Velo3D(VLD) - 2025 Q1 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (unaudited) Unaudited condensed consolidated financial statements for Velo3D, Inc. show increased assets and liabilities, reduced net loss, and ongoing liquidity concerns Condensed Consolidated Balance Sheets (unaudited) Total assets slightly increased to $91.40 million, while total liabilities significantly rose, and stockholders' equity decreased due to accumulated deficit Balance Sheet Summary (in thousands) | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | :-------------------- | | Total Assets | $91,399 | $89,180 | $2,219 | | Total Liabilities | $58,517 | $49,516 | $9,001 | | Total Stockholders' Equity | $32,882 | $39,664 | $(6,782) | | Cash and cash equivalents | $3,870 | $1,212 | $2,658 | | Debt – current portion | $16,152 | $5,666 | $10,486 | Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) Net loss decreased to $25.41 million, total revenue declined by 4.8%, and gross profit turned positive, driven by a 32.3% reduction in operating expenses Statements of Operations Summary (in thousands) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :--------- | | Total Revenue | $9,320 | $9,786 | $(466) | (4.8)% | | Total Cost of Revenue | $8,623 | $12,601 | $(3,978) | (31.6)% | | Gross Profit (Loss) | $697 | $(2,815) | $3,512 | (124.8)% | | Total Operating Expenses | $12,618 | $18,635 | $(6,017) | (32.3)% | | Loss from Operations | $(11,921) | $(21,450) | $9,529 | (44.4)% | | Net Loss | $(25,411) | $(28,314) | $2,903 | (10.3)% | | Basic Net Loss per Share | $(0.13) | $(3.81) | $3.68 | (96.6)% | Condensed Consolidated Statements of Cash Flows (unaudited) Net cash used in operating activities decreased to $12.35 million, while financing activities significantly increased to $15.00 million due to secured convertible notes Cash Flow Summary (in thousands) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | | Net cash used in operating activities | $(12,349) | $(20,523) | $8,174 | | Net cash provided by investing activities | $— | $3,493 | $(3,493) | | Net cash provided by financing activities | $15,000 | $285 | $14,715 | | Net change in cash and cash equivalents | $2,658 | $(16,740) | $19,398 | Condensed Consolidated Statements of Stockholders' Equity (unaudited) Total stockholders' equity decreased to $32.88 million due to a $25.41 million net loss, partially offset by increased additional paid-in capital Stockholders' Equity Summary (in thousands) | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | :-------------------- | | Total Stockholders' Equity | $32,882 | $39,664 | $(6,782) | | Additional Paid-In Capital | $488,623 | $469,994 | $18,629 | | Accumulated Deficit | $(455,745) | $(430,334) | $(25,411) | | Common Stock Shares Outstanding | 210,232,762 | 194,909,430 | 15,323,332 | Notes to Condensed Consolidated Interim Financial Statements (unaudited) Detailed disclosures cover business, accounting policies, financial instruments, debt, and equity, highlighting a reverse stock split, delisting, and liquidity efforts amid going concern doubts - The company produces metal additive 3D printers for high-value parts in industries like space, aviation, and defense, and provides support services[31] - A 1-for-35 reverse stock split was effective June 13, 2024, retroactively adjusting all share numbers and per-share amounts[36][37][38] - The company was delisted from the NYSE on September 10, 2024, and commenced trading on the OTCQX Best Market on September 11, 2024[39] - Management believes there is substantial doubt about the company's ability to continue as a going concern due to accumulated deficit ($455.7 million) and insufficient liquidity for the next 12 months[40][41] - In December 2024, Arrayed Notes Acquisition Corp. acquired the Senior Secured Notes and subsequently exchanged $22.4 million in principal plus $0.4 million accrued interest for 185,151,333 shares of common stock, making Arrayed the owner of approximately 95% of the company's outstanding common stock[42][43] - The company issued two Senior Secured Convertible Promissory Notes in January and February 2025 totaling $15 million, bearing high interest rates (60.0% and 30.0% per annum, respectively) and convertible into common stock under certain conditions[45][46] - The company will need additional financing to fund operations and satisfy obligations in the near-term, with no assurance of obtaining it on acceptable terms[47] - The FASB issued ASU 2023-09, effective for annual periods beginning after December 15, 2024, to enhance income tax disclosures, which the company is currently evaluating[49] - Revenue from perpetual software licenses is recognized upfront, while maintenance revenue (PCS) is recognized ratably over the contract term or as support is used[51] - Subscription licenses are bundled, with the license component recognized upfront and PCS recognized ratably[52] - Product warranties for 3D printers typically last one year from installation, with estimated costs accrued at the time of sale based on historical data[53][54][55] Selected Balance Sheet Accounts (in thousands) | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Accounts Receivable, Net | $4,569 | $3,723 | | Inventories, Net | $46,133 | $49,953 | | Prepaid Expenses and Other Current Assets | $5,907 | $2,336 | | Property and Equipment, Net | $13,691 | $14,270 | | Other Assets | $12,261 | $13,513 | | Accounts Payable | $16,365 | $18,538 | | Accrued Expenses and Other Current Liabilities | $3,762 | $3,511 | | Debt – current portion | $16,152 | $5,666 | | Contract Liabilities | $7,614 | $10,285 | | Long-term debt – less current portion | $5,506 | $— | | Warrant Liabilities | $13 | $2,167 | - The company leases office and manufacturing facilities under non-cancellable operating leases expiring between 2025 and 2032[76] - Total lease liabilities were $9.78 million as of March 31, 2025[78] Debt Breakdown (in thousands) | Debt Type | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------ | :------------------------------ | :------------------------------- | | January Note | $5,692 | $— | | February Note 1st Tranche | $5,204 | $— | | February Note 2nd Tranche | $5,046 | $— | | Secured Notes | $5,716 | $5,666 | | Total Debt | $21,658 | $5,666 | | Debt – current portion | $16,152 | $5,666 | | Long-term debt – less current portion | $5,506 | $— | - As of March 31, 2025, the company had 210,232,762 shares of common stock outstanding[87] - In February 2025, the company entered into Warrant Exchange Agreements, exchanging various warrants for 14,852,379 shares of common stock, leading to a significant reduction in outstanding common stock warrants[91][92][101] Common Stock and Warrants Reserved (shares) | Metric | March 31, 2025 (shares) | December 31, 2024 (shares) | | :------------------------------------------ | :---------------------- | :----------------------- | | Common stock warrants | 553,326 | 5,504,117 | | Shares available for future grant under 2021 EIP | 43,957 | 696,840 | | Reserved for At-the-Market offering | 80,742 | 80,742 | | Reserved for employee stock purchase plan | 284,367 | 284,367 | | Total shares of common stock reserved | 962,392 | 6,566,066 | - Total stock-based compensation expense for the three months ended March 31, 2025, was $4.07 million, a decrease from $5.09 million in the prior year, primarily from restricted stock units and earnout shares[139][140] - No provision for federal and state income taxes was recorded due to projected losses and a full valuation allowance on deferred tax assets[141] - The company has non-cancellable purchase commitments of $1.5 million for parts and assemblies due throughout the remainder of 2025[143] - The company's contribution to its 401(k) Plan was $0.1 million for the three months ended March 31, 2025, down from $0.3 million in the prior year[144] Customer Concentration (as a percentage of Total Revenue) | Customer | Three Months Ended March 31, 2025 (as a percentage of Total Revenue) | Three Months Ended March 31, 2024 (as a percentage of Total Revenue) | | :--------- | :----------------------------------------------------------------- | :----------------------------------------------------------------- | | Customer 1 | 31.5% | —% | | Customer 2 | 29.5% | 26.8% | | Customer 3 | <10% | 13.5% | Revenue by Geographic Area (in thousands) | Geographic Area | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | | :-------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | | Americas | $8,289 | $9,373 | $(1,084) | | Europe | $936 | $325 | $611 | | Other | $95 | $88 | $7 | | Total | $9,320 | $9,786 | $(466) | - On April 12, 2025, the company entered into a Master Service Agreement with Momentus, Inc. to provide consulting and parts production for five years in exchange for common and convertible preferred stock[150] - On April 24, 2025, the Board of Directors appointed Jason Lloyd and Kenneth Thieneman as new directors, following the resignations of Brad Kreger and Michael Idelchik[151] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, condition, and outlook, highlighting reduced net loss, improved gross profit, and expense cuts, alongside ongoing liquidity challenges and going concern doubts Overview Velo3D specializes in proprietary L-PBF metal 3D printing for complex, high-value parts in aerospace and defense, employing a 'land and expand' customer strategy - Velo3D produces metal additive 3D printers using proprietary L-PBF technology, which reduces or eliminates the need for support structures[155] - The Sapphire Family of Printers enables customers in space, aviation, defense, automotive, energy, and industrial markets to design and produce complex metal parts[156] - The company's technology allows for the creation of complex high-value metal parts without redesign, offering design advantages, lower costs for low-volume parts, and faster lead times compared to traditional manufacturing[157][158] - Velo3D uses a "land and expand" strategy, where customers initially purchase a single machine for validation and then acquire additional systems as the technology is integrated into their product roadmaps[158] Recent Developments Recent developments include a debt-for-equity exchange making Arrayed 95% owner, warrant exchanges, and $15 million in new secured convertible notes, despite ongoing going concern doubts - On December 24, 2024, Arrayed Notes