and resources in our products to maintain and improve our competitive position. If we do not achieve the benefits anticipated from these investments, if the achievement of these benefits is delayed, our business, operating results and prospects may be materially adversely affected.

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Risks Related to Our Business and Industry
We may experience significant delays in the design, production and launch of our additive manufacturing solutions, and we may be unable to successfully commercialize products on our planned timelines.
There are significant technological and logistical challenges associated with producing, marketing, selling and delivering additive manufacturing systems such as ours that make high-value component parts for customers, and we may not be able to resolve all of the difficulties that may arise in a timely or cost-effective manner, or at all. While we believe that we understand the engineering and process characteristics necessary to successfully design and produce additive manufacturing systems to make high-value metal parts for our customers, our assumptions may prove to be incorrect, and we may be unable to consistently produce additive manufacturing products in an economical manner in commercial quantities.
Certain additive manufacturing solutions are still under development. There are often delays in the design, testing, manufacture and commercial release of new products, and any delay in the launch of our products could materially damage our brand, business, growth prospects, financial condition and operating results. Even if we successfully complete the design, testing and manufacture for one or all of our products under development, we may fail to develop a commercially successful product on the timeline we expect for a number of reasons, including:
misalignment between the products and customer needs;
lack of innovation of the product;
failure of the product to perform in accordance with the customer’s industry standards;
ineffective distribution and marketing;
delay in obtaining any required regulatory approvals;
unexpected production costs; or
release of competitive products.
Our success in the market for the products we develop will depend largely on our ability to prove our products’ capabilities in a timely manner. Upon demonstration, our customers may not believe that our products and/or technology have the capabilities they were designed to have or that we believe they have. Furthermore, even if we do successfully demonstrate our products’ capabilities, potential customers may be more comfortable doing business with another larger and more established company or may take longer than expected to make the decision to order our products. Significant revenue from new product investments may not be achieved for a number of years, if at all. If the timing of our launch of new products and/or of our customers’ acceptance of such products is different than our assumptions, our revenue and results of operations may be adversely affected.
Additionally, we are in the process of establishing a recurring payment offering for customers, which may present similar challenges to those outlined above with respect to the design, production and launch of new additive manufacturing solutions. In particular, we may fail to develop a commercially successful offering if we are unable to meet customer needs or industry standards, if we fail to meet customer price expectations or if our marketing and distribution strategy proves ineffective. If we are unable to establish such an offering, sales of our additive manufacturing solutions and our overall operating results could suffer.
As part of our growth strategy, we intend to continue to acquire or make investments in other businesses, patents, technologies, products or services. Our failure to do so successfully could disrupt our business and have an adverse impact on our financial condition.
As part of our business strategy, we expect to enter into agreements to acquire or invest in other companies. To the extent we seek to grow our business through acquisitions, we may not be able to successfully identify attractive acquisition opportunities or consummate any such acquisitions if we cannot reach an agreement on commercially favorable terms, if we lack sufficient resources to finance the transaction on our own and cannot obtain financing at a reasonable cost or if regulatory authorities prevent such transaction from being consummated. In addition, competition for acquisitions in the markets in which we operate during recent years has increased, and may continue
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to increase, which may result in an increase in the costs of acquisitions or cause us to refrain from making certain acquisitions. We may not be able to complete future acquisitions on favorable terms, if at all.
If we do complete future acquisitions, we cannot assure that they will ultimately strengthen our competitive position or that they will be viewed positively by customers, financial markets or investors. Furthermore, future acquisitions could pose numerous additional risks to our operations, including:
diversion of management’s attention from their day-to-day responsibilities;
unanticipated costs or liabilities associated with the acquisition;
increases in our expenses;
problems integrating the purchased business, products or technologies;
challenges in achieving strategic objectives, cost savings and other anticipated benefits;
inability to maintain relationships with key customers, suppliers, vendors and other third parties on which the purchased business relies;
the difficulty of incorporating acquired technology and rights into our platform and of maintaining quality and security standards consistent with our brand;
difficulty in maintaining controls, procedures and policies during the transition and integration;
challenges in integrating the new workforce and the potential loss of key employees, particularly those of the acquired business; and
use of substantial portions of our available cash or the incurrence of debt to consummate the acquisition.
If we proceed with a particular acquisition, we may have to use cash, issue new equity securities with dilutive effects on existing stockholders, incur indebtedness, assume contingent liabilities or amortize assets or expenses in a manner that might have a material adverse effect on our financial condition and results of operations. Acquisitions will also require us to record certain acquisition-related costs and other items as current period expenses, which would have the effect of reducing our reported earnings in the period in which an acquisition is consummated. In addition, we could also face unknown liabilities or write-offs due to our acquisitions, which could result in a significant charge to our earnings in the period in which they occur. We will also be required to record goodwill or other long-lived asset impairment charges (if any) in the periods in which they occur, which could result in a significant charge to our earnings in any such period.
