UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
FORM Form 10-K
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR |
For the fiscal year ended December 31, 20202021
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR |
For the transition period from to
Commission file number: 001-39092
Galileo Acquisition Corp.
SHAPEWAYS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of
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30-02 48th Avenue
Long Island City, NY 11101
(Address of principal executive offices) (Zip Code)
(646) 979-9885
(Registrant’s telephone number, including area code: (347) 517-1041code)
Securities registered pursuant to Section 12(b) of the Act:
| Trading Symbol(s) | Name of each exchange on which registered: | |||
Securities registered pursuant to Section 12(g) of the Act: NoneNone.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
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 (§ 232.405232.0405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐☒ No ☒
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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”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☒ | Smaller 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-212b2 of the Exchange Act). Yes ☒☐ No ☐ ☒
TheAs of June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the ordinary shares outstanding,of Galileo Acquisition Corp. (the former name of the registrant), other than shares held by persons who may be deemed to be affiliates of the registrant, computed by reference to the closing sales price for the ordinary shares on June 30, 2020,2021, as reported on the New York Stock Exchange, was approximately $138,244,500.$138,138,000 million.
On September 30, 2021, the registrant’s common stock and warrants began trading on the New York Stock Exchange under the symbols “SHPW” and “SHPW WS,” respectively.
As of March 25, 2021, there were 17,400,000 ordinary28, 2022 the registrant had 48,845,322 shares of the registrant issued andcommon stock outstanding.
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CAUTIONARYSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report,Annual Report on Form 10-K (the “Report”), including, without limitation, statements under the headingsection titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934. These1934, as amended (the “Exchange Act”). All statements, other than statements of present or historical fact included in or incorporated by reference in this Report, regarding the future financial performance of Shapeways Holdings, Inc. (the “Company”, “Shapeways,” “we,” “us” or “our”), as well as the Company’s strategy, future operations, future operating results, financial position, estimated revenues, and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. In some cases, you can identify forward-looking statements can be identified by the use of forward-looking terminology including the words “believes,such as “plan,” “estimates,“believe,” “anticipates,“expect,” “expects,“anticipate,” “intends,“intend,” “plans,“outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “will,“might,” “possible,” “potential,” “projects,“predict,” “predicts,” “continue,” or “should,” or,“would,” “will,” “seek,” “target,” and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements are based on information available as of the date of this Report and on the current expectations, forecasts and assumptions of the management of the Company, involve a number of judgments, risks and uncertainties and are inherently subject to changes in each case,circumstances and their negative or other variations or comparable terminology.potential effects and speak only as of the date of such statements. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to our ability to consummate any acquisition or other business combination and any other statements that are not statements of current or historical facts. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to:
The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may notwill be those that we have been anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond ourthe Company’s control) andor other assumptions that may cause actual results or performance to be materially different from those expressed, contemplated or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the headingPart I, Item 1A: “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertakeThe Company undertakes no 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. These risks and others described under Part I, Item 1A: “Risk Factors” may not be exhaustive.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-lookingForward-looking statements are not guarantees of future performance and that ourthe Company’s actual results of operations, financial condition and liquidity, and developments in the industry in which we operatethe Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this report.Report. In addition, even if ourthe Company’s results or operations, financial condition and liquidity, and developments in the industry in which we operateit operates are consistent with the forward-looking statements contained in this report,Report, those results or developments may not be indicative of results or developments in subsequent periods.
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Unless otherwise stated in this report, or
EXPLANATORY NOTE
On September 29, 2021 (the “Closing Date”), we consummated the context otherwise requires, references to:
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Further, on the Closing Date, as contemplated by Luca Giacometti, our Chairmanthe Merger Agreement, Galileo filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and Chief Executive Officerfiled a certificate of incorporation and Alberto Recchi, our Chief Financial Officer;
The Business Combination has been accounted for as a reverse recapitalization, in the initial public offering and the sale of the private warrants was placed following the closing of the initial public offering;
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RISK FACTORS SUMMARY
The following is a summary of risks, uncertainties and other factors related to our Company. You should carefully consider all of the risk factorsReverse Recapitalization presented in “Item 1A. Risk Factors” and all other information contained in this Report including the financial statements.
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We are a Cayman Islands exempted company formed on July 30, 2019 and structured as a blank check company for the purpose of effecting an initial business combination.Legacy Shapeways.
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| Item 1. | Business. |
Company Overview
Shapeways is a leading digital manufacturer combining high quality, flexible on-demand manufacturing with purpose-built proprietary software to offer customers an end-to-end digital manufacturing platform on which they can rapidly transform digital designs into physical products. Our manufacturing platform offers customers access to high quality manufacturing from start to finish through automation, innovation and digitization. Our proprietary software, wide selection of materials and technologies, and global supply chain lower manufacturing barriers and accelerate delivery of manufactured parts from prototypes to finished end parts. We combine deep digital manufacturing know-how and software expertise to deliver high quality, flexible on-demand digital manufacturing to a range of customers, from project-focused engineers to large enterprises.
We have two manufacturing facilities, one in Long Island City, New York and the other in Eindhoven, the Netherlands. In addition, as of December 31, 2021, we may pursuehad over 40 strategic supply chain partners who provide incremental capacity and production technologies to help us scale with customer demand and support us in efficiently launching new materials and manufacturing technologies. Approximately 38% of our revenue in 2021 was manufactured through those strategic outsource supply chain partners.
We support our customers through the design, pre-production, manufacturing and delivery process across a range of industries, materials, part volumes and delivery options. Our software is deeply integrated with our customers’ workflows and often is mission critical to their businesses. We believe our manufacturing platform is highly scalable, having delivered over 23 million parts to one million customers in over 175 countries as of December 31, 2021. Our platform is agnostic as to manufacturing hardware, materials and design software providers. As of December 31, 2021, we utilize 11 additive manufacturing technologies to produce parts in approximately 100 materials and finishes.
We use our proprietary software to automate production that passes through our manufacturing platform. Our software supports ordering, part analysis, manufacturing planning, pre-production and manufacturing. This software enables us to offer high quality, low-volume, complex part production. In an initial business combination targetenvironment increasingly focused on mass customization and speed of part delivery, our core competency in any business, industry or geographical location,low-volume, high-mix production at scale appeals to customers.
In 2020, we have concentratedlaunched a software offering to a limited set of design customers to gain feedback on product market fit. The software enables other manufacturers to leverage our efforts in identifyingexisting end-to-end manufacturing software to scale their businesses operatingand shift to digital manufacturing. Our software offers improved customer accessibility, increased productivity, and expanded manufacturing capabilities for its customers. We launched the first phase of our SaaS offering more broadly under the brand Otto in the Consumer, Retail, Food and Beverage, Fashion and Luxury, Specialty Industrial, Technology or Healthcare sectorsfourth quarter of 2021. This phase of the software offering provides a limited ordering service for additive manufacturing capabilities fulfilled by us. Further phases of this software, which are headquartered in Western Europe or North America, with an emphasis on family-owned businesses, portfolio companies of private equity or venture capital funds, or corporate spin-offs,expected to be rolled out over the next two years, will include expanded ordering capabilities and that have North Americaadditional end to end functionality to digitize manufacturing processes. We intend to further commercialize our software as one of its reference markets, and a clearly defined North American high growth strategy
We leverage the substantial proprietary deal sourcing, investing and operating expertisepart of our management team and strategic advisors, including their relationships with leading business leaders and entrepreneurs in Western Europe. Our team members collectively have significant experience in middle market private equity and investment banking, and our Chairman and Chief Executive Officer, Luca Giacometti, has already sponsored four special purpose acquisition vehicles ingoal to accelerate digital transformation across the Italian market, all of which completed their respective business combinations.
In addition, we intend to leverage the deep relationships and long-standing experience that our management team and strategic advisors command in the global private equity asset management industry.manufacturing ecosystem. We believe our software can transform manufacturers globally by easing the digital transformation of traditional manufacturers, particularly small- to medium-sized manufacturers that this combination of relationshipsare not able to invest the capital and experience puts us in an excellent positiontime necessary to locate potential targets, particularly those owned by private equity funds.
Initial Public Offering
On October 22, 2019, the Company consummated the initial public offering of 13,800,000 units, which includes the full exercise by the underwriters ofdigitize their over-allotment option in the amount of 1,800,000 units, at $10.00 per Unit, generating gross proceeds of $138,000,000.
Simultaneously with the closing of the initial public offering, the Company consummated the sale of 4,110,000 private warrants at a price of $1.00 per private warrant in a private placement to the sponsor and EarlyBirdCapital, generating gross proceeds of $4,110,000.
Transaction costs amounted to $3,187,305, consisting of $2,760,000 of underwriting fees and $427,305 of other offering costs.
Following the closing of the initial public offering on October 22, 2019, an amount of $138,000,000 ($10.00 per unit) from the net proceeds of the sale of the units in the initial public offering and the sale of the private warrants was placed in the trust account. and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of approximately six months, or in any open-ended investment company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act of 1940, as amended, or the Investment Company Act, as determined by the Company, until the earlier of: (i) the consummation of a Business Combination or (ii) the distribution of the Trust Account, as described below.
processes.
Our units, ordinary shares and public warrants are each traded on NYSE under the symbols “GLEO.U,” “GLEO” and “GLEO WS,” respectively. Our units commenced public trading on October 18, 2019, andStrategy
The key elements of our ordinary shares and public warrants commenced separate public trading on November 14, 2019.
Business Strategy and Acquisition Criteria
Based on our management team’s experience, including prior special purpose acquisition companies, we have developed the following investment criteria that we have used and intend to continue to use to screen and evaluate prospective target businesses.strategy for growth are:
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composites and ceramics. We believe that by expanding our materials capabilities and offering a comprehensive and innovative materials portfolio, we will be able to |
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These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination may be based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our management may deem relevant. In the event that we decide to enter into our initial business combination with a target business that only meets some but not all of the above criteria and guidelines, we will disclose that the target business only meets some but not all of the above criteria in our stockholder communications related to our initial business combination, which, as discussed in this Report, would be in the form of proxy solicitation materials or tender offer documents that we would file with the SEC.
Our Competitive AdvantagesStrengths
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Our Platform
Shapeways Digital Manufacturing Platform
We offer a broad set of digital manufacturing tools and services to help customers innovate faster, lower costs and scale more efficiently. Our end-to-end digital manufacturing platform is differentiated through three key areas, design, production, and scale and is powered by our proprietary, purpose-built software:
| • | Design. We provide our customers with advanced design technology and |
| • | Production. Through our digital manufacturing platform, our customers have access to numerous innovative additive manufacturing hardware technologies and materials. We |
Name | Material | Technology | ||
Accura 60, Accura Xtreme, Accura Xtreme 200, Grey Primed SLA | Accura 60, Accura Xtreme, Accura Xtreme 200, LT9000 | SLA | ||
MJF Plastic PA12, PA12GB, Polypropylene | Nylon 12, Nylon 12 Glass Bead Filled, Polypropylene | MJF | ||
PA11, TPU, Versatile Plastic, Nylon 6 Mineral Filled , Arnite® T AM1210 | Nylon 11, Thermoplastic Polyurethane, Nylon 12, Nylon 6 Mineral Filled, PBT | SLS |
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Name | Material | Technology | ||
Multi-Color Polyjet | Vero | Polyjet | ||
Stainless Steel 316L, Stainless Steel 17-4PH, 4140 Steel, Copper | Stainless Steel 316L, Stainless Steel 17-4PH, 4140 Steel, Copper | BMD | ||
High Definition Full Color, Fine Detail Plastic | Mimaki MH-100, Visijet M3 Crystal | Material Jetting | ||
BHDA, Ultracur3D® RG 35, 5015 Elastomeric Shore A 70, 3843 Tough HDT80, 3172 Tough High Impact | R5 Gray, Ultracur3D® RG 35, 5015 Elastomeric Shore A 70, 3843 Tough HDT80, 3172 Tough High Impact | DLP | ||
EPU 40, RPU 70, UMA 90 | Elastomeric Polyurethane, Rigid Polyurethane, Urethane Methacrylate | DLS | ||
Aluminum | Aluminum | DMLS | ||
Steel, Stainless Steel 316L | 420 Steel / Bronze (60:40),Stainless Steel 316L, Stainless Steel 17-4PH, Gypsum | Binder Jetting | ||
Bronze, Brass, Copper, Gold Plated Brass, Gold, Platinum, Rhodium Plated Brass, Silver | Wax Casting | Casting |
| • | Scale. Our Application Programming Interface (“API”) integrations allow us to easily scale and grow with our customers’ businesses. With our API integrations, customers can seamlessly integrate custom websites or web applications into our platform, enabling them to efficiently scale and leverage our fulfillment capability. We also have integrations with leading third party e-commerce providers, allowing our customers who sell consumer-facing goods to connect their stores directly to our platform. Further, our customers have access to our service and support teams, who provide them with deep domain expertise in digital manufacturing technology, materials and production processes. |
Shapeways Proprietary, Purpose-Built Software
Our ability to deliver high quality, flexible Initial Business Combinationon-demand manufacturing is powered by our proprietary, purpose-built software. That software enables us to fully digitize the end-to-end manufacturing workflow, including:
Ordering. Our software enables customized order intake allowing our customers to offer secure upload and immediate pricing through automated configuration of model, material, finish, and fulfillment requirements. Our software provides order management to simplify manufacturing status monitoring, sales tracking, and repeat ordering. Files that are uploaded can be saved to a digital inventory, allowing the customer to facilitate future orders.
Analysis. Currently approximately 80% of files that are uploaded to our platform must be revised for successful manufacturability. Our software provides automated printability analysis, including file correction and optimization, and can automatically correct common issues with 3D models. If the file is determined to be unprintable based on model geometry, past print successes, and material guidelines, our software enables automated workflows to communicate feedback and printability issues with the customer and offer them paths for resolution.
Planning. Our software enables production planning across a supply chain network, including both our internal manufacturing facilities and external supply chain outsource partners. Our software automates the assignment and allocation of orders through the supply chain using smart demand allocation, based on cost, manufacturing capacity, part specification, geography, and fulfillment speed.
Pre-Production. Our software includes manufacturing preparation technology, 2D and 3D tray planning, and machine integration. This allows for optimized asset utilization, materials usage, and machine capacity utilization.
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Manufacturing. Our software includes technology that we must consummate an initial business combination with one or more operating businesses or assets with a fair market value equalspans production, asset monitoring, material monitoring, traceability, post-production processes, and certification. This includes robust tools to at least 80%monitor all steps of the net assets heldmanufacturing process and enable continuous iterations and improvements to adjust to emerging technologies and capabilities. Our platform connects directly with additive manufacturing hardware, providing an integrated platform for monitoring production, maintenance, and printer status across both internal manufacturing and outsource supply chain capabilities. We provide full historical logging capabilities, capturing key touch points from pre-print to production to reduce machine downtime and enable gross profit margin improvements.
Our software also supports post-production processes, inspection, and assembly. This enables us to incorporate custom workflows, including improved quality assurance processes and assembly instructions. Our quality assurance feedback process creates a feedback loop between customers and manufacturers to achieve optimal product standards.
Our software enables global distribution and delivery of finished products direct to the end customer. We ship efficiently via a distribution center network and shipping service integrations. Our customer service team has deep domain expertise in additive manufacturing technology, materials, and production processing and offers end-to-end support to both customers and their end customers.
Commercializing Shapeways Software, Otto
We believe the trust account (excluding any taxes payable). If our board of directors is not able to independently determine the fair market valuefull capabilities of our initialproprietary, purpose-built software will enable software customers to leverage our end-to-end manufacturing software and manufacturing capability to scale their business combination,and shift to digital manufacturing. Through Otto, software customers can leverage our technology for capabilities such as file-upload, instant pricing, custom checkout, file optimization and manufacturing fulfillment. Software customers can also leverage our software platform to launch new hardware or materials offerings. This solution provides our software customers with the ability to maintain their branding while also providing them access to our end-to-end manufacturing software for their own manufacturing needs.
Otto enables improved customer accessibility, increased productivity and expanded manufacturing capabilities. It is our belief that Shapeways software will be useful to other manufacturers in some of the following ways:
| • | Improved Accessibility. Our software can shift manufacturers online enabling them to improve customer accessibility. Moving offline processes online enables more streamlined quoting and ordering process, clear communication with the customer through the process, and improved customer visibility to the end-to-end manufacturing process. |
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| • | Increased Productivity. Our software digitizes the process from ordering through delivery, creating significant efficiencies in the end-to-end manufacturing process. This removes manual steps in the process, minimizes unnecessary labor costs, and increases manufacturing throughput. |
| • | Expanded Capabilities. Our software will enable customers to expand their manufacturing hardware and material capabilities by leveraging our internal manufacturing capabilities and outsourced supply chain partners. This will enable software customers to expand their manufacturing capabilities and capture more customer share of wallet, without having to invest in hardware. |
Customers
We have delivered over 23 million parts to over one million customers in over 175 countries through 2021. A key component of our growth has been our relationships with our customers, which has led to a high level of repeat revenue. In 2021, approximately 89% of our revenue came from customers we will obtain an opinionacquired prior to 2021, of which one customer accounted for approximately 23% of our revenue, and the remaining revenue came from an independent investment banking firm or another independent valuation or appraisal firm that regularly provides fairness opinions solely with respectcustomers we acquired in 2021. Our customers range from small- and medium-sized enterprises to Fortune 500 companies and are diversified across a range of industries. Shapeways supports customers’ manufacturing needs from design, prototyping, optimization, and finished part production. We expect to expand our customer base to include additional software customers as we continue to roll out further phases of Otto over the next two years.
Research and Development
Our research and development efforts are focused primarily on software development and the evaluation of new manufacturing technologies and materials to add to the satisfaction of such criteria. While we consider it unlikely thatShapeways digital manufacturing platform, both internally and through our board will not be ablesupply chain partners. The digital manufacturing landscape is evolving quickly, with new technologies and materials being brought to make such independent determination of fair market value, it may be unable to do so if the board is less familiar or experiencedat an increasingly rapid pace. Our research and development, operations and supply chain teams have deep relationships with the target company’s business, there isleading hardware and materials providers, allowing us to stay current on new technologies coming to market. Our research and development team regularly evaluates opportunities in new technologies and materials across a significant amountrange of uncertainty asfactors including customer demand, technology maturity, and production workflow. Additionally, our research and development team work closely with hardware original equipment manufacturers (“OEMs”) and materials providers to the value of the company’s assets or prospects, including if such company is at an early stage of development, operations or growth, or if the anticipated transaction involvesensure production quality and efficiency for our customers.
Sales and Marketing
Historically, Shapeways has been a complex financial analysis or other specialized skillsself-service digital manufacturing platform growing through our customers and the board determines that outside expertise would be helpful or necessary in conducting such analysis. Since any opinion, if obtained, would merely state that the fair market value meets the 80% fair market value test, unless such opinion includes material information regarding the valuation of a target business or the considerationthrough organic customer acquisition. We are focused on direct sales and marketing efforts to be provided, it is not anticipated that copies of such opinion would be distributedboth expand our customer base and retain our existing customer base. We have strong brand recognition due to our stockholders. However, if required under applicable law, any proxy statement thatlong-standing relationships with hardware OEMs and materials providers, who have also served as channels for customer acquisition. Our marketing strategy has historically focused on inbound marketing, and we deliverplan to stockholdersexpand our outbound efforts, primarily focused on larger potential customers and fileexpanding our reach in key verticals.
Our marketing strategies are focused on supporting sales growth by driving awareness of digital manufacturing and of our platform. We develop comprehensive sales and marketing content, tools, and campaigns, often in parallel with the SEC in connection with a proposed transaction will include such opinion.our partner network. Our internal marketing team develops content specifically
We anticipate structuring our initial business combination so that the post-transaction company8
aimed for both corporate executives and engineers in which our public stockholders own shares will own or acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial business combinationmultiple formats such that the post-transaction company owns or acquires less than 100% of such interests or assets of the target businessas case studies, newsletters, and webinars in order to facilitate sales and customer engagement. We regularly release communications through trade press and attend industry events and conferences to augment our vertical market strategy and build strategic relationships.
Manufacturing and Suppliers
Our manufacturing capabilities include two ISO 9001 compliant facilities in Long Island City, New York and Eindhoven, the Netherlands, as well as a network of outsource supply chain partners, all of which are managed through our proprietary software platform. Our outsource supply chain partners focus on overflow capacity to help us meet certain objectivespeak demand, as well as support us in efficiently launching new materials and technologies on our platform. Our internal manufacturing and supply chain teams collaborate closely with our outsource supply chain partners to ensure production quality.
We source and purchase manufacturing equipment from the leading hardware providers in the additive manufacturing ecosystem, such as 3D Systems, Carbon, EnvisionTec, EOS, ExOne, Formlabs, HP, Origin, Prodways and Desktop Metal Inc. (“Desktop Metal”). We source materials from these hardware providers as well as from leading chemicals companies such as BASF, DSM/Covestro, and Henkel. As the hardware and materials landscape continues to evolve, we expect to partner with additional hardware and materials providers, either by bringing their capabilities in house or by outsourcing to our supply chain partners.
In November 2021, as part of our existing strategic partnership with Desktop Metal, we began providing our customers access to Desktop Metal system capacity and capabilities at our manufacturing facilities. In addition, Desktop Metal announced it would leverage Shapeways’ manufacturing capabilities and purpose-built software platform, Otto, to provide its customers with access to fully digitized, end-to-end 3D printing workflows.
Our Competition
The industry in which we operate is fragmented and competitive. We compete for customers with a range of digital manufacturing platforms, including Materialise NV, Proto Labs, Inc., service bureaus, digital manufacturing brokers, and small local manufacturers. We believe we are differentiated from our competitors as we provide solutions that combine proprietary software and digital manufacturing capabilities.
In particular, we believe we compare favorably to other industry participants on the basis of the target management team or stockholders orfollowing competitive factors:
Wide range of plastic materials offerings;
Growing portfolio of metals offerings with ability to supply new materials as they become available;
Part quality and consistency across over 23 million parts;
Serving a broad range of customers and industries;
End-to-end digital manufacturing solution from design and repair to production and distribution;
Proprietary software platform to streamline customer operations;
Strategic ecosystem of partner integrations; and
Opportunity to expand to traditional manufacturing capabilities and capture more customers’ share of wallet.
Intellectual Property
Our ability to drive innovation in the digital manufacturing market depends in part upon our ability to protect our core technology and software know-how. We attempt to protect our intellectual property rights
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through a combination of patent, trademark, domain names, copyright and trade secret laws, as well as through contractual provisions and restrictions on access to our proprietary technology which includes both nondisclosure and invention assignment agreements with our consultants and employees and non-disclosure agreements with our vendors and business partners. While unpatented research, development, know-how and engineering skills are important to our business, we pursue patent protection when we believe it is possible and consistent with our overall strategy for other reasons,safeguarding intellectual property. Our existing patents are expected to expire between 2031 through 2038.
As of December 31, 2021, we owned 15 issued patents, including 8 United States patents and 7 issued foreign patents. Shapeways’ patents and patent applications are directed to proprietary technology used in mass customization design tools, part costing, evaluating manufacturability, manufacturing planning, and the manufacturing process.
We have registered “Shapeways” as a trademark in Australia, Canada, China, the European Union, India, Israel, Japan, New Zealand, Singapore, South Korea, Taiwan, the United Kingdom, and the United States.
Seasonality
Our revenues and operating results may fluctuate from quarter-to-quarter and year-to-year due to our sales cycle and seasonal reductions in business activity among our customers, particularly during the summer months in Europe.
Human Capital
At Shapeways, we hold ourselves accountable for upholding our corporate responsibility and sustainability practices. “ROW” is the theme of our values, meaning we all contribute individually, but we will only complete such business combination ifsucceed working as a team to achieve company goals. It is also an acronym for our individual values that are exemplified in what we do and how we do it:
Raise the post-transaction company owns or acquires 50% or moreBar: For ourselves, our teams, and our products.
Over Communicate: Go above and beyond to keep each other informed.
Win Together: Enable and support each other on the pathway to success.
Workforce Demographics
As of the outstanding voting securities of the target or otherwise acquires a controlling interestDecember 31, 2021, we had 152 employees, including 98 in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our stockholders prior to the business combination may collectively own a minority interestUnited States and 54 in the post-transaction company, depending on valuations ascribed to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our stockholders immediately prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will be taken into account for purposes of NYSE’s 80% fair market value test. If the business combination involves more than one target business, the 80% fair market value test will be based on the aggregate value of all of the target businesses.
Our Business Combination Process
In evaluating a prospective target business, we conduct a due diligence review which may encompass, among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspections of facilities, as well as reviewing financialNetherlands. We also regularly use independent contractors and other information made availabletemporary employees to us and other reviews as we deem appropriate.supplement our regular staff. We may also retain consultants with expertise relating to a prospective target business.
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We are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, officers or directors. In the event we seek to complete our initial business combination with a company that is affiliated with our sponsor, officers or directors, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm or another independent valuation or appraisal firm that regularly provides fairness opinionsbelieve that our initial business combination is fair tofuture success will depend partly on our company from a financial point of view.
Members of our management team directly or indirectly own our securities and accordingly, they may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business combination. Further, each of our officers and directors may have a conflict of interest with respect to evaluating a particular business combination if the retention or resignation of any such officers and directors was included by a target business as a condition to any agreement with respect to our initial business combination.
In order to minimize potential conflicts of interest which may arise from multiple corporate affiliations, each of our officers and directors has contractually agreed, pursuant to a written agreement with us, until the earliest of a business combination, our liquidation or such time as he ceases to be an officer or director, to present to our company for our consideration, prior to presentation to any other entity, any suitable business opportunity which may reasonably be required to be presented to us, subject to any pre-existing fiduciary or contractual obligations he might have. Each of our directors and officers presently has, and in the future any of our directors and our officers may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present acquisition opportunities to such entity. Accordingly, subject to his or her fiduciary duties under Cayman Islands law, if any of our officers or directors becomes aware of an acquisition opportunity which is suitable for an entity to which he or she has then current fiduciary or contractual obligations, he or she will need to honor his or her fiduciary or contractual obligations to present such acquisition opportunity to such entity, and only present it to us if such entity rejects the opportunity. Our amended and restated memorandum and articles of association provides that, subject to his or her fiduciary duties under Cayman Islands law, we renounce our interest in any corporate opportunity offered to any officer or director unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue. We do not believe, however, that any fiduciary duties or contractual obligations of our directors or officers would materially undermine ourcontinued ability to complete our business combination.
Our officers have agreed not to become an officer or director of any other special purpose acquisition company with a class of securities registered under the Exchange Act, until we have entered into a definitive agreement regarding our initial business combination or we have failed to complete our initial business combination by July 22, 2021 (or by October 22, 2021 if a definitive agreement with respect to a proposed business combination has been executed by July 22, 2021).
Status as a Public Company
We believe our structure makes us an attractive business combination partner to target businesses. As an existing public company, we offer a target business an alternative to the traditional initial public offering through a merger or other business combination. In this situation, the owners of the target business would exchange their shares of stock in the target business for shares of our stock or for a combination of shares of our stockattract, hire and cash, allowing us to tailor the consideration to the specific needs of the sellers. Although there are various costsretain qualified, diverse and obligations associated with being a public company, we believe target businesses will find this method a more certain and cost effective method to becoming a public company than the typical initial public offering. In a typical initial public offering, there are additional expenses incurred in marketing, road show and public reporting efforts that may not be present to the same extent in connection with a business combination with us.
Furthermore, once a proposed business combination is completed, the target business will have effectively become public, whereas an initial public offering is always subject to the underwriters’ ability to complete the offering, as well as general market conditions, which could delay or prevent the offering from occurring or could have negative valuation consequences. Once public, we believe the target business would then have greater access to capital and an additional means of providing management incentives consistent with stockholders’ interests. It can offer further benefits by augmenting a company’s profile among potential new customers and vendors and aid in attracting talented employees.
inclusive personnel.
We are an “emerging growth company,” as definedequal opportunity employer, and we believe that having a diverse workforce drives innovation and resilience. Gender and ethnic diversity, inclusion, and performance go hand in Section 2(a)hand. Our workforce is comprised of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantageengineers, technicians, salespeople, and business professionals, of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
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In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.
We are an “emerging growth company” as defined in the JOBS Act and will remain such for up to five years. However, if our non-convertible debt issued within a three-year period or our total revenues exceed $1.0 billion or revenues exceed $1.07 billion, or the market value of our ordinary shares that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an “emerging growth company” as of the following fiscal year. As an emerging growth company, we have elected, under Section 107(b) of the JOBS Act, to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
Financial Position
With funds available for a business combination in the amount of $136,398,500which 35% were racially diverse as of December 31, 2020, after payment2021.
The success of $2,760,000 of deferred underwriting fees, in each case before fees and expenses associated with our initial business combination, we offer a target business a variety of options such as creating a liquidity event for its owners, providing capital for the potential growth and expansion of its operations or strengthening its balance sheet by reducing its debt or leverage ratio. Because we are able to complete our business combination usingis fundamentally connected to our cash, debt or equity securities, oremployees and their well-being. We are committed to the health, safety, and wellness of our employees around the globe. We provide our employees with a combinationwide range of benefits, including benefits directed to their health, safety, and long-term financial security. In response to the foregoing,COVID-19 pandemic, we have the flexibility to use the most efficient combination that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires. However, we have not taken any steps to secure third party financing and there can be no assurance it will be available to us.
Effecting a Business Combination
General
We are not presently engaged in, and we will not engage in, any substantive commercial business until we consummate our initial business combination. We intend to utilize cash derived from the proceeds of our initial public offering and the private placement of private warrants, our share capital, debt or a combination of these in effecting a business combination. Although substantially all of the net proceeds of our initial public offering and the private placement of private warrants are intended to be applied generally toward effecting a business combination as described in this Report, the proceeds are not otherwise being designated for any more specific purposes. Accordingly, investors are investing without first having an opportunity to evaluate the specific merits or risks of any one or more business combinations. A business combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital but which desires to establish a public trading market for its shares, while avoiding what it may deem to be adverse consequences of undertaking a public offering itself. These include time delays,implemented significant expense, loss of voting control and compliance with various United States federal and state securities laws. In the alternative, we may seek to consummate a business combination with a company that may be financially unstable or in its early stages of development or growth. While we may seek to effect simultaneous business combinations with more than one target business, we will probably have the ability, as a result of our limited resources, to effect only a single business combination.
Lack of Business Diversification
Our business combination must be with a target business or businesses that collectively satisfy the minimum valuation standard at the time of such acquisition. This process may entail the simultaneous acquisitions of several operating businesses at the same time. Therefore, at least initially, the prospects for our success may be entirely dependent upon the future performance of a single business. Unlike other entities which may have the resources to complete several business combinations of entities operating in multiple industries or multiple areas of a single industry, it is probablechanges that we will not have the resources to diversify our operations or benefit from the possible spreading of risks or offsetting of losses. By consummating a business combination with only a single entity, our lack of diversification may:
If we determine to simultaneously acquire several businesses and such businesses are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other acquisitions, which may make it more difficult for us, and delay our ability, to complete the business combination. With multiple acquisitions, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business.
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Limited Ability to Evaluate the Target Business’ Management
Although we intend to scrutinize the management of a prospective target business when evaluating the desirability of effecting a business combination, we cannot assure you that our assessment of the target business’ management will prove to be correct. In addition, we cannot assure you that the future management will have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of our officers and directors, if any, in the target business following a business combination cannot presently be stated with any certainty. While it is possible that some of our key personnel will remain associated in senior management or advisory positions with us following a business combination, it is unlikely that they will devote their full-time efforts to our affairs subsequent to a business combination. Moreover, they would only be able to remain with the company after the consummation of a business combination if they are able to negotiate employment or consulting agreements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for them to receive compensation in the form of cash payments and/or our securities for services they would render to the company after the consummation of the business combination. While the personal and financial interests of our key personnel may influence their motivation in identifying and selecting a target business, their ability to remain with the company after the consummation of a business combination will not be the determining factor in our decision as to whether or not we will proceed with any potential business combination.
Additionally, our officers and directors may not have significant experience or knowledge relating to the operations of the particular target business.
Following a business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that any such additional managers we do recruit will have the requisite skills, knowledge or experience necessary to enhance the incumbent management.
Shareholders May Not Have the Ability to Approve an Initial Business Combination
In connection with any proposed business combination, we will either (1) seek shareholder approval of our initial business combination at a meeting called for such purpose at which public shareholders may seek to convert their public shares, regardless of whether they vote for or against the proposed business combination, into their pro rata share of the aggregate amount then on deposit in the trust account (net of taxes payable) or (2) provide our public shareholders with the opportunity to sell their public shares to us by means of a tender offer (and thereby avoid the need for a shareholder vote) for an amount equal to their pro rata share of the aggregate amount then on deposit in the trust account (net of taxes payable), in each case subject to the limitations described herein. Notwithstanding the foregoing, our initial shareholders have agreed, pursuant to written letter agreements with us, not to convert any public shares held by them into their pro rata share of the aggregate amount then on deposit in the trust account. If we determine to engage in a tender offer, such tender offer will be structured so that each shareholder may tender any or all of his, her or its public shares rather than some pro rata portion of his, her or its shares. The decision as to whether we will seek shareholder approval of a proposed business combination or will allow shareholders to sell their shares to us in a tender offer will be made by us based on a variety of factors such as the timing of the transaction, whether the terms of the transaction would otherwise require us to seek shareholder approval or whether wedetermined were deemed to be a foreign private issuer (which would require us to conduct a tender offer rather than seeking shareholder approval under SEC rules). If we so choose and we are legally permitted to do so, we have the flexibility to avoid a shareholder vote and allow our shareholders to sell their shares pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act which regulate issuer tender offers. In that case, we will file tender offer documents with the SEC which will contain substantially the same financial and other information about the initial business combination as is required under the SEC’s proxy rules. We will only consummate our initial business combination if we have net tangible assets (after redemption) of at least $5,000,001 either immediately prior to or upon such consummation and, solely if we seek shareholder approval, a majority of the issued and outstanding ordinary shares voted are voted in favor of the business combination.
We chose our net tangible asset threshold of $5,000,001 as described above to ensure that we would avoid being subject to Rule 419 promulgated under the Securities Act. However, if we seek to consummate an initial business combination with a target business that imposes any type of working capital closing condition or requires us to have a minimum amount of funds available from the trust account upon consummation of such initial business combination, our net tangible asset threshold may limit our ability to consummate such initial business combination (as we may be required to have a lesser number of shares converted or sold to us) and may force us to seek third party financing which may not be available on terms acceptable to us or at all. As a result, we may not be able to consummate such initial business combination and we may not be able to locate another suitable target within the applicable time period, if at all. Public shareholders may therefore have to wait until July 22, 2021 (or October 22, 2021 if a definitive agreement with respect to a proposed business combination has been executed by July 22, 2021) in order to be able to receive a pro rata share of the trust account.
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Our initial shareholders and our officers and directors and underwriters have agreed (1) to vote any ordinary shares owned by them in favor of any proposed business combination, (2) not to convert any ordinary shares in connection with a shareholder vote to approve a proposed initial business combination and (3) not sell any ordinary shares in any tender in connection with a proposed initial business combination. As a result, if we sought shareholder approval of a proposed transaction, we would need only 5,100,001 of our public shares (or approximately 37.0% of our public shares) to be voted in favor of the transaction in order to have such transaction approved (assuming that the initial shareholders do not purchase any units or shares in the after-market and that the 150,000 representative shares are voted in favor of the transaction).
If we hold a meeting to approve a proposed business combination and a significant number of shareholders vote, or indicate an intention to vote, against such proposed business combination, our officers, directors, initial shareholders or their affiliates could make such purchases in the open market or in private transactions in order to influence the vote. Notwithstanding the foregoing, our officers, directors, initial shareholders and their affiliates will not make purchases of ordinary shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act, which are rules designed to stop potential manipulation of a company’s stock.
Limitation on Redemption upon Completion of Our Initial Business Combination if We Seek Shareholder Approval
Notwithstanding the foregoing, if we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, our amended and restated memorandum and articles of association will provide that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the shares sold in our initial public offering (the “Excess Shares”). We believe this restriction will discourage shareholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against a proposed business combination as a means to force us or our sponsor or its affiliates to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public shareholder holding more than an aggregate of 15% of the shares sold in our initial public offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by us or our sponsor or its affiliates at a premium to the then-current market price or on other undesirable terms. By limiting our shareholders’ ability to redeem no more than 15% of the shares sold in our initial public offering, we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block our ability to complete our initial business combination, particularly in connection with a business combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. However, we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial business combination. Our sponsor, officers and directors have, pursuant to a letter agreement entered into with us, waived their right to have any founder shares or public shares held by them redeemed in connection with our initial business combination. Unless any of our other affiliates acquires founder shares through a permitted transfer from an initial shareholder, and thereby becomes subject to the letter agreement, no such affiliate is subject to this waiver. However, to the extent any such affiliate acquires public shares, it would be a public shareholder and restricted from seeking redemption rights with respect to any Excess Shares.
Conversion/Tender Rights
At any meeting called to approve an initial business combination, public shareholders may seek to convert their public shares, regardless of whether they vote for or against the proposed business combination, into their pro rata share of the aggregate amount then on deposit in the trust account, less any taxes then due but not yet paid. Notwithstanding the foregoing, our initial shareholders have agreed, pursuant to written letter agreements with us, not to convert any public shares held by them into their pro rata share of the aggregate amount then on deposit in the trust account. The conversion rights will be effected under our amended and restated memorandum and articles of association and Cayman Islands law as redemptions. If we hold a meeting to approve an initial business combination, a holder will always have the ability to vote against a proposed business combination and not seek conversion of his shares.
Alternatively, if we engage in a tender offer, each public shareholder will be provided the opportunity to sell his public shares to us in such tender offer. The tender offer rules require us to hold the tender offer open for at least 20 business days. Accordingly, this is the minimum amount of time we would need to provide holders to determine whether they want to sell their public shares to us in the tender offer or remain an investor in our company.
Our initial shareholders, officers and directors will not have conversion rights with respect to any ordinary shares owned by them, directly or indirectly, whether acquired prior to our initial public offering or purchased by them in the aftermarket. Additionally, the holders of the representative shares will not have conversion rights with respect to the representative shares.
We may also require public shareholders, whether they are a record holder or hold their shares in “street name,” to either tender their certificates to our transfer agent or to deliver their shares to the transfer agent electronically using the DWAC System, at the holder’s option, at any time at or prior to the vote on the business combination. Once the shares are converted by the legal holder, and effectively redeemed by us under Cayman Islands law, the transfer agent will then update our Register of Members to reflect all conversions. The proxy solicitation materials that we will furnish to shareholders in connection with the vote for any proposed business combination will indicate whether we are requiring shareholders to satisfy such delivery requirements. Accordingly, a shareholder would have from the time our proxy statement is mailed through the vote on the business combination to deliver his shares if he wishes to seek to exercise his conversion rights. Under our amended and restated memorandum and articles of association, we are required to provide at least 10 days’ advance notice of any general meeting, which would be the minimum amount of time a shareholder would have to determine whether to exercise conversion rights. As a result, if we require public shareholders who wish to convert their ordinary shares into the right to receive a pro rata portion of the funds in the trust account to comply with the foregoing delivery requirements, holders may not have sufficient time to receive the notice and deliver their shares for conversion. Accordingly, investors may not be able to exercise their conversion rights and may be forced to retain our securities when they otherwise would not want to.
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There is a nominal cost associated with this tendering process and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the tendering broker $80.00 and it would be up to the broker whether or not to pass this cost on to the converting holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise conversion rights. The need to deliver shares is a requirement of exercising conversion rights regardless of the timing of when such delivery must be effectuated. However, in the event we require shareholders seeking to exercise conversion rights to deliver their shares prior to the consummation of the proposed business combination and the proposed business combination is not consummated, this may result in an increased cost to shareholders.
Any request to convert or tender such shares once made, may be withdrawn at any time up to the vote on the proposed business combination or expiration of the tender offer. Furthermore, if a holder of a public share delivered his certificate in connection with an election of their conversion or tender and subsequently decides prior to the vote on the business combination or the expiration of the tender offer not to elect to exercise such rights, he may simply request that the transfer agent return the certificate (physically or electronically).
If the initial business combination is not approved or completed for any reason, then our public shareholders who elected to exercise their conversion or tender rights would not be entitled to convert their shares for the applicable pro rata share of the trust account. In such case, we will promptly return any shares delivered by public holders.
Automatic Liquidation of Trust Account if No Business Combination
If we do not complete a business combination by July 22, 2021 (or October 22, 2021 if a definitive agreement with respect to a proposed business combination has been executed by July 22, 2021), it will trigger our automatic winding up, liquidation and dissolution pursuant to the terms of our amended and restated memorandum and articles of association. As a result, this has the same effect as if we had formally gone through a voluntary liquidation procedure under the Companies Law. Accordingly, no vote would be required from our shareholders to commence such a voluntary winding up, liquidation and dissolution.
The amount in the trust account (less approximately $1,000 representing the aggregate nominal par value of the shares of our public shareholders) under the Companies Law will be treated as share premium which is distributable under the Companies Law provided that immediately following the date on which the proposed distribution is proposed to be made, we are able to pay our debts as they fall due in the ordinary course of business. If we are forced to liquidate the trust account, we anticipate that we would distribute to our public shareholders the amount in the trust account calculated as of the date that is two days prior to the distribution date (including any accrued interest, net of taxes payable). Prior to such distribution, we would be required to assess all claims that may be potentially brought against us by our creditors for amounts they are actually owed and make provision for such amounts, as creditors take priority over our public shareholders with respect to amounts that are owed to them. We cannot assure you that we will properly assess all claims that may be potentially brought against us. As such, our shareholders could potentially be liable for any claims of creditors to the extent of distributions received by them as an unlawful payment in the event we enter an insolvent liquidation. Furthermore, while we seek to have all vendors and service providers (which would include any third parties we engaged to assist us in any way in connection with our search for a target business) and prospective target businesses execute agreements with us waiving any right, title, interest or claim of any kind they may have in or to any monies held in the trust account, there is no guarantee that they will execute such agreements. Nor is there any guarantee that, even if such entities execute such agreements with us, they will not seek recourse against the trust account or that a court would conclude that such agreements are legally enforceable.
Each of our initial shareholders and our sponsor has agreed to waive its rights to participate in any liquidation of our trust account or other assets with respect to the insider shares and private warrants and to vote their insider shares in favor of any dissolution and plan of distribution which we submit to a vote of shareholders. There will be no distribution from the trust account with respect to our warrants or rights, which will expire worthless. If we are unable to complete an initial business combination and expend all of the net proceeds of our initial public offering, other than the proceeds deposited in the trust account, and without taking into account interest, if any, earned on the trust account, the initial per-share distribution from the trust account would be $10.00.
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The proceeds deposited in the trust account could, however, become subject to the claims of our creditors which would be prior to the claims of our public shareholders. Although we seek to have all vendors, including lenders for money borrowed, prospective target businesses or other entities we engage execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public shareholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the trust account, including but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with a claim against our assets, including the funds held in the trust account. If any third party refused to execute an agreement waiving such claims to the monies held in the trust account, we would perform an analysis of the alternatives available to us if we chose not to engage such third party and evaluate if such engagement would be in the best interest of our shareholders ifemployees, as well as the communities in which we operate, and which comply with government regulations. This includes allowing our employees to work remotely as appropriate, while implementing significant safety measures designed to protect the health of anyone entering our facilities.
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Total Rewards
A competitive total rewards program is integral to our success, which depends considerably on our ability to attract and retain highly engaged employees in a dynamic and changing business environment.
We review base compensation for non-executive employees semiannually, and we review equity, benefits, and perquisites annually. To do so, we analyze many factors, including individual and corporate performance, managers’ feedback, and market data from third-party compensation surveys.
Diversity, Equity, and Inclusion (DEI)
We believe it is important to foster a culture of belonging and acceptance, and to create a workplace environment free of bias. To do this we are dedicated to driving DEI efforts from committees composed of employees and management of all levels dedicated to creating business case initiatives championing our diversity strategy and have set a 2022 company goal of increasing diversity hires by 50% compared to 2021. We also hold annual employee, board, and contractor trainings on DEI matters.
Engagement
Having a highly engaged workforce is necessary for retaining talent and ensuring the continued success of our organization. To do so, we continually gather employee feedback both internally through employee lifecycle surveys (onboarding, satisfaction, pulse, and exit) and externally (Glassdoor). We analyze the data throughout the year to identify our strengths and weaknesses, patterns, and issues. Our goal is to focus on continuous improvement, whether by growing our areas of strength or improving where we are weakest.
Learning and Development
We invest in our employees through on-the-job training. We provide all employees with a membership to an online learning platform on their first day, where they have access to thousands of business, creative, and technology courses free of charge.
Semi-annually we request employees provide feedback on their career goals and aspirations. These surveys focus on employees’ current skills and knowledge and identify skills gaps and areas of interest for further development. Our human resources team analyzes the responses and collects managers’ input to create individual development plans for every employee.
Product Responsibility
We strive to foster a community and marketplace where our customers can convert their ideas into reality. However, that range of expression has its limits. As such, we implement a weapons and content policy to prevent the manufacture of products that are dangerous or obscene. Examples of prohibited content include guns, gun parts, and models that represent or endorse hate speech.
Employees throughout the sales and production process are trained to identify and reject problematic models. Our manufacturing partners are also required to comply with this policy and inform Shapeways of any non-complying products.
Workplace Safety
We are committed to creating a safe, secure, and healthy work environment for our employees. Our focus is on reducing significant safety risks and driving a strong safety culture through communication, awareness, and visible leadership. To assist in achieving this commitment, we provide safety trainings and necessary personal protective equipment (“PPE”) at all facilities. We monitor injury and illness health and safety metrics across our organization to continually evaluate our safety programs to meet the needs of our teams.
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Environmental
We strive to maximize recycling in our facilities. We recycle metal, plastic, and paper. The minimal hazardous waste streams are handled by reputable third party refused to waive such claims. Examples of possible instances whereproviders. Beyond this, we may engage a third partyhave introduced several materials offerings that refused to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a provider of required services willing to provide the waiver. In any event,plant-based and have high recycling rates within our management would perform an analysismanufacturing process. One of the alternatives availablebenefits of 3D printing is that additive manufacturing uses only the material needed to itproduce the final part, and would only enter into an agreement with a third party that did not execute a waiver if management believed that such third party’s engagement would be significantly more beneficial to us than any alternative. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreementsthere is substantially less production waste than with us and will not seek recourse against the trust account for any reason.traditional manufacturing.
Facilities
Our sponsor has agreedcorporate headquarters is located in New York, New York. We lease a 25,000 square foot manufacturing facility in Long Island City, and the lease expires in January 2023. We lease another 18,837 square foot facility in Eindhoven, Netherlands, and the lease of this facility expires in September 2024. We believe that ifour facilities are adequate for our current needs and, should the company need additional space, we liquidate the trust account prior to the consummation of a business combination, it will be liable to pay debts and obligations to target businesses or vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us in excess of the net proceeds of our initial public offering not held in the trust account, but only to the extent necessary to ensure that such debts or obligations do not reduce the amounts in the trust account and only if such parties have not executed a waiver agreement. We have not asked our sponsor to reserve any amount to satisfy any indemnification obligations that may arise and its only assets are expected to be our securities. Accordingly, we believe it is unlikely that it will be able to satisfy those indemnification obligations if it is required to do so. Accordingly, the actual per-share distribution could be less than $10.00 due to claims of creditors.
Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the trust account, we cannot assure you we will be able to returnobtain additional space on commercially reasonable terms.
Government Regulations
We are subject to our public shareholders at least $10.00 per share.various laws, regulations and permitting requirements of federal, state, and local authorities, including related to environmental, health and safety, anti-corruption, and export controls. We believe that we are in material compliance with all such laws, regulations, and permitting requirements.
Competition
Prior to utilizing Shapeways’ services, all Shapeways customers must agree to Shapeways Terms and Conditions wherein, among other things, customers warrant that any files they upload are their original creation and not copied from any third party or entity. The Shapeways Terms and Conditions also contain additional legal safeguards protecting Shapeways from intellectual property infringement by its customers, such as their acknowledgement of their compliance with all applicable laws, rules and regulations and their indemnification of Shapeways for any claims resulting from their infringement of any third party intellectual property.
In identifying, evaluatingaddition to the Shapeways Terms and selectingConditions, Shapeways implements other safeguards and policies to eliminate or reduce exposure to third party intellectual property infringement. Specifically, Shapeways utilizes a target business, we encounter intense competition from other entities havingkeyword filter that screens all product listings for specific terms prior to the listings’ publication on the Shapeways marketplace. The keyword filter screens terms (i) related to products where Shapeways has observed substantial prior unauthorized intellectual property use, and (ii) added upon request by certain intellectual property rights holders who have sent Shapeways notices under the Digital Millennium Copyright Act (“DMCA”). The keyword filter is periodically updated. Once a business objective similar to ours. Manylisting has been flagged by Shapeways’ keyword filter, the listing enters into a queue for manual review by Shapeways’ content review team and/or the legal department. The content review team and/or the legal department reviews the listing for unauthorized use of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than us and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe there may be numerous potential target businesses that we could acquire with the net proceeds of our initial public offering, our ability to compete in acquiring certain sizable target businesses may be limited by our available financial resources.
intellectual property.
The following also may not be viewed favorably by certain target businesses:
Environmental Matters
We are subject to domestic and meet its initial listing requirementsforeign environmental laws and regulations governing our operations, including, but not limited to, maintainemissions into the listingair and water and the use, handling, disposal, and remediation of
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hazardous substances. A certain risk of environmental liability is inherent in our production activities. These laws and regulations govern, among other things, the generation, use, storage, registration, handling, and disposal of chemicals and waste materials, the presence of specified substances in electrical products, the emission and discharge of hazardous materials into the ground, air, or water, the cleanup of contaminated sites, including any contamination that results from spills due to our failure to properly dispose of chemicals and other waste materials, and the health and safety of our securities followingemployees. We are required to obtain environmental permits from governmental authorities for certain operations.