Acquisition Corp. converted $22.4 million in principal and $0.4 million in accrued interest from Secured Notes into 185,151,333 shares of common stock, resulting in Arrayed owning approximately 95% of the company's outstanding common stock[159] - On February 24, 2025, the company entered into Warrant Exchange Agreements, exchanging various registered and unregistered warrants for an aggregate of 14,852,379 shares of common stock[160][161] - In January and February 2025, the company issued two Senior Secured Convertible Promissory Notes totaling $15 million, bearing high interest rates (60.0% and 30.0% per annum) and convertible into common stock under specific conditions[162][163] - Despite recent debt and equity transactions, there remains substantial doubt about the company's ability to continue as a going concern due to insufficient liquidity for the next 12 months, necessitating additional financing[165] Key Financial and Operational Metrics Revenue decreased to $9 million, bookings declined significantly to $8 million, and backlog fell to $18 million, indicating a slowdown in new orders Key Financial and Operational Metrics (in millions) | Metric | Three Months Ended March 31, 2025 (in millions) | Three Months Ended March 31, 2024 (in millions) | Change (in millions) | | :-------------------- | :---------------------------------------------- | :---------------------------------------------- | :------------------- | | Revenue | $9 | $10 | $(1) | | Bookings | $8 | $17 | $(9) | | Backlog | $18 | $22 | $(4) | - Bookings are defined as confirmed orders for 3D printer systems and printed parts in contracted dollars[167] - Backlog represents unfulfilled 3D printer systems and printed parts to be delivered to customers in contracted dollars as of period end[168] Customer Concentration Sales to the top three customers increased to 70.7% of revenue, indicating heightened customer concentration risk - Sales to the top three customers accounted for 70.7% of revenue for the three months ended March 31, 2025, up from 49.9% in the prior year, indicating increased customer concentration risk[169][170] Continued Investment and Innovation The company continues to invest in R&D to enhance its AM solutions and improve existing product capabilities, crucial for future growth - The company continues to invest in research and development to enhance its portfolio of AM solutions based on customer demand, aiming to improve existing product capabilities[171] Macroeconomic Conditions and Other World Events Macroeconomic conditions and geopolitical events create uncertainty in customer orders and supply chains, prompting operational efficiency improvements in 2024 and 2025 - Macroeconomic conditions (recessions, inflation, interest rates, supply chain shortages) and geopolitical events (conflicts in Israel and Ukraine) create uncertainty in customer orders and supply chain constraints[172] - The company implemented supply chain and manufacturing improvements in 2024 and plans further operational improvements in 2025 to reduce operating costs[172] Climate Change Climate change legislation, regulations, and extreme weather pose risks of increased costs, operational disruptions, and reputational damage - Climate change-related legislation, regulations, and international accords could adversely affect the business through increased capital expenditures, compliance costs, and indirect consequences like changes in demand or increased competition[173] - Extreme weather and natural disasters may disrupt operations or the supply chains of the company and its customers[173] Components of Results of Operations Revenue streams include 3D printer sales and support services, with costs encompassing manufacturing and personnel, while operating expenses are categorized into R&D, S&M, and G&A - Revenue is primarily derived from 3D Printer sales (Sapphire family) and associated Support Services, with some recurring payment (operating lease) transactions[174][175] - 3D Printer sale transactions recognize revenue upon transfer of control at shipment, typically three to nine months from order[176] - Recurring Payment transactions are operating leases, where customers pay a base rent and variable usage fees, typically with a 12-month term[179][180] - Rapid Production Solutions (RPS) offers custom metal component manufacturing using the company's expertise and Sapphire XC printers[180] - Cost of revenue includes manufacturing costs for 3D printers, depreciation for leased equipment, and costs for support services (spare parts, installation, personnel)[182][183][184] - Gross profit and margin are affected by product mix, average selling prices, material and shipping costs, production volumes, system reliability, and support service costs[185] - Operating expenses include Research and Development (salaries, prototypes, design), Selling and Marketing (salaries, trade shows, advertising), and General and Administrative (executive, finance, legal, professional fees)[186][187][188] - Other financial items include interest expense, gains/losses on fair value of warrants and contingent earnout liabilities, and loss on warrant cancellation[189][190][191][192][193] - No income tax