Achieving the expected returns and synergies from future acquisitions will depend, in part, upon our ability to integrate the products and services, technology, administrative functions and personnel of these businesses into our product lines in an efficient and effective manner. We cannot assure that we will be able to do so, that our acquired businesses will perform at levels and on the timelines anticipated by our management or that we will be able to obtain these synergies. In addition, acquired technologies and IP may be rendered obsolete or uneconomical by our own or our competitors’ technological advances. Management resources may also be diverted from operating our existing businesses to certain acquisition integration challenges. If we are unable to successfully integrate acquired businesses, our anticipated revenues and profits may be lower. Our profit margins may also be lower, or diluted, following the acquisition of companies whose profit margins are less than those of our existing businesses.
Our business activities have been, and may continue to be, disrupted due to the ongoing COVID-19 pandemic.
We face various risks and uncertainties related to the ongoing global COVID-19 pandemic. Since the first quarter of 2020, the pandemic has led to periods of disruption and volatility in the global economy and capital markets, which has increased the cost of capital and adversely impacted access to capital. During 2020 and, to a lesser extent, 2021, the government-enforced travel restrictions, quarantines and business closures around the world that occurred periodically in response to the pandemic have significantly impacted our ability to sell, install and service our additive manufacturing systems at customers around the world. The pandemic has, and may continue to, disrupt our third-party contract manufacturers and supply chain, and our ability to perform the final assembly and testing of our systems. In particular, we have been impacted by the global wafer chip and electronic component supply chain disruptions that have been exacerbated by the pandemic, which has delayed the completion of our Sapphire® and Sapphire® XC printers and subsequently delayed shipments of those printers to our customers and installations of those printers at their facilities. These delays in installation could lead to postponed customer
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acceptance of the transactions. Furthermore, if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures, remote working or other restrictions in connection with the COVID-19 pandemic, our operations will likely be adversely impacted.
It is not currently possible to reliably project the direct impact of COVID-19 on our operating revenues and expenses. If the COVID-19 pandemic continues for a prolonged duration, we or our customers may be unable to perform fully on our contracts, which will likely result in increases in costs and reduction in revenue. These cost increases may not be fully recoverable or adequately covered by insurance. The long-term effects of COVID-19 to the global economy and to us are difficult to assess or predict and may include continued supply chain disruptions, risks for the production and deployment of our products and services, reduced sales, declines in the market prices of our products, and risks to employee health and safety. In addition, any prolonged restrictive measures put in place in order to control COVID-19 or other adverse public health developments in any of our targeted markets, including as a result of new variant strains of the virus, may have a material and adverse effect on our business operations and results of operations.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, including but not limited to those relating to cyber-attacks and security vulnerabilities, interruptions or delays due to third parties or our ability to raise additional capital or generate sufficient cash flows necessary to fulfill our obligations under our existing indebtedness or to expand our operations.
Changes in our product mix may impact our gross margins and financial performance.
Our financial performance may be affected by the mix of transaction models under which we sell during a given period. Different transaction models have different margins in the period in which the transaction occurs and in subsequent periods. Therefore our gross margins may fluctuate based on the mix of sale and recurring payment transactions in a given period. If our product mix shifts too far into lower gross margin transactions in a given period and we are not able to sufficiently reduce the engineering, production and other costs associated with those transactions or substantially increase the sales of our higher gross margin transactions, our profitability could be reduced. Additionally, the introduction of new products or services may further heighten quarterly fluctuations in gross profit and gross profit margins due to manufacturing ramp-up and start-up costs as well as new product introduction pricing strategies. We may experience significant quarterly fluctuations in gross profit margins or operating income or loss due to the impact of the mix of products, channels or geographic areas in which we sell our products from period to period.
Our business model is predicated, in part, on building a customer base that will generate a recurring stream of revenues through the use of our additive manufacturing system and service contracts. If that recurring stream of revenues does not develop as expected, or if our business model changes as the industry evolves, our operating results may be adversely affected.
Our business model is dependent, in part, on our ability to maintain and increase sales of our additive manufacturing products and service contracts as they generate recurring revenues. Existing and future customers of our systems may not purchase our products or related service contracts at the same rate at which customers currently purchase those products and services.
If demand for additive manufacturing products does not grow as expected, or if market adoption of additive manufacturing technology does not continue to develop, or develops more slowly than expected, our revenues may stagnate or decline, and our business may be adversely affected.
