10-K 1 xone-10k_20191231.htm XONE-10K-20191231 xone-10k_20191231.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

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 001-35806

 

The ExOne Company

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

46-1684608

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

127 Industry Boulevard

North Huntingdon, PA 15642

(Address of Principal Executive Offices) (Zip Code)

(724) 863-9663

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock

XONE

The Nasdaq Stock Market

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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 12b-2 of the Act).    Yes      No  

The aggregate market value of common stock held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter was $104.8 million.

As of March 12, 2020, 16,450,973 shares of common stock, par value $0.01 per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed pursuant to Regulation 14A of the general rules and regulations under the Securities Exchange Act of 1934, as amended, for its 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.  

 

 

 

 


 

TABLE OF CONTENTS

 

 

PART I

1

Item 1.

Business

1

Item 1A.

Risk Factors

8

Item 1B.

Unresolved Staff Comments

19

Item 2.

Properties

19

Item 3.

Legal Proceedings

19

Item 4.

Mine Safety Disclosures

19

 

 

PART II

20

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

20

Item 6.

Selected Financial Data

20

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

28

Item 8.

Financial Statements and Supplementary Data

29

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

59

Item 9A.

Controls and Procedures

59

Item 9B.

Other Information

59

 

 

PART III

60

Item 10.

Directors, Executive Officers and Corporate Governance

60

Item 11.

Executive Compensation

60

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

60

Item 13.

Certain Relationships and Related Transactions, and Director Independence

60

Item 14.

Principal Accountant Fees and Services

60

 

 

PART IV

61

Item 15.

Exhibits and Financial Statement Schedules

61

 

 

 

i


 

PART I

Item 1. Business.

 

General

As used in this Annual Report on Form 10-K, unless the context otherwise requires or indicates, the terms “ExOne,” “Company,”  “we,” “our,” “ours,” and “us” refer to The ExOne Company and its wholly-owned subsidiaries.

Cautionary Statement Concerning Forward-Looking Statements

This Annual Report on Form 10-K may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to our future financial or business performance, strategies, or expectations. Forward-looking statements typically are identified by words or phrases such as “trend,” “potential,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” as well as similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could” and “may.”

We caution that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made and we assume no duty to and do not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

In addition to risk factors previously disclosed in our reports and those identified elsewhere in this report, the following factors, among others, could cause results to differ materially from forward-looking statements or historical performance: our ability to consistently generate operating profits; fluctuations in our revenues and operating results; our competitive environment and our competitive position; our ability to enhance our current three-dimensional (“3D”) printing machines and technology and develop and introduce new 3D printing machines; our ability to qualify more industrial materials in which we can print; demand for our products; the availability of skilled personnel; the impact of loss of key management; the impact of market conditions and other factors on the carrying value of long-lived assets; our ability to continue as a going concern; the impact of customer specific terms in machine sale agreements on the period in which we recognize revenue; risks related to global operations including effects of the coronavirus disease COVID-19; foreign currency; the adequacy of sources of liquidity; the amount and sufficiency of funds for required capital expenditures, working capital, and debt service; dependency on certain critical suppliers; nature or impact of alliances and strategic investments; reliance on critical information technology systems; the effect of litigation, contingencies and warranty claims; liabilities under laws and regulations protecting the environment; the impact of governmental laws and regulations; operating hazards, war, terrorism and cancellation or unavailability of insurance coverage; the impact of disruption of our manufacturing facilities or ExOne Adoption Centers (“EACs”); the adequacy of our protection of our intellectual property; and expectations regarding demand for our industrial products, operating revenues, operating and maintenance expenses, insurance expenses and deductibles, interest expenses, debt levels, and other matters with regard to outlook.

These and other important factors, including those discussed under Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K, may cause our actual results of operations to differ materially from any future results of operations expressed or implied by the forward-looking statements contained in this Annual Report on Form 10-K. Before making a decision to purchase our common stock, you should carefully consider all of the factors identified in this Annual Report on Form 10-K that could cause actual results to differ from these forward-looking statements.

This Annual Report on Form 10-K may contain trademarks, service marks and trade names of other companies, which are the property of their respective owners. Solely for convenience, marks and trade names referred to in this Annual Report on Form 10-K may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these marks and trade names. Third-party marks and trade names used herein are for nominative informational purposes only and their use herein in no way constitutes or is intended to be commercial use of such names and marks. The use of such third-party names and marks in no way constitutes or should be construed to be an approval, endorsement or sponsorship of us, or our products or services, by the owners of such third-party names and marks.

Our History

Our business began as the advanced manufacturing business of the Extrude Hone Corporation, which manufactured its first 3D printing machine in 2003 using licensed technology developed by researchers at the Massachusetts Institute of Technology (“MIT”). In 2005, our business assets were transferred to The Ex One Company, LLC, a Delaware limited liability company, when Extrude Hone Corporation was acquired by a third party. In 2007, we were acquired by S. Kent Rockwell through his wholly-owned company, Rockwell Forest Products, Inc. On January 1, 2013, the Company was formed when The Ex One Company, LLC was merged with and into a Delaware corporation formed in December 2012, which changed its name to The ExOne Company. On February 12, 2013, we completed our initial public offering, raising $90.4 million in unrestricted net proceeds after underwriting commissions and offering costs. Subsequent secondary offerings of our common stock have resulted in raising $78.0 million in additional unrestricted net proceeds after underwriting commissions and offering costs.

1


 

The Additive Manufacturing Industry and 3D Printing

3D printing is the most common type of an emerging manufacturing technology that is broadly referred to as additive manufacturing (“AM”). In general, AM is a term used to describe a manufacturing process that produces 3D objects directly from digital or computer models through the repeated deposit of very thin layers of material. 3D printing is the process of joining materials from a digital 3D model, usually layer by layer, to make objects using a printhead, nozzle, or other printing technology. The terms “AM” and “3D printing” are often used interchangeably, as the media and marketplace have popularized the term 3D printing rather than AM, which is the industry term. AM represents a transformational shift from traditional forms of manufacturing (e.g., machining or tooling), which are sometimes referred to as subtractive manufacturing. We believe that AM and 3D printing are increasingly poised to displace traditional subtractive manufacturing methodologies in a growing range of industrial applications.

AM methods generally include the following:

 

-

Material extrusion;

 

-

Material jetting;

 

-

Powder bed fusion;

 

-

Directed energy deposition;

 

-

Vat photopolymerization;

 

-

Sheet lamination; and

 

-

Binder jetting.  

Each of the methods above includes one or more underlying technologies used to address specific applications. From our inception, our focus has been specifically targeted on binder jetting technologies for industrial applications.

Historically, AM had focused on prototyping and small, limited production in order to find acceptance of its varying technologies by end users in order to convince users of traditional methods of the viability of such new applications. As AM has evolved, the focus has progressed into production readiness and increasing reliability and repeatability standards associated with higher volumetric output and specifications that industrial applications demand.

ExOne and 3D Printing  

We are a global provider of 3D printing machines and 3D printed and other products, materials and services to industrial customers. Our business primarily consists of manufacturing and selling 3D printing machines and printing products to specification for our customers using our installed base of 3D printing machines. Our machines serve direct and indirect applications.  Direct printing produces a component; indirect printing makes a tool to produce a component. We offer pre-production collaboration and print products for customers through our network of EACs. We also supply the associated materials, including consumables and replacement parts, and other services, including training and technical support, that are necessary for purchasers of our 3D printing machines to print products. We believe that our ability to print in a variety of industrial materials, as well as our industry-leading volumetric output (as measured by build box size and printing speed), uniquely position us to serve the needs of industrial customers.

Our binder jetting technology was developed over 20 years ago by researchers at MIT. Our 3D printing machines build or print products from computer-aided drafting (“CAD”) models by depositing successive thin layers of particles of materials such as silicate sands or metal or ceramic powders in a “build box.” A moveable printhead passes over each layer and deposits a chemical binding agent in the selected areas where the finished product will be materialized. Each layer can be unique.

Depending on the industrial material used in printing, printed products may need post-production processing. We generally use silica sand or foundry sand for casting, both of which typically require no additional processing. Products printed in other materials, such as metals or ceramics, or for use in specific applications, may need varying amounts of heat treating or sintering, drying or curing, or other post-processing or finishing.

Pre-Print. We believe that our customers have the opportunity to take greater advantage of the design freedom that our 3D printing technology provides. Each of our 3D printing machines uses standard front-end software which gives us the ability to collaborate with our customers to develop and refine CAD designs that meet our customers’ specifications and can be read and processed by our 3D printing machines. We continue to invest in additional pre-print capabilities and resources that empower our customers to fully exploit the design freedom of 3D printing. This includes collaborative agreements with third parties, including our simulation software development agreement entered into with ANSYS, Inc. in November 2019.

Industrial Materials. We supply printing materials to our customers that have been qualified for use with our machines. As we experience increased demand for our products globally, it is essential that the material supply chain and distribution channels be in close proximity to our current and prospective customers. For the highest quality printed products, the sand grains and metal or ceramic particles used in the 3D printing process must be uniform in size and meet very specific tolerances. We continue to focus on material development activities associated with our 3D printing process, including collaborative arrangements with customers targeted at local supply resources.

2


 

Our Machines. Each of our 3D printing machine platforms include a computer processor which controls the printhead(s) utilized in applying layers of binding agent to a material spread across the build area. Our 3D printing machines are differentiated by the varying size of our build box profiles and the speed at which we can jet binding agent and effectively distribute materials in the printing process. We currently manufacture our 3D printing machines in both Germany and the United States. Our machines serve direct (metal or ceramic) and indirect (sand) applications. Direct printing produces a component; indirect printing makes a tool to produce a component. Our focus is on enhancing our existing machine technologies by expanding our material capabilities for both direct and indirect applications, growing the size of our platforms to meet the needs of industrial customer volume demands and optimizing the speed and quality of our printing processes.

Our 3D printing machines are used primarily to manufacture industrial products that are ordered in relatively low volumes, are highly complex and have a high value to the customer. Our technology is not appropriate for the mass production of simple parts, such as certain higher volume injection molded parts or certain higher volume parts made in metal stamping machines. Traditional manufacturing technology is more economical in making those parts. While we expect over time to be able to increase the kinds of parts that we can make more economically than using subtractive manufacturing, we do not expect to use our technology to make simple, low-cost, mass-produced parts for the foreseeable future.

Post-Print Processing. After a product is printed, the bound and unbound powder in the build box requires curing of the chemical binding agent. For indirect printing of sand molds and cores, curing may occur at room temperature and the printed product is complete after the binder is cured. For certain binder types, a drying process (utilizing an industrial microwave or other means) may be necessary. The mold or core is then poured at a foundry, yielding the finished metal product. We believe that our casting technology offers a number of advantages over traditional casting methods, including enhanced design complexity, increased yield, weight reduction and improved thermal range.

For direct printing, the product needs to be either sintered, or sintered and infiltrated. With sintering, the product is placed into a furnace in an inert atmosphere to sinter the bonded particles and form a strong bonded porous structure. The porous structure can be further infiltrated with another material to fill the voids. After the sintering and infiltration, the product can be polished and finished with a variety of standard industrial methods and coatings. We believe that our 3D printing capabilities enable customers to develop the ideal design for products, freeing them of some of the design constraints inherent in traditional manufacturing, in the industrial metal of choice and in a more efficient manner than traditional manufacturing methods.

Our Business Strategy

The principal elements of our growth strategy include:

 

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Expand Our Customer and Application Focus. We intend to leverage our substantial experience in binder jetting technology to focus on the highest value industries and applications. We have made a significant investment in our commercial operations to drive our growth in this area.

 

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Extend the Capabilities of Our Core Technology. We intend to expand our core binder jetting technology through our machine platforms while at the same time lowering the total cost of ownership of our systems for our customers. We are also focused on driving modularity among our various machine platforms for both direct and indirect applications.

 

-

Execute on 3D Printed and Other Products, Materials and Services Revenue Growth. We intend to execute on our plan to expand our offerings for 3D printed and other products, materials and services while better leveraging our growing global installed base of 3D printers.

Customers and Sales

Our Customers

Our customers are located primarily in the Americas, Europe/Middle East/Africa (“EMEA”) and Asia Pacific (“APAC”) regions. We are a party to non-disclosure agreements with many of our customers and, therefore, are often prohibited from disclosing many of our customers’ identities. Our customers include a number of Fortune 500 companies that are leaders in their respective markets. During 2019 and 2018, we conducted a significant portion of our business with a limited number of customers, though not necessarily the same customers for each respective period. During 2019 and 2018, our five most significant customers represented 17.4% and 16.5% of our total revenue, respectively. During 2019 and 2018, there were no customers that individually represented 10.0% or greater of our total revenue. Sales of 3D printing machines are low volume, but generate significant revenue based on their per-unit pricing. Generally, sales of 3D printing machines are to different customers in each respective period. The timing of such sales may be dependent on various factors, including a customer’s capital budgeting cycle, its facility preparedness and the terms of the underlying arrangement with a customer (including certain substantive acceptance provisions) which may vary from period to period. The nature of our revenue from 3D printing machines does not leave us dependent upon a single or a limited number of customers. Sales of 3D printed and other products, materials and services generally result in a significantly lower aggregate price per order as compared to 3D printing machine sales. The nature of our revenue from 3D printed and other products, materials and services does not leave us dependent upon a single or a limited number of customers.

3


 

Educating Our Customers

Educating our customers and raising awareness in our target markets about the many uses and benefits of our binder jetting technology is an important part of our sales process. We believe that customers who experience the efficiency gains, decreased lead-time, increased design flexibility, and decreased cost potential of 3D printing, as compared to subtractive manufacturing, are more likely to purchase our 3D printing machines and be repeat customers of our products and services. We educate our customers on the design freedom, speed, and other benefits of 3D printing by providing printing and design services and support through our EACs. We also seek to expose key potential users to our products through our EACs, installed machines at customers’ locations, university programs, and sales and marketing efforts. Additionally, our EACs provide our customers exposure to a greater variety of our latest machine platforms and material sets.