The export of our products internationally from our production facilities subjects us to environmental laws and regulations concerning the import and export of chemicals and hazardous substances such as the Toxic Substances Control Act and Regulation (EC) No 1907/2006 of the European Parliament and of the Council of 18 December 2006 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals. These laws and regulations require the evaluation and registration of some chemicals that we ship along with, or that form a business combination;
Export and Trade Matters
We are subject to anti-corruption laws and regulations imposed by governments around the world with jurisdiction over our operations, including the U.S. Foreign Corrupt Practices Act and the potential future dilution they represent;
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Any of these factors may place us at a competitive disadvantage in successfully negotiating a business combination. Our management believes, however, that our status as a public entity and potential access toproducts. In recent years the United States public equity marketsgovernment has a renewed focus on export matters related to additive manufacturing. Some of our products are already more tightly controlled for export, and other of our products may give us a competitive advantage over privately-held entities having a similar business objective as ours in acquiring a target business with significant growth potentialthe future become more tightly controlled for export. For example, the Export Control Reform Act of 2018 and regulatory guidance thereunder have imposed additional controls and may result in the imposition of further additional controls, on favorable terms. Furthermore, the fact that we will notexport of certain “emerging and foundational technologies.” Our current and future products may be requiredsubject to paythese heightened regulations, which could increase our underwriters any deferred compensation upon consummation of an initial business combination may give us a competitive advantage over other similarly structured blank check companies.compliance costs.
Available Information
If we succeed in effecting a business combination, there will be, in all likelihood, intense competition from competitorsOur Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the target business. We cannot assure you that, subsequent to a business combination, we will haveSecurities Exchange Act of 1934, as amended, are available free of charge on the resources or ability to compete effectively.
Facilities
Our principal executive offices are located at 1049 Park Ave. 14A, New York, NY 10028. Our sponsor and an affiliateInvestor Relations section of our Chief Financial Officer, has agreedwebsite at investors.shapeways.com as soon as reasonably practicable after we file such material with the Securities and Exchange Commission, or the SEC. The information on, or that commencingcan be accessed through, the earlierour website is not part of our consummation of our initial business combination or our liquidation, it will make available to us certain general and administrative services, including office space, utilities and secretarial support, as we may require from time to time. We pay an affiliate of our Chief Financial Officer approximately $3,000 per month for providing such services to us pursuant to a letter agreement between us and an affiliate of our sponsor. We consider our current office space adequate for our current operations.
Employees
this report. We have two executive officers. These individuals are not obligated to devote any specific number of hours toincluded our matterswebsite address as an inactive textual reference only. The SEC also maintains an Internet website that contains reports and devote onlyother information regarding issuers, such as much time as they deem necessary to our affairs. The amount of time they devote in any time period varies based on whether a target business has been selected for the business combination and the stage of the business combination process the company is in. Accordingly, once management locates a suitable target business to acquire, they will spend more time investigating such target business and negotiating and processing the business combination (and consequently spend more time to our affairs) than they would prior to locating a suitable target business. We presently expect our executive officers to devote such amount of time as they reasonably believe is necessary to our business (which could range from only a few hours a week while we are trying to locate a potential target business to a majority of their time as we move into serious negotiations with a target business for a business combination). We do not intend to have any full-time employees prior to the consummation of a business combination.
Periodic Reporting and Audited Financial Statements
We have registered our units, ordinary shares and public warrants under the Exchange Act and have reporting obligations, including the requirementShapeways, that we file annual, quarterly and current reportselectronically with the SEC. In accordance with the requirementsThe SEC’s Internet website is located at www.sec.gov.
An investment in our securities involves a high degree of the Exchange Act, this Report contains financial statements audited and reported on by our independent registered public accountants.
We will provide shareholders with audited financial statements of the prospective target business as part of any proxy solicitation sent to shareholders to assist them in assessing the target business. In all likelihood, the financial information included in the proxy solicitation materials will need to be prepared in accordance with U.S. GAAP or IFRS, depending on the circumstances, and the historical financial statements may be required to be audited in accordance with the standards of the PCAOB. The financial statements may also be required to be prepared in accordance with U.S. GAAP for the Form 8-K announcing the closing of an initial business combination, which would need to be filed within four business days thereafter. We cannot assure you that any particular target business identified by us as a potential acquisition candidate will have the necessary financial information. To the extent that this requirement cannot be met, we may not be able to acquire the proposed target business.
We are required to comply with the internal control requirements of the Sarbanes-Oxley Act beginning for the fiscal year ending December 31, 2020. A target company may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition.
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We are an “emerging growth company” as defined in the JOBS Act and will remain such for up to five years. However, if our non-convertible debt issued within a three-year period or our total revenues exceed $1.0 billion or revenues exceed $1.07 billion, or the market value of our ordinary shares that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an “emerging growth company” as of the following fiscal year. As an emerging growth company, we have elected, under Section 107(b) of the JOBS Act, to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
risk. You should consider carefully consider all of the following risk factors and allrisks described below, together with the other information contained in this Report, including theour financial statements.statements and related notes, before making a decision to invest in our securities. If any of the following risksevents occur, our business, financial condition orand operating results of operations may be materially and adversely affected. In such anthat event, the trading price of our securities could decline, and you could lose all or part of your investment.
Risk Factor Summary
We have a history of losses and may not achieve or maintain profitability in the future.
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We face significant competition and expect to face increasing competition in many aspects of our business, which could cause our operating results to suffer.
The digital manufacturing industry is a relatively new and emerging market and it is uncertain whether it will gain widespread acceptance.
We derive a significant portion of our revenue from business conducted outside the U.S. and are subject to the risk of doing business outside the United States.
If we fail to grow our business as anticipated, our revenues, gross margin, and operating margin will be adversely affected.
If our new and existing solutions and software do not achieve sufficient market acceptance, our financial results and competitive position will decline.
Our attempts to expand our business into new markets and geographies may not be successful.
An active, liquid trading market for our common stock may not develop, which may limit your ability to sell your shares.
Our issuance of additional shares of common stock or convertible securities may dilute your ownership of us and could adversely affect our stock price.
Future sales, or the perception of future sales, of our common stock by us or our existing stockholders in the public market could cause the market price for our common stock to decline.
Our operating results and financial condition may fluctuate on a quarterly and annual basis.
Our stock price may be volatile or may decline regardless of our operating performance. You may lose some or all of your investment.
If securities or industry analysts publish inaccurate or unfavorable research or reports about our business, our stock price and trading volume could decline.
Failure to attract, integrate and retain additional personnel in the future, could harm our business and negatively affect our ability to successfully grow our business.
Interruptions to or other problems with our website user interface, information technology systems, manufacturing processes, or other operations could damage our reputation and brand and substantially harm our business and results of operations.
As part of our growth strategy, we may acquire or make investments in other businesses, patents, technologies, products, or services. We may not realize the anticipated benefits of such investments and integration of these investments may disrupt our business and divert management attention.
The loss of one or more key members of our management team or personnel could harm our business.
We may not timely and effectively scale and adapt our platform, processes, and infrastructure across materials, technologies, markets and software to expand our business.
Our actual results may be significantly different from our projections, estimates, targets, or forecasts.
Risks Related to Our Business
We have a history of losses and may not achieve or maintain profitability in the future.
We experienced net income (loss) of $1.8 million and $(3.2) million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $112.8 million. We believe we may incur operating losses and negative cash flow in the near-term as we continue to invest significantly in our business, in particular in new printing hardware and materials, and sales and marketing programs. These investments may not result in increased revenue or growth in our business.
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We may incur significant losses in the future for a number of reasons, including due to the other risks described in this Part I, Item 1A: “Risk Factors,” 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. Revenue growth and growth in our customer base may not be sustainable, and we may not achieve sufficient revenue to achieve or maintain profitability. 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 have a material adverse effect on our business, financial condition and results of operations.
We face significant competition and expect to face increasing competition in many aspects of our business, which could cause our operating results to suffer.
The digital manufacturing industry in which we operate is fragmented and competitive. We compete for customers with a wide variety of manufacturers, including those that use digital manufacturing and/or 3D printing equipment. Exclusivity arrangements in the digital manufacturing industry are uncommon; we have few exclusivity arrangements with our customers. Some of our existing and potential competitors are researching, designing, developing, and marketing other types of offerings that may render our existing or future services obsolete, uneconomical or less competitive. Existing and potential competitors may also have substantially greater financial, technical, marketing and sales, manufacturing, distribution, and other resources than we do, including name recognition, as well as experience and expertise in intellectual property 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 digital manufacturing initiatives, which will further enhance the competition we face.
We cannot assure you 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, demand for our offerings may decline, and our operating results may suffer.
The digital manufacturing industry is a relatively new and emerging market and it is uncertain whether it will gain widespread acceptance.
The emergence of the digital manufacturing industry is a relatively recent development, and the industry is characterized by rapid technological change. 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 digital 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. If the digital manufacturing industry does not gain widespread acceptance, our business will be adversely affected.
If we fail to grow our business as anticipated, our revenues, gross margin, and operating margin will be adversely affected.
Over the next several years we will attempt 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 dedicated facilities expansion and increased staffing, both domestic and international. If our business does not generate the level of revenue required to support our investment, our revenues and profitability will be adversely affected.
Our ability to effectively manage our growth will also require us to enhance our operational, financial, and management controls and infrastructure, human resources policies, and reporting systems. These will require
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significant investments in additional headcount and other operating expenditures and allocation of valuable management and employee resources. Our future financial performance and our ability to execute on our business plan will depend, in part, on our ability to effectively manage any future growth and expansion. There are no guarantees we will be able to do so in an efficient or timely manner, or at all.
If our new and existing solutions and software do not achieve sufficient market acceptance, our financial results and competitive position will decline.
We launched our software under the brand “Powered by Shapeways” in 2020 to a limited set of design customers and launched the first phase of this offering more broadly under the brand Otto in the fourth quarter of 2021. We plan to roll out further phases of this software over the next two years. We have not derived significant revenue from sales of our software to date, and we may never be successful in doing so. If our software offerings do not achieve widespread acceptance, if our rollouts do not advance on the expected timeframe, or if there is lower than anticipated demand for our software caused by a lack of customer acceptance, technological challenges, weakening economic conditions, security or privacy concerns, competing technologies and products, decreases in corporate spending, or otherwise, our business could be adversely affected.
Our attempts to expand our business into new markets and geographies may not be successful.
We seek to grow our business through, among other things, expanding our digital manufacturing capabilities into new markets and expanding our offerings into new geographies, including through acquisitions. Our efforts to expand our offerings into new markets, including industrial, medical, automotive, and aerospace markets, and new geographies may not succeed. These attempts to expand our business increase the complexity of our business, require significant levels of investment, and can strain our management, personnel, operations, and systems. There can be no assurance that these business expansion efforts will develop as anticipated or that we will succeed, and if we do not, we may be unable to recover our investment, which could adversely impact our business, financial condition, and results of operations.
We may be unable to consistently manufacture our customers’ designs to the necessary specifications or in quantities necessary to meet demand at an acceptable cost or at an acceptable performance level and this could adversely affect our service availability, delivery, reliability, and cost.
As we continue to grow and introduce new materials and as our customers’ designs become increasingly sophisticated, it will become more difficult to provide products in the necessary quantities to meet customer expectations. We cannot assure you that we or our third-party manufacturers will be able to continue to consistently achieve the product specifications and quality that our customers expect. Any future unforeseen manufacturing problems, such as equipment malfunctions, aging components, component obsolescence, business continuity issues, quality issues with components and materials sourced from third party suppliers, or failures to strictly follow procedures or meet specifications, may have a material adverse effect on our brand, business, financial condition, and operating results. Furthermore, we or our third-party manufacturers may not be able to increase manufacturing to meet anticipated demand or may experience downtime or fail to timely deliver manufactured products to customers. If we fail to meet contractual terms with our customers, including terms related to time of delivery and performance specifications, we may be required to replace defective products and may become liable for damages, even if manufacturing or delivery was outsourced.
Our commercial contracts generally contain product warranties and limitations on liability and we carry liability insurance. However, commercial terms and our insurance coverage may not be adequate or available to protect our company in all circumstances, and we might not be able to maintain adequate insurance coverage for our business in the future at an acceptable cost. Any liability claim against us that is not covered by adequate insurance could adversely affect our consolidated results of operations and financial condition.
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Our success depends on our ability to deliver services that meet the needs of customers and to effectively respond to changes in our industry.
Our business may be affected by rapid technological change, changes in user and customer requirements and preferences, frequent new product and service introductions by our competitors, and the emergence of new technologies, any of which could render our existing and proposed offerings and proprietary technology obsolete. Accordingly, our ongoing research and development programs are intended to enable us to maintain technological leadership. Furthermore, in order to enable continuous deep integrations with our customers, we must continually update our platform so that it can interoperate with other software and systems used by our customers. We believe that to remain competitive we must continually enhance and improve the functionality and features of our services and technologies. However, there is a risk that we may not be able to:
Develop or obtain leading technologies useful in our business;
Enhance our existing software products;
Develop new services and technologies that address the increasingly sophisticated and varied needs of prospective customers, particularly in the area of materials diversity;
Respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis;
Successfully manage frequent introductions and transitions of technology and software; or
Recruit or retain key technology employees.
If we are unable to meet changing technology and customer needs, or if we fail to successfully integrate new and upgraded software, our competitive position, revenue, results of operations, and financial condition could be adversely affected.
Failure to attract, integrate and retain additional personnel in the future could harm our business and negatively affect our ability to successfully grow our business.
To support the continued growth of our business, we must effectively recruit, hire, integrate, develop, motivate, and retain additional new employees. High demand exists for senior management and other key personnel (including technical, engineering, product, finance, and sales personnel) in the digital manufacturing industry, and there can be no assurance that we will be able to retain our current key personnel. We experience intense competition for qualified personnel and some of our competitors for these employees have greater resources and more experience, making it difficult for us to compete successfully for key personnel. Moreover, new employees may not become as productive as we expect since we may face challenges in adequately integrating them into our workforce and culture. If we cannot attract and retain sufficiently qualified technical employees for our research and development activities, as well as experienced sales and marketing personnel, we may be unable to develop and commercialize new offerings or new applications for existing offerings. Furthermore, possible shortages of key personnel, including engineers, in the regions surrounding our facilities could require us to pay more to hire and retain key personnel, thereby increasing our costs.
All of our U.S. employees are at-will employees, meaning that they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. We generally enter into non-competition agreements with our employees. These agreements prohibit our employees from competing directly with us or working for our competitors or clients while they work for us, and in some cases, for a limited period after they cease working for us. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefiting from the expertise that our former employees or consultants developed while working for us. If we cannot demonstrate that our legally protectable interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.
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Changes in the mix of the offerings we provide may impact our gross margins and financial performance.
Our financial performance may be affected by the mix of offerings we sell during a given period, and we may experience significant quarterly fluctuations in revenues, gross profit margins, or operating income or loss due to the impact of the mix of offerings, channels, or geographic areas in which we sell our offerings. Our offerings are sold, and will continue to be sold, at different price points. Sales of certain of our offerings have, or are expected to have, higher gross margins than others. If our offerings mix shifts into lower gross margin offerings, and we are not able to sufficiently reduce the engineering, production, and other costs associated with those offerings or substantially increase the sales of our higher gross margin offerings, our profitability could be reduced. In addition, 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.
We may experience significant delays in the roll out of our digital manufacturing solutions, and we may be unable to successfully commercialize manufacturing solutions on our planned timelines.
Some of our digital manufacturing solutions have not been widely released, including our planned “gray-label” platform offering. There are often delays in the testing, manufacture, and commercial release of new solutions, and any delay in the process could materially damage our brand, business, growth prospects, financial condition, and operating results. Even if we successfully complete the testing of new solutions, they may not achieve widespread commercial success for a number of reasons, including:
misalignment between the solutions and customer needs;
lack of innovation of the solutions;
failure of the solutions 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.
We may not timely and effectively scale and adapt our platform, processes, and infrastructure across materials, technologies, markets, and software, to expand our business.
A key element to our growth strategy is the ability to scale our existing platform quickly and efficiently across different materials, technologies, and other applications. This Reportwill require us to timely and effectively scale and adapt our existing platform, technology, processes, and infrastructure to expand our business. We recently began offering software as a service and plan to roll out further phases of this software over the next two years, but may not succeed in doing so. Similarly, our manufacturing technology may not enable us to process the large numbers of unique designs and efficiently manufacture the related parts in a timely fashion to meet the needs of customers as our business continues to grow. We may not succeed in scaling our business, and any failure in our ability to timely and effectively scale our platform, technology, processes, and infrastructure could damage our reputation and brand, result in lost revenue, and otherwise substantially harm our business and results of operations.
We rely on our collaborations and commercial agreements with third-party additive manufacturing hardware and material providers for many of our manufacturing solutions.
Our ability to deliver manufacturing solutions to our customers and expand our manufacturing capabilities that include new hardware technologies and materials such as industrial metals, is dependent on obtaining digital manufacturing hardware and materials from third-party manufacturers. Delays in readiness, capabilities and availability of technologies, hardware and materials may limit our ability to provide manufacturing capabilities to
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our customers according to our plan. We have historically focused on manufacturing for customers needing products based in polymers, launching new technologies and materials will require new skills, time, and inherent risks. The success of our business may also containsdepend, in part, on the performance and operations of third-party digital manufacturing hardware and material providers and their suppliers, over which we do not have control. We cannot assure you that our efforts in securing collaboration and commercial relationships will be successful or that we will achieve the anticipated benefits of our collaboration.
Our failure to meet our customers’ speed and quality expectations would adversely affect our business and results of operations.
We believe many of our customers are facing increased pressure from global competitors to be first to market with their finished products, often resulting in a need for quick turnaround of custom parts. We believe our ability to quickly quote, manufacture, and ship high-quality custom parts has been an important factor in our results to date. There are no guarantees we will be able to meet customers’ increasing expectations regarding quick turnaround time and quality, especially as we increase the scope of our operations. If we fail to meet our customers’ expectations in any given period, our business and results of operations will likely be adversely affected.
Our customers are often price sensitive and if our pricing algorithm produces pricing that fails to meet our customers’ price expectations or insufficiently accounts for our costs to deliver our offerings, our business and results of operations may be adversely affected.
Demand for our services 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 production and personnel costs and our competitors’ pricing and marketing strategies, can significantly impact our pricing strategies. We use algorithms to determine how to price customer orders. We may encounter technical obstacles, and it is possible that we may discover additional problems that prevent our proprietary algorithms from operating properly.
If we fail to meet our customers’ price expectations in any given period, demand for our offerings could decline. If our pricing algorithms do not function reliably, we may incorrectly price offerings for our customers, which could result in loss and cancellation of orders and customer dissatisfaction or cause projects to lose money.
Any of these events could result in a material and adverse effect on our business, results of operations, and financial condition.
Sales efforts to large customers involve risks that may not be present or that are present to a lesser extent with respect to sales to smaller organizations.
Sales to large customers involve risks that may not be present or that are present to a lesser extent with sales to smaller organizations, such as longer sales cycles, more complex customer requirements, substantial upfront sales costs, less predictability in completing some of our sales, and extended payment terms. A number of factors influence the length and variability of our sales cycle, including the need to educate potential customers about the uses and benefits of our platform, the lengthier amount of time for large customers to evaluate and test our platform prior to making a purchase decision and placing an order, the discretionary nature of purchasing and budget cycles, and the competitive nature of evaluation and purchasing approval processes. As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly from customer to customer, with sales to large enterprises typically taking longer to complete. Moreover, larger organizations may demand more customization, which would increase our upfront investment in the sales effort with no guarantee that these customers will deploy our products widely enough across their organization to justify our substantial upfront investment. A portion of these customers may purchase our services on payment terms, requiring us to
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assume a credit risk for non-payment in the ordinary course of business. If we fail to effectively manage these risks associated with sales to large customers, our business, financial condition, and results of operations may be affected.
We derive a significant portion of our revenue from business conducted outside the U.S. and are subject to the risk of doing business outside the United States.
We manufacture offerings for customers in more than 175 countries around the world, and we derive a substantial percentage of our sales from these international markets. We also operate manufacturing facilities in the United States and the Netherlands, have supply chain partners that extend internationally, and deliver to customers in over 16 countries. In 2021, we derived approximately 38% of our revenues from countries outside the United States. Accordingly, we face significant operational risks from doing business internationally.
Risks and uncertainties we face from our global operations include:
difficulties in staffing and managing foreign operations;
limited protection for the enforcement of contract and intellectual property rights in certain countries where we may sell our offerings or work with suppliers or other third parties;
potentially longer sales and payment cycles and potentially greater difficulties in collecting accounts receivable;
foreign currency exchange risk;
costs and difficulties of customizing offerings 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;
specific and significant regulations, including the European Union’s General Data Protection Regulation, or GDPR, which imposes compliance obligations on companies who possess and use data of EU residents;
uncertainty and resultant political, financial and market instability arising from the United Kingdom’s exit from the European Union;
compliance with U.S. laws affecting activities of U.S. companies abroad, including the U.S. Foreign Corrupt Practices Act;
tariffs, trade barriers, sanctions, and other regulatory or contractual limitations on our ability to sell or develop our offerings 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;
supply chain disruptions, which may be exacerbated by the conflict between Russia and Ukraine and the ongoing COVID-19 pandemic;
potential adverse tax consequences arising from global operations;
seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe;
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rapid changes in government, economic, and political policies and conditions; and
political or civil unrest or instability, regional or larger scale conflicts or geo-political actions, including war or other military conflicts, terrorism or epidemics, and other similar outbreaks or events.
In addition, digital 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 digital manufacturing technologies and related materials and software. These changes, if implemented, may result in our being required to obtain additional approvals to deliver our services 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.
Our growth strategy includes exploring strategic partnerships, and we may not be able to establish or maintain such strategic partnerships on terms favorable to us or at all.
Our growth strategy includes exploring strategic partnerships in order to maximize our potential. On March 26, 2021, we entered into a non-binding Memorandum of Understanding (“MOU”) with Desktop Metal, to establish a multi-year strategic commercial partnership. Pursuant to our MOU, Desktop Metal agreed to invest $20.0 million in the PIPE Investment (as defined in note 3 to our consolidated financial statements included elsewhere in this Report). In connection with this investment, we were obligated to purchase $20.0 million of equipment, materials and services from Desktop Metal. As of December 31, 2021, we paid $4.5 million to Desktop Metal for equipment, materials and services received, and placed purchase orders for another $15.5 million of equipment, materials and services. While we have no further obligations under the MOU, we have entered into a strategic partnership with Desktop Metal to gain access to Desktop Metal’s additive manufacturing hardware technology, solutions and resources to accelerate our manufacturing capabilities to include an industrial metal offering. We expect this strategic partnership to benefit our customers and our business, however we cannot be certain if such strategic partnership will be commercially successful. Additionally, there is no definitive agreement setting forth the terms of this strategic partnership, and it could be altered or cancelled at any time by Desktop Metal, which could adversely affect our business.
We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all. If we are unable to raise additional capital, our financial condition could be adversely affected and we may not be able to execute our growth strategy.
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 offerings, 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. If we raise 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 financing on terms favorable to us, if at all. 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.
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As part of our growth strategy, we may acquire or make investments in other businesses, patents, technologies, products, or services. We may not realize the anticipated benefits of such investments and integration of these investments may disrupt our business and divert management attention.
Our business strategy includes growing 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. Historically, we have not consummated any acquisitions, and our lack of prior experience may adversely affect the success of future acquisitions. In addition, competition for acquisitions in the markets in which we operate during recent years has increased, and may continue to increase, which may result in an increase in the costs of acquisitions or cause us to refrain from making certain acquisitions.
If we do complete future acquisitions, we cannot assure you 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;
incurrence of acquisition-related costs, which would be recognized as a current period expense;
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 shareholders, 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 offering lines in an efficient and effective manner. We cannot assure you that we will be able to do so, that any acquired businesses will perform at the levels and on the timelines anticipated by our management, or that we will be able to obtain these synergies. In addition, acquired technologies and intellectual property may be rendered obsolete or uneconomical by our own or our competitors’ technological advances. Management
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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 business.
Errors or defects in our software or products we manufacture could cause us to incur additional costs, lose revenue and business opportunities, damage our reputation and expose us to potential liability.
Sophisticated software and complex manufactured products may contain errors, defects, or other performance problems at any point in the life of the product. If errors or defects are discovered in our current or future software or in the products we manufacture for customers, we may not be able to correct them in a timely manner, or provide an adequate response to our customers. We may therefore need to expend significant financial, technical, and management resources, or divert some of our development resources, in order to resolve or work around those defects. We may also experience an increase in our service and warranty costs. Particularly in the medical sector, errors or defects in our software or products could lead to claims by patients against us and our customers and expose us to lawsuits that may damage our and our customers’ reputations. Claims may be made by individuals or by classes of users. Our product liability and related insurance policies may not apply or sufficiently cover any product liability lawsuit that arises from defective software or products. Customers such as our collaboration partners may also seek indemnification for third party claims allegedly arising from breaches of warranties under our collaboration agreements.
Errors, defects or other performance problems in our software or products we manufacture may also result in the loss of, or delay in, the market acceptance of our platform and digital manufacturing services. Such difficulties could also cause us to lose customers and, particularly in the case of our largest customers, the potentially substantial associated revenue which would have been generated by our sales to companies participating in our customer’s supply chain. Technical problems, or the loss of a customer with a particularly important global reputation, could also damage our own business reputation and cause us to lose new business opportunities.
Workplace accidents or environmental damage could result in substantial remedial obligations and damage to our reputation.
Accidents or other incidents that occur at our manufacturing service centers and other facilities or involve our personnel or operations could result in claims for damages against us. In addition, in the event we are found to be financially responsible, as a result of environmental or other laws or by court order, for environmental damages alleged to have been caused by us or occurring on our premises, we could be required to pay substantial monetary damages or undertake expensive remedial obligations. The amount of any costs, including fines or damages payments that we might incur under such circumstances could substantially exceed any insurance we have to cover such losses. Any of these events, alone or in combination, could have a material adverse effect on our business, financial condition, and results of operations and could adversely affect our reputation.
We depend on our largest customer for a substantial portion of our revenue.
Our largest customer accounted for approximately 23% of our revenue for the year ended December 31, 2021. Our future operating results will be affected by both the success of our largest customer and our success in diversifying our products and customer base. If demand for our largest customer’s products increases, our results are favorably impacted, while if demand for their products decreases, they may reduce their purchases of, or stop purchasing, our services and our operating results would suffer. While we currently have exclusivity arrangements for a limited time period with our largest customer with respect to such customer’s use of third parties for 3D printing, such exclusivity does not preclude the customer insourcing 3D printing capabilities or leveraging other technologies to manufacture their products, which may cause us to lose such customer’s business. The loss of our largest customer and failure to add new customers to replace lost revenue would have a material adverse effect on our business, financial condition and results of operations.
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If our manufacturing facilities are disrupted, we may be unable to fulfill customer orders, which could have an adverse effect on our results of operations.
We have manufacturing service centers in Eindhoven, the Netherlands and Long Island City, New York. If the operations of these facilities are materially disrupted, whether by fires or other industrial accidents, extreme weather, natural disasters, labor stoppages, acts of terror, war or other military conflict (such as the conflict between Russia and Ukraine), consequences owing to the COVID-19 pandemic, or otherwise, we would be unable to fulfill customer orders for the period of the disruption, we would not be able to recognize revenue on orders, we could suffer damage to our reputation, and we might need to modify our standard sales terms to secure the commitment of new customers during the period of the disruption and perhaps longer. Depending on the cause of the disruption, we could incur significant costs to remedy the disruption and resume operations. These delays could be lengthy and costly. If any of our third-party contract manufacturers’, suppliers’ or customers’ facilities are negatively impacted by such a disaster, production, shipment of products could also be delayed. Even if we are able to respond quickly to a disruption at our or any third-party facilities, the continued effects of the disaster could create uncertainty in our business operations.
We could experience unforeseen difficulties in building and operating key portions of our manufacturing infrastructure.
We have designed and built our own manufacturing operations and other key portions of our technical infrastructure through which we manufacture products for customers, and we plan to continue to expand the size of our infrastructure through expanding our digital manufacturing facilities. The infrastructure expansion we may undertake may be complex, and unanticipated delays in the completion of these projects or availability of materials may lead to increased project costs, operational inefficiencies, or interruptions in the delivery or degradation of the quality of our products.
Our business depends in part on our ability to process a large volume of new part designs from a diverse group of customers and successfully identifying significant opportunities for our business based on those submissions.
We believe the volume of new part designs we process and the size and diversity of our customer base give us valuable insight into the needs of our prospective customers. We utilize this industry knowledge to determine where we should focus our development resources. If the number of new part designs we process or the size and diversity of our customer base decrease, our ability to successfully identify significant opportunities for our business and meet the needs of current and prospective customers could be negatively impacted. In addition, even if we do continue to process a large number of new part designs and work with a significant and diverse customer base, there are no guarantees that any industry knowledge we extract from those interactions will be successfully utilized to help us identify significant business opportunities or better understand the needs of current and prospective customers.
Interruptions, delays in service or inability to increase capacity, including internationally, at third-party data center facilities could adversely affect our business and reputation.
Our business, brand, reputation, and ability to attract and retain customers depend upon the satisfactory performance, reliability, and availability of our platform, which in turn, with respect to our software as a service (“SaaS”) offering, Otto, depend upon the availability of the internet and our third-party service providers. We rely on third party data center facilities operated by Amazon Web Services (“AWS”) located in the United States to host our main servers. In addition to AWS, some of our services are housed in third-party data centers operated by Digital Realty in the United States and EcoRacks in Eindhoven. We do not control the operation of any of AWS’ data center hosting facilities, and they may be subject to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures, terrorist attacks, war or other military conflict, and similar events. They may also be subject to interruptions due to system failures, computer viruses, software errors, or
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subject to breaches of computer hardware and software security, break-ins, sabotage, intentional acts of vandalism, and similar misconduct. And while we rely on service level agreements with our hosting provider, if they do not properly maintain their infrastructure or if they incur unplanned outages, our customers may experience performance issues or unexpected interruptions and we may not meet our service level agreement terms with our customers. We have experienced, and expect that in the future we may experience interruptions, delays, and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions, and capacity constraints. These and other similar events beyond our control could negatively affect the use, functionality, or availability of our services.
Any damage to, or failure of, our systems, or those of our third-party providers, could interrupt or hinder the use or functionality of our services. Impairment of or interruptions in our services may reduce revenue, subject us to claims and litigation, cause customers to terminate their contracts, and adversely affect our ability to attract new customers. If we are forced to switch hosting facilities, we may not be successful in finding an alternative service provider on acceptable terms or in hosting the computer servers ourselves. Our business will also be harmed if customers and potential customers believe our services are unreliable.
Interruptions to or other problems with our website user interface, information technology systems, manufacturing processes, or other operations could damage our reputation and brand and substantially harm our business and results of operations.
The satisfactory performance, reliability, consistency, security, and availability of our websites and interactive user interface, information technology systems, manufacturing processes, and other operations are critical to our reputation and brand, and our ability to effectively service customers. Any interruptions or other problems that cause any of our websites, interactive user interface, or information technology systems to malfunction or be unavailable, or negatively impact our manufacturing processes or other operations, may damage our reputation and brand, result in lost revenue, cause us to incur significant costs seeking to remedy the problem, and otherwise substantially harm our business and results of operations.
A number of factors or events could cause such interruptions or problems, including among others: human and software errors, design faults, challenges associated with upgrades, changes or new facets of our business, power loss, telecommunication failures, fire, flood, extreme weather, political instability, acts of terrorism, war or other military conflict, break-ins and security breaches, contract disputes, labor strikes and other workforce related issues, capacity constraints due to an unusually large number of customers accessing our websites or ordering parts at the same time, and other similar events. In addition, due to the conflict between Russia and Ukraine, there is an increased likelihood that escalation of tensions could result in cyberattacks that could either directly or indirectly impact our operations. These risks are augmented by the fact that our customers come to us largely for our quick-turn manufacturing capabilities and that accessibility and turnaround speed are often of critical importance to these customers. We are dependent upon our facilities through which we satisfy all of our production demands and in which we house all of the computer hardware necessary to operate our websites and systems as well as managerial, customer service, sales, marketing, and other similar functions, and we have not identified alternatives to these facilities or established fully redundant systems in multiple locations. In addition, we are dependent in part on third parties for the implementation and maintenance of certain aspects of our communications and production systems, and therefore preventing, identifying, and rectifying problems with these aspects of our systems is to a large extent outside of our control.
Moreover, the business interruption insurance that we carry may not be sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business that may result from interruptions in our service as a result of system failures.
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If we are unable to retain customers at existing levels, sell additional services to our existing customers, or attract new customers, our revenue growth will be adversely affected.
To increase our revenue, we must retain existing customers, convince them to expand their use of our solutions across their organizations and for a variety of use cases, and expand their purchasing on terms favorable to us. We may not meet our customers’ expectations. If we are not able to renew our agreements with existing customers or attract new business from existing customers on favorable terms, this could have an adverse effect on our business, revenue, gross margins, and other operating results. The rate at which our customers purchase new or enhanced solutions from us, as well as the expansion of use of our solutions across organizations, depend on a number of factors, including general economic conditions, customer specific conditions, competitive pricing, integration with existing technologies, and satisfaction and market acceptance of our platform generally. If our efforts to sell additional solutions to our customers are not successful, our business and growth prospects may suffer. Additionally, our future revenue depends in part on our ability to turn our pipeline customers into actual customers. Pipeline customers may fail to accept our offerings, choose our competitors’ offerings, or otherwise not turn into customers. If we are not able to turn pipeline or other prospective customers into customers, or customers that provide significant revenues, our business and growth prospects could be adversely affected.
The loss of one or more key members of our management team or personnel could harm our business.
We believe our success has depended, and continues to depend, on the efforts and talents of our senior management and other key personnel, including, in particular, our executive officers. Our executive team is critical to the management of our business and operations, as well as to the development of our strategy. Members of our senior management team may resign at any time. The loss of the services of any members of our senior management team could delay or prevent the successful implementation of our strategy or our commercialization of new applications for our systems or other offerings, or could otherwise adversely affect our ability to manage our company effectively and carry out our business plan. There is no assurance that if any senior executive leaves in the future, we will be able to rapidly replace him or her and transition smoothly towards his or her successor, without any adverse impact on our operations.
In particular, the loss of the services of Greg Kress, our Chief Executive Officer, could severely damage our business and prospects for growth. Mr. Kress is subject to a non-competition agreement and a proprietary information and inventions agreement which include restrictive covenants. We cannot assure you that if Mr. Kress were to breach these restrictive covenants a court would enforce them and enjoin him from engaging in activities in violation thereof. The loss of Mr. Kress’ services could delay or prevent the successful implementation of our strategy or our commercialization of new applications for our systems or other offerings, or could otherwise adversely affect our ability to manage our company effectively and carry out our business plan, and consequently could have a materially adverse effect on our business, results of operations and financial condition.
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.
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The COVID-19 pandemic has adversely affected our business and results of operations. The duration and extent to which it will continue to adversely impact our business and results of operations remains uncertain and could be material.
The COVID-19 pandemic has resulted in a widespread public health crisis and numerous disease control measures being taken to limit its spread, including travel bans and restrictions, quarantines, shelter-in-place orders, and shutdowns. These measures have materially impacted and may impact our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers. We have significant operations worldwide, including in the United States and Netherlands, and each of these geographies has been affected by the outbreak and its variants and has taken measures to try to contain it, resulting in disruptions at many of our manufacturing operations and facilities, and further disruptions could occur in the future and any such disruptions could materially adversely affect our business. The impact of the pandemic on our business has included and could in the future include:
disruptions to or restrictions on our ability to ensure the continuous provision of our manufacturing services and solutions;
temporary closures or reductions in operational capacity of our or third party manufacturing facilities;
reductions in our capacity utilization levels;
temporary closures of our direct and indirect suppliers, resulting in adverse effects to our supply chain, and other supply chain disruptions (which may be exacerbated by war or other military conflict), which adversely affect our ability to procure sufficient inventory to support customer orders;
temporary shortages of skilled employees available to staff manufacturing facilities due to shelter-in- place orders and travel restrictions within as well as into and out of countries;
restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures;
increases in operational expenses and other costs related to requirements implemented to mitigate the impact of the pandemic;
delays or limitations on the ability of our customers to perform or make timely payments;
reductions in short- and long-term demand for our manufacturing services and solutions, or other disruptions in technology buying patterns;
workforce disruptions due to illness, quarantines, governmental actions, other restrictions, and/or the social distancing measures we have taken to mitigate the impact of COVID-19 at our locations around the world in an effort to protect the health and well-being of our employees, customers, suppliers, and of the communities in which we operate (including working from home, restricting the number of employees attending events or meetings in person, limiting the number of people in our buildings and factories at any one time, further restricting access to our facilities and suspending employee travel); and
our management team continuing to commit significant time, attention, and resources to monitoring the COVID-19 pandemic and seeking to mitigate its effects on our business and workforce.
The global spread of COVID-19 and its variants also has created significant macroeconomic uncertainty, volatility, and disruption, which may adversely affect our and our customers’ and suppliers’ liquidity, cost of capital, and ability to access the capital markets. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of the pandemic’s global economic impact, including any recession, economic downturn, government spending cuts, tightening of credit markets, or increased unemployment that has occurred or may occur in the future, which could cause our customers and potential customers to postpone or reduce spending on our manufacturing services and solutions.
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Global economic conditions may harm our ability to do business, increase our costs and negatively affect our stock price.
Our performance depends on the financial health and strength of our customers, which in turn is dependent on the economic conditions of the markets in which we and our customers operate. The recent declines in the global economy, volatility in the financial services sector and credit markets, continuing geopolitical uncertainties, and other macroeconomic factors all affect the spending behavior of potential customers.
We also face risks from financial difficulties or other uncertainties experienced by our suppliers, distributors, or other third parties on which we rely. If third parties are unable to supply us with required materials or otherwise assist us in operating our business, our business could be harmed.
For example, the conflict between Russia and Ukraine and the possibility of a trade war between the United States and China may directly or indirectly impact our operations by increasing the cost of raw materials, finished products, or other materials used in our offerings and impeding our ability to sell our offerings in Europe and China. Other changes in U.S. social, political, regulatory, and economic conditions or in laws and policies governing foreign trade, manufacturing, development, and investment could also adversely affect our business. We could experience interruptions in production due to the processing of customs formalities or reduced customer spending in the wake of weaker economic performance. If global economic conditions remain volatile for a prolonged period, our results of operations could be adversely affected.
Our actual results may be significantly different from our projections, estimates, targets, or forecasts.
Any projections, estimates, targets, and forecasts we may provide from time to time are forward-looking statements that involveare based on assumptions that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. While all projections, estimates, targets and forecasts are necessarily speculative, we believe that the preparation of prospective financial information involves increasingly higher levels of uncertainty the further out the projection, estimate, target, or forecast extends from the date of preparation. The assumptions and estimates underlying the projected, expected, or target results are inherently uncertain and are subject to a wide variety of significant business, economic, regulatory and competitive risks and uncertainties. Ouruncertainties that could cause actual results couldto differ materially from those anticipatedcontained in such projections, estimates, targets and forecasts. Our projections, estimates, targets and forecast should not be regarded as an indication that Shapeways or its representatives, considered or consider the forward-looking statementsfinancial projections, estimates, targets to be a reliable prediction of future events.
Risks Related to Our Industry
If demand for our services does not grow as expected, or if market adoption of digital manufacturing 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 digital manufacturing technology, is undergoing a shift towards digital manufacturing. We may not be able to develop effective strategies to raise awareness among potential customers of the benefits of digital manufacturing technologies or our offerings may not address the specific needs or provide the level of functionality required by potential customers to encourage the continuation of this shift towards digital manufacturing. If digital manufacturing technology does not continue to gain broader market acceptance as an alternative to conventional manufacturing processes, or if the marketplace adopts digital manufacturing technologies developed by our competitors, we may not be able to increase or sustain the level of sales of our services, and our operating results would be adversely affected as a result.
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We could face liability if our digital manufacturing solutions are used by our customers to print dangerous objects.
Customers may use our digital manufacturing systems to print parts that could be used in a harmful way or could otherwise be dangerous. For example, there have been news reports that 3D printers were used to print guns or other weapons. We have little, if any, control over what objects our customers print using our offerings, and it may be difficult, if not impossible, for us to monitor and prevent customers from printing weapons with our services. While we have never printed weapons on any printers in our offices, there can be no assurance that we will not be held liable if someone were injured or killed by a weapon printed by a customer using one of our offerings.
Risks Related to Intellectual Property and Infrastructure
We may incur substantial costs enforcing or acquiring intellectual property rights and defending against third-party claims as a result of litigation or other proceedings. Our failure to expand our intellectual property portfolio could adversely affect the growth of our business and results of operations.
We may incur substantial expense and costs in protecting, enforcing, and defending our intellectual property rights against third parties. Intellectual property disputes may be costly and can be disruptive to our business operations by diverting attention and energies of management and key technical personnel and by increasing our costs of doing business. Third-party intellectual property claims asserted against us could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from providing our services to our customers, subject us to injunctions prohibiting or restricting our sale of our services, or require us to redesign our services, causing severe disruptions to our operations or the marketplaces in which we compete or require us to satisfy indemnification commitments with our customers, including contractual provisions under various license arrangements. In addition, we may incur significant costs in acquiring the necessary third-party intellectual property rights for use in our offerings. Any of these could have an adverse effect on our business and financial condition.
Patent applications in the United States and most other countries are confidential for a period of time until they are published, and the publication of discoveries in scientific or patent literature typically lags actual discoveries by several months or more. As a result, the nature of claims contained in unpublished patent filings around the world is unknown to us, and we cannot be certain that we were the first to conceive inventions covered by our patents or patent applications or that we were the first to file patent applications covering such inventions. Furthermore, it is not possible to know in which countries patent holders may choose to extend their filings under the Patent Cooperation Treaty or other mechanisms.
In addition, we may be subject to intellectual property infringement claims from individuals, vendors and other companies, including those that are in the business of asserting patents, but are not commercializing products or services in the field of digital manufacturing, or our customers may seek to invoke indemnification obligations to involve us in such intellectual property infringement claims. Furthermore, although we maintain certain procedures to screen items we manufacture on behalf of customers for infringement on the intellectual property rights of others, we cannot be certain that our procedures will be effective in preventing any such infringement. Any third-party lawsuits or other assertion to which we are subject, alleging infringement of trademarks, patents, trade secrets or other intellectual property rights either by us or by our customers may have a significant adverse effect on our financial condition.
We may not be able to adequately protect or enforce our intellectual property rights, which could impair our competitive position.
Our success and future revenue growth will depend, in part, on our ability to protect our intellectual property. We rely primarily on patents, licenses, trademarks, and trade secrets, as well as non-disclosure agreements and other methods, to protect our proprietary technologies and processes globally. Despite our efforts
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to protect our proprietary technologies and processes, it is possible that competitors or other unauthorized third parties may obtain, copy, use, or disclose our technologies and processes or invent around our patents. We cannot assure you that any of our existing or future patents will not be challenged or invalidated in court or patent office proceedings that could be time-consuming, expensive, and distract us from the operating our business. In addition, competitors could circumvent our patents by inventing around them. As such, any rights granted under these patents may not provide us with meaningful protection. We may not be able to obtain foreign patents corresponding to our United States patents. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. If our patents and other intellectual property do not adequately protect our technology, our competitors may be able to offer services similar to ours. Our competitors may also be able to develop similar technology independently or design around our patents. Any of the foregoing events would lead to increased competition and lower revenue or gross margin, which would adversely affect our business and results of operation.
Our digital manufacturing software contains third-party open-source software components. Our use of such open- source software may expose us to additional risks and harm our intellectual property and failure to comply with the terms of the underlying open-source software licenses could restrict our ability to sell our offerings.
Our digital manufacturing software contains components that are licensed under so-called “open source,” “free,” or other similar licenses. Open source software is made available to the general public on an “as-is” basis under the terms of a non-negotiable license. We currently combine our proprietary software with open source software, but not in a manner that we believe requires the release of the source code of our proprietary software to the public. We do not plan to integrate our proprietary software with open source software in ways that would require the release of the source code of our proprietary software to the public; however, our use and distribution of open source software may entail greater risks than use of third-party commercial software. Open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. In addition, if we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release to the public or remove the source code of our proprietary software. In line with what we believe is standard practice among technology companies, we leverage open source software in the development in our internal software. Open source software is commonly used as a foundation which we develop upon, allowing us to customize the software based on our specific factors,needs. This enables faster development of software, with higher quality, supported by a larger community of developers. We may also face claims alleging noncompliance with open source license terms or infringement or misappropriation of proprietary software. These claims could result in litigation, require us to purchase a costly license, or remove the software. In addition, if the license terms for open source software that we use change, we may be forced to re-engineer our solutions, incur additional costs, or discontinue the sale of our offerings if re-engineering could not be accomplished on a timely basis. Although we monitor our use of open source software to avoid subjecting our offerings to unintended conditions, there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our offerings. We cannot guarantee that we have incorporated open source software in our software in a manner that will not subject us to liability or in a manner that is consistent with our current policies and procedures.
We store confidential customer information in our systems that, if breached or otherwise subjected to unauthorized access, may harm our reputation or brand or expose us to liability.
Our system stores, processes, and transmits our customers’ confidential information, including the risks described below.intellectual property in their part designs, credit card information, and other sensitive data. We rely on encryption, authentication, and other technologies licensed from third parties, as well as administrative and physical safeguards, to secure such confidential information. Any compromise of our information security could damage our reputation and brand and expose us to a risk of loss, costly litigation, and liability that would substantially harm our business and operating results. We may not have adequately assessed the internal and
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external risks posed to the security of our company’s systems and information and may not have implemented adequate preventative safeguards or take adequate reactionary measures in the event of a security incident. In addition, most states have enacted laws requiring companies to notify individuals and often state authorities of data security breaches involving their personal data. These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which may cause our existing and prospective customers to lose confidence in the effectiveness of our data security measures. Any security breach, whether successful or not, would harm our reputation and brand and could cause the loss of customers.
A real or perceived defect, security vulnerability, error, or performance failure in our software or technical problems or disruptions caused by our third-party service providers could cause us to lose revenue, damage our reputation, and expose us to liability.
Our business relies on software products which are inherently complex and, despite extensive testing and quality control, have in the past and may in the future contain defects or errors, especially when first introduced, or otherwise not perform as contemplated. As the use of our platform expands, we may be subject to increased scrutiny, potential reputational risk, or potential liability should our software fail to perform as contemplated in such deployments. We have in the past and may in the future need to issue corrective releases of our software to fix these defects, errors, or performance failures and we may encounter technical problems when we attempt to perform routine maintenance or enhance our software, internal applications, and systems, which could require us to allocate significant research and development and customer support resources to address these problems and divert the focus of our management and research and development teams. See “Risks Related to Our Business Interruptions, delays in service or inability to increase capacity, including internationally, at third-party data center facilities could adversely affect our business and reputation.”
Any inefficiencies, security vulnerabilities, errors, defects, technical problems, or performance failures with our software, internal applications, and systems could reduce the quality of our services or interfere with our customers’ (and their users’) products, which could negatively impact our brand and reputation, reduce demand, lead to a loss of customers or revenue, adversely affect our results of operations and financial condition, increase our costs to resolve such issues, and subject us to financial penalties and liabilities under our service level agreements. Any limitation of liability provisions that may be contained in our customer agreements may not be effective as a result of existing or future applicable law or unfavorable judicial decisions. The sale and support of our software offering entails the risk of liability claims, which could be substantial in light of the use of our software offering in enterprise-wide environments. In addition, our insurance against this liability may not be adequate to cover a potential claim.
Risks Related to Our BusinessLegal and Corporate StructureRegulatory Environment
We are subject to environmental, health, and safety laws and regulations related to our operations and the use of our digital manufacturing systems and consumable materials, which could subject us to compliance costs and/or potential liability in the event of non-compliance.
We are subject to domestic and foreign environmental laws and regulations governing our manufacturing operations, including, but not limited to, emissions into the air and water and the use, handling, disposal, and remediation of hazardous substances. A certain risk of environmental liability is inherent in our production activities. These laws and regulations govern, among other things, the generation, use, storage, registration, handling, and disposal of chemicals and waste materials, the presence of specified substances in electrical products, the emission and discharge of hazardous materials into the ground, air or water, the cleanup of contaminated sites, including any contamination that results from spills due to our failure to properly dispose of chemicals and other waste materials and the health and safety of our employees. Under these laws, regulations and requirements, we could also be subject to liability for improper disposal of chemicals and waste materials, including those resulting from the use of our systems and accompanying materials by end- users. Accidents or other incidents that occur at our facilities or involve our personnel or operations could result in claims for
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damages against us. In the event we are found to be financially responsible, as a blank check companyresult of environmental or other laws or by court order, for environmental damages alleged to have been caused by us or occurring on our premises, we could be required to pay substantial monetary damages or undertake extensive remedial obligations. If our operations fail to comply with limited operating historysuch laws or regulations, we may be subject to fines and accordingly, you willother civil, administrative, or criminal sanctions, including the revocation of permits and licenses necessary to continue our business activities. In addition, we may be required to pay damages or civil judgments in respect of third-party claims, including those relating to personal injury (including exposure to hazardous substances that we generate, use, store, handle, transport, manufacture, or dispose of), property damage, or contribution claims. Some environmental laws allow for strict, joint and several liabilities for remediation costs, regardless of fault. We may be identified as a potentially responsible party under such laws. The amount of any costs, including fines or damages payments that we might incur under such circumstances, could substantially exceed any insurance we have little basisto cover such losses. Any of these events, alone or in combination, could have a material adverse effect on our business, financial condition, and results of operations and could adversely affect our reputation.
