20-F 1 vjet-20181231x20f.htm 20-F vjet_Current_Folio_20F

As filed with the Securities and Exchange Commission on March 28, 2019

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20‑F

(Mark One)

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

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

For the fiscal year ended December 31, 2018

OR

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

OR

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

 

Commission file number 001‑36130

 

voxeljet AG

(Exact name of Registrant as specified in its charter)

 

Not Applicable

(Translation of Registrant’s name into English)

 

Federal Republic of Germany

(Jurisdiction of incorporation or organization)

 

Paul‑Lenz Straße 1a

86316 Friedberg, Germany

(Address of principal executive offices)

 

Rudolf Franz, Telephone: (49) 821 7843 100, Facsimile: (49) 821 7843 111,

Address: Paul‑Lenz Straße 1a, 86316 Friedberg, Germany

(Name, Telephone, E‑mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

    

Name of each exchange on which registered

American Depositary Shares each representing one‑fifth of an ordinary share

 

New York Stock Exchange LLC

Ordinary shares, €1.00 nominal value per share*

 

New York Stock Exchange LLC*


*Not for trading purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.

 

None

(Title of Class)

 

Securities registered for which there is a reporting obligation pursuant to Section 15(d) of the Act.

 

None

(Title of Class)

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

 

Ordinary shares: 4,836,000

 

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

☐ Yes  ☒ No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

☐ 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, or an emerging growth company. See definition of “accelerated filer,” large accelerated filer” and “emerging growth company” in Rule 12b‑2 of the Exchange Act. (Check one):

 

Large accelerated filer ☐

Accelerated filer ☒

Non‑accelerated filer ☐

Emerging growth company ☐

 

 

 

 

 

 

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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.

 

†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP ☐

International Financial Reporting Standards as issued
by the International Accounting Standards Board ☒

Other ☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

☐  Item 17  ☐ Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).

 

☐ Yes  ☒ No

 

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

 

☐ Yes  ☐ No

 

 

 

 


 

 

TABLE OF CONTENTS

 

PART I 

 

 

ITEM 1. 

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

3

ITEM 2. 

OFFER STATISTICS AND EXPECTED TIMETABLE

3

ITEM 3. 

KEY INFORMATION

3

ITEM 4. 

INFORMATION ON THE COMPANY

26

ITEM 4A. 

UNRESOLVED STAFF COMMENTS

37

ITEM 5. 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

38

ITEM 6. 

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

53

ITEM 7. 

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

63

ITEM 8. 

FINANCIAL INFORMATION

64

ITEM 9. 

THE OFFER AND LISTING

65

ITEM 10. 

ADDITIONAL INFORMATION

66

ITEM 11. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

76

ITEM 12. 

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

77

PART II 

 

 

ITEM 13. 

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

78

ITEM 14. 

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

78

ITEM 15. 

CONTROLS AND PROCEDURES

78

ITEM 16. 

RESERVED

82

ITEM 16A. 

AUDIT COMMITTEE FINANCIAL EXPERT

82

ITEM 16B. 

CODE OF ETHICS

82

ITEM 16C. 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

83

ITEM 16D. 

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

83

ITEM 16E. 

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

83

ITEM 16F. 

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

83

ITEM 16G. 

CORPORATE GOVERNANCE

83

ITEM 16H. 

MINE SAFETY DISCLOSURE

84

PART III 

 

 

ITEM 17. 

FINANCIAL STATEMENTS

84

ITEM 18. 

FINANCIAL STATEMENTS

84

ITEM 19. 

EXHIBITS

85

 

 

 

 

i


 

SPECIAL NOTE REGARDING FORWARD‑LOOKING STATEMENTS

 

This annual report on Form 20‑F contains forward‑looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements that are not of historical facts may be deemed to be forward‑looking statements. You can identify these forward‑looking statements by words such as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “aims,” or other similar expressions that convey uncertainty of future events or outcomes. Forward‑looking statements appear in a number of places throughout this annual report and include statements regarding our intentions, beliefs, assumptions, projections, outlook, analyses or current expectations concerning, among other things, our intellectual property position, results of operations, cash needs, spending of the proceeds from this offering, financial condition, liquidity, prospects, growth and strategies, the industry in which we operate and the trends that may affect the industry or us.