ExOne Adoption Centers

We have established a network of EACs in North Huntingdon, Pennsylvania; Troy, Michigan; Gersthofen, Germany; and Kanagawa, Japan. Each of our EACs are certified to ISO 9001:2015 standards with various scopes. Through our EACs, we provide sales and marketing and delivery of support and printing services to our customers. Our customers see our 3D printing machines in operation and can evaluate their production capabilities before ordering a 3D printing machine or a printed product or service. While our centers are scalable and have a well-defined footprint that can be easily replicated to serve additional regional markets, we are focusing on enhancing our existing centers to enable adoption rather than geographic expansion. As described below, enhancing our positon in strategic locations around the world is an important part of our long-term business strategy.

Marketing and Sales

We market our products under the ExOne brand name in three major geographic regions — the Americas, EMEA and APAC. Our sales are made primarily by our global sales force. Our sales force is augmented, in certain territories, by representatives with specific industry or territorial expertise. Even where we are supported by a representative, substantially all of our product and service offerings provided by our EACs are sold directly to customers by us.

We believe that our direct selling relationship helps to create one of the building blocks for our business — the creation of true collaboration between us and industrial customers who are interested in 3D printing. Increasingly, industrial producers are considering shifting from subtractive manufacturing techniques to 3D printing. Our marketing efforts include educating potential customers about 3D printing technology through collaboration, starting with pre-production services and continuing with production and technical support at our EACs.

Competition

Other companies are active in the market for 3D printing products and services. These companies use a variety of AM methods, including:

 

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Material extrusion;

 

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Material jetting;

 

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Powder bed fusion;

 

-

Directed energy deposition;

 

-

Vat photopolymerization;

 

-

Sheet lamination; and

 

-

Binder jetting.  

Some of the companies that have developed and employ one or more AM technologies include: 3D Systems Corporation, Stratasys Inc., HP Inc., Desktop Metal, EOS GmbH, SLM Solutions, EnvisionTEC, Voxeljet AG and General Electric Co.

We also compete with established subtractive manufacturers in the industrial products market. These companies often provide large-scale, highly capitalized facilities that are designed or built to fill specific production purposes, usually mass production. However, we believe that we are well positioned to expand our share of the industrial products market from these manufacturers as AM applications increase. As our technologies improve and our unit cost of production decreases, we expect to be able to compete with subtractive manufacturing on a wide range of products, thereby expanding our addressable market.

We believe that our competitive strengths include:

 

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Volumetric Output Rate. We believe that our binder jetting technology provides us the highest rate of volume output per unit of time among competing AM technologies. Because of our early entrance into the industrial market for AM and our investment in our core 3D printing technology, we have been able to improve the printing speed and expand the build box size of our 3D printing machines. As a result, we have made strides in improving the output efficiency of our 3D printing machines, as measured by volume output per unit of time. With continued advances in our core 3D printing technologies, we believe that our cost of production will continue to decline, increasing our ability to compete with subtractive manufacturing processes, particularly for complex products, effectively expanding our addressable market.

4


 

 

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Printing Platform Size. The volumetric size of the build box area upon which we construct a product is important to industrial customers who may want to either make a high number of products per job run or make an industrial product that has large dimensions and is heavy in final form. We believe that our technology and experience give us the potential to develop large footprint platforms to meet the production demands of current and potential industrial customers. In addition, we have created machine platforms in various size ranges in order to scale our technology to the varying demands of our customers.

 

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Industrial Materials. Our indirect 3D printing machines are able to manufacture sand molds and cores from silica sands and other specialty materials, which are the traditional materials for these casting products. Our direct 3D printing machines are capable of printing in a variety of industrial metals and ceramics. We are in varying stages of qualifying additional industrial materials for both indirect and direct applications and advancing materials that are printable in our machines. We also use liquid chemical binding agents during the printing process. We believe that our unique chemical binding agent technology can more readily achieve efficiency gains over time than other AM technologies, such as laser-fusing technologies.

 

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International Presence. Since our inception, we have structured our business to address major international markets. We have strategically established one or more EACs in each of the Americas, EMEA and APAC regions. Because many of our current or potential customers are global industrial companies, it is important that we have a presence in or near the areas where these companies have manufacturing facilities.

Suppliers

Our largest suppliers in 2019, based upon dollar volume of purchases, were Bauer GmbH & Co KG, Fuji Film Dimatix, Astro Manufacturing & Design and PEKO Precision Products.

We buy our industrial materials from several suppliers and, except as set forth below, the loss of any one would not materially adversely affect our business. We currently have a single supplier of certain printhead components for our 3D printing machines. While we believe that this printhead component supplier is replaceable, in the event of the loss of this supplier, we could experience delays and interruptions that might adversely affect the financial performance of our business. Additionally, we obtain certain pre-production services through design and data capture providers, and certain post-production services though vendors with whom we have existing and good relationships. The loss of any one of these providers or vendors would not materially adversely affect our business.

Research and Development

We spent $9.9 million and $10.7 million on research and development during 2019 and 2018, respectively. We expect to continue to invest in our research and development activities in the future.

A significant portion of our research and development expenditures have been focused on the following:

 

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Chemistry of print materials and binder formulation;

 

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Mechanics of droplet flight into beds of powder;

 

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Metallurgy of thermally processing metals that are printed through AM;

 

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Mechanical design elements of our 3D printing machines;

 

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Mechanics of spreading powders in a job box;

 

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Evaluation of product applications utilizing our 3D printing machines;

 

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Transfer of digital data through a series of software links to drive a printhead; and

 

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Synchronizing all of the above to print ever-increasing volumes of material per unit of time.

Intellectual Property

Patents and Licenses. Significant portions of our technology are covered by a variety of patents. Through December 31, 2016, we were the worldwide licensee of certain patents held by MIT for certain AM printing processes (the “MIT Patents”), with exclusive rights to practice the patents in certain fields including the application of the printing processes to metals (with sublicensing rights), and non-exclusive rights to practice the patents in certain fields including the application of the printing processes to certain non-metals (without sublicensing rights) which gave us a significant head start in the AM industry.

We hold patents as a result of our own technological developments. Our patents were issued in the United States and in various foreign jurisdictions, including Germany and Japan. As a result of our commitment to research and development, we also have applied for other patents for equipment, processes, materials and 3D printing applications in the United States and in various foreign countries. The expiration dates of our patents range from 2021 to 2038. We are also a minority owner of patent rights for several patents in the United States and in various foreign jurisdictions as a successor interest to a 2003 agreement made between Generis GmbH and Extrude Hone GmbH.

5


 

We continue from time to time to evaluate our current licenses and patents. On March 1, 2018, our ExOne GmbH subsidiary notified Voxeljet AG that it has materially breached a 2003 Patent and Know-How Transfer Agreement and asserted its rights to set off damages as a result of the breaches against the annual license fee that we pay to Voxeljet AG under the agreement.

We have developed know-how and trade secrets relative to our 3D printing technology and believe that our early entrance into the industrial market provides us with a timing and experience advantage. Through our investment in our technology, we have been able to qualify industrial materials for use in our 3D printing machines and we intend to continue such efforts. In addition, we have taken steps to protect much of our technology as a trade secret. Given the significant steps that we have taken to establish our experience in AM for industrial applications, as well as our ongoing commitment to research and development, we intend to maintain our preeminent position in the AM industry market.

Trademarks. We have registrations in the United States for the following trademarks: EXONE, X1 ExOne Digital Part Materialization (plus design), EXCAST, EXMAL, EXTEC, INNOVENT, INNOVENT+, M-FLEX, M-PRINT, S MAX, S-MAX, S-PRINT, X1, X1-LAB, and X1 EXONE COLLABORATE. INNOVATE. ACCELERATE. (plus design). We also have pending applications in the United States the following trademarks: X1 25PRO, X1 160PRO, COLLABORATE. INNOVATE. ACCELERATE., and X1 EXONE (plus design). We also have registrations for the trademark EXONE in Canada, China, Europe (Community Trade Mark), Japan, and South Korea and an application pending for that trademark in Canada. We have registrations for X1 ExOne Digital Part Materialization (plus design) in Brazil, Canada, China, Europe (Community Trade Mark), Japan, and South Korea. We have an application pending in Canada for the trademark INNOVENT+. We have a registration for the trademark X1 in Europe (Community Trade Mark). We have registrations for a stylized form of X1 in Europe (Community Trade Mark). We have registrations for DIGITAL PART MATERIALIZATION in Japan and South Korea. We have registrations for the trademarks EXERIAL, INNOVENT, INNOVENT+, M-FLEX, S-MAX, and S-PRINT in Europe (Community Trade Mark). We also have registration for the trademark S-PRINT in Canada, China, and Japan.

Trade Secrets. The development of our products, processes and materials has involved a considerable amount of experience, manufacturing and processing know-how and research and development techniques that are not easily duplicated. We protect this knowledge as a trade secret through the confidentiality and non-disclosure agreements which all employees, customers and consultants are required to sign at the time they are employed or engaged by us. Additional information related to the risks associated with our intellectual property rights are described within Item 1A, “Risk Factors” of this Annual Report on Form 10-K.

Seasonality

Purchases of our 3D printing machines are often subject to the capital expenditure cycles of our customers. Generally, 3D printing machine sales are higher in our third and fourth quarters than in our first and second quarters; however, as acceptance of our 3D printing machines as a credible alternative to traditional methods of production grows, we expect to limit the seasonality we experience.

Backlog

At December 31, 2019, our backlog was approximately $31.1 million, of which approximately $27.1 million is expected to be fulfilled during the 12 months following such date. At December 31, 2018, our backlog was approximately $12.3 million.

Environmental Matters

Compliance with federal, state and local laws and regulations relating to the discharge of materials into the environment or otherwise relating to the protection of the environment has not had a material impact on capital expenditures, earnings or our competitive position. We are not the subject of any legal or administrative proceeding relating to the environmental laws of the United States or any country in which we have an office. We have not received any notices of any violations of any such environmental laws.

Employees

At December 31, 2019, we employed a total of 313 (271 full-time) employees at our five global locations. None of these employees is a party to a collective bargaining agreement, and we believe our relations with employees are good.

Product, Geographic and Other Information

Refer to Note 5 and Note 23 to the consolidated financial statements included in Part II Item 8 of this Annual Report on Form 10-K for product and geographic information related to our revenues (based on the country where the sale originated) and geographic information related to our long-lived assets (based on the physical location of assets). For information on risks related to our international operations refer to Item 1A, “Risk Factors”. Other information relating to our revenues, measurement of profit or loss and total assets is provided in the consolidated financial statements and related notes thereto in Part II Item 8 of this Annual Report on Form 10-K.

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Sale-Leaseback of Gersthofen, Germany Facility

On December 10, 2019, ExOne Property GmbH and ExOne GmbH (our “German Subsidiaries”) entered into a purchase agreement (the “Purchase Agreement”) with Solidas Immobilien und Grundbesitz GmbH, a private, unaffiliated German real estate investor (the “Buyer”), for the sale of our European headquarters and operating facility in Gersthofen, Germany (the “Facility”) for a cash price of €17.0 million (approximately $18.5 million, of which approximately $2.2 million was received prior to December 31, 2019). Concurrently with the execution of the Purchase Agreement, ExOne GmbH and the Buyer entered into a rental contract (the “Lease”) for the leaseback of the Facility for an initial aggregate annual rent totaling €1.5 million (approximately $1.7 million), plus applicable taxes, which is fixed during the initial three-year term and is subject to adjustment on an annual basis (in accordance with the consumer price index for Germany) during the two five-year option extension periods. The sale-leaseback transaction closed on February 18, 2020.

Executive Offices

Our principal executive offices are located at 127 Industry Boulevard, North Huntingdon, Pennsylvania 15642 and our telephone number is (724) 863-9663.

Available Information

Our website address is http://www.exone.com. Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K unless expressly noted.

We file reports with the Securities and Exchange Commission (“SEC”), which we make available on our website free of charge at http://www.exone.com/financials.cfm. These reports include Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, each of which is provided on our website as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC. We also make, or will make, available through our website other reports filed with or furnished to the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including our proxy statements and reports filed by officers and directors under Section 16(a) of that Act. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

You can obtain copies of exhibits to our filings electronically at the SEC’s website at www.sec.gov or by mail from the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The exhibits are also available as part of the Annual Report on Form 10-K for the year ended December 31, 2019, which is available on our corporate website at www.exone.com. Stockholders may also obtain copies of exhibits without charge by contacting our General Counsel and Corporate Secretary at (724) 863-9663.

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Item 1A. Risk Factors.

RISK FACTORS

As a smaller reporting company (“SRC”), we are not required to provide a statement of risk factors on our Annual Report on Form 10-K.  However, we believe this information is valuable to our shareholders.  We reserve the right to not provide risk factors in future filings.

You should carefully consider the following risks, together with all of the other information in this Annual Report on Form 10-K, including our consolidated financial statements and related notes, in evaluating our business, future prospects and an investment in our common stock. If any of the following risks and uncertainties develops into actual events, our business, financial condition, results of operations and cash flows could be materially adversely affected. In that case, the price of our common stock could decline and you may lose all or part of your investment.

Risks Related to Our Business and Industry

We may not be able to consistently generate operating profits.

Since our inception, we have not consistently generated operating profits, and we may be unable to consistently generate operating profits in the future if we are unable to execute on our business plan. Our operating expenses (which include research and development and selling, general and administrative expenses) were $32.5 million and $33.9 million for 2019 and 2018, respectively. Our research and development expenses are primarily for continued investment in our binder jetting technologies, including 3D printing machine development and materials development. Our selling, general and administrative expenses are primarily for employee-related costs and professional service fees, including those associated with managing a public company. We believe that our operating expenses may increase in future periods as we pursue our growth strategies. Increases in our research and development expenses and selling, general and administrative expenses will directly affect our future results of operations and may have an adverse effect on our financial condition.