The industrial manufacturing market, which today is dominated by conventional manufacturing processes that do not involve 3D printing technology, is undergoing a shift towards additive manufacturing. We may not be able to develop effective strategies to raise awareness among potential customers of the benefits of additive manufacturing technologies or our products may not address the specific needs or provide the level of functionality required by potential customers to encourage the continuation of this shift towards additive manufacturing. If additive manufacturing technology does not continue to gain broader market acceptance as an alternative to conventional
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manufacturing processes, particularly with regard to high value parts, or if the marketplace adopts additive manufacturing technologies that differ from our technologies, we may not be able to increase or sustain the level of sales of our products, and our operating results would be adversely affected as a result.
If we fail to meet our customers’ price expectations, demand for our products and product lines could be negatively impacted and our business and results of operations could suffer.
Demand for our product lines is sensitive to price. We believe our competitive pricing has been an important factor in our results to date. Therefore, changes in our pricing strategies can have a significant impact on our business and ability to generate revenue. Many factors, including our new product launches, our production and personnel costs and our competitors’ pricing and marketing strategies, can significantly impact our pricing strategies. If we fail to meet our customers’ price expectations in any given period, demand for our products and product lines could be negatively impacted and our business and results of operations could suffer.
We use, and plan to continue using, different pricing models for different products. For example, we plan to use a recurring payment pricing model for certain customers, which includes both a leased 3D printer transaction and a sale and utilization fee model. This pricing model is still relatively new to some of our customers and may not be attractive to them, especially in regions where the model is less common. If customers resist this or any other new pricing models we introduce, our revenue may be adversely affected, and we may need to restructure the way in which we charge customers for our products.
Declines in the prices of our products and services, or in our volume of sales, together with our relatively inflexible cost structure, may adversely affect our financial results.
Our business is subject to price competition. Such price competition may adversely affect our results of operation, especially during periods of decreased demand. Decreased demand also adversely impacts the volume of our additive manufacturing systems sales. If our business is not able to offset price reductions resulting from these pressures, or decreased volume of sales due to contractions in the market, by improved operating efficiencies and reduced expenditures, then our operating results will be adversely affected.
Certain of our operating costs are fixed and cannot readily be reduced, which diminishes the positive impact of our restructuring programs on our operating results. To the extent the demand for our products slows, or the additive manufacturing market contracts, we may be faced with excess manufacturing capacity and related costs that cannot readily be reduced, which will adversely impact our financial condition and results of operations.
Reservations for our Sapphire® XC solution may not convert to purchase orders.
Commercial shipments of our Sapphire® XC solution began at the end of 2021. Given the anticipated lead times between the reservation and the date of delivery of the Sapphire® XC, there is a risk that customers who place reservations may ultimately decide not to convert such reservations into purchase orders and take delivery of their reserved Sapphire® XC due to potential changes in customer preferences, competitive developments or other factors. As a result, no assurance can be made that reservations will result in the purchase of our Sapphire® XC, and any such failure to convert these reservations could harm our business, prospects, financial condition and operating results.
Defects in our additive manufacturing system or in enhancements to our existing additive manufacturing systems that give rise to part failures for our customers, resulting in product liability or warranty or other claims that could result in material expenses, diversion of management time and attention and damage to our reputation.
Our additive manufacturing solutions are complex and may contain undetected defects or errors when first introduced or as enhancements are released that, despite testing, are not discovered until after an additive manufacturing system has been used. This could result in delayed market acceptance of those additive manufacturing systems or claims from customers or others, which may result in litigation, increased end user warranty, support and repair or replacement costs, damage to our reputation and business, or significant costs and
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diversion of support and engineering personnel to correct the defect or error. We may from time to time become subject to warranty or product liability claims related to product quality issues that could lead us to incur significant expenses.
We attempt to include provisions in our agreements and purchase orders with customers that are designed to limit our exposure to potential liability for damages arising from defects or errors in our products. However, it is possible that these limitations may not be effective as a result of unfavorable judicial decisions or laws enacted in the future.
The sale and support of our products entails the risk of product liability claims. Any product liability claim brought against us, regardless of our merit, could result in material expense, diversion of management time and attention, damage to our business and reputation and brand, and cause us to fail to retain existing customers or to fail to attract new customers.
The additive manufacturing industry in which we operate is characterized by rapid technological change, which requires us to continue to develop new products and innovations to meet constantly evolving customer demands and which could adversely affect market adoption of our products.