The export of our offerings internationally from our production facilities subjects us to environmental laws and regulations concerning the import and export of chemicals and hazardous substances such as the United States Toxic Substances Control Act and the Registration, Evaluation, Authorization, and Restriction of Chemical Substances. These laws and regulations require the testing and registration of some chemicals that we ship along with, or that form a part of, our systems and other products. If we fail to comply with these or similar laws and regulations, we may be required to make significant expenditures to reformulate the chemicals that we use in our offerings and materials or incur costs to register such chemicals to gain and/or regain compliance. Additionally, we could be subject to significant fines or other civil and criminal penalties should we not achieve such compliance.
The cost of complying with current and future environmental, health, and safety laws applicable to our operations, or the liabilities arising from past releases of, or exposure to, hazardous substances, may result in future expenditures. Any of these developments, alone or in combination, could have an adverse effect on our business, financial condition, and results of operations.
Our business involves the use of hazardous materials, and we must comply with environmental, health, and safety laws and regulations, which can be expensive and restrict how we do business.
Our business involves the controlled storage, use, and disposal of hazardous materials. We and our suppliers are subject to evaluatefederal, state, and local as well as foreign laws and regulations governing the use, manufacture, storage, handling, and disposal of these hazardous materials. Although we believe that the safety procedures utilized by us and our suppliers for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, state, federal, or foreign authorities may curtail the use of these materials and interrupt our business operations. We do not currently maintain hazardous materials insurance coverage. If we are subject to any liability as a result of activities involving hazardous materials, our business and financial condition may be adversely affected and our reputation and brand may be harmed.
Regulation in the areas of privacy, data protection, and information security could increase our costs and affect or limit our business opportunities and how we collect and/or use personal information.
We collect personally identifiable information from our employees, prospects, and our customers. Privacy and security laws and regulations may limit the use and disclosure of certain information and require us to adopt certain cybersecurity and data handling practices that may affect our ability to achieveeffectively market our services to current, past, or prospective customers. We must comply with privacy laws in the United States, Europe, and elsewhere, including GDPR in the European Union, which became effective May 25, 2018, and the California Consumer Privacy Act of 2018, or CCPA, which was enacted on June 28, 2018 and became effective on January 1, 2020. California has already adopted a new law, the California Privacy Rights Act of 2020, or CPRA,
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that will substantially expand the CCPA effective January 1, 2023. Virginia has similarly enacted a comprehensive privacy law, the Consumer Data Protection Act, which emulates the CCPA and CPRA in many respects, and proposals for comprehensive privacy and data security legislation are advancing in several other states. A patchwork of differing state privacy and data security requirements may increase the cost and complexity of operating our business objective.and increase our exposure to liability.
These laws create new individual privacy rights and impose increased obligations, including disclosure obligations, on companies handling personal data. In many jurisdictions, consumers must be notified in the event of a data security breach, and such notification requirements continue to increase in scope and cost. Privacy and security laws and regulations may limit the use and disclosure of certain information and require us to adopt certain cybersecurity and data handling practices that may affect our ability to effectively market our services to current, past, or prospective customers. While we have invested in, and intend to continue to invest in, resources to comply with these standards, we may not be successful in doing so, and any such failure could have an adverse effect on our business, results of operations, and reputation.
As privacy, data use, and data security laws are interpreted and applied, compliance costs may increase, particularly in the context of ensuring that adequate data protection and data transfer mechanisms are in place. In recent years, there has been increasing regulatory enforcement and litigation activity in this area in the United States and in the Netherlands in which we operate.
We are subject to U.S. and foreign 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 have partners in a number of countries throughout the world, including countries known to have a reputation for corruption. Doing business on a global basis requires us to comply with anti-corruption laws and regulations imposed by governments around the world with jurisdiction over our operations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, as well as the laws of the countries where we do business. We are also subject to various trade restrictions, including trade and economic sanctions and export controls, imposed by governments around the world with jurisdiction over our operations. For example, in accordance with trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of Commerce, we are prohibited from engaging in transactions involving certain persons and certain designated countries or territories, including Cuba, Iran, Syria, North Korea, and the Crimea Region of Ukraine. In addition, our offerings are subject to export regulations that can involve significant compliance time and may add additional overhead cost to our offerings. In recent years, the U.S. government has had a renewed focus on export matters. For example, the Export Control Reform Act of 2018 and regulatory guidance have imposed additional controls, and may result in the imposition of further additional controls, on the export of certain “emerging and foundational technologies.” Our current and future offerings may be subject to these heightened regulations, which could increase our compliance costs.
The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain qualified board members.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and any rules promulgated thereunder, as well as the rules of NYSE. The requirements of these rules and regulations have increase our legal and financial compliance costs, made some activities more difficult, time-consuming, or costly, and increased demand on our systems and resources. We intend to continue investing substantial resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a blank check company with little operating resultsdiversion of management’s time and attention from business operations to date. Sincecompliance activities.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting. In order to maintain and, if required, improve our
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disclosure controls and procedures and internal control over financial reporting to meet these standards, significant resources and management oversight are required, and, as a result, management’s attention may be diverted from other business concerns. Although we have already hired additional employees to assist us in complying with these requirements, we may need to hire more employees in the future or engage outside consultants, which will increase our operating expenses.
Changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time-consuming. Additionally, these rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance. We may be required to accept reduced coverage or incur substantially higher costs to maintain the same or similar coverage. These factors may also make it difficult for us to attract and retain qualified independent members of our Board of Directors.
As a limited operating history, you will have little basis upon which to evaluate our ability to achieveresult of disclosure of information in filings required of a public company, our business objective,and financial condition have become more visible than they have been in the past, which ismay result in an increased risk of threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to acquire an operating business. We will not generate any revenues until, atresolve them, could divert the earliest, after the consummationresources of aour management and harm our business, combination.results of operations, and financial condition.
YouIf our internal control over financial reporting or our disclosure controls and procedures are not entitledeffective, we may be unable to protections normally affordedaccurately report our financial results, prevent fraud, or file our periodic reports in a timely manner, which may cause investors to investorslose confidence in our reported financial information and may lead to a decline in our stock price.
We are required to comply with certain requirements of some other blank check companies.
Since the net proceedsSarbanes-Oxley Act, and will be required to comply with additional such requirements following the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the Exchange Act, which could be as early as our next fiscal year. The standards required for a public company under Section 404(a) of the Sarbanes-Oxley Act are significantly more stringent than those previously required of us as a privately-held company, and requires that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we are required to perform system and process evaluation, document our controls, and perform testing of our initial public offering are intendedkey controls over financial reporting to allow management certify on the effectiveness of our internal control over financial reporting, as required by Section 404(a) of the Sarbanes-Oxley Act. When we cease to be usedan “emerging growth company,” we will also be subject to complete a business combination with a target businessauditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act and the relevant increased disclosure obligations. Deficiencies in our internal control over financial reporting may be found that has not been identified, we may be deemed to be a “blank check” company under the United States securities laws. However, since we have net tangible assets in excess of $5,000,000, we are exempt from rules promulgated by the SEC to protect investors of blank check companies such as Rule 419. Accordingly, investors are not afforded the benefits or protections of those rules which would, for example, completely restrict the transferability of our securities, restrict the use of interest earned on the funds held in the trust account and require us to complete a business combination by July 22, 2021. Becausematerial weaknesses. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our common stock would likely decline and we could be subject to Rule 419, we will be entitled to withdraw amounts from the funds heldlawsuits, sanctions, or investigations by regulatory authorities, which would require additional financial and management resources and could harm investor confidence in the trust account prior to the completion of a business combination and we may have more time to complete an initial business combination.our business.
We are an emerging“emerging growth companycompany” and a smaller“smaller reporting company withincompany” and the meaning of the Securities Act, and if we take advantage of certain exemptions fromreduced disclosure requirements availableapplicable to emerging growth companies and smaller reporting companies this couldmay make our securitiescommon stock less attractive to investors and may make it more difficult to compare our performance with other public companies.investors.
We are an “emerging growth company,” as defined in the JOBS Act. We will remain an “emerging growth company” for up to five years. However, if our non-convertible debt issued within a three-year period exceeds $1.0 billion or revenues exceed $1.07 billion, or the market value of our ordinary shares that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging growth company as of the following fiscal year. As an emerging growth company we may follow reduced disclosure requirements and do not have to make all of the disclosures that public companies that are not being required to comply withemerging growth companies do. We will remain an emerging growth company until the auditor attestation requirementsearlier of section 404(a) the last day of the Sarbanes-Oxley Act,fiscal year in which we have reduced disclosure obligations regarding executive compensationtotal annual gross revenues of $1.07 billion or more; (b) the last day of the fiscal year following the fifth anniversary of the date of the completion of the initial public
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offering of Galileo; (c) the date on which we have issued more than $1 billion in our periodic reports and proxy statements, andnonconvertible debt during the previous three years; or (d) the date on which we are exempt fromdeemed to be a large accelerated filer under the requirementsrules of holding a nonbinding advisory vote on executive compensation and shareholder approvalthe SEC, which means the market value of any golden parachute payments not previously approved. Additionally,our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th. For so long as we remain an emerging growth company, we have electedare permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for publicstandards; and private companies until those standards apply to private companies. As such,as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We cannot predict if investors will find our shares less attractive because wehave chosen and may rely on these provisions.continue to choose to take advantage of certain of the available exemptions for emerging growth companies. If some investors find our sharescommon stock less attractive as a result, there may be a less active trading market for our sharescommon stock and our share price may be more volatile.
Risks Relating to Ownership of Our Common Stock
Further, 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 (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application datesAn active, liquid trading market for public or private companies, we, as an emerging growth company, will not adopt the new or revised standard until the time private companies are required to adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.
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Additionally, we are a “smaller reporting company” as defined in Rule 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 financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our common stock held by non-affiliates exceeds $250 million as of the end of the prior June 30th, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of ourmay not be sustained.
Our common stock held by non-affiliates exceeds $700 million as ofis listed on the prior June 30th. ToNYSE under the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.
Risks Related to Our Initial Business Combination
If we are unable to consummate a business combination, our public shareholders may be forced to wait until July 22, 2021 (or October 22, 2021) before receiving liquidation distributions.
We have until July 22, 2021 (or October 22, 2021 if a definitive agreement with respect to a proposed business combination has been executed by July 22, 2021) in which to complete a business combination. We have no obligation to return funds to investors prior to such date unless we consummate a business combination prior thereto and only then in cases where investors have sought to convert their shares. Only after the expiration of this full time period will public shareholders be entitled to liquidation distributions if we are unable to complete a business combination. Accordingly, investors’ funds may be unavailable to them until after such date and to liquidate your investment, you may be forced to sell your securities potentially at a loss.
The requirement that we complete an initial business combination within a specific period of time may give potential target businesses leverage over us in negotiating a business transaction.
We have until July 22, 2021 (or up until October 22, 2021 if a definitive agreement with respect to a proposed business combination has been executed by July 22, 2021) to complete an initial business combination. Any potential target business with which we enter into negotiations concerning a business combination will be aware of this requirement. Consequently, such target business may obtain leverage over us in negotiating a business combination, knowing that if we do not complete a business combination with that particular target business, we may be unable to complete a business combination with any other target business. This risk will increase as we get closer to the time limits referenced above.
If we are unable to consummate our initial business combination within the applicable time period, we will, as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares for a pro rata portion of the funds held in the trust account and as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. In such event, the warrants will be worthless.
If we seek shareholder approval of our initial business combination and we do not conduct redemptions pursuant to the tender offer rules, and if you or a “group” of shareholders are deemed to hold 15% or more of our ordinary shares, you will lose the ability to redeem all such shares in excess of 15% of our ordinary shares.
If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, our amended and restated memorandum and articles of association provides that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), are restricted from seeking redemption rights with respect to 15% or more of the shares sold in our initial public offering (“Excess Shares”)symbol “SHPW”. However, we are not restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial business combination. Your inability to redeem the Excess Shares will reduce your influence over our ability to complete our initial business combination and you could suffer a material loss on your investment in us if you sell Excess Shares in open market transactions. Additionally, you will not receive redemption distributions with respect to the Excess Shares if we complete our initial business combination. And as a result, you will continue to hold that number of shares equal to 15% or more and, in order to dispose of such shares, are required to sell your shares in open market transactions, potentially at a loss.
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We may issue ordinary or preference shares or debt securities to complete a business combination, which would reduce the equity interest of our shareholders and likely cause a change in control of our ownership.
Our amended and restated memorandum and articles of association currently authorize the issuance of up to 200,000,000 ordinary shares, par value $.0001 per share, and 2,000,000 preference shares, par value $.0001 per share. As of the December 31, 2020, there were 182,600,000 authorized but unissued ordinary shares available for issuance (after appropriate reservation for the issuance of the shares underlying the public and private warrants). Although we have no commitment as of the date of this report, we may issue a substantial number of additional ordinary shares or preference shares, or a combination of ordinary shares and preference shares, to complete a business combination. The issuance of additional ordinary shares or preference shares:
Similarly, if we issue debt securities, it could result in:
If the net proceeds of our initial public offering not being held in trust are insufficient to allow us to operate until July 22, 2021 (or until October 22, 2021 if a definitive agreement with respect to a proposed business combination has been executed by July 22, 2021), we may be unable to complete a business combination.
We believe that the funds available to us outside of the trust account will be sufficient to allow us to operate until at least July 22, 2021 (or until October 22, 2021 if a definitive agreement with respect to a proposed business combination has been executed by July 22, 2021), assuming that a business combination is not consummated during that time. However, we cannot assure you that an active trading market for our estimatescommon stock will be accurate. Accordingly, if we use allsustained. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the funds held outsideexistence of the trust account, we may not have sufficient funds available with which to structure, negotiate or close an initial business combination. In such event, we would need to borrow funds from our sponsor, initial shareholders, officers or directors or their affiliates to operate or may be forced to liquidate. Our sponsor, initial shareholders, officers, directorswilling buyers and their affiliates may, but are not obligated to, loan us funds, from time to time orsellers at any given time, in whatever amount that they deem reasonable in their sole discretion for our working capital needs. Each loan, such as the Note, would be evidenced by a promissory note. The notes would either be paid upon consummation of our initial business combination, without interest, or, at holder’s discretion, up to $1,000,000 of the notes may be converted into warrants at a price of $1.00 per warrant. On December 14, 2020, we entered into the Note with our sponsor, a convertible promissory note pursuant to which our sponsor agreed to loan us up to an aggregate principal amount of $500,000.
We may be unable to obtain additional financing, if required, to complete a business combination or to fund the operations and growth of the target business, which could compel us to restructure or abandon a particular business combination.
We cannot currently ascertain the capital requirements for any particular transaction. If the net proceeds of our initial public offering prove to be insufficient, either because of the size of the business combination, the depletion of the available net proceeds in search of a target business, or the obligation to convert into cash (or purchase in any tender offer) a significant number of shares from dissenting shareholders, we will be required to seek additional financing. Such financing may not be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to consummate a particular business combination, we would be compelled to either restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. In addition, if we consummate a business combination, we may require additional financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of our officers, directors or shareholders is required to provide any financing to us in connection with or after a business combination.
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Holders of warrants will not have redemption rights if we are unable to complete an initial business combination within the required time period.
If we are unable to complete an initial business combination within the required time period and we redeem the funds held in the trust account, the warrants will expire and holders will not receive any of such proceeds with respect to the warrants.
Our shareholders may be held liable for claims by third parties against us to the extent of distributions received by them.
Our amended and restated memorandum and articles of association provide that we will continue in existence only until July 22, 2021 (or until October 22, 2021 if a definitive agreement with respect to a proposed business combination has been executed by July 22, 2021) if a business combination has not been consummated by such time. If we are unable to complete an initial business combination during such time period, it will trigger our automatic winding up, liquidation and dissolution. As such, our shareholders could potentially be liable for any claims to the extent of distributions received by them pursuant to such process and any liability of our shareholders may extend beyond the date of such distribution. Accordingly, we cannot assure you that third parties, or us under the control of an official liquidator, will not seek to recover from our shareholders amounts owed to them by us.
If we are unable to consummate a transaction within the required time period, upon notice from us, the trustee of the trust account will distribute the amount in our trust account to our public shareholders. Concurrently, we shall pay, or reserve for payment, from funds not held in trust, our liabilities and obligations, although we cannot assure you that there will be sufficient funds for such purpose. If there are insufficient funds held outside the trust account for such purpose, our sponsor has agreed that it will be liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us and which have not executed a waiver agreement.
If we are forced to enter into an insolvent liquidation, any distributions received by shareholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution was made, we were unable to pay our debts as they fall due in the ordinary course of business. As a result, a liquidator could seek to recover all amounts received by our shareholders. Furthermore, our directors may be viewed as having breached their fiduciary duties to us or our creditors and/or may have acted in bad faith, thereby exposing themselves and our company to claims, by paying public shareholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. We and our directors and officers who knowingly and willfully authorized or permitted any distribution to be paid out of our share premium account while we were unable to pay our debts as they fall due in the ordinary course of business would be guilty of an offense and may be liable to pay a fine of US$18,292.3 and subject to imprisonment for five years in the Cayman Islands.
A provision of our warrant agreement may make it more difficult for us to consummate an initial business combination.
Unlike some other blank check companies, if
then the exercise price of each warrant will be adjusted such that the effective exercise price per full share will be equal to 115% of the higher of the market value and the price at which we issue the additional ordinary shares or equity-linked securities. This may make it more difficult for us to consummate an initial business combination with a target business.
We are unable to currently ascertain the merits or risks of the industry or business in which we may ultimately operate.
While we are focusing and will continue to focus our search for target businesses on specific locations and industry sectors as described in this report, we are not limited to those locations and sectors and may consummate a business combination with a company in any location or industry we choose. Accordingly, there is no current basis for you to evaluate the possible merits or risks of the particular industry in which we may ultimately operate or the target business which we may ultimately acquire. To the extent we complete a business combination with a financially unstable company or an entity in its development stage, we may be affected by numerous risks inherent in the business operations of those entities. If we complete a business combination with an entity in an industry characterized by a high level of risk, we may be affected by the currently unascertainable risks of that industry. Although our management will endeavor to evaluate the risks inherent in a particular industry or target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors. We also cannot assure you that an investment in our units will not ultimately prove to be less favorable to investors than a direct investment, if an opportunity were available, in a target business.
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The requirement that the target business or businesses that we acquire must collectively have a fair market value equal to at least 80% of the balance of the funds in the trust account at the time of the execution of a definitive agreement for our initial business combination may limit the type and number of companies that we may complete such a business combination with.
Pursuant to the NYSE listing rules, the target business or businesses that we acquire must collectively have a fair market value equal to at least 80% of the balance of the funds in the trust account at the time of the execution of a definitive agreement for our initial business combination. This restriction may limit the type and number of companies with which we may complete a business combination. If we are unable to locate a target business or businesses that satisfy this fair market value test, we may be forced to liquidate and you will only be entitled to receive your pro rata portion of the funds in the trust account.
If the NYSE delists our securities from trading on its exchange, we would not be required to satisfy the fair market value requirement described above and could complete a business combination with a target business having a fair market value substantially below 80% of the balance in the trust account (excluding any taxes payable).
Our ability to successfully effect a business combination and to be successful thereafter will be totallybeing dependent upon the effortsindividual decisions of our key personnel, somebuyers and sellers over which neither Shapeways nor any market maker has control. The lack of whom may join us following a business combination. While we intend to closely scrutinize any individuals we engage after a business combination, we cannot assure you that our assessment of these individuals will prove to be correct.
Our ability to successfully effect a business combination is dependent upon the efforts of our key personnel. We believe that our success depends on the continued service of our key personnel, at least untilwe have consummated our initial business combination. We cannot assure you that any of our key personnel will remain with us for the immediate or foreseeable future. In addition, none of our officers are required to commit any specified amount of time to our affairsan active and accordingly, they have conflicts of interest in allocating management time among various business activities, including identifying potential business combinations and monitoring the related due diligence. We do not have employment agreements with, or key-man insurance on the life of, any of our officers. The unexpected loss of the services of our key personnel couldliquid trading market would likely have a detrimental effect on us.
The role of our key personnel in the target business, however, cannot presently be ascertained. Although some of our key personnel may remain with the target business in senior management or advisory positions following a business combination, it is likely that some or all of the management of the target business will remain in place or be hired after consummation of the business combination. While we intend to closely scrutinize any individuals we engage after a business combination, we cannot assure you that our assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a public company which could cause us to have to expend time and resources helping them become familiar with such requirements. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect our operations.
Our officers and directors may not have significant experience or knowledge regarding the jurisdiction or industry of the target business we may seek to acquire.
While we intend to focus our search for target businesses within the locations and industries as described in this report, we may consummate a business combination with a target business in any geographic location or industry we choose. We cannot assure you that our officers and directors will have enough experience or have sufficient knowledge relating to the jurisdiction of the target or its industry to make an informed decision regarding a business combination.
If we become aware of a potential business combination outside of the geographic location or industry where our officers and directors have the most experience, our management may retain consultants and advisors with experience in such industries to assist in the evaluation of such business combination and in our determination of whether or not to proceed with such a business combination. However, our management is not required to engage consultants or advisors in any situation. If they do not engage any consultants or advisors to assist them in the evaluation of a particular target business or business combination, our management may not properly analyze the risks attendant with such target business or business combination. Even if our management does engage consultants or advisors to assist in the evaluation of a particular target business or business combination, we cannot assure you that such consultants or advisors will properly analyze the risks attendant with such target business or business combination. As a result, we may enter into a business combination that is not in our shareholders’ best interests.
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Our key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business combination. These agreements may provide for them to receive compensation following a business combination and as a result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.
Our key personnel will be able to remain with the company after the consummation of a business combination only if they are able to negotiate employment or consulting agreements or other arrangements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to the company after the consummation of the business combination. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business.
Our officers and directors allocate their time to other businesses thereby potentially limiting the amount of time they devote to our affairs. This conflict of interest could have a negative impact on our ability to consummate our initial business combination.
Our officers and directors are not required to commit their full time to our affairs, which could create a conflict of interest when allocating their time between our operations and their other commitments. We presently expect each of our employees to devote such amount of time as they reasonably believe is necessary to our business (which could range from only a few hours a week while we are trying to locate a potential target business to a majority of their time as we move into serious negotiations with a target business for a business combination). We do not intend to have any full-time employees prior to the consummation of our initial business combination. All of our officers and directors are engaged in several other business endeavors and are not obligated to devote any specific number of hours to our affairs. If our officers’ and directors’ other business affairs require them to devote more substantial amounts of time to such affairs, it could limit their ability to devote time to our affairs and could have a negative impact on our ability to consummate our initial business combination. We cannot assure you these conflicts will be resolved in our favor.
Our officers and directors have pre-existing fiduciary and contractual obligations and accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented.
Our officers and directors have pre-existing fiduciary and contractual obligations to other companies, including other companies that are engaged in business activities similar to those intended to be conducted by us. Accordingly, they may participate in transactions and have obligations that may be in conflict or competition with our consummation of our initial business combination. As a result, a potential target business may be presented by our management team to another entity prior to its presentation to us and we may not be afforded the opportunity to engage in a transaction with such target business.
Our officers’ and directors’ personal and financial interests may influence their motivation in determining whether a particular target business is appropriate for a business combination.
Our officers, directors and our sponsor, which is affiliated with certain of our officers, have waived their right to convert (or sell to us in any tender offer) their founder shares or any other ordinary shares (although none of these insiders have indicated any intention to purchase units) or to receive distributions from the trust account with respect to their founder shares upon our liquidation if we are unable to consummate our initial business combination. Accordingly, these securities will be worthless if we do not consummate our initial business combination. Our sponsor has also purchased from us an aggregate of 4,110,000 private warrants at $1.00 per private warrant (for a total purchase price of $4,110,000) that will expire worthless if we do not consummate a business combination. In addition, our officers and directors or their affiliates may loan funds to us and may be owed reimbursement for expenses incurred in connection with certain activities on our behalf which would only be repaid if we complete an initial business combination. The personal and financial interests of our directors and officers may influence their motivation in timely identifying and selecting a target business and completing a business combination. Consequently, our directors’ and officers’ discretion in identifying and selecting a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing of a particular business combination are appropriate and in our shareholders’ best interest. If this were the case, it would be a breach of their fiduciary duties to us as a matter of Cayman Islands law and we might have a claim against such individuals. However, we might not ultimately be successful in any claim we may make against them for such reason.
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We may only be able to complete one business combination with the proceeds of our initial public offering, which will cause us to be solely dependent on a single business that may have a limited number of products or services.
We may only be able to complete one business combination with the proceeds of our initial public offering. By consummating a business combination with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations in different industries or different areas of a single industry. Accordingly, the prospects for our success may be:
This lack of diversification may subject us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to a business combination.
Alternatively, if we determine to simultaneously acquire several businesses and such businesses are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other business combinations, which may make it more difficult for us, and delay our ability, to complete the business combination. With multiple business combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business. If we are unable to adequately address these risks, it could negatively impact our profitability and results of operations.
The ability of our public shareholders to exercise their conversion rights or sell their public shares to us in a tender offer may not allow us to effectuate the most desirable business combination or optimize our capital structure.
If our business combination requires us to use substantially all of our cash to pay the purchase price, because we will not know how many public shareholders may exercise conversion rights or seek to sell their public shares to us in a tender offer, we may either need to reserve part of the trust account for possible payment upon such conversion, or we may need to arrange third party financing to help fund our business transaction. In the event that the business combination involves the issuance of our shares as consideration, we may be required to issue a higher percentage of our shares to make up for a shortfall in funds. Raising additional funds to cover any shortfall may involve dilutive equity financing or incurring indebtedness at higher than desirable levels. This may limit our ability to effectuate the most attractive business combination available to us.
We may be unable to consummate a business combination if a target business requires that we have cash in excess of the minimum amount we are required to have at closing and public shareholders may have to remain shareholders of our company and wait until our liquidation to receive a pro rata share of the trust account or attempt to sell their shares in the open market.
A potential target may make it a closing condition to our business combination that we have a certain amount of cash in excess of the $5,000,001 of net tangible assets we are required to have pursuant to our organizational documents available at the time of closing. If the number of our shareholders electing to exercise their conversion rights or sell their shares to us in a tender offer has the effect of reducing the amount of money available to us to consummate a business combination below such minimum amount required by the target business and we are not able to locate an alternative source of funding, we will not be able to consummate such business combination and we may not be able to locate another suitable target within the applicable time period, if at all. In that case, public shareholders may have to remain shareholders of our company and wait until July 22, 2021 (or October 22, 2021 if a definitive agreement with respect to a proposed business combination has been executed by July 22, 2021) in order to be able to receive a pro rata portion of the trust account, or attempt to sell their shares in the open market prior to such time, in which case they may receive less than a pro rata share of the trust account for their shares.
Our public shareholders may not be afforded an opportunity to vote on our proposed business combination, which means we may consummate our initial business combination even though a majority of our public shareholders do not support such a combination.
We intend to hold a shareholder vote before we consummate our initial business combination. However, if a shareholder vote is not required, for business or legal reasons, we may conduct conversions via a tender offer and not offer our shareholders the opportunity to vote on a proposed business combination. In determining whether to seek shareholder approval on a proposed business combination, we will consider factors such as timing and cost and other factors that we may deem material at the time of entry into a definitive agreement. Accordingly, we may consummate our initial business combination even if holders of a majority of our public shares do not approve of the business combination.
In connection with any meeting held to approve an initial business combination, we will offer each public shareholder the option to vote in favor of a proposed business combination and still seek conversion of his, her or its public shares, which may make it more likely that we will consummate a business combination.
In connection with any meeting held to approve an initial business combination, we will offer each public shareholder the right to have his, her or its public shares converted to cash (subject to the limitations described elsewhere in this report) regardless of whether such shareholder votes for or against such proposed business combination. Furthermore, we will only consummate our initial business combination if we have net tangible assets (after redemption) of at least $5,000,001 either immediately prior to or upon such consummation and a majority of the issued and outstanding shares voted are voted in favor of the business combination. Accordingly, public shareholders owning shares sold in our initial public offering may exercise their conversion rights and we could still consummate a proposed business combination so long as a majority of shares voted at the meeting are voted in favor of the proposed business combination. This is different than other similarly structured blank check companies where shareholders are offered the right to convert their shares only when they vote against a proposed business combination.
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In connection with any meeting called to approve a proposed initial business combination, we may require shareholders who wish to convert their public shares to comply with specific requirements for conversion that may make it more difficult for them to exercise their conversion rights prior to the deadline for exercising their rights.
In connection with any meeting called to approve a proposed initial business combination, each public shareholder will have the right, regardless of whether it is voting for or against such proposed business combination, to demand that we convert its public shares into a share of the trust account. Such conversion will be effectuated under Cayman Islands law as a redemption of the shares, with the redemption price to be paid being the applicable pro rata portion of the monies held in the trust account. We may require public shareholders who wish to convert their public shares in connection with a proposed business combination to either tender their certificates to our transfer agent or to deliver their shares to the transfer agent electronically using the DWAC System, at the holder’s option, at any time at or prior to the vote taken at the shareholder meeting relating to such business combination. In order to obtain a physical share certificate, a shareholder’s broker and/or clearing broker, DTC and our transfer agent will need to act to facilitate this request. It is our understanding that shareholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, because we do not have any control over this process or over the brokers or DTC, it may take significantly longer than two weeks to obtain a physical share certificate. It is also our understanding that it takes a short time to deliver shares through the DWAC System. However, this too may not be the case. Accordingly, if it takes longer than we anticipate for shareholders to deliver their shares, shareholders who wish to convert may be unable to meet the deadline for exercising their conversion rights and thus may be unable to convert their shares.
If we require public shareholders who wish to convert their public shares to comply with the delivery requirements for conversion, such converting shareholders may be unable to sell their securities when they wish to in the event that the proposed business combination is not approved.
If we require public shareholders who wish to convert their public shares to comply with specific delivery requirements for conversion described above and such proposed business combination is not consummated, we will promptly return such certificates to the tendering public shareholders. Accordingly, investors who attempted to convert their shares in such a circumstance will be unable to sell their securities after the failed acquisition until we have returned their securities to them. The market price for our shares may decline during this time and you may not be able to sell your securities when you wish to, even while other shareholders that did not seek conversion may be able to sell their securities.
Because of our limited resources and structure, other companies may have a competitive advantage and we may not be able to consummate an attractive business combination.
We encounter intense competition from entities other than blank check companies having a business objective similar to ours, including venture capital funds, leveraged buyout funds and operating businesses competing for acquisitions. Many of these entities are well established and have extensive experience in identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe that there are numerous potential target businesses that we could acquire with the net proceeds of our initial public offering, our ability to compete in acquiring certain sizable target businesses will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Furthermore, seeking shareholder approval of a business combination may delay or prevent the consummation of a transaction, a risk a target business may not be willing to accept. Additionally, our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Any of the foregoing may place us at a competitive disadvantage in successfully negotiating a business combination.
Our initial shareholders control a substantial interest in us and thus may influence certain actions requiring a shareholder vote.
Our initial shareholders collectively own approximately 19.8% of our issued and outstanding ordinary shares. None of our officers, directors, initial shareholders or their affiliates has indicated any intention to purchase ordinary shares from persons in the open market or in private transactions. However, our officers, directors, initial shareholders or their affiliates could determine in the future to make such purchases in the open market or in private transactions, to the extent permitted by law, in order to assist us in consummating our initial business combination. In connection with any vote for a proposed business combination, all of our initial shareholders, as well as all of our officers and directors, have agreed to vote the ordinary shares owned by them immediately before our initial public offering as well as any ordinary shares acquired in the aftermarket in favor of such proposed business combination.
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There is no requirement under the Companies Law for us to hold annual or general meetings to elect directors. Accordingly, shareholders would not have the right to such a meeting or election of directors, unless the holders of not less than 10% in par value capital of our company request such a meeting. As a result, it is unlikely that there will be an annual general meeting to elect new directors prior to the consummation of a business combination, in which case all of the current directors will continue in office until at least the consummation of the business combination. Accordingly, you may not be able to exercise your voting rights until July 22, 2021 (or until October 22, 2021 if a definitive agreement with respect to a proposed business combination has been executed by July 22, 2021). If there is an annual general meeting, as a consequence of our “staggered” board of directors, only a minority of the board of directors will be considered for election and our initial shareholders, because of their ownership position, will have considerable influence regarding the outcome. Accordingly, our initial shareholders will continue to exert control at least until the consummation of a business combination.
Our outstanding warrants may have an adverse effect on the market price of our ordinary sharescommon stock. An inactive market may also impair our ability to raise capital to continue to fund operations by issuing equity and make it more difficultmay impair our ability to effect a business combination.acquire other companies or technologies by using common stock as consideration.
We issued warrants that will result in theOur issuance of up to 13,800,000 ordinary shares as part of the units offered in our initial public offering and private warrants that will result in the issuance of an additional 4,110,000 ordinary shares. The potential for the issuance of a substantial number of additional shares of common stock or convertible securities may dilute your ownership of us and could adversely affect our stock price.
From time to time in the future, we may issue additional shares of our common stock or securities convertible into our common stock pursuant to a variety of transactions, including acquisitions. Additional shares of our common stock may also be issued upon exercise of outstanding stock options and warrants to purchase our common stock. The issuance by us of additional shares of our common stock or securities convertible into our common stock would dilute your ownership of us and the warrants could make ussale of a less attractive acquisition vehiclesignificant amount of such shares in the eyespublic market could adversely affect prevailing market prices of a target business. Suchour common stock. Subject to the satisfaction of vesting conditions and the expiration of lockup agreements, shares issuable upon exercise of options will be available for resale immediately in the public market without restriction.
Issuing additional shares of our capital stock, other equity securities, when converted, willor securities convertible into equity may dilute the economic and voting rights of our existing stockholders, reduce the market price of our common stock, or both. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred stock, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and outstanding ordinary shares andother factors beyond our control, which may adversely affect the amount, timing, or nature of our future offerings. As a result, holders of our common stock bear the risk that our future offerings may reduce the valuemarket price of our common stock and dilute their percentage ownership.
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Future sales, or the shares issued to completeperception of future sales, of our common stock by us or our existing stockholders in the business combination. Accordingly, our warrants may make it more difficult to effectuate a business combination or increase the cost of acquiring the target business. Additionally, the sale, or even the possibility of sale, of the shares underlying the warrantspublic market could have an adverse effect oncause the market price for our securities or on our abilitycommon stock to obtain future financing. If and to the extent these warrants are exercised, you may experience dilution to your holdings.decline.
If our initial shareholders exercise their registration rights with respect to their securities, it may have an adverse effect on the market priceThe sale of substantial amounts of shares of our ordinary shares and the existence of these rights may make it more difficult to effect a business combination.
Our initial shareholders are entitled to make a demand that we register the resale of their founder shares at any time commencing three months prior to the date on which their shares may be released from escrow. Additionally, the holders of representative shares, the purchasers of the private warrants and our initial shareholders, officers and directors are entitled to demand that we register the resale of the representative shares, the shares underlying the private warrants and private warrants and any securities our initial shareholders, officers, directors or their affiliates may be issued in payment of working capital loans made to us at any time after we consummate a business combination. The presence of these additional securities tradingcommon stock in the public market, may have an adverse effect onincluding in connection with the expiration of lock-up restrictions, or the perception that such sales could occur, could harm the prevailing market price of our securities. In addition, the existence of these rights may make it more difficult to effectuate a business combination or increase the cost of acquiring the target business, as the shareholders of the target business may be discouraged from entering into a business combination with us or will request a higher price for their securities because of the potential effect the exercise of such rights may have on the trading market for our ordinary shares.
EarlyBirdCapital may have a conflict of interest in rendering services to us in connection with our initial business combination.
We have engaged EarlyBirdCapital to assist us in connection with our initial business combination. We will pay EarlyBirdCapital a cash fee for such services upon the consummationshares of our initial business combination in an aggregate amount equal to 3.5%common stock. Furthermore, shares of the total gross proceeds raisedour common stock reserved for future issuance under our equity plans may become available for sale in the offering. We willfuture. These sales, or the possibility that these sales may occur, also pay EarlyBirdCapital a cash fee of 1.0% of the total consideration payable in a proposed business combination if EarlyBirdCapital introduces us to the target business with which we complete a business combination. EarlyBirdCapital’s shares will also be worthless if we do not consummate an initial business combination. The financial interests may result in EarlyBirdCapital having a conflict of interest when providing the services to us in connection with an initial business combination.
If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete a business combination.
A company that, among other things, is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, owning, trading or holding certain types of securities would be deemed an investment company under the Investment Company Act. Since we will invest the proceeds held in the trust account only in United States government treasury bills, notes or bonds having a maturity of 180 days or less or in money market funds meeting the applicable conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940 and that invest solely in United States treasuries, we believe that we will not be considered to be an investment company pursuant to the exemption provided in Rule 3a-1 promulgated under the Investment Company Act of 1940.
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If we are nevertheless deemed to be an investment company under the Investment Company Act, we may be subject to certain restrictions that maymight make it more difficult for us to completesell equity securities in the future at a time and at a price that we deem appropriate.
Our operating results and financial condition may fluctuate on a quarterly and annual basis.
Our operating results and financial condition fluctuate from quarter-to-quarter and year-to-year and are likely to continue to vary due to a number of factors, many of which are not within our control. Both our business combination,and the digital manufacturing industry are changing and evolving rapidly, and our historical operating results may not be useful in predicting our future operating results. If our operating results do not meet the guidance that we provide to the marketplace or the expectations of securities analysts or investors, the market price of our common stock will likely decline. Fluctuations in our operating results and financial condition may be due to a number of factors, including:
the naturedegree of market acceptance of digital manufacturing and, specifically, our services;
our ability to compete with competitors and new entrants into our markets;
the mix of offerings that we sell during any period;
the timing of our investments;sales and deliveries of our offerings to customers;
the issuancegeographic distribution of securities.our sales;
changes in our pricing policies or those of our competitors, including our response to price competition;
changes in the amount that we spend to develop and manufacture new technologies;
changes in the amounts that we spend to promote our services;
expenses and/or liabilities resulting from litigation;
delays between our expenditures to develop and market new or enhanced solutions and the generation of revenue from those solutions;
unforeseen liabilities or difficulties in integrating our acquisitions or newly acquired businesses;
disruptions to our information technology systems;
general economic and industry conditions that affect customer demand;
the impact of the COVID-19 pandemic on our customers, suppliers, manufacturers, and operations; and
changes in accounting rules and tax laws.
In addition, weour revenues and operating results may have imposed uponfluctuate from quarter-to-quarter and year-to-year due to our sales cycle and seasonality among our customers. Generally, our digital manufacturing solutions are subject to the adoption and capital expenditure cycles of our customers. Additionally, for our more complex solutions, which may require additional facilities investment, potential customers may spend a substantial amount of time performing internal assessments prior to making a purchase decision. This may cause us certain burdensome requirements, including:
Compliance with these additional regulatory burdens would require additional expense that we have not provided for.receiving any related revenues. As a result,
We may not seek an opinion from an unaffiliated third party as36
revenues and operating results for future periods are difficult to predict with any significant degree of certainty, which could lead to adverse effects on our inventory levels and overall financial condition.
Due to the fair market value offoregoing factors, and the target business we acquire.
We areother risks discussed in this Part I, Item 1A: “Risk Factors,” you should not required to obtain an opinion from an unaffiliated third party that the target business we select has a fair market value in excess of at least 80% of the balance of the trust account (excluding any taxes payable) unless our board of directors cannot make such determinationrely on its own. We are also not required to obtain an opinion from an unaffiliated third party indicating that the price we are paying is fair to our shareholders from a financial point of view unless the target is affiliated with our officers, directors, initial shareholders or their affiliates. If no opinion is obtained, our shareholders will be relying on the judgmentquarter-over-quarter and year-over-year comparisons of our board of directors, whose collective experience in business evaluations for blank check companies like ours is not significant. Furthermore, our directors may have a conflict of interest in analyzing the transaction due to their personal and financial interests.
We may acquire a target business that is affiliated with our officers, directors, initial shareholders or their affiliates.
While we do not currently intend to pursueoperating results as an initial business combination with a company that is affiliated with our officers, directors, initial shareholders or their affiliates, we are not prohibited from pursuing such a transaction, nor are we prohibited from consummating a business combination where anyindicator of our officers, directors, initial shareholdersfuture performance.
Our stock price has been and may continue to be volatile or their affiliates acquire a minority interest inmay decline regardless of our operating performance. You may lose some or all of your investment.
The trading price of our common stock has been and may continue to be volatile. The stock market recently has experienced extreme volatility. This volatility often has been unrelated or disproportionate to the target business alongside our acquisition, provided in each case we obtain an opinion from an unaffiliated third party indicating that the price we are paying is fair to our shareholders from a financial pointoperating performance of view. These affiliations could cause our officers or directors to have a conflict of interest in analyzing such transactions due to their personal and financial interests.
Because we must furnish our shareholders with financial statements of the target business prepared in accordance with GAAP or IFRS, or reconciled to GAAP, weparticular companies. You may not be able to completeresell your shares at an initial business combination with some prospective target businesses.attractive price due to a number of factors such as those listed in this section and the following:
We will be requiredthe impact of the COVID-19 pandemic on our financial condition and the results of operations;
our operating and financial performance and prospects;
our quarterly or annual earnings or those of other companies in our industry compared to provide historical and pro forma financial statement disclosure relatingmarket expectations;
conditions that impact demand for our services;
future announcements concerning our business, our customers’ businesses, or our competitors’ businesses;
the public’s reaction to our target businesspress releases, other public announcements, and filings with the SEC;
the market’s reaction to our shareholders. These financial statements may be required to be prepared in accordance with GAAP, or be reconciled to, GAAP or IFRS, depending on the circumstances, and the historical financial statements may be required to be audited in accordance with the standards of the PCAOB. The financial statements may also be required to be prepared in accordance with GAAP for the Form 8-K announcing the closing of an initial business combination, which would need to be filed within four business days after closing. These financial statement requirements may limit the pool of potential target businesses we may acquire.
Compliance with the Sarbanes-Oxley Act requires substantial financial and management resources and may increase the time and costs of completing an acquisition.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls and may require us to have such system audited by an independent registered public accounting firm. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or shareholder litigation. Any inability to provide reliable financial reports could harm our business. A target business may also not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of adequate controls over our financial processes and reporting in the future, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities.
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As the number of special purpose acquisition companies evaluating targets increases, attractive targets may become scarcer and there may be more competition for attractive targets. This could increase the cost of our initial business combination and could even result in our inability to find a target or to consummate an initial business combination.
In recent years, the number of special purpose acquisition companies that have been formed has increased substantially. Many potential targets for special purpose acquisition companies have already entered into an initial business combination, and there are still many special purpose acquisition companies seeking targets for their initial business combination, as well as many such companies currently in registration. As a result, at times, fewer attractive targets may be available, and it may require more time, more effort and more resources to identify a suitable target and to consummate an initial business combination.
In addition, because there are more special purpose acquisition companies seeking to enter into an initial business combination with available targets, the competition for available targets with attractive fundamentals or business models may increase, which could cause targets companies to demand improved financial terms. Attractive deals could also become scarcer for other reasons, such as economic or industry sector downturns, geopolitical tensions, or increases in the cost of additional capital needed to close business combinations or operate targets post-business combination. This could increase the cost of, delay or otherwise complicate or frustrate our ability to find and consummate an initial business combination, and may result in our inability to consummate an initial business combination on terms favorable to our investors altogether.
Our search for a business combination, and any target business with which we ultimately consummate a business combination, may be materially adversely affected by the recent coronavirus (“COVID-19”) outbreak.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of COVID-19 a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic.” COVID-19 has resulted in a widespread health crisis that has adversely affected the economies and financial markets worldwide. The business of any potential target business with which we consummate a business combination could be materially and adversely affected. Furthermore, we may be unable to complete a business combination if continued concerns relating to COVID-19 restrict travel, limit the ability to have meetings with potential investors or the target company’s personnel, vendors and services providers are unavailable to negotiate and consummate a transaction in a timely manner. The extent to which COVID-19 impacts our search for a business combination will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other matters of global concern continue for an extended period of time, our ability to consummate a business combination, or the operations of a target business with which we ultimately consummate a business combination, such as the business combination with Arrival, may be materially adversely affected. In addition, our ability to consummate a transaction may be dependent on the ability to raise equity or debt financing which may be impacted by COVID-19reduced disclosure and other events, includingrequirements as a result of increased market volatility, decreased market liquidity in third-party financing being unavailable on terms acceptable to usan “emerging growth company” under the JOBS Act or at all.a “smaller reporting company”;
Risks Related to Our Trust Account
If third parties bring claims against us, the proceeds held in trust could be reduced and the per-share liquidation price received by shareholders may be less than $10.00.
Our placing of funds in trust may not protect those funds from third party claims against us. Although we seek to have all vendors and service providers we engage and prospective target businesses we negotiate with execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefitsize of our public shareholders, they may not executefloat;
coverage by or changes in financial estimates by securities analysts or failure to meet their expectations;
market and industry perception of our success, or lack thereof, in pursuing our growth strategy;
strategic actions by us or our competitors, such agreements. Furthermore, even if such entities execute such agreements with us, they may seek recourseas acquisitions or restructurings;
changes in laws or regulations which adversely affect the manufacturing industry generally or Shapeways specifically;
changes in accounting standards, policies, guidance, interpretations, or principles;
changes in senior management or key personnel;
issuances, exchanges or sales, or expected issuances, exchanges, or sales of our capital stock;
changes in our dividend policy;
adverse resolution of new or pending litigation against the monies heldus; and
changes in general market, economic, and political conditions in the trust account. A courtUnited States and global economies or financial markets, including those resulting from natural disasters, terrorist attacks, acts of war or other military conflicts, and responses to such events.
These broad market and industry factors may not upholdmaterially reduce the validitymarket price of such agreements. Accordingly,our common stock, regardless of our operating performance. In addition, price volatility may be greater if the proceeds heldpublic float and trading volume of our common stock continues to be low. As a result, you may suffer a loss on your investment.
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If securities or industry analysts publish inaccurate or unfavorable research or reports about our business, our stock price and trading volume could decline.
The trading market for our common stock depends, in trustpart, on the research and reports that third-party securities analysts publish about us and the industry in which we operate. We may be unable or slow to attract research coverage and if one or more analysts cease coverage of us, the price and trading volume of our securities would likely be negatively impacted. If any of the analysts that may cover us change their recommendation regarding our common stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any analyst that may cover us ceases covering us or fails to regularly publish reports on us, we could be subject to claimslose visibility in the financial markets, which could take priority over thosecause the price or trading volume of our public shareholders. Ifcommon stock to decline. Moreover, if one or more of the analysts who cover us downgrades our common stock, or if our reporting results do not meet their expectations, the market price of our common stock could decline.
We do not expect to pay any cash dividends for the foreseeable future.
We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, we liquidatedo not anticipate declaring or paying any cash dividends on our common stock in the trust account beforeforeseeable future. Any decision to declare and pay dividends in the completion of a business combination, our sponsor has agreed that itfuture will be liablemade at the discretion of our Board of Directors and will depend on, among other things, our business prospects, results of operations, financial condition, cash requirements and availability, certain restrictions related to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors orour indebtedness, industry trends, and other entities that are owed money by us for services rendered or contracted for or products sold to us and which have not executed a waiver agreement. We have not asked our sponsor to reserve any amount to satisfy any indemnification obligations that may arise and its only assets are expected to be our securities. Accordingly, we believe it is unlikelyfactors that our sponsor will be ableBoard of Directors may deem relevant. In addition, we may incur additional indebtedness, the terms of which may further restrict or prevent us from paying dividends on our common stock. As a result, you may have to meet such indemnification obligations if it is requiredsell some or all of your common stock after price appreciation in order to do so. Therefore, the per-share distributiongenerate cash flow from the trust account in such a situation may be less than $10.00, plus interest, due to such claims.
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Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against usyour investment, which is not dismissed, or if we otherwise enter compulsory or court supervised liquidation, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the trust account, weyou may not be able to returndo. Our inability or decision not to pay dividends, particularly when others in our public shareholders at least $10.00 per share.
The securities in which we invest the funds held in the trust account could bear a negative rate of interest, which could reduce the value of the assets held in trust such that the per-share redemption amount received by public shareholders may be less than $10.00 per share.
The proceeds held in the trust account are invested only in U.S. government treasury obligations with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury obligations. While short-term U.S. government treasury obligations currently yield a positive rate of interest, theyindustry have briefly yielded negative interest rates in recent years. Central banks in Europe and Japan pursued interest rates below zero in recent years, and the Open Market Committee of the Federal Reserve has not ruled out the possibility that it may in the future adopt similar policies in the United States. In the event that we are unable to complete our initial business combination or make certain amendments to our amended and restated memorandum and articles of association, our public shareholders are entitled to receive their pro-rata share of the proceeds held in the trust account, plus any interest income not released to us, net of taxes payable. Negative interest rates could impact the per-share redemption amount that may be received by public shareholders.
Risks Related to Our Securities and the Securities Market
We have no obligation to net cash settle the warrants.
We have no obligation to net cash settle the warrants. Accordingly, the warrants may expire worthless.
If we do not maintain a current and effective prospectus relating to the ordinary shares issuable upon exercise of the redeemable warrants, public holders will only be able to exercise such redeemable warrants on a “cashless basis” which would result in a fewer number of shares being issued to the holder had such holder exercised the redeemable warrants for cash.