provision was recorded due to projected losses and a full valuation allowance on deferred tax assets[194] Results of Operations Net loss decreased by 10.3% to $25.41 million, driven by a 32.3% reduction in operating expenses and a positive shift in gross profit, despite a 4.8% revenue decline Consolidated Results of Operations (in thousands) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :--------- | | Total Revenue | $9,320 | $9,786 | $(466) | (4.8)% | | Total Cost of Revenue | $8,623 | $12,601 | $(3,978) | (31.6)% | | Gross Profit (Loss) | $697 | $(2,815) | $3,512 | (124.8)% | | Total Operating Expenses | $12,618 | $18,635 | $(6,017) | (32.3)% | | Loss from Operations | $(11,921) | $(21,450) | $9,529 | (44.4)% | | Net Loss | $(25,411) | $(28,314) | $2,903 | (10.3)% | Revenue Total revenue decreased by 4.8% to $9.32 million, primarily due to declines in 3D Printer sales and Recurring Payment revenue, partially offset by increased Support Services revenue Revenue by Type (in thousands) | Revenue Type | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :--------- | | 3D Printer | $7,523 | $7,660 | $(137) | (1.8)% | | Recurring payment | $— | $470 | $(470) | (100.0)% | | Support services | $1,790 | $1,656 | $134 | 8.1% | | Other | $7 | $— | $7 | 100.0% | | Total Revenue | $9,320 | $9,786 | $(466) | (4.8)% | Cost of Revenue Total cost of revenue decreased by 31.6% to $8.62 million, driven by lower 3D Printer and Support Services costs, improving cost of revenue as a percentage of revenue to 92.5% Cost of Revenue by Type (in thousands) | Cost of Revenue Type | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :--------- | | Cost of 3D Printers | $7,540 | $9,394 | $(1,854) | (19.7)% | | Cost of Recurring Payment | $12 | $315 | $(303) | (96.2)% | | Cost of Support Services | $1,071 | $2,892 | $(1,821) | (63.0)% | | Total Cost of Revenue | $8,623 | $12,601 | $(3,978) | (31.6)% | - Cost of revenue as a percentage of revenue improved from 128.8% in Q1 2024 to 92.5% in Q1 2025, driven by lower raw material costs and direct labor efficiency[209] - The company faces increasing component costs due to international tariffs and its current financial situation, which prevents securing credit terms and volume discounts, negatively impacting cost of revenue[210][211] Gross Profit and Gross Margin Gross profit turned positive to $0.7 million, with gross margin increasing to 7.5%, primarily due to lower system revenue costs, though customer order trends and component costs remain a challenge Gross Profit and Margin (in thousands) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :--------- | | Gross Profit (Loss) | $697 | $(2,815) | $3,512 | (124.8)% | | Gross Margin | 7.5% | (28.8)% | 36.3 pp | (126.0)% | - Gross profit and gross margin are negatively impacted by trends in customer orders and component costs, and this is expected to continue until financial conditions improve[213] Research and Development Expenses R&D expenses decreased by 76.0% to $1.2 million due to reduced headcount and compensation, with costs expected to remain stable for the rest of 2025 Research and Development Expenses (in thousands) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :--------- | | Research and development | $1,212 | $5,043 | $(3,831) | (76.0)% | - The decrease was driven by a $2.8 million reduction in headcount, salaries, and employee-related expenses, an $0.8 million decrease in stock-based compensation, and a $0.2 million decrease in miscellaneous expenses[214] - R&D costs are expected to remain at similar levels for the remainder of 2025 due to the maturation of Sapphire systems and focused investments in current product line improvements[215] Selling and Marketing Expenses Selling and marketing expenses decreased by 52.7% to $2.3 million due to reduced headcount and marketing costs, but are expected to increase as customer engagement and RPS traction grow Selling and Marketing Expenses (in thousands) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :--------- | | Selling and marketing | $2,275 | $4,809 | $(2,534) | (52.7)% | - The decrease was attributable to a $1.5 million decrease in headcount, salaries, and employee-related expenses, a $0.9 million decrease in stock-based compensation, and a $0.4 million decrease in marketing costs[216] - Selling and marketing expenses are expected to increase for the remainder of 2025 as the company re-engages with key customers and focuses on driving Rapid Production Solutions (RPS) traction[217] General and Administrative Expenses General and administrative expenses increased by 4.0% to $9.1 million due to higher legal fees, but are projected to decrease from 2024 workforce reductions and cost-saving initiatives General and Administrative Expenses (in thousands) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :--------- | | General and administrative | $9,131 | $8,783 | $348 | 4.0% | - The increase was attributable to a $0.3 million increase in legal and other professional fees[218] - General and administrative expenses are expected to decrease due to savings from a late 2024 reduction in force and ongoing initiatives to reduce reliance on outside consultants, manage facility costs, and