Our revenues are derived from the sale of additive manufacturing systems, parts and services. We have encountered and will continue to encounter challenges experienced by growing companies in a market subject to rapid innovation and technological change. While we intend to invest substantial resources to remain on the forefront of technological development, continuing advances in additive manufacturing technology, changes in customer requirements and preferences and the emergence of new standards, regulations and certifications could adversely affect adoption of our products either generally or for particular applications. Our ability to compete in the additive manufacturing market depends, in large part, on our success in developing and introducing new additive manufacturing systems and technology, in improving our existing products and technology and qualifying new materials which our systems can support. We believe that we must continuously enhance and expand the functionality and features of our products and technologies in order to remain competitive. However, we may not be able to:
develop cost effective new products and technologies that address the increasingly complex needs of prospective customers;
enhance our existing products and technologies;
respond to technological advances and emerging industry standards and certifications on a cost-effective and timely basis;
adequately protect our IP as we develop new products and technologies;
identify the appropriate technology or product to which to devote our resources; or
ensure the availability of cash resources to fund R&D.
Even if we successfully introduce new additive manufacturing products and technologies and enhance our existing products and technologies, it is possible that these will eventually supplant our existing products or that our competitors will develop new products and technologies that will replace our own. As a result, any of our products may be rendered obsolete or uneconomical by our or our competitors’ technological advances, leading to a loss in market share, decline in revenue and adverse effects to our business and prospects.
The additive manufacturing industry is competitive. We expect to face increasing competition in many aspects of our business, which could cause our operating results to suffer.
The additive manufacturing industry in which we operate is fragmented and competitive. We compete for customers with a wide variety of producers of additive manufacturing and/or 3D printing equipment that creates 3D objects and end-use parts, as well as with providers of materials and services for this equipment. Some of our existing and potential competitors are researching, designing, developing and marketing other types of products and services that may render our existing or future products obsolete, uneconomical or less competitive. Existing and potential competitors may also have substantially greater financial, technical, marketing and sales, manufacturing,
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distribution and other resources than we do, including name recognition, as well as experience and expertise in IP rights and operating within certain international markets, any of which may enable them to compete effectively against us. For example, a number of companies that have substantial resources have announced that they are beginning production of 3D printing systems, which will further enhance the competition we face. We may lose market share to, or fail to gain market share from, producers of products that can be substituted for our products, which may have an adverse effect on our results of operations and financial condition.
Future competition may arise from the development of allied or related techniques for equipment, materials and services that are not encompassed by our patents, from the issuance of patents to other companies that may inhibit our ability to develop certain products and from improvements to existing technologies.
We intend to continue to follow a strategy of continuing product development and distribution network expansion to enhance our competitive position to the extent practicable. However, we cannot assure that we will be able to maintain our current position or continue to compete successfully against current and future sources of competition. If we do not keep pace with technological change and introduce new products and technologies, demand for our products may decline, and our operating results may suffer.
Our existing and planned global operations subject us to a variety of risks and uncertainties that could adversely affect our business and operating results. Our business is subject to risks associated with selling machines and other products in non-United States locations.
Our products and services, and product outputs from contract manufacturers who use our 3D printer systems, are distributed in more than 25 countries around the world. Accordingly, we face significant operational risks from doing business internationally. For current and potential international customers whose contracts are denominated in U.S. dollars, the relative change in local currency values creates relative fluctuations in our product pricing. These changes in international end-user costs may result in lost orders and reduce the competitiveness of our products in certain foreign markets. As we realize our strategy to expand internationally, our exposure to currency risks may increase.
Other risks and uncertainties we face from our global operations include:
limited protection for the enforcement of contract and IP rights in certain countries where we may sell our products or work with suppliers or other third parties;
potentially longer sales and payment cycles and potentially greater difficulties in collecting accounts receivable;
costs and difficulties of customizing products for foreign countries;
challenges in providing solutions across a significant distance, in different languages and among different cultures;
laws and business practices favoring local competition;
being subject to a wide variety of complex foreign laws, treaties and regulations and adjusting to any unexpected changes in such laws, treaties and regulations;
compliance with U.S. laws affecting activities of U.S. companies abroad, including the U.S. Foreign Corrupt Practices Act (“FCPA”), and compliance with anti-corruption laws in other countries, such as the UK Bribery Act (“Bribery Act”);
tariffs, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets;
operating in countries with a higher incidence of corruption and fraudulent business practices;
changes in regulatory requirements, including export controls, tariffs and embargoes, other trade restrictions, competition, corporate practices and data privacy concerns;
potential adverse tax consequences arising from global operations;
rapid changes in government, economic and political policies and conditions; and
political or civil unrest or instability, terrorism or epidemics and other similar outbreaks or events.
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In addition, additive manufacturing has been identified by the U.S. government as an emerging technology and is currently being further evaluated for national security impacts. We expect additional regulatory changes to be implemented that will result in increased and/or new export controls related to 3D printing technologies, components, and related materials and software. These changes, if implemented, may result in our being required to obtain additional approvals and/or licenses to sell 3D printers in the global market.