Our revenues and operating results may fluctuate.

Our revenues and operating results have fluctuated in the past from quarter-to-quarter and year-to-year and are likely to continue to vary due to a number of factors, many of which are not within our control. Both our business and the AM industry are changing and evolving rapidly, and our historical operating results may not be useful in predicting our future operating results.

Our machine orders are often subject to the adoption and capital expenditure cycles of our customers. Thus, revenues and operating results for any future period are not predictable with any significant degree of certainty. Comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance.

Fluctuations in our operating results and financial condition may occur due to a number of factors, including, but not limited to, those listed below and those identified throughout this Risk Factors section:

 

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Our ability to compete with competitors (some of which may also serve as current or future customers of our products) that have significantly more resources than we have, have larger and more experienced sales and service teams and have more experience bringing new products to the market;

 

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The mix of machines and products that we sell during any period;

 

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The length of the adoption cycle and sales cycle for our 3D printing machines;

 

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Entry of new competitors into our markets;

 

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Changes in our pricing policies or those of our competitors, including our response to price competition;

 

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Delays between our expenditures to develop and market new or enhanced machines and products or to develop, acquire or license new technologies and processes and the generation of sales related thereto;

 

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Changes in the amount we spend to promote our products and services;

 

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The geographic distribution of our sales;

 

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Changes in the cost of satisfying our warranty obligations and servicing our installed base of products;

 

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Our level of research and development activities and their associated costs and rates of success;

 

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Changes in the size and complexity of our organization;

 

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Interruptions to or other problems with our information technology systems, manufacturing processes or other operations;

 

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Changes in regulatory requirements governing the handling and use of certain chemicals or powders printed or used in our equipment;

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General economic and industry conditions that affect end-user demand and end-user levels of product design and manufacturing; or

 

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Changes in accounting rules and tax laws.

Due to the foregoing factors, you should not rely on quarter-to-quarter or year-to-year comparisons of our operating results as an indicator of future performance.

Customer demands for certain qualities and capabilities in our machines are constantly evolving.  We may not be able to respond to customer demand as quickly as a better capitalized competitor may be able to respond.    

Generally, our business is focused on the sale of 3D printing machines for, and products manufactured using, AM. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in a market subject to innovation and rapidly developing and changing technology. A variety of technologies have the capacity to compete against one another in the AM market, which is, in part, driven by technological advances and end-user requirements and preferences, as well as the emergence of new standards and practices. Our ability to compete in the industrial AM market depends, in large part, on our success in enhancing and developing new 3D printing machines, in enhancing our current 3D printing machines, in enhancing and adding to our technology, and in developing and qualifying materials with which we can print. We believe that to remain competitive we must continuously enhance and expand the functionality and features of our products and technologies. However, we may not be able to:

 

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Develop new products and technologies that address the increasingly sophisticated and varied needs of prospective end-users;

 

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Enhance our existing products and technologies;

 

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Continue to leverage advances in binder jet printing and other industrial printhead technology;

 

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Respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis;

 

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Develop products that are cost-effective or that otherwise gain market acceptance;

 

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Distinguish ourselves from our competitors in our industry; and

 

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Adequately protect our intellectual property as we develop new products and technologies.

We face significant competition in many aspects of our business, which could cause our revenues and gross profit to decline. Competition could also cause us to reduce sales prices or to incur additional marketing or production costs, which could result in decreased revenue, increased costs and reduced margins.

We compete for customers with a wide variety of producers of equipment for models, prototypes, other 3D objects and end-use parts as well as producers of print materials and services for this equipment. Some of our existing and potential competitors are researching, designing, developing and marketing other types of competitive equipment, print materials and services. Many of these competitors have financial, marketing, manufacturing, distribution and other resources that are substantially greater than ours.

We also expect that future competition may arise from the development of allied or related techniques for equipment and print materials that are not encompassed by our patents, from the issuance of patents to other companies that may inhibit our ability to develop certain products, from our entry into new geographic markets and industries and from improvements to existing print materials and equipment technologies. In addition, a number of companies that have substantial resources have announced that they intend to begin producing 3D printing machines, which will further enhance the competition we face.

We intend to continue to follow a strategy of product development to enhance our position to the extent practicable. We cannot assure you that we will be able to maintain our current position in the field or continue to compete successfully against current and future sources of competition. If we do not keep pace with technological change and introduce new products, our revenues and demand for our products may decrease.

We may not be able to retain or hire the number of skilled employees that we need to achieve our business plan.

For our business to grow in accordance with our business plan, we will need to recruit, hire, integrate and retain additional employees with the technical competence and engineering skills to operate our machines, improve our technology and processes and expand our technological capability to print using an increasing variety of materials. People with these skills are in short supply and may not be available in sufficient numbers to allow us to meet the goals of our business plan. In addition, new employees often require significant training and, in many cases, take significant time before they achieve full productivity. As a result, we may incur significant costs to attract and retain employees, including significant expenditures related to salaries and benefits, and we may lose new employees to our competitors or other companies before we realize the benefit of our investment in recruiting and training them. Moreover, new employees may not be or become as productive as we expect, as we may face challenges in adequately or appropriately integrating them into our workforce and culture. If we cannot obtain the services of a sufficient number of technically skilled employees, we may not be able to achieve our planned rate of growth, which could adversely affect our results of operations.

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Loss of key management or sales or customer service personnel could adversely affect our results of operations.

Our future success depends to a significant extent on the skills, experience and efforts of our management and other key personnel. We must continue to develop and retain a core group of management individuals if we are to realize our goal of continued expansion and growth. While we have not previously experienced significant problems attracting and retaining members of our management team and other key personnel, there can be no assurance that we will be able to continue to retain these individuals and the loss of any or all of these individuals could materially and adversely affect our business.

We may incur future impairment charges to our long-lived assets held and used.

As a result of continued operating losses and cash flow deficiencies, we have completed certain tests for the recoverability of long-lived assets held and used at the asset group level. Assessing the recoverability of long-lived assets held and used requires significant judgments and estimates by management. We will be required to conduct additional testing for the recoverability of long-lived assets held and used to the extent that a triggering event requiring such testing is identified in a future period. A significant decrease in the market price of a long-lived asset, adverse change in the use or condition of a long-lived asset, adverse change in the business climate or legal or regulatory factors impacting a long-lived asset and continued operating losses and cash flow deficiencies associated with a long-lived asset, among other indicators, could cause a future assessment to be performed which may result in an impairment of long-lived assets held and used. The amount of any impairment could be significant and could have a material adverse impact on our financial condition and results of operations for the period in which the impairment is recorded.

We may conclude that there is substantial doubt regarding our ability to continue as a going concern.

As a result of our continued operating losses, cash flow deficiencies and liquidity, we may conclude that there is substantial doubt regarding our ability to continue as a going concern. In connection with this conclusion, if our independent registered public accounting firm issues a going concern opinion, it could impair our ability to finance our operations through the sale of equity, incurring debt, or other financing alternatives. If we fail to raise sufficient additional capital, we will not be able to completely execute our business plan. As a result our business would be jeopardized and we may not be able to continue.

Some of our arrangements for 3D printing machines contain customer-specific provisions that may impact the period in which we recognize the related revenues under accounting principles generally accepted in the United States of America (“GAAP”).

Some customers that purchase 3D printing machines from us may require specific, customized factors relating to their intended use of the machine or the installation of the machine in the customers’ facilities. These specific, customized factors are often required by the customers to be included in our commercial agreements relating to the purchases. As a result, our responsiveness to our customers’ specific requirements has the potential to impact the period in which we recognize the revenue relating to that 3D printing machine sale.

Similarly, some customers must build or prepare facilities to install our 3D printing machines, and the completion of such projects can be unpredictable, which can impact the period in which we recognize the revenue relating to that 3D printing machine sale.

Defects in new products or in enhancements to our existing products that give rise to product returns or warranty or other claims could result in material expenses, diversion of management time and attention, and damage to our reputation.

Our 3D printing machines may contain undetected defects or errors when first introduced or as enhancements are released that, despite testing, are not discovered until after a machine has been used. This could result in delayed market acceptance of those machines or claims from sales agents, end-users or others, which may result in litigation, increased end-user service and support costs and warranty claims, damage to our reputation and business or significant costs to correct the defect or error. We may from time to time become subject to warranty or product liability claims related to product quality issues that could lead us to incur significant expenses.

Our business is subject to risks associated with having significant operations in Germany and selling machines and other products in other non-United States locations.

We have significant manufacturing and development operations in Germany. In addition, a significant portion of our revenue is derived from transactions outside of the United States (60.8% and 54.3% for 2019 and 2018, respectively).

Our operations outside of the United States are subject to risks associated with the political, regulatory and economic conditions of Germany and other countries in which we sell or service machines, such as:

 

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Challenges in providing solutions across a significant distance, in different languages and among different cultures;

 

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Civil unrest, acts of terrorism and similar events;

 

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Fluctuations in foreign currency exchange rates;

 

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Potentially longer sales and payment cycles;

 

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Potentially greater difficulties in collecting accounts receivable;

 

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Potentially adverse tax consequences;

 

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Reduced protection of intellectual property rights in certain countries;

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Different, complex and changing laws governing intellectual property rights; sometimes affording reduced protection of intellectual property rights in certain countries;

 

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Difficulties in staffing and managing foreign operations;

 

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Laws and business practices favoring local competition;

 

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Costs and difficulties of customizing products for foreign countries;

 

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Compliance with a wide variety of complex foreign laws, treaties and regulations;

 

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Restrictions imposed by local labor practices and laws on our business and operations;

 

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Rapid changes in government, economic and political policies and conditions; political or civil unrest or instability, terrorism or epidemics and other similar outbreaks or events;

 

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Operating in countries with a higher incidence of corruption and fraudulent business practices;

 

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Seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe and at year end globally;

 

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Costs and difficulties of customizing products for foreign countries;

 

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Transportation delays;

 

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Tariffs, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets;

 

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Becoming subject to the laws, regulations and court systems of many jurisdictions;

 

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Specific and significant regulations, including the European Union’s (“EU”) General Data Protection Regulation (“GDPR”) which, as of May 2018, imposes compliance obligations on companies who possess and use data of EU residents, with resultant fines and penalties for failure to comply;  

 

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Uncertainty and resultant political, financial and market instability arising from the United Kingdom’s exit from the EU (“Brexit”); and

 

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Risks of violations of Foreign Corrupt Practices Act or similar anti-bribery laws.

In addition, our operating results may be affected by volatility in currency exchange rates and our ability to effectively manage our currency transaction and translation risks because we generally conduct our business, earn revenue and incur costs in the local currency of the countries in which we operate. For example, the financial condition and results of operations of Germany operations are reported in euros and then translated to United States dollars at the applicable currency exchange rate for inclusion in our consolidated financial statements. We do not manage our foreign currency exposure in a manner that would eliminate the effects of changes in foreign exchange rates, which means that changes in exchange rates between these foreign currencies and the United States dollar will affect the recorded levels of our foreign assets and liabilities, as well as our revenues, cost of sales, and operating margins, and could result in exchange losses in any given reporting period. Given the volatility of exchange rates, we can give no assurance that we will be able to effectively manage our currency transaction and/or translation risks or that any volatility in currency exchange rates will not have an adverse effect on our results of operations.

Our commercial activities may be disrupted due to the outbreak of the new coronavirus-caused disease COVID-19.

A new coronavirus has caused the outbreak of a new disease, COVID-19, which has resulted in government-enforced travel and business closures in China and other countries. Our sales, installation and service of 3D printing machines in China and other countries may be disrupted and the future spread of the disease may cause our commercial efforts in other countries to be disrupted.  We may incur expenses or delays resulting in such events outside of our control, which could have a material adverse effect on our business, operating results and financial condition.

We may need to raise additional capital from time to time if we are going to meet our growth strategy and may be unable to do so on attractive terms.

Expanding our business to execute our growth strategy may require additional investments of capital from time to time, and our existing sources of cash and any funds generated from operations may not provide us with sufficient capital. For various reasons, including any current non-compliance with existing or future lending arrangements, additional financing may not be available when needed, or may not be available on terms favorable to us. If we fail to obtain adequate capital on a timely basis or if capital cannot be obtained at reasonable costs, we may not be able to achieve our planned rate of growth, which will adversely affect our results of operations. Additional equity financing may result in ownership and economic dilution to our existing stockholders and/or require us to grant certain rights and preferences to new investors. Also, although S. Kent Rockwell, our Chairman and our controlling stockholder, has previously provided capital to us through related entities (including our existing related party revolving credit facility), he has no obligation to do so and our stockholders should have no expectation that he will do so in the future.

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We are currently dependent on a single supplier of certain printhead components.

We currently rely on a single source to supply certain printhead components used by our 3D printing machines. While we believe that there are other suppliers of printhead components upon which we could rely, we could experience delays and interruptions if our supply is interrupted that might temporarily impact the financial performance of our business.

We may not be able to consummate and/or effectively integrate strategic transactions.

We may from time to time engage in strategic transactions with third parties if we determine that they will likely provide future financial and operational benefits. Successful completion of any strategic transaction depends on a number of factors that are not entirely within our control, including our ability to negotiate acceptable terms, conclude satisfactory agreements and obtain all necessary regulatory approvals. In addition, our ability to effectively integrate an investment into our existing business and culture may not be successful, which could jeopardize future operational performance for the combined businesses.

