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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
    
    
    
    
to
    
    
    
    
Commission file number:
001-39092
 
 
SHAPEWAYS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
87-2876494
(State or other jurisdiction of incorporation)
 
(I.R.S. Employer Identification No.)
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)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class:
 
Trading
Symbol(s)
 
Name of each exchange
on which registered:
Common Stock, par value $0.0001 per share
 
SHPW
 
New York Stock Exchange
Warrants, each whole warrant exercisable for
one share of Common Stock for $11.50 per share
 
SHPW WS
 
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.0405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒     No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated 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 is a shell company (as defined in Rule 12b2 of the Exchange Act).    Yes  ☐    No  
As of November 10, 2021 the registrant had 48,296,484 shares of common stock outstanding.
 
 
 

Table of Contents
SHAPEWAYS HOLDINGS, INC.
TABLE OF CONTENTS
 
  
     
     
Item 1.
 
  
     
 
 
  
 
1
 
 
 
  
 
2
 
 
 
  
 
3
 
 
 
  
 
5
 
 
 
  
 
6
 
Item 2.
 
  
 
26
 
Item 3.
 
  
 
35
 
Item 4.
 
  
 
36
 
   
  
     
     
Item 1.
 
  
 
37
 
Item 1A.
 
  
 
37
 
Item 2.
 
  
 
37
 
Item 3.
 
  
 
37
 
Item 4.
 
  
 
37
 
Item 5.
 
  
 
37
 
Item 6.
 
  
 
38
 
   
  
 
38
 

Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Report”), including, without limitation, the section 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, 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”), 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 by terminology such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “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 circumstances and their potential effects and speak only as of the date of such statements. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed, contemplated or implied by these forward-looking statements. The Company cautions you that these forward-looking statements are subject to numerous risk and uncertainties, most of which are difficult to predict and many of which are beyond the control of the Company. These risks and uncertainties include, but are not limited to, those factors described in the section titled “Risk Factors” in the final joint proxy statement/consent solicitation statement/prospectus filed by Galileo Acquisition Corp. with the U.S. Securities and Exchange Commission (the “SEC”) on September 7, 2021 (the “Proxy Statement”) as well as elsewhere in this Report. 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. The 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 in the section titled “Risk Factors” in the Proxy Statement 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. Forward-looking statements are not guarantees of future performance and the Company’s actual results of operations, financial condition and liquidity, and developments in the industry in the Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if the Company’s results or operations, financial condition and liquidity, and developments in the industry in which it operates are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.

Table of Contents
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
SHAPEWAYS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
    
September 30, 2021
   
December 31, 2020
 
    
(Unaudited)
       
Assets
                
Current assets
                
Cash and cash equivalents
   $ 90,108     $ 8,564  
Restricted cash
     143       145  
Accounts receivable
     1,114       185  
Inventory
     573       727  
Promissory note due from related party
              151  
Prepaid expenses and other current assets
     1,908       1,910  
    
 
 
   
 
 
 
Total current assets
     93,846       11,682  
Property and equipment, net
     1,090       948  
Right-of-use
assets, net
     982       2,102  
Goodwill
     1,835       1,835  
Security deposits
     175       175  
    
 
 
   
 
 
 
Total assets
   $ 97,928     $ 16,742  
    
 
 
   
 
 
 
Liabilities and Stockholders’ Equity (Deficit)
                
Current liabilities
                
Accounts payable
   $ 1,168     $ 1,633  
Accrued expenses and other liabilities
     3,700       3,319  
Current portion of long-term debt
     39       8,332  
Operating lease liabilities, current
     631       1,222  
Deferred revenue
     658       753  
    
 
 
   
 
 
 
Total current liabilities
     6,196       15,259  
Operating lease liabilities, net of current portion
     499       1,094  
Warrant liabilities
     6,777           
Long-term debt
     88       2,236  
    
 
 
   
 
 
 
Total liabilities
     13,560       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 September 30, 2021 and December 31, 2020, respectively)
                  
Common stock ($0.0001 par value; 120,000,000 shares authorized; 48,296,484 and 32,170,068 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively)
     5       3  
Additional
paid-in
capital
     195,121       112,994  
Accumulated deficit
     (110,442     (114,567
Accumulated other comprehensive loss
     (316     (277
    
 
 
   
 
 
 
Total stockholders’ equity (deficit)
     84,368       (1,847
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity (deficit)
   $ 97,928     $ 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 unaudited consolidated financial statements.
 