Our failure to effectively manage the risks and uncertainties associated with our global operations could limit the future growth of our business and adversely affect our business and operating results.
We are dependent on management and key personnel, and our business would suffer if we fail to retain our key personnel and attract additional highly skilled employees.
Our success depends on the specialized skills of our management team and key operating personnel. This may present particular challenges as we operate in a highly specialized industry sector, which may make replacement of our management team and key operating personnel difficult. A loss of our managers or key employees, or their failure to satisfactorily perform their responsibilities, could have an adverse effect on our business, financial condition, results of operations and prospects.
Our future success will depend on our ability to identify, hire, develop, motivate and retain highly qualified personnel for all areas of our organization, particularly R&D, recycling technology, operations and sales. Trained and experienced personnel are in high demand and may be in short supply. Many of the companies that we compete with for experienced employees have greater resources than us and may be able to offer more attractive terms of employment. In addition, we invest significant time and expense in training employees, which increases their value to competitors that may seek to recruit them. We may not be able to attract, develop and maintain the skilled workforce necessary to operate our business, and labor expenses may increase as a result of a shortage in the supply of qualified personnel, which will negatively impact our business, financial condition, results of operations and prospects. Each member of senior management as well as our key employees may terminate employment without notice and without cause or good reason. The members of our senior management are not subject to non-competition agreements. Accordingly, the adverse effect resulting from the loss of certain members of senior management could be compounded by our inability to prevent them from competing with us.
If we fail to grow our business as anticipated, our net sales, gross margin and operating margin will be adversely affected. If we grow as anticipated but fail to manage our growth and expand our operations accordingly, our business may be harmed and our results of operation may suffer.
Over the past year, we have experienced rapid growth, and we are attempting to continue to grow our business substantially. To this end, we have made, and expect to continue to make, significant investments in our business, including investments in our infrastructure, technology, marketing and sales efforts. These investments include planning for facilities expansion, increased staffing and market expansion into global territories. If our business does not generate the level of revenue required to support our investment, our net sales and profitability will be adversely affected.
We may not manage our growth effectively. Our ability to effectively manage our anticipated growth and expansion of our operations will also require us to enhance our operational, financial and management controls and infrastructure, human resources policies and reporting systems. This expansion will place a significant strain on our management, operational and financial resources. To manage the growth of our operations and personnel, we must establish appropriate and scalable operational and financial systems, procedures and controls and establish and maintain a qualified finance, administrative and operations staff. We may be unable to hire, train, retain and manage the necessary personnel or to identify, manage and exploit potential strategic relationships and market opportunities, which will negatively impact our business, financial condition, results of operations and prospects.

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In the future, some of our arrangements for additive manufacturing solutions may contain customer-specific provisions that may impact the period in which we recognize the related revenues under GAAP.
Some customers that purchase additive manufacturing solutions from us may require specific, customized factors relating to their intended use of the solution or the installation of the product in the customers’ facilities. These specific, customized factors are occasionally required by the customers to be included in our commercial agreements relating to the purchases. As a result, our responsiveness to our customers’ specific requirements has the potential to impact the period in which we recognize the revenue relating to that additive manufacturing system sale.
Similarly, some of our customers must build or prepare facilities to install a subset of our additive manufacturing solutions, and the completion of such projects can be unpredictable, which can impact the period in which we recognize the revenue relating to that additive manufacturing solution sale.
We rely on our information technology systems to manage numerous aspects of our business and a disruption of these systems could adversely affect our business.
We rely on our information technology systems to manage numerous aspects of our business, including to efficiently purchase products from our suppliers, provide procurement and logistic services, ship products to our customers, manage our accounting and financial functions, including our internal controls, and maintain our R&D data. Our information technology systems are an essential component of our business and any disruption could significantly limit our ability to manage and operate our business efficiently. A failure of our information technology systems to perform properly could disrupt our supply chain, product development and customer experience, which may lead to increased overhead costs and decreased sales and have an adverse effect on our reputation and our financial condition. In addition, during the COVID-19 pandemic, a substantial portion of our employees have conducted work remotely, making us more dependent on potentially vulnerable communications systems and making us more vulnerable to cyberattacks.
Although we take steps and incur significant costs to secure our information technology systems, including our computer systems, intranet and internet sites, email and other telecommunications and data networks, our security measures may not be effective and our systems may be vulnerable to damage or interruption. The failure of any such systems or the failure of such systems to scale as our business grows could adversely affect our results of operations. Disruption to our information technology systems could result from power outages, computer and telecommunications failures, computer viruses, cyber-attack or other security breaches, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war, terrorism and usage errors by our employees.