We explore from time to time various strategic investments and/or alliances. With respect to strategic investments and/or alliances that we may pursue, there is no guarantee that we will complete such transactions on favorable terms or at all. The exploration, negotiation, and consummation of strategic investments and/or alliances may involve significant expenditures by us, which may adversely affect our results of operations at the time such expenses are incurred. We may not be able to successfully negotiate and complete a specific investment or alliance on favorable terms. If we do complete transactions, they may not ultimately strengthen our competitive position or may not be accretive to us for a period of time which may be significant following the completion of such transaction.

We may be required to pay cash, incur debt and/or issue equity securities to pay for any such transaction, each of which could adversely affect our financial condition and the value of our common stock. Our use of cash to pay for transactions would limit other potential uses of our cash. The issuance or sale of equity or convertible debt securities to finance any such transactions would result in dilution to our stockholders. If we incur debt, it could result in increased fixed obligations and could also impose covenants or other restrictions that could impede our ability to manage our operations.

We rely on our information technology (“IT”) systems to manage numerous aspects of our business and customer and supplier relationships, and a disruption or failure of these systems could adversely affect our results of operations.

We rely on our IT systems to manage numerous aspects of our business and provide analytical information to management. We may incur significant costs in order to implement the security measures that we feel are necessary to protect our IT systems. However, our IT systems may remain vulnerable to damage despite our implementation of security measures that we deem to be appropriate. Our IT systems allow us to efficiently purchase products from our suppliers, provide procurement and logistic services, ship products to our customers on a timely basis, maintain cost-effective operations and provide service to our customers. Our IT systems are an essential component of our business and growth strategies, and a disruption to or failure of our IT systems, including our computer systems, could significantly limit our ability to manage and operate our business efficiently. Although we take steps to secure our IT systems, including our computer systems, intranet and internet sites, email and other telecommunications and data networks, the security measures we have implemented may not be effective and our systems may be vulnerable to, among other things, damage and interruption from power loss, including as a result of natural disasters, computer system and network failures, loss of telecommunication services, operator negligence, loss of data, security breaches and computer viruses. If our systems for protecting against cyber security risks prove not to be sufficient, we could be adversely affected by loss or damage of intellectual property, proprietary information, or client data, interruption of business operations, or additional costs to prevent, respond to, or mitigate cyber security attacks. Any such disruption or loss of business information could materially and adversely affect our reputation, brand, results of operations and financial condition.

We could be subject to personal injury, property damage, product liability, warranty and other claims involving allegedly defective products that we supply.

The products we supply are sometimes used in potentially hazardous applications, such as the assembled parts of an aircraft or automobile, that could result in death, personal injury, property damage, loss of production, punitive damages and consequential damages. While we have not experienced any such claims to date, actual or claimed defects in the products we supply could result in our being named as a defendant in lawsuits asserting potentially large claims.

We attempt to include legal provisions in our agreements with customers that are designed to limit our exposure to potential liability for damages arising from defects or errors in our products. However, it is possible that these limitations may not be effective as a result of unfavorable judicial decisions or laws enacted in the future. Any such lawsuit, regardless of merit, could result in material expense, diversion of management time and efforts and damage to our reputation, and could cause us to fail to retain or attract customers, which could adversely affect our results of operations.

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We could face liability if our 3D printers are used by our customers to print dangerous objects.

Customers may use our 3D printing machines to print products that could be used in a harmful way or could otherwise be dangerous. For example, there have been news reports that 3D printing machines were used to print guns or other weapons. We have little, if any, control over what objects our customers print using our 3D printing machines, and it may be difficult, if not impossible, for us to monitor and prevent customers from printing weapons with our 3D printing machines. While we have never printed firearms in any of our EACs, there can be no assurance that we will not be held liable if someone were injured or killed by a weapon printed by a customer using one of our 3D printing machines.

If any of our manufacturing facilities or EACs are disrupted, sales of our products may be disrupted, which could result in loss of revenues and an increase in unforeseen costs.

We manufacture our machines at our facilities in Gersthofen, Germany and North Huntingdon, Pennsylvania. In addition, we have a network of EACs in the United States, Germany and Japan to provide sales and marketing and delivery of support and printing services to our customers. If the operations of these facilities are materially disrupted (including as a result of the coronavirus disease COVID-19), we would be unable to fulfill customer orders for the period of the disruption, we would not be able to recognize revenue on orders and we might need to modify our standard sales terms to secure the commitment of new customers during the period of the disruption and perhaps longer. Depending on the cause of the disruption, we could incur significant costs to remedy the disruption and resume product shipments. Such a disruption could have an adverse effect on our results of operations.

Our manufacturing facilities, and our suppliers’ and our customers’ facilities are vulnerable to disruption due to natural or other disasters, strikes and other events beyond our control.

A major earthquake, fire, tsunami, hurricane, cyclone or other disaster, such as a major flood, seasonal storms, nuclear event or terrorist attack affecting our facilities or the areas in which they are located, or affecting those of our customers or third party manufacturers or suppliers, could significantly disrupt our or their operations, and delay or prevent product shipment or installation during the time required to repair, rebuild or replace our or their damaged manufacturing facilities.  These delays could be lengthy and costly. If any of our manufacturers’, suppliers’ or customers’ facilities are negatively impacted by such a disaster, production, shipment and installation of our 3D printing machines could be delayed, which can impact the period in which we recognize the revenue related to that 3D printing machine sale. Additionally, customers may delay purchases of our products until operations return to normal.  Even if we are able to respond quickly to a disaster, the continued effects of the disaster could create uncertainty in our business operations.  In addition, concerns about terrorism, the effects of a terrorist attack, political turmoil, labor strikes, war or the outbreak of epidemic diseases (including the outbreak of the coronavirus disease COVID-19) could have a negative effect on our operations and sales.

Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.

We generally enter into non-competition agreements with our employees. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors or customers for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work, including Germany and Japan, and it may be difficult for us to restrict our competitors from benefiting from the expertise of our former employees or consultants developed while working for us. If we cannot demonstrate that our legally protectable interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.

Risks Related to Our Intellectual Property

We may not be able to protect our trade secrets and intellectual property.

Our success and future revenue growth will depend, in part, on our ability to protect our intellectual property. We cannot assure you that any of our existing or future intellectual property rights will be enforceable, will not be challenged, invalidated or circumvented, or will otherwise provide us with meaningful protection or any competitive advantage.

We rely primarily on a combination of trade secrets, patents, trademarks, confidentiality or non-disclosure agreements and other contractual arrangements with our employees, end-users and others to maintain our competitive position to protect our proprietary technologies and processes globally. While some of our technology is licensed under patents belonging to others or is covered by process patents which are owned or applied for by us, we have devoted substantial resources to the development of our technology, trade secrets, know-how and other unregistered proprietary rights and much of our key technology is not protected by patents. In particular, in fast-growing markets such as China and India, our technology is not protected by patents.

Despite our efforts to protect our proprietary rights, it is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose our technologies, inventions, processes or improvements.  While we enter into various agreements intended to protect our proprietary rights, these agreements may be breached and confidential information may be willfully or unintentionally disclosed, and these agreements can be difficult and costly to enforce or may not provide adequate remedies if violated.  In addition, our competitors or other parties may learn of our proprietary rights in some other way. Because we cannot legally prevent one or more other companies from developing similar or identical technology to our unpatented technology, it is likely that, over time, one or more other companies may be able to replicate our technology, thereby reducing our technological advantages. If we do not protect our technology or are unable to develop new technology that can be protected by patents or as trade secrets, we may face increased competition from other companies, which may adversely affect our results of operations.

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We do, from time to time, apply for patent protection for some of our intellectual property. Our pending patent applications may not be granted. We cannot assure you that any of our existing or future patents will not be challenged, invalidated, or circumvented or will otherwise provide us with meaningful protection. Furthermore, patents are jurisdictional in nature and therefore only protect us in certain markets, rather than globally.  We may not be able to obtain foreign patents corresponding to our United States or foreign patent applications. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. If our patents do not adequately protect our technology, our competitors may be able to offer additive manufacturing systems or other products similar to ours. Our competitors may also be able to develop similar technology independently or design around our patents, and we may not be able to detect the unauthorized use of our proprietary technology or take appropriate steps to prevent such use. Any of the foregoing events would lead to increased competition and lower revenues or gross margins, which could adversely affect our operating results.

If our patents and other intellectual property protections do not adequately protect our technology, our competitors may be able to offer products similar to ours. We may not be able to detect the unauthorized use of our proprietary technology and processes or take appropriate steps to prevent such use. Our competitors may also be able to develop similar technology independently or design around our patents. Any of the foregoing events would lead to increased competition and lower revenue or gross profits, which would adversely affect our results of operations.

We may incur substantial costs enforcing or acquiring intellectual property rights and defending against third-party claims as a result of litigation or other proceedings.

In connection with the enforcement of our intellectual property rights, opposing third parties from obtaining patent rights or disputes related to the validity or alleged infringement of our or third-party intellectual property rights, including patent rights, we have been and may in the future be subject or party to claims, negotiations or complex, protracted litigation. Intellectual property disputes and litigation, regardless of merit, can be costly and disruptive to our business operations by diverting attention and energies of management and key technical personnel, and by increasing our costs of doing business. We may not prevail in any such dispute or litigation, and an adverse decision in any legal action involving intellectual property rights, including any such action commenced by us, could limit the scope of our intellectual property rights and the value of the related technology. While we strive to avoid infringing the intellectual property rights of third parties, we cannot provide any assurances that we will be able to avoid any infringement claims.

We may be subject to alleged infringement claims.

Our products and technology, including the technology that we license from others, may infringe the intellectual property rights of third parties. Patent applications in the United States and most other countries are confidential for a period of time until they are published, and the publication of discoveries in scientific or patent literature typically lags actual discoveries by several months or more. As a result, the nature of claims contained in unpublished patent filings around the world is unknown to us, and we cannot be certain that we were the first to conceive inventions covered by our patents or patent applications or that we were the first to file patent applications covering such inventions. Furthermore, it is not possible to know in which countries patent holders may choose to extend their filings under the Patent Cooperation Treaty or other mechanisms. In addition, we may be subject to intellectual property infringement claims from individuals, vendors and other companies, including those that are in the business of asserting patents, but are not commercializing products in the field of 3D printing. Any claims that our products or processes infringe the intellectual property rights of others, regardless of the merit or resolution of such claims, could cause us to incur significant costs in responding to, defending and resolving such claims, and may prohibit or otherwise impair our ability to commercialize new or existing products. Any infringement by us or our licensors of the intellectual property rights of third parties may have a material adverse effect on our business, financial condition and results of operations.

Third-party claims of intellectual property infringement successfully asserted against us may require us to redesign infringing technology or enter into costly settlement or license agreements on terms that are unfavorable to us, prevent us from manufacturing or licensing certain of our products, subject us to injunctions restricting our sale of products and use of infringing technology, cause severe disruptions to our operations or the markets in which we compete, impose costly damage awards or require indemnification of our sales agents and end-users. In addition, as a consequence of such claims, we may incur significant costs in acquiring the necessary third-party intellectual property rights for use in our products or developing non-infringing substitute technology. Any of the foregoing developments could seriously harm our business.

Certain of our employees and patents are subject to the laws of Germany.

Many of our employees work in Germany and are subject to German employment law. Ideas, developments, discoveries and inventions made by such employees and consultants are subject to the provisions of the German Act on Employees Inventions (Gesetz über Arbeitnehmererfindungen), which regulates the ownership of, and compensation for, inventions made by employees. We face the risk that disputes can occur between us and our employees or ex-employees pertaining to alleged non-adherence to the provisions of this act that may be costly to defend and take up our managements time and efforts whether we prevail or fail in such dispute. In addition, under the German Act on Employees Inventions, certain employees retained rights to patents they invented or co-invented prior to 2009. Although most of these employees have subsequently assigned their interest in these patents to us, there is a risk that the compensation we provided to them may be deemed to be insufficient in the future and we may be required under German law to increase the compensation due to such employee for the use of their patent. In those cases where employees have not assigned their interests to us, we may need to pay compensation for the use of those patents. If we are required to pay additional compensation or face other disputes under the German Act on Employees Inventions, our results of operations could be adversely affected.

14


 

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

Certain of our past and present employees were previously employed at other additive manufacturing companies, including our competitors or potential competitors. Some of these employees executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable personnel or intellectual property rights. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

Risks Related to the Securities Markets and Ownership of Our Common Stock

We have broad discretion as to the use of the net proceeds from securities offerings and may not use them effectively.

We cannot specify with certainty how we may use the net proceeds from securities offerings. Our management has broad discretion in the application of the net proceeds, and we may use these proceeds in ways with which you may disagree or for purposes other than those contemplated at the time of the offering. The failure by our management to apply these funds effectively could have a material adverse effect on our business, financial condition and results of operations. Pending their use, we may invest the net proceeds from a securities offering in a manner that does not produce income or that loses value.

Sales of a significant number of shares of our common stock in the public markets, or the perception that such sales could occur, could depress the market price of our common stock.

Sales of a significant number of shares of our common stock in the public markets or utilization of our universal shelf registration statement could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our common stock, or the market perception that we are permitted to sell a significant number of our securities, would have on the market price of our common stock.

The market price of our common stock may fluctuate significantly.