1

Table of Contents
SHAPEWAYS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(in thousands, except share and per share amounts)
 
    
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
    
2021
   
2020
   
2021
   
2020
 
Revenue, net
   $ 7,716     $ 8,107     $ 25,354     $ 23,028  
Cost of revenue
     4,055       4,406       13,271       13,030  
    
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
     3,661       3,701       12,083       9,998  
Operating expenses
                                
Selling, general and administrative
     4,366       2,461       10,513       8,075  
Research and development
     1,673       1,516       4,099       4,289  
Amortization and depreciation
     33       37       100       113  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     6,072       4,014       14,712       12,477  
    
 
 
   
 
 
   
 
 
   
 
 
 
Loss from operations
     (2,411     (313     (2,629     (2,479
Other income (expense)
                                
Long-term debt forgiveness
                       2,000           
Interest expense
     (126     (141     (407     (444
Change in fair value of warrant liabilities
     5,088                5,088           
Interest income
     1                1           
Other income
              4       1       7  
Loss on disposal of assets
                                (4
    
 
 
   
 
 
   
 
 
   
 
 
 
Total other income (expense), net
     4,963       (137     6,683       (441
    
 
 
   
 
 
   
 
 
   
 
 
 
Income (loss) 
before income tax benefit
     2,552       (450     4,054       (2,920
Income tax benefit
                       (71     —    
    
 
 
   
 
 
   
 
 
   
 
 
 
Net
income
 
(loss)
     2,552       (450     4,125       (2,920
Deemed dividend - Earnout Shares
     (18,132              (18,132     —    
    
 
 
   
 
 
   
 
 
   
 
 
 
Net loss attributable to common stockholders
     (15,580     (450     (14,007     (2,920
    
 
 
   
 
 
   
 
 
   
 
 
 
Net
income
 
(
loss)
 
per share:
                                
Basic
   $ 0.07     $ (0.01   $ 0.11     $ (0.08
    
 
 
   
 
 
   
 
 
   
 
 
 
Diluted
   $ 0.07     $ (0.01   $ 0.11     $ (0.08
    
 
 
   
 
 
   
 
 
   
 
 
 
Net loss per share attributable to common stockholders:
                                
Basic
   $ (0.41   $ (0.01   $ (0.38   $ (0.08
    
 
 
   
 
 
   
 
 
   
 
 
 
Diluted
   $ (0.41   $ (0.01   $ (0.38   $ (0.08
    
 
 
   
 
 
   
 
 
   
 
 
 
Weighted average common shares outstanding:
(1)
                                
Basic
     37,932,345       35,787,986       37,351,244       35,660,635  
    
 
 
   
 
 
   
 
 
   
 
 
 
Diluted
     37,932,345       35,787,986       37,351,244       35,660,635  
    
 
 
   
 
 
   
 
 
   
 
 
 
Other comprehensive
(
loss
) income
                                
Foreign currency translation adjustment
     (22     65       (39     32  
Comprehensive loss
   $ (15,602   $ (385   $ (14,046   $ (2,888
    
 
 
   
 
 
   
 
 
   
 
 
 
 
(1)
Retroactively restated for the reverse recapitalization as described in Notes 1 and 3.
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
2

Table of Contents
SHAPEWAYS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(1)
(Unaudited)
(in thousands, except share and per share amounts)
 
    
Preferred Stock
   
Common Stock
                          
Three and Nine Months Ended September 30, 2021
  
Shares
   
Amount
   
Shares
   
Amount
    
Additional
Paid-In

Capital
   
Accumulated
Deficit
   
Accumulated Other
Comprehensive
Loss
   
Total
Stockholders’
Equity (Deficit)
 