Except as set forth below, if we do not maintain a current and effective prospectus relating to the ordinary shares issuable upon exercise of the warrants at the time that holders wish to exercise such warrants, they will only be able to exercise them on a “cashless basis,” provided that an exemption from registration is available. As a result, the number of ordinary shares that a holder will receive upon exercise of its warrants will be fewer than it would have been had such holder exercised its warrant for cash. Further, if an exemption from registration is not available, holders would not be able to exercise their warrants on a cashless basis and would only be able to exercise their warrants for cash if a current and effective prospectus relating to the ordinary shares issuable upon exercise of the warrants is available. Under the terms of the warrant agreement, we have agreed to use our best efforts to meet these conditions and to maintain a current and effective prospectus relating to the ordinary shares issuable upon exercise of the warrants until the expiration of the warrants. However, we cannot assure you that we will be able to do so. If we are unableelected to do so, the potential “upside” of the holder’s investment in our company may be reduced or the warrants may expire worthless. Notwithstanding the foregoing, the private warrants may be exercisable for unregistered ordinary shares for cash even if the prospectus relating to the ordinary shares issuable upon exercise of the warrants is not current and effective.
An investor will only be able to exercise a warrant if the issuance of ordinary shares upon such exercise has been registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the warrants.
No warrants will be exercisable for cash and we will not be obligated to issue ordinary shares unless the ordinary shares issuable upon such exercise have been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. At the time that the warrants become exercisable, we expect to continue to be listed on a national securities exchange, which wouldprovide an exemption from registration in every state. However, we cannot assure you of this fact. If the ordinary shares issuable upon exercise of the warrants are not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside, the warrants may be deprived of any value,could also adversely affect the market for the warrants may be limited and they may expire worthless if they cannot be sold.
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Our management’s ability to require holdersprice of our redeemable warrants to exercise such redeemable warrants on a cashless basis will cause holders to receive fewer ordinary shares upon their exercise of the redeemable warrants than they would have received had they been able to exercise their redeemable warrants for cash.common stock.
If we call our warrants for redemption after the redemption criteria described elsewhere in this prospectus have been satisfied, our management will have the option to require any holder that wishes to exercise his warrants (including any warrants held by our initial shareholders or their permitted transferees) to do so on a “cashless basis.” If our management chooses to require holders to exercise their warrants on a cashless basis, the number of ordinary shares received by a holder upon exercise will be fewer than it would have been had such holder exercised his warrants for cash. This will have the effect of reducing the potential “upside” of the holder’s investment in our company.
We may amend the terms of the warrants in a way that may be adverse to holders with the approval by the holders of a majority of the then outstanding warrants.
Our warrants are issued in registered form under a warrant agreement between Continental, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision. The warrant agreement requires the approval by the holders of a majority of the thenoutstanding warrants (including the private warrants) in order to make any change that adversely affects the interests of the registered holders. Accordingly, we would need approval from the holders of only 4,425,001, or 36.9%, of the public warrants to amend the terms of the warrants (assuming that the initial shareholders do not purchase any units in this offering units or warrants in the after-market and that the holders of the private warrants, excluding EarlyBirdCapital, voted in favor of such amendment.
The NYSE may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
Our units, ordinary shares and warrants are listed on the NYSE. Although we expect to continue to meet, on a pro forma basis, the minimum initial listing standards set forth in the NYSE listing standards, we cannot assure you that our securities will continue to be listed on the NYSE in the future or prior to our initial business combination. In order to continue listing our securities on the NYSE prior to our initial business combination, we must maintain certain financial, distribution and stock price levels.
Generally, we must maintain a minimum number of holders of our securities (400 public holders). Additionally, in connection with our initial business combination, we will be required to demonstrate compliance with the NYSE’s initial listing requirements, which are more rigorous than the NYSE’s continued listing requirements, in order to continue to maintain the listing of our securities on the NYSE. For instance, our share price would generally be required to be at least $4 per share. We cannot assure you that we will be able to meet those initial listing requirements at that time. If the NYSE delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
Investors may not have sufficient time to comply with the delivery requirements for conversion.
Pursuant to our amended and restated memorandum and articles of association, we are required to give a minimum of only ten days’ notice for each general meeting. As a result, if we require public shareholders who wish to convert their public shares into the right to receive a pro rata portion of the funds in the trust account to comply with specific delivery requirements for conversion, holders may not have sufficient time to receive the notice and deliver their shares for conversion. Accordingly, investors may not be able to exercise their conversion rights and may be forced to retain our securities when they otherwise would not want to.
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Risks Related to Acquiring and Operating a Business Outside of the United States
Because we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. Federal courts may be limited.
We are an exempted company incorporated under the laws of the Cayman Islands and certain of our officers and directors are residents of jurisdictions outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon our directors or executive officers, or enforce judgments obtained in the United States courts against our directors or officers.
Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Companies Law (as the same may be supplemented or amended from time to time) or the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are different from statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States. In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a Federal court of the United States.
We have been advised by our Cayman Islands legal counsel that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a United States company.
We may be a passive foreign investment company (“PFIC”),subject to securities litigation, which is expensive and could divert management attention.
The market price of our common stock has been and may continue to be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities litigation, including class action litigation. Litigation of this type could result in adverse U.S. federal income tax consequences to U.S. investors.
If we are determined to be a PFIC (under the rules described below) for any taxable year (or portion thereof) that is included in the holding periodsubstantial costs and diversion of a U.S. Holder (as defined below) of our ordinary shares or warrants, the U.S. Holder may be subject to adverse U.S. federal income tax consequences and may be subject to additional reporting requirements. The term “U.S. Holder” means a beneficial owner of ordinary shares or warrants who or that is for U.S. federal income tax purposes: (i) an individual citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for United States federal income tax purposes) that is created or organized (or treated as created or organized) in or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to United States federal income taxation regardless of its source or (iv) a trust if (A) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (B) it has in effect a valid election to be treated as a U.S. person.
A foreign (i.e., non-U.S.) corporation will be a PFIC for U.S. tax purposes if at least 75% of its gross income in a taxable year, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income. Alternatively, a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year of the foreign corporation, ordinarily determined based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any corporation in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.
Because we are a blank check company, with no current active business, we believe that it is likely that we will meet the PFIC asset or income test for our current taxable year. However, pursuant to a start-up exception, a corporation will not be a PFIC for the first taxable year the corporation has gross income (the “start-up year”), if (1) no predecessor of the corporation was a PFIC; (2) the corporation satisfies the U.S. Internal Revenue Service (“IRS”) that it will not be a PFIC for either of the two taxable years following the start-up year; and (3) the corporation is not in fact a PFIC for either of those years. The applicability of the start-up exception to us will not be known until after the close of our current taxable year. After the acquisition of a company or assets in a business combination, we may still meet one of the PFIC tests depending on the timing of the acquisition and the amount of our passive income and assets as well as the passive income and assets of the acquired business. If the company that we acquire in a business combination is a PFIC, then we will likely not qualify for the start-up exception and will be a PFIC for our current taxable year. Our actual PFIC status for our current taxable year or any future taxable year, however, will not be determinable until after the end of such taxable year. Accordingly, there can be no assurance with respect to our status as a PFIC for our current taxable year or any future taxable year.
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If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder of our ordinary shares or warrants and, in the case of our ordinary shares, the U.S. Holder did not make either a timely qualified electing fund (“QEF”) election for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) ordinary shares or a timely “mark to market” election, each as described below, such holder generally will be subject to special rules with respect to:
Under these rules,
In general, if we are determined to be a PFIC, a U.S. Holder may avoid the PFIC tax consequences described above in respect to our ordinary shares (but not our warrants) by making a timely QEF election (if eligible to do so) to include in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable year ends. A U.S. Holder generally may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge.
A U.S. Holder may not make a QEF election with respect to its warrants to acquire our ordinary shares. As a result, if a U.S. Holder sells or otherwise disposes of such warrants (other than upon exercise of such warrants), any gain recognized generally will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above, if we were a PFIC at any time during the period the U.S. Holder held the warrants. If a U.S. Holder that exercises such warrants properly makes a QEF election with respect to the newly acquired ordinary shares (or has previously made a QEF election with respect to our ordinary shares), the QEF election will apply to the newly acquired ordinary shares, but the adverse tax consequences relating to PFIC shares, adjusted to take into account the current income inclusions resulting from the QEF election, will continue to apply with respect to such newly acquired ordinary shares (which generally will be deemed to have a holding period for purposes of the PFIC rules that includes the period the U.S. Holder held the warrants), unless the U.S. Holder makes a purging election. The purging election creates a deemed sale of such shares at their fair market value. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, the U.S. Holder will have a new basis and holding period in the ordinary shares acquired upon the exercise of the warrants for purposes of the PFIC rules.
The QEF election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A QEF election may not be made with respect to our warrants. A U.S. Holder generally makes a QEF election by attaching a completed IRS Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), including the information provided in a PFIC annual information statement, to a timely filed U.S. federal income tax return for the tax year to which the election relates. Retroactive QEF elections generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent of the IRS. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a retroactive QEF election under their particular circumstances.
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In order to comply with the requirements of a QEF election, a U.S. Holder must receive a PFIC annual information statement from us. If we determine we are a PFIC for any taxable year, we will endeavor to provide to a U.S. Holder such information as the IRS may require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a QEF election. However, there is no assurance that we will have timely knowledge of our status as a PFIC in the future or of the required information to be provided.
If a U.S. Holder has made a QEF election with respect to our ordinary shares, and the special tax and interest charge rules do not apply to such shares (because of a timely QEF election for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such shares or a purge of the PFIC taint pursuant to a purging election, as described above), any gain recognized on the sale of our ordinary shares generally will be taxable as capital gain and no interest charge will be imposed under the PFIC rules. As discussed above, U.S. Holders of a QEF are currently taxed on their pro rata shares of its earnings and profits, whether or not distributed. In such case, a subsequent distribution of such earnings and profits that were previously included in income generally should not be taxable as a dividend to such U.S. Holders. The tax basis of a U.S. Holder’s shares in a QEF will be increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends, under the above rules.
Although a determination as to our PFIC status will be made annually, an initial determination that our company is a PFIC will generally apply for subsequent years to a U.S. Holder who held ordinary shares or warrants while we were a PFIC, whether or not we meet the test for PFIC status in those subsequent years. A U.S. Holder who makes the QEF election discussed above for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) our ordinary shares, however, will not be subject to the PFIC tax and interest charge rules discussed above in respect to such shares. In addition, such U.S. Holder will not be subject to the QEF inclusion regime with respect to such shares for any taxable year of us that ends within or with a taxable year of the U.S. Holder and in which we are not a PFIC. On the other hand, if the QEF election is not effective for each of our taxable years in which we are a PFIC and the U.S. Holder holds (or is deemed to hold) our ordinary shares, the PFIC rules discussed above will continue to apply to such shares unless the holder makes a purging election, as described above, and pays the tax and interest charge with respect to the gain inherent in such shares attributable to the pre-QEF election period.
Alternatively, if a U.S. Holder, at the close of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S. Holder may make a mark-to-market election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) ordinary shares in us and for which we are determined to be a PFIC, such holder generally will not be subject to the PFIC rules described above in respect to its ordinary shares. Instead, in general, the U.S. Holder will include as ordinary income each year the excess, if any, of the fair market value of its ordinary shares at the end of its taxable year over the adjusted basis in its ordinary shares. The U.S. Holder also will be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of its ordinary shares over the fair market value of its ordinary shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The U.S. Holder’s basis in its ordinary shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of the ordinary shares will be treated as ordinary income. Currently, a mark-to-market election likely may not be made with respect to our warrants.
The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the SEC, including the NYSE, or on a foreign exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in respect to our ordinary shares under their particular circumstances.
If we are a PFIC and, at any time, have a foreign subsidiary that is classified as a PFIC, U.S. Holders generally would be deemed to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if we receive a distribution from, or dispose of all or part of our interest in, the lower-tier PFIC or the U.S. Holders otherwise were deemed to have disposed of an interest in the lower-tier PFIC. We will endeavor to cause any lower-tier PFIC to provide to a U.S. Holder the information that may be required to make or maintain a QEF election with respect to the lower-tier PFIC. However, there is no assurance that we will have timely knowledge of the status of any such lower-tier PFIC. In addition, we may not hold a controlling interest in any such lower-tier PFIC and thus there can be no assurance we will be able to cause the lower-tier PFIC to provide the required information. U.S. Holders are urged to consult their own tax advisors regarding the tax issues raised by lower-tier PFICs.
A U.S. Holder that owns (or is deemed to own) shares in a PFIC during any taxable year of the U.S. Holder, may have to file an IRS Form 8621 (whether or not a QEF or market-to-market election is made) and such other information as may be required by the U.S. Treasury Department.
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The rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of our ordinary shares or warrants should consult their own tax advisors concerning the application of the PFIC rules to our ordinary shares or warrants under their particular circumstances.
If our management following a business combination is unfamiliar with United States securities laws, they may have to expend timemanagement’s attention and resources, becoming familiar with such laws which could lead to various regulatory issues.
Following a business combination, our management will likely resign from their positions as officers of the company and the management of the target business at the time of the business combination will remain in place. We cannot assure you that management of the target business will be familiar with United States securities laws. If new management is unfamiliar with our laws, they may have to expend time and resources becoming familiar with such laws. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect our operations.
We may reincorporate in another jurisdiction in connection with our initial business combination and such reincorporation may result in taxes imposed on shareholders.
We may, in connection with our initial business combination and subject to requisite shareholder approval under the Companies Law, reincorporate in the jurisdiction in which the target company or business is located or in another jurisdiction. The transaction may require a shareholder to recognize taxable income in the jurisdiction in which the shareholder is a tax resident or in which its members are resident if it is a tax transparent entity. We do not intend to make any cash distributions to shareholders to pay such taxes. Shareholders may be subject to withholding taxes or other taxes with respect to their ownership of us after the reincorporation.
If restrictions on repatriation of earnings from the target business’ home jurisdiction to foreign entities are instituted, our business following a business combination may be materially negatively affected.
It is possible that following an initial business combination, the home jurisdiction of the target business may have restrictions on repatriations of earnings or additional restrictions may be imposed in the future. If they were, it could have a material adverse effect on our operations.
If we effect our initial business, combination with a company located outside of the United States, we would be subject to a variety of additional risks that may negatively impact our operations.
If we effect our initial business combination with a company located outside of the United States, we would be subject to any special considerations or risks associated with companies operating in the target business’ home jurisdiction, including any of the following:
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If we effect a business combination with a company located outside of the United States, the laws applicable to such company will likely govern all of our material agreements and we may not be able to enforce our legal rights.
If we effect a business combination with a company located outside of the United States, the laws of the country in which such company operates will govern almost all of the material agreements relating to its operations. We cannot assure you that the target business will be able to enforce any of its material agreements or that remedies will be available in this new jurisdiction. The system of laws and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital. Additionally, if we acquire a company located outside of the United States, it is likely that substantially all of our assets would be located outside of the United States and some of our officers and directors might reside outside of the United States. As a result, it may not be possible for investors in the United States to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under Federal securities laws.
Because of the costs and difficulties inherent in managing cross-border business operations after we acquire it, our results of operations may be negatively impacted following a business combination.
Managing a business, operations, personnel or assets in another country is challenging and costly. Management of the target business that we may hire (whether based abroad or in the U.S.) may be inexperienced in cross-border business practices and unaware of significant differences in accounting rules, legal regimes and labor practices. Even with a seasoned and experienced management team, the costs and difficulties inherent in managing cross-border business operations, personnel and assets can be significant (and much higher than in a purely domestic business) and may negatively impact our financial and operational performance.
After our initial business combination, substantially all of our assets may be located in a foreign country and substantially all of our revenue may be derived from our operations in such country. Accordingly, our results of operations and prospects will be subject, to a significant extent, to the economic, political and legal policies, developments and conditions in the country in which we operate.
The economic, political and social conditions, as well as government policies, of the country in which our operations are located could affect our business. If in the future such country’s economy experiences a downturn or grows at a slower rate than expected, there may be less demand for spending in certain industries. A decrease in demand for spending in certain industries could materially and adversely affect our ability to find an attractive target business with which to consummate our initial business combination and if we effect our initial business combination, the ability of that target business to become profitable.
Exchange rate fluctuations and currency policies may cause a target business’ ability to succeed in the international markets to be diminished.
In the event we acquire a non-U.S. target, all revenues and income would likely be received in a foreign currency, the dollar equivalent of our net assets and distributions, if any, could be adversely affected by reductions in the value of the local currency. The value of the currencies in our target regions fluctuate and are affected by, among other things, changes in political and economic conditions. Any change in the relative value of such currency against our reporting currency may affect the attractiveness of any target business or, following consummation of our initial business combination, our financial condition, and results of operations. Additionally, ifAny adverse determination in litigation could also subject us to significant liabilities.
Delaware law and provisions in our charter and bylaws could make a currency appreciates in value against the dollar prior to the consummation of our initial business combination, the cost of a target business as measured in dollars will increase, which may make it less likely that we are able to consummate such transaction.
Because our business objective includes the possibility of acquiring one or more operating businesses with primary operations in markets outside the United States, we will focus on changes in the exchange rate between the U.S. dollar and the currency of any relevant jurisdiction may affect our ability to achieve such objective. If the U.S. dollar declines in value against the relevant currency, any business combination will be more expensive and therefore more difficult to complete. Furthermore, we may incur costs in connection with conversions between U.S. dollars and the relevant currency, which may make it more difficult to consummate a business combination.
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Because foreign law could govern almost all of our material agreements, we may not be able to enforce our rights within such jurisdiction or elsewhere, which could result in a significant loss of business, business opportunities or capital.
Foreign law could govern almost all of our material agreements. The target business may not be able to enforce any of its material agreements or that remedies will be available outside of such foreign jurisdiction’s legal system. The system of laws and the enforcement of existing laws and contracts in such jurisdiction may not be as certain in implementation and interpretation as in the United States. Judiciaries in such jurisdiction may also be relatively inexperienced in enforcing corporate and commercial law, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. As a result, the inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business and business opportunities.
Corporate governance standards in foreign countries may not be as strict or developed as in the United States and such weakness may hide issues and operational practices that are detrimental to a target business.
General corporate governance standards in some countries are weak in that they do not prevent business practices that cause unfavorable related party transactions, over-leveraging, improper accounting, family company interconnectivity and poor management. Local laws often do not go far to prevent improper business practices. Therefore, shareholders may not be treated impartially and equally as a result of poor management practices, asset shifting, conglomerate structures that result in preferential treatment to some parts of the overall company, and cronyism. The lack of transparency and ambiguity in the regulatory process also may result in inadequate credit evaluation and weakness that may precipitate or encourage financial crisis. In our evaluation of a business combination we will have to evaluate the corporate governance of a target and the business environment, and in accordance with United States laws for reporting companies take steps to implement practices that will cause compliance with all applicable rules and accounting practices. Notwithstanding these intended efforts, there may be endemic practices and local laws that could add risk to an investment we ultimately make and that result in an adverse effect on our operations and financial results.
Companies in foreign countries may be subject to accounting, auditing, regulatory and financial standards and requirements that differ, in some cases significantly, from those applicable to public companies in the United States, which may make it more difficult or complex to consummate a business combination. In particular, the assets and profits appearing on the financial statements of a foreign company may not reflect its financial position or results of operations in the way they would be reflected had such financial statements been prepared in accordance with GAAP and there may be substantially less publicly available information about companies in certain jurisdictions than there is about comparable United States companies. Moreover, foreign companies may not be subject to the same degree of regulation as are United States companies with respect to such matters as insider trading rules,merger, tender offer, regulation, shareholderor proxy requirements and the timely disclosure of information.
Legal principles relating to corporate affairs and the validity of corporate procedures, directors’ fiduciary duties and liabilities and shareholders’ rights for foreign corporations may differ from those that may apply in the U.S., which may make the consummation of a business combination with a foreign company more difficult. We therefore may have more difficulty in achieving our business objective.
Because a foreign judiciary may determine the scope and enforcement of almost all of our target business’ material agreements under the law of such foreign jurisdiction, we may be unable to enforce our rights inside and outside of such jurisdiction.
The law of a foreign jurisdiction may govern almost all of our target business’ material agreements, some of which may be with governmental agencies in such jurisdiction. We cannot assure you that the target business or businesses will be able to enforce any of their material agreements or that remedies will be available outside of such jurisdiction. The inability to enforce or obtain a remedy under any of our future agreements may have a material adverse impact on our future operations.
A slowdown in economic growth in the markets that our business target operates in may adversely affect our business, financial condition, results of operations, the value of its equity shares andcontest difficult, thereby depressing the trading price of our shares following our business combination.common stock.
Following the business combination, our results of operationsOur charter, bylaws, and financial condition may be dependent on, and may be adversely affected by, conditions in financial markets in the global economy, and, particularly in the markets where the business operates. The specific economyDelaware law contain provisions that could be adversely affected by various factors such as political or regulatory action, including adverse changes in liberalization policies, business corruption, social disturbances, terrorist attacks and other acts of violence or war, natural calamities, interest rates, inflation, commodity and energy prices and various other factors which may adversely affect our business, financial condition, results of operations, value of our equity shares anddepress the trading price of our common stock by acting to discourage, delay, or prevent a change of control of Shapeways or changes in Shapeways that our management or stockholders may deem advantageous. Among other things, our charter and bylaws include the following provisions:
a classified board of directors so that not all members of our Board of Directors are elected at one time;
permit the Board of Directors to establish the number of directors and fill any vacancies and newly created directorships;
provide that directors may only be removed for cause and only by a super majority vote;
require super-majority voting to amend certain provisions of our charter and any provision of our bylaws;
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authorize the issuance of “blank check” preferred stock that our Board of Directors could use to implement a stockholder rights plan;
eliminate the ability of our stockholders to call special meetings of stockholders;
prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
provide that the Board of Directors is expressly authorized to make, alter, or repeal our bylaws; and
establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, or DGCL, which prevents interested stockholders, such as certain stockholders holding more than 15% of our outstanding common stock, from engaging in certain business combinations unless (i) prior to the time such stockholder became an interested stockholder, our Board of Directors approved the transaction that resulted in such stockholder becoming an interested stockholder, (ii) upon consummation of the transaction that resulted in such stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our common stock, or (iii) following board approval, such business combination receives the approval of the holders of at least two-thirds of our outstanding common stock not held by such interested stockholder at an annual or special meeting of stockholders.
Any provision of our charter, bylaws, or Delaware law that has the effect of delaying, preventing, or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares followingof our common stock and could also affect the business combination.price that some investors are willing to pay for our common stock.
Our charter provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our charter provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, our charter or bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. In addition, if an action is brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel.
Our charter provides that any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock shall be deemed to have notice of and consented to the foregoing choice of forum provision.
This provision would not apply to claims brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Our charter provides further that, unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States shall, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. These choices of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees and may discourage these types of lawsuits. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been
Regional hostilities, terrorist attacks, communal disturbances, civil unrest39
challenged in legal proceedings, and other actsit is possible that a court could find these types of violenceprovisions to be inapplicable or warunenforceable. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may resultnevertheless seek to bring a claim in a loss of investor confidence and a declinevenue other than those designated in the value ofexclusive-forum provisions, and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions. If a court were to find the exclusive-forum provision contained in our equity shares and trading price of our shares following our business combination.
Terrorist attacks, civil unrest and other acts of violencecharter to be inapplicable or war may negatively affect the marketsunenforceable in whichan action, we may operatesincur additional costs associated with resolving such action in other jurisdictions, which could harm our business followingbusiness.
Item 1B. Unresolved Staff Comments.
None.
We lease a 25,000 square foot manufacturing facility in Long Island City, and the lease expires in January 2023. We lease another 18,837 square foot facility in Eindhoven, Netherlands, and the lease of this facility expires in September 2024. We believe that our business combinationfacilities are adequate for our current needs and, also adversely affectshould the worldwide financial markets. In addition, the countriescompany need additional space, we believe we will focusbe able to obtain additional space on havecommercially reasonable terms.
We are from time to time experienced instancessubject to various claims, lawsuits, and other legal and administrative proceedings arising in the ordinary course of civil unrestbusiness. Some of these claims, lawsuits, and hostilities among or between neighboring countries. Any such hostilitiesother proceedings may involve highly complex issues that are subject to substantial uncertainties, and tensions maycould result in investor concern about stability indamages, fines, penalties, non-monetary sanctions, or relief. Due to the region, whichinherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may adversely affectmaterially vary from estimates.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock and warrants are listed on the valueNYSE under the symbols “SHPW” and “SHPW WS,” respectively. Prior to the consummation of the Business Combination, Galileo’s ordinary shares and warrants were listed on the NYSE under the symbols “GLEO” and “GLEO WS,” respectively. Prior to the consummation of the Business Combination, there was no public market for the common stock of Shapeways, Inc.
Holders
As of March 28, 2022, there were 150 holders of record of our equity sharescommon stock and the trading price14 holders of record of our warrants. We believe a substantially greater number of beneficial owners hold shares followingof common stock or warrants through brokers, banks or other nominees.
Dividends
We have not paid any cash dividends on our business combination. Events of this naturecommon stock to date. We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay cash dividends for the foreseeable future. Any decision to declare and pay dividends in the future as well as socialwill be made at the discretion of the Board of Directors and civil unrest, could influencewill depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that the economy in whichBoard of Directors may deem relevant. In addition, our business target operates,ability to pay dividends may be limited by covenants of any existing and could have an adverse effect onfuture outstanding indebtedness we or our business, including the value of equity shares and the trading pricesubsidiaries incur. We do not anticipate declaring any cash dividends to holders of our sharescommon stock in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings
Unregistered Sales
None.
Use of Proceeds
None.
Item 6. Selected Financial Data.
Reserved.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following our business combination.
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The occurrencemanagement’s discussion and analysis of natural disasters may adversely affect our business, financial condition and results of operations following our business combination.
The occurrence of natural disasters, including hurricanes, floods, earthquakes, tornadoes, fires and pandemic disease may adversely affect our business, financial condition ordescribes the principal factors affecting the results of operations following our business combination. The potential impact of a natural disaster on our results of operations, and financial position is speculative, and would depend on numerous factors. The extent and severity of these natural disasters determines their effect on a given economy. We cannot assure you that natural disasters will not occur in the future or that its business, financial condition, and results of operations will not be adversely affected.
Any downgrade of credit ratings of the countrychanges in which the company we acquire does business may adversely affect our ability to raise debt financing following our business combination.
No assurance can be given that any rating organization will not downgrade the credit ratings of the sovereign foreign currency long-term debt of the country in which our business target operates, which reflect an assessment of the overall financial capacity of the government of such country to pay its obligations and its ability to meet its financial commitments as they become due. Any downgrade could cause interest rates and borrowing costs to rise, which may negatively impact both the perception of credit risk associated with our future variable rate debt and our ability to access the debt markets on favorable terms in the future. This could have an adverse effect on our financial condition following our business combination.
Returns on investment in foreign companies may be decreased by withholding and other taxes.
Our investments will incur tax risk. Income that might otherwise not be subject to withholding of local income tax under normal international conventions may be subject to withholding of income tax. Additionally, proof of payment of withholding taxes may be required as part offor the remittance procedure. Any withholding taxes paid by us on income from our investments in such country may or may not be creditable on our income tax returns. We intend to seek to minimize any withholding tax or local tax otherwise imposed. However, there is no assurance that the foreign tax authorities will recognize application of such treaties to achieve a minimization of such tax. We may also elect to create foreign subsidiaries to effect the business combinations to attempt to limit the potential tax consequences of a business combination.
The decision by British voters to exit the European Union may negatively impact us.
The United Kingdom (the “U.K.”) withdrew from the European Union on Januaryyear ended December 31, 2020 (commonly referred to as “Brexit”). The terms under which the U.K is leaving the European Union are still uncertain. If the U.K. leaves the European Union with no agreement, it will likely have an adverse impact on labor and trade in addition to creating further short-term uncertainty and currency volatility. In the absence of a future trade deal, the U.K.’s trade with the European Union and the rest of the world would be subject to tariffs and duties set by the World Trade Organization. Additionally, the movement of goods between the U.K. and the remaining member states of the European Union will be subject to additional inspections and documentation checks, leading to possible delays at ports of entry and departure. These changes to the trading relationship between the U.K and European Union would likely result in increased cost of goods imported into and exported from the U.K. and may decrease the profitability of U.K.-based and other operations. Additional currency volatility could drive a weaker British pound, which would increase the cost of goods imported into the U.K. operations and may decrease the profitability of U.K. operations. A weaker British pound versus the U.S. dollar also causes local currency results of U.K. operations to be translated into fewer U.S. dollars during a reporting period. With a range of outcomes still possible, the impact from Brexit remains uncertain and will depend, in part, on the final outcome of tariff, trade, regulatory and other negotiations. As a result, we may be negatively affected by the above contingencies to the extent that they occur and to the extent that we consummate an initial business combination with a target that either is located in the U.K., has material exposure to the U.K., or is otherwise materially influenced by the potential negative consequences of Brexit.
General Risk Factors
We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance.
We are subject to rules and regulations by various governing bodies, including, for example, the SEC, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
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Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available.2021. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed.
Cyber incidents or attacks directed at us could result in information theft, data corruption, operational disruption and/or financial loss.
We depend on digital technologies, including information systems, infrastructure and cloud applications and services, including those of third parties with which we may deal. Sophisticated and deliberate attacks on, or security breaches in, our systems or infrastructure, or the systems or infrastructure of third parties or the cloud, could lead to corruption or misappropriation of our assets, proprietary information and sensitive or confidential data. As a blank check without significant investments in data security protection, we may not be sufficiently protected against such occurrences. We may not have sufficient resources to adequately protect against, or to investigate and remediate any vulnerability to, cyber incidents. It is possible that any of these occurrences, or a combination of them, could have adverse consequences on our business and lead to financial loss.
Not applicable.
We do not own any real estate or other physical properties materially important to our operation. We currently maintain our principal executive offices at 1049 Park Ave. 14A, New York, NY 10028. The cost for this space is included in the $3,000 per-month aggregate fee we pay to an affiliate of our Chef Financial Officer for general and administrative services. We consider our current office space, combined with the other office space otherwise available to our executive officers, adequate for our current operations.
To the knowledge of our management, there is no litigation currently pending against us, any of our officers or directors in their capacity as such or against any of our property.
Not applicable.
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Market Information
Our units, ordinary shares and public warrants are each traded on the NYSE under the symbols “GLEO.U,” “GLEO” and “GLEO WS,” respectively. Our units commenced public trading on October 18, 2019, and our ordinary shares and public warrants commenced separate public trading on November 14, 2019.
Holders
On March 25, 2021, there was one holder of record of our units, three holders of record of our ordinary shares and three holders of record of our warrants.
Securities Authorized for Issuance under Equity Compensation Plans
None.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Not required for smaller reporting companies.
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our auditedthe accompanying consolidated financial statements, and the notes related thereto which are includedset forth in “Item 8. Financial Statements and Supplementary Data”Part I, Item 8 of this Report. CertainSome of the information contained in thethis discussion and analysis or set forth belowelsewhere in this Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth underthat involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements” below, “Item 1A. Riskand “Risk Factors” for a discussion of forward-looking statements and elsewhere in this Report.
Special Note Regarding Forward-Looking Statements
This Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertaintiesimportant factors that could cause actual results to differ materially from thosethe results described in or implied by these forward-looking statements.
Company Overview
Shapeways is a leading digital manufacturer combining high quality, flexible, on-demand manufacturing with purpose-built proprietary software to offer customers an end-to-end digital manufacturing platform on which they can rapidly transform digital designs into physical products. Our manufacturing platform offers customers access to high quality manufacturing from start to finish through automation, innovation, and digitization. Our proprietary software, wide selection of materials and technologies, and global supply chain lower manufacturing barriers and accelerate delivery of manufactured parts from prototypes to finished end parts. We combine deep digital manufacturing know-how and software expertise to deliver high quality, flexible on-demand digital manufacturing to a range of customers, from project-focused engineers to large enterprises. Digital manufacturing is the complete digitization of the end-to-end manufacturing process that enables the transition of a digital file to a physical product.
Key Factors Affecting Operating Results
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 the following:
Commercial Launch of New Offerings
We plan to launch several new manufacturing technologies, materials, and finishes. Prior to commercialization, Shapeways must complete testing and manufacturing ramp-up either in house or through our network of third-party manufacturing partners. Any delays in the successful completion of these steps or the results of testing may impact our ability or the pace at which we will generate revenue from these offerings. Even if we successfully introduces these new offerings, there is no assurance that they will be accepted by the broader market.
In 2020, we launched our software under the brand “Powered by Shapeways” to a limited set of design customers, and launched the first phase of this offering under the brand Otto in the fourth quarter of 2021, to third-party manufacturers. This phase of the rollout involves activities such as creating awareness of the new offering and ensuring the software can interoperate with systems used by potential customers. We plan to roll out further phases of this software over the next two years. We believe that offering this software to other manufacturers will enable us to generate future revenue. However, we have not derived significant revenue from sales of its software to date, and may never be successful in doing so. We expect to further commercialize our software, which we expect will provide software customers with an end-to-end software for their manufacturing operations and to expand the manufacturing capabilities that they offer to their customers.
Adoption of Our Digital Manufacturing Solutions
We believe that the market is shifting toward digitization of manufacturing and approaching an inflection point in the overall adoption of digital manufacturing solutions. We believe that we are well-positioned
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to take advantage of this market opportunity across an array of industries due to its platform that combines high-quality, flexible, on-demand manufacturing with purpose-built proprietary software. We expect that our results of operations, including revenue and gross margins, will fluctuate for the foreseeable future as businesses continue to shift away from traditional manufacturing processes towards digital manufacturing. The degree to which current and potential customers recognize the benefits of the digitization of manufacturing and the use our solutions in particular will affect our financial results.
Pricing, Product Cost and Margins
To date, the majority of our revenue has been generated by the manufacturing and sales of additively-manufactured end parts.
Software and manufacturing pricing may vary due to market-specific supply and demand dynamics, customer size, and other factors. Sales of certain products, such as software, have, or are expected to have, higher gross margins than others. As a result, our financial performance depends, in part, on the mix of offerings Shapeways sells during a given period. In addition, we are subject to price competition, and projected. Allits ability to compete in key markets will depend on the success of its investments in its offerings, on cost improvements as well as on its ability to efficiently and reliably introduce cost-effective digital manufacturing solutions for our customers.
Continued Investment and Innovation
We believe that we are a leader in digital manufacturing solutions, offering high-quality, flexible, on-demand manufacturing coupled with purpose-built proprietary software. Our performance is significantly dependent on the investment we make in our software development efforts and in new digital manufacturing technologies. It is essential that we continually identify and respond to rapidly evolving customer requirements, develop and introduce innovative new offerings, enhance existing solutions and generate customer demand for our offerings. We believe that investment in our digital manufacturing solutions will contribute to long-term revenue growth, but may adversely affect near-term profitability.
Components of Results of Operations
Revenue
The majority of our revenue results from the sales of products that we manufacture for customers, which is designated as “Direct Sales”. This revenue is recognized upon shipment of the manufactured product to the customer.
During the years ended December 31, 2021 and 2020, approximately 23% and 25% of our revenue was designated as “Marketplace Sales”. This revenue is from our customers who sell their products that we manufacture for them through our e-commerce website. Sales through this channel are subject to our regular manufacturing fees and also a 3.5% fee on any price markup the customer includes on their product. See Note 4 to the consolidated financial statements other than statements of historical fact included in this Report including statementsReport.
We also expect to increase software revenue over time. Software revenue is recognized (i) upon implementation for implementation fees, (ii) ratably over the term of the agreement for licensing fees, and (iii) upon order processing for the revenue-sharing component of our arrangements. To date, we have not recognized a material amount of revenue from software since this product offering has been limited to only design partners as we developed the complete product offering. In October 2021, the Company publicly launched a limited version of the software to expand our customer base.
Cost of Revenue
Our cost of revenue consists of the cost to produce manufactured products and related services. Cost of revenue includes machine costs, material costs, rent costs, personnel costs, and other costs directly associated
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with manufacturing operations in this “Management’s Discussionour factories as well as amounts paid to our third-party contract manufacturers and Analysissuppliers. Our cost of Financial Conditionrevenue also includes depreciation and Resultsamortization of Operations” regardingequipment, cost of spare or replacement machine parts, machine service costs, shipping and handling costs, and some overhead costs. We expect cost of revenue to increase in absolute dollars in the Company’s financial position, business strategyfuture.
We intend to further commercialize our software offering and if we generate material revenue from sales of our software offering, we will separately recognize the plansrelated cost of revenue.
Gross Profit and objectives of management for future operations,Gross Margin
Our gross profit and gross margin are, forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. Amay be, influenced by a number of factors, could cause actual events, performance or resultsincluding:
Market conditions that may impact our pricing;
Product mix changes between established manufacturing product offerings and new manufacturing product offerings;
Mix changes between products we manufacture in house and through outsourced manufacturers;
Our cost structure, including rent, materials costs, machine costs, labor rates, and other manufacturing operations costs; and
Our level of investment in new technologies.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of employee-related costs for individuals working in our sales and marketing departments, third party consultants, marketing costs such as search engine marketing and search engine optimization and other advertising costs, as well as personnel-related expenses associated with our executive, finance and accounting, legal, human resources, and supply chain functions, as well as professional fees for legal, audit, accounting and other consulting service along with administrative costs of doing business which include, but are not limited to, differ materially from the events, performancerent, utilities, and results discussed in the forward-looking statements. Exceptinsurance.
We expect our sales and marketing costs will increase on an absolute-dollar basis as expressly required by applicable securities law, the Company disclaims any intention or obligationwe expand our headcount, initiate new marketing campaigns, and continue to update or revise any forward-looking statements whetherroll out future phases of our software offering.
We expect our general and administrative expenses will increase on an absolute-dollar basis as a result of new information, future eventsoperating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as increased expenses for insurance (including director and officer insurance), investor relations, and other administrative and professional services. In addition, we expect to incur additional costs as we hire additional personnel and enhance our infrastructure to support the anticipated growth of the business.
Research and Development
Our research and development expenses consist primarily of employee-related personnel expenses, consulting and contractor costs, and SaaS, data center, and other technology costs. We expect research and development costs will increase on an absolute dollar basis over time as we continue to invest in our software offering.
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liability is a non-cash gain or otherwise.loss impacted by the fair value of the Private Warrants assumed pursuant to the Merger.
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Interest Expense
We are a blank check company incorporated inInterest expense consists primarily of interest expense associated with our term loan and our bridge loan. At the Cayman Islands on July 30, 2019 formed for the purpose of effecting an initial businesses combination. While we may pursue an initial business combination target in any business, industry or geographical location, we are focusing our search on targets operating in the Consumer, Retail, Food and Beverage, Fashion and Luxury, Specialty Industrial, Technology or Healthcare sectors that are headquartered in Western Europe or North America, with an emphasis on family-owned businesses, portfolio companies of private equity or venture capital funds, or corporate spin-offs, that have North America as one of its reference markets, and a clearly defined North American high growth strategy. We intend to effectuate our initial business combination using cash derived from the proceedsClosing of the initial public offering, our shares, debt or a combination of cash, sharesBusiness Combination, the Company repaid and debt.
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The issuance of additional ordinary sharesterminated the term loan in an initial business combination:
Similarly, if we issue debt securities, it could result in:
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception to December 31, 2020 were organizational activities, those necessary to prepare for the initial public offering, described below, and identifying a target company for an initial business combination. We do not expect to generate any operating revenues until after the completion of our initial business combination. the Business Combination, the bridge loan was converted into shares of common stock of Legacy Shapeways. Shapeways had no interest-bearing debt outstanding as of December 31, 2021.
Income Tax Benefit
We generate non-operatingfile consolidated income tax returns in the formUnited States and in various state jurisdictions. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of interest income on marketable securities heldexisting assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Where applicable, we record a valuation allowance to reduce any deferred tax assets that it determines will not be realizable in the trust account.future.
Due to our cumulative losses, we maintain a valuation allowance against our U.S. and state deferred tax assets.
Results of Operations
Comparison of the Year Ended December 31, 2021 and 2020
Revenue
| Year Ended December 31, | Change | |||||||||||||||
(Dollars in thousands) | 2021 | 2020 | $ | % | ||||||||||||
Revenue | $ | 33,623 | $ | 31,775 | $ | 1,848 | 6 | % | ||||||||
Revenue for the years ended December 31, 2021 and 2020 was $33.6 million and $31.8 million, respectively, representing an increase of $1.8 million, or 6%. The increase in total revenue was primarily attributable to a 9% higher average price per product, partially offset by a 3% decrease in products shipped. We incurhave continued to optimize our pricing algorithm and mix of technology offerings, resulting in this higher average price per product.
Cost of Revenue
| Year Ended December 31, | Change | |||||||||||||||
(Dollars in thousands) | 2021 | 2020 | $ | % | ||||||||||||
Cost of Revenue | $ | 17,673 | $ | 17,903 | $ | (230 | ) | (1 | )% | |||||||
Cost of revenue for the years ended December 31, 2021 and 2020 was $17.7 million and $17.9 million, respectively, representing a decrease of $0.2 million, or 1%. The decrease in cost of revenue was driven primarily by a 2% increase in cost per item produced, partially offset by a 3% decrease in part production.
Selling, general and administrative
Selling, general and administrative expenses as a resultfor the years ended December 31, 2021 and 2020 were $17.6 million and $10.8 million, respectively, representing an increase of being$6.8 million, or 63%. The increase in selling, general and administrative expenses resulted from increases to personnel cost, office expense, audit and
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other spending related to becoming a public company, (for legal, financial reporting, accountingstock-based compensation due to vesting acceleration of certain executives, marketing spend such as branding and auditing compliance), as well assearch engine marketing to drive growth, and advertising.
Research and Development
Research and development expenses for the years ended December 31, 2021 and 2020 were $6.3 million and $5.6 million, respectively, representing an increase of $0.7 million, or 12%. The increase in research and development expenses was primarily due diligence expensesto an increase in connection with completing an initial business combination.personnel.
Debt Forgiveness
ForDebt forgiveness for the year ended December 31, 2021 was $2.0 million, relating to our Payroll Protection Program (“PPP”) loan. We had no debt forgiveness during the year ended December 31, 2020.
Interest Expense
Interest expense was $0.4 million and $0.6 million for the years ended December 31, 2021 and 2020, werespectively.
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities was a gain of $8.1 million for the year ended December 31, 2021. We had no change in fair value of warrant liabilities during the year ended December 31, 2020.
Income Taxes
Income tax benefit was $0.1 million for the year ended December 31, 2021. We received resolution of a tax assessment charge for 2019 in respect of our Dutch subsidiary, resulting in a refund during the year ended December 31, 2021. We had minimal income tax benefit during the year ended December 31, 2020.
We have provided a valuation allowance for all of its deferred tax assets as a result of our historical net loss of $51,592, which consists of general and administrative costs of $795,613, offset by interest income on marketable securities heldlosses in the trust accountjurisdictions in which we operate. We continue to assess our future taxable income by jurisdiction based on our recent historical operating results, the expected timing of $744,021.reversal of temporary differences, various tax planning strategies that we may be able to enact in future periods, the impact of potential operating changes on our business and our forecast results from operations in future periods based on available information at the end of each reporting period. To the extent that we are able to reach the conclusion that deferred tax assets are realizable based on any combination of the above factors in a single, or multiple, taxing jurisdictions, a reversal of the related portion of our existing valuation allowances may occur.
Non-GAAP Financial Information
ForIn addition to our results determined in accordance with accounting principles generally accepted in the period from July 30, 2019 (inception) through December 31, 2019,United States of America (“U.S. GAAP”), we hadbelieve that Adjusted EBITDA, anon-GAAP financial measure, is useful in evaluating our operational performance. We use this non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that this non-GAAP financial information, when reviewed collectively with our GAAP results, may be helpful to investors in assessing our operating performance.
We define Adjusted EBITDA as net income of $241,659, which consists(loss) excluding debt forgiveness, interest expense, net of interest income, on marketable securities heldincome tax benefit, depreciation and amortization, stock-based compensation, change in the trust accountfair value of $414,479 offset by generalwarrant liabilities, and administrative costs of $172,820.other non-operating gains and losses.
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We believe that the use of Adjusted EBITDA provide an additional tool for investors to use in evaluating ongoing operating results and trends because we eliminate the effect of financing and capital expenditures and provides investors with a means to compare its financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware that when evaluating Adjusted EBITDA we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA on a supplemental basis. You should review the reconciliation of net income (loss) to Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.
The following table reconciles net income (loss) to Adjusted EBITDA for the years ended December 31, 2021 and 2020:
| Year Ended December 31, | ||||||||
(Dollars in thousands) | 2021 | 2020 | ||||||
Net income (loss) | $ | 1,756 | $ | (3,168 | ) | |||
Debt forgiveness | (2,000 | ) | — | |||||
Interest expense, net | 403 | 581 | ||||||
Depreciation and amortization | 593 | 473 | ||||||
Stock-based compensation | 2,907 | 721 | ||||||
Change in fair value of warrant liabilities | (8,106 | ) | — | |||||
Income tax benefit | (71 | ) | (29 | ) | ||||
Other | 15 | 30 | ||||||
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| |||||
Adjusted EBITDA | $ | (4,503 | ) | $ | (1,392 | ) | ||
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Liquidity and Capital Resources
We have incurred losses from operations in each of its annual reporting periods since our inception. As of December 31, 2021, we had $79.7 million in cash and cash equivalents and $0.1 in restricted cash. Up until the Business Combination, we primarily obtained cash to fund its operations through preferred stock offerings and debt instruments.
On October 22, 2019, we consummated the initial public offering of 13,800,000 units, which included the full exercise by the underwritersSince inception through closing of the over-allotment optionBusiness Combination, we have received cumulative net proceeds from the sale of our preferred and common stock of approximately $110 million to purchase an additional 1,800,000 units, at $10.00 per unit, generating gross proceeds of $138,000,000. Simultaneouslyfund our operations.
In October 2018, we entered into a five-year, $5.0��million term loan. Interest was calculated using the Wall Street Journal Prime rate plus 25 basis points, payable monthly in arrears. We paid off this term loan in connection with the closing of the initial public offering,Business Combination.
In June 2019, we received a $5.0 million bridge loan from existing investors, which bore interest at 8% annually. The loan converted into our Series E Preferred Stock at a price per share equal to the Series E liquidation preference immediately prior to the closing of the Business Combination.
In May 2020, we received loan proceeds in the amount of approximately $2.0 million under the PPP. The PPP, established as part of the CARES Act, provided for loans to qualifying businesses. The PPP loan has been forgiven in full, and we are evaluating whether to repay the loan. If repaid, we will reverse the previously recognized gain on debt forgiveness.
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In September 2021, we consummated the sale of 4,110,000 private warrants to the sponsor and EarlyBirdCapital, at a price of $1.00 per private warrant, generatingBusiness Combination which provided gross proceeds resulting from the Merger and PIPE Investment of $4,110,000.
Following the initial public offering, the exercise of the over-allotment optionapproximately $28.1 million and the sale of the private warrants,$75.0 million, respectively, for a total of $138,000,000 was placedapproximately $86.8 million in net proceeds after transaction costs.
Our growth strategy includes exploring strategic partnerships. On March 26, 2021, we entered into a non-binding Memorandum of Understanding (“MOU”) with Desktop Metal, pursuant to which Desktop Metal agreed to invest $20.0 million in the trust account.PIPE Investment. Upon consummation of this investment, we became obligated to purchase $20.0 million of equipment, materials and services from Desktop Metal. In conjunction with these obligations, we and Desktop Metal agreed to develop a strategic partnership. As of December 31, 2021, we paid $4.5 million to Desktop Metal for equipment, materials and services received, and placed purchase orders for another $15.5 million of equipment, materials and services. We incurred $3,187,305have no further obligations under the MOU.
We believe that our current cash and cash equivalents will be sufficient to meet our working capital needs for the twelve months following the issuance date of our consolidated financial statements included within this Report. Our ability to transition to more profitable operations is dependent upon achieving a level of revenue adequate to support our evolving cost structure. We expect to continue to incur net losses in transaction costs, including $2,760,000connection with its ongoing activities, particularly as we invest in hiring, growth-related operating expenditures, and capital expenditures in respect of underwriting fees and $427,305new digital manufacturing technologies. Additionally, we may engage in future acquisitions. If events or circumstances occur such that we do not meet our operating plan as expected, we will be required to reduce corporate overhead or other operating expenses, which could have an adverse impact on our ability to achieve intended business objectives or obtain additional financing. We believe that we have the ability to enact cost savings measures to preserve capital if necessary. There can be no assurance that we will be successful in implementing our business objectives, however, we believe that external sources of other offering costs.funding will be available in such circumstances.
ForCash Flow Summary for the yearyears ended December 31, 2021 and 2020
The following table sets forth a summary of cash flows for the periods presented:
| Year Ended December 31, | ||||||||
(Dollars in thousands) | 2021 | 2020 | ||||||
Net cash used in operating activities | $ | (8,059 | ) | $ | (1,593 | ) | ||
Net cash used in investing activities | (3,960 | ) | (104 | ) | ||||
Net cash provided by financing activities | 83,267 | 732 | ||||||
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Net change in cash and cash equivalents and restricted cash | $ | 71,248 | $ | (965 | ) | |||
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Operating Activities
Net cash used in operating activities during the years ended December 31, 2021 and 2020 was $8.1 million and $1.6 million, respectively. The increase of $6.5 million in cash used in operating activities was $587,232. Netdue to the decrease in net loss excluding non-cash expenses and gains of $51,592 was reduced by interest earned on marketable securities held$4.2 million and the overall decrease in the trust account of $744,021. Changes innet operating assets and liabilities provided $587,232 of cash for operating activities. $2.3 million.
33Investing Activities
For the period from July 30, 2019 (inception) through December 31, 2019,Net cash used in operatinginvesting activities during the years ended December 31, 2021 and 2020 was $4.0 million and $0.1 million, respectively. The increase of $3.9 million in cash used in investing activities was $231,770. Net income of $241,659 was affected by interest earned on marketable securities held in the trust account of $414,479, formation costs paid by Sponsor of $5,000due to increased capital expenditures for property and changes in operating assets and liabilities, which used $63,950 of cash from operating activities. equipment.