negotiate vendor pricing[219][220] Interest Expense Interest expense decreased by 72.5% to $1.1 million due to reduced Senior Secured Notes, partially offset by new convertible notes, with further decreases expected as debt is reduced Interest Expense (in thousands) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :--------- | | Interest expense | $(1,070) | $(3,897) | $2,827 | (72.5)% | - The decrease was due to the reduction in Senior Secured Notes, partially offset by the issuance of Secured Secured Convertible Notes[221] - Interest expense is expected to continue to decrease as a result of reduced debt[222] Gain (loss) on Fair Value of Warrants Loss on fair value of warrants decreased by 60.2% to $1.0 million, a non-cash adjustment reflecting changes in warrant liabilities due to stock price fluctuations Loss on Fair Value of Warrants (in thousands) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :--------- | | Loss on fair value of warrants | $(1,044) | $(2,620) | $1,576 | (60.2)% | Gain (loss) on Fair value of Contingent Earnout Liabilities No gain or loss on fair value of contingent earnout liabilities was reported, compared to a $0.4 million loss in the prior year, reflecting non-cash adjustments Loss on Fair Value of Contingent Earnout Liabilities (in thousands) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :--------- | | Loss on fair value of contingent earnout liabilities | $— | $(437) | $437 | (100.0)% | Loss on Warrant Cancellation A $11.4 million loss on warrant cancellation was recognized, directly resulting from the February 2025 Warrant Exchange transaction Loss on Warrant Cancellation (in thousands) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :------------------------ | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :--------- | | Loss on warrant cancellation | $(11,357) | $— | $(11,357) | 100.0% | Other Income (Expense), Net Other income (expense), net, shifted to a minor expense of less than ($0.01) million, including interest income and asset disposal gains/losses Other Income (Expense), Net (in thousands) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :--------- | | Other income (expense), net | $(11) | $94 | $(105) | (111.7)% | Income Taxes No income tax provision was recorded due to projected losses and a full valuation allowance on deferred tax assets, with a benefit expected upon future profitability - No provision for federal and state income taxes was recorded for the three months ended March 31, 2025 and 2024, due to projected losses and a full valuation allowance on deferred tax assets[226] - The company expects to reverse the U.S. valuation allowance position and record a benefit if it generates profits in the foreseeable future, leading to a higher effective tax rate thereafter[227] Liquidity and Capital Resources With $3.9 million cash, the company faces substantial doubt about its going concern ability due to insufficient liquidity for $16.4 million payables and $21.7 million debt, necessitating further financing - As of March 31, 2025, the company had $3.9 million in cash and short-term investments, insufficient to cover $16.4 million in accounts payable and $21.7 million in debt[270] - There is substantial doubt about the company's ability to continue as a going concern for the next 12 months, which could negatively impact investor and creditor perception, and make securing additional financing difficult[271][272] - The company will need to engage in additional equity or debt financings to fund operations, repay debt, and provide working capital, but there is no assurance of obtaining such financing on acceptable terms[275][276] - The company's financial condition has caused customers to delay orders and prevents securing favorable credit terms and volume discounts with suppliers, leading to premium payments or alternative sourcing[273] - Recent financing activities include a debt-for-equity exchange with Arrayed Notes Acquisition Corp. (making them 95% owner) and the issuance of $15 million in Senior Secured Convertible Promissory Notes[233][234][235] Cash Flow Summary Net cash used in operating activities decreased to $12.35 million, while financing activities significantly increased to $15.00 million due to secured convertible notes Cash Flow Activities (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | | Net cash used in operating activities | $(12,349) | $(20,523) | $8,174 | | Net cash provided by investing activities | $— | $3,493 | $(3,493) | | Net cash provided by financing activities | $15,000 | $285 | $14,715 | - The decrease in cash used in operating activities was primarily due to a lower net loss and reduced non-cash losses, partially offset by changes in operating assets and liabilities[242] - Cash provided by financing activities increased due to $15.0 million from the issuance of the January Note and February Note[245] - Capital expenditures are expected to increase in 2025 as the company invests in printer capacity and facilities for Rapid Production Solutions (RPS)[244] Off-Balance Sheet Arrangements The company had no off-balance sheet arrangements as of March 31, 2025, or December 31, 2024 - The company had no off-balance sheet