Quarterly report pursuant to Section 13 or 15(d)

Equity Instruments

v3.21.2
Equity Instruments
9 Months Ended
Sep. 30, 2021
Equity [Abstract]  
Equity Instruments Equity Instruments
Redeemable Convertible Preferred Stock
Redeemable convertible preferred stock consisted of the following:
As of September 30, 2021
Authorized Issued and Outstanding Original issue price per share Liquidation Preference Carrying value
(In thousands, except share and per share data)
Redeemable Convertible Preferred Stock 10,000,000  —  $ —  $ —  $ — 

As of December 31, 2020
Redeemable Convertible Preferred Stock Authorized Issued and
Outstanding
Original issue price per share Liquidation Preference Carrying value
(In thousands, except share and per share data)
Series A 8,906,694  6,726,134  $ 2.928  $ 19,696  $ 17,030 
Series B 10,385,804  8,386,456  $ 3.851  32,300  32,176 
Series C 8,848,760  8,399,058  $ 5.524  46,400  39,378 
Series D 97,278,007  94,222,735  $ 0.375  35,366  35,120 
125,419,265  117,734,383  $ 133,762  $ 123,704 
As of September 30, 2021, there were no issued and outstanding redeemable convertible preferred stock. As of December 31, 2020, redeemable convertible preferred stock totaling 117,734,383 shares were convertible into 147,876,672 shares of common stock.
Conversion of Redeemable Convertible Preferred Stock into Common Stock at a conversion ratio of 3:1 and Issuance of Series D Redeemable Convertible Preferred Stock
In March and early April 2020, the Company notified the existing holders of the redeemable convertible preferred stock of (i) a planned initial closing of Legacy Velo3D Series D redeemable convertible preferred stock and (ii) the amount assigned to each of them based on their pro rata holdings in the Company’s outstanding equity on a fully diluted basis. In addition, these existing holders were notified that, as a condition of the Legacy Velo3D Series D redeemable convertible preferred stock financing, the Company would amend its articles to implement a special mandatory conversion provision if the holders failed to invest their pro rata amount in such initial financing of Legacy Velo3D Series D redeemable convertible preferred stock.
On April 13, 2020, in connection with the Company’s issuance of Legacy Velo3D Series D redeemable convertible preferred stock, the Company amended its articles to implement the special mandatory conversion provision and, contemporaneously, certain existing holders of redeemable convertible preferred stock who failed to invest their full pro rata amount or did not participate in the financing were automatically converted into the Company’s common stock at a conversion ratio of three to one. The amendment and forced conversion were recognized as an extinguishment of the redeemable convertible preferred stock.
As a result, 2,167,198 shares of Legacy Velo3D Series A redeemable convertible preferred stock, 1,999,348 shares of Legacy Velo3D Series B redeemable convertible preferred stock and 289,702 shares of Legacy Velo3D Series C redeemable convertible preferred stock were converted into 1,210,513 shares of Legacy Velo3D common stock. The carrying value of the converted shares of the redeemable convertible preferred stock is $13.3 million, whereas the fair value of the shares of common stock issued in the conversion was $0.2 million. Because the fair value of the consideration transferred (i.e., the fair value of the shares of common stock issued) was less than the carrying amount of the shares of the redeemable convertible preferred stock surrendered, the Company recognized an extinguishment of the redeemable convertible preferred stock converted in the amount of $13.1 million. The $13.1 million was a deemed capital contribution to the holders of the Company’s common stock that was a decrease to the net loss attributable to common stockholders and a decrease to accumulated deficit. Accordingly, the Company recorded a decrease of $13.3 million to redeemable convertible preferred stock, and a corresponding increase of $0.2 million in additional paid-in capital and a decrease of $13.1 million in accumulated deficit.
In addition, on April 13, 2020, the Company issued 44,794,885 shares of Legacy Velo3D Series D redeemable convertible preferred stock at $0.37534 per share for gross proceeds of $16.8 million.
Common stock
The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders but are not entitled to cumulative voting rights, have the right to appoint two directors to the Company’s Board of Directors, are entitled to receive ratably such dividends as may be declared by the Company’s Board of Directors out of funds legally available therefor subject to preferences that may be applicable to any shares of redeemable convertible preferred stock currently outstanding or issued in the future, are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding redeemable convertible preferred stock in the event of the Company’s liquidation, dissolution, or winding up, have no preemptive rights and no right to convert their common stock into any other securities, and have no redemption or sinking fund provisions applicable to the common stock.