Balance at January 1, 2021 (as previously reported)
     22,579,695     $ 2       16,211,567     $ 2      $ 112,993     $ (114,567   $ (277   $ (1,847
Retroactive application of reverse recapitalization
     (22,579,695     (2     15,972,696       1        1       —         —         —    
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at January 1, 2021 (after effect of reverse recapitalization)
            $          32,184,263     $ 3      $ 112,994     $ (114,567   $ (277   $ (1,847
Issuance of Legacy Shapeways common stock upon exercise of stock options
     —         —         35,895       —          16       —         —         16  
Stock-based compensation expense
     —         —         —         —          174       —         —         174  
Net income
     —         —         —         —          —         1,708       —         1,708  
Foreign currency translation
     —         —         —         —          —                 (9     (9
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at March 31, 2021
                       32,220,158       3        113,184       (112,859     (286     42  
Issuance of Legacy Shapeways common stock upon exercise of stock options
     —         —         63,506       —          55       —         —         55  
Issuance of Legacy Shapeways convertible Series
B-1
preferred stock resulting from exercise of warrants
     —         —         19,177       —          60       —         —         60  
Stock-based compensation expense
     —         —         —         —          171       —         —         171  
Net loss
     —         —         —         —          —         (135     —         (135
Foreign currency translation
     —         —         —         —          —         —         (8     (8
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2021
                       32,302,841       3        113,470       (112,994     (294     185  
Issuance of Legacy Shapeways common stock upon exercise of stock options
     —         —         1,113,029       —          481       —         —         481  
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  
Stock-based compensation expense
     —         —         —         —          438       —         —         438  
Net
income
     —         —         —         —          —         2,552       —         2,552  
Foreign currency translation
     —         —         —         —          —         —         (22     (22
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 30, 2021
            $          48,296,484     $ 5      $ 195,121     $ (110,442   $ (316   $ 84,368  
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
3

Table of Contents
SHAPEWAYS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(1)
(Unaudited)
(in thousands, except share and per share amounts)
 
    
Preferred Stock
   
Common Stock
                           
Three and Nine Months Ended September 30, 2020
  
Shares
   
Amount
   
Shares
    
Amount
    
Additional
Paid-In

Capital
    
Accumulated
Deficit
   
Accumulated Other
Comprehensive
Loss
   
Total
Stockholders’
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        —         —         —    
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
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
     —         —         994        —          —          —         —         —    
Stock-based compensation expense
     —         —         —          —          171        —         —         171  
Net loss
     —         —         —          —          —          (1,435     —         (1,435
Foreign currency translation
     —         —         —          —          —          —         (61     (61
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balance at March 31, 2020
                       31,922,253        3        112,358        (112,834     (421     (894
Issuance of Legacy Shapeways common stock upon exercise of stock options
     —         —         141,270        —          47        —         —         47  
Stock-based compensation expense
     —         —         —          —          190        —         —         190  
Net loss
     —         —         —          —          —          (1,035     —         (1,035
Foreign currency translation
     —         —         —          —          —          —         28       28  
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balance at June 30, 2020
                       32,063,523        3        112,595        (113,869     (393     (1,664
Issuance of Legacy Shapeways common stock upon exercise of stock options
     —         —         68,555        —          21        —         —         21  
Stock-based compensation expense
     —         —         —          —          183        —         —         183  
Net loss
     —         —         —          —          —          (450     —         (450
Foreign currency translation
     —         —         —          —          —          —         65       65  
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balance at September 30, 2020
            $          32,132,078      $ 3      $ 112,799      $ (114,319   $ (328   $ (1,845
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
 
(1)
Retroactively restated for the reverse recapitalization as described in Notes 1 and 3.
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
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SHAPEWAYS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except share and per share amounts)
 
    
Nine Months Ended September 30,
 
    
2021
   
2020
 
Cash flows from operating activities:
                
Net
income (
loss
)
   $ 4,125     $ (2,920
Adjustments to reconcile net
income (loss) to net cash used in operating activities:
                