arrangements as of March 31, 2025, and December 31, 2024[248] Recent Accounting Pronouncements Refer to Note 2 for details on recent accounting pronouncements, including adoption dates and estimated effects on financial statements - For details on recent accounting pronouncements, including adoption dates and estimated effects, refer to Note 2, Summary of Significant Accounting Policies[249] Implications of Being an Emerging Growth Company As an EGC, Velo3D uses an extended transition period for accounting standards, potentially affecting comparability, and will retain EGC status until specific thresholds are met - As an "emerging growth company" (EGC), Velo3D has elected to use the extended transition period for complying with new or revised financial accounting standards[250][251] - The EGC status allows for reduced disclosure obligations but may make financial results difficult to compare with non-EGCs or EGCs that opted out of the extended transition period[251] - The company will remain an EGC until the earliest of December 31, 2025, or meeting certain revenue, filer status, or debt issuance thresholds[252] Implications of Being a Smaller Reporting Company As an SRC, Velo3D benefits from reduced disclosure obligations, including two years of audited financial statements, retaining status until specific thresholds are exceeded - Velo3D is a "smaller reporting company" (SRC), allowing it to take advantage of reduced disclosure obligations, including providing only two years of audited consolidated financial statements[253] - The company will remain an SRC until its market value of voting and nonvoting common stock held by non-affiliates exceeds $250.0 million (or $700.0 million with lower revenue) or its annual revenue exceeds $100.0 million[254] Critical Accounting Policies and Significant Estimates Financial statements rely on critical accounting policies and significant estimates involving judgment, with actual results potentially differing materially; further details are in Note 2 and the 2024 Form 10-K - The company's financial condition and results of operations are based on critical accounting policies and significant estimates that involve a high degree of judgment or complexity[255] - Actual results could differ materially from these estimates and assumptions, and these differences could be material to the financial statements[255] - Estimates are re-evaluated on an ongoing basis, with more information available in Note 2 of the interim financial statements and the 2024 Form 10-K[255][256] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Velo3D is exempt from quantitative and qualitative market risk disclosures under Regulation S-K Item 305(e) - As a smaller reporting company, Velo3D is not required to provide quantitative and qualitative disclosures about market risk[257] Item 4. Controls and Procedures Disclosure controls and procedures were ineffective due to material weaknesses in internal control over financial reporting, including an ineffective control environment and inadequate accounting controls, with remediation efforts ongoing Evaluation of Disclosure Controls and Procedures CEO and CFO concluded disclosure controls and procedures were ineffective due to material weaknesses in internal control over financial reporting as of March 31, 2025 - As of March 31, 2025, the CEO and CFO concluded that disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting[259] Material Weaknesses in Internal Control over Financial Reporting Identified material weaknesses include an ineffective control environment, inadequate segregation of duties, and insufficient controls over accounting for debt, equity, inventory, and financial statement presentation, leading to past adjustments - Material weaknesses include an ineffective control environment due to insufficient personnel with appropriate internal controls and accounting knowledge, leading to inadequate segregation of duties[260] - Specific weaknesses were identified in controls over segregation of duties for journal entries and account reconciliations, and accounting for debt and equity instruments (convertible notes, warrants, common stock, earnout liabilities)[260] - Ineffective controls were also found in accounting for inventory and related accounts (existence, accuracy of purchases, manufacturing costs, write-offs, presentation) and contract assets and liabilities (accuracy, presentation, variable consideration)[260] - Deficiencies in IT general controls for information systems relevant to financial statements were noted, specifically regarding user access controls and program change management controls[264] - These material weaknesses resulted in past adjustments and revisions to consolidated financial statements and could lead to future material misstatements[261][262] Remediation Measures for Remaining Material Weaknesses in Internal Control over Financial Reporting Remediation efforts include hiring accounting and IT personnel, providing training, engaging third-party assistance for control design, and formalizing review responsibilities, with further measures planned for specific accounting areas - Remediation measures include hiring additional