The market price of our common stock has been and is expected to continue to be highly volatile and may be significantly affected by numerous factors, including the risk factors described in this report and other factors which are beyond our control and may not be directly related to our operating performance. These factors include:

 

-

Significant volatility in the market price and trading volume of securities of companies in our sector, which is not necessarily related to the operating performance of these companies;

 

-

Low average daily trading volumes commonly associated with a microcap entity;

 

-

A high level of short interest in our common stock relative to our outstanding public float;

 

-

The mix of products that we sell, and related services that we provide, during any period;

 

-

Delays between our expenditures to develop and market new products and the generation of sales from those products;

 

-

Changes in the amount that we spend to develop, acquire or license new products, technologies or businesses;

 

-

Changes in our expenditures to promote our products and services;

 

-

Changes in the cost of satisfying our warranty obligations and servicing our installed base of systems;

 

-

Success or failure of research and development projects of us or our competitors;

 

-

Announcements of technological innovations, new solutions or enhancements or strategic partnerships or acquisitions by us or one of our competitors;

 

-

The publics response to press releases or other public announcements by us or third parties, including our filings with the SEC;

 

-

The general tendency towards volatility in the market prices of shares of companies that rely on technology and innovation;

 

-

Changes in regulatory policies or tax guidelines;

 

-

Changes or perceived changes in earnings or variations in operating results;

 

-

Any shortfall in revenue or earnings from levels expected by investors or securities analysts;

 

-

Threatened or actual litigation;

 

-

Changes in our senior management; and

 

-

General economic trends and other external factors.

15


 

One of our principal stockholders is able to exert substantial influence in determining the outcome of matters which require the approval of our stockholders.

Our Chairman, S. Kent Rockwell, beneficially owns approximately 28% of our outstanding shares of common stock. As a holder of 28% of our shares of common stock, Mr. Rockwell may have effective control over the election of our Board of Directors (“Board”) and the direction of our affairs. As a result, he could exert considerable influence over the outcome of any corporate matter submitted to our stockholders for approval, including the election of directors and any transaction that might cause a change in control, such as a merger or acquisition. Any stockholders in favor of a matter that is opposed by Mr. Rockwell would have to obtain a significant number of votes to overrule the votes controlled by Mr. Rockwell.

If equity research analysts do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our shares, the price of our shares could decline.

The trading market for our shares will rely in part on the research and reports that equity research analysts publish about us and our business. We do not have control over these analysts, and we do not have commitments from them to write research reports about us. The price of our shares could decline if one or more equity research analysts downgrades our shares, issues other unfavorable or inaccurate commentary or ceases publishing reports about us or our business.

The sale of shares by insiders, or even the perception that they may do so, could cause our stock price to decline.

The price of our shares could decline if there are substantial sales of our common stock, particularly by our directors, their affiliates or our executive officers or when there is a large number of shares of our common stock available for sale. The perception in the public market that our stockholders might sell our shares also could depress the market price of our shares. From time to time, we may conduct offerings of our securities and our executive officers, directors and selling stockholders would be subject to lock-up agreements that restrict their ability to transfer their shares following the offering. The market price of our shares may drop significantly when the restrictions on resale by our existing stockholders lapse and these stockholders are able to sell their shares into the market. If this occurs, it could impair our ability to raise additional capital through the sale of securities, should we desire to do so.

We incur increased costs as a result of operating as a public company, and our management is required to devote substantial time to compliance initiatives.

As a public company with shares listed on The Nasdaq Stock Market, we incur significant accounting, legal and other expenses that we would not incur as a private company. Although we now qualify as an SRC pursuant to Rule 12b-2 of the Exchange Act, we still incur significant costs associated with our compliance with the public company reporting requirements of the Exchange Act, requirements imposed by the Sarbanes-Oxley Act (most notably Section 404), the Dodd-Frank Wall Street Reform and Protection Act, and other rules adopted, and to be adopted, by the SEC and The Nasdaq Stock Market. Compliance with these rules and regulations result in increased legal and financial compliance costs and make certain activities more time-consuming and costly. They also make it more difficult for us to obtain director and officer liability insurance, and we incur substantial costs to maintain sufficient coverage.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure create uncertainty for public companies generally, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We have invested resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of managements time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected. We cannot predict or estimate the amount or timing of additional costs we may incur in the future to respond to these constantly evolving requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our Board, our Board committees or as executive officers.

We have never paid cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. Therefore, if our share price does not appreciate, our investors may not gain and could potentially lose on their investment in our shares.

We have never declared or paid cash dividends on our common stock, nor do we anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and service and repay indebtedness, if any. As a result, capital appreciation, if any, of our shares will be investors sole source of gain for the foreseeable future.

16


 

The right of stockholders to receive liquidation and dividend payments on our common stock is junior to the rights of holders of indebtedness and to any other senior securities we may issue in the future.

Shares of our common stock are equity interests and do not constitute indebtedness. This means that shares of our common stock will rank junior to all of our indebtedness and to other non-equity claims against us and our assets available to satisfy claims against us, including our liquidation. Additionally, holders of our common stock are subject to the prior dividend and liquidation rights of holders of our outstanding preferred stock, if any. While we currently have no preferred stock outstanding, our Board is authorized to issue classes or series of preferred stock in the future without any action on the part of our common stockholders.

If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. We are required under Section 404(a) of the Sarbanes-Oxley Act to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting.

Additionally, Section 404(b) of the Sarbanes-Oxley Act requires an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting which began with our Annual Report on Form 10-K for the year ended December 31, 2018.

In connection with the preparation of our consolidated financial statements for the year ended December 31, 2019, we concluded that there are material weaknesses in the design and operating effectiveness of our internal control over financial reporting as defined in SEC Regulation S-X. A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

A description of the identified material weaknesses in internal control over financial reporting is as follows:

 

-

We did not maintain adequate control over user access rights for a significant information technology system.

 

-

We did not maintain adequate control over application changes for a significant information technology system.

 

-

We did not maintain adequate control over pricing and discounts associated with sales of certain of our products.

During the three months ended December 31, 2019, as a result of the identification of the material weaknesses further described above, management has initiated the development of a remediation plan in an effort to ensure that our disclosure controls and procedures are effective. Our remediation plan is expected to include a comprehensive evaluation of the people, processes and systems responsible for each of the underlying control activities. We expect to complete this evaluation in 2020 and put measures in place in an effort to remediate the identified material weaknesses. However, we cannot be certain that the measures we may take will ensure that we establish and maintain adequate controls over our financial processes and reporting in the future or that material weaknesses identified will be remediated.

We documented and evaluated our internal control over financial reporting in order to report on the effectiveness of our internal controls as of December 31, 2019 and, as described in Item 9A, “Controls and Procedures”, management has determined that our internal control over financial reporting was ineffective as of December 31, 2019. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, investor groups like Institutional Shareholder Services could initiate a withhold vote campaign with respect to the re-election of the members of our audit committee, and we could be subject to sanctions or investigations by The Nasdaq Stock Market, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

Notwithstanding the identified material weaknesses, management believes the consolidated financial statements included in this Annual Report on Form 10-K fairly present in all material respects our financial condition, results of operations and cash flows as of and for the periods presented in accordance with GAAP.

17


 

Provisions in our charter documents or Delaware law may inhibit a takeover or make it more difficult to effect a change in control, which could adversely affect the value of our common stock.

Our Certificate of Incorporation and Bylaws contain, and Delaware corporate law contains, provisions that could delay or prevent a change of control or changes in our management. These provisions will apply even if some of our stockholders consider the offer to be beneficial or favorable. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline.

Raising additional capital by issuing securities may cause dilution to our stockholders.

We may need or desire to raise substantial additional capital in the future. Our future capital requirements will depend on many factors, including, among others:

 

-

Research and development investments;

 

-

Our degree of success in capturing a larger portion of the industrial products production market;

 

-

The costs of establishing or acquiring sales, marketing, and distribution capabilities for our products;

 

-

The costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our issued patents, and defending intellectual property-related claims;

 

-

The extent to which we acquire or invest in businesses, products or technologies and other strategic relationships; and

 

-

The costs of financing unanticipated working capital requirements and responding to competitive pressures.

If we raise additional funds by issuing equity or convertible debt securities, we may reduce the percentage ownership of our then-existing stockholders, and the holders of those newly-issued equity or convertible debt securities may have rights, preferences, or privileges senior to those possessed by our then-existing stockholders. Additionally, future sales of a substantial number of shares of our common stock or other equity-related securities in the public market could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities. We cannot predict the effect that future sales of our common stock or other equity-related securities would have on the market price of our common stock.  

18


 

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We have the following locations:

 

Location

 

Nature of Facility

 

Owned or Leased

 

Approximate Square Footage

 

United States

 

 

 

 

 

 

 

 

North Huntingdon, Pennsylvania

 

Corporate Headquarters

3D Printing Machine Manufacturing

EAC

3D Printing Machine Sales Center

 

Owned

 

 

67,886

 

Troy, Michigan

 

EAC

 

Owned

 

 

19,646

 

St. Clairsville, Ohio

 

EAC

Materials Research and Development

 

Owned

 

 

12,800

 

 

 

 

 

 

 

 

 

 

Europe

 

 

 

 

 

 

 

 

Gersthofen, Germany

 

European Headquarters

3D Printing Machine Manufacturing

EAC

3D Printing Machine Sales Center

 

Leased(a)

 

 

200,585

 

 

 

 

 

 

 

 

 

 

Asia

 

 

 

 

 

 

 

 

Kanagawa, Japan

 

EAC

3D Printing Machine Sales Center

 

Owned

 

 

19,639

 

 

(a)

On December 10, 2019, ExOne Property GmbH and ExOne GmbH, our German subsidiaries, entered into a purchase agreement (the “Purchase Agreement”) with Solidas Immobilien und Grundbesitz GmbH, a private, unaffiliated German real estate investor (the “Buyer”), for the sale of our European headquarters and operating facility in Gersthofen, Germany (the “Facility”). Concurrently with the execution of the Purchase Agreement, ExOne GmbH and the Buyer entered into a rental contract for the leaseback of the Facility. The sale-leaseback transaction closed on February 18, 2020.

Item 3. Legal Proceedings.

We are subject to various litigation, claims, and proceedings which have been or may be instituted or asserted from time to time in the ordinary course of business. Management does not believe that the outcome of any pending or threatened matters will have a material adverse effect, individually or in the aggregate, on our financial position, results of operations or cash flows.

Item 4. Mine Safety Disclosures.

Not applicable.

 

 

 

19


 

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock has been listed on The Nasdaq Stock Market since February 7, 2013, under the symbol “XONE.”

Stockholders

As of March 1, 2020, there were 33 stockholders of record. The actual number of holders of our common stock is greater than the number of record holders, and includes stockholders who are beneficial owners and whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Dividend Policy

We do not anticipate that we will declare or pay regular dividends on our common stock in the foreseeable future, as we generally intend to invest any future earnings in the development and growth of our business. Future dividends, if any, will be at the discretion of our Board and will depend on many factors, including general economic and business conditions, our strategic plans, our financial results and condition, legal requirements, any contractual obligations or limitations, and other factors that our Board deems relevant.

Securities Authorized for Issuance Under Equity Compensation Plans

Our 2013 Equity Incentive Plan (the “Plan”) was adopted on January 24, 2013, and approved by our stockholders on August 19, 2013. The table below sets forth information with regard to securities authorized for issuance under the Plan as of December 31, 2019:

 

Plan Category

 

Number of Securities

to be Issued Upon

Exercise of

Outstanding Options,

Warrants and Rights

 

 

Weighted-Average

Exercise Price of

Outstanding Options,

Warrants and Rights

 

 

Number of Securities

Remaining Available for

Future Issuance Under

Equity Compensation

Plans

(Excluding Securities

Reflected in the

First Column)(a)

 

Equity Compensation Plans Approved by

   Security Holders

 

 

854,259

 

 

$

9.34

 

 

 

627,934

 

Equity Compensation Plans Not Approved by

   Security Holders

 

N/A

 

 

N/A

 

 

N/A

 

 

(a)

On January 24, 2013, the Board adopted the 2013 Equity Incentive Plan (the “Plan”). In connection with the adoption of the Plan, 500,000 shares of common stock were reserved for issuance pursuant to the Plan, with automatic increases in such reserve available each year annually on January 1 from 2014 through 2023 equal to the lesser of 3.0% of the total outstanding shares of common stock as of December 31 of the immediately preceding year or, a number of shares of common stock determined by the Board, provided that the maximum number of shares authorized under the Plan did not exceed 1,992,241 shares, subject to certain adjustments. The maximum number of shares authorized under the Plan was reached on January 1, 2017. At December 31, 2019, 627,934 shares remained available for future issuances under the Plan.

 

Item 6. Selected Financial Data.

We are an SRC as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

20


 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(dollars in thousands, except per-share amounts)

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto in Part II Item 8 of this Annual Report on Form 10-K. Certain statements contained in this discussion may constitute 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 Exchange Act. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those reflected in any forward looking statements, as a result of a variety of risks and uncertainties, including those described under Item 1, “Business – Cautionary Statements Concerning Forward Looking Statements” and Item 1A, “Risk Factors”.

Overview

Our Business

We are the pioneer and global leader in binder jet 3D printing technology. Since 1995, we’ve been on a mission to deliver powerful 3D printers that solve our customers’ toughest problems and enable world-changing innovations. Our 3D printing systems quickly transform powder materials — including metals, ceramics, composites and sand — into precision parts, metalcasting molds and cores, and innovative tooling solutions. Industrial customers use our technology to save time and money, reduce waste, increase their manufacturing flexibility, and deliver designs and products that were once impossible. As home to the world’s leading team of binder jetting experts, we also provide specialized 3D printing services, including on-demand production of mission-critical parts, as well as engineering and design consulting.

Outlook

We are the global leader in industrial 3D printers utilizing binder jetting technology for non-polymer based materials. Our continued focus is to achieve profitable growth via three strategic initiatives:

 

-

Expand Both Our Customer and Application Focus. We intend to leverage our substantial experience in binder jetting technology to focus on the highest value industries and applications. We have made a significant investment in our commercial operations to drive our growth in this area.

 

-

Extend the Capabilities of Our Core Technology. We intend to expand our core binder jetting technology through our machine platforms while at the same time lowering the total cost of ownership of our systems for our customers. We are also focused on driving modularity among our various machine platforms for both direct and indirect applications.