Depreciation and amortization
     424       362  
Loss on disposal of assets
              4  
Stock-based compensation expense
     783       544  
Non-cash
lease expense
     696       1,586  
Non-cash
debt forgiveness
     (2,000         
Change in fair value of warrant liabilities
     (5,088         
Change in operating assets and liabilities:
                
Accounts receivable
     (924     (763
Inventory
     173       (102
Prepaid expenses and other assets
     83       337  
Interest on promissory note due from related party
              50  
Accounts payable
     (512     (775
Accrued expenses and other liabilities
     853       713  
Lease liabilities
     (762     (1,674
Deferred revenue
     (101     67  
Deferred rent
              (283
    
 
 
   
 
 
 
Net cash used in operating activities
     (2,250     (2,854
    
 
 
   
 
 
 
Cash flows from investing activities:
                
Purchases of property and equipment
     (125     (23
    
 
 
   
 
 
 
Net cash used in investing activities
     (125     (23
    
 
 
   
 
 
 
Cash flows from financing activities:
                
Principal payments on capital leases
              (18
Proceeds from issuance of common stock
     552       68  
Proceeds received from exercise of preferred stock warrants
     60           
Effect of Merger, net of transaction costs
     86,792       —    
Repayments of loans payable
     (3,459     (851
Proceeds from loans payable
              1,983  
    
 
 
   
 
 
 
Net cash provided by financing activities
     83,945       1,182  
    
 
 
   
 
 
 
Net change in cash and cash equivalents and restricted cash
   $ 81,570     $ (1,695
    
 
 
   
 
 
 
Effect of change in foreign currency exchange rates on cash and cash equivalents and restricted cash
     (28     8  
Cash and cash equivalents and restricted cash at beginning of period
     8,709       9,605  
    
 
 
   
 
 
 
Cash and cash equivalents and restricted cash at end of period
   $ 90,251     $ 7,918  
    
 
 
   
 
 
 
Supplemental disclosure of cash and
non-cash
transactions:
                
Cash paid for interest
   $ 88     $ 145  
    
 
 
   
 
 
 
Accrued acquisition of property and equipment
   $ 441     $     
    
 
 
   
 
 
 
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 unaudited consolidated financial statements.
 
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Table of Contents
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED 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., a Cayman Islands exempted company (“Galileo” and after the Domestication (as defined below) “Shapeways”), a publicly-traded special purpose acquisition company, consummated the transactions described in the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) dated April 28, 2021, by and among Galileo Founders Holdings, L.P. (the “Sponsor”), Galileo Acquisition Corp., Galileo Acquisition Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of Galileo (“Merger Sub”), and Shapeways, Inc., a Delaware corporation (“Legacy Shapeways”),
 
whereby Merger Sub merged with and into Legacy Shapeways, the separate corporate existence of Merger Sub ceasing and Legacy Shapeways being the surviving corporation and a wholly owned subsidiary of Shapeways (the “Merger”).
Further, on the Closing Date, as contemplated by the Merger Agreement, Galileo filed a notice of deregistration with 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 “Domestication” and, together with the Merger, the “Business Combination”), changing its name to “Shapeways Holdings, Inc.” (the “Company” and/or “Shapeways”).
Shapeways is a leader in the large 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 solutions utilizing 11 additive manufacturing technologies and more than 90 materials and finishes, with the ability to easily scale new innovation. Shapeways has delivered over 21 million parts to 1 million customers in over 160 countries.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and in accordance with the instruction to Form
10-Q
and Article 8 of Regulation
S-X
of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. The condensed consolidated financial statements include the accounts of its wholly owned subsidiaries, Legacy Shapeways and Shapeways BV. All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying condensed consolidated interim financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. These unaudited condensed consolidated interim financial statements should be read along with the final proxy statement/prospectus as filed with the SEC on September 7, 2021.
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.
Legacy Shapeways has been treated as the accounting acquirer based on evaluation of the following facts and circumstances with regard to the Company as of the Closing:
 
 
 
Legacy Shapeways’ directors represented the majority of the new board of directors of the Company;
 
 
 