 

By their nature, forward‑looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industry change, and depend on economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward‑looking statement contained in this annual report, we caution you that forward‑looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. All of our forward‑looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from our expectations.

 

Actual results could differ materially from our forward‑looking statements due to a number of factors, including, without limitation, risks related to:

 

·

our ability to introduce new 3D printers and related print materials acceptable to the market and to improve the technology and print materials used in our current 3D printers;

 

·

fluctuations in our revenues and operating results;

 

·

the long sales cycle for our products, which makes the timing of our production planning and our revenues difficult to predict;

 

·

our ability to adequately increase demand for our products;

 

·

our ability to significantly increase the number of materials for use in our 3D printers fast enough to meet our business plan;

 

·

our dependence upon sales to certain industries;

 

·

our relationships with suppliers, especially with limited source suppliers of components of and consumables for our products;

 

·

our ability to manage the expansion of our operations effectively in order to achieve our projected levels of growth;

 

·

our ability to manage the expansion of our operations effectively in difficult market environments like UK, India and China;

 

·

our ability to attract and retain key management or other key employees;

 

·

our ability to raise additional capital on attractive terms, or at all, if needed to meet our growth strategy as well as to support the continuation of our operation;

 

·

our ability to maintain sufficient internal controls over financial reporting to comply with Section 404 of the Sarbanes-Oxley Act;

 

1


 

·

our ability to mitigate and remediate effectively the material weaknesses in our internal control over financial reporting;

 

·

our ability to obtain patent protection for our products or otherwise protect our intellectual property rights;

 

·

our ability to protect our trade secrets and intellectual property; and

 

·

the other factors listed in “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report.

 

Any forward‑looking statements that we make in this annual report speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission, or SEC after the date of this annual report. See “Item 10. Additional Information—H. Documents on Display.”

 

You should also read carefully the factors described in the “Item 3. Key Information—D. Risk Factors” section of this annual report and elsewhere to better understand the risks and uncertainties inherent in our business and underlying any forward‑looking statements. As a result of these factors, we cannot assure you that the forward‑looking statements in this annual report will prove to be accurate. Furthermore, if our forward‑looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward‑looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all.

 

SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES

 

voxeljet AG is a German stock corporation (Aktiengesellschaft or AG), and its registered offices and substantially all of its assets are located outside of the United States. In addition, most of the members of our Management Board, our Supervisory Board, and our senior management are residents of Germany and jurisdictions other than the United States. As a result, it may not be possible for you to effect service of process within the United States upon these individuals or upon voxeljet AG or to enforce judgments obtained in U.S. courts based on the civil liability provisions of the U.S. securities laws against voxeljet AG in the United States. Awards of punitive damages in actions brought in the United States or elsewhere are generally not enforceable in Germany. In addition, actions brought in a German court against voxeljet AG or the members of its Management Board and Supervisory Board, and its senior management to enforce liabilities based on U.S. federal securities laws may be subject to certain restrictions; in particular, German courts generally do not award punitive damages. Litigation in Germany is also subject to rules of procedure that differ from the U.S. rules, including with respect to the taking and admissibility of evidence, the conduct of the proceedings and the allocation of costs. Proceedings in Germany would have to be conducted in the German language, and all documents submitted to the court would, in principle, have to be translated into German. For these reasons, it may be difficult for a U.S. investor to bring an original action in a German court predicated upon the civil liability provisions of the U.S. federal securities laws against us, the members of our Management Board, Supervisory Board and senior management. In addition, even if a judgment against our company, the non‑U.S. members of our Management Board, Supervisory Board or senior management based on the civil liability provisions of the U.S. federal securities laws is obtained, a U.S. investor may not be able to enforce it in U.S. or German courts.