Common Stock Reserved for Future Issuance
Shares of common stock reserved for issuance on an “as if converted” basis were as follows:
September 30, December 31,
2021 2020
(share data)
Redeemable convertible preferred —  147,876,672 
Redeemable convertible preferred stock warrants —  408,729 
Common stock warrants 13,075,000  214,032 
Common stock options issued and outstanding 21,342,660  21,471,321 
Shares available for future grant under 2014 Equity Incentive Plan —  5,887,008 
Shares available for future grant under 2021 Equity Incentive Plan 21,423,388  — 
Reserved for employee stock purchase plan 10,989,830  — 
Total shares of common stock reserved
66,830,878  175,857,762 
    Total potentially dilutive common share equivalents for the nine months ended September 30, 2021, excludes 21,758,148 shares related to the earnout liability as these shares are contingently issuable upon meeting certain triggering events.
Warrant liabilities
Common Stock Warrants
Warrants for shares of common stock consisted of the following:
September 30, 2021
Issue Date Expiration Date Number of Warrants Exercise Price per warrant Fair Value on Issue Date per warrant Fair Value on September 30, 2021
(In thousands)
Private placement warrants - Common Stock 12/02/2020 09/29/2026 4,450,000  $ 11.50  $ 2.00  $ 6,853 
Public warrants - Common Stock 12/02/2020 09/29/2026 8,625,000  $ 11.50  $ 3.30  $ 13,283 
13,075,000  $ 20,136 
December 31, 2020
Issue Date Expiration
Date
Number of
Warrant
Exercise
Price per warrant
Fair Value on
Issue Date per warrant
Fair Value on December 31, 2020 (1)
(In thousands)
Warrants - Common Stock 12/02/2015 12/02/2025 11,132  $ 0.87  $ 0.70  $ — 
Warrants - Common Stock 07/02/2018 07/02/2028 40,715  $ 2.47  $ 2.00  $ — 
Warrants - Common Stock 12/17/2020 12/17/2030 162,186  $ 0.18  $ 0.17  $ — 
Total outstanding 214,033  $ — 
(1) Legacy Velo3D Warrants - Common Stock: As of December 31, 2020, warrants on common stock are equity classified and recorded at fair value on the issue date without further remeasurement. The level 3 fair value assumptions used in the Black-Scholes model to calculate fair value of the warrant for common stock granted during
the nine months ended September 30, 2020 were as follows: volatility of 35.0% to 45.0%, term of 0.2 years, and risk-free interest rate of 0.1% to 1.0%.
Warrants for common stock of 13,075,000 and 214,033 were exercisable 1-to-1 as of September 30, 2021 and December 31, 2020, respectively. Warrants to purchase a total of 13,075,000 shares of common stock were initially recognized as a liability recorded at fair value upon issuance and were subject to remeasurement to fair value at each balance sheet date. As part of the Merger, all Legacy Velo3D common stock warrants were exercised for shares of common stock in accordance with their terms for the number of exercisable shares, each adjusted using the Exchange Ratio. At that time, the Legacy Velo3D common stock warrants were remeasured and reclassified to Legacy Velo3D additional paid-in capital.
Private placement warrants and public warrants on common stock (as defined below) are liability classified and recorded at fair value on the issue date with periodic remeasurement.
Private Placement Warrants
Concurrently with JAWS Spitfire’s IPO, 4,450,000 Private Placement Warrants were issued to the Sponsor at $2.00 per unit. Each Private Placement Warrant is exercisable to purchase one share of Common Stock at a price of $11.50 per share. Subject to certain exceptions, the Private Placement Warrants have terms and provisions that are identical to those of the Public Warrants. As of September 30, 2021, the number of Private Placement Warrants issued was 4,450,000.
Public Warrants
In conjunction with the JAWS Spitfire IPO, 34,500,000 units were issued to public investors at $10.00 per unit. Each unit consisted of one JAWS Spitfire Class A ordinary share and one-fourth of one warrant. Each Public Warrant is exercisable to purchase share of Common Stock at $11.50 per share. As of September 30, 2021, the number of Public Warrants issued was 8,625,000.
Public Warrants may only be exercised for a whole number of shares. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of the Merger and (b) 12 months from the closing of the IPO on December 7, 2020. The Public Warrants will expire five years after the completion of a Merger or earlier upon redemption or liquidation.
Warrant Liabilities - Common Stock
The liability associated with the Private Placement Warrants was subject to remeasurement at each balance sheet date using the Level 3 fair value inputs and the Public Warrants was subject to remeasured at each balance sheet date using Level 1 fair value inputs for the three and nine months ended September 30, 2020.