We have engaged with third-party auditors to identify risk factors based on the NIST SP 800-171 framework which provides recommended requirements for protecting the confidentiality of controlled unclassified information, that affect data security within our internal network and external products. These audits include compliance reviews and penetration tests where applicable. A prioritized list of remediations to strengthen our security posture are in progress, and there are risks associated with unaddressed vulnerabilities in the meantime including risk of data loss, malware, and ransomware. We have taken steps to protect customer data within our products by applying strong encryption to files both in transit and at rest.
Our reputation and financial condition could be adversely affected if, as a result of a significant cyber-event or otherwise:
our operations are disrupted or shut down;
our or our customers’ or employees’ confidential, proprietary information is stolen or disclosed;
we incur costs or are required to pay fines in connection with stolen customer, employee or other confidential information;
we must dedicate significant resources to system repairs or increase cyber security protection; or
we otherwise incur significant litigation or other costs.
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If our computer systems are damaged or cease to function properly, or, if we do not replace or upgrade certain systems, we may incur substantial costs to repair or replace them and may experience an interruption of our normal business activities or loss of critical data. Any such disruption could adversely affect our reputation and financial condition.
We also rely on information technology systems maintained by third parties, including third-party cloud computing services and the computer systems of our suppliers for both our internal operations and our customer-facing infrastructure related to our additive manufacturing solutions. These systems are also vulnerable to the types of interruption and damage described above but we have less ability to take measures to protect against such disruptions or to resolve them if they were to occur. Information technology problems faced by third parties on which we rely could adversely impact our business and financial condition as well as negatively impact our brand reputation.
Our current levels of insurance may not be adequate for our potential liabilities.
We maintain insurance to cover our potential exposure for most claims and losses, including potential product and non-product related claims, lawsuits and administrative proceedings seeking damages or other remedies arising out of our commercial operations. However, our insurance coverage is subject to various exclusions, self-retentions and deductibles. We may be faced with types of liabilities that are not covered under our insurance policies, such as environmental contamination or terrorist attacks, or that exceed our policy limits. Even a partially uninsured claim of significant size, if successful, could have an adverse effect on our financial condition.
In addition, we may not be able to continue to obtain insurance coverage on commercially reasonable terms, or at all, and our existing policies may be cancelled or otherwise terminated by the insurer. Maintaining adequate insurance and successfully accessing insurance coverage that may be due for a claim can require a significant amount of our management’s time, and we may be forced to spend a substantial amount of money in that process.
Changes in tax laws or tax rulings could materially affect our financial position, results of operations and cash flows.
The tax regimes we are subject to or operate under, including income and non-income taxes, are unsettled and may be subject to significant change. Changes in tax laws, regulations, or rulings, or changes in interpretations of existing laws and regulations, could materially affect our financial position and results of operations. For example, the 2017 Tax Cuts and Jobs Act (the “Tax Act”) made broad and complex changes to the U.S. tax code, including changes to U.S. federal tax rates, additional limitations on the deductibility of interest, both positive and negative changes to the utilization of future net operating loss (“NOL”) carryforwards, allowing for the expensing of certain capital expenditures, and putting into effect the migration from a “worldwide” system of taxation to a more territorial system. Future guidance from the IRS with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified in future legislation. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) has already modified certain provisions of the Tax Act. In addition, it is uncertain if and to what extent various states will conform to the Tax Act, the CARES Act or any newly enacted federal tax legislation. The issuance of additional regulatory or accounting guidance related to the Tax Act could materially affect our tax obligations and effective tax rate in the period issued. As we continue to expand internationally, we will be subject to other jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have an adverse impact on our liquidity and results of operations. In addition, the authorities in several jurisdictions could review our tax returns and impose additional tax, interest and penalties, which could have an impact on us and on our results of operations. In addition, many countries in Europe and a number of other countries and organizations, have recently proposed or recommended changes to existing tax laws or have enacted new laws that could significantly increase our tax obligations in the countries where we do or intend to do business or require us to change the manner in which we operate our business.
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As we expand the scale of our international business activities, these types of changes to the taxation of our activities could increase our worldwide effective tax rate, increase the amount of taxes imposed on our business, and harm our financial position. Such changes also may apply retroactively to our historical operations and result in taxes greater than the amounts estimated and recorded in our condensed consolidated financial statements.
We have identified material weaknesses in our internal control over financial reporting and we may identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, which may result in material misstatements of our condensed consolidated financial statements or cause us to fail to meet our periodic reporting obligations or cause our access to the capital markets to be impaired and have a material adverse effect on our business.