 

-

Execute on 3D Printed and Other Products, Materials and Services Revenue Growth. We intend to execute on our plan to expand our offerings for 3D printed and other products, materials and services while better leveraging our growing global installed base of 3D printers.

Our results for 2019 were impacted by a downturn in global manufacturing trends which specifically impacted the capital expenditure investments of our customers. During 2019, we introduced two new signature platforms (the X1 25ProTM for direct applications and the S-MAX ProTM for indirect applications), with physical deliveries of both systems commencing during the three months ended December 31, 2019. We ended the year with a record backlog balance of approximately $31,100. We expect the combination of our backlog at December 31, 2019 and an acceleration in market adoption of our newly introduced printer platforms to provide the basis for our growth in 2020 despite certain negative macroeconomic trends for global manufacturing, including the global market impact of the coronavirus disease COVID-19.

On December 10, 2019, ExOne Property GmbH and ExOne GmbH (our “German Subsidiaries”), entered into a purchase agreement (the “Purchase Agreement”) with Solidas Immobilien und Grundbesitz GmbH, a private, unaffiliated German real estate investor (the “Buyer”), for the sale of our European headquarters and operating facility in Gersthofen, Germany (the “Facility”) for a cash price of €17,000 (approximately $18,500, of which approximately $2,200 was received prior to December 31, 2019). Concurrently with the execution of the Purchase Agreement, ExOne GmbH and the Buyer entered into a rental contract (the “Lease”) for the leaseback of the Facility for an initial aggregate annual rent totaling €1,500 (approximately $1,700), plus applicable taxes, which is fixed during the initial three-year term and is subject to adjustment on an annual basis (in accordance with the consumer price index for Germany) during the two five-year option extension periods. The sale-leaseback transaction closed on February 18, 2020.

As a result of the completion of the sale-leaseback transaction further described above, we expect the following effects on our results of operations, financial condition and cash flows:

 

-

As indicated, we expect to incur annual rent expense commencing during the three months ending March 31, 2020 of approximately $1,700 (with an expected allocation of approximately $1,300, $200 and $200 to cost of sales, research and development and selling, general and administrative expenses, respectively, based on the relative utilization of the Facility). This is in place of annual depreciation associated with the Facility of approximately $600 (allocated approximately $400, $100 and $100 to cost of sales, research and development and selling, general and administrative expenses, respectively, based on the relative utilization of the Facility).

 

-

We expect to record a gain on sale of property and equipment during the three months ending March 31, 2020 of approximately $1,400.

 

-

We expect to record a right-of-use asset and corresponding operating lease liability of approximately $4,500.

21


 

Backlog

At December 31, 2019, our backlog was approximately $31,100 of which approximately $27,100 is expected to be fulfilled during the 12 months following such date. At December 31, 2018, our backlog was approximately $12,300.

Seasonality

Purchases of our 3D printing machines are often subject to the capital expenditure cycles of our customers. Generally, 3D printing machine sales are higher in our third and fourth fiscal quarters than in our first and second fiscal quarters; however, as acceptance of our 3D printing machines as a credible alternative to traditional methods of production grows, we expect to limit the seasonality we experience.

Financial Measures

We use several financial and operating metrics to measure our business. We use these metrics to assess the progress of our business, make decisions on where to allocate capital, time and technology investments, and assess longer-term performance within our marketplace. The key metrics are as follows:

Revenue. Our revenue consists of sales of our 3D printing machines and 3D printed and other products, materials and services.

3D printing machines. 3D printing machine revenues consist of 3D printing machine sales and leasing arrangements. Sales of 3D printing machines may also include optional equipment and services (installation, training and other services delivered at the time of installation). 3D printing machine sales and leasing arrangements are influenced by a number of factors including, among other things, the adoption rate of our 3D printing technology, end-user product design and manufacturing activity, the capital expenditure budgets of end-users and potential end-users and other macroeconomic factors. Purchases or leases of our 3D printing machines, particularly our higher-end, higher-priced systems, typically involve long sales cycles. Several factors can significantly affect revenue reported for our 3D printing machines for a given period including a customer’s capital budgeting cycle, its facility preparedness and the terms of the underlying arrangement with a customer (including certain substantive acceptance provisions) which may vary from period to period.

3D printed and other products, materials and services. 3D printed and other products, materials and services consist of sales derived from our global EAC network (including 3D printed components or tools and castings), consumable materials, aftermarket (including replacement parts for the network of 3D printing machines installed by our global customer base and services for maintenance) and certain funded research and development arrangements. Our EACs utilize our 3D printing machine technology to print products to the specifications of customers. In addition, our EACs provide support and services such as pre-production collaboration prior to printing products for a customer. Sales of consumable materials and aftermarket (replacement parts and service maintenance contracts) are directly linked to our growing network of 3D printing machines installed by our global customer base. Funded research and development includes both commercial and government arrangements which generally apply our additive manufacturing technologies (specifically binder jetting) to one or more specific materials or applications.

Cost of Sales and Gross Profit. Our cost of sales consists primarily of direct labor (related to our global workforce), materials (for both the manufacture of 3D printing machines and for our EAC and other manufacturing operations) and overhead to produce 3D printing machines and 3D printed and other products, materials and services. Also included in cost of sales are license fees (based upon a percentage of revenue of qualifying products and processes) for the use of intellectual property, warranty costs and other overhead associated with our production processes.

Our gross profit is influenced by a number of factors, the most important of which is the volume and mix of sales of our 3D printing machines and 3D printed and other products, materials and services.

As 3D printing machine sales are cyclical, we seek to achieve a balance in revenue from 3D printing machines and 3D printed and other products, materials and services in order to maximize gross profit while managing business risk. In addition, we expect to reduce our cost of sales over time by continued research and development and supply chain activities directed towards achieving increased efficiencies in our production processes and lowering total cost of ownership of our 3D printing machines.

Operating Expenses. Our operating expenses consist of research and development expenses and selling, general and administrative expenses.

Research and development expenses. Our research and development expenses consist primarily of salaries and related personnel expenses aimed at 3D printing machine development and materials qualification activities. Additional costs include the related software and materials, laboratory supplies, and costs for facilities and equipment (including 3D printing machines used in materials qualification activities). Research and development expenses are charged to operations as they are incurred. We capitalize the cost of materials, equipment and facilities that have future alternative uses in research and development projects or otherwise.

22


 

Selling, general and administrative expenses. Our selling, general and administrative expenses consist primarily of employee-related costs (salaries and benefits) of our executive officers, sales and marketing (including sales commissions), finance, accounting, information technology and human resources personnel. Other significant general and administrative costs include the facility costs related to our United States and European headquarters and external costs for legal, audit, consulting and other professional services.

Interest Expense. Interest expense consists principally of the interest cost associated with our related party revolving credit facility, and outstanding long-term debt.

(Benefit) Provision for Income Taxes. We are taxed as a corporation for United States federal, state, local and foreign income tax purposes. Current statutory tax rates in the jurisdictions in which we operate, the United States, Germany, Japan and Italy (through December 2018), are 21%, 30%, 31% and 24%, respectively.

Results of Operations

Net Loss

Net loss for 2019 was $15,095, or $0.93 per basic and diluted share, compared with a net loss of $12,667, or $0.78 per basic and diluted share, for 2018. The increase in our net loss was principally due to a reduction in our revenues and gross profit, as well as the absence of a gain from an insurance recovery recorded during 2018 for a 3D printing machine damaged by a third party freight company while in transit, all of which was offset by a reduction in our research and development and selling, general and administrative expenses (all changes further described below).

Revenue

The following table summarizes revenue by product group for each of the years ended December 31:

 

 

 

2019

 

 

2018

 

3D printing machines

 

$

27,232

 

 

 

51.1

%

 

$

36,393

 

 

 

56.3

%

3D printed and other products, materials and services

 

 

26,044

 

 

 

48.9

%

 

 

28,251

 

 

 

43.7

%

 

 

$

53,276

 

 

 

100.0

%

 

$

64,644

 

 

 

100.0

%

 

Revenue for 2019 was $53,276 compared with revenue of $64,644 for 2018, a decrease of $11,368, or 17.6%. The decrease in revenue was attributable to both of our product groups. The decrease in revenues from 3D printing machines resulted from a lower volume of units sold (44 3D printing machines sold during 2019, as compared to 56 3D printing machines sold during 2018) and a lower average selling price of units sold (primarily due to the mix of 3D printing machines sold). The decrease in revenues from 3D printed and other products, materials and services principally resulted from a decrease in revenues from our direct EAC printing operations (mostly due to the timing of orders from a key customer), indirect EAC printing operations (mostly due to lower volumes of printed products and the impact of exiting our Houston, Texas facility in August 2018, such facility contributing $951 in revenue during 2018) and materials (mostly due to reductions in pricing based on external competition) offset by an increase in aftermarket sales based on an increased global installed base of 3D printing machines and a higher contribution from research and development arrangements primarily due to a new automotive project which commenced during the three months ended December 31, 2019. Revenue was also impacted by approximately $800 due to unfavorable exchange rates (principally the euro versus the United States dollar) during 2019.

Cost of Sales and Gross Profit

Cost of sales for 2019 was $35,848 compared with cost of sales of $43,703 for 2018, a decrease of $7,855, or 18.0%. Gross profit for 2019 was $17,428 compared with gross profit of $20,941 for 2018. Gross profit percentage was 32.7% for 2019 compared with gross profit percentage of 32.4% for 2018. The decrease in our gross profit was primarily due to a decrease in our volume of products sold resulting in a reduction in leverage of our fixed cost base and net negative experience related to product warranties of $519. These decreases were offset by cost savings associated with our 2018 global cost realignment program (primarily fixed overhead costs associated with our former Houston, Texas facility). In addition, we realized net benefits in cost of sales relating to a reduction in net charges associated with slow-moving, obsolete and lower of cost or net realizable value inventories of $730 (principally due to the $561 charge associated with our industrial microwave inventories recorded during 2018) and amounts associated with exit activities including a gain from disposal of property and equipment of $145 associated with our former Houston, Texas property recorded during the three months ended December 31, 2019 and the absence of $236 in exit costs associated with our Desenzano del Garda, Italy and Houston, Texas facility consolidations during 2018.

23


 

Research and Development

Research and development expenses for 2019 were $9,884 compared with research and development expenses of $10,744 for 2018, a decrease of $860, or 8.0%. The decrease in research and development expenses was primarily due to decreases in employee-related costs (principally salaries and benefits) of $119 and consulting and professional fees of $715 (both reductions primarily as a result of our 2018 global cost realignment program) and a decrease in equity-based compensation of $189, including amounts awarded under our annual incentive programs as a result of underperformance against 2019 targets. These decreases were offset by an increase in material costs of $317, primarily associated with our development of the X1 25ProTM direct 3D printing machine and S-MAX ProTM indirect 3D printing machine.

Selling, General and Administrative

Selling, general and administrative expenses for 2019 were $22,592 compared with selling, general and administrative expenses of $23,194 for 2018, a decrease of $602, or 2.6%. The decrease in selling, general and administrative expenses was principally due to a decrease in employee-related costs (salaries and benefits) of $1,202 (including $708 in employee termination costs associated with the change in our Chief Executive Officer and our 2018 global cost realignment program, recorded during the three months ended June 2018) and consulting and professional fees of $299 (reduction associated with our 2018 global cost realignment program). These decreases were offset by a net increase associated with equity-based compensation of $419 (principally associated with changes in executive management in May 2019) offset by a reduction in amounts awarded under our annual incentive programs as a result of underperformance against 2019 targets, a net increase in net provisions for bad debts of $221 and a net increase in selling costs (an increase in sales promotion and trade show expenses offset by lower external commissions on lower sales) of $354, primarily due to our investment in the GIFA international foundry show in Dusseldorf, Germany in 2019 (a once every four-year event).

Interest Expense

Interest expense for 2019 was $343 compared with interest expense of $254 for 2018, an increase of $89, or 35.0%. The increase in interest expense was principally due to an increase in interest incurred in connection with our related party revolving credit facility ($260 in 2019 as compared to $160 in 2018, primarily due to an increase in borrowings between 2019 and 2018).

Other Expense (Income) — Net

Other expense (income) — net for 2019 was $111 compared with other expense (income) — net of ($744) for 2018. The change of $855 was primarily due to the absence of $819 of a realized gain associated with an insurance recovery for a 3D printing machine damaged by a third party freight company while in transit.

(Benefit) Provision for Income Taxes

The (benefit) provision for income taxes for 2019 and 2018 was ($407) and $160, respectively. The effective tax rate for 2019 and 2018 was 2.6% (benefit on a loss) and 1.3% (provision on a loss), respectively. For 2019, the effective tax rate differed from the United States federal statutory rate of 21% primarily due to net changes in valuation allowances and the reversal of previously recorded liabilities for uncertain tax positions (further described below). For 2018, the effective tax rate differed from the United States federal statutory rate of 21% primarily due to net changes in valuation allowances.

We have provided a valuation allowance for certain of our net deferred tax assets as a result of our inability to generate consistent net operating profits in certain jurisdictions in which we operate. As such, certain benefits from deferred taxes in any of the periods presented in our consolidated financial statements have been fully offset by changes in the valuation allowance for net deferred tax assets. We continue to assess our future taxable income by jurisdiction based on our recent historical operating results, the expected timing of reversal of temporary differences, various tax planning strategies that we may be able to enact in future periods, the impact of potential operating changes on our business and our forecast results from operations in future periods based on available information at the end of each reporting period. To the extent that we are able to reach the conclusion that deferred tax assets are realizable based on any combination of the above factors in a single, or multiple, taxing jurisdictions, a reversal of the related portion of our existing valuation allowances may occur.