 

2


 

PART I

 

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3.  KEY INFORMATION

 

A.          SELECTED FINANCIAL DATA

 

We present below our selected historical financial and operating data as of and for each of the years in the five‑year period ended December 31, 2018. The financial data have been derived from our financial statements which have been prepared in accordance with IFRS as issued by the IASB and audited in accordance with the standards of the Public Company Accounting Oversight Board (United States). The financial statements as of December 31, 2018 and 2017 and for each of the years in the three‑year period ended December 31, 2018 are included elsewhere in this annual report. Our historical results are not necessarily indicative of the financial results to be expected in any future periods. You should read this information in conjunction with “Item 5. Operating and Financial Review and Prospects,” and our financial statements and related notes, each included elsewhere in this annual report.

 

3


 

Statement of Comprehensive Loss Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

2018

 

2018

 

2017 (i)

 

2016

 

2015

 

2014

 

 

($ in thousands, except share and per share data) (1)

 

(€ in thousands, except share and per share data)

Revenues

 

$ 30,717

 

€ 26,009

 

€ 23,178

 

€ 22,338

 

€ 24,064

 

€ 16,163

Cost of sales

 

19,916

 

16,864

 

13,853

 

15,435

 

17,147

 

9,838

Gross profit

 

10,800

 

9,145

 

9,325

 

6,903

 

6,917

 

6,325

Selling expenses

 

8,659

 

7,332

 

6,474

 

5,312

 

6,922

 

3,746

Administrative expenses

 

6,598

 

5,587

 

5,129

 

4,563

 

5,178

 

4,026

Research and development expenses

 

7,480

 

6,334

 

5,528

 

5,683

 

5,470

 

4,027

Other operating expenses

 

887

 

751

 

1,844

 

3,881

 

888

 

101

Other operating income

 

(1,532)

 

(1,297)

 

(1,001)

 

(1,417)

 

(2,130)

 

(1,384)

Operating loss

 

(11,293)

 

(9,562)

 

(8,649)

 

(11,119)

 

(9,411)

 

(4,191)

Finance expense

 

1,350

 

1,143

 

190

 

230

 

277

 

472

Finance income

 

(2,305)

 

(1,952)

 

(365)

 

(38)

 

(158)

 

(299)

Financial result

 

(955)

 

(809)

 

(175)

 

192

 

119

 

173

Loss before income taxes

 

(10,337)

 

(8,753)

 

(8,474)

 

(11,311)

 

(9,530)

 

(4,364)

Income tax expenses (benefit)

 

13

 

11

 

80

 

2

 

64

 

(32)

Loss

 

$ (10,350)

 

€ (8,764)

 

€ (8,554)

 

€ (11,313)

 

€ (9,594)

 

€ (4,332)

Other comprehensive (income) loss

 

$ 211

 

€ 179

 

€ (505)

 

€ (1,111)

 

€ 237

 

€ 1

Total comprehensive Loss

 

$ (10,562)

 

€ (8,943)

 

€ (8,049)

 

€ (10,202)

 

€ (9,831)

 

€ (4,333)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

Owner of the Company

 

$ (10,308)

 

€ (8,728)

 

€ (8,538)

 

€ (11,287)

 

€ (9,594)

 

€ (4,332)

Non-controlling interests

 

$ (43)

 

(36)

 

(16)

 

(26)

 

--

 

--

 

 

$ (10,350)

 

€ (8,764)

 

€ (8,554)

 

€ (11,313)

 

€ (9,594)

 

€ (4,332)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

Owner of the Company

 

$ (10,519)

 

€ (8,907)

 

€ (8,033)

 

€ (10,176)

 

€ (9,831)

 

€ (4,333)

Non-controlling interests

 

$ (43)

 

(36)

 

(16)

 

(26)

 

--

 

--

 

 

$ (10,562)

 

€ (8,943)

 

€ (8,049)

 

€ (10,202)

 

€ (9,831)

 

€ (4,333)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share

 

$ (2.62)

 

€ (2.21)

 

€ (2.29)

 

€ (3.04)

 

€ (2.58)

 

€ (1.22)

Weighted average number of ordinary shares outstanding

 

3,940,636

 

3,940,636

 

3,720,000

 

3,720,000

 

3,720,000

 

3,555,616

 

(i) Comparative figures for the year ended December 31, 2017 were restated for immaterial errors. For further information, see Part III, Item 18. Financial Statements, Note 6.