Redeemable Convertible Preferred Stock Warrants
As of September 30, 2021, the warrants for shares of Legacy Velo3D Series A and Series C redeemable convertible preferred stock were converted into redeemable convertible preferred stock in connection with the Reverse Recapitalization. Warrants for shares of Legacy Velo3D Series A and Series C redeemable convertible preferred stock consisted of the following (dollars in thousands, except share and per share amounts):
December 31, 2020
Issue Date Expiration
Date
Number of
Warrant
Exercise Price
per Warrant
Fair Value on
Issue Date per Warrant
Series A redeemable convertible preferred stock 11/14/2014 11/13/2024 13,362 $1.12 $1.25
Series C redeemable convertible preferred stock 04/18/2019 04/18/2029 160,000 $5.52 $1.05
Total outstanding 173,362
For the nine months ended September 30, 2021, all warrants for redeemable preferred stock were converted prior to the Merger into 13,362 shares of Legacy Velo3D Series A redeemable convertible preferred stock and 160,000 shares of Legacy Velo3D Series C redeemable preferred stock. The shares of redeemable preferred stock were net settled and converted into Legacy Velo3D common stock for Series A on a 1:2.178 basis and Series C of 1:2.372 basis.
As of December 31, 2020, warrants for redeemable convertible preferred stock was 173,362. After the conversion to common stock and Exchange Ratio, the impact of dilution triggered by the warrants for redeemable convertible preferred stock if converted into common stock was 243,195 shares of common stock.
Warrants on redeemable convertible preferred stock were issued to lenders in connection with borrowings. The fair value on the date of issue is recorded as a debt issue cost (contra-liability) and a liability because the warrant was liability classified. The fair value of the warrants are remeasured each reporting period using Level 3 inputs with the increase or decrease recorded in other income (expense), net in the statements of operations.
The liability for warrants on redeemable convertible preferred stock (carried at fair value) was as follows for the three and nine months ended September 30, 2021 and 2020:
Rollforward of the liability for warrants on redeemable convertible preferred stock:
Warrants on redeemable convertible preferred stock Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(in thousands)
Beginning Balance $ 1,922  $ 178  $ 181  $ 185 
Issuance of new warrant —  —  —  — 
Change in fair value (Other income (expense), net) (1,023) 718  (5)
Exercise of warrants (Redeemable preferred convertible stock) (899) —  (899) — 
Ending Balance $ —  $ 180  $ —  $ 180 
As of September 30, 2021, the fair value of the warrants for shares of Legacy Velo3D Series A and Series C redeemable convertible preferred stock was $9.23 and $8.35, respectively. The fair value of the redeemable convertible preferred stock warrant liability was estimated using an option pricing model that takes into account the contract terms as well as multiple unobservable inputs such as the aggregate equity value, risk-free interest rates, and
expected volatility. The level 3 fair value assumptions used in the Black-Scholes model for the recurring valuation of the redeemable convertible preferred stock warrant liability were as follows:
Nine months ended September 30,
2021 2020
Expected volatility
30.0% - 40.0%
35.0% - 45.0%
Risk-free interest rate
0.1% - 1.0%
0.1% - 0.8%
Dividend yield
The expected term for the Series A warrants and the Series C warrants as of September 30, 2021 was 0.2 years for both warrants, respectively.
The expected term for the Series A warrants and the Series C warrants as of September 30, 2020 was 1.6 years and 9.0 years, respectively.
Contingent Earnout Liabilities
The contingent earnout liability is for Earnout Shares for pre-closing Legacy Velo3D equity holders (as defined in the Business Combination Agreement as holders of Legacy Velo3D shares, Legacy Velo3D warrants, Legacy Velo3D convertible notes and Legacy Velo3D options immediately prior to the closing date) (“Eligible Legacy Velo3D Equityholders”). The Eligible Legacy Velo3D Equityholders will be entitled to Earnout Shares, pursuant to which they will receive (i) 5.0% of the total number of shares of Common Stock outstanding at the Closing if the shares of Common Stock trade at or above $12.50 for 20 or more trading days in any 30 trading-day period, and (ii) an additional 5.0% of the total number of shares of Common Stock outstanding at the Closing if the shares of Common Stock trade at or above $15.00 for 20 or more trading days in any 30 trading-day period (the “Triggering Events”). The earnout is subject to a five-year earnout period and early trigger upon certain change of control events.
During the time period between Closing and the five-year anniversary of the Closing Date, Eligible Legacy Velo3D Equityholders may receive up to 21,758,148 shares of additional Common Stock, which is based on two tranches or 10,879,074 per tranche as noted above.
The estimated fair value of the contingent earnout liabilities at the Closing Date was $120.8 million based on a Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over the Earnout Period using the most reliable information available. The change in fair value of contingent earnout liabilities was a gain of $2.0 million recognized in the condensed statement of operations for the three and nine months ended September 30, 2021. As of September 30, 2021 the contingent earnout liabilities were $118.7 million.
Assumptions used in the valuation are described below.
As of September 30, 2021 Closing Date September 29, 2021
Current stock price $ 8.37  $ 8.44 
Expected volatility
45.0% - 55.0%
45.0% - 55.0%
Risk-free interest rate
0.1% - 1.0%
0.1% - 1.0%
Dividend rate —  % —  %
Expected Term (years) 5.0 5.0