As of48
Financing Activities
Net cash provided by financing activities during the years ended December 31, 2021 and 2020 we hadwas $83.3 million and $0.7 million, respectively. The increase of $82.5 million in cash and marketable securities held inprovided by financing activities was primarily due to the trust account of $139,158,500. We intend to use substantially alleffect of the funds heldMerger (net of transaction costs) of $86.8 million during the year ended December 31, 2021, partially offset by an increase in the trust account, including any amounts representing interest earned on the trust account to complete our initial business combination. To the extent that our share capital is used,repayments of loans payable of $2.3 million and a decrease in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operationsfrom loans payable of $2.0 million.
Contractual Obligations and Commitments
See Note 9, Commitments and Contingencies, of the target business or businesses, make other acquisitions and pursue our growth strategies.
As of December 31, 2020, we had cash and cash equivalents of $624,830 held outside of the trust account. We intend to use the funds held outside the trust account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete an initial business combination.
In order to fund working capital deficiencies or finance transaction costs in connection with an initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete an initial business combination, we would repay such loaned amounts. In the event that an initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment. Up to $1,000,000 of such loans may be convertible into warrants identicalnotes to the private warrants, at a price of $1.00 per warrant at the option of the lender.
On December 14, 2020, we entered into the Note with our sponsor, pursuant to which, our sponsor agreed to loan us up to an aggregate principal amount of $500,000. The Note is non-interest bearing and payable upon the date on which an initial business combination is consummated. If we do not consummate an initial business combination, we may use a portion of any funds held outside the trust account to repay the Note; however, no proceeds from the trust account may be used for such repayment. Up to $500,000 of the Note may be converted into warrants at a price of $1.00 per warrant at the option of our sponsor. The warrants would be identical to the private warrants. As of December 31, 2020, the outstanding balance under the Note amounted to an aggregate of $500,000.
Going Concern
We have until July 22, 2021 (or up to October 22, 2021 if a definitive agreement with respect to a proposed initial business combination has been executed by July 22, 2021) to consummate an initial business combination. It is uncertain that we will have sufficient liquidity to fund the working capital needs of the Company until the liquidation date. Additionally, it is uncertain that we will be able to consummate an initial business combination by this time. The Company may not have sufficient liquidity to fund the working capital needs of the Company until one year from the issuance of theconsolidated financial statements included in this Report. If an initial business combination is not consummated by this date, there will be a mandatory liquidationReport for further discussion of our commitments and subsequent dissolution. Management has determined that the mandatory liquidation, should an initial business combination not occur, and potential subsequent dissolution raises substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after July 22, 2021 (or up to October 22, 2021 if a definitive agreement with respect to a proposed initial business combination has been executed by July 22, 2021).contingencies.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2020. We doand does not participate in transactions that create relationships withutilize any “structured debt,” “special purpose” or similar unconsolidated entities for liquidity or financing purposes.
Critical Accounting Policies and Significant Estimates
Our discussion and analysis of financial partnerships, often referred to as variable interest entities,condition and results of operations are based upon our consolidated financial statements, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.
We have an agreement to pay an affiliateprepared in accordance with U.S. GAAP. Certain of our Chief Financial Officer a monthly feeaccounting policies require the application of $3,000judgment in selecting the appropriate assumptions for office space, utilitiescalculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. We periodically evaluate the judgments and secretarial and administrative supportestimates used for our critical accounting policies to the Company. We began incurring these fees on October 17, 2019 and will continue to incur these fees monthly until the earlier of the completion of an initial business combination and the Company’s liquidation.
We engaged EarlyBirdCapital as an advisor in connection with an initial business combination to assist us in locating target businesses, holding meetings with our shareholders to discuss a potential initial business combination and the target business’ attributes, introduce us to potential investors that are interested in purchasing securities, assist us in obtaining shareholder approval for an initial business combination and assist us with our press releases and public filings in connection with an initial business combination. We will pay EarlyBirdCapital a cash fee equal to 3.5% of the gross proceeds of the initial public offering, or $4,830,000, for such services only upon the consummation of an initial business combination. Of such amount, up to approximately 25% may be paid (subject to our discretion) to third parties who are investment banks or financial advisory firms not participating in initial public offering that assist us in consummating its initial business combination. The election to make such payments to third parties will be solely at the discretion of our management team, and such third parties will be selected by the management team in their sole and absolute discretion.
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Additionally, we will pay EarlyBirdCapital a cash fee equal to 1.0% of the total consideration payable in the proposed initial business combination if it introduces us to the target business with which we complete an initial business combination; provided that the foregoing fee will not be paid prior to the date that is 90 days from the effective date of the initial public offering, unless FINRA determinesensure that such payment would not be deemed underwriters’ compensationjudgments and estimates are reasonable for our interim and year-end reporting requirements. These judgments and estimates are based on our historical experience (where available), current trends and information available from other sources, as appropriate. If different conditions result from those assumptions used in connection withits judgments, the initial public offering pursuant to FINRA Rule 5110(c)(3)(B)(ii).
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could be materially differdifferent from thoseour estimates. We have identifiedbelieve the following critical accounting policies:policies requires significant judgments and estimates in the preparation of our consolidated financial statements:
Revenue Recognition
We recognize revenue from sale of products (both direct sales and marketplace sales) upon transfer of control, which is generally at the point of shipment.
Our software contracts with customers often include promises to transfer multiple software elements to the customer. Revenue from sale of software may be recognized over the life of the associated software contract or as services are performed, depending on the nature of the services being provided. Judgment is required to determine the separate performance obligations present in a given contract, which we have concluded are generally capable of being distinct and accounted for as separate performance obligations. We use standalone selling price (“SSP”) to allocate revenue to each performance obligation. Significant judgment is required to determine the SSP for each distinct performance obligation in a contract.
We provide a platform for shop owners to sell their products to customers through our marketplace website. We receive a 3.5% markup fee from the shop owner upon the sale of any products through the marketplace. We handle the financial transaction, manufacturing, distribution and customer service on behalf of the shop owners. We are responsible for billing the customer in this arrangement and transmitting the applicable fees to the shop owner. We assess whether we are responsible for providing the actual product or service as a principal, or for arranging for the product or service to be provided by the third party as an agent. Judgment is applied to determine whether we are the principal or the agent by evaluating whether we have control of the product
Ordinary Shares Subject49
or service prior to Possible Redemptionit being transferred to the customer. The principal versus agent assessment is performed at the performance obligation level. Indicators that we consider include whether we have the primary responsibility for fulfilling the promise to provide the specified product or service to the customer and whether we have inventory risk prior to transferring the product or service to the customer. We have the responsibility to fulfill the promise to provide the specific good or service on behalf of the shop owners to the customer. In addition, we have inventory risk before the specific good or service is transferred to a customer. As such, we are deemed the principal and shall recognize revenue on a gross basis for the price we charge to the shop owner for each product or service.
Stock-Based Compensation
We have applied the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 Compensation-Stock Compensation to account for the stock-based compensation for employees and non-employees. We recognize compensation costs related to stock options granted to employees and non-employees based on estimated fair value of the award on the date of grant.
Prior to the Business Combination, the estimated fair value of our common shares has historically been determined by a third party appraisal. Subsequent to the Business Combination, we determine the fair value of the common stock based on the closing market price on the date of grant. We use the Black-Scholes option pricing model to estimate the fair value of options granted which requires the use of subjective assumptions that could materially impact the estimation of fair value and related compensation expense to be recognized. One of these assumptions includes the expected volatility of our stock price. Developing this assumption requires the use of judgment. We, both prior to and after the Merger, lacks historical and implied volatility information. Therefore, we estimate our expected stock volatility based on the historical volatility of representative companies from the additive manufacturing industry. We use the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment as we do not have sufficient historical stock option activity data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees and non-employees. We utilize a dividend yield of zero based on the fact that we have never paid and do not expect to pay cash dividends. The risk-free interest rate used for each grant is an interpolated rate to match the term assumption based on the U.S. Treasury yield curve as of the valuation date.
Warrant Liabilities
We account for our ordinary shares subject to possible redemption in accordance withwarrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Accounting Standards Codification TopicFASB’s ASC 480, “DistinguishingDistinguishing Liabilities from Equity.” Ordinary shares subjectEquity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to mandatory redemption are classified asASC 480, meet the definition of a liability instrumentpursuant to ASC 480, and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that features redemption rights that is either withinwhether the controlwarrants meet all of the holder or subjectrequirements for equity classification under ASC 815, including whether the warrants are indexed to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. Our ordinary shares feature certain redemption rights that are considered to be outside of our controlCompany’s own common stock and subject to occurrence of uncertain future events. Accordingly, ordinary shares subject to possible redemption is presented as temporary equity,whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the shareholders’Company’s control, among other conditions for equity sectionclassification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The fair value of the Private Warrants and Sponsor Warrants were estimated using a Binomial Lattice Model.
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Recent Accounting Pronouncements
Refer to Note 2 of Shapeways’ consolidated financial statements included elsewhere in this Report.
Item 7A. 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 8. Financial Statements and Supplementary Data.
Our consolidated financial statements, together with the report of our balance sheets.
Net Income (Loss) Per Ordinary Share
We apply the two-class method in calculating earnings per share. Net income per ordinary share, basic and diluted for redeemable ordinary shares is calculated by dividing the interest income earnedindependent registered public accounting firm, appear on the trust account, by the weighted average number of redeemable ordinary shares outstanding since original issuance outstanding for the period. Net loss per ordinary share, basic and diluted for non-redeemable ordinary shares is calculated by dividing the net income (loss), less income attributable to redeemable ordinary shares, by the weighted average number of non-redeemable ordinary shares outstanding for the period.
pages Recent Accounting StandardsF-1
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements.
As of December 31, 2020, we were not subject to any market or interest rate risk. Following the consummation of our initial public offering, the net proceeds received into the trust account, have been invested in U.S. government treasury bills, notes or bonds with a maturity of 180 days or less or in certain money market funds that invest solely in U.S. treasuries. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
This information appears following Item 16 of this ReportReport.
Item 9. Changes in and is included herein by reference.
None.
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Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
DisclosureWe maintain disclosure controls areand procedures that are designed with the objective of ensuringto ensure that information required to be disclosed in our reports filed under the Securities Exchange Act suchof 1934, as this Report,amended, is recorded, processed, summarized and reported within the time periodperiods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuringforms, and that such information is accumulated and communicated to our management, including the chief executive officerour Chief Executive Officer and chief financial officer, as appropriateChief Financial Officer or persons performing similar functions, to allow for timely decisions regarding required disclosure. Our management evaluated,In accordance with Rules 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our current chief executive officermanagement, including our Chief Executive Officer and chief financial officer (our “Certifying Officers”),Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2020, pursuant to Rule 13a-15(b) under the Exchange Act. 2021.
Based upon thaton this evaluation, our Certifying OfficersChief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2020,during the period covered by this Report, our disclosure controls and procedures were effective.
We do not expect that our disclosure controlseffective at a reasonable assurance level and, procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide onlyaccordingly, provided reasonable not absolute, assurance that the objectives ofinformation required to be disclosed by us in reports filed under the disclosure controlsExchange Act is recorded, processed, summarized and procedures are met. Further,reported within the design of disclosure controlstime periods specified in the SEC’s rules and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.forms.
Management’s Report on Internal ControlsControl Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internalreporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the presentationpreparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reportingprinciples and includes those policies and procedures that:
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
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provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2021.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projectionsProjections of any evaluation of effectiveness to future periods are subject to the riskrisks that controls may become inadequate because of changes in conditions, or that ourthe degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
In connectionDuring the fiscal year ended December 31, 2021, we completed the Business Combination with Galileo, and the preparationinternal controls of this Report,Shapeways, Inc. became our management assessedinternal controls. We are engaged in the effectivenessprocess of the design and implementation of our internal control over financial reporting as of December 31, 2020. In making this assessment, it used(as defined in Rules 13a-15(f) and 15d-15(f) under the criteria set forth byExchange Act) in a manner commensurate with the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013 framework). Based on such assessment, our management concluded that, as of December 31, 2020, our internal control over financial reporting was effective based on those criteria.
This report does not include an attestation reportscale of our independent registered public accounting firm dueoperations subsequent to a transition period established by the rules ofBusiness Combination.
During the SEC for newly public companies.
Changes in Internal Control over Financial Reporting
There weremost recently completed fiscal quarter, there has been no changeschange in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
| Item 9B. Other Information. |
None.
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PART IIIItem 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Directors and Executive OfficersNot applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Executive Officers and Directors
The following table sets forth certain information, as of March 31, 2022, concerning the persons who serve as officers and directors of the dateCompany.
The Board consists of this Report, ourseven members, divided into three classes of staggered three-year terms. At each annual meeting of its stockholders, a class of directors and officers arewill be elected for a three-year term to succeed the same class whose term is then expiring, as follows:
the Class I directors, Robert Jan Galema and Ryan Kearny, serving until the annual meeting to be held in 2022;
the Class II directors, Alberto Recchi and Patrick S. Jones, serving until the annual meeting to be held in 2023; and
the Class III directors, Josh Wolfe, Greg Kress and Leslie Campbell, serving until the annual meeting to be held in 2024.
Name | Age | Position | ||
| Miko Levy | 43 | Chief Revenue Officer | ||
| 47 | Chief Financial Officer | |||
| Josh Wolfe | 44 | Chairman, Director | ||
| Leslie Campbell | 63 | Director | ||
| Robert Jan Galema | 55 | Director | ||
| Patrick S. Jones | Director | |||
| Ryan Kearny | ||||
| Director | ||||
| Alberto Recchi | ||||
| Director |
Executive Officers
Luca GiacomettiGreg Kress,. Since the consummation of the Business Combination, Greg Kress has served as our Chairman andChief Executive Officer. Mr. Kress served as Legacy Shapeways’ Chief Executive Officer since inception, has over 30 yearsand a member of Legacy Shapeways’ board of directors from January 2018 to the consummation of the Business Combination. From 2014 to 2017, Mr. Kress served as Chief Operating Officer then as President at Open English, an online education platform. Prior to that, he was a member of the corporate leadership staff at GE, where he held a series of roles in global commercial operations and supply chain management as well as environmental health and safety. Mr. Kress’s background as an innovative and results-driven leader with experience in private equitylarge andmid-size organizations brings substantial operating experience to our Board. Mr. Kress earned his Bachelor of Science in Mechanical Engineering from Penn State University.
Miko Levy. Since the consummation of the Business Combination Miko Levy has served as our Chief Revenue Officer. Mr. Levy served as Legacy Shapeways’ Chief Revenue Officer from September 2019 to the consummation of the Business Combination. He brings a strong track record of success in driving business growth while expanding sales channels and driving global marketing momentum. From 2013 to 2019, Miko served as a sponsorVice President for Outbrain, a web advertising platform. Before that, he held a series of blank check companies, having previously led four blank check companiesleadership and marketing positions, at Conduit, ROASTe, and 888. Mr. Levy earned his Master’s in Italy. He launched the first blank check company under Italian lawBusiness Administration in 2011. In 2017 he sponsored Glenalta (merged with CFT S.p.A.), GF in 2015 (merged with Orsero S.p.A.), IPO Challenger in 2014 (merged with Italian Wine Brands S.p.A.),Marketing and MII1 in 2011 (merged with SeSa S.p.A.). In 2005 Mr. Giacometti co-founded European Co-investment Partners LLP with Mr. David Smith, one of our strategic advisors, and other former GE Capital colleagues, thereby forming Capital Dynamics’ private equity co-investment business. Capital Dynamics is an independent global private asset management business commanding over $16 billion in assets under management and advisory service arrangements, more than 700 fund investments, over 350 fund general partner relationshipsEntrepreneurship from Tel Aviv University and a Bachelor of Arts in Economics and Management from the Academic College of Tel-Aviv.
Jennifer Walsh. Since the consummation of the Business Combination, Jennifer Walsh has served as our Chief Financial Officer. Ms. Walsh served as Legacy Shapeways’ Chief Financial Officer from March 2018 to
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the consummation of the Business Combination and expanded her role to Chief Operating Officer in 2019. From 2015 to 2018, Ms. Walsh served as CFO for Return Path, a global footprintSaaS and data solutions business. Before that, she was Vice President of 11 offices. Capital Dynamics is not our affiliate.Finance and Operations for communications consulting firm maslansky+partners and also served as a divisional CFO at (fka) Time Warner, overseeing nine Time brands spanning print, digital, mobile, TV, events, and licensed retail products. Ms. Walsh earned her Bachelor of Science from the Wharton School of the University of Pennsylvania and a Masters of Business Administration from Columbia Business School.
Non-Employee Directors
Josh Wolfe. Since the consummation of the Business Combination, Josh Wolfe has served as Chairman of the Board. Mr. Giacometti remains a Senior AdviserWolfe served on Legacy Shapeways’ board of directors from May 2012 to Capital Dynamics, typically working closely withthe consummation of the Business Combination. Mr. Smith. He has been an independent director of Digital Magics (DM:XMIL) since 2012. Digital MagicsWolfe is a large Italian digital incubator, listed on the Milan Stock Exchange, with more than 70 accelerated startups. From 2003 to 2005,Managing Director of Lux Capital, a venture capital firm he worked at the Ferrero family officeco-founded in Italy, where he was in charge of its private equity activities. From 1996 to 2002,2000. Mr. Giacometti founded and managed General Electric’s private equity business in Italy. At the time, Mr. Giacometti worked with another one of our strategic advisors, Mr. Giuseppe Recchi. Mr. Giacometti built a private equity portfolio including Cantieri Rodriguez, Nuova Bianchi, Bafin, SM Logistics, Vimercati, GMV Martini MARR and Euralcom, sometimes servingWolfe currently serves on the board of directors of these companies; Messrs. Giacomettia number of private companies. Mr. Wolfe earned his Bachelor of Science in Applied Economics from Cornell University. Mr. Wolfe’s background in identifying and Smith worked together closelybuilding next-generation technologies and companies brings broad expertise that allows him to make valuable contributions to our Board.
Leslie C.G. Campbell. Leslie C. G. Campbell has served as a member of our board of directors, as Chair of the Compensation and Human Capital Committee, and as a member of Nominating and Corporate Governance Committee since October 2021. Ms. Campbell previously served as the Chief Procurement Officer for Reed Elsevier, Inc., from September 2007 to December 2012. From March 1998 to September 2007, Ms. Campbell held a number of positions at Dell, Inc., most recently as the Vice President of Worldwide Procurement, and previously as the Vice President and General Manager, Global Segment EMEA. Ms. Campbell held a number of positions at Oracle Corporation from May 1990 to January 1998, most recently as Vice President, Corporate Purchasing. From August 1982 to May 1990, she held a number of positions at KPMG Peat Marwick LLP, a member firm of KPMG International, most recently as a Senior Manager. Ms. Campbell has served as a member of the board of directors of Coupa Software, Inc. since May 2016, a member of the board of directors of PetMed Express, Inc. since July 2018, and a member of the board of directors of LiveVox Holdings, Inc. since June 2021. She also serves, or has served, on the advisory boards of several private and non-profit enterprises. Ms. Campbell holds a B.A. in sourcing, executingBusiness Administration from the University of Washington. We believe Ms. Campbell possesses specific skills and realizingattributes that qualify her to serve as a member of the Board, including her experience as a public board director and her extensive operating experience in general management and supply chain, her international operational and financial expertise, and her experience in the technology industry.
Patrick S. Jones. Prior to the consummation of the Business Combination, Patrick S. Jones served as a member of the board of directors of Galileo. Since the consummation of the Business Combination, Mr. Jones has served as a member of the Board. Mr. Jones is a private investor with considerable independent board member experience with a variety of technology companies. Mr. Jones served as audit committee chairman and independent board member for Talend SA, a SaaS software company, from 2015 to August 2021. He currently serves as an independent board member of Itesoft SA, a software company, since 2014. Previously, from 2007 to 2017, he was Chairman of the Board of Lattice Semiconductor, Chairman of the Board of Inside Secure (renamed Verimatrix), Chairman of the Board of Dialogic, Chairman of the Board of Epocrates, and has served on other boards including Fluidigm, Openwave Systems and Novell. Prior to this, portfolio.he was Senior Vice President and Chief Financial Officer for Gemplus SA. Prior to this, Mr. GiacomettiJones was deputy directorVice President of merchant banking at Banca Commerciale Italiana, where he worked on private equity investments in Italian companies including Grove, IMA, and Industrie Ilpea. Prior to joining Banca Commerciale Italiana,Finance —Corporate Controller for Intel Corp. Mr. Giacometti worked in the syndications group at Citibank in Milan where he was responsible for the syndication of Italian MBOs. Mr. Giacometti holds aJones has an undergraduate degree in business and economics from the Luigi Bocconi SchoolUniversity of Business in Milan.Illinois, and an MBA from Saint Louis University. We believe Mr. GiacomettiJones is well-qualified to serve on ourthe Board due to his extensive blank check company, investment and bankingboard experience.
Robert Jan Galema. Since the consummation of the Business Combination, Robert Jan Galema has served as a member of the Board. Mr. Galema served as a member of Legacy Shapeways’ board of directors from June 2015 to the consummation of the Business Combination. Mr. Galema is a Managing Partner at INKEF Capital, a
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venture capital firm he joined in 2013. Mr. Galema serves on the board of directors of a number of private companies. Mr. Galema earned his Masters of Science in Economics from Erasmus University Rotterdam. Mr. Galema’s background in identifying and building next-generation technologies and companies, as well as his operation experiences, brings valuable contributions to our Board.
Ryan Kearny. Since the consummation of the Business Combination, Ryan Kearny has served as a member of the Board. Mr. Kearny has served as an independent board member for Talend SA, from November 2020 to July 2021. Mr. Kearny has held the position of Chief Technology Officer and Senior Vice President of Development since September 2019 at Lassen Peak, a software security company. Prior to that position, Mr. Kearny served in various increasingly senior roles at F5 Networks, Inc., an application services and application delivery networking company, including serving as Senior Vice President of F5 Networks’ Cloud, Orchestration and Service Provider Product Groups from January 2012 to September 2016, and Chief Technology Officer and Executive Vice President/Senior Vice President of Product Development from September 2016 to May 2019. Mr. Kearny holds a B.S.E.E. degree in electrical and computer engineering from the University of Washington. We believe that Mr. Kearny is well-qualified to serve as a member of the Board because of his experience driving technology strategy, roadmap, and growth for more than two decades in various executive roles.
Alberto Recchi, has. Prior to the consummation of the Business Combination, Alberto Recchi served as ourthe Chief Financial Officer and onea member of our Directors since inception,the board of directors of Galileo. Since the consummation of the Business Combination, Mr. Recchi has served as a member of the Board. Mr. Recchi has over 15 years of experience in corporate and leveraged finance, mergers and acquisitions, and principal investing, in both the North American and Western European markets. In 2019, he founded Ampla Capital, a merchant bank, based in New York, which focuses on proprietary direct co-investments, in both established and growth-orientedgrowth- oriented SMEs in the North American and Western European markets. Previously, from 2016 to 2019, he was a Managing Director at MC Square Capital, a co-investment platform and cross-border boutique merchant bank. Prior to this, Mr. Recchi spent 12 years at Credit Suisse, where he worked in the Private Banking and Wealth Management Division in London for three years, advising corporate treasury departments, single and multi-family offices, ultra-high net worth individuals, across all product offerings, including direct investments, asset management, custody, corporate finance, structured finance, and private wealth management. Prior to that he worked in the Investment Banking Division for nine years, advising financial sponsorsinitial shareholders in the U.S. and E.U., structuring and executing LBOs, IPOs and M&A deals, based in New York first and London thereafter. During his tenure at Credit Suisse, Mr. Recchi developed a network of relationships with single and multi-family offices, and with private equity players in North America and Western Europe. He is the brother of one of our strategic advisors. Mr. Recchi holds B.S. and M.S. degrees in Aerospace Engineering from the Polytechnic of Turin, Italy. He also holds an M.B.A. from Columbia Business School as well as an M&A Certificate of Mastery issued by the New York Institute of Finance. We believe Mr. Recchi is well-qualified to serve on ourthe Board due to his extensive investment and finance background in both the U.S. and Western Europe.
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Patrick S. Jones, has served as one of our Directors since October 2019, is a private investor with considerable independent board member experience with a variety of technology companies. He currently serves as audit committee chairman and independent board member for Talend SA (TLND:NASDAQ), a software company, since 2015 and an independent board member of Itesoft SA (ITE.PA:PARIS), a software company, since 2014. Previously, from 2007 to 2017, he was Chairman of the Board of Lattice Semiconductor (LSCC:NASDAQ), Chairman of the Board of InsideSecure (INSD.PA:PARIS) (now Verimatrix), Chairman of the Board of Dialogic (DLGC:OTC), Chairman of the Board of Epocrates (EPOC:NASDAQ), and has served on other boards including Fluidigm (FLDM:NASDAQ), Openwave Systems (UPIP:NASDAQ) and Novell (NOVL:NASDAQ). Prior to this, he was Senior Vice President and Chief Financial Officer for Gemplus SA, where he worked closely with Mr. David Smith, one of our strategic advisors, who also served on Gemplus’s board of directors, audit committee and IPO committee prior to the company’s initial public offering, representing shareholder GE Capital. Prior to this, Mr. Jones was Vice President of Finance — Corporate Controller for Intel Corp (INTC:NASDAQ). Mr. Jones has an undergraduate degree from the University of Illinois, and an MBA from Saint Louis University. Mr. Jones is well-qualified to serve on our Board due to his extensive investment and board experience.
Family Relationships
Alberto Pontonio, has served as one of our Directors since October 2019 and has over 25 years of experience in the financial services industry in both the US and European markets. In January 2019, he joined Raymond James as a financial advisor, based in Miami. Prior to this, from 2015 to December 2018, he traded Equity Index futures. In 2009, he co-founded Censible, an automated investment platform that allows individual investors to align their investments with their personal interests and social values. Previously, Mr. Pontonio worked for Espirito Santo Investment Banking, was a Managing Director at Bear Stearns in London, and worked at Merrill Lynch, in New York and then in London, as a Director in the Institutional Equity department. Mr. Pontonio started his career in New York at Cowen & Co. He holds a B.A. in economics from the Catholic University in Milan, Italy. Mr. Pontonio also currently serves as an independent board member for Americas Technology Acquisition Corp. (NYSE: ATA.U), a special purpose acquisition company, since December 2020. Mr. Pontonio is well-qualified to serve on our Board due to his extensive experience in the financial services industry in both the US and European markets.
Robert Cohen, has served as one of our Directors since October 2019 and has 37 years of experience in investment banking and financial services around the world. In 2007, he founded Cohen Brothers, an international fund placement agent, raising capital across all main private asset fund strategies for fund manager clients in the US, Europe and Asia. From 2000 to 2007, he held chief executive positions at Deutsche Bank and Schroder fund management businesses in France. From 1998 to 2000, he was a director and executive board member of J. Henry Schroder & Co. in London in structured investments, a vice president at Natixis in Equity Capital Markets, a deputy chief financial officer in Barclay’s France group specialized credit division and a senior auditor at Ernst & Young Paris, where he started his career. He holds the Ecole des Hautes Etudes Commerciales diploma (MBA), Jouy en Josas, France and was a board member of AFG, the French fund management professional association. Mr. Cohen is well qualified to serve on our board given his extensive executive, board, audit and private and public company experience.
Galeazzo Pecori Giraldi, served as one of our strategic advisors from October 2019 until March 2021, when he began his service as one of our Directors. He is Chairman of the Board of Hedge Invest SGR, an Italian independent asset management company specialized in the creation and management of alternative investments with over €1 billion AUM. Previously, he was the Global Head of Private Investment Banking at Société Générale, based in Paris, responsible forThere are no family relationships with major holding companies and family offices for Europe and the Middle East. He was also Deputy Chairman of the Investment Banking Committee and Member of the European Strategic Committee. Prior to this, he spent 24 years at Morgan Stanley as Vice Chairman Europe, Chairman and Chief Executive Officer of Italy & Switzerland, Member of the Global Investment Committee of MSREF (real estate funds). He also spent seven years at Citibank in London at the start of his banking experience. He has served on the Advisory Board of Bridgepoint Capital since 2007 and served as an independent Deputy Chairman at Clessidra SGR (Italian mid-cap private equity) until June 2019. He also serves as member of the board of non-profit organizations FAI (National Trust) and Accenture Foundation. Mr. Pecori Giraldi graduated with a degree in international law from Padua University and attended graduate courses in Business Economics at Cambridge and Harvard Universities. Mr. Pecori Giraldi is well qualified to serve on our board given his extensive experience in the financial services industry in both the US and European markets.
Strategic Advisors
David Smith, has served as one of our strategic advisors since October 2019 and has over 30 years of experience in private equity and infrastructure investments. Since 2002, Mr. Smith has been Senior Managing Director and a senior member of the Co-Investment team at Capital Dynamics, based in London. He is also the Chairman of Capital Dynamics’ Clean Energy Infrastructure Investment Committee in respect of certain existing investment mandates. Prior to joining Capital Dynamics, Mr. Smith worked with GE Capital in the UK and the US from early 1990 until late 2002, serving in its energy infrastructure finance and private equity business, where he worked closely with Mr. Giacometti, our Chief Executive Officer. Messrs. Giacometti and Smith have worked together for over 20 years. Earlier in his career, Mr. Smith was engaged as an adviser to AXA Private Equity (now known as Ardian) and established the European business of First Reserve Corporation, a private equity firm specializing in leveraged buyouts and growth capital investments in the energy sector, prior to which he was with BP Ventures’ solar photovoltaics business. He serves on the board of directors of the Major Projects Association and is a member of the Institution of Engineering and Technology. Mr. Smith holds a B.A. in Electrical Engineering and a Masters Degree in Engineering, each from the University of Southampton, and an M.B.A. from the Cass Business School of City University London.
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Silvio Marenco, has served as one of our strategic advisors since October 2019 and has over 20 years of professional experience in strategic consultancy, blank check companies, executive education, venture capital and entrepreneurial activity. Mr. Marenco and Mr. Giacometti have worked closely together over the last 8 years. They started doing business together when Mr. Marenco invested in Mr. Giacometti’s first two blank check companies, Made in Italy 1 and IPO Challenger. They reinforced their partnership when they both became SPAC sponsors and Chief Executive Officers of Glenalta Food and Glenalta. Mr. Marenco founded YouAbroad, a company organizing study trips abroad for high school students, of which he is now a board member and owner, turning the start-up into a leading company with revenues exceeding €11 million and EBITDA of €1.6 million. Mr. Marenco also spent 13 years as a manager of ESCP Europe Business School and 6 years as a strategic consultant in Bain & Company. His core expertise as strategic consultant includes business growth strategy, turnaround, due diligence, SMEs, market analysis and consumer insight, specializing particularly in the Food & Beverage, Retail, Industrial Goods and Apparel sectors. Mr. Marenco earned a PhD at Bournemouth University and University of Turin and an MBA from SDA Bocconi School of Management.
Giuseppe Recchi, has served as one of our strategic advisors since October 2019 and is the Chief Executive Officer of Affidea Group BV, a leading European provider of diagnostic imaging, cancer treatment and outpatient services operating from 245 centers in 16 countries. Mr. Recchi is a board member of Unipol S.p.A. and he was Executive Chairman of publicly listed Telecom Italia S.p.A. (now TIM S.p.A.). He was also Chairman of the Board of Eni S.p.A (NYSE: ENI). Prior to this, he worked at General Electric, where he held several managerial positions in Europe and in the USA: he served as Chief Executive Officer of GE Capital Structure Finance Group in Italy, Managing Director for Industrial M&A and Business Development of GE in EMEA, Chairman and Chief Executive Officer of GE Italy, and as Chairman and Chief Executive Officer of GE Southern Europe. During his tenure at General Electric in London and in Italy, he worked closely with Luca Giacometti, our Chief Executive Officer, and other colleagues who are today senior professionals at Capital Dynamics. Mr. Recchi has co-Chaired the Task Force on Improving Transparency and Anti-Corruption at B20 in 2011. He served on several boards, including the European Advisory Board of The Blackstone Group, the Advisory Board of Invest Industrial (a top quartile pan-European private equity firm), the Massachusetts Institute of Technology E.I. Advisory Board, and EXOR S.p.A. From 2004 to 2006, he was a visiting Professor in Corporate Finance at Turin University. He is the brother of our Chief Financial Officer. In 2017, he was appointed by the President of the Republic of Italy, Knight with the Order of Merit for Labor (the highest recognition for business merit in Italy). Mr. Recchi graduated in Civil Engineering at the Polytechnic University of Turin.
Our strategic advisors (i) assist us in sourcing and negotiating with potential business combination targets, (ii) provide their business insights when we assess potential business combination targets and (iii) upon our request, provide their business insights as we work to create additional value in the businesses that we acquire. We further expect that our strategic advisors will be invited to attend board meetings as observers. However, our strategic advisors have no other employment or compensation arrangements with us. Moreover, our strategic advisors will not be under any fiduciary obligations to us nor will they perform board or committee functions, nor will they have any voting or decision making capacity on our behalf. They will also not be required to devote any specific amount of time to our efforts or be subject to the fiduciary requirements to which our board members are subject. Accordingly, ifamong any of our strategic advisors becomes aware of a business combination opportunity whichdirectors or executive officers.
Audit Committee
Our audit committee is suitableresponsible for, any of the entities to which he has fiduciary or contractual obligations, he will honor his fiduciary or contractual obligations to present such business combination opportunity to such entity, and only present it to us if such entity rejects the opportunity. We may modify or expand our roster of strategic advisors as we source potential business combination targets or create value in businesses that we may acquire.among other things:
Numberappointing, compensating, retaining, evaluating, terminating and Termsoverseeing the Company’s independent registered public accounting firm;
discussing with the Company’s independent registered public accounting firm their independence from management;
reviewing, with the Company’s independent registered public accounting firm, the scope and results of Office of Officers and Directorstheir audit;
Our board55
approving all audit and permissible non-audit services to be performed by the Company’s independent registered public accounting firm;
overseeing the financial reporting process and discussing with management and the Company’s independent registered public accounting firm the quarterly and annual financial statements that the Company files with the SEC;
overseeing the Company’s financial and accounting controls and compliance with legal and regulatory requirements;
overseeing the Company’s policies on risk management, including reviewing the Company’s cybersecurity and other information technology risks, controls and procedures, including the Company’s plans to mitigate cybersecurity risks and to respond to data breaches;
reviewing related person transactions; and
establishing procedures for the confidential anonymous submission of directorsconcerns regarding questionable accounting, internal controls or auditing matters.
The Company’s audit committee consists of six directors. Our board of directors is divided into two classesPatrick S. Jones, Alberto Recchi, and Ryan Kearny, with only one class of directors being elected inPatrick S. Jones serving as chair. The Board has affirmatively determined that each year and each class (except for those directors appointed prior to our first annual meeting of shareholders) serving a two-year term. The term of office of the first class of directors, consisting of Messrs. Recchi, Cohen and Jones, will expire at our first annual meeting of shareholders. The term of office of the second class of directors, consisting of Messrs. Pontonio, Giacometti and Pecori Giraldi, will expire at the second annual meeting of shareholders. In accordance with NYSE corporate governance requirements, we are not required to hold an annual meeting until one full year after our first fiscal year end following our listing on the NYSE. Subject to any other special rights applicable to the stockholders, any vacancies on our board of directors may be filled by the affirmative vote of a majority of the directors present and voting at the meeting of our board that includes any directors representing our sponsor then on our board.
Our officers are elected by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our memorandum and articles of association as it deems appropriate. Our memorandum and articles of association provide that our officers may consist of a Chairman of the board of directors, Chief Executive Officer, President, Chief Financial Officer, Vice Presidents, Secretary, Assistant Secretaries, Treasurer and such other offices as may be determined by the board of directors.
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Committees of the Board of Directors
We currently have the following standing committees: the audit committee, the compensation committee and the nominating and corporate governance committee. Subject to phase-in rules and a limited exception, NYSE rules and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors, and NYSE rules require that the compensation committee of a listed company be comprised solely of independent directors. Consequently, all of the standing committees of the board of directors are comprised entirely of independent directors. The charter of each committee is available on our website at https://galileospac.com/corporate-governance.
Audit Committee
We have established an audit committee of the board of directors. Messrs. Cohen, Jones and Pecori Giraldi serve as members of our audit committee, and Mr. Jones chairs the audit committee. Under the NYSE listing standards and applicable SEC rules, we are required to have at least three members of the audit committee, all of whom must be independent. Each of Messrs. Cohen, Jones and Pecori Giraldi meet the independent director standard under NYSE listing standards and under Rule 10-A-3(b)(1) of the Exchange Act. Each member of the audit committee is financially literatequalifies as independent under NYSE rules applicable to board members generally and our boardunder NYSE rules and Exchange Act Rule 10A-3 specific to audit committee members. All members of directorsthe Company’s audit committee meet the requirements for financial literacy under the applicable NYSE rules. In addition, the Board has determined that eachMr. Jones qualifies as an “audit committee financial expert” as defined in applicable SEC rules and has accounting or related financial management expertise.
We have adopted an audit committee charter, which details the principal functions of the audit committee, including:
Financial Experts on Audit Committee
The audit committee is at all times composed exclusively of “independent directors” who are “financially literate” as defined under the NYSE listing standards. The NYSE listing standards define “financially literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement.
In addition, we must certify to the NYSE that the committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication. The board of directors has determined that Messrs. Cohen, Jones and Pecori Giraldi each qualify as an “audit committee financial expert,” as that term is defined under rules and regulationsin Item 401(h) of Regulation S-K. The written charter for the SEC.
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Compensation Committee
We have established a compensationaudit committee ofis available on the board of directors. Messrs. Cohen, Jones and Pontonio serve as membersInvestor Relations section of our compensation committee. Underwebsite at investors.shapeways.com. The information on the NYSE listing standardsCompany’s website is deemed not to be incorporated in this Report or to be part of this Report.
Code of Conduct
The Company has a code of conduct that applies to all of its executive officers, directors and applicable SEC rules, we areemployees, including its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The code of conduct is available on the Investor Relations section of our website at investors.shapeways.com. The Company intends to make any legally required disclosures regarding amendments to, have at least two membersor waivers of, provisions of its code of conduct on its website rather than by filing a Current Report on Form 8-K. The information on the Company’s website is deemed not to be incorporated in this Report or to be part of this Report.
Item 11. Executive Compensation.
Shapeways Executive Officer and Director Compensation
Executive Compensation
The policies of Shapeways with respect to the compensation committee, all of whom must be independent. Messrs. Cohen, Jonesits executive officers are administered by the Board in consultation with its compensation and Pontonio are independenthuman capital committee. Shapeways may also rely on data and Mr. Cohen chairsanalyses from third parties, such as compensation consultants, in connection with its compensation programs.
Shapeways intends to design and implement programs to provide for compensation that is sufficient to attract, motivate and retain executives of Shapeways and potentially other individuals and to establish an appropriate relationship between executive compensation and the compensation committee.creation of stockholder value.
We have adopted a compensation committee charter, which detailsFor the principal functions of the compensation committee, including:
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This section provides an annual basisoverview of Shapeways’ executive compensation programs, including a narrative description of the material factors necessary to understand the information disclosed in the summary compensation table below.
Summary Compensation Table for Fiscal Year 2021
The following table sets forth information concerning the compensation if any is paid by us, of all of our other officers;
| Year | Salary ($)(1) | Bonus ($) | Stock Awards ($)(3) | Option Awards ($)(4) | Non- Equity Incentive Compens- ation(5) | All Other Compensat -ion ($)(6) | Total ($) | |||||||||||||||||||||||||
Gregory Kress | 2021 | $ | 359,021 | $ | 79,013 | $ | 1,046,949 | — | — | $ | 11,600 | $ | 1,496,583 | |||||||||||||||||||
Chief Executive Officer | 2020 | $ | 350,000 | $ | 200,000 | (2) | — | $ | 242,959 | — | $ | 8,550 | $ | 801,509 | ||||||||||||||||||
Miko Levy | 2021 | $ | 262,885 | $ | 92,500 | $ | 51,490 | — | — | $ | 11,600 | $ | 418,475 | |||||||||||||||||||
Chief Revenue Officer | 2020 | $ | 250,000 | $ | 100,000 | — | $ | 24,296 | $ | 90,000 | $ | 8,550 | $ | 472,846 | ||||||||||||||||||
Jennifer Walsh | 2021 | $ | 333,375 | $ | 51,188 | $ | 840,983 | — | — | $ | 11,600 | $ | 1,237,146 | |||||||||||||||||||
Chief Financial Officer | 2020 | $ | 325,000 | $ | 97,500 | — | — | — | $ | 8,550 | $ | 431,050 | ||||||||||||||||||||
| (1) | The amounts in this column represent the base salaries earned in fiscal years 2021 and 2020. |
| (2) | In 2020, Mr. Kress’s bonus was contingent upon closing funding for Legacy Shapeways. His original target was $150,000; however, the Legacy Shapeways board of directors approved a larger bonus of $200,000 in 2020 for superior performance as determined by the Legacy Shapeways board of directors, as shown above. |
| (3) | There were no stock awards granted in 2020 to named executive officers. The amounts disclosed in this column for 2021 include the grant-date fair value for all stock awards, consisting of both time-based restricted stock units (“Transaction Bonus RSUs”) and performance-based restricted stock units (“Earn-Out RSUs”) computed in accordance with ASC Topic 718. The Transaction Bonus RSUs vested within 30 days of the Closing Date and settled in shares of Common Stock of the Company within 74 days following the Closing Date. The value of the Earn-Out RSUs are based on the probable outcome of the performance condition to which such awards are subject, which was calculated using a Monte Carlo valuation model in accordance with FASB ASC Topic 718. Based on the foregoing, the grant date fair value is $1.15 per share for the Earn-Out RSUs granted to each of Mr. Kress, Mr. Levy, and Ms. Walsh that are based on the relative price of the Company’s Common Stock. The grant date fair value of the Earn-Out RSUs, based upon the trading price of the Company’s Common Stock as of the grant date ($3.80), and assuming achievement at the maximum level of performance, is $308,949 for Mr. Kress, $51,490 for Mr. Levy, and $102,983 for Ms. Walsh. See Note 12 to Shapeways’ audited consolidated financial statements included elsewhere in this Report for a discussion of the assumptions made by Shapeways in determining the grant-date fair value of Shapeways’ equity awards. |
| (4) | The amounts in this column represent the aggregate grant-date fair value of the granted option awards, computed in accordance with the FASB’s ASC Topic 718. See Note 12 to Shapeways’ audited consolidated financial statements included elsewhere in this Report for a discussion of the assumptions made by Shapeways in determining the grant-date fair value of Shapeways’ equity awards. |
| (5) | The amount in this column represents commissions paid based on sales commission awards under Shapeways’ sales compensation incentive plan. |
| (6) | The amounts in this column represent employer contributions made to each named executive officer’s 401(k) plan account in respect of 2021 and 2020. |
Narrative Disclosure to Summary Compensation Table
For fiscal years 2021 and 2020, the compensation program for Shapeways’ named executive compensation policiesofficers consisted of base salary and plans;
named executive officers.
Notwithstanding
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Base Salary
Base salary is set at a level that is commensurate with the foregoing,executive’s duties and authorities, contributions, prior experience and sustained performance.
Cash Bonus
Cash bonus opportunities are also set at a level that is commensurate with the executive’s duties and authorities, contributions, prior experience and sustained performance. With respect to each of Messrs. Kress and Levy and Ms. Walsh we have entered into an offer letter, described below, which sets forth his or her cash bonus opportunities. Each executive’s bonus is subject to varying bonus targets as indicated above, no compensationdetailed in the offer letters with each of any kind, including finders, consulting or other similar fees,Messrs. Kress and Levy and Ms. Walsh which are described below. Beginning in 2022, the executives’ bonuses, if earned, will be paid once annually during the first quarter of the following calendar year.
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Acceleration of Mr. Kress’s, Ms. Walsh’s and Mr. Levy’s Option Awards
In view of the substantial contributions from Mr. Kress, Ms. Walsh and Mr. Levy in connection with the Business Combination, the Shapeways board of directors, as administrator of the 2010 Stock Plan, took action to anyaccelerate the vesting of our existing stockholders, officers, directors or anythe shares underlying the Kress options, the Walsh options and the Levy options so that, effective as of their respective affiliates, prior to, or for any services they render in order to effectuate the consummation of an initial business combination. Accordingly, it is likely thatimmediately prior to the consummation of the Business Combination, each of the Kress options, the Walsh options and the Levy options vested in full. As a condition to such vesting acceleration and as a material inducement for Shapeways to enter into the Employment Agreements (the terms of which are described below in the section titled “—Shapeways Executive Officer and Director Compensation—Employment Agreements”), Mr. Kress, Ms. Walsh and Mr. Levy agreed to retain all, and to not sell or transfer any, of their existing options under the 2010 Stock Plan or any shares received upon exercise of such options through the earlier of (x) December 31, 2022 and (y) a Change in Control (as defined in the 2021 Equity Incentive Plan (the “Incentive Plan”)).
Employment Agreements
Mr. Kress reports to the Board and Mr. Levy and Ms. Walsh report to the Chief Executive Officer (each a “Key Executive”). The principal location of their services is in New York City. Each Key Executive has entered into an initial business combination,Employment Agreement with Shapeways.
Mr. Kress receives an annual base salary of $385,000, Mr. Levy receives an annual base salary of $300,000 and Ms. Walsh receives an annual base salary of $357,500. Each Key Executive’s annual base salary rate may be increased but not decreased, unless such decrease is made across the board to other senior executives of the Company. The compensation and human capital committee reviews the annual base salary rate of the Chief Executive Officer, and the compensation and human capital committee, with the assistance of the Chief Executive Officer, reviews the compensation of the Chief Financial Officer and the Chief Revenue Officer at least annually, with the intent to establish compensation levels consistent with competitive market standards, taking into account the growth of the Company over time.
Pursuant to the terms of each Key Executive Employment Agreement, the Key Executive is eligible to participate in the Company’s annual incentive bonus plan, as in effect from time to time (the “Company Bonus Plan”). For each fiscal year commencing with 2021, the annual target bonus opportunity under the Company Bonus Plan for Messrs. Kress and Levy and Ms. Walsh is 90%, 65% and 50%, respectively, of his or her annual base salary rate, with a maximum bonus opportunity for any fiscal year equal to 200% of his or her target opportunity. No year-end bonuses were awarded to the executives.
The performance measures under the Company Bonus Plan will only be responsibleestablished by the compensation and human capital committee and, absent extraordinary circumstances, will be communicated to the Key Executive in the first quarter of the fiscal year for which the bonus is measured. The performance measures and targets under the Bonus Plan will be subject to adjustment by the compensation and human capital committee in case of extraordinary nonrecurring events, such as those described under relevant accounting rules, or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders for the reviewapplicable year, as a result of applicable tax law or accounting rule changes, or in the compensation human capital committee’s discretion. Bonuses, if earned, will be payable in the fiscal year immediately following the fiscal year for which the bonus is earned, subject to the compensation and recommendationhuman capital committee’s determination of any compensation arrangementsthe achievement of the applicable performance measures. Payments under the Company Bonus Plan will generally be subject to be entered intocontinued employment through the applicable payment date (except in connection with such initial business combination.case of certain qualifying terminations, described below).
After our initial business combination, members59
For 2021, annual incentive bonuses were conditioned on achievement of our management team who remain with us maygross margin and revenue growth goals, as described below. If the gross margin goal is not satisfied, then no bonus will be paid consulting, management or other fees frompayable for such year. If the combined company with any and all amounts being fully disclosed to our stockholders, to the extentgross margin goal is satisfied, then known, in the tender offer or proxy solicitation materials, as applicable, furnished to our stockholders. It is unlikely the amount of the Key Executive’s bonus for such compensationyear will be knowndetermined based on achievement of the revenue growth goal, as follows:
The threshold revenue growth target will be 60% of budgeted target growth, meaning that if revenue growth is below such threshold target, no bonus for such year will be payable;
Between 60% and 100% achievement of the revenue growth target (i.e., between threshold and target achievement), the amount of the bonus for such year will be determined on a linear interpolation basis between 0% and 100% payment of target bonus; and
Between 100% and 150% (or greater) achievement of the revenue growth target (i.e., between target and maximum achievement), the amount of the bonus for such year will be determined on a linear interpolation basis between 100% and 200% payout of target bonus.
For 2021, mid-year bonuses were paid, but no year-end bonuses were awarded to the executives.
The Board or its compensation and human capital committee will review each Key Executive’s annual target and maximum bonus opportunities at least annually, with the intent to establish compensation levels consistent with competitive market standards, taking into account the growth of the Company over time. Pursuant to their employment agreement, the value of each Key Executive’s annual target and maximum bonus opportunities may be increased but not decreased, unless such decrease is made across the board to other senior executives of the Company.
Each Key Executive Employment Agreement provides that if the Company terminates the Key Executive’s employment without Cause or if the Key Executive terminates his or her employment for Good Reason, the Key Executive will be entitled to (i) six months of salary continuation at the timeKey Executive’s then-current base salary, (ii) a prorated portion of distributionthe actual bonus the Key Executive would have received under the Company Bonus Plan had his or her termination not occurred, (iii) any unpaid bonus that would have been payable under the Company Bonus Plan for any fiscal year preceding the fiscal year in which termination occurs had the Key Executive remained employed through the applicable payment date (the “Prior Year Bonus”), and (iv) should the Key Executive elect COBRA coverage, the Company will continue its contribution to the premium cost of the Key Executive’s coverage and that of his or her eligible dependents until the earlier of (x) the six -month anniversary of the Key Executive’s termination date and (y) the date the Key Executive begins new employment that offers group health coverage.