 

Statement of Financial Position Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

2018

 

2018

 

2017 (i)

 

2016

 

2015

 

2014

 

 

($ in thousands) (1)

 

(€ in thousands)

Cash and cash equivalents

 

$ 8,475

 

€ 7,402

 

€ 7,569

 

€ 7,849

 

€ 2,086

 

€ 8,031

Inventories

 

11,523

 

10,064

 

9,259

 

11,213

 

7,841

 

5,247

Fixed assets

 

31,688

 

27,675

 

27,949

 

23,521

 

21,383

 

19,466

Current financial assets

 

14,776

 

12,905

 

14,044

 

12,579

 

31,746

 

41,142

Total assets

 

79,408

 

69,352

 

67,002

 

62,139

 

70,120

 

81,095

Total liabilities

 

26,194

 

22,877

 

23,113

 

10,603

 

8,651

 

9,795

Equity

 

53,214

 

46,475

 

43,889

 

51,536

 

61,469

 

71,300

 

4


 

(i) Comparative figures for the year ended December 31, 2017 were restated for immaterial errors. For further information, see Part III, Item 18. Financial Statements, Note 6.

 

Other Data (unaudited):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

2018

 

2017

 

2016

 

2015

 

2014

 

($ in thousands, except 3D printers sold and per share data) (1)

 

(€ in thousands, except 3D printers sold and per share data)

EBITDA(2)

$ (7,152)

 

€ (6,056)

 

€ (5,486)

 

€ (8,577)

 

€ (6,429)

 

€ (2,048)

Net loss per ADS(3)

$ (0.52)

 

€ (0.44)

 

€ (0.46)

 

€ (0.61)

 

€ (0.52)

 

€ (0.24)

3D printers sold(4)

19

 

19

 

15

 

18

 

18

 

14

 

 

(1)

Amounts in this column are not audited and have been converted from euros to U.S. dollars solely for the convenience of the reader. Balance sheet positions and income statement positions are converted at the exchange rate on December 31, 2018 of $ 1.1450 and the average exchange rate from January 1 until December 31, 2018 of $ 1.1810 per euro, respectively.

 

(2)

We define EBITDA (earnings before interest and other financial result, taxes, depreciation and amortization) as profit (loss) plus income tax expenses (benefit), financial result and depreciation and amortization. Disclosure in this annual report of EBITDA, which is a non‑IFRS financial measure, is intended as a supplemental measure of our performance that is not required by, or presented in accordance with, IFRS. EBITDA should not be considered as an alternative to profit (loss) or any other performance measure derived in accordance with IFRS. Our presentation of EBITDA should not be construed to imply that our future results will be unaffected by unusual or non‑recurring items. However, senior management believes EBITDA is useful to investors and other users of our financial statements in evaluating operating performance because it provides them with an additional tool to compare business performance across companies and across periods.

 

The following table reconciles net loss to EBITDA for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

2018

 

2018

 

2017 (i)

 

2016

 

2015

 

2014

 

 

($ in thousand) (A)

 

(€ in thousands)

Net loss

 

$ (10,350)

 

€ (8,764)

 

€ (8,554)

 

€ (11,313)

 

€ (9,594)

 

€ (4,332)

Income tax expenses (benefit)

 

13

 

11

 

80

 

2

 

64

 

(32)

Financial result

 

(955)

 

(809)

 

(175)

 

192

 

119

 

173

EBIT

 

(11,293)

 

(9,562)

 

(8,649)

 

(11,119)

 

(9,411)

 

(4,191)

Depreciation and amortization

 

4,141

 

3,506

 

3,163

 

2,542

 

2,982

 

2,143

  EBITDA

 

$ (7,152)

 

€ (6,056)

 

€ (5,486)

 

€ (8,577)

 

€ (6,429)

 

€ (2,048)


 

(i) Comparative figures for the year ended December 31, 2017 were restated for immaterial errors. For further information, see Part III, Item 18. Financial Statements, Note 6.