At December 31, 2018, our ExOne GmbH (2010-2013) and ExOne Property GmbH (2013) subsidiaries were under examination by local taxing authorities in Germany. In January 2019, this examination was concluded by the local taxing authorities in Germany without significant adjustment to previously established tax positions. As a result, during the three months ended March 31, 2019, we recorded a reversal of certain of our previously recorded liabilities for uncertain tax positions of $1,075, of which $257 was offset against net operating loss carryforwards.

Restructuring

In August 2018, we committed to a plan to consolidate certain of our 3D printing operations from our Houston, Texas facility into our Troy, Michigan facility. These actions were taken as part of our efforts to optimize our business model and maximize our facility utilization. During 2018, we recorded a charge of $28 split between cost of sales ($15) and selling, general and administrative expense ($13) associated with involuntary employee terminations related to this plan. During 2018, we recorded an additional charge of $1 (to cost of sales) associated with asset impairments related to this plan. There are no additional charges expected to be incurred associated with this plan in future periods. We settled all amounts associated with involuntary employee terminations during 2018.

24


 

We have estimated a reduction in our annual revenues of approximately $1,400 as a result of the consolidation of our 3D printing operations from our Houston, Texas facility into our Troy, Michigan facility. Revenues associated with our Houston, Texas facility were $951 for 2018. We have estimated annualized cost savings related to this consolidation of approximately $1,800, with approximately $1,600 in the form of cash cost savings (principally employee-related and other operating costs) and approximately $200 in the form of reduced depreciation expense. Cost savings estimates associated with the exit of this facility are allocated $1,600 to cost of sales and $200 to selling, general and administrative expenses. We have invested realized cost savings associated with this plan into technological or process advancements that support either long-term cost benefits or revenue growth.

In connection with the exit of our Houston, Texas facility, we reclassified $822 in property and equipment (principally land and building) associated with certain long-lived assets meeting required criteria as held for sale (included in prepaid expenses and other current assets in the accompanying consolidated balance sheet at December 31, 2018). During the three months ended December 31, 2019, we sold this property and equipment to a third party, resulting in net proceeds to us of $967 and a gain from disposal of property and equipment of $145 (recorded to cost of sales in the accompanying statement of consolidated operations and comprehensive loss).

In December 2017, we committed to a plan to consolidate certain of our 3D printing operations from our Desenzano del Garda, Italy facility into our Gersthofen, Germany facility. These actions were taken as part of our efforts to optimize our business model and maximize our facility utilization. During 2018, we recorded charges of $258 associated with other exit costs ($17) and asset impairments ($241) related to this plan. In addition, during 2018, we recorded a gain from disposal of property and equipment of $51 (recorded to cost of sales in the accompanying statement of consolidated operations and comprehensive loss). Charges associated with other exit costs recorded during 2018 were recorded to cost of sales in the accompanying statement of consolidated operations and comprehensive loss. Charges associated with asset impairments recorded during 2018 were recorded to cost of sales as a component of depreciation expense in the accompanying statement of consolidated operations and comprehensive loss. Other exit costs relate to the remaining facility rent due under a non-cancellable operating lease following the cessation of operations at the facility in January 2018. Asset impairment charges relate to certain leasehold improvements associated with the exited facility and other equipment which was abandoned by us. There are no additional charges expected to be incurred associated with this plan in future periods. We settled all amounts associated with involuntary employee terminations and facility rentals during 2018.

The consolidation of our 3D printing operations from our Desenzano del Garda, Italy facility into our Gersthofen, Germany facility did not have a significant impact on our revenues. We have estimated annualized cost savings related to this consolidation of approximately $875, with approximately $600 in the form of cash cost savings (principally employee-related and other operating costs) and approximately $275 in the form of reduced depreciation expense. Cost savings estimates associated with the exit of this facility are allocated $625 to cost of sales and $250 to selling, general and administrative expenses. We have invested realized cost savings associated with this plan into technological or process advancements that support either long-term cost benefits or revenue growth.

Impairment

During the three months ended December 31, 2019, as a result of continued operating losses and cash flow deficiencies, we identified a triggering event requiring a test for the recoverability of long-lived assets held and used at the asset group level. Assessing the recoverability of long-lived assets held and used requires significant judgments and estimates by management.

For purposes of testing long-lived assets for recoverability, we operate as three separate asset groups: United States, Europe and Japan. In assessing the recoverability of long-lived assets held and used, we determined the carrying amount of long-lived assets held and used to be in excess of the estimated future undiscounted net cash flows of the related assets. We proceeded to determine the fair value of our long-lived assets held and used, principally through use of the market approach. Our use of the market approach included consideration of market transactions for comparable assets. Management concluded that the fair value of long-lived assets held and used exceeded their carrying value and, as such, no impairment loss was recorded.

A significant decrease in the market price of a long-lived asset, adverse change in the use or condition of a long-lived asset, adverse change in the business climate or legal or regulatory factors impacting a long-lived asset and continued operating losses and cash flow deficiencies associated with a long-lived asset, among other indicators, could cause a future assessment to be performed which may result in an impairment of long-lived assets held and used, resulting in a material adverse effect on our financial position and results of operations.

Impact of Inflation

Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition are not significant.

Liquidity and Capital Resources

Liquidity

We have incurred a net loss in each of our annual periods since our inception. We incurred net losses of $15,095 and $12,667 for 2019 and 2018, respectively. At December 31, 2019, we had $5,265 in unrestricted cash and cash equivalents.

25


 

We have received cumulative unrestricted net proceeds from the sale of our common stock (through our initial public offering and subsequent secondary offerings) of $168,361 to fund our operations.

In March 2018, we entered into a three-year, $15,000 revolving credit facility with a related party to provide additional funding for working capital and general corporate purposes. At December 31, 2019, there were no amounts outstanding under the related party revolving credit facility. In February 2020, following completion of a sale-leaseback transaction associated with our European headquarters and operating facility in Gersthofen, Germany (further described below), we entered into an amendment to our related party revolving credit facility which reduced the amount available under the related party revolving credit facility to $10,000 and extended the term of the related party revolving credit facility through March 2024, among other changes.

In June 2018, we initiated the 2018 global cost realignment program focused on a reduction in our production overhead costs and operating expenses in an effort to drive efficiency in our operations and preserve capital. Actions associated with this program were completed in December 2018.

In February 2020, we completed a sale and leaseback of our European headquarters and operating facility in Gersthofen, Germany. This transaction resulted in unrestricted net proceeds to us of approximately $18,500 (of which approximately $2,200 was received during 2019) to provide additional funding for working capital and general corporate purposes.

We believe that our existing capital resources will be sufficient to support our operating plan. If we anticipate that our actual results will differ from our operating plan, we believe we have sufficient capabilities to enact cost savings measures to preserve capital. We may also seek to raise additional capital to support our growth through additional debt, equity or other alternatives (including asset sales) or a combination thereof.

Related Party Revolving Credit Facility

On March 12, 2018, we and our ExOne Americas LLC and ExOne GmbH subsidiaries, as guarantors (collectively, the “Loan Parties”), entered into a Credit Agreement and related ancillary agreements with LBM Holdings, LLC (“LBM”), a company controlled by S. Kent Rockwell, who was our Executive Chairman (a related party) at such date and is currently Chairman of our Board, relating to a $15,000 revolving credit facility (the “LBM Credit Agreement”) to provide additional funding for working capital and general corporate purposes. The LBM Credit Agreement provided a credit facility for a term of three years (through March 12, 2021) bearing interest at a rate of one month LIBOR plus an applicable margin of 500 basis points (6.8% and 7.5% at December 31, 2019 and 2018, respectively). The LBM Credit Agreement required a commitment fee of 75 basis points, or 0.75%, on the unused portion of the facility, payable monthly in arrears. In addition, an up-front commitment fee of 125 basis points, or 1.25% ($188), was required at closing. Borrowings under the LBM Credit Agreement were collateralized by the accounts receivable, inventories and machinery and equipment of the Loan Parties. At December 31, 2019 and 2018, the total carrying value of collateral was approximately $31,000 and $30,000, respectively. At December 31, 2019 and 2018, the total estimated fair value of collateral significantly exceeded the maximum borrowing capacity under the LBM Credit Agreement. Borrowings under the LBM Credit Agreement are required to be in minimum increments of $1,000. We may terminate or reduce the credit commitment at any time during the term of the LBM Credit Agreement without penalty. We may also make prepayments against outstanding borrowings under the LBM Credit Agreement at any time without penalty.

The LBM Credit Agreement contains several affirmative covenants including prompt payment of liabilities and taxes; maintenance of insurance, properties, and licenses; and compliance with laws. The LBM Credit Agreement also contains several negative covenants including restricting the incurrence of certain additional debt; prohibiting future liens (other than permitted liens); prohibiting investment in third parties; limiting the ability to pay dividends; limiting mergers, acquisitions, and dispositions; and limiting the sale of certain property and equipment of the Loan Parties. The LBM Credit Agreement does not contain any financial covenants. The LBM Credit Agreement also contains events of default, including, but not limited to, cross-default to certain other debt, breaches of representations and warranties, change of control events and breaches of covenants.

LBM was determined to be a related party based on common control by S. Kent Rockwell. Accordingly, we do not consider the LBM Credit Agreement indicative of a fair market value lending. Prior to execution, the LBM Credit Agreement was reviewed and approved by the Audit Committee of the Board and subsequently by a sub-committee of independent members of the Board. At the time of execution of the LBM Credit Agreement, the $15,000 in available loan proceeds was deposited into an escrow account with an unrelated, third party financial institution acting as escrow agent pursuant to a separate Escrow Agreement by and among the parties. Loan proceeds held in escrow are available to us upon our submission to the escrow agent of a loan request. Such proceeds will not be available to LBM until payment in-full of the obligations under the LBM Credit Agreement and termination of the LBM Credit Agreement. Payments of principal and other obligations will be made to the escrow agent, while interest payments will be made directly to LBM. Provided there exists no potential default or event of default, the LBM Credit Agreement and Escrow Agreement prohibit any acceleration of repayment of any amount outstanding under the LBM Credit Agreement and prohibit termination of the LBM Credit Agreement or withdrawal from escrow of any unused portion of the available loan proceeds.

During 2019, we had borrowings of $4,000 under the LBM Credit Agreement, all of which were subsequently repaid prior to December 31, 2019. There were no borrowings by us under the LBM Credit Agreement during 2018.

26


 

On February 18, 2020, the Loan Parties and LBM entered into a First Amendment to the LBM Credit Agreement (the “LBM Amendment”) which (i) reduced the available capacity under the revolving credit facility to $10,000, (ii) extended the term until March 31, 2024, (iii) increased the commitment fee to 100 basis points, or 1.00%, on the unused portion of the revolving credit facility, and (iv) provided a process for the replacement of the LIBOR index after 2021. In addition, the accounts receivable related to our ExOne GmbH subsidiary no longer serve as collateral for borrowings under the LBM Credit Agreement.

We do not consider the amended revolving credit facility with LBM to be indicative of a fair market value lending based on the prior determination of LBM as a related party. Prior to execution, the LBM Amendment was reviewed and approved by the Audit Committee of the Board and subsequently by a sub-committee of independent members of the Board.

Amendment to GmbH Credit Agreement

On February 24, 2020, ExOne GmbH entered into an amendment and replacement of its credit agreement with a German bank (the “Amended GmbH Credit Agreement”). The Amended GmbH Credit Agreement eliminates the overdraft credit and short-term loan features of its credit arrangement and replaces them with an increased capacity amount of €3,500 (approximately $3,800) for the issuance of financial guarantees and letters of credit for commercial transactions requiring security. The cash collateral requirement for the issuance of financial guarantees and letters of credit for commercial transactions requiring security has been eliminated for amounts up to €1,000 (approximately $1,000) as the amendment provides the German bank with a collateral interest in the accounts receivable of ExOne GmbH. Amounts in excess of €1,000 (approximately $1,000) continue to require cash collateral.

Cash Flows

The following table summarizes the significant components of cash flows for each of the years ended December 31 and our cash, cash equivalents, and restricted cash balances for each of the periods indicated:

 

 

 

2019

 

 

2018

 

Net cash used for operating activities

 

$

(5,304

)

 

$

(11,775

)

Net cash provided by (used for) investing activities

 

 

2,520

 

 

 

(1,229

)

Net cash provided by financing activities

 

 

59

 

 

 

105

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(172

)

 

 

(139

)

Net change in cash, cash equivalents, and restricted cash

 

$

(2,897

)

 

$

(13,038

)

 

 

 

 

 

 

 

 

 

 

 

December 31,

2019

 

 

December 31,

2018

 

Cash and cash equivalents

 

$

5,265

 

 

$

7,592

 

Restricted cash

 

 

978

 

 

 

1,548

 

Cash, cash equivalents, and restricted cash

 

$

6,243

 

 

$

9,140

 

 

Operating Activities

Net cash used for operating activities for 2019 was $5,304 compared with net cash used for operating activities of $11,775 for 2018. The decrease of $6,471 was due to a net decrease in working capital attributable to an increase in net cash inflows from customers (principally due to the timing of cash collections on 3D printing machine sales) offset by an increase in net cash outflows related to inventory production of our 3D printing machines and the timing of payments to our suppliers and vendors for our production and operating expenses. The net decrease in working capital was partially offset by an increase in our net loss (further described above).

Investing Activities

Net cash provided by investing activities for 2019 was $2,520 compared with net cash used for investing activities of $1,229 for 2018.

For 2019, net cash provided by investing activities included cash inflows of $3,186 in proceeds from the sale of property and equipment, including $967 in proceeds from the sale of our former Houston, Texas facility (further described above) and a deposit of $2,216 on the sale of our Gersthofen, Germany facility (further described below). These cash inflows were offset by $666 in cash outflows associated with capital expenditures.

For 2018, net cash used for investing activities included $1,327 in cash outflows associated with capital expenditures. These cash outflows were offset by cash inflows of $98 in proceeds from the sale of property and equipment.