The executive officers and senior management of Legacy Shapeways are the executive officers and senior management of the Company;
 
 
 
The assets of Legacy Shapeways represent a significant majority of the assets of the Company (excluding cash formerly held in the Galileo trust account); and
 
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Table of Contents
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
 
   
The business of the Company will be 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
unaudited
condensed 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 condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus
(COVID-19)
as a pandemic, which continues to spread throughout the United States. While the disruption is currently expected to be temporary, there is uncertainty around the duration. The Company has considered information available to it as of the date of issuance of these unaudited condensed consolidated financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgements, or an adjustment to the carrying value of its assets or liabilities. The accounting estimates and other matters assessed include, but were not limited to, goodwill and other long-lived assets, warrant liabilities and revenue recognition. These estimates may change as new events occur and additional information becomes available. Actual results could differ materially from these estimates.
Functional Currency
The local 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 are translated at the average exchange rate prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of other comprehensive loss within stockholders’ equity (deficit). Gains and losses from foreign currency transactions are included in net loss for the period.
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 highly liquid investments with original maturities of three months or less 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 has 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 our facility in the Netherlands. Accordingly, these balances contain restrictions as to their availability and usage and are classified as restricted cash in the condensed consolidated balance sheets.
The reconciliation of cash, 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 condensed consolidated statements of cash flows is as follows:
 
 
  
September 30, 2021
 
  
December 31, 2020
 
Cash and cash equivalents
   $ 90,108      $ 8,564  
Restricted cash
     143        145  
    
 
 
    
 
 
 
     $ 90,251      $ 8,709  
    
 
 
    
 
 
 
Accounts Receivable
Accounts receivables 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 condensed 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 September 30, 2021 and December 31, 2020.
 
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Table of Contents
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
 
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 September 30, 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 periods ended September 30, 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 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.
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 periods ended September 30, 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
 
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Table of Contents
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
 
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 September 30, 2021 or December 31,
2020
.
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 fair value within that framework. ASC 820 defines fair value as 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 observable inputs and minimize the use 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 observable at commonly quoted intervals.
Level 3
-
Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.
Revenue Recognition
Revenue is derived from two primary sources: a) products and services and b) software.
The Company recognizes revenue 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 (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts 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 the project, which often requires us to make judgments and estimates in recognizing revenues.
Performance obligations are satisfied both at a
point
of time and over 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 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 typically required to make fixed minimum rent payments relating to its right to use an underlying leased asset. Additionally, the Company’s leases do not contain significantly restrictive covenants or residual value guarantees.
The Company determines 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 condensed consolidated balance sheets. The Company does not currently maintain any finance lease
 
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Table of Contents
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
 
arrangements. ROU assets represent the Company’s right to use an underlying asset, and lease liabilities represent the Company’s obligation for lease payments in exchange for the ability to use the asset for the duration of the 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 options to extend when it is reasonably certain that the Company will exercise 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 lease term
The Company has lease agreements which contain both lease and
non-lease
components, which it has elected to account 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 index or rate, such as common area maintenance, operating expenses, utilities, or other costs that are subject to fluctuation from period to period.
Stock-based Compensation
The Company recognizes stock-based compensation expense for all options and other arrangements within the scope of ASC 718,
Stock Compensation
. Stock-based compensation expense is measured at the date of grant, based on the fair value of the award, and is 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 they are incurred.
Public and Private Common Stock Warrant Liabilities
As part of Galileo’s initial public offering, Galileo issued to third party investors 13,800,000 units, consisting of one ordinary share of Galileo and one warrant, at a price of $10.00 per unit. Each whole warrant entitles the holder to purchase one share of 
C
ommon
S
tock at an exercise price of $11.50 per share (the “Public Warrants”). Simultaneously with the closing of Galileo’s initial public offering, Galileo completed the private sale of 4,110,000 warrants to Galileo’s sponsor and EarlyBirdCapital, Inc. at a purchase price of $1.00 per warrant (the “Private Warrants”). In connection with the Business Combination, Galileo’s sponsor exercised its right to convert the aggregate outstanding principal amount of the convertible promissory note issued by Galileo into an aggregate of 500,000 Sponsor Warrants, with terms equivalents to the Private Warrants.
The Private Warrants are
identical
to the Public Warrants, except that the Private Warrants (i) will 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.
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 do 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 condensed consolidated balance sheet at fair value, with subsequent changes in their respective fair values recognized in the condensed 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 three months ended September 30, 2021 and 2020, research and development costs were $1,673 and $1,516, respectively. For the nine months ended September 30, 2021 and 2020, research and development costs were $4,099 and $4,289, respectively.
 