Our management has significant requirements for financial reporting and internal control over financial reporting as a public company. The process of designing and implementing effective internal control over financial reporting is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain internal control over financial reporting that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain adequate internal control over financial reporting, it could cause us to fail to meet our reporting obligations on a timely basis or result in material misstatements or omissions in our condensed consolidated financial statements, which could harm our operating results.
In addition, we will be required, pursuant to the rules and regulations of the SEC to furnish a report by management on the effectiveness of our internal control over financial reporting. However, for the year ended December 31, 2021, we excluded management's report on internal control over financial reporting in our Annual Report on Form 10-K for the year ended December 31, 2021 pursuant to Section 215.02 of the SEC Division of Corporation Finance's Regulation S-K Compliance & Disclosure Interpretations. This assessment will need to include disclosure of any material weaknesses identified in our internal control over financial reporting. Assessing and maintaining adequate internal control over financial reporting may divert management’s attention from other matters that are important to our business. Our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting on an annual basis. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. If we are not able to complete our initial assessment of our internal control over financial reporting in a timely manner, or if we identify one or more material weaknesses, our independent registered public accounting firm may not be able to attest that our internal control over financial reporting is effective.
Matters impacting our internal control over financial reporting may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of applicable NYSE listing rules, which may result in a breach of the covenants under existing or future financing arrangements. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our condensed consolidated financial statements. Confidence in the reliability of our condensed consolidated financial statements also could suffer if we and our independent registered public accounting firm continue to report material weaknesses in our internal control over financial reporting. This could materially adversely affect us and lead to a decline in the market price of our securities.
We have identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis. These material weaknesses are as follows:
We did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we did not maintain a sufficient complement of personnel with an appropriate degree of internal controls and accounting knowledge, experience, and training commensurate with our accounting and financial reporting requirements. Additionally, the lack of a sufficient complement of personnel resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting
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objectives, as demonstrated by, among other things, insufficient segregation of duties in our finance and accounting functions. This material weakness contributed to the following additional material weaknesses:
We did not design and maintain effective controls over the segregation of duties related to journal entries and account reconciliations. Specifically, certain personnel have the ability to both (i) create and post journal entries within our general ledger system and (ii) prepare and review account reconciliations.
We did not design and maintain effective controls over the accounting and valuation for debt and equity instruments, specifically, the recording of redeemable convertible preferred stock arrangements, contingent earnout liabilities and warrants. Additionally, we did not design and maintain effective controls over the completeness and presentation of accrued inventory purchases and we did not design and maintain effective controls over the presentation of contract assets and liabilities. These material weaknesses resulted in audit adjustments to accounts receivable, inventory, other current assets, current and non-current contract liabilities, accrued expenses and other current liabilities, redeemable convertible preferred stock, share-based compensation expense, additional paid-in capital and accumulated deficit, which were recorded prior to the issuance of the consolidated financial statements as of and for the years ended December 31, 2019, 2020 and 2021; and as of and for the interim periods ended September 30, 2021 and December 31, 2021, and immaterial misstatements to current and non-current contract liabilities, accounts payable, accrued expenses and other current liabilities, additional paid-in capital and accumulated deficit as of and for the interim period ended March 31 2022. The material weakness related to accounting for warrants resulted in the restatement of the previously issued consolidated financial statements of JAWS Spitfire as part of the September 29, 2021 merger agreement related to warrant liabilities, ordinary shares subject to possible redemption, and transaction costs allocated to warrant liabilities. Additionally, these material weaknesses could result in a misstatement of substantially all of our accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
We did not design and maintain effective controls over certain information technology (“IT”) general controls for information systems that are relevant to the preparation of our condensed consolidated financial statements. Specifically, we did not design and maintain effective:
user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate company personnel; and
program change management controls to ensure that information technology program and data changes affecting certain financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately.
These IT deficiencies did not result in a misstatement to the condensed consolidated financial statements, however, the deficiencies, when aggregated, could impact maintaining effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all condensed consolidated financial statement accounts and disclosures that would not be prevented or detected. Accordingly, management has determined these deficiencies in the aggregate constitute a material weakness.
Although we intend to take measures to remediate these material weaknesses, there can be no assurance that the material weaknesses will be remediated on a timely basis or at all, or that additional material weaknesses will not be identified or occur in the future, which could result in material misstatements of our interim or annual consolidated financial statements. If we are unable to remediate the material weaknesses or additional material weaknesses are identified in the future, our ability to record, process and report financial information accurately, and to prepare consolidated financial statements within the time periods specified by the rules and forms of the SEC, could be adversely affected which, in turn, may adversely affect our reputation and business and the market price of our securities. In particular, if our consolidated financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our consolidated financial statements are not filed on a timely basis,
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we could be subject to sanctions or investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities. In either case, this could result in a material adverse effect on our business. Failure to timely file will cause us to be ineligible to utilize short form registration statements on Form S-3, which may impair our ability to obtain capital in a timely fashion to execute our business strategies or issue shares to effect an acquisition.