accounting and IT personnel, providing ongoing training, and engaging a third-party to assist in designing and implementing controls, including segregation of duties and IT general controls[263] - Plans are underway to design and implement controls over accounting and disclosure for debt and equity instruments, inventory and related accounts, contract assets and liabilities, and financial statement preparation and presentation[263] - The effectiveness of these measures is subject to continued testing, senior management review, and audit committee oversight, with no assurance of full remediation yet[265] Changes in Internal Control over Financial Reporting No other material changes in internal control over financial reporting occurred during the quarter, apart from identified weaknesses and ongoing remediation efforts - No other material changes in internal control over financial reporting occurred during the quarter ended March 31, 2025, beyond the identified material weaknesses and remediation efforts[266] Part II. Other Information Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings that would adversely affect its financial position or operations - The company is not currently involved in any material legal proceedings[268] Item 1A. Risk Factors Updates on significant risks include going concern doubts, need for additional capital, and adverse impacts of U.S. tariffs and compliance with anti-corruption and trade control laws Risks Related to Our Financial Position and Need for Additional Capital Substantial doubt exists about the company's going concern ability due to insufficient liquidity, impacting investor confidence and requiring additional, potentially unavailable, financing - Substantial doubt exists about the company's ability to continue as a going concern due to insufficient liquidity ($3.9 million cash) to meet short-term obligations ($16.4 million accounts payable, $21.7 million debt)[270][271] - This going concern conclusion negatively impacts investor/creditor perception, delays customer orders, and prevents favorable supplier terms, forcing premium payments or alternative sourcing[272][273] - The company requires additional capital to fund operations and satisfy debt, but securing financing on acceptable terms is difficult due to its financial condition and general market concerns[275] - Failure to obtain adequate financing could significantly impair the company's ability to respond to business challenges, potentially leading to liquidation or bankruptcy[276] Risks Related to our Business and Industry Uncertainty from U.S. tariffs and trade policies, including a 25% tariff on Canadian goods, could increase costs, delay timelines, and trigger a global trade war - Uncertainty regarding U.S. tariffs and trade relationships, including a 25% tariff on goods from Canada and potential tariffs on goods from Mexico and China, could impose additional costs and negatively impact the company[277] - The implementation of tariffs could trigger a broader global trade war, which would have a material adverse effect on the U.S. and global economies and, consequently, the company's financial condition[278] Risks Related to Compliance Matters Compliance risks from U.S. and international anti-corruption and trade control laws could lead to penalties and reputational harm, heightened by international expansion and state-owned enterprise dealings - The company is subject to U.S. and foreign anti-corruption laws (FCPA, Bribery Act) and trade control laws (ITAR, EAR, OFAC sanctions), with non-compliance risking civil/criminal penalties, fines, and reputational damage[279][281][284] - International expansion, particularly in Europe, South-East Asia, and Oceania, and dealings with state-owned enterprises, increase the risk of violations[282] - Despite established policies and training, there's no assurance that employees or partners will not violate these laws, and the company may be held liable for partners' actions[284] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - No unregistered sales of equity securities or use of proceeds occurred during the period[285] Item 3. Defaults Upon Senior Securities This item is not applicable for the reporting period - This item is not applicable[286] Item 4. Mine Safety Disclosures This item is not applicable for the reporting period - This item is not applicable[287] Item 5. Other Information No director or Section 16 officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter - No director or Section 16 officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2025[288] Item 6. Exhibits Exhibits filed with Form 10-Q include various Senior Secured Convertible Promissory Notes, Warrant Exchange Agreements, and CEO/CFO certifications - Exhibits include Senior Secured Convertible Promissory Notes, Secured Guaranties, Offer Letters, Warrant Exchange Agreements, Lock-Up Agreements, and CEO/CFO certifications[290] Signatures The report was duly signed by Hull Xu, Chief Financial Officer, Principal Financial Officer, and Authorized Officer, on May 15, 2025 - The report was signed by Hull Xu, Chief Financial Officer, Principal Financial Officer, and Authorized Officer, on May 15, 2025[296]