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Table of Contents
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
 
Advertising
Advertising costs are expensed as incurred. For the three months ended September 30, 2021 and 2020, advertising costs were $568 and $123, respectively. For the nine months ended September 30, 2021 and 2020, advertising costs were $1,008 and $353, respectively, which are included in selling, general and administrative expense on the
 condensed
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 realizable in the future.
The Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on income tax returns it files if such tax position is more likely than not to be sustained on examination by the taxing 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 i
t
 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 tax audit or the refinement of an estimate. To the extent that the final 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.
In applying the estimated annual effective tax rate approach prescribed under ASC 740,
Income Taxes,
based on present evidence and conclusions around the realizability of deferred tax assets, we determined that any deferred tax benefits related to the forecasted tax rate and pretax activity during the three and nine months ended September 30, 2021 and 2020 are neither more likely than not to be realized in the current year, nor realizable as a deferred tax asset at the end of the year. Therefore, the appropriate amount of income tax benefit to recognize related to deferred tax assets during the three and nine months ended September 30, 2021 and 2020 is zero. The Company’s effective tax rate of
(1.78)%
for the nine months ended September 30, 2021 differs from the applicable statutory tax rate primarily due to the fact that income recognized for the forgiveness of loans granted under the PPP loan program and changes in the fair value of warrant liabilities are not taxable under current U.S. tax law.
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:
 
    
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
 
    
2021
    
2020
    
2021
    
2020
 
Common stock warrants
     18,410,000                  18,410,000            
Earnout Shares
     3,510,405                  3,510,405            
Included in income (loss) per common share are 
4,833,059 and 3,673,963 shares of
options
due to their nominal exercise prices as of September 30, 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.
 
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SHAPEWAYS HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
 
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 condensed consolidated financial statements.
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 condensed 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 condensed 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 condensed 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 condensed 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 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.
 
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SHAPEWAYS HOLDINGS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
 
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
2021
Equity Incentive Plan (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
restricted stock units denominated in a number of shares of Common Stock (“Earnout RSUs”) granted under the Incentive Plan, which Earnout 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 accordance with their terms, and each such share of Legacy Shapeways preferred stock and Legacy Shapeways common stock issued upon the 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 Merger Consideration (the “Stockholder Merger Consideration” and/or “Earnout Shares”) subject to vesting and forfeiture 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 Closing, with the portion 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 applicable) 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 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 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 the Closing
Simultaneously with the execution of the Business Combination, Galileo entered into subscription agreements (collectively, the “Subscription Agreements”) pursuant to which certain investors agreed to purchase an 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 following table reconciles the elements of the Business Combination to the unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2021:
 
    
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  
    
 
 
 
 
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SHAPEWAYS HOLDINGS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
 
The following table reconciles the elements of the Business Combination to the unaudited condensed consolidated statement of changes in stockholders’ equity (deficit) for the three and nine months ended September 30, 2021:
 
    
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 following table details the number of shares of Common Stock issued immediately following the consummation of the Business 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
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 au
thority 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.
 