Some members of our management have limited experience in operating a public company.
Some of our executive officers have limited experience in the management of a publicly traded company. Our management team may not successfully or effectively manage the transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws. Our limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities, which will result in less time being devoted to the management and growth of the company. We may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies. The development and implementation of the standards and controls and the hiring of experienced personnel necessary to achieve the level of accounting standards required of a public company may require costs greater than expected.
Economic uncertainty or downturns could adversely affect our business and operating results.
In recent years, the United States and other significant markets have experienced cyclical downturns and worldwide economic conditions remain uncertain, including as a result of the COVID-19 pandemic, supply chain disruptions, the Ukraine – Russia conflict, rising fuel prices, inflation and increasing interest rates. Economic uncertainty and associated macroeconomic conditions make it extremely difficult for our customers and us to accurately forecast and plan future business activities, and could cause our customers to slow spending on our products, which could delay and lengthen sales cycles.
A significant downturn in economic activity, or general spending on additive manufacturing systems, may cause our current or potential customers to react by reducing their capital and operating expenditures in general or by specifically reducing their spending on additive manufacturing systems and related technologies. Moreover, competitors may respond to challenging market conditions by lowering prices and attempting to lure away our customers.
We cannot predict the timing, strength, or duration of any economic slowdown or any subsequent recovery generally, or in any industry. If the conditions in the general economy and the markets in which we operate worsen from present levels, our business, financial condition, and operating results could be adversely affected.
Changes in financial accounting standards or practices as well as interpretations thereof may cause adverse, unexpected financial reporting fluctuations and affect our results of operations.
The accounting rules and regulations that we must comply with are complex and subject to interpretation by the Financial Accounting Standards Board (the “FASB”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. Recent actions and public comments from the FASB and the SEC have focused on the integrity of financial reporting and internal controls. In addition, many companies’ accounting policies and treatment are being subjected to heightened scrutiny by regulators and the public. Further, accounting rules and regulations as well as their interpretations are continually changing in ways that could materially impact our condensed consolidated financial statements.
We cannot predict the impact of future changes to accounting principles or interpretations thereof or our accounting policies on our condensed consolidated financial statements going forward, which could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of the change.

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Risks Related to Third Parties
We could be subject to personal injury, property damage, product liability, warranty and other claims involving allegedly defective products that we supply.
The products we supply are sometimes used in potentially hazardous or critical applications, such as the assembled parts of an aircraft, that could result in death, personal injury, property damage, loss of production, punitive damages and consequential damages. While we have not experienced any such claims to date, actual or claimed defects in the products we supply could result in our being named as a defendant in lawsuits asserting potentially large claims.
We attempt to include legal provisions in our agreements and purchase orders with customers that are designed to limit our exposure to potential liability for damages arising from defects or errors in our products. However, it is possible that these limitations may not be effective as a result of unfavorable judicial decisions or laws enacted in the future. Any such lawsuit, regardless of merit, could result in material expense, diversion of management time and efforts and damage to our reputation, and could cause us to fail to retain or attract customers, which could adversely affect our results of operations.
We depend on independent contractors and third parties to provide key services in our product development and operations, and any disruption of their services, or an increase in cost of these services, could negatively impact our financial condition and results of operations.
We depend on subcontractors to provide cost effective and efficient services in supply chain functions, including sourcing certain subcomponents and assemblies, and in product development activities.
Our operations and operating results may be negatively impacted if we experience problems with our subcontractors that impact the delivery of product to our customers. These problems may include: delays in software or hardware development timelines, prolonged inability to obtain components with competitive performance and cost attributes; inability to achieve adequate yields or timely delivery; inability to meet customer timelines or demands, disruption or defects in assembly, test or shipping services; or delays in stabilizing manufacturing processes or ramping up volume for new products. If our third-party supply chain providers were to reduce or discontinue services for us or their operations are disrupted as a result of a fire, earthquake, act of terrorism, political unrest, governmental uncertainty, war, disease, or other natural disaster or catastrophic event, weak economic conditions or any other reason, our financial condition and results of operations could be adversely affected.
We may rely heavily on future collaborative and supply chain partners.
We have entered into, and may enter into, strategic collaborations and partnerships to develop and commercialize our current and future R&D programs with other companies to accomplish one or more of the following:
obtain capital, equipment and facilities;
obtain expertise in relevant markets;
obtain access to components;