We expect our 2020 capital expenditures to be limited to spending associated with sustaining our existing operations and strategic asset acquisition and deployment (estimated spending of approximately $2,000 to $3,000).

In February 2020, the Company completed a sale and leaseback of its European headquarters and operating facility in Gersthofen, Germany. This transaction resulted in unrestricted net proceeds to the Company of approximately $18,500 (of which approximately $2,200 was received during 2019) to provide additional funding for working capital and general corporate purposes.

27


 

Financing Activities

Net cash provided by financing activities for 2019 was $59 compared with net cash provided by financing activities of $105 for 2018.

For 2019, net cash provided by financing activities included $289 in cash inflows associated with proceeds from the exercise of employee stock options. These cash inflows were offset by cash outflows of $149 in principal payments on long-term debt and $68 associated with taxes related to the net settlement of equity-based awards.

For 2018, net cash provided by financing activities included $529 in cash inflows associated with proceeds from the exercise of employee stock options. These cash inflows were offset by cash outflows of $265 in debt issuance costs associated with our revolving credit facility with a related party (further described above) and $142 in principal payments on long-term debt.

At December 31, 2019, we identified that we were not in compliance with the annual cash flow-to-debt service ratio covenant associated with our building note payable (outstanding indebtedness of $1,384 at December 31, 2019). We requested and were granted a waiver related to compliance with this annual covenant at December 31, 2019 and through December 31, 2020. Related to our 2019 non-compliance, there were no cross-default provisions or related impacts on other lending or financing agreements.

Off-Balance Sheet Arrangements

In the course of our normal operations, our ExOne GmbH subsidiary issues financial guarantees and letters of credit to third parties in connection with certain commercial transactions requiring security. At December 31, 2019, total outstanding financial guarantees and letters of credit issued by us were $560 (€499) with expiration dates ranging from February 2020 through February 2023. At December 31, 2018, total outstanding guarantees and letters of credit issued by us were $1,140 (€992).

For further discussion related to financial guarantees and letters of credit issued by us, refer to Note 14 and Note 24 to the consolidated financial statements in Part II Item 8 of this Annual Report on Form 10-K.

Recently Issued and Adopted Accounting Guidance

Refer to Note 1 to the consolidated financial statements included in Part II Item 8 of this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

Refer to Note 1 to the consolidated financial statements included in Part II Item 8 of this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are an SRC as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

28


 

Item 8. Financial Statements and Supplementary Data.

 

 


29


 

 

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance to management and the Board of Directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  We conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013 Framework). Based on our assessment, as a result of certain material weaknesses in our internal control over financial reporting (further described below), we believe that, as of December 31, 2019, our internal control over financial reporting is ineffective.

In connection with the preparation of our consolidated financial statements for the year ended December 31, 2019, we concluded that there are material weaknesses in the design and operating effectiveness of our internal control over financial reporting as defined in SEC Regulation S-X. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

A description of the identified material weaknesses in internal control over financial reporting is as follows:

 

-

We did not maintain adequate control over user access rights for a significant information technology system.

 

-

We did not maintain adequate control over application changes for a significant information technology system.

 

-

We did not maintain adequate control over pricing and discounts associated with sales of certain of our products.

As a result of the identification of the material weaknesses further described above, management has initiated the development of a remediation plan in an effort to ensure that our disclosure controls and procedures are effective. Our remediation plan is expected to include a comprehensive evaluation of the people, processes and systems responsible for each of the underlying control activities. We expect to complete this evaluation in 2020 and put measures in place in an effort to remediate the identified material weaknesses. However, we cannot be certain that the measures we may take will ensure that we establish and maintain adequate controls over our financial processes and reporting in the future or that material weaknesses identified will be remediated.

Notwithstanding the identified material weaknesses further described above, management believes that the consolidated financial statements and related notes thereto included in this Annual Report on Form 10-K fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

The effectiveness of internal control over financial reporting as of December 31, 2019 has been audited by Schneider Downs & Co. Inc., an independent registered public accounting firm which also audited our consolidated financial statements. Schneider Downs’ attestation reports on the consolidated financial statements and internal control over financial reporting are included under the headings “Report of Independent Registered Public Accounting Firm.”

 

/s/ John F. Hartner

 

John F. Hartner

Chief Executive Officer

 

/s/ Douglas D. Zemba

 

Douglas D. Zemba

Chief Financial Officer

 

30


 

Report of Independent Registered Public Accounting Firm

 

To the Stockholders and Board of Directors

of The ExOne Company

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of The ExOne Company and Subsidiaries (collectively, the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the results of its consolidated operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 12, 2020, expressed an adverse opinion.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2016.

 

/s/ Schneider Downs & Co. Inc.

 

Schneider Downs & Co. Inc.

 

Pittsburgh, Pennsylvania

March 12, 2020

31


 

Report of Independent Registered Public Accounting Firm

 

To the Stockholders and Board of Directors

of The ExOne Company

Adverse Opinion on Internal Control over Financial Reporting

We have audited The ExOne Company and Subsidiaries’ (the Company’s) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effect of the material weaknesses described in the following paragraph on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment.

 

-

The Company did not maintain adequate control over:

 

-

User access rights for a significant information technology system;

 

-

Application changes for a significant information technology system; and

 

-

Pricing and discounts associated with sales of certain of the Company’s products.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 financial statements, and this report does not affect our report dated March 12, 2020, on those financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows of the Company, and our report dated March 12, 2020, expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


32


 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ Schneider Downs & Co. Inc.

 

Schneider Downs & Co. Inc.

 

Pittsburgh, Pennsylvania

March 12, 2020

33


 

The ExOne Company and Subsidiaries

Statement of Consolidated Operations and Comprehensive Loss

(in thousands, except per-share amounts)

 

For the years ended December 31,

 

2019

 

 

2018

 

Revenue

 

$

53,276

 

 

$

64,644

 

Cost of sales

 

 

35,848

 

 

 

43,703

 

Gross profit

 

 

17,428

 

 

 

20,941

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

 

9,884

 

 

 

10,744

 

Selling, general and administrative

 

 

22,592

 

 

 

23,194

 

 

 

 

32,476

 

 

 

33,938

 

Loss from operations

 

 

(15,048

)

 

 

(12,997

)

Other expense (income)

 

 

 

 

 

 

 

 

Interest expense

 

 

343

 

 

 

254

 

Other expense (income)  ̶  net

 

 

111

 

 

 

(744

)

 

 

 

454

 

 

 

(490

)

Loss before income taxes

 

 

(15,502

)

 

 

(12,507

)

(Benefit) provision for income taxes

 

 

(407

)

 

 

160

 

Net loss

 

$

(15,095

)

 

$

(12,667

)

Net loss per common share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.93

)

 

$

(0.78

)

Diluted

 

$

(0.93

)

 

$

(0.78

)

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

 

$

(15,095

)

 

$

(12,667

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(735

)

 

 

(1,264

)

Comprehensive loss

 

$

(15,830

)

 

$

(13,931

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

34


 

The ExOne Company and Subsidiaries

Consolidated Balance Sheet

(in thousands, except share amounts)

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,265

 

 

$

7,592

 

Restricted cash

 

 

978

 

 

 

1,548

 

Accounts receivable   ̶  net

 

 

6,522

 

 

 

6,393

 

Current portion of net investment in sales-type leases   ̶  net

 

 

213

 

 

 

302

 

Inventories   ̶  net

 

 

19,770

 

 

 

15,930

 

Prepaid expenses and other current assets

 

 

2,182

 

 

 

2,438

 

Total current assets

 

 

34,930

 

 

 

34,203

 

Property and equipment   ̶  net

 

 

38,895

 

 

 

41,906

 

Net investment in sales-type leases  ̶  net of current portion   ̶  net

 

 

738

 

 

 

1,351

 

Other noncurrent assets

 

 

803

 

 

 

222

 

Total assets

 

$

75,366

 

 

$

77,682

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

153

 

 

$

144

 

Accounts payable

 

 

5,818

 

 

 

4,376

 

Accrued expenses and other current liabilities

 

 

7,100

 

 

 

6,049

 

Current portion of contract liabilities

 

 

11,846

 

 

 

2,343

 

Total current liabilities

 

 

24,917

 

 

 

12,912

 

Long-term debt   ̶  net of current portion

 

 

1,211

 

 

 

1,364

 

Contract liabilities   ̶  net of current portion

 

 

286

 

 

 

527

 

Other noncurrent liabilities

 

 

370

 

 

 

104

 

Total liabilities

 

 

26,784

 

 

 

14,907

 

Contingencies and commitments

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, 200,000,000 shares authorized,

   16,346,960 (2019) and 16,234,201 (2018) shares issued and outstanding

 

 

163

 

 

 

162

 

Additional paid-in capital

 

 

176,850

 

 

 

175,214

 

Accumulated deficit

 

 

(116,948

)

 

 

(101,853

)

Accumulated other comprehensive loss

 

 

(11,483

)

 

 

(10,748

)

Total stockholders' equity

 

 

48,582

 

 

 

62,775

 

Total liabilities and stockholders' equity

 

$

75,366

 

 

$

77,682

 

 

The accompanying notes are an integral part of these consolidated financial statements.

35


 

The ExOne Company and Subsidiaries

Statement of Consolidated Cash Flows

(in thousands)

 

For the years ended December 31,

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(15,095

)

 

$

(12,667

)

Adjustments to reconcile net loss to net cash used for operations:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,581

 

 

 

5,503

 

Equity-based compensation

 

 

1,416

 

 

 

968

 

Amortization of debt issuance costs

 

 

93

 

 

 

75

 

Provision for bad debts  ̶  net

 

 

279

 

 

 

58

 

Provision for slow-moving, obsolete and lower of cost or net realizable value inventories  ̶  net

 

 

292

 

 

 

1,022

 

Gain from disposal of property and equipment  ̶  net

 

 

(147

)

 

 

(51

)

Foreign exchange losses on intercompany transactions  ̶  net

 

 

63

 

 

 

68

 

Deferred income taxes

 

 

(199

)

 

 

 

Changes in assets and liabilities, excluding effects of foreign currency translation adjustments:

 

 

 

 

 

 

 

 

Decrease in accounts receivable

 

 

2

 

 

 

1,452

 

Decrease in net investment in sales-type leases

 

 

269

 

 

 

185

 

Increase in inventories

 

 

(5,713

)

 

 

(3,441

)

Increase in prepaid expenses and other assets

 

 

(632

)

 

 

(335

)

Increase in accounts payable

 

 

1,514

 

 

 

195

 

(Decrease) increase in accrued expenses and other liabilities

 

 

(1,308

)

 

 

181

 

Increase (decrease) in contract liabilities

 

 

9,281

 

 

 

(4,988

)

Net cash used for operating activities

 

 

(5,304

)

 

 

(11,775

)

Investing activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(666

)

 

 

(1,327

)

Proceeds from sale of property and equipment

 

 

3,186

 

 

 

98

 

Net cash provided by (used for) investing activities

 

 

2,520

 

 

 

(1,229

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from related party revolving credit facility

 

 

4,000

 

 

 

 

Payments on related party revolving credit facility

 

 

(4,000

)

 

 

 

Payments on long-term debt

 

 

(149

)

 

 

(142

)

Proceeds from exercise of employee stock options

 

 

289

 

 

 

529

 

Taxes related to the net share settlement of equity-based awards

 

 

(68

)

 

 

 

Debt issuance costs

 

 

 

 

 

(265

)

Other

 

 

(13

)

 

 

(17

)

Net cash provided by financing activities

 

 

59

 

 

 

105

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(172

)

 

 

(139

)

Net change in cash, cash equivalents, and restricted cash

 

 

(2,897

)

 

 

(13,038

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

9,140

 

 

 

22,178

 

Cash, cash equivalents, and restricted cash at end of period

 

$

6,243

 

 

$

9,140

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

222

 

 

$

169

 

Cash paid for income taxes

 

$

199

 

 

$

103

 

Supplemental disclosure of noncash investing and financing activities

 

 

 

 

 

 

 

 

Transfer of internally developed 3D printing machines from inventories to property and equipment

   for internal use or leasing activities

 

$

2,572

 

 

$

2,194

 

Transfer of internally developed 3D printing machines from property and equipment to inventories

   for sale

 

$

1,206

 

 

$

1,042

 

Property and equipment included in accounts payable

 

$

71

 

 

$

79

 

Property and equipment reclassified as assets held for sale

 

$

 

 

$

822

 

Property and equipment acquired through financing arrangements

 

$

 

 

$

14

 

 

The accompanying notes are an integral part of these consolidated financial statements.

36


 

The ExOne Company and Subsidiaries

Statement of Changes in Consolidated Stockholders’ Equity

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

 

Total

 

 

 

Common stock

 

 

Additional

 

 

Accumulated

 

 

comprehensive

 

 

stockholders'

 

 

 

Shares

 

 

$

 

 

paid-in capital

 

 

deficit

 

 

loss

 

 

equity

 

Balance at December 31, 2017

 

 

16,125

 

 

$

161

 

 

$

173,718

 

 

$

(89,186

)

 

$

(9,484

)

 

$

75,209

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(12,667

)

 

 

 

 

 

(12,667

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,573

)

 

 

(1,573

)

Effect of dissolution of ExOne Italy S.r.l.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

309

 

 

 

309

 

Equity-based compensation

 

 

 

 

 

 

 

 

968

 

 

 

 

 

 

 

 

 

968

 

Exercise of employee stock options

 

 

67

 

 

 

1

 

 

 

528

 

 

 

 

 

 

 

 

 

529

 

Common stock issued from equity incentive plan

 

 

42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

16,234

 

 

$

162

 

 

$

175,214

 

 

$

(101,853

)

 

$

(10,748

)

 

$

62,775