14

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SHAPEWAYS HOLDINGS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
 
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 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. 
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:
 
    
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
 
    
2021
    
2020
    
2021
    
2020
 
Major products/service lines:
                                   
Direct sales
   $ 5,985      $ 5,994      $ 19,068      $ 16,827  
Marketplace sales
     1,663        2,091        6,062        6,060  
Software
     68        22        224        141  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total revenue
   $ 7,716      $ 8,107      $ 25,354      $ 23,028  
    
 
 
    
 
 
    
 
 
    
 
 
 
Timing of revenue recognition:
                                   
Products transferred at a point in time
   $ 1,663      $ 2,091      $ 6,062      $ 6,060  
Products and services transferred over time
     6,053        6,016        19,292        16,968  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total revenue
   $ 7,716      $ 8,107      $ 25,354      $ 23,028  
    
 
 
    
 
 
    
 
 
    
 
 
 
Deferred Revenue
The Company records deferred revenue when cash payments are received in advance of performance.
 
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SHAPEWAYS HOLDINGS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
 
Deferred revenue activity consisted of the following for the nine months ended September 30, 2021:
 
    
Deferred Revenue
 
Balance at January 1, 2021
   $ 753  
Deferred revenue recognized during period
     (25,354
Additions to deferred revenue during period
     25,259  
    
 
 
 
Balance at September 30, 2021
   $ 658  
    
 
 
 
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 nine months ended September 30, 2021. The opening balance of accounts receivable as of January 1, 2020 was $151.
Practical Expedients and Exemptions
We apply the practical expedient related to incremental costs of obtaining a contract. Although certain of our 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, we expense these costs as incurred.
Note 5. Inventory
Components of inventory consisted of the following:
 
    
September 30,
2021
    
December 31,
2020
 
Raw materials
   $ 418      $ 521  
Work-in-process
     40        36  
Finished goods
     115        170  
    
 
 
    
 
 
 
Total
   $ 573      $ 727  
    
 
 
    
 
 
 
Note 6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
 
    
September 30,
2021
    
December 31,
2020
 
Prepaid expenses
   $ 698      $ 646  
Security deposits
     259        259  
VAT receivable
     950        975  
Other current assets
     1        30  
    
 
 
    
 
 
 
Total
   $ 1,908      $ 1,910  
    
 
 
    
 
 
 
Note 7. Property and Equipment, net
Property and equipment consisted of the following:
 
    
September 30,
2021
    
December 31,
2020
 
Machinery and equipment
   $ 1,388      $ 1,430  
Computers and IT equipment
     5,631        5,193  
Furniture and fixtures
     49        50  
Leasehold improvements
     2,477        2,520  
    
 
 
    
 
 
 
       9,545        9,193  
Less: Accumulated depreciation
     (8,455      (8,245
    
 
 
    
 
 
 
Property and equipment, net
   $ 1,090      $ 948  
    
 
 
    
 
 
 
 
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Table of Contents
SHAPEWAYS HOLDINGS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
 
For the three months ended September 30, 2021 and 2020, depreciation expense totaled $146 and $115, respectively. For the nine months ended September 30, 2021 and 2020, depreciation expense totaled $424 and $362, respectively. Of these amounts, depreciation charged to cost of revenue was $113 and $78 for the three months ended September 30, 2021 and 2020, respectively, and $324 and $249 for the nine months ended September 30, 2021 and 2020, respectively.
Note 8. Accrued Expenses and Other Liabilities
Accrued expenses consisted of the following:
 
 
  
September 30,
2021
 
  
December 31,
2020
 
Accrued selling expenses
   $ 712      $ 947  
Accrued compensation
     757        876  
Interest payable
     —          612  
Taxes payable
     306        477  
Accrued transaction costs
  
 
450
 
  
 
—  
 
Accrued acquisition of property and equipment
     441        —    
Shapeways credits
     300        313  
Other
     734        94  
    
 
 
    
 
 
 
Total
   $ 3,700      $ 3,319  
    
 
 
    
 
 
 
Note 9. Commitments and Contingencies
Leases
During the
three
a
nd
nine months ended September 30, 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 nine months ended September 30, 2020. Additionally, the Company terminated one lease of office space during the nine months ended September 30, 2021.
The table below presents certain information related to the Company’s lease costs:
 
 
  
Three Months Ended
September 30,
 
  
Nine Months Ended
September 30,
 
 
  
2021
 
  
2020
 
  
2021
 
  
2020
 
Operating lease expense
   $ 144      $