However, if the Key Executive’s termination occurs on or within 12 months following a consummation of a Change in Control (as generally defined in the Incentive Plan), then in lieu of the payments described above, the Key Executive will be entitled to (i) a lump sum cash payment equal to 12 months of base salary at the Key Executive’s then-current base salary rate, (ii) a prorated portion of the Key Executive’s target bonus, (iii) the Prior Year Bonus, (iv) 12 months of COBRA contributions as described above and (v) immediate vesting in full of all service-vesting conditions of all of the Key Executive’s then outstanding equity or equity-based incentive awards, it being understood that any such outstanding awards that are also subject to satisfaction of performance-vesting conditions will remain outstanding and will continue to be eligible to vest subject to the satisfaction of such tender offer materialsconditions based on the actual results of the applicable financial or other metrics and will be payable on the regular payment dates as per the terms of the applicable award agreement; provided that any individual performance goals that are not based on objective financial performance criteria will be deemed earned at target as of the timedate of termination; provided, further, that if the individual award agreement or other contract between the Company and the Key Executive governing any such award provides for more favorable vesting treatment, then the more favorable treatment will apply to such award.
If the Key Executive’s employment terminates due to his or her death or is terminated by the Company due to disability, the Key Executive (or his or her heirs or estate, as applicable) will be eligible to receive (i) the Prior
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Year Bonus and (ii) a prorated portion of the bonus the Key Executive would have received under the Company Bonus Plan had the termination not occurred, based on actual performance results for such year.
Severance benefits are conditioned upon and subject to (i) the Key Executive’s execution of a stockholder meeting heldgeneral waiver and release of claims, (ii) compliance with restrictive covenants and (iii) resignation from all offices, boards, committees and any other offices or positions of the Company or its affiliates. Additionally, the Board and its compensation and human capital committee will cooperate in good faith to consider our initialreview and evaluate the Key Executive’s severance benefits on a periodic basis to take into account the growth of the Company’s business combination,over time.
“Cause” is defined as applicable, as it will be up(i) willful and continued failure to substantially perform duties with the Company or its affiliates (other than any such failure resulting from incapacity due to physical or mental illness); (ii) gross negligence or willful misconduct in the execution of duties under the Employment Agreement; (iii) conviction of, or a plea of nolo contendere to, a crime of serious moral turpitude that causes material harm to the directorsbusiness or prospects of the post-combination businessCompany or its affiliates, (iv) conviction of, or a plea of nolo contendere to, determine executive and director compensation.
The charter also provides thata felony (or the compensation committee may,equivalent thereof in its sole discretion, retain or obtaina jurisdiction other than the advice of a compensation consultant, legal counsel or other adviser and is directly responsible for the appointment, compensation and oversightUnited States); (v) material breach of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counselEmployment Agreement, the proprietary information and inventions agreement or any other adviser,material written agreement between the compensation committee must considerKey Executive and the independenceCompany or any of its affiliates; (vi) performance of any material act of theft, embezzlement, fraud or misappropriation, in each case with respect to the property of the Company or one of its affiliates; or (vii) any material breach of the material, written personnel policies of the Company or one of its affiliates, including those prohibiting acts of discrimination, harassment or retaliation. The events described in clauses (i), (ii) and (v) above will not constitute Cause unless the Company notifies the Key Executive in writing within 30 days following the Board’s actual knowledge of the event giving rise to Cause and the Key Executive has failed to cure the circumstances giving rise to Cause within 30 days following such adviser, includingnotice.
“Good Reason” means, without the factorsKey Executive’s consent: (i) a reduction in the Key Executive’s annual base salary or annual incentive opportunity, unless such reduction is made across the board to other senior executives of the Company and does not exceed 10% of the Key Executive’s then current annual base salary or annual incentive opportunity, as applicable; (ii) a material diminution in the Key Executive’s title, reporting relationship, authority, duties or responsibilities (other than temporarily while physically or mentally incapacitated or as required by applicable law); (iii) relocation of the NYSEKey Executive’s principal place of employment by more than 25 miles outside of New York City (unless the Key Executive is provided the opportunity, and the SEC.Key Executive consents, to work remotely); or (iv) the Company’s failure to pay compensation when due or other breach of the Employment Agreement or any other material written agreement between the Key Executive and the Company or any of its affiliates.
In April 2021, Mr. Kress entered into the Non-Competition Agreement, which became effective as of the Closing. In addition, each of the Key Executives have entered into a proprietary information and inventions agreement with Shapeways, effective as of the Closing, which contains (i) customary invention assignment and confidentiality provisions and (ii) non-compete and non-solicit covenants for 12 months post-termination of employment.
Equity Compensation
Pursuant to the Merger Agreement, certain named executive officers received Earn-Out RSUs (as defined above) and Transaction Bonus RSUs (as defined above) under the Incentive Plan.
As a result of and upon the Closing, options to purchase Legacy Shapeways’ common stock (whether vested or unvested, exercisable or unexercisable) issued pursuant to the 2010 Stock Plan, and outstanding immediately prior to the Closing were assumed and converted into (a) options to purchase an aggregate of 4,901,207 shares of common stock under the 2010 Stock Plan and (b) in the case of in-the-money options held by individuals who were service providers as of the Grant Date, an aggregate of 491,078 Earn-Out RSUs granted under the Incentive
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Plan, which NominatingEarn-Out RSUs are subject to the earnout vesting and Corporate Governance Committeeforfeiture conditions described in the Merger Agreement.
Outstanding Equity Awards at 2021 Fiscal Year End
The following table presents information regarding outstanding equity awards held by Shapeways’ named executive officers as of December 31, 2021. The number of shares subject to each option and Earn-Out RSUs are set forth below and the applicable exercise prices are as of December 31, 2021, but have been adjusted to reflect adjustments made on the Closing Date when Shapeways options were converted into options to purchase the Company’s Common Stock.
We have established a nominating and corporate governance committee. The members of our nominating and corporate governance are Messrs. Jones and Pontonio. Mr. Pontonio serves as chair of the nominating and corporate governance committee.
The primary purposes of our nominating and corporate governance committee are to assist the board in:
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The nominating and corporate governance committee is governed by a charter that complies with the rules of the NYSE.
Code of Ethics
We have filed a copy of our form of Code of Ethics applicable to our directors, officers and employees, our audit committee charter, our compensation committee charter and our nominating and governance committee charter as exhibits to the Registration Statement. You will be able to review these documents by accessing our public filings at the SEC’s website at www.sec.gov or by visiting our website at https://galileospac.com/corporate-governance. We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in a Current Report on Form 8-K.
| Number of Securities Underlying Unexercised Options (#) Vested | Number of Securities Underlying Unexercised Options (#) Unvested | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||||||||||||||||
Gregory Kress | 932,687 | (1) | — | — | $ | 0.49 | (2) | 2/26/2028 | — | — | — | — | ||||||||||||||||||||||
Chief Executive Officer | 417,735 | (1) | — | — | $ | 0.49 | 9/5/2028 | — | — | — | — | |||||||||||||||||||||||
| 1,007,444 | — | — | $ | 0.50 | 5/5/2030 | — | — | — | — | |||||||||||||||||||||||||
| — | — | — | — | — | — | — | 268,651 | (2) | $ | 996,695 | (2) | |||||||||||||||||||||||
Miko Levy | 302,233 | (1) | — | — | $ | 0.50 | 10/29/2029 | — | — | — | — | |||||||||||||||||||||||
Chief Revenue Officer | 100,744 | — | — | $ | 0.50 | 5/5/2030 | — | — | — | — | ||||||||||||||||||||||||
| — | — | — | — | — | — | — | 44,774 | (2) | $ | 166,112 | (2) | |||||||||||||||||||||||
Jennifer Walsh | 250,980 | (1) | — | — | $ | 0.49 | 9/5/2028 | — | — | — | — | |||||||||||||||||||||||
Chief Financial Officer | 89,497 | (1) | — | — | $ | 0.49 | 9/5/2028 | — | — | — | — | |||||||||||||||||||||||
| 402,977 | — | — | $ | 0.50 | 7/23/2029 | — | — | — | — | |||||||||||||||||||||||||
| — | — | — | — | — | — | — | 89,550 | (2) | $ | 332,231 | (2) | |||||||||||||||||||||||
| (2) | Effective as of the closing of the Business Combination, the named executive officers received Earn-Out RSUs. Subject to the satisfaction of the share-price based performance vesting conditions, each Earn-out RSU represents the right to receive one share of Common Stock of the Company. The Earn-out RSUs will be subject to share-price based performance vesting conditions as follows: (i) if, at any time prior to September 29, 2024 (the “RSU Earn-out Period”), the Company’s Common Stock equals or exceeds $14.00 per share for 30 consecutive trading days, one half (1/2) of the Earn-out RSUs shall vest; and (ii) if, at any time prior to the completion of the RSU Earn-out Period, the Company’s Common Stock equals or exceeds $16.00 per share for 30 consecutive trading days, the remaining one half (1/2) of the Earn-out RSUs shall vest. If the RSU Performance Milestones (as defined below) are not met during the RSU Earn-out Period, then the applicable Earn-out RSUs shall be automatically forfeited. The fair value of the Earn-Out RSUs shown in the table assumes one half (1/2) of the Earn-out RSUs will vest and is based on the price of the Company’s Common Stock on the last trading day of 2021, which is $3.71 per share. |
Compensation Discussion and Analysis62
None of our officers has received any cash compensation for services rendered to us. We pay an affiliate of our Chief Financial Officer a total of $3,000 per month for office space, utilities and secretarial and administrative support. Upon completion of our initial business combination or our liquidation, we will cease paying these monthly fees. No compensation of any kind, including any finder’s fee, reimbursement, consulting fee or monies in respect of any payment of a loan, will be paid by us to our sponsor, officers and directors, or any affiliate of our sponsor or officers, prior to, or in connection with any services rendered in order to effectuate, the consummation of our initial business combination (regardless of the type of transaction that it is). However, these individuals are reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Any such payments prior to an initial business combination will be made using funds held outside the trust account. Other than audit committee review of such payments, we do not expect to have any additional controls in place governing our reimbursement payments to our directors and executive officers for their out-of-pocket expenses incurred in connection with identifying and consummating an initial business combination.
After the completion of our initial business combination, directors or members of our management team who remain with us may be paid consulting or management fees from the combined company. All of these fees will be fully disclosed to shareholders, to the extent then known, in the tender offer materials or proxy solicitation materials furnished to our shareholders in connection with a proposed initial business combination. We have not established any limit on the amount of such fees that may be paid by the combined company to our directors or members of management. It is unlikely the amount of such compensation will be known at the time of the proposed initial business combination, because the directors of the post-combination business will be responsible for determining officer and director compensation. Any compensation to be paid to our officers will be determined, or recommended to the board of directors for determination, either by a compensation committee constituted solely by independent directors or by a majority of the independent directors on our board of directors.
We do not intend to take any action to ensure that members of our management team maintain their positions with us after the consummation of our initial business combination, although it is possible that some or all of our officers and directors may negotiate employment or consulting arrangements to remain with us after our initial business combination. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business but we do not believe that the ability of our management to remain with us after the consummation of our initial business combination will be a determining factor in our decision to proceed with any potential business combination. We are not party to any agreements with our officers and directors that provide for benefits upon termination of employment.
The following table sets forth information regarding the beneficialcompensation of Shapeways’ non-employee directors during the fiscal year ended December 31, 2021:
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Total ($) | |||||||||
Josh Wolfe | $ | 17,750 | — | $ | 17,750 | |||||||
Leslie Campbell | $ | 11,226 | $ | 215,000 | $ | 226,226 | ||||||
Robert Jan Galema | $ | 12,750 | — | $ | 12,750 | |||||||
Patrick S. Jones | $ | 14,750 | $ | 215,000 | $ | 229,750 | ||||||
Ryan Kearny | $ | 11,250 | $ | 215,000 | $ | 226,250 | ||||||
Alberto Recchi | $ | 14,750 | — | $ | 14,750 | |||||||
| (1) | The amounts in this column represent the aggregate grant-date fair value of the granted RSU awards, computed in accordance with the FASB’s ASC Topic 718. See Note 12 to Shapeways’ audited consolidated financial statements included elsewhere in this Report for a discussion of the assumptions made by Shapeways in determining the grant-date fair value of Shapeways’ equity awards. Subject to the director’s continuing service, the service-based requirement will be satisfied in equal annual installments over a 3-year period, and the vesting date in each year will be the anniversary of the date of grant (or if there is no corresponding date, the last date of the month). Upon a transaction constituting a “Change in Control” as defined in the Incentive Plan, the service-based requirement applicable to outstanding equity awards granted pursuant thereto shall be deemed satisfied in full upon the effective date of such transaction. |
Prior to the Business Combination, Shapeways had no formal arrangements under which directors received compensation for their service on the Shapeways’ board of directors or its committees. Following the consummation of the Business Combination, the Board adopted a compensation policy for its non-employee directors (the “Non-Employee Director Compensation Policy”). The Non-Employee Director Compensation Policy is designed to align compensation with Shapeways’ business objectives and the creation of stockholder value, while enabling Shapeways to attract, retain, incentivize and reward non- employee directors who contribute to the long-term success of Shapeways. The Non-Employee Director Compensation Policy provides for an annual cash retainer for all non-employee directors, in addition to equity grants determined by the compensation and human capital committee and reimbursement for reasonable expenses incurred in connection with attending board and committee meetings. Shapeways will review non-employee director compensation periodically to ensure that non-employee director compensation remains competitive such that Shapeways is able to recruit and retain qualified directors.
Cash Compensation
Each non-employee director receives an annual cash retainer of $35,000.
A non-executive chairperson is paid an additional annual cash retainer of $30,000.
To the extent Shapeways appoints a director as “lead independent director” (if not the chairperson), such director is paid an additional annual cash retainer of $17,500.
Directors receive an additional annual cash retainer, as set forth below, for their service on Board committees as follows:
Committee | Chairperson | Member | ||||||
Audit | $ | 20,000 | $ | 10,000 | ||||
Compensation and Human Capital Committee | $ | 12,000 | $ | 6,000 | ||||
Nominating and Governance | $ | 8,000 | $ | 4,000 | ||||
All cash retainers are paid in arrears in quarterly installments within 30 days after the fiscal quarter end.
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Equity Compensation
Directors receive RSU awards under the Incentive Plan or any successor plan, subject to the terms and conditions of the Incentive Plan and the applicable restricted stock unit agreement.
Annual Grant. Commencing with Shapeways’ first annual meeting of stockholders, each director will receive an RSU award having a value of $125,000. The date of grant for the annual grant will be the date of the annual meeting of stockholders. The number of shares subject to the annual grant will be determined using the closing price of the common stock on the date of grant. Subject to the director’s continuing service, the service-based requirement will be satisfied on the earlier of (A) the date of the next annual meeting of stockholders or (B) the one-year anniversary of the date of grant.
Initial Grant. Each director whose appointment or nomination as a member of the Board that occurred after the Closing received in connection with such appointment or nomination an RSU award having a value of $215,000. These awards were granted to new directors without existing ownership in the Company. The date of our ordinarygrant for an initial grant will be the date of the director’s appointment or nomination. The number of shares subject to the initial grant will be determined using the closing price of the common stock on the date of grant (unless such closing price is less than $4 per share, in which case $4 shall be determined to be the closing price for purposes of determining the number of shares subject to the annual grant). Subject to the director’s continuing service, the service-based requirement will be satisfied in equal annual installments over a three-year period, and the vesting date in each year will be the anniversary of the date of grant (or if there is no corresponding date, the last date of the month).
Upon a transaction constituting a “Change in Control” as defined in the Incentive Plan, the service- based requirement applicable to outstanding equity awards granted pursuant hereto will be deemed satisfied in full upon the effective date of March 25, 2021 basedsuch transaction.
Mr. Kress does not receive additional compensation for his services as a director.
Compensation Committee Interlocks and Insider Participation
None of the Company’s executive officers serves as a member of the board of directors or compensation committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on information obtained from the persons named below,Board or compensation and human capital committee.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table and accompanying footnotes set forth information with respect to the beneficial ownership of sharesShapeways’ common stock as of our ordinary shares, by:March 7, 2022:
42each person known by Shapeways to be the beneficial owner of more than 5% of outstanding common stock on such date;
each current executive officer of Shapeways and each member of Shapeways’ board of directors; and
all of Shapeways’ executive officers and directors as a group.
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days.
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Unless otherwise indicated, we believe that allnoted in the footnotes to the following table, and subject to applicable community property laws, the persons and entities named in the table have sole voting and investment power with respect to all ordinary sharestheir beneficially owned by them.securities.
| Ordinary Shares | ||||||||
| Name and Address of Beneficial Owner | Number of Shares Beneficially Owned | % of Class | ||||||
| Officers and Directors | ||||||||
| Luca Giacometti (1) (2) | 3,450,000 | 19.8 | % | |||||
| Alberto Recchi (1) (2) | 3,450,000 | 19.8 | % | |||||
| Patrick S. Jones (2) (3) | -- | -- | ||||||
| Alberto Pontonio (2) (3) | -- | -- | ||||||
| Robert Cohen (2) (3) | -- | -- | ||||||
| Galeazzo Pecori Giraldi (2) (3) | -- | -- | ||||||
| All Directors and Officers as a group (6 Individuals) | 3,450,000 | 19.8 | % | |||||
| 5% or More Shareholders | ||||||||
| Galileo Founders Holdings, L.P (1) (2) | 3,450,000 | 19.8 | % | |||||
| Glazer Capital, LLC (4) | 2,207,343 | 12.7 | % | |||||
| Magnetar Financial LLC (5) | 1,025,000 | 5.9 | % | |||||
Name and Address of Beneficial Owner (1) | Number of Shares Beneficially Owned | Percentage of Outstanding Shares | ||||||
Directors and Named Executive Officers | ||||||||
Josh Wolfe(2) | 7,134,051 | 14.6 | % | |||||
Greg Kress(3) | 2,475,871 | 4.8 | % | |||||
Jennifer Walsh(4) | 870,171 | 1.8 | % | |||||
Miko Levy(5) | 402,977 | * | ||||||
Alberto Recchi(6) | 951,531 | 1.9 | % | |||||
Patrick Jones | 13,000 | * | ||||||
Robert Jan Galema(7) | 3,508,963 | 7.2 | % | |||||
Ryan Kearny | — | — | ||||||
Leslie Campbell | — | — | ||||||
All executive officers and directors as a group (9 individuals) | 15,356,564 | 29.4 | % | |||||
5% Beneficial Holders | ||||||||
Andreessen Horowitz Fund III, L.P.(8) | 5,304,463 | 10.9 | % | |||||
Index Ventures(9) | 5,418,459 | 11.1 | % | |||||
Koninklijke Philips N.V. (F/K/A Koninklijke Philips Electronics)(10) | 4,146,478 | 8.5 | % | |||||
Lux Capital(11) | 7,134,051 | 14.6 | % | |||||
Stichting Depositary INKEF Investment Fund(12) | 3,508,963 | 7.2 | % | |||||
Union Square Ventures 2008, L.P.(13) | 6,107,670 | 12.5 | % | |||||
| * | Less than 1% |
| (1) | Unless otherwise indicated, the business address of each executive officer and director of the Company is c/o Shapeways Holdings, Inc., 30-02 48th Avenue, Long Island City, NY 11101. |
| (2) | Consists of (i) 3,811,111 shares held by Lux Ventures III, L.P., of which 381,111 shares are subject to the |
| (3) | Includes 2,357,866 shares subject to options, all of which are fully vested and exercisable. |
| (4) | Includes 743,454 shares subject to options, all of which are fully vested and exercisable. |
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| (5) | Includes 402,977 shares subject to options, all of which are fully vested and exercisable. |
| (6) | Consists of (i) 653,123 shares and (ii) 298,408 warrants exercisable for shares of common stock held by Alberto Recchi through an entity he controls, |
| (7) | Consists of 3,508,963 shares held by Stichting Depositary INKEF Investment Fund, of which 325,896 shares are subject to the Earnout Terms. Robert John Galema, Roel Bulthuis, Corne Jansen and Wolfgang Noldeke together exercise voting and investment control over shares held by Stichting Depositary INKEF Investment Fund. The |
| (8) | Consists of |
| (9) | Consists of (i) 5,307,738 shares held by Index Ventures V (Jersey), L.P. (“Ventures”), of which 530,773 shares are subject to |
| (10) | Includes 414,647 shares |
| (11) | Includes the shares referenced in footnote (2). |
| (12) | Includes the shares referenced in footnote (7). |
| (13) | Consists of |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth the number of securities authorized for issuance under the Company’s equity compensation plans at December 31, 2021.
Equity compensation plans | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | |||||||||
Equity compensation plans approved by security holders | 5,466,835 | (1) | $ | 0.63 | (2) | 7,446,310 | (3) | |||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 5,466,835 | (1) | $ | 0.63 | (2) | 7,446,310 | (3) | |||||
| (1) | Represents 4,806,387 outstanding options under the |
| (2) | Represents the weighted-average exercise price of the 4,806,387 outstanding options. |
| (3) | Includes 6,550,589 and 895,721 shares available for future issuance under the |
The table above does not include the ordinary shares underlying the private warrants or forward purchase securities held or to be held by our sponsor or the other listed individuals or entities because these securities are not exercisable within 60 days of this report.66
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Changes in Control
Not applicable.
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In August 2019, we issued an aggregate of 2,875,000 ordinary shares to our sponsor for $25,000, at a purchase price of $0.009 share. On October 17, 2019, we effected a share dividend of 0.2 of a share for each ordinary share in issue, resulting in our sponsor holding an aggregate of 3,450,000 founder shares.
Our sponsor and EarlyBirdCapital purchased an aggregate of 4,110,000 private warrants at $1.00 per private warrant (for a total purchase price of $4,110,000). Our sponsor purchased an aggregate of 3,562,000 private warrants and EarlyBirdCapital and/or its designees purchased an aggregate of 548,000 private warrants. The private warrants are identical to the public warrants. These purchases took place on a private placement basis simultaneously with the consummation of our initial public offering. All of the proceeds we received from these purchases was placed into an account in the United States maintained by Continental, as trustee. The purchasers have agreed not to transfer, assign or sell any of the private warrants or the underlying securities (except to the same permitted transferees as the insider shares) until the completion of our initial business combination. In addition, for as long as the private warrants are held by EarlyBirdCapital or its designees or affiliates, they may not be exercised after five years from the effective date of the Registration Statement.
In order to meet our working capital needs following the consummation of our initial public offering, our initial shareholders, officers and directors and their respective affiliates may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion. Each loan would be evidenced by a promissory note. The notes would either be paid upon consummation of our initial business combination, without interest, or, at the lender’s discretion, up to $1,000,000 of the notes may be converted upon consummation of our business combination into warrants at a price of $1.00 per warrant. Our shareholders have approved the issuance of the warrants and underlying securities upon conversion of such notes, to the extent the holder wishes to so convert them at the time of the consummation of our initial business combination. In the event that the initial business combination does not close, we may use a portion of the working capital held outside the trust account, or interest earned on the trust account that is available to us, to repay such loaned amounts, but no proceeds from our trust account other than the interest earned thereon would be used for such repayment.
The holders of our insider shares issued and outstanding, as well as the holders of the representative shares, the private warrants (and all underlying securities) and any securities our initial shareholders, officers, directors or their affiliates may be issued in payment of working capital loans made to us, will be entitled to registration rights pursuant to an agreement to be signed prior to or on the effective date of the Registration Statement. The holders of a majority of these securities are entitled to make up to two demands that we register such securities. The holders of the majority of the insider shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these ordinary shares are to be released from escrow. The holders of a majority of the representative shares, the private warrants or securities issued in payment of working capital loans made to us can elect to exercise these registration rights at any time after we consummate a business combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our consummation of a business combination. We will bear the expenses incurred in connection with the filing of any such registration statements.
Prior to our initial public offering, our sponsor loaned us an aggregate of $61,452 to be used to pay formation expenses and a portion of the expenses of our initial public offering. The loan was payable without interest on the earlier of March 31, 2020 or on the date on which we consummated our initial public offering. The loan was repaid upon the consummation of our initial public offering.
On December 14, 2020, we entered into the NoteBusiness Combination, Galileo Founders Holdings, L.P. (“Sponsor”) agreed with our sponsor, pursuant to which, our sponsor agreed to loan us up to an aggregate principal amount of $500,000. The Note is non-interest bearing and payable upon the date on which an initial business combination is consummated. If we do not consummate an initial business combination, we may use a portion of any funds held outside the trust account to repay the Note; however, no proceeds from the trust account may be used for such repayment. Up to $500,000 of the Note may be converted into warrants at a price of $1.00 per warrant at the option of our sponsor. The warrants would be identical to the private warrants. As of December 31, 2020, the outstanding balance under the Note amounted to an aggregate of $500,000.
We will reimburse our officers and directors for any reasonable out-of-pocket business expenses incurred by them in connection with certain activities on our behalf such as identifying and investigating possible target businesses and business combinations. There is no limit on the amount of out-of-pocket expenses reimbursable by us; provided, however, that to the extent such expenses exceed the available proceeds not deposited in the trust account and the interest income earned on the amounts held in the trust account, such expenses would not be reimbursed by us unless we consummate an initial business combination. Our audit committee will review and approve all reimbursements and payments made to any initial shareholder or member of our management team, or our or their respective affiliates, and any reimbursements and payments made to members of our audit committee will be reviewed and approved by our board of directors, with any interested director abstaining from such review and approval.
Our sponsor, an affiliate of Luca Giacometti, our Chairman and Chief Executive Officer and Alberto Recchi, our Chief Financial Officer, has agreedGalileo that, commencing on the date of effective date of the Registration StatementGalileo’s initial public offering (the “IPO”) through the earlier of ourGalileo’s consummation of ourGalileo’s initial business combination or ourGalileo’s liquidation, it willwould make available to usGalileo certain general and administrative services, including office space, utilities and secretarial support, as weGalileo may require from time to time. We have agreed
Galileo entered into the Administrative Services Agreement, commencing on October 17, 2019 through the earlier of the consummation of a business combination or the Galileo’s liquidation, to pay Ampla Capital, LLC, an affiliate of our Chief Financial Officer an aggregateGalileo’s then chief financial officer, a monthly fee of approximately $3,000 per monthfor general and administrative services, including office space, utilities and secretarial support. For the fiscal years ended December 31, 2021 and 2020, Galileo incurred and paid $27,000 and $36,000 in fees for these services.services, respectively. The Administrative Services Agreement terminated upon the Closing of the Business Combination on September 29, 2021.
Pursuant to that certain marketing agreement entered into by Galileo and EarlyBirdCapital, Inc. (“EBC”) in connection with the IPO (the “Business Combination Marketing Agreement”), a transaction fee equal to 3.5% of the gross proceeds received by Galileo in the IPO, or $4,830,000, up to 25% of which may be paid to investment banks or other financial advisors that did not participate in the IPO and assist Galileo in consummating a business combination (the “EBC Transaction Fee”), was payable to EBC upon consummation of the Business Combination. At the Closing, EBC was paid the EBC Transaction Fee and EBC was reimbursed for its reasonable costs and expenses associated with services performed in connection with the IPO. In addition, designees of EBC own 150,000 shares of common stock, issued to them for nominal consideration in connection with the IPO, and 548,000 Private Warrants, purchased by EBC at a price of $1.00 per Private Warrant.
In connection with the Business Combination, on April 26, 2021, Galileo entered into capital markets advisory agreements with Needham and with Craig Hallum, pursuant to which a capital markets advisory fee (collectively, the “Capital Markets Advisory Fees”) was payable to each of Needham and Craig Hallum at, and contingent upon, the Closing. The Capital Markets Advisory Fees, in aggregate, constituted 25% of the EBC Transaction Fee pursuant to the Business Combination Marketing Agreement, or $1,203,808. At the Closing, Needham and Craig Hallum were paid the Capital Markets Advisory Fees and Needham and Craig Hallum were reimbursed for their reasonable out-of-pocket costs and expenses.
Pursuant to the Stifel Engagement Letter, a placement fee (the “Placement Fee”) equal to 4.0% of the gross proceeds to Galileo from the PIPE Investment, excluding proceeds from PIPE investors that were stockholders of Legacy Shapeways as of the date they entered into subscription agreements and excluding proceeds from Stifel or any of its affiliates, was payable to Stifel upon consummation of the PIPE Investment. At the Closing, the Placement Fee of $2,645,000 was paid to Stifel and Stifel was reimbursed for its reasonable out-of-pocket expenses.
Legacy Shapeways Related Party Transactions
In addition to the compensation arrangements, including employment, termination of employment, and change in control arrangements discussed elsewhere in this Report, the following is a description of each transaction since January 1, 2020 and each currently proposed transaction in which:
44Shapeways has been or is to be a participant;
the amount involved exceeded or exceeds the lesser of (a) $120,000 or (b) one percent of the average of Shapeways’ total assets at year-end for the fiscal years ended December 31, 2021 and 2020; and
Other
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any of Shapeways’ directors, executive officers or holders of more than 5% of its capital stock prior to the rentBusiness Combination, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.
Promissory Note to former Chief Executive Officer
On or around August 2012, Legacy Shapeways entered into a promissory note (the “Weijmarshausen Promissory Note”) with its then-chief executive officer, Peter Weijmarshausen, bearing interest equal to the greater of (a) 0.88% per annum or (b) the mid-term Applicable Federal Rate under Section 1274(d) of the Internal Revenue Code in effect during the time the note is outstanding, pursuant to which Legacy Shapeways loaned Mr. Weijmarshausen $175,000, which amount would become due and payable, together with interest accrued thereunder, on the earlier of August 2017 or the consummation of a “Liquidation Event” as defined in Legacy Shapeways’ Restated Certificate of Incorporation. On August 25, 2017, Legacy Shapeways and Mr. Weijmarshausen amended the terms of the Weijmarshausen Promissory Note to extend the maturity date to August 10, 2020. On July 28, 2020, Legacy Shapeways and Mr. Weijmarshausen again amended the terms of the Weijmarshausen Promissory Note to extend the maturity date to August 10, 2021, and on or around August 10, 2020, Mr. Weijmarshausen paid to Legacy Shapeways $50,000 in respect of outstanding interest and principal under the Weijmarshausen Promissory Note. In connection with the closing of the Business Combination, Mr. Weijmarshausen repaid all outstanding interest and principal under the Weijmarshausen Promissory Note.
Sales of Convertible Promissory Notes
In June 2019, Legacy Shapeways sold convertible promissory notes having an aggregate principal amount of $5 million. In December 2020, Legacy Shapeways entered into an amendment which extended the maturity date of the convertible promissory notes to June 19, 2021. Immediately prior to the closing of the Business Combination, each convertible promissory note was converted into shares of Legacy Shapeways’ Series E Preferred Stock, par value $0.0001 (the “Series E Preferred Stock”) as shown in the following table:
Legacy Shapeways Stockholder | Principal Balance of Convertible Promissory Notes | Converted Series E Preferred Shares | ||||||
Union Square Ventures 2008, L.P. | $ | 1,666,667 | 565,425 | |||||
Lux Co-Invest Opportunities, L.P. | $ | 1,666,667 | 565,425 | |||||
Stichting Depositary INKEF Investment Fund | $ | 1,666,667 | 565,425 | |||||
Each share of Legacy Shapeways’ Series E Preferred Stock converted automatically into one share of Shapeways common stock immediately prior to the Closing. At the Closing, holders of Legacy Shapeways common stock received a number of shares of Shapeways’ common stock equal to the total consideration received by holders of shares of Legacy Shapeways common stock and preferred stock in connection with the Closing of the Business Combination.
Indemnification Agreements
Shapeways has entered into indemnification agreements with each of its executive officers, directors and certain key employees and purchased directors’ and officers’ liability insurance. The indemnification agreements, our Charter and our Bylaws require Shapeways to indemnify its directors and officers to the fullest extent permitted under Delaware law. Our Charter and our Bylaws also provide the Board with discretion to indemnify officers and employees when determined appropriate. In addition, the indemnification agreements provide that, to the fullest extent permitted by Delaware law, Shapeways will advance all expenses incurred by its directors, executive officers, and other key employees in connection with a legal proceeding involving his or her status as a director, executive officer or key employee.
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Founders Registration Rights Agreement
In connection with the Closing, that certain Registration Rights Agreement of Galileo, dated October 17, 2019, by and among Galileo, the Sponsor and EBC was amended by that certain First Amendment to Registration Rights Agreement (as amended, the “Founders Registration Rights Agreement”). The amendment to the Founders Registration Rights Agreement reflected that the registration rights of the Sponsor and EBC thereunder will be pari passu with the registration rights provided to certain securityholders of Shapeways under the Shapeways Registration Rights Agreement (as defined below).
Shapeways Registration Rights Agreement
In connection with the Business Combination, entities affiliated with Lux Capital entered into a registration rights agreement (the “Shapeways Registration Rights Agreement”) to provide such securityholders with registration rights that are on terms substantially similar in all material respects to, and pari passu with, the registration rights set forth in the Founders Registration Rights Agreement.
Share Escrow Agreement Amendment
On October 17, 2019, Galileo, Sponsor and the approximately $3,000 per month administrative fee, no compensationescrow agent entered into a share escrow agreement (the “Share Escrow Agreement”) pursuant to which shares held by the Sponsor were placed into an escrow account. In connection with the Business Combination, Galileo’s shareholders approved an amendment to the Share Escrow Agreement, pursuant to which the Sponsor agreed, subject to certain exceptions, not to effect any direct or feesindirect sale, transfer or other disposition with respect to any shares of any kind, including finder’s fees, consulting feescommon stock issued to the Sponsor in the Merger for a period commencing on the Closing and ending on the earlier of (x) 180 days after the date of the Closing, and (y) the date after the Closing on which the Company consummates a liquidation, merger, share exchange or other similar compensation,transaction with an unaffiliated third party. The amendment to the Share Escrow Agreement was effected to match the lock-up period thereunder with the lock-up period reflected in the lock-up agreements with certain stockholders of Shapeways entered into in connection with the Business Combination.
Related Person Transactions Policy Following the Business Combination
Shapeways’ Board adopted a written related person transaction policy that sets forth the following policies and procedures for the review and approval or ratification of related person transactions.
A “related person transaction” is a transaction, arrangement or relationship in which the Company or any of its subsidiaries was, is or will be paid to anya participant, the amount of our initial shareholders, officers or directors who owned our ordinary shares prior to the initial public offering, or to any of their respective affiliates, prior to or with respect to the business combination (regardless of the type of transaction that it is).
All ongoingwhich involved exceeds $120,000, and future transactions between us and any of our officers and directors or their respective affiliates will be on terms believed by us to be no less favorable to us than are available from unaffiliated third parties. Such transactions, including the payment of any compensation, will require prior approval by a majority of our uninterested “independent” directors (to the extent we have any) or the members of our board who do not have an interest in the transaction, in either case who had access, at our expense, to our attorneys or independent legal counsel. We will not enter into any such transaction unless our disinterested “independent” directors (or, if there are no “independent” directors, our disinterested directors) determine that the terms of such transaction are no less favorable to us than those that would be available to us with respect to such a transaction from unaffiliated third parties.
Related Party Policy
Our audit committee must review and approvewhich any related person transaction we proposehad, has or will have a direct or indirect material interest. A “related person” means:
any person who is, or at any time during the applicable period was, one of the Company’s executive officers or one of the Company’s directors;
any person who is known by the Company to enter into. Ourbe the beneficial owner of more than 5% of the Company’s voting shares;
any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law,father-in-law,son-in-law,daughter-in-law, brother- in-law or sister-in-law of a director, executive officer or a beneficial owner of more than 5% of the Company’s voting shares, and any person (other than a tenant or employee) sharing the household of such director, executive officer or beneficial owner of more than 5% of the Company’s voting shares; and
any firm, corporation or other entity in which any of the foregoing persons is a partner or principal, or in a similar position, or in which such person has a 10% or greater beneficial ownership interest.
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The Company has implemented policies and procedures designed to minimize potential conflicts of interest arising from any dealings it may have with its affiliates and to provide appropriate procedures for the disclosure of any real or potential conflicts of interest that may exist from time to time. Specifically, pursuant to the Company’s audit committee charter, details the policies and procedures relating to transactions that may present actual, potential or perceived conflicts of interest and may raise questions as to whether such transactions are consistent with the best interest of our company and our stockholders. A summary of such policies and procedures is set forth below.
Any potential related party transaction that is brought to the audit committee’s attention will be analyzed by the audit committee, in consultation with outside counsel or members of management, as appropriate, to determine whether the transaction or relationship does, in fact, constitute a related party transaction. At its meetings, the audit committee will be provided withhave the details of each new, existing or proposedresponsibility to review related party transaction, includingtransactions.
Director Independence
The Board consists of seven members, six of whom qualify as independent within the termsmeaning of the transaction,independent director guidelines of NYSE.
The Company’s common stock is listed on NYSE. Under the business purposerules of the transaction and the benefits to us and to the relevant related party.
In determining whether to approve a related party transaction, the audit committeeNYSE, independent directors must consider, among other factors, the following factors to the extent relevant:
Any member of the audit committee who has an interest in the transaction under discussion must abstain from any voting regarding the transaction, but may, if so requested by the chairman of the audit committee, participate in some or all of the audit committee’s discussions of the transaction. Upon completion of its review of the transaction, the audit committee may determine to permit or to prohibit the transaction.
Director Independence
NYSE listing standards require thatcomprise a majority of oura listed company’s board of directorsdirectors. In addition, the rules of NYSE require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent. AnUnder the rules of NYSE, a director will only qualify as an “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship whichif, in the opinion of thethat company’s board of directors, that person does not have a relationship that would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our boardAudit committee members must also satisfy the additional independence criteria set forth in Rule 10A-3 of directorsthe Exchange Act and the rules of NYSE. Compensation committee members must also satisfy the additional independence criteria set forth in Rule 10C-1 under the Exchange Act and the rules of NYSE.
We have undertaken a review of the independence of each director and considered whether each director has a material relationship that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, we have determined that Messrs. Cohen,Josh Wolfe, Robert Jan Galema, Patrick S. Jones, PontonioAlberto Recchi, Ryan Kearny and Pecori GiraldiLeslie Campbell are “independent directors” as defined inunder the NYSE listing standardsrequirements and applicable SEC rules. We will only enter into a business combination if it is approved by a majorityrules of our independent directors. Additionally, we will only enter into transactions with our officers and directors and their respective affiliates that are on terms no less favorable to us than could be obtained from independent parties. Any related-party transactions must also be approved by our audit committee and a majority of disinterested independent directors.
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The firm of Withum, acts as our independent registered public accounting firm. The following is a summary of fees paid to Withum for services rendered.
Audit Fees
Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by Withum in connection with regulatory filings. During the year ended December 31, 2020NYSE and the period from July 30, 2019 (inception) through December 31, 2019, the aggregate audit fees for our independent registered public accounting firm were approximately $45,000 and $65,000, respectively. These amounts include the services Withum performed in connection with our initial public offering and the audit of our December 31, 2020 and 2019 financial statements, as well as attendance at audit committee meetings.
Audit-Related Fees
Audit-related services consist of fees billed for assurance and related services that are reasonably related to performanceapplicable rules of the audit or review of our financial statementsExchange Act.
Item 14. Principal Accounting Fees and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. During the year ended December 31, 2020 and the period from July 30, 2019 (inception) through December 31, 2019, our independent registered public accounting firm did not render assurance and related services related to financial accounting and reporting standards. The aggregate audit-related fees paid to Withum totaled 0 and 0Services.
Fees for the year ended December 31, 2020 and the period from July 30, 2019 (inception) through December 31, 2019, respectively.
Tax Fees
During the year ended December 31, 2020 and the period from July 30, 2019 (inception) through December 31, 2019, our independent registered public accounting firm did not render services to us for tax compliance, tax advice and tax planning. The aggregate tax fees paid to Withum totaled 0 and 0 for the year ended December 31, 2020 and the period from July 30, 2019 (inception) through December 31, 2019, respectively.
All Other Fees
During the year ended December 31, 2020 and the period from July 30, 2019 (inception) through December 31, 2019, there were no fees billed for products andprofessional services provided by our independent registered public accounting firm other than those set forth above. The aggregate of all other fees paid to Withum totaled 0 and 0 for the year ended December 31, 2020 and the period from July 30, 2019 (inception) through December 31, 2019, respectively.include:
| For the Fiscal Year Ended December 31, | ||||||||
| 2021 | 2020 (5) | |||||||
Audit Fees (1) | $ | 255,518 | $ | 93,503 | ||||
Audit-Related Fees (2) | 159,269 | 64,991 | ||||||
Tax Fees (3) | 46,610 | 28,428 | ||||||
All Other Fees (4) | 92,560 | — | ||||||
|
|
|
| |||||
Total | $ | 553,957 | $ | 186,922 | ||||
|
|
|
| |||||
Our
| 1. | Audit Fees. Audit fees consist of fees billed for professional services rendered by our independent registered public accounting firm for the audit of our annual consolidated financial statements and review of financial statements included in our Quarterly Reports on Form 10-Q or services that are normally provided by our independent registered public accounting firm in connection with statutory and regulatory filings or engagements. |
| 2. | Audit-Related Fees. Audit-related fees consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultation concerning financial accounting and reporting standards. |
| 3. | Tax Fees. Tax fees consist of fees billed for professional services rendered by our independent registered public accounting firm for tax compliance, tax advice, and tax planning. |
| 4. | All Other Fees. All other fees consist of fees billed for all other services. |
| 5. | Fees presented for the year fiscal year ended December 31, 2020 pertain to Legacy Shapeways. |
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Policy on Board Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Auditors
The audit committee has determined thatis responsible for appointing, setting compensation and overseeing the services provided by Withum are compatible with maintaining the independencework of Withum as our independent registered public accounting firm.
Pre-Approval Policy
Our audit committee was formed upon the consummation In recognition of our initial public offering. As a result,this responsibility, the audit committee did not shall review and, in its sole discretion, pre-approve all of the foregoingaudit and permitted non-audit services although any services rendered prior to the formation of our audit committee were approvedbe provided by our board of directors. Since the formation of our audit committee, and on a going-forward basis,independent registered public accounting firm as provided under the audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit).
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71
PART IV
Item 15. Exhibits and Financial Statement Schedules.
The following documents are filed as part of this |
Financial |
| 1. | Report of Independent Registered Public Accounting Firm | ||
Balance Sheets |
All financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial statements and notes beginning on page F-1 of this Report.
Statements of Operations and Comprehensive Loss |
| 4. | Statements of Preferred and Common Stock and Stockholder’s Equity (Deficit) |
We hereby file as part of this Report the exhibits listed in the attached Exhibit Index. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or on the SEC website at www.sec.gov.
| 5. | Statements of Cash Flows |
| 6. | Notes to Financial Statements |
| ii. | Financial Statement Schedules: |
| 1. | All financial statement schedules are omitted because the information is inapplicable or presented in the notes to the financial statements |
| b. | The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report. |
INDEX TO EXHIBITS
Not applicable.
47
EXHIBIT INDEX
72
73
| * | Filed herewith. |
| ** | Furnished herewith. |
| *** | To be filed by amendment. |
| + | The schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request. |
| # | Indicates a management or compensatory plan. |
None.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Shapeways Holdings, Inc. | ||||||
| Dated: March 31, 2022 | By: | /s/ Jennifer Walsh | ||||
| Jennifer Walsh | ||||||
| Chief Financial Officer | ||||||
| (Principal Financial and Accounting Officer) | ||||||
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears below constitutes and appoints Greg Kress and Jennifer Walsh and each of them, his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Name | Title | Date | ||
/s/ Greg Kress | Chief Executive Officer and Director | March 31, 2022 | ||
| Greg Kress | (Principal Executive Officer) | |||
/s/ Jennifer Walsh | Chief Financial Officer | March 31, 2022 | ||
| Jennifer Walsh | (Principal Financial and Accounting Officer) | |||
/s/ Josh Wolfe | Executive Chairman and Director | March 31, 2022 | ||
| Josh Wolfe | ||||
/s/ Leslie Campbell | Director | March 31, 2022 | ||
| Leslie Campbell | ||||
/s/ Robert Jan Galema | Director | March 31, 2022 | ||
| Robert Jan Galema | ||||
/s/ Patrick S. Jones | Director | March 31, 2022 | ||
| Patrick S. Jones | ||||
/s/ Ryan Kearny | Director | March 31, 2022 | ||
| Ryan Kearny | ||||
/s/ Alberto Recchi | Director | March 31, 2022 | ||
| Alberto Recchi | ||||
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| Item 8. | Financial Statements and Supplementary Data. |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||
* Filed herewith
** Furnished herewith
48
GALILEO ACQUISITION CORP.
INDEX TO FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of
Galileo Acquisition Corp.
Shapeways Holdings, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Galileo Acquisition Corp.Shapeways Holdings, Inc. (the “Company”), as of December 31, 20202021 and 2019,2020, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for each of the yeartwo years in the period ended December 31, 2020 and for the period from July 30, 2019 (inception) through December 31, 2019,2021, and the related notes (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20202021 and 2019,2020, and the results of its operations and its cash flows for each of the yeartwo years in the period ended December 31, 2020 and for the period from July 30, 2019 (inception) through December 31, 2019,2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, if the Company is unable to consummate a Business Combination by the close of business on July 22, 2021 (or up to October 22, 2021 if a definitive agreement with respect to a proposed Business Combination has been executed by July 22, 2021) and if the Company is unable to raise additional funds to alleviate liquidity needs and complete a business combination by July 22, 2021, then the Company will cease all operations except for the purpose of liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company'sCompany’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ WithumSmith+Brown, PC
We have served as the Company'sCompany’s auditor since 2019.2020.
New York, New YorkNY
March 25, 202131, 2022
PCAOB ID - 100
F-2
GALILEO ACQUISITION CORP.SHAPEWAYS HOLDINGS, INC.
(in thousands, except share and per share amounts)
| December 31 | ||||||||
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 624,830 | $ | 712,062 | ||||
| Prepaid expenses and other current assets | 65,301 | 129,666 | ||||||
| Total Current Assets | 690,131 | 841,728 | ||||||
| Cash and marketable securities held in Trust Account | 139,158,500 | 138,414,479 | ||||||
| TOTAL ASSETS | $ | 139,848,631 | $ | 139,256,207 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| Current liabilities - Accounts payable and accrued expenses | $ | 209,732 | $ | 65,716 | ||||
| Convertible promissory note – related party | 500,000 | — | ||||||
| Total Liabilities | 709,732 | 65,716 | ||||||
| Commitments and Contingencies (Note 5) | ||||||||
| Ordinary shares subject to possible redemption, 13,413,889 and 13,419,049 shares at $10.00 redemption value at $10.00 per share at December 31, 2020 and 2019, respectively | 134,138,890 | 134,190,490 | ||||||
| Shareholders’ Equity | ||||||||
| Preference shares, $0.0001 par value; 2,000,000 shares authorized; none issued and outstanding | — | — | ||||||
| Ordinary shares, $0.0001 par value; 200,000,000 shares authorized; 3,986,111 and 3,980,951 shares issued and outstanding (excluding 13,413,889 and 13,419,049 shares subject to possible redemption) at December 31, 2020 and 2019, respectively | 399 | 398 | ||||||
| Additional paid-in capital | 4,809,543 | 4,757,944 | ||||||
| Retained earnings | 190,067 | 241,659 | ||||||
| Total Shareholders’ Equity | 5,000,009 | 5,000,001 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 139,848,631 | $ | 139,256,207 | ||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 79,677 | $ | 8,564 | ||||
Restricted cash | 142 | 145 | ||||||
Accounts receivable | 1,372 | 185 | ||||||
Inventory | 927 | 727 | ||||||
Promissory note due from related party | — | 151 | ||||||
Prepaid expenses and other current assets | 4,360 | 1,910 | ||||||
|
|
|
| |||||
Total current assets | 86,478 | 11,682 | ||||||
Property and equipment, net | 4,388 | 948 | ||||||
Right-of-use assets, net | 842 | 2,102 | ||||||
Goodwill | 1,835 | 1,835 | ||||||
Security deposits | 175 | 175 | ||||||
|
|
|
| |||||
Total assets | $ | 93,718 | $ | 16,742 | ||||
|
|
|
| |||||
Liabilities and Stockholders’ Equity (Deficit) | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 1,909 | $ | 1,633 | ||||
Accrued expenses and other liabilities | 2,645 | 3,319 | ||||||
Current portion of long-term debt | — | 8,332 | ||||||
Operating lease liabilities, current | 639 | 1,222 | ||||||
Deferred revenue | 921 | 753 | ||||||
|
|
|
| |||||
Total current liabilities | 6,114 | 15,259 | ||||||
Operating lease liabilities, net of current portion | 326 | 1,094 | ||||||
Warrant liabilities | 2,274 | — | ||||||
Long-term debt | — | 2,236 | ||||||
|
|
|
| |||||
Total liabilities | 8,714 | 18,589 | ||||||
|
|
|
| |||||
Commitments and contingencies | ||||||||
Stockholders’ equity (deficit) (1) | ||||||||
Preferred stock ($0.0001 par value; 10,000,000 shares authorized; none issued and outstanding as of December 31, 2021 and 2020, respectively) | — | — | ||||||
Common stock ($0.0001 par value; 120,000,000 shares authorized; 48,627,739 and 32,184,263 shares issued and outstanding as of December 31, 2021 and 2020, respectively) | 5 | 3 | ||||||
Additional paid-in capital | 198,179 | 112,994 | ||||||
Accumulated deficit | (112,811 | ) | (114,567 | ) | ||||
Accumulated other comprehensive loss | (369 | ) | (277 | ) | ||||
|
|
|
| |||||
Total stockholders’ equity (deficit) | 85,004 | (1,847 | ) | |||||
|
|
|
| |||||
Total liabilities and stockholders’ equity (deficit) | $ | 93,718 | $ | 16,742 | ||||
|
|
|
| |||||
| (1) | Retroactively restated for the reverse recapitalization as described in Notes 1 and 3. |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
GALILEO ACQUISITION CORP.SHAPEWAYS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share amounts)
Year Ended December 31, | For the Period from July 30, 2019 (Inception) Through December 31, | |||||||
| 2020 | 2019 | |||||||
| General and administrative costs | $ | 795,613 | $ | 172,820 | ||||
| Loss from operations | (795,613 | ) | (172,820 | ) | ||||
| Other income: | ||||||||
| Interest earned on marketable securities held in Trust Account | 744,021 | 414,479 | ||||||
| Net (loss) income | $ | (51,592 | ) | $ | 241,659 | |||
| Weighted average shares outstanding of redeemable ordinary shares | 13,800,000 | 13,800,000 | ||||||
| Basic and diluted net income per ordinary share, redeemable | $ | 0.05 | $ | 0.03 | ||||
| Weighted average shares outstanding of non-redeemable ordinary shares | 3,600,000 | 3,600,000 | ||||||
| Basic and diluted net loss per ordinary share, non-redeemable | $ | (0.22 | ) | $ | (0.05 | ) | ||
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
Revenue, net | $ | 33,623 | $ | 31,775 | ||||
Cost of revenue | 17,673 | 17,903 | ||||||
|
|
|
| |||||
Gross profit | 15,950 | 13,872 | ||||||
Operating expenses | ||||||||
Selling, general and administrative | 17,561 | 10,752 | ||||||
Research and development | 6,281 | 5,592 | ||||||
Amortization and depreciation | 133 | 149 | ||||||
|
|
|
| |||||
Total operating expenses | 23,975 | 16,493 | ||||||
|
|
|
| |||||
Loss from operations | (8,025 | ) | (2,621 | ) | ||||
Other income (expense) | ||||||||
Long-term debt forgiveness | 2,000 | — | ||||||
Change in fair value of warrant liabilities | 8,106 | — | ||||||
Interest expense | (404 | ) | (582 | ) | ||||
Interest income | 1 | 1 | ||||||
Other income | 7 | 9 | ||||||
Loss on disposal of assets | — | (4 | ) | |||||
|
|
|
| |||||
Total other income (expense), net | 9,710 | (576 | ) | |||||
|
|
|
| |||||
Income (loss) before income tax benefit | 1,685 | (3,197 | ) | |||||
Income tax benefit | (71 | ) | (29 | ) | ||||
|
|
|
| |||||
Net income (loss) | 1,756 | (3,168 | ) | |||||
Deemed dividend—Earnout Shares | (18,132 | ) | — | |||||
|
|
|
| |||||
Net loss attributable to common stockholders | $ | (16,376 | ) | $ | (3,168 | ) | ||
|
|
|
| |||||
Net income (loss) per share: | ||||||||
Basic | $ | 0.04 | $ | (0.09 | ) | |||
|
|
|
| |||||
Diluted | $ | 0.04 | $ | (0.09 | ) | |||
|
|
|
| |||||
Net loss per share attributable to common stockholders: | ||||||||
Basic | $ | (0.40 | ) | $ | (0.09 | ) | ||
|
|
|
| |||||
Diluted | $ | (0.40 | ) | $ | (0.09 | ) | ||
|
|
|
| |||||
Weighted average common shares outstanding: (1) | ||||||||
Basic | 41,040,637 | 35,713,913 | ||||||
|
|
|
| |||||
Diluted | 41,040,637 | 35,713,913 | ||||||
|
|
|
| |||||
Other comprehensive (loss) income | ||||||||
Foreign currency translation adjustment | (92 | ) | 83 | |||||
|
|
|
| |||||
Comprehensive loss | $ | (16,468 | ) | $ | (3,085 | ) | ||
|
|
|
| |||||
| (1) | Retroactively restated for the reverse recapitalization as described in Notes 1 and 3. |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
GALILEO ACQUISITION CORP.SHAPEWAYS HOLDINGS, INC.
STATEMENTSCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’STOCKHOLDERS’ EQUITY (DEFICIT) (1)
(in thousands, except share and per share amounts)
| Ordinary Shares | Additional Paid | Retained | Total Shareholders’ | |||||||||||||||||
| Shares | Amount | in Capital | Earnings | Equity | ||||||||||||||||
| Balance – July 30, 2019 (inception) | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| Non-Redeemable ordinary shares issued to Sponsor | 3,450,000 | 345 | 24,655 | — | 25,000 | |||||||||||||||
| Issuance of Representative Shares | 150,000 | 15 | 1,122 | — | 1,137 | |||||||||||||||
| Sale of 13,800,000 Units, net of underwriting discount and offering expenses | 13,800,000 | 1,380 | 134,811,315 | — | 134,812,695 | |||||||||||||||
| Sale of 4,110,000 Private Warrants | — | — | 4,110,000 | — | 4,110,000 | |||||||||||||||
| Redeemable ordinary shares subject to possible redemption | (13,419,049 | ) | (1,342 | ) | (134,189,148 | ) | — | (134,190,490 | ) | |||||||||||
| Net income | — | — | — | 241,659 | 241,659 | |||||||||||||||
| Balance – December 31, 2019 | 3,980,951 | 398 | 4,757,944 | 241,659 | 5,000,001 | |||||||||||||||
| Change in value of redeemable ordinary shares subject to possible redemption | 5,160 | 1 | 51,599 | — | 51,600 | |||||||||||||||
| Net loss | — | — | — | (51,592 | ) | (51,592 | ) | |||||||||||||
| Balance – December 31, 2020 | 3,986,111 | $ | 399 | $ | 4,809,543 | $ | 190,067 | $ | 5,000,009 | |||||||||||
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Equity (Deficit) | |||||||||||||||||||||||||
Balance at January 1, 2020 (as previously reported) | 22,579,695 | $ | 2 | 15,894,428 | $ | 2 | $ | 112,186 | $ | (111,399 | ) | $ | (360 | ) | $ | 431 | ||||||||||||||||
Retroactive application of reverse recapitalization | (22,579,695 | ) | (2 | ) | 16,026,831 | 1 | 1 | — | — | — | ||||||||||||||||||||||
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|
| |||||||||||||||||
Balance at January 1, 2020 (after effect of reverse recapitalization) | — | — | 31,921,259 | 3 | 112,187 | (111,399 | ) | (360 | ) | 431 | ||||||||||||||||||||||
Issuance of Legacy Shapeways common stock upon exercise of stock options | — | — | 263,004 | — | 86 | — | — | 86 | ||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 721 | — | — | 721 | ||||||||||||||||||||||||
Net loss | — | — | — | — | — | (3,168 | ) | — | (3,168 | ) | ||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | — | 83 | 83 | ||||||||||||||||||||||||
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| |||||||||||||||||
Balance at December 31, 2020 | — | — | 32,184,263 | 3 | 112,994 | (114,567 | ) | (277 | ) | (1,847 | ) | |||||||||||||||||||||
Issuance of Legacy Shapeways common stock upon exercise of stock options | — | — | 1,212,430 | — | 552 | — | — | 552 | ||||||||||||||||||||||||
Issuance of Legacy Shapeways convertible Series B-1 preferred stock resulting from exercise of warrants | — | — | 19,177 | — | 60 | — | — | 60 | ||||||||||||||||||||||||
Issuance of Legacy Shapeways common stock upon conversion of convertible notes | — | — | 1,406,741 | — | 5,913 | — | — | 5,913 | ||||||||||||||||||||||||
Issuance of Legacy Shapeways common stock upon exercise of warrants | — | — | 212,234 | — | — | — | — | — | ||||||||||||||||||||||||
Issuance of Legacy Shapeways convertible Series D preferred stock upon exercise of warrants | — | — | 89,217 | — | — | — | — | — | ||||||||||||||||||||||||
Repurchase of Legacy Shapeways common stock | — | — | (19,226 | ) | — | (152 | ) | — | — | (152 | ) | |||||||||||||||||||||
Effect of Merger and recapitalization, net of redemptions and issuance costs | — | — | 5,691,648 | 1 | 10,035 | — | — | 10,036 | ||||||||||||||||||||||||
Issuance of common stock pursuant to PIPE financing, net of issuance costs | — | — | 7,500,000 | 1 | 64,936 | — | — | 64,937 | ||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options | — | — | 86,533 | — | 43 | — | — | 43 | ||||||||||||||||||||||||
Issuance of common stock for settlement of restricted stock units | — | — | 410,000 | — | 1,558 | — | — | 1,558 | ||||||||||||||||||||||||
Tax payments related to shares withheld for vested restricted stock units | — | — | (165,278 | ) | — | (594 | ) | — | — | (594 | ) | |||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 1,349 | — | — | 1,349 | ||||||||||||||||||||||||
Transfer of Private Warrants to Public Warrants | — | — | — | — | 1,485 | — | — | 1,485 | ||||||||||||||||||||||||
Net income | — | — | — | — | — | 1,756 | — | 1,756 | ||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | — | (92 | ) | (92 | ) | ||||||||||||||||||||||
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|
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| |||||||||||||||||
Balance at December 31, 2021 | — | — | 48,627,739 | $ | 5 | $ | 198,179 | $ | (112,811 | ) | $ | (369 | ) | $ | 85,004 | |||||||||||||||||
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| |||||||||||||||||
| (1) | Retroactively restated for the reverse recapitalization as described in Notes 1 and 3. |
The accompanying notes are an integral part of these financial statements.
F-5
GALILEO ACQUISITION CORP.
Year Ended December 31, | For the Period from July 30, 2019 (Inception) Through December 31, | |||||||
| 2020 | 2019 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net (loss) income | $ | (51,592 | ) | $ | 241,659 | |||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Formation costs paid by Sponsor | — | 5,000 | ||||||
| Interest earned on marketable securities held in Trust Account | (744,021 | ) | (414,479 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | 64,365 | (129,666 | ) | |||||
| Accounts payable and accrued expenses | 144,016 | 65,716 | ||||||
| Net cash used in operating activities | (587,232 | ) | (231,770 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Investment of cash in Trust Account | — | (138,000,000 | ) | |||||
| Net cash used in investing activities | — | (138,000,000 | ) | |||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from sale of Units, net of underwriting discounts paid | — | 135,240,000 | ||||||
| Proceeds from sale of Private Warrants | — | 4,110,000 | ||||||
| Proceeds from convertible promissory note - related party | 500,000 | |||||||
| Repayment of promissory note – related party | — | (93,798 | ) | |||||
| Payments of offering costs | — | (312,370 | ) | |||||
| Net cash provided by financing activities | 500,000 | 138,943,832 | ||||||
| Net Change in Cash | (87,232 | ) | 712,062 | |||||
| Cash – Beginning | 712,062 | — | ||||||
| Cash – Ending | $ | 624,830 | $ | 712,062 | ||||
| Non-Cash Investing and Financing Activities: | ||||||||
| Initial classification of ordinary shares subject to possible redemption | $ | — | $ | 133,895,920 | ||||
| Change in value of ordinary share subject to possible redemption | $ | (51,600 | ) | $ | 294,570 | |||
| Issuance of Representative Shares | $ | — | $ | 1,137 | ||||
| Payment of offering costs through promissory note – related party | $ | — | $ | 88,798 | ||||
| Offering costs paid directly by shareholder in exchange for issuance of ordinary shares | $ | — | $ | 25,000 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
GALILEO ACQUISITION CORP.
DECEMBR 31, 2020
F-5
NOTE 1. DESCRIPTION
SHAPEWAYS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF ORGANIZATION AND BUSINESS OPERATIONSCASH FLOWS
(in thousands, except share and per share amounts)
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 1,756 | $ | (3,168 | ) | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Depreciation and amortization | 593 | 473 | ||||||
Loss on disposal of assets | — | 4 | ||||||
Stock-based compensation expense | 2,907 | 721 | ||||||
Non-cash lease expense | 763 | 2,056 | ||||||
Non-cash debt forgiveness | (2,000 | ) | — | |||||
Change in fair value of warrant liabilities | (8,106 | ) | — | |||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | (1,180 | ) | (40 | ) | ||||
Inventory | (175 | ) | (310 | ) | ||||
Prepaid expenses and other assets | (2,355 | ) | (5 | ) | ||||
Interest on promissory note due from related party | — | 49 | ||||||
Security deposits | — | 259 | ||||||
Accounts payable | 207 | (379 | ) | |||||
Accrued expenses and other liabilities | 223 | 814 | ||||||
Lease liabilities | (854 | ) | (2,129 | ) | ||||
Deferred revenue | 162 | 345 | ||||||
Deferred rent | — | (283 | ) | |||||
|
|
|
| |||||
Net cash used in operating activities | (8,059 | ) | (1,593 | ) | ||||
|
|
|
| |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (3,960 | ) | (104 | ) | ||||
|
|
|
| |||||
Net cash used in investing activities | (3,960 | ) | (104 | ) | ||||
|
|
|
| |||||
Cash flows from financing activities: | ||||||||
Principal payments on capital leases | — | (18 | ) | |||||
Proceeds from issuance of common stock | 595 | 86 | ||||||
Proceeds received from exercise of preferred stock warrants | 60 | — | ||||||
Tax payments related to shares withheld for vested restricted stock units | (594 | ) | — | |||||
Effect of Merger, net of transaction costs | 86,792 | — | ||||||
Repayments of loans payable | (3,586 | ) | (1,318 | ) | ||||
Proceeds from loans payable | — | 1,982 | ||||||
|
|
|
| |||||
Net cash provided by financing activities | 83,267 | 732 | ||||||
|
|
|
| |||||
Net change in cash and cash equivalents and restricted cash | $ | 71,248 | $ | (965 | ) | |||
|
|
|
| |||||
Effect of change in foreign currency exchange rates on cash and cash equivalents and restricted cash | (138 | ) | 69 | |||||
Cash and cash equivalents and restricted cash at beginning of year | 8,709 | 9,605 | ||||||
|
|
|
| |||||
Cash and cash equivalents and restricted cash at end of year | $ | 79,819 | $ | 8,709 | ||||
|
|
|
| |||||
Supplemental disclosure of cash and non-cash transactions: | ||||||||
Cash paid for interest | $ | 85 | $ | 182 | ||||
|
|
|
| |||||
Issuance of Legacy Shapeways common stock upon conversion of convertible notes | $ | 5,913 | $ | — | ||||
|
|
|
| |||||
Repurchase of Legacy Shapeways common stock | $ | (152 | ) | $ | — | |||
|
|
|
| |||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Note 1. Organization
On September 29, 2021 (the “Closing” or the “Closing Date”), Galileo Acquisition Corp. (the “Company”) is, a blank checkCayman Islands exempted company incorporated(“Galileo” and after the Domestication (as defined below) “Shapeways”), a publicly-traded special purpose acquisition company, consummated the transactions described in the Cayman Islands on July 30, 2019. The Company was formed for the purposeAgreement and Plan of entering into a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities (a “Business Combination”). The Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination.
As of December 31, 2020, the Company had not yet commenced any operations. All activity through December 31, 2020 relates to the Company’s formation, the preparation of the initial public offering (“Initial Public Offering”), which is described below,Merger and since the IPO, identifying a target company for a Business Combination. The Company generates non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.
The registration statement for the Company’s Initial Public Offering was declared effective on October 17, 2019. On October 22, 2019, the Company consummated the Initial Public Offering of 13,800,000 unitsReorganization (the “Units”“Merger Agreement”) dated April 28, 2021, by and with respect to the ordinary shares included in the Units sold, the “Public Shares”), which includes the full exercise by the underwriters of their over-allotment option in the amount of 1,800,000 Units, at $10.00 per Unit, generating gross proceeds of $138,000,000 which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 4,110,000 warrants (the “Private Warrants”) at a price of $1.00 per Private Warrant in a private placement toamong Galileo Founders Holdings, L.P. (the “Sponsor”), Galileo Acquisition Corp., Galileo Acquisition Holdings, Inc., a Delaware corporation and EarlyBirdCapital,wholly-owned subsidiary of Galileo (“Merger Sub”), and Shapeways, Inc., a Delaware corporation (“EarlyBirdCapital”Legacy Shapeways”), whereby Merger Sub merged with and its designees, generating gross proceedsinto Legacy Shapeways, the separate corporate existence of $4,110,000, which is described in Note 4.Merger Sub ceasing and Legacy Shapeways being the surviving corporation and a wholly owned subsidiary of Shapeways (the “Merger”).
Transaction costs amounted to $3,187,305, consisting of $2,760,000 of underwriting fees and $427,305 of other offering costs.
FollowingFurther, on the closing of the Initial Public Offering on October 22, 2019, an amount of $138,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Warrants was placed in a trust account (the “Trust Account”) and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of approximately six months, or in any open-ended investment company that holds itself outClosing Date, as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act of 1940, as amended, or the Investment Company Act, as determinedcontemplated by the Company, until the earlier of: (i) the consummationMerger Agreement, Galileo filed a notice of a Business Combination or (ii) the distribution of the Trust Account, as described below.
The Company’s management has broad discretionderegistration with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. The Company’s initial Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (excluding taxes payable on income earned on the Trust Account) at the time of the signing of an agreement to enter into a Business Combination. The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will be able to successfully effect a Business Combination.
The Company will provide its shareholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek shareholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The shareholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then on deposit in the Trust Account ($10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations).
The Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks shareholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination. If a shareholder vote is not required and the Company does not decide to hold a shareholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Memorandum and Articles of Association, offer such redemption pursuant to the tender offer rules of the Securities and Exchange Commission (“SEC”), and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior to completing a Business Combination.
F-7
GALILEO ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBR 31, 2020
Notwithstanding the foregoing, if the Company seeks shareholder approval of the Business Combination and the Company does not conduct redemptions pursuant to the tender offer rules, the Company’s Amended and restated Memorandum and Articles of Association provides that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the Public Shares.
The Sponsor and the other initial shareholders (collectively, the “initial shareholders”) have agreed (a) to vote their Founder Shares (as defined in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination; (b) not to propose, or vote in favor of, an amendment to the Company’s Amended and Restated Memorandum and Articles of Association with respect to the Company’s pre-Business Combination activities prior to the consummation of a Business Combination unless the Company provides dissenting public shareholders with the opportunity to redeem their Public Shares in conjunction with any such amendment; (c) not to convert any Founder Shares (as well as any Public Shares purchased during or after the Initial Public Offering) into the right to receive cash from the Trust Account in connection with a shareholder vote to approve a Business Combination (or sell any shares in a tender offer in connection with a Business Combination if the Company does not seek shareholder approval in connection therewith) or a vote to amend the provisions of the Amended and Restated Memorandum and Articles of Association relating to shareholders’ rights or pre-Business Combination activity and (d) that the Founder Shares shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the initial shareholders will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased during or after the Initial Public Offering if the Company fails to complete its Business Combination.
The Company will have until July 22, 2021 to consummate a business combination (or up to October 22, 2021 if a definitive agreement with respect to a proposed Business Combination has been executed by July 22, 2021) (the “Combination Period”). If the Company is unable to complete a Business Combination within the Combination Period, it will trigger the automatic winding up, dissolution and liquidation pursuant to the terms of the Company’s Amended and Restated Memorandum and Articles of Association. If the Company is forced to liquidate, the amount in the Trust Account (less the aggregate nominal par value of the shares of the Company’s public shareholders) under the Companies Law (2018 Revision) of the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which Galileo was domesticated and continued as a Delaware corporation (the “Companies Law”“Domestication” and, together with the Merger, the “Business Combination”) will be treated as share premium which, changing its name to “Shapeways Holdings, Inc.” (the “Company” and/or “Shapeways”).
Shapeways is distributable under the Companies Law provided that immediately following the date on which the proposed distribution is proposed to be made, the Company is able to pay the debts as they fall duea leader in the ordinary courselarge and fast-growing digital manufacturing industry combining high quality, flexible on-demand manufacturing powered by purpose-built proprietary software which enables customers to rapidly transform digital designs into physical products, globally. Shapeways makes industrial-grade additive manufacturing accessible by fully digitizing the end-to-end manufacturing process, and by providing a broad range of business. If the Company is forced to liquidate the Trust Account, the public shareholders would be distributed the amount in the Trust Account calculated as of the date that is two days prior to the distribution (including any accrued interest, net of taxes payable).
In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company, ifsolutions utilizing 11 additive manufacturing technologies and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below $10.00 per share. This liability will not apply with respect to any claims by a third party who executed a waiver of any right, title, interest or claim of any kind in or to any monies held in the Trust Account or to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except the Company’s independent registered public accounting firm), prospective target businesses or other entities with which the Company does business, execute agreementsapproximately 100 materials and finishes, with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Going Concern
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” the Company has until July 22, 2021 (or up to October 22, 2021 if a definitive agreement with respect to a proposed Business Combination has been executed by July 22, 2021) to consummate a Business Combination. It is uncertain that the Company will be able to consummate a Business Combination by this time. Additionally, the Company may not have sufficient liquidity to fund the working capital needs of the Company until one year from the issuance of these financial statements. If a Business Combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the liquidity condition and mandatory liquidation, should a Business Combination not occur, and potential subsequent dissolution, raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been madeeasily scale new innovation. Shapeways has delivered over 23 million parts to the carrying amounts1 million customers in over 175 countries.
Note 2. Summary of assets or liabilities should the Company be required to liquidate after July 22, 2021 (or up to October 22, 2021 if a definitive agreement with respect to a proposed Business Combination has been executed by July 22, 2021). The Company intends to complete a Business Combination before the mandatory liquidation date.
F-8
GALILEO ACQUISITION CORP.Significant Accounting Policies
NOTES TO FINANCIAL STATEMENTS
DECEMBR 31, 2020
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are presentedhave been prepared in conformityaccordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and pursuant toin accordance with the rules and regulations of Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements include the SEC.accounts of the Company and its majority-owned or controlled subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The Business Combination has been accounted for as a reverse recapitalization, in accordance with U.S. GAAP (the “Reverse Recapitalization”). Under this method of accounting, Galileo has been treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination has been treated as the equivalent of Legacy Shapeways issuing stock for the net assets of Galileo, accompanied by a recapitalization. The net assets of Galileo are stated at historical cost, with no goodwill or other intangible assets recorded. There has been no accounting effect or change in the carrying amount of the assets and liabilities as a result of the Business Combination.
F-7
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Emerging Growth Company(in thousands, except share and per share amounts)
The Company is an “emerging growth company,”Legacy Shapeways has been treated as defined in Section 2(a)the accounting acquirer based on evaluation of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),following facts and it may take advantage of certain exemptions from various reporting requirements that are applicablecircumstances with regard to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, 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 (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company as an emerging growth company, can adoptof the Closing:
Legacy Shapeways’ directors represented the majority of the new or revised standard at the time private companies adopt the new or revised standard. This may make comparisonboard of directors of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted outCompany;
The executive officers and senior management of usingLegacy Shapeways are the extended transition period difficult or impossible becauseexecutive officers and senior management of the potential differencesCompany;
The assets of Legacy Shapeways represent a significant majority of the assets of the Company (excluding cash formerly held in accounting standards used.the Galileo trust account); and
The business of the Company is the continued business of Legacy Shapeways. The business of the Company will continue to focus on Legacy Shapeways’ core offerings related to the facilitation of the sale, design and manufacturing of 3D printed items.
The consolidated assets, liabilities and results of operations prior to the Reverse Recapitalization are those of Legacy Shapeways. The shares and corresponding capital amounts and losses per share, prior to the Merger, have been retroactively adjusted based on shares reflecting the conversion ratio (as defined below) established in the Merger.
Use of Estimates
The preparation of the Company’s consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future events. Accordingly, the actualperiod. Actual results couldmay differ significantly from those estimates.
Ordinary Shares Subject to Possible RedemptionFunctional Currency
The Companylocal currency is the functional currency for Shapeways BV’s (a wholly-owned subsidiary of the Company) operations outside the United States. Assets and liabilities of these operations are translated into U.S. Dollars at the exchange rate in effect at the end of each period. Income statement accounts for its ordinary shares subjectare translated at the average exchange rate prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to possible redemption in accordance with the guidance in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemptionperiod are classifiedincluded as a liability instrumentcomponent of other comprehensive loss within stockholders’ equity (deficit). Gains and losses from foreign currency transactions are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either withinincluded in net loss for the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. The Company’s ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at December 31, 2020 and 2019, 13,413,889 and 13,419,049 of ordinary shares subject to possible redemption are presented as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheets, respectively.
F-9
GALILEO ACQUISITION CORP.period.
NOTES TO FINANCIAL STATEMENTS
DECEMBR 31, 2020
Cash, Cash Equivalents and Restricted Cash
Cash includes cash on hand and demand deposits. The Company maintains its deposits at high quality financial institutions and monitors the credit ratings of those institutions. The Company considers all short-termhighly liquid investments with an original maturitymaturities of three months or less when purchased to be cash equivalents. While cash held by financial institutions may at times exceed federally insured limits, the Company believes that no material credit or market risk exposure exists due to the high quality of the institutions. The Company hadhas not experienced any losses on such accounts. Restricted cash represents cash required to be held as collateral for the Company’s credit cards and security deposit for its facility in the Netherlands. Accordingly, these balances contain restrictions as to their availability and usage and are classified as restricted cash in the consolidated balance sheets.
F-8
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
The reconciliation of cash and cash equivalents and restricted cash reported within the applicable consolidated balance sheet that sum to the total of the same such amount shown in the consolidated statements of cash flows is as follows:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
Cash and cash equivalents | $ | 79,677 | $ | 8,564 | ||||
Restricted cash | 142 | 145 | ||||||
|
|
|
| |||||
| $ | 79,819 | $ | 8,709 | |||||
|
|
|
| |||||
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and are generally unsecured as they are uncollateralized. The Company provides an allowance for doubtful accounts to reduce receivables to their estimated net realizable value. Judgement is exercised in establishing allowances and estimates are based on the customers’ payment history and liquidity. Any amounts that were previously recognized as revenue and subsequently determined to be uncollectible are charged to bad debt expense included in selling, general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss. Given the nature and historical collectability of the Company’s accounts receivable, an allowance for doubtful accounts was not deemed necessary at December 31, 2021 and December 31, 2020.
Inventory
Inventory consists of raw materials, work in progress and finished goods at the Company’s distribution center. Raw materials are stated at the lower of cost or net realizable value, determined by the first-in-first-out method. Finished goods and work in progress are valued using a methodology to determine the cost of each 3D printed object using allocations for material, labor, machine time and overhead. The Company periodically reviews its inventory for slow-moving, damaged and discontinued items and provides allowances to reduce such items identified to their recoverable amounts. As of December 31, 2021 and December 31, 2020, the Company determined an allowance was not deemed necessary.
Property and Equipment, net
Property and equipment are stated at cost, less accumulated depreciation. Maintenance and repairs are charged to expense when incurred. Additions and improvements that extend the economic useful life of the asset are capitalized and depreciated over the remaining useful lives of the assets. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any resulting gain or loss is reflected in current earnings. No impairment charges were recorded for the years ended December 31, 2021 and December 31, 2020. Depreciation is recognized using the straight-line method in amounts considered to be sufficient to allocate the cost of the assets to operations over the estimated useful lives or lease terms, as follows:
Asset Category | Depreciable Life | |
Machinery and equipment | 5 years | |
Computers and IT equipment | 3-5 years | |
Furniture and fixtures | 7 years | |
Leasehold improvements | ** |
| ** | Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. |
F-9
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Long-Lived Assets, Including Definite-Lived Intangible Assets
Intangible assets, which consist of technology, customer relationships, and trademarks, are stated at cost less accumulated amortization. Amortization is generally recorded on a straight-line basis over estimated useful lives ranging from three to eight years. The Company periodically reviews the estimated useful lives of intangible assets and adjusts when events indicate that a shorter life is appropriate. In accordance with authoritative accounting guidance, capitalization of costs to develop software begin when preliminary development efforts are successfully and completed. Costs related to the design or maintenance of internal-use software are expensed as incurred.
Long-lived assets, other than goodwill and other indefinite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets.
Factors that the Company considers in deciding when to perform an impairment review include significant changes in the Company’s forecasted projections for the asset or asset group for reasons including, but not limited to, significant underperformance of a product in relation to expectations, significant changes, or planned changes in the Company’s use of the assets, significant negative industry or economic trends, and new or competing products that enter the marketplace. The impairment test is based on a comparison of the undiscounted cash flows expected to be generated from the use of the asset group. If impairment is indicated, the asset is written down by the amount by which the carrying value of the asset exceeds the related fair value of the asset with the related impairment charge recognized within the statements of operations and comprehensive loss. No impairment charges were recorded for the years ended December 31, 2021 and December 31, 2020.
Goodwill
Goodwill, which represents the excess of purchase prices over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. Goodwill is evaluated for impairment on an annual basis at a level of reporting referred to as the reporting unit, and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired.
Under ASC 350, Intangibles—Goodwill and Other,the Company has the option to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the goodwill impairment test is performed. Impairment tests are performed, at a minimum, in the fourth quarter of each year. Management uses the future discounted cash flows valuation approach to determine the fair value of reporting units and determines whether the fair value of reporting units exceeded its carrying amounts. If the fair value exceeds the carrying amount, then no impairment is recognized. If the carrying amount recorded exceeds the fair value calculated, then an impairment charge is recognized for the difference. The impairment review requires management to make judgments in determining various assumptions with respect to revenues, operating margins, growth rates and discount rates. The judgments made in determining the projected cash flows used to estimate the fair value can materially impact the Company’s financial condition and results of operations. There was no impairment of goodwill as of December 31, 2020 and2021 or December 31, 20192020.
Fair Value Measurements
The Company applies ASC 820, Fair Value Measurement (“ASC 820”), which establishes framework for measuring fair value and clarifies the definition of approximately $625,000 and $712,000, respectively.fair value within that framework. ASC 820 defines fair value
F-10
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Offering Costs(in thousands, except share and per share amounts)
Offering costs consistas an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of underwriting, legal, accountingobservable inputs and other expenses incurred throughminimize the Initial Public Offeringuse of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:
Level 1 - Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are directly relatedobservable at commonly quoted intervals.
Level 3 - Inputs to the Initial Public Offering. Offering costs amounting to $3,187,305 were charged to shareholders’ equity upon the completion of the Initial Public Offering.
Income Taxes
ASC Topic 740 prescribes a recognition thresholdfair value measurement are unobservable inputs, such as estimates, assumptions, and a measurement attributevaluation techniques when little or no market data exists for the financial statement recognitionassets or liabilities.
Revenue Recognition
Revenue is derived from two primary sources: a) products and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company’s management determined that the Cayman Islands is the Company’s only major tax jurisdiction. services and b) software.
The Company recognizes accrued interestrevenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and penalties related(v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits ascontracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the products or services it transfers to the customer. These contracts have different terms based on the scope, performance obligations, and complexity of December 31, 2020the project, which often requires us to make judgments and December 31, 2019estimates in recognizing revenues.
Performance obligations are satisfied both at a point of time and no amounts accrued for interestover time. All revenue is recognized based on the satisfaction of the performance obligation to date (see Note 4).
Leases
The Company’s lease arrangements relate primarily to office and penalties.manufacturing space, and equipment. The Company’s leases generally have initial terms ranging from 5 to 10 years and may include renewal options and rent escalation clauses. The Company is currentlytypically required to make fixed minimum rent payments relating to its right to use an underlying leased asset. Additionally, the Company’s leases do not aware of any issues under review that could result contain significantly restrictive covenants or residual value guarantees.
F-11
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in significant payments, accruals or material deviation from its position.thousands, except share and per share amounts)
The Company may be subjectdetermines if an arrangement is a lease at inception and classifies its leases at commencement. Operating leases are presented as right-of-use (“ROU”) assets and the corresponding lease liabilities are included in operating lease liabilities, current and operating lease liabilities on the Company’s consolidated balance sheets. The Company does not currently maintain any finance lease arrangements. ROU assets represent the Company’s right to potential examination by foreign taxing authoritiesuse an underlying asset, and lease liabilities represent the Company’s obligation for lease payments in exchange for the areaability to use the asset for the duration of income taxes. These potential examinationsthe lease term. The Company does not recognize short term leases that have a term of twelve months or less as ROU assets or lease liabilities. The Company’s short-term leases are not material and do not have a material impact on its ROU assets or lease liabilities.
ROU assets and lease liabilities are recognized at commencement date and determined using the present value of the future minimum lease payments over the lease term. The Company uses an incremental borrowing rate based on estimated rate of interest for collateralized borrowing since the Company’s leases do not include an implicit interest rate. The estimated incremental borrowing rate considers market data, actual lease economic environment, and actual lease term at commencement date. The lease term may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with foreign tax laws. The Company’s management does not expectoptions to extend when it is reasonably certain that the total amount of unrecognized tax benefitsCompany will materially changeexercise that option. ROU assets include lease payments made in advance, and excludes any incentives received or initial direct costs incurred. The Company recognizes lease expense on a straight-line basis over the next twelve months.
lease term.
The Company is consideredhas lease agreements which contain both lease and non-lease components, which it has elected to beaccount for as a single lease component. As such, minimum lease payments include fixed payments for non-lease components within a lease agreement, but exclude variable lease payments not dependent on an exempted Cayman Islands company with no connection to anyindex or rate, such as common area maintenance, operating expenses, utilities, or other taxable jurisdiction and is presently notcosts that are subject to income taxes or income tax filing requirements in the Cayman Islands or the United States.fluctuation from period to period.
Stock-based Compensation
Net Income (Loss) Per Ordinary Share
Net income (loss) per ordinary share is computed by dividing net income (loss) by the weighted average number of ordinary shares outstanding for the periods. The Company has not consideredrecognizes compensation expense for stock-based payment awards, including stock options and restricted stock units (“RSUs”) within the effectscope of warrants sold inASC 718, Stock Compensation. Stock-based compensation expense is measured at the Initial Public Offering and private placement to purchase an aggregatedate of 17,910,000 ordinary shares in the calculation of diluted income (loss) per share, since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive under the treasury stock method.
The Company’s statements of operations includes a presentation of income (loss) per share for ordinary shares subject to possible redemption in a manner similar to the two-class method of income (loss) per share. Net income per share, basic and diluted, for Class A redeemable ordinary shares is calculated by dividing the interest income earnedgrant, based on the Trust Account, by the weighted average number of Class A redeemable ordinary shares outstanding since original issuance. Net loss per share, basic and diluted, non-redeemable ordinary shares is calculated by dividing the net loss, adjusted for income attributable to redeemable ordinary shares, by the weighted average number of non-redeemable ordinary shares outstanding for the period. Non-redeemable ordinary shares includes the Founder Shares as these shares do not have any redemption features and do not participate in the income earned on the Trust Account.
F-10
GALILEO ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBR 31, 2020
The following table reflects the calculation of basic and diluted net income (loss) per ordinary share (in dollars, except per share amounts):
| | Year Ended December 31, | For the Period from July 30, 2019 (inception) Through December 31, | ||||||
| 2020 | 2019 | |||||||
| Redeemable Ordinary Shares | | |||||||
| Numerator: Earnings allocable to Redeemable Ordinary Shares | | |||||||
| Interest Income | $ | 744,021 | $ | 414,479 | ||||
| Net Earnings | $ | 744,021 | $ | 414,479 | ||||
| Denominator: Weighted Average Redeemable Ordinary Shares Redeemable Ordinary Shares, Basic and Diluted | 13,800,000 | 13,800,000 | ||||||
| Earnings/Basic and Diluted Redeemable Ordinary Shares | $ | 0.05 | $ | 0.03 | ||||
| Non-Redeemable Ordinary Shares | | |||||||
| Numerator: Net (Loss) Income minus Redeemable Net Earnings | | |||||||
| Net (Loss) Income | $ | (51,592 | ) | $ | 241,659 | |||
| Redeemable Net Earnings | (744,021 | ) | (414,479 | ) | ||||
| Non-Redeemable Net Loss | $ | (795,613 | ) | $ | (172,820 | ) | ||
| Denominator: Weighted Average Non-Redeemable Ordinary Shares Non-Redeemable Ordinary Shares, Basic and Diluted | 3,600,000 | 3,600,000 | ||||||
| Loss/Basic and Diluted Non-Redeemable Ordinary Shares | $ | (0.22 | ) | $ | (0.05 | ) | ||
Note: As of December 31, 2020 and 2019, basic and diluted shares are the same as there are no securities that are dilutive to the shareholders.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which at times, may exceed the Federal Depository Insurance Corporation of $250,000. The Company had not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Fair Value of Financial Instruments
The fair value of the Company’s assetsaward, and liabilities, which qualifyis recognized using the straight-line method over the employee’s requisite service period. Compensation for stock-based awards with vesting conditions other than service are recognized at the time that those conditions will be achieved. Forfeitures are recognized as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying balance sheets, primarily duethey are incurred.
Public and Private Common Stock Warrant Liabilities
As part of Galileo’s initial public offering, Galileo issued to their short-term nature.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company soldthird party investors 13,800,000 Units,units, consisting of one ordinary share of Galileo and one warrant, at a purchase price of $10.00 per Unit, which includes the full exercise by the underwriters of their over-allotment option in the amount of 1,800,000 Units at $10.00 per Unit.unit. Each Unit consists of one ordinary share and onewhole warrant (“Public Warrant”). Each Public Warrant entitles the holder to purchase one ordinary share of Common Stock at an exercise price of $11.50 per share (see Note 7)(the “Public Warrants”).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of Galileo’s initial public offering, Galileo completed the Initial Public Offering, the Sponsorprivate sale of 4,110,000 warrants to Galileo’s sponsor and EarlyBirdCapital, andInc. at a purchase price of $1.00 per warrant (the “Private Warrants”). In connection with the Business Combination, Galileo’s sponsor exercised its designees purchasedright to convert the aggregate outstanding principal amount of a convertible promissory note issued by Galileo into an aggregate of 4,110,000 Private500,000 Sponsor Warrants, at $1.00 per Private Warrant, for an aggregate purchase price of $4,110,000. The Sponsor purchased an aggregate of 3,562,000 Private Warrants and EarlyBirdCapital and its designees purchased an aggregate of 548,000 Private Warrants. Each Private Warrant is exercisable to purchase one ordinary share at an exercise price of $11.50 per share (see Note 7). The proceeds from the Private Warrants were added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Warrants will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Warrants will expire worthless. There will be no redemption rights or liquidating distributions from the Trust Account with respectterms equivalents to the Private Warrants.
F-11
GALILEO ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBR 31, 2020
The Private Warrants are identical to the Public Warrants, underlying the Units sold in the Initial Public Offering, except that the Private Warrants (i) willare not be redeemable by the Company and (ii) may be exercised for cash or on a cashless basis, so long as they are held by the initial purchaser or any of its permitted transferees. If the Private Warrants are held by holders other than the initial purchasers or any of their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by the holders on the same basis as the Public Warrants. In addition,
F-12
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
The Company evaluated the Public and Private Warrants under ASC 815-40,Derivatives and Hedging—Contracts in Entity’s Own Equity (“ASC 815-40”), and concluded that the Private Warrants maydo not meet the criteria to be classified in stockholders’ equity. Since the Private Warrants meet the definition of a derivative under ASC 815, the Company recorded these warrants as liabilities on the consolidated balance sheets at fair value, with subsequent changes in their respective fair values recognized in the consolidated statement of operations at each reporting date.
Research and Development Costs
Research and development expenses consist primarily of allocated personnel costs, fees paid to consultants and outside service providers, and allocations for rent and overhead. Research and development costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received. For the years ended December 31, 2021 and 2020, research and development costs were $6,281 and $5,592, respectively.
Advertising
Advertising costs are expensed as incurred. For the years ended December 31, 2021 and 2020, advertising costs were $1,887 and $448, respectively, which are included in selling, general and administrative expenses on the consolidated statements of operations and comprehensive loss.
Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Where applicable, the Company records a valuation allowance to reduce any deferred tax assets that it determines will not be transferable, assignablerealizable in the future.
The Company recognizes the benefit of an uncertain tax position that it has taken or saleable untilexpects to take on income tax returns it files if such tax position is more likely than not to be sustained on examination by the consummationtaxing authorities, based on the technical merits of the position. These tax benefits are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. Although the Company believes that it has adequately reserved for uncertain tax positions (including interest and penalties), it can provide no assurance that the final tax outcome of these matters will not be materially different. The Company makes adjustments to these reserves in accordance with the income tax accounting guidance when facts and circumstances change, such as the closing of a Business Combination, subject to certain limited exceptions.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In August 2019,tax audit or theCompany issued refinement of an aggregate of 2,875,000 ordinary shares (the “Founder Shares”) to the Sponsor for an aggregate purchase price of $25,000. On October 17, 2019, the Company effected a share dividend of 0.2 of a share for each ordinary share in issue, resulting in the Sponsor holding an aggregate of 3,450,000 Founder Shares. The Founder Shares include an aggregate of up to 450,000 shares subject to forfeiture by the Sponsor toestimate. To the extent that the underwriters’ over-allotmentfinal tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made, and could have a material impact on the Company’s financial condition and operating results. Carryforward attributes that were generated in tax years prior to those that remain open for examination may still be adjusted by relevant tax authorities upon examination if they either have been, or will be, used in a future period.
F-13
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Net Income (Loss) per Share
In accordance with the provisions of ASC 260, Earnings Per Share, net income (loss) per common share is computed by dividing net income (loss) by the weighted-average shares of Common Stock outstanding during the period. Basic income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares outstanding during the period. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury stock method, and convertible debt and convertible securities, using the if-converted method. During a loss period, the effect of the potential exercise of stock options and convertible debt are not considered in the diluted loss per common share calculation since the effect would be anti-dilutive.
The following outstanding shares of Common Stock equivalents were excluded from the computation of the diluted net loss per share attributable to Common Stock for the periods in which a net loss is presented because their effect would have been anti-dilutive:
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
Common stock warrants | 18,410,000 | — | ||||||
Earnout Shares | 3,510,405 | — | ||||||
Unvested RSUs | 660,448 | — | ||||||
Included in income (loss) per common share are 4,515,739 and 3,684,586 shares of options due to their nominal exercise prices as of December 31, 2021 and 2020, respectively.
Segment Information
The Company has determined that it operates and reports in one segment, which focuses on providing additive manufacturing services to customers. The Company’s operating segment is reported in a manner consistent with the internal reporting provided to the chief operating decision maker (“CODM”). The Company’s CODM has been identified as its Chief Executive Officer.
Reclassifications
Certain balances in the prior year have been reclassified to conform to the presentation in the current year. These reclassifications include condensing line item classifications in the consolidated balance sheets, statements of operations, and statements of cash flows. These reclassifications had no effect on net loss as previously reported.
Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In January 2017, the FASB issued Accounting Standard Update (“ASU”) No. 2017-04,Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which aims to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, goodwill impairment will be measured as the amount by which the carrying value exceeds the fair value. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The standard is effective for annual and interim reporting periods beginning after December 15, 2021. Early adoption is permitted. The Company adopted ASU 2017-04 effective January 1, 2021. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.
F-14
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
In December 2019, the FASB issued ASU No. 2019-12,Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The purpose of Update No. 2019-12 is to continue the FASB’s Simplification Initiative to reduce complexity in accounting standards. The amendments in Update No. 2019-12 simplify the accounting for income taxes by removing certain exceptions related to the incremental approach for intraperiod tax allocation, the requirement to recognize or derecognize deferred tax liabilities related to equity method investments that are also foreign subsidiaries, and the methodology for calculating income taxes in an interim period. In addition to removing these exceptions, Update No. 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The Company adopted ASU 2019-12 effective January 1, 2021. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06,Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by removing certain separation models in Subtopic 470-20, Debt—Debt with Conversion and Other Options, for convertible instruments and also increases information transparency by making disclosure amendments. The standard is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU 2020-06 effective January 1, 2021. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15,Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The standard is effective for annual reporting periods beginning after December 15, 2020 and interim periods within annual periods beginning after December 15, 2021. Early adoption is permitted. The Company adopted ASU 2018-15 effective January 1, 2021. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13,Accounting for Credit Losses (Topic 326), which requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. Update No. 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact the standard will have on its consolidated financial statements.
Note 3. Reverse Recapitalization
As discussed in Note 1, on September 29, 2021, Galileo closed the Business Combination with Shapeways, Inc., as a result of which Legacy Shapeways became a wholly-owned subsidiary of Galileo. While Galileo was the legal acquirer of Legacy Shapeways in the Business Combination, for accounting purposes, the Business Combination is treated as a reverse recapitalization, whereby Legacy Shapeways is deemed to be the accounting acquirer, and the historical financial statements of Legacy Shapeways became the historical financial statements of Galileo upon the closing of the Business Combination. Under this method of accounting, Galileo was treated
F-15
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
as the “acquired” company and Legacy Shapeways is treated as the acquirer for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy Shapeways issuing stock for the net assets of Galileo, accompanied by a recapitalization. The net assets of Galileo were stated at historical cost, with no goodwill or other intangible assets recorded.
At the closing of the Business Combination, (1) all outstanding shares of Legacy Shapeways’ preferred stock (including shares of Legacy Shapeways’ preferred stock issuable upon conversion of Legacy Shapeways’ convertible notes outstanding as of the Closing) and Shapeways’ common stock were converted into an aggregate of 35,104,836 shares of Common Stock of the Company, par value $0.0001 per share, representing aggregate consideration value equal to $406,000 (the “Merger Consideration”), 3,510,405 shares of which are subject to the Earnout Terms (as defined below, and such shares, the “Earnout Shares”), (2) options to purchase Legacy Shapeways’ common stock (whether vested or unvested, exercisable or unexercisable) issued pursuant to the Legacy Shapeways 2010 Stock Plan, as amended (the “2010 Stock Plan”), and outstanding immediately prior to the Closing were assumed and converted into (a) options to purchase an aggregate of 4,901,207 shares of Common Stock under the Incentive Plan and (b) in the case of in-the-money options held by individuals who were service providers as of the Closing Date, an aggregate of 493,489 Earnout RSUs granted under the Incentive Plan, which Earn-Out RSUs are subject to the earnout vesting and forfeiture conditions described in the Merger Agreement, (3) all warrants to purchase Legacy Shapeways’ common stock and Shapeways’ preferred stock outstanding immediately prior to the Closing were exercised in full and converted into shares of Legacy Shapeways preferred stock or Legacy Shapeways common stock, as applicable, in part, so thataccordance with their terms, and each such share of Legacy Shapeways preferred stock and Legacy Shapeways common stock issued upon the initial shareholders will collectively own 20%exercise of such warrants was converted into an aggregate of 301,750 shares of Common Stock (for the avoidance of doubt, such shares of Common Stock are included in the aggregate shares of Common Stock described in clause (1) above) and (4) any Legacy Shapeways non-plan options outstanding immediately prior to Closing were cancelled without payment in accordance with the terms described in the Merger Agreement.
At the Closing, there were 3,510,405 shares of Common Stock issued as part of the Company’s issuedMerger Consideration (the “Stockholder Merger Consideration” and/or “Earnout Shares”) subject to vesting and outstanding sharesforfeiture conditions (the “Earnout Terms”) based upon the volume-weighted average trading price of Common Stock reaching targets of $14.00 and $16.00, respectively (with 50% released at each target) for a period of 30 consecutive trading days during the three-year period after the Initial Public Offering (excludingClosing, with the Representative Sharesportion of such shares that would otherwise be deliverable to Shapeways Stockholders at the Closing being withheld and deposited into escrow. A pro rata portion of the Stockholder Merger Consideration earnout has also been allocated to Legacy Shapeways options and warrants that, as of the Closing, have been exchanged for options and warrants (as definedapplicable) exercisable for shares of Common Stock (as described below).
Legacy Shapeways options issued pursuant to Legacy Shapeways’ 2010 Stock Plan that were not exercised prior to the Closing have been assumed by the Company and converted, subject to certain adjustments that are described in Note 7)the Merger Agreement, into options exercisable for shares of Common Stock and, in the case of in-the-money Legacy Shapeways options held by individuals remaining in continuous service to the Company through the Closing, a right to receive an award of restricted stock units (“RSUs”). denominated in shares of Common Stock that are subject to the Earnout Terms and to service-based vesting and forfeiture restrictions. As a result of the underwriters’Closing, outstanding Legacy Shapeways Convertible Notes were converted into shares of Legacy Shapeways Preferred Stock at the election of the holders thereof, which were then converted into shares of Shapeways Common Stock prior to fully exercise their over-allotment option, 450,000 Founder Shares are no longer subjectthe Closing
Simultaneously with the execution of the Business Combination, Galileo entered into subscription agreements (collectively, the “Subscription Agreements”) pursuant to forfeiture.which certain investors agreed to purchase an
F-16
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
aggregate of 7,500,000 shares of Common Stock for a purchase price of $10.00 per share and $75,000,000 in the aggregate (the “PIPE Investment”). At the Closing, the Company consummated the PIPE Investment.
The initial shareholders have agreed not to transfer, assign or sell anyfollowing table reconciles the elements of the Founder Shares (except to certain permitted transferees) until (i) with respect to 50% of the Founder Shares, the earlier of one year after the completion of a Business Combination and the date on which the closing price of the ordinary shares equals or exceeds $12.50 per share (as adjusted for share splits, share capitalizations, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after a Business Combination and (ii) with respect to the remaining 50%consolidated statement of the Founder Shares, one year after the completion of a Business Combination, or earlier, in either case, if, subsequent to a Business Combination, the Company completes a liquidation, merger, share exchange or other similar transaction which results in all of the Company’s shareholders having the right to exchange their ordinary sharescash flows for cash, securities or other property.
Administrative Services Agreement
The Company entered into an agreement, commencing on October 17, 2019 through the earlier of the consummation of a Business Combination or the Company’s liquidation, to pay Ampla Capital, LLC, an affiliate of the Company’s Chief Financial Officer a monthly fee of approximately $3,000 for general and administrative services, including office space, utilities and secretarial support. For the year ended December 31, 2020 and2021:
| Recapitalization | ||||
Cash—Galileo trust and cash, net of redemption | $ | 28,115 | ||
Cash—PIPE Investment, net of transaction costs | 75,000 | |||
Less: transaction costs and advisory fees allocated to equity | (16,323 | ) | ||
|
| |||
Effect of Merger, net of redemption, transaction costs and advisory costs | $ | 86,792 | ||
|
| |||
The following table reconciles the elements of the Business Combination to the consolidated statement of changes in stockholders’ equity (deficit) for the period from July 30, 2019 (inception) throughyear ended December 31, 2019, the Company incurred and paid $36,000 and $9,000 in fees for these services, respectively.2021:
Promissory Note — Related Party
| Recapitalization | ||||
Cash—Galileo trust and cash, net of redemption | $ | 28,115 | ||
Non-cash net working capital assumed from Galileo | 46 | |||
Less: fair value of Private and Sponsor Warrant liabilities | (11,865 | ) | ||
Less: transaction costs and advisory fees allocated to equity | (6,260 | ) | ||
|
| |||
Effect of Merger, net of redemption, transaction costs and advisory costs | $ | 10,036 | ||
|
| |||
The Company’s Sponsor agreed to loanfollowing table details the Company up to $300,000 to be used for the paymentnumber of costs related to the Initial Public Offering. The Promissory Note (“Promissory Note”) was non-interest bearing, unsecured and due on the earliershares of March 31, 2020 or the closing of the Initial Public Offering. The Promissory Note, in the outstanding amount of $93,798, was repaid uponCommon Stock issued immediately following the consummation of the Initial Public OfferingBusiness Combination:
| Number of Shares | ||||
Common stock, outstanding prior to Business Combination | 13,800,000 | |||
Less: redemption of Galileo shares | (11,018,352 | ) | ||
Common stock of Galileo | 2,781,648 | |||
Galileo founder and representative shares, net of forfeited shares | 2,910,000 | |||
Shares issued in PIPE Investment | 7,500,000 | |||
Merger and PIPE Investment—common stock | 13,191,648 | |||
Legacy Shapeways shares—common stock (1) | 35,104,836 | |||
Total shares of common stock immediately after Business Combination | 48,296,484 | |||
| (1) | Includes 3,510,405 Earnout Shares |
F-17
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Note 4. Revenue Recognition
Under ASC 606, revenue is recognized throughout the life of the executed agreement. The Company measures revenue based on consideration specified in a contract with a customer. Furthermore, the Company recognizes revenue when a performance obligation is satisfied by transferring control of the product or service to the customer which could occur over time or at a point in time.
A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. Customers typically receive the benefit of the Company’s services as (or when) they are performed. Substantially all customer contracts provide that compensation is received for services performed to date. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue.
Nature of Products and Services
The following is a description of the Company’s products and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each:
Direct sales
The Company provides customers with an additive manufacturing service, allowing for the customer to select the specifications of the model which they wish to have printed. Shapeways prints the 3D model and ships the product directly to the customer.
The Company recognizes the sale of shop owner products through their e-commerce website over time using the output method. Contracts involving the sale of shop owner products through their e-commerce website do not include other performance obligations. As such, allocation of the transaction price was not necessary as the entire contract price is attributed to the sole performance obligation identified.
Marketplace sales
The Company provides a platform for shop owners to sell their products to customers through Shapeways’ marketplace website. Shapeways receives a 3.5% markup fee from the shop owner upon the sale of any products through the marketplace.
The Company handles the financial transaction, manufacturing, distribution and customer service on behalf of the shop owners. The Company is responsible for billing the customer in this arrangement and transmitting the applicable fees to the shop owner. The Company assessed whether it is responsible for providing the actual product or service as a principal, or for arranging for the product or service to be provided by the third party as an agent. Judgment is applied to determine whether the Company is the principal or the agent by evaluating whether it has control of the product or service prior to it being transferred to the customer. The principal versus agent assessment is performed at the performance obligation level. Indicators that the Company has considered include whether it has the primary responsibility for fulfilling the promise to provide the specified product or service to the customer and whether it has inventory risk prior to transferring the product or service to the customer. The Company has the responsibility to fulfill the promise to provide the specific good or service on behalf of the shop owners to the customer. In addition, the Company has inventory risk before the specific good or service is
F-18
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
transferred to a customer. As such, the Company is deemed the principal and shall recognize revenue on a gross basis for the price it charges to the shop owner for each product or service.
The Company recognizes the sale of 3D products to customers at a point in time, specifically upon shipping the goods to the customer (FOB Origin) given the transfer of significant risks and rewards of ownership at that point in time. Contracts involving the manufacturing and delivery of 3D printed products to customers do not include other performance obligations. As such, allocation of the transaction price was not necessary as the entire contract price is attributed to the sole performance obligation identified.
Software revenue
In 2020, Shapeways launched their software under the brand of “Powered by Shapeways” to a limited set of design customers to gain feedback on product market fit. The software enables other manufacturers to leverage Shapeways’ existing end-to-end manufacturing software to scale their businesses and shift to digital manufacturing. Shapeways’ software offers improved customer accessibility, increased productivity, and expanded manufacturing capabilities for its customers. Shapeways launched the first phase of this offering more broadly under the brand Otto in the fourth quarter of 2021. This phase of the software offering provides a limited ordering service for additive manufacturing capabilities fulfilled by Shapeways.
For each of the performance obligations classified as software revenue, the performance obligations are satisfied evenly over the term of the contract. For contracts including performance obligations classified as software revenue, the Company identified that each performance obligation has an explicitly stated standalone selling price. As such, allocation is not necessary as the prices included in the contract are attributed to each separate performance obligation.
The following table presents our revenues disaggregated by revenue discipline:
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
Major products/service lines: | ||||||||
Direct sales | $ | 25,554 | $ | 23,656 | ||||
Marketplace sales | 7,772 | 7,955 | ||||||
Software | 297 | 164 | ||||||
|
|
|
| |||||
Total revenue | $ | 33,623 | $ | 31,775 | ||||
|
|
|
| |||||
Timing of revenue recognition: | ||||||||
Products transferred at a point in time | $ | 7,772 | $ | 7,955 | ||||
Products and services transferred over time | 25,851 | 23,820 | ||||||
|
|
|
| |||||
Total revenue | $ | 33,623 | $ | 31,775 | ||||
|
|
|
| |||||
F-19
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Deferred Revenue
The Company records deferred revenue when cash payments are received in advance of performance. Deferred revenue activity consisted of the following for the years ended December 31, 2021 and 2020:
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
Balance at beginning of year | $ | 753 | $ | 425 | ||||
Deferred revenue recognized during period | (33,623 | ) | (31,823 | ) | ||||
Additions to deferred revenue during period | 33,791 | 32,151 | ||||||
|
|
|
| |||||
Balance at end of year | $ | 921 | $ | 753 | ||||
|
|
|
| |||||
The Company expects to satisfy its remaining performance obligations within the next twelve months. The $753 of deferred revenue as of January 1, 2021 was recognized during the year ended December 31, 2021. The opening balance of accounts receivable as of January 1, 2020 was $151.
Practical Expedients and Exemptions
The company applies the practical expedient related to incremental costs of obtaining a contract. Although certain of its commission costs qualify for capitalization under ASC 340-40, Contracts with customers, their amortization period is less than one year. Therefore, utilizing the practical expedient, the Company expenses these costs as incurred.
Note 5. Inventory
Components of inventory consisted of the following:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
Raw materials | $ | 735 | $ | 521 | ||||
Work-in-process | 28 | 36 | ||||||
Finished goods | 164 | 170 | ||||||
|
|
|
| |||||
Total | $ | 927 | $ | 727 | ||||
|
|
|
| |||||
Note 6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
Prepaid expenses | $ | 1,076 | $ | 609 | ||||
Prepaid insurance | 2,338 | 37 | ||||||
Security deposits | — | 259 | ||||||
VAT receivable | 945 | 975 | ||||||
Other current assets | 1 | 30 | ||||||
|
|
|
| |||||
Total | $ | 4,360 | $ | 1,910 | ||||
|
|
|
| |||||
F-20
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Note 7. Property and Equipment, net
Property and equipment consisted of the following:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
Machinery and equipment | $ | 9,438 | $ | 5,659 | ||||
Computers and IT equipment | 957 | 964 | ||||||
Furniture and fixtures | 49 | 50 | ||||||
Leasehold improvements | 2,482 | 2,520 | ||||||
|
|
|
| |||||
| 12,926 | 9,193 | |||||||
Less: Accumulated depreciation | (8,538 | ) | (8,245 | ) | ||||
|
|
|
| |||||
Property and equipment, net | $ | 4,388 | $ | 948 | ||||
|
|
|
| |||||
For the years ended December 31, 2021 and 2020, depreciation expense totaled $593 and $473, respectively. Of these amounts, depreciation charged to cost of revenue was $460 and $324 for the years ended December 31, 2021 and 2020, respectively.
Note 8. Accrued Expenses and Other Liabilities
Accrued expenses consisted of the following:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
Accrued selling expenses | $ | 522 | $ | 947 | ||||
Accrued compensation | 814 | 876 | ||||||
Interest payable | — | 612 | ||||||
Taxes payable | 328 | 477 | ||||||
Shapeways credits | 287 | 313 | ||||||
Other | 694 | 94 | ||||||
|
|
|
| |||||
Total | $ | 2,645 | $ | 3,319 | ||||
|
|
|
| |||||
Note 9. Commitments and Contingencies
Leases
During the year ended December 31, 2021, the Company maintained three leases of facilities located in the United States and the Netherlands, as well as one lease of office equipment, under operating leases. The Company maintained one additional lease of equipment under a finance lease arrangement which expired during the year ended December 31, 2020. Additionally, the Company terminated one lease of office space during the year ended December 31, 2021.
F-21
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
The table below presents certain information related to the Company’s lease costs:
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
Operating lease expense | $ | 839 | $ | 2,217 | ||||
Finance lease expense | — | 16 | ||||||
Interest expense on finance lease liabilities | — | 1 | ||||||
Short-term lease expense | — | 14 | ||||||
|
|
|
| |||||
Total lease cost | $ | 839 | $ | 2,248 | ||||
|
|
|
| |||||
Right of use assets and lease liabilities for operating leases were recorded in the consolidated balance sheets as follows:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
Assets: | ||||||||
Right-of-use assets, net | $ | 842 | $ | 2,102 | ||||
|
|
|
| |||||
Total lease assets | $ | 842 | $ | 2,102 | ||||
|
|
|
| |||||
Liabilities: | ||||||||
Current liabilities: | ||||||||
Operating lease liabilities, current | $ | 639 | $ | 1,222 | ||||
Non-current liabilities: | ||||||||
Operating lease liabilities, net of current portion | 326 | $ | 1,094 | |||||
|
|
|
| |||||
Total lease liability | $ | 965 | $ | 2,316 | ||||
|
|
|
| |||||
The Company’s lease agreements do not state an implicit borrowing rate; therefore, an internal incremental borrowing rate was determined based on information available at the lease commencement date for the purposes of determining the present value of lease payments. The incremental borrowing rate reflects the cost to borrow on a securitized basis in each market. The weighted-average remaining lease term for operating leases was 1.83 years and the weighted-average incremental borrowing rate was 5.33% as of December 31, 2021.
Supplemental cash flow information related to the Company’s leases was as follows:
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
Operating cash flows from operating leases | $ | 928 | $ | 2,346 | ||||
Operating cash flows from finance leases | — | 1 | ||||||
Financing cash flows from finance leases | — | 18 | ||||||
Lease liabilities arising from obtaining right-of-use assets | — | 4,445 | ||||||
F-22
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
As of December 31, 2021, future minimum lease payments required under operating leases are as follows:
2022 | $ | 675 | ||
2023 | 210 | |||
2024 | 129 | |||
2025 | 1 | |||
|
| |||
Total minimum lease payments | 1,015 | |||
Less effects of discounting | (50 | ) | ||
|
| |||
Present value of future minimum lease payments | $ | 965 | ||
|
|
Desktop Metal
On March 26, 2021, the Company entered into a non-binding Memorandum of Understanding (“MOU”) with Desktop Metal, pursuant to which Desktop Metal agreed to invest $20.0 million in the PIPE Investment. Upon consummation of this investment, the Company became obligated to purchase $20.0 million of equipment, materials and services from Desktop Metal. In conjunction with these obligations, the Company and Desktop Metal agreed to develop a strategic partnership. As of December 31, 2021, the Company paid $4.5 million to Desktop Metal for equipment, materials and services received, and placed purchase orders for another $15.5 million of equipment, materials and services.
Legal Proceedings
The Company is involved in various legal proceedings which arise from time to time in the normal course of business. While the results of such matters generally cannot be predicted with certainty, management does not expect any such matters to have a material adverse effect on the Company’s consolidated financial position or results of operations for the years ended December 31, 2021 and 2020.
Note 10. Borrowing Arrangements
The Company’s outstanding debt obligations consisted of the following:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
Dutch Landlord Loan | $ | — | $ | 163 | ||||
Term Loan | — | 3,423 | ||||||
Convertible Promissory Notes | — | 5,000 | ||||||
PPP Loan | — | 1,982 | ||||||
|
|
|
| |||||
| — | 10,568 | |||||||
Less: current portion | — | (8,332 | ) | |||||
|
|
|
| |||||
Long-term debt | $ | — | $ | 2,236 | ||||
|
|
|
| |||||
Dutch Landlord Loan
On May 12, 2014, the Company entered into a loan agreement with its landlord at the Eindhoven factory (the “Dutch Landlord Loan”) to advance €242 to finance leasehold improvements. The Dutch Landlord Loan is unsecured and required interest-only payments until September 30, 2016, followed by monthly payments of
F-23
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
principal and interest. Interest accrues at 8.50% per annum through the maturity date on September 30, 2024. The Dutch Landlord Loan was repaid in full during the year ended December 31, 2021.
For the years ended December 31, 2021 and 2020, interest expense totaled $17 and $19, respectively.
Term Loan
On October 22, 2019.29, 2018, the Company entered into a loan and security agreement (the “Term Loan”) for the principal sum of $5,000 with a maturity date of October 29, 2022. The Term Loan required interest-only payments until October 29, 2019, followed by monthly payments of principal and interest. Interest was payable at a rate equal to the prime rate, plus 0.25% per annum. As of December 31, 2020, and 2019, there were no amounts under the Promissory Note were outstanding.
Related Party Loans
interest rate was 3.50%. In order to finance transaction costs in connection with the Term Loan, the bank was due a $75 fee in the event of a liquidity event valuing the Company above a certain threshold. At the Closing of the Business Combination, the Initial Shareholders,Company repaid and terminated the Company’s officersTerm Loan in full.
For the years ended December 31, 2021 and directors or their affiliates may, but are not obligated2020, interest expense related to loanthe Term Loan totaled $60 and $162, respectively.
Convertible Promissory Notes
On June 19, 2019, the Company funds from time to timeentered into note purchase agreements (the “Convertible Promissory Notes”) with certain stockholders of Legacy Shapeways for the aggregate principal sum of $5,000. The Convertible Promissory Notes bore interest at a rate of 8% per annum with all principal and interest due on or at any time, as may be required (“Working Capital Loans”). Each Working Capital Loan would be evidenced by a promissory note. The Working Capital Loans would either be paid upon consummationbefore the earlier of (i) December 19, 2020; and (ii) the closing of a Business Combination, without interest, or, atQualified Equity Financing, as defined below. The Convertible Promissory Notes are automatically converted into conversion shares upon the lender’s discretion, up to $1,000,000closing of a Qualified Equity Financing. Qualified Equity Financing is defined as the next sale by the Company of preferred stock following the date of the Working Capital LoansConvertible Promissory Notes on or prior to the maturity date with the principal purpose of raising capital. In the event there is a non-Qualified Equity Financing, the outstanding principal and unpaid accrued interest of each note may be converted, at the written election of the holders of the Convertible Promissory Notes, into warrants at a priceconversion shares. Non-Qualified Equity Financing shall mean the next sale by the Company of $1.00 per warrant. The warrants would be identicalits equity following the date of the Convertible Promissory Notes on or prior to the Private Warrants. Inmaturity date with the event thatprincipal purpose of raising capital which is not a Business Combination doesQualified Equity Financing. If the next equity financing or a corporate transaction has not close,occurred on or before the maturity date of the Convertible Promissory Notes, the principal and unpaid accrued interest of each outstanding note may be converted, at the written election of each holder of the Convertible Promissory Notes, into conversion shares on the date of such written election. The number of conversion shares to be issued upon conversion shall be equal to the quotient obtained by dividing (i) the outstanding principal and unpaid accrued interest due on a Convertible Promissory Note to be converted on the date of the conversion by (ii) the Conversion Price. The conversion price is defined as the Discounted Conversion Price, which is 70% of the next equity price per share. The Convertible Promissory Notes are subordinated in right of payment to all indebtedness of the Company may use a portionarising under the Term Loan. At inception, the terms of the proceeds held outside the Trust Accountnotes gave rise to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans.
a contingent beneficial conversion feature.
On December 14, 2020, the Company entered into a convertible promissory note withexecuted an amendment to the Sponsor pursuantConvertible Promissory Notes that extended the maturity date to whichAugust 10, 2021. All other relevant terms and conditions of the Sponsor agreedConvertible Promissory Notes remained binding.
Immediately prior to loan the Company up to ancompletion of the Business Combination, the Convertible Promissory Notes in the aggregate principal amount of $500,000$5,000 were converted into 1,434,391 shares of common stock of Legacy
F-24
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Shapeways (1,189,558 shares of Common Stock post Business Combination), and the related unpaid and accrued interest totaling $913 were converted into 261,884 shares of common stock of Legacy Shapeways (217,183 shares of Common Stock post Business Combination).
For the years ended December 31, 2021 and 2020, interest expense related to the Convertible Promissory Notes totaled $309 and $400, respectively.
Paycheck Protection Program Loan
On May 4, 2020, the Company received an unsecured loan of $1,982 under the Paycheck Protection Program (the “Note”“PPP Loan” or “PPP”). The NotePPP was established under the recently enacted CARES Act and is non-interest bearing and payable uponadministered by the date on whichU.S. Small Business Administration. On May 4, 2020, the Company consummatesentered into a Business Combination. Ifpromissory note with Pacific Western Bank evidencing the unsecured PPP Loan.
The PPP Loan had a maturity date of May 4, 2022 and accrued interest at an annual rate of 1.00%. Interest expense totaled $18 for the year ended December 31, 2021. There was no interest expense incurred for the year ended December 31, 2020.
The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, the Company does not consummate a Business Combination, the Company may use a portion of any funds held outside the Trust Account to repay the Promissory Note; however, no proceeds from the Trust Account may be usedapplied for such repayment. Up to $500,000and was granted forgiveness for all of the Note may be converted into warrants at a price of $1.00 per warrant at the option of the Sponsor. The warrants would be identical to the Private Warrants. PPP Loan.
As of December 31, 2020,2021, the outstanding balance under the Note amounted to an aggregatefull principal and interest amount of $500,000.
F-12
GALILEO ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBR 31, 2020
NOTE 6. COMMITMENTS AND CONTINGENCIES
Risks and Uncertainties
Management continues to evaluate the impact$2,000 of the COVID-19 pandemicPPP Loan was forgiven and has concluded that while it is reasonably possible that the virus could have a negative effectrecorded in other income on the Company’s financial position, resultsconsolidated statement of its operations and/or search for a target company,and comprehensive loss. The Company is evaluating whether to repay the specific impact is not readily determinableloan. If repaid, the Company will reverse the previously recognized gain on debt forgiveness.
Note 11. Stockholders’ Equity (Deficit)
The consolidated statements of changes in stockholders’ equity (deficit) reflects the Business Combination as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Registration Rights
Pursuant to a registration rights agreement entered into on October 17, 2019, the holders of the Founder Shares, Private Warrants (and their underlying securities), Representative Shares (as a defined in Note 7)1 as of September 29, 2021. As Legacy Shapeways was deemed the accounting acquirer in the Business Combination with Galileo, all periods prior to the consummation date reflect the balances and any securitiesactivity of Legacy Shapeways. The balances as of January 1, 2021 and 2020 from the consolidated financial statements of Legacy Shapeways as of that may be issued upondate, share activity (convertible preferred stock, common stock, additional paid in capital, accumulated deficit, and accumulated other comprehensive loss) and per share amounts were retroactively adjusted, where applicable, using the recapitalization conversion ratio of 0.8293 (the “Conversion Ratio”).
Common Stock
Upon closing of the Working Capital Loans (and their underlying securities) will be entitledBusiness Combination, pursuant to registration rights.the terms of the Certificate of Incorporation, the Company authorized 120,000,000 shares of Common Stock with a par value $0.0001. The holders of a majority of these securitiesCommon Stock are entitled to make up to two demands that the Company register such securities. The holders of the majority of the Founder Shares can elect to exercise these registration rights at any time commencing three months priorone vote per share on all matters submitted to the date on which these sharesstockholders for their vote or approval and are entitled to be released from escrow. The holdersreceive dividends, as and if declared by the Board out of a majority of the Representative Shares, Private Warrants (and underlying securities) and securities issued in payment of Working Capital Loans (or underlying securities) can elect to exercise these registration rights at any time after the Company consummates a Business Combination. Notwithstanding anything herein to the contrary, EarlyBirdCapital and/or its designees may only make a demand registration (i) on one occasion and (ii) during the five-year period beginning on the effective date of the Initial Public Offering. In addition, the holders will have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination. legally available funds.
The Company will bear the expenses incurredhas issued and outstanding 48,627,739 and 32,184,263 shares of Common Stock as of December 31, 2021 and 2020, respectively.
F-25
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Legacy Shapeways Common Stock Warrants
On December 18, 2013, in connection with executing a loan agreement, the filingCompany issued warrants to purchase 40,000 shares of any such registration statements.Legacy Shapeways common stock. The warrants had an exercise price of $1.25 per share and had an expiration date of December 18, 2023.
Business Combination Marketing Agreement
The Company engaged EarlyBirdCapital as an advisorOn February 3, 2014, in connection with executing a Business Combination to assistlease agreement, the Company in locating target businesses, holding meetings with its shareholdersissued warrants to discuss a potential Business Combinationpurchase 248,000 shares of Legacy Shapeways common stock. The warrants had an exercise price of $1.25 per share and the target business’ attributes, introduce the Company to potential investors that are interested in purchasing securities, assist the Company in obtaining shareholder approval for the Business Combination and assist the Company with its press releases and public filings in connection with a Business Combination. The Company will pay EarlyBirdCapital a cash fee equal to 3.5% of the gross proceeds of the Initial Public Offering, or $4,830,000, for such services onlyexpired upon the consummation of a Business Combination. Of such amount, uplatest to approximately 25% may be paid (subject tooccur i) seven years from the Company’s discretion) to third parties who are investment banksoriginal issuance date or financial advisory firms not participating in Initial Public Offering that assist the Company in consummating its Business Combination. The election to make such payments to third parties will be solely at the discretion of the Company’s management team, and such third parties will be selected by the management team in their sole and absolute discretion. As of December 31, 2020, the above service had not been completed and accordingly, no amounts have been recorded in the accompanying financial statements.
Additionally, the Company will pay EarlyBirdCapital a cash fee equal to 1.0% of the total consideration payable in the proposed Business Combination if it introduces the Company to the target business with which the Company completes a Business Combination; provided that the foregoing fee will not be paid prior to the date that is 90 daysii) five years from the effective date of an initial public offering.
On April 22, 2015, in connection to an amended loan agreement, the Initial Public Offering, unless FINRA determines that such payment would not be deemed underwriters’ compensationCompany issued warrants to purchase 13,750 shares of Legacy Shapeways common stock. The warrants had an exercise price of $1.70 per share and had an expiration date of April 22, 2025.
Immediately prior to the completion of the Business Combination, all outstanding Legacy Shapeways common stock warrants were exercised into an aggregate of 255,917 shares of Legacy Shapeways common stock (212,234 shares of Common Stock post Business Combination).
Legacy Shapeways Convertible Preferred Stock
Immediately prior to the completion of the Business Combination, all outstanding shares of the Legacy Shapeways Series A-1, Series A-2, Series B, Series B-1, Series C, Series D, and Series E preferred stock converted into an aggregate of 22,579,695 shares of common stock. Each share of Legacy Shapeways convertible preferred stock was converted into one share of Legacy Shapeways common stock.
Legacy Shapeways Preferred Stock Warrants
On March 8, 2013, the Company issued warrants to purchase a total of 23,125 shares of Series B-1 preferred stock of Legacy Shapeways. The warrants had an exercise price of $2.5946 per share and were exercisable for ten years from the date of grant. On May 10, 2021, the 23,125 warrants were exercised for 23,125 shares of Series B-1 preferred stock of Legacy Shapeways at an exercise price of $2.5946 per share.
On June 30, 2017, in connection with executing a loan agreement, the Initial Public Offering pursuantCompany issued warrants to FINRA Rule 5110(c)(3)(B)(ii).
NOTE 7. SHAREHOLDERS’ EQUITY
Preference Shares —purchase a total of 57,051 shares of Series D preferred stock of Legacy Shapeways. The Company is authorized to issue 2,000,000 preference shares with a par valuewarrants had an exercise price of $0.0001$5.2584 per share with such designation, rights and preferences as may be determinedwere exercisable for ten years from timethe date of grant. Immediately prior to time by the Company’s Boardcompletion of Directors. At December 31, 2020 and 2019, therethe Business Combination, the 57,051 warrants were no preferenceexercised for 107,580 shares issued or outstanding.
F-13
GALILEO ACQUISITION CORP.of Legacy Shapeways common stock.
NOTES TO FINANCIAL STATEMENTSPublic Warrants
DECEMBR 31, 2020
Ordinary Shares — ThePrior to the Merger, the Company is authorizedhad outstanding 13,800,000 Public Warrants. Each Public Warrant entitles the holder to issue 200,000,000 ordinary shares with a par valuepurchase one share of $0.0001Common Stock of the Company at an exercise price of $11.50 per share. Holders of the ordinary shares are entitled to one vote for each share. At December 31, 2020 and 2019, there were 3,986,111 and 3,980,951 ordinary shares issued and outstanding, excluding 13,413,889 and 13,419,049 ordinary shares subject to possible redemption, respectively, which includes the 2,887,500 Founder Shares not subject to forfeiture.
Warrants — The Public Warrants will become exercisable on30 days after the later of (a) the completion of a Business CombinationClosing Date, and (b) 12 months from the closing of the Initial Public Offering. No Public Warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the ordinary shares issuable upon exercise of the Public Warrants and a current prospectus relating to such ordinary shares. Notwithstanding the foregoing, if a registration statement covering the ordinary shares issuable upon the exercise of the Public Warrants is not effective within 90 days from the consummation of a Business Combination, the holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise the Public Warrants on a cashless basis pursuant to the exemption from registration provided by Section 3(a)(9) of the Securities Act provided that such exemption is available. If an exemption from registration is not available, holders will not be able to exercise their Public Warrants on a cashless basis. The Public Warrants will expire five years fromafter the consummation of a Business CombinationClosing Date or earlier upon redemption or liquidation.
The Company may redeem the Public Warrants:Warrants as follows: in whole and not in part; at a price of $0.01 per warrant; at any time while the Public Warrants are exercisable, upon not less than 30 days’ prior written notice of redemption to each Public Warrant holder; if, and only if, the reported last sale price of the Company’s ordinary
F-26
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
shares equals or exceeds $18.00 per share, for any 20 trading days within a 30-trading day period ending on the third business day prior to the notice of redemption to the warrant holders; and if, and only if, there is a current registration statement in effect with respect to the ordinary shares underlying such warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day thereafter until the date of redemption. Certain of these conditions have not been met to redeem the Public Warrants. If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
As of December 31, 2021 and 2020, there were 15,295,612 and 13,800,000 Public Warrants outstanding, respectively.
Note 12. Stock-Based Compensation
2010 Stock Plan
Prior to the Business Combination, Legacy Shapeways maintained its 2010 Stock Plan (the “2010 Plan”), under which Legacy Shapeways granted statutory and non-statutory stock to employees, outside directors and consultants. The maximum number of shares of common stock that was issuable under the 2010 Plan was 16,942,546 shares.
In connection with the Business Combination, each Legacy Shapeways stock option that was outstanding immediately prior to Closing, whether vested or unvested, was converted into an option to acquire a number of shares of common stock (each such option, an “Exchanged Option”) equal to the product (rounded down to the nearest whole number) of (i) the number of shares of Legacy Shapeways common stock subject to such Legacy Shapeways option immediately prior to the Business Combination and (ii) 90% of the Conversion Ratio, at an exercise price and numberper share (rounded up to the nearest whole cent) equal to (A) the exercise price per share of ordinary shares issuable upon exercisesuch Legacy Shapeways option immediately prior to the consummation of the warrants may be adjusted in certain circumstances includingBusiness Combination, divided by (B) 90% of the Conversion Ratio. Except as specifically provided in the event of a capitalization of shares, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However,Business Combination Agreement, following the warrantsBusiness Combination, each Exchanged Option will notcontinue to be adjusted for issuances of ordinary shares at a price below their exercise price or issuance of potential extension warrants in connection with an extensiongoverned by the same terms and conditions (including vesting and exercisability terms) as were applicable to the corresponding former Legacy Shapeways option immediately prior to the consummation of the period of time for the Company to complete a Business Combination. Additionally, in no event willAll stock option activity was retroactively restated to reflect the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
Exchanged Options.
In addition, if (x)as discussed in Note 3, each holder of an in-the-money Legacy Shapeways option held by individuals remaining in continuous service to the Company issues additional ordinary shares or equity-linked securities for capital raising purposes in connection withthrough the closing ofClosing, was granted a Business Combination at an issue price or effective issue price of less than $9.20 per share (with such issue price or effective issue priceright to be determined in good faith by the Company’s board of directors, and in the case of any such issuancereceive Earn-Out RSUs equal to the Sponsor, initial shareholders or their affiliates, without taking into account any Founder Shares held by themproduct of (A) the number of shares of Legacy Shapeways common stock that were subject to the option immediately prior to such issuance), (y) the aggregate gross proceeds from such issuances represent more than 60%Closing, multiplied by (B) ten percent (10%) of the total equity proceeds,Conversion Ratio (rounded down to the nearest whole number of shares). The Earn-Out RSUs are subject to substantially the same service-based vesting conditions and interest thereon, available foracceleration provisions as applied to the funding of a Business Combination onLegacy Shapeways option provided that, in addition to such service-based vesting conditions, Earn-Out RSUs will be subject to vesting and forfeiture conditions based upon the date of the consummation of a Business Combination, and (z) the volume weighted average tradingdollar volume-weighted price of the Company’s ordinary shares during the 20 trading day period starting on the trading day prior to the day on which theCommon Stock reaching certain targets (the “RSU Performance Milestones”). The Company consummates a Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of a warrant will be adjusted (to the nearest cent) to be equal to 115%records stock compensation expense for Earn-Out RSUs based upon an assessment of the greater of (i)grant date fair value using the Market Value or (ii) the price at which the Company issues the additional ordinary shares or equity-linked securities.
Representative Shares
In August 2019, the Company issuedMonte Carlo model. The assumptions used to the designees of EarlyBirdCapital 125,000 ordinary shares (the “Representative Shares”) for a nominal consideration. On October 17, 2019, the Company effected a share dividend of 0.2 of a share for each ordinary share in issue, resulting in EarlyBirdCapital holding an aggregate of 150,000 Representative Shares. The Company accounted for the Representative Shares as an offering cost of the Proposed Offering, with a corresponding credit to shareholders’ equity. The Company estimatedestimate the fair value of Representative SharesEarn-Out RSUs granted during the year ended December 31, 2021 were as follows:
Weighted average grant date fair value | $ | 1.14 | ||
Expected term (in years) | 3.00 | |||
Expected volatility | 67.00 | % | ||
Risk-free interest rate | 0.93 | % | ||
Dividend yield | — |
F-27
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
If the service of the holder of an Earn-Out RSU terminates before the RSU Performance Milestones have been satisfied, then the portion of the Earn-Out RSUs for which the service-based vesting conditions has been satisfied (taking into account any acceleration provisions) shall remain outstanding and eligible to vest upon achievement of the applicable RSU Performance Milestone. Any Earn-Out RSUs for which the service-based vested conditions have not been satisfied as of such termination of service (taking into account any acceleration provisions) shall be forfeited and cancelled without payment. If any RSU Performance Milestone fails to be $1,137satisfied by the end of the Earnout Period, then the Earn-Out RSUs corresponding to such RSU Performance Milestone shall be forfeited and cancelled without payment as of the end of the Earnout Period.
Upon the Closing of the Business Combination, the outstanding and unexercised Legacy Shapeways options became options to purchase an aggregate of 4,901,207 shares of the Company’s Common Stock under the 2010 Plan at an average exercise price of $0.62 per share.
2021 Equity Incentive Plan
Upon the closing of the Business Combination, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan permits the granting of incentive stock options, restricted stock awards, other share-based awards or other cash-based awards to employees, consultants, and non-employee directors. As of December 31, 2021, 7,621,401 shares of Common Stock are authorized for issuance pursuant to awards under the 2021 Plan. As of December 31, 2021, 1,070,812 shares have been awarded and 6,550,589 shares remain available for issuance under the 2021 Plan.
Option Awards
The Company accounts for share-based payments pursuant to ASC 718, Stock Compensation and, accordingly, the Company records stock compensation expense for share-based awards based upon the pricean assessment of the Founder Shares issuedgrant date fair value for stock options using the Black-Scholes option pricing model. The Company is a public company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. Due to the Sponsor. The holderslack of historical exercise history, the expected term of the Representative Shares have agreed notCompany’s stock options for employees has been determined utilizing the “simplified” method for awards. The risk-free interest rate is determined by reference to transfer, assign or sell any such shares until the completion of a Business Combination. In addition,U.S. Treasury yield curve. Expected dividend yield is zero based on the holders have agreed (i) to waive their redemption rights with respect to such shares in connection with the completion of a Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account with respect to such shares iffact that the Company failshas never paid cash dividends and does not expect to complete a Business Combination within the Combination Period.
F-14
GALILEO ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBR 31, 2020
The Representative Shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the effective date of the registration statement related to the Initial Public Offering pursuant to Rule 5110(g)(1) of FINRA’s NASD Conduct Rules. Pursuant to FINRA Rule 5110(g)(1), these securities will not be the subject ofpay any hedging, short sale, derivative, put or call transaction that would resultcash dividends in the economic disposition of the securities by any person for a period of 180 days immediately following the effective date of the registration statement related to the Initial Public Offering, nor may they be sold, transferred, assigned, pledged or hypothecated for a period of 180 days immediately following the effective date of the registration statement related to the Initial Public Offering except to any underwriter and selected dealer participating in the Initial Public Offering and their bona fide officers or partners.
NOTE 8. FAIR VALUE MEASUREMENTS
foreseeable future.
The fair value of stock options under the Black-Scholes model requires management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates, volatility of the Company’s stock price and expected dividends. The Company generally recognizes stock compensation expense on the grant date and over the period of vesting or period that services will be provided. The assumptions used to estimate the fair value of stock options granted during the periods presented were as follows:
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
Strike price | $ | 0.17 | $ | 0.18 | ||||
Expected term (in years) | 5.55 - 6.05 | 5.00 - 6.04 | ||||||
Expected volatility | 57.09% - 57.81 | % | 49.13% - 53.50 | % | ||||
Risk-free interest rate | 0.50% - 0.57 | % | 0.37% - 1.46 | % | ||||
Dividend yield | — | — | ||||||
F-28
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
The following table summarizes the Company’s stock option plan and the activity:
| Shares Underlying Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||
Outstanding at January 1, 2021 (as previously reported) | 8,247,340 | $ | 0.44 | 6.72 | $ | — | ||||||||||
Retroactive application of reverse recapitalization | (1,967,440 | ) | — | — | — | |||||||||||
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Outstanding as of January 1, 2021, effect of Merger | 6,279,900 | $ | 0.58 | 6.64 | $ | — | ||||||||||
Granted | 29,420 | 0.36 | 9.07 | — | ||||||||||||
Forfeited | (203,970 | ) | 0.44 | — | — | |||||||||||
Exercised | (1,298,963 | ) | 0.45 | — | $ | 9,450 | ||||||||||
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Outstanding at December 31, 2021 | 4,806,387 | $ | 0.63 | 6.57 | $ | 14,438 | ||||||||||
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Exercisable at December 31, 2021 | 4,515,739 | $ | 0.64 | 6.48 | $ | 13,504 | ||||||||||
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The aggregate intrinsic value in the above table is calculated as the difference between fair value of the Company’s Common Stock price and the exercise price of the stock options. The weighted-average grant-date fair value per stock option granted during the years ended December 31, 2021 and 2020 was $0.17 and $0.18, respectively. The Company recorded stock compensation expense related to option awards of $1,297 and $721, respectively, which is included in selling, general and administrative expense for the years ended December 31, 2021 and 2020. As of December 31, 2021, approximately $64 of unrecognized compensation expense related to non-vested option awards is expected to be recognized over the weighted average period of 1.76 years.
Restricted Stock Units
The following table summarizes the Company’s restricted stock unit activity:
| Restricted Stock Units | Weighted Average Grant Date Fair Value per Share | |||||||
Outstanding at January 1, 2021 | — | $ | — | |||||
Granted | 1,070,812 | 2.58 | ||||||
Forfeited | (364 | ) | 1.06 | |||||
Vested | (410,000 | ) | 3.80 | |||||
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Outstanding at December 31, 2021 | 660,448 | $ | 3.80 | |||||
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Exercisable at December 31, 2021 | — | $ | — | |||||
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The total fair value of restricted stock unit awards vested during the year ended December 31, 2021 was $1,610.
Total unrecognized compensation expense related to outstanding restricted stock unit awards was approximately $684 as of December 31, 2021 and is expected to be recognized over the weighted average period of 2.76 years.
F-29
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
2021 Employee Stock Purchase Plan
Upon the closing of the Business Combination, the Company adopted the 2021 Employee Stock Purchase Plan (the “ESPP”). The purpose of the ESPP is to provide eligible employees with an opportunity to increase their proprietary interest in the success of the Company by purchasing Common Stock from the Company on favorable terms and to pay for such purchases through payroll deductions or other approved contributions. As of December 31, 2021, 895,721 shares of Common Stock are available for purchase under the ESPP. As of December 31, 2021, no shares have been purchased under the ESPP.
Note 13. Fair Value Measurements
Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2021 and December 31, 2020. The carrying amounts of accounts receivable, inventory, prepaid expenses and other current assets, accounts payable, accrued expenses and other liabilities, and deferred revenue approximated fair value as they are short term in nature. The fair value of warrants issued for settlement and services are estimated based on the Black-Scholes model. The carrying value of the Company’s debt and operating lease liabilities approximated its fair value, as the obligation bears interest at rates currently available for debt with similar maturities and collateral requirements.
Fair Value on a Recurring Basis
The Company follows the guidance in ASC 820 for its financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of theare re-measured and reported at fair value at each reporting period, and non-financial assets or paid in connection with the transfer of theand liabilities in an orderly transaction between market participantsthat are re-measured and reported at the measurement date. In connection with measuring thefair value at least annually. The estimated fair value of its assets andthe warrant liabilities the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
The Company classifies its U.S. Treasury and equivalent securities as held-to-maturity in accordance with ASC 320 “Investments - Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying balance sheet and adjusted for the amortization or accretion of premiums or discounts.
At December 31, 2020, assets held in the Trust Account were comprised of $5,563 in cash equivalents and $139,152,937 in U.S. Treasury Bills at amortized cost. During the period ended December 31, 2020, the Company did not withdraw any interest income from the Trust Account to pay its tax obligations.
At December 31, 2019, assets held in the Trust Account were comprised of $220 in cash and $138,414,259 U.S Treasury Bills, at amortized cost. During the period ended December 31, 2019, the Company did not withdraw any interest income from the Trust Account to pay its tax obligations.
F-15
GALILEO ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBR 31, 2020
represents Level 3 measurements. The following table presents information about the Company’s assetsliabilities that are measured at fair value on a recurring basis at December 31, 20202021 and 2019December 31, 2020, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value. value:
Description | Level | December 31, 2021 | December 31, 2020 | |||||||||
Liabilities: | ||||||||||||
Warrant liabilities | 3 | $ | 2,274 | $ | — | |||||||
Warrant Liabilities
Prior to the Business Combination, the Company had outstanding 4,110,000 warrants (the “Private Warrants”) that were issued upon the consummation of the initial public offering of Galileo. Additionally, at the Closing, Galileo’s sponsor converted a convertible note issued by the Company with an aggregate principal amount of $500 into 500,000 warrants (the “Sponsor Warrants”) exercisable for Common Stock at a purchase price of $1.00 per warrant.
The gross holding gainsPrivate Warrants and Sponsor Warrants are identical to the Public Warrants except that the Private and Sponsor Warrants (i) are not redeemable by the Company and (ii) may be exercised for cash or on a cashless basis, so long as they are held by the initial purchaser or any of its permitted transferees. If the Private Warrants or Sponsor Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants or Sponsor Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. Upon the transfer of a Private Warrant to a party other than the initial purchaser or any of its permitted transferees, the Private Warrants or Sponsor Warrants become Public Warrants and the fair market value of the Private Warrants at the date of transfer is reclassified to equity.
F-30
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
The Private Warrants and Sponsor Warrants are not indexed to the Company’s common shares in the manner contemplated by ASC 815-40-15 because the holder of the instrument is not an input into the pricing of a fixed-for-fixed option on equity shares. The Company classifies the Private Warrants and Sponsor Warrants as derivative liabilities in its consolidated balance sheet as of December 31, 2021.
The Company utilizes a Binomial Lattice model approach to value the Private Warrants and Sponsor Warrants at each reporting period with changes in fair value recognized in the statement of operations. The estimated fair value of held-to-maturity securitiesthe warrant liabilities is determined using Level 3 inputs. Inherent in a binomial options pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its Common Stock based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at December 31, 2020 and 2019zero.
The significant unobservable inputs used in the Binomial Lattice Model to measure the warrant liabilities that are categorized within Level 3 of the fair value hierarchy are as follows:
| Held-To-Maturity | Level | Amortized Cost | Gross Holding Gains | Fair Value | ||||||||||||||
| December 31, 2020 | U.S. Treasury Securities (Matured on 01/07/2021)(1) | 1 | $ | 139,152,937 | $ | 2,063 | $ | 139,155,000 | ||||||||||
| December 31, 2019 | U.S. Treasury Securities (Matured on 4/16/2020) | 1 | $ | 138,414,259 | $ | 26,719 | $ | 138,440,978 | ||||||||||
| December 31, 2021 | At Closing (September 29, 2021) | |||||||
Stock price on valuation date | $ | 3.71 | $ | 8.54 | ||||
Exercise price per share | $ | 11.50 | $ | 11.50 | ||||
Expected life | 4.75 years | 5 years | ||||||
Volatility | 56.4 | % | 43.9 | % | ||||
Risk-free rate | 1.2 | % | 1.0 | % | ||||
Dividend yield | — | % | — | % | ||||
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Fair value per warrant | $ | 0.73 | $ | 2.57 | ||||
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The following table provides a summary of changes in fair value of the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis:
| Warrant Liabilities | ||||
Balance at December 31, 2020 | $ | — | ||
Additions pursuant to Merger | 11,865 | |||
Transfer of Private Warrants to Public Warrants | (1,485 | ) | ||
Change in fair value | (8,106 | ) | ||
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Balance at December 31, 2021 | $ | 2,274 | ||
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As of December 31, 2021, 3,114,388 Private Warrants remain outstanding.
Fair Value on a (1) Non-Recurring Basis
The company notes thatfair value of the U.S. Treasury Securities were reinvested withEarnout Shares has been estimated using the funds fromtrading price of the previously matured securitiesCompany’s Common Stock at Closing ($7.70), discounted based on the probability of the Earnout Terms being met as determined at Closing, and thus represents a Level 2 fair value measurement as defined in ASC 820. The Earnout Shares, if achieved,
F-31
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
would be issued to Legacy Shapeways shareholders. The Earnout Shares are a fixed number of shares to be issued to such shareholders on a pro rata basis. The fair value of the Earnout Shares was recognized as a deemed dividend. Upon closing of the Merger, the estimated fair value of the Earnout Shares was $18,132 with such amount recognized as a deemed dividend. As the Company is in an accumulated deficit position as of the measurement date, the resulting deemed dividend is recorded as a reduction of additional paid-in capital with a corresponding offset recorded to additional paid-in capital. As of December 31, 2021, there are 3,510,405 Earnout Shares unvested and remaining subject to the Earnout Terms.
Note 14. Income Taxes
The provision for income taxes consists of the following:
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
Income tax provision: | ||||||||
Non-US | $ | (71 | ) | $ | (29 | ) | ||
Federal | — | — | ||||||
State | — | — | ||||||
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Provision for income taxes | $ | (71 | ) | $ | (29 | ) | ||
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A reconciliation of the income tax expense calculated using the applicable federal statutory rate to the Company’s actual income tax expense is as follows:
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
Federal statutory income tax rate | 21.00 | % | 21.00 | % | ||||
State and local income taxes, net of federal benefit | (9.65 | )% | 1.74 | % | ||||
Nondeductible expenses | 0.53 | % | (0.85 | )% | ||||
Loan forgiveness | (11.53 | )% | — | % | ||||
Warrant liabilities | (55.32 | )% | — | % | ||||
Stock-based compensation | (25.33 | )% | (4.27 | )% | ||||
Change in state tax rates | 6.07 | % | (5.38 | )% | ||||
Change in valuation allowance | 73.68 | % | (12.34 | )% | ||||
True-up adjustments | (1.67 | )% | 2.16 | % | ||||
Foreign rate differential | 0.28 | % | (1.17 | )% | ||||
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| (1.95 | )% | 0.89 | % | |||||
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F-32
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Deferred income taxes are recognized for the future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities. The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and tax liabilities are as follows:
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
Deferred tax assets: | ||||||||
Accrued expense | $ | 64 | $ | 46 | ||||
Sec. 263(a) | 17 | 17 | ||||||
Stock-based compensation | 477 | 131 | ||||||
ASC 842—Right of use lease liability | 29 | 51 | ||||||
Fixed assets | 194 | 168 | ||||||
Net operating losses | 24,291 | 21,965 | ||||||
Tax credits | 893 | 893 | ||||||
Other | 6 | 19 | ||||||
Less: valuation allowance | (25,971 | ) | (23,290 | ) | ||||
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Total deferred tax assets | $ | — | $ | — | ||||
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The valuation allowance for deferred tax assets increased by $2,681 to $25,971 in 2021. In determining the carrying value of our deferred tax assets, the Company evaluated all available evidence that led to a conclusion that based upon the more-likely-than-not standard of the accounting literature, these deferred tax assets were unrecoverable. The valuation allowance has no impact on the Company’s net operating loss (“NOL”) position for tax purposes, and if the Company generates taxable income in future periods, it will be able to use the NOLs to offset taxes due at that time.
As of December 31, 2021, the Company had federal net operating loss carryforwards of $101,309, $71,122 of which, if not utilized, expire by 2038. Federal net operating loss carryforwards totaling $30,187 can be carried forward indefinitely. In addition, the Company has state net operating loss carryforwards of $104,880, with varying expiration dates as determined by each state; some of which may be indefinite lived. Internal Revenue Code of 1986 Section 382 (“Section 382”) and Section 383 provide an annual limitation with respect to the ability of a corporation to utilize its tax attributes, as well as certain built-in losses, against future U.S. taxable income in the event of a change of ownership. These carryforwards are not subject to limitation by Section 382 and are all expected to be available to offset future U.S. taxable income.
Utilization of U.S. net operating losses may be limited by “ownership change” rules, as defined in Section 382 of the Code. Similar rules may apply under state tax laws. The Company recognizes transfers into and outhas not conducted a study to-date to assess whether a limitation would apply under Section 382 of the fair value levels atCode and when it starts utilizing its net operating losses. The Company will continue to monitor activities in the endfuture. In the event the Company previously experienced an ownership change, or should experience an ownership change in the future, the amount of net operating losses carryovers available in any taxable year could be limited and may expire unutilized. Any limitation that may arise or be determined in the future would not have a material impact on the Company’s financial statements due to the full valuation allowance recorded against the related deferred tax assets.
Note 15. Significant Concentrations
One customer accounted for approximately 23% and 21% of revenue for the years ended December 31, 2021 and 2020, respectively. No other customers represented more than 10% of revenue for the years ended December 31, 2021 and 2020.
F-33
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
One vendor accounted for approximately 11% of purchases for the year ended December 31, 2021. No other vendors represented more than 10% of purchases for the years ended December 31, 2021 and 2020.
As of December 31, 2021, two customers accounted for approximately 32% and 25% of accounts receivable. As of December 31, 2020, two customers accounted for approximately 32% and 10% of accounts receivable. No other customers represented more than 10% of outstanding accounts receivable as of December 31, 2021 and December 31, 2020.
As of December 31, 2021, two vendors accounted for approximately 18% and 11% of accounts payable. As of December 31, 2020, five vendors accounted for approximately 18%, 15%, 15%, 11% and 10% of accounts payable. No other vendors represented more than 10% of outstanding accounts payable as of December 31, 2021 and December 31, 2020.
Note 16. Related Party Transactions
During 2012, the Company signed a $175 promissory note (the “Related Party Note”) with an officer of the reporting period. There were no transfers intoCompany, bearing interest equal to the greater of (a) 0.88% per annum or out(b) the mid-term Applicable Federal Rate under Section 1274(d) of the levelsInternal Revenue Code in effect during the time the note is outstanding. The average interest rates for the year ended December 31, 2020 orwas 0.78%. On May 12, 2020, the period from July 30 2019 (inception) through December 31, 2019.Related Party Note was amended to extend the maturity date such that the remainder of the principal and accrued interest be due and payable on August 10, 2021. The Related Party Note was secured by the assets of the borrower. Immediately prior to the completion of the Business Combination, the Company entered into a stock repurchase agreement with the holder of the Related Party Note to which the Company repurchased 19,226 shares of Common Stock held by the holder in exchange for settlement of the Related Party Note.
NOTE 9. SUBSEQUENT EVENTS
Note 17. Subsequent Events
The Company has evaluated all known subsequent events and transactions that occurred after the balance sheet date up tothrough March 31, 2022, which is the date that thethese consolidated financial statements were issued. Based upon this review, the Company did not identify anyissued, and has determined that no subsequent events that would have required adjustmentoccurred requiring recognition or disclosure in thethese consolidated financial statements.
F-16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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F-34