 

(A)

Amounts in this column are not audited and have been converted from euros to U.S. dollars solely for the convenience of the reader at an exchange rate of $ 1.1810 per euro, the average exchange rate from January 1 until December 31, 2018.  

 

(3)

Each ADS represents one‑fifth of an ordinary share.

 

(4)

Includes refurbished 3D printers but does not include test machines or 3D printers involved in sale and leaseback transactions.

 

5


 

B.          CAPITALIZATION AND INDEBTEDNESS

 

Not applicable.

 

C.          REASONS FOR THE OFFER AND USE OF PROCEEDS

 

Not applicable.

 

D. RISK FACTORS

 

Risks Related to Our Business and Industry

 

We may not be able to introduce new 3D printers and related print materials acceptable to the market or to improve the technology and print materials used in our current 3D printers to meet customer demands.

 

Our revenues are derived from the sale new or used and refurbished of 3D printers for, and products manufactured using, additive manufacturing. Our market is subject to innovation and technological change. A variety of technologies compete against one another in our 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 additive manufacturing market depends, in large part, on our success in enhancing and developing new 3D printers, enhancing and adding to our technology and developing and qualifying new materials in 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:

 

·

enhance our existing products and technologies;

 

·

continue to leverage advances in industrial printhead technology;

 

·

develop new products and technologies that address the increasingly sophisticated and varied needs of prospective end‑users, particularly with respect to the physical properties of print materials and other consumables;

 

·

respond to technological advances and emerging industry standards and practices on a cost‑effective and timely basis;

 

·

develop products that are cost effective or that otherwise gain market acceptance; or

 

·

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

 

Even if we successfully enhance our existing 3D printers or create new 3D printers, it is likely that new 3D printers and technologies that we develop will eventually supplant our existing 3D printers or that our competitors will create 3D printers that will replace our 3D printers. As a result, any of our products may be rendered obsolete or uneconomical by our or others’ technological advances.

 

Our revenues and operating results may fluctuate.

 

Our revenues and operating results may fluctuate from quarter‑to‑quarter and year‑to‑year and are likely to continue to vary due to a number of factors, many of which are not within our control. A significant portion of our 3D printer orders are typically received during the second and fourth quarters of the fiscal year as a result of the timing of capital expenditures of our customers. Our 3D printers typically are shipped between three and nine months after an order is received. Thus, revenues and operating results for any future period are not predictable with any significant degree of certainty. We also typically experience weaker demand for our 3D printers in the first and third quarters. For these reasons, comparing our operating results on a period‑to‑period basis may not be meaningful. Until our business grows more significantly, the timing of individual printer sales, because of the cost of our largest printers, can have meaningful effects on and result in fluctuations in our quarterly results. You should not rely on our past results as an indication of our future performance.

 

6


 

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 annual report:

 

·

the degree of market acceptance of our products;

 

·

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

 

·

our long sales cycle including our ability to adapt production to demand;

 

·

the entry of new competitors into our market;

 

·

generally weaker demand for 3D printers in the first and third quarters;

 

·

development of new competitive systems or processes by others;

 

·

changes in our pricing policies or those of our competitors, including our responses to price competition, impacting our ability to realize work in progress at expected gross margins;

 

·

delays between our expenditures to develop and market new or enhanced 3D printers and products and the generation of sales from those products;

 

·

changes in the amount we spend in our marketing and other efforts;

 

·

delays between our expenditures to develop, acquire or license new technologies and processes, and the generation of sales related thereto;

 

·

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

 

·

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

 

·

changes in the size and complexity of our organization, including our operations outside of Europe;

 

·

increased expenses in connection with improving our internal control over financial reporting;

 

·

interruptions to or other problems with our website and interactive user interface, information technology systems, manufacturing processes or other operations;

 

·

general economic and industry conditions that affect end‑user demand and end‑user levels of product design and manufacturing;

 

·

changes in accounting rules and tax laws; and

 

·

changes in interest rates that affect returns on our cash balances and short‑term investments.

 

Our margins and EBIT may fluctuate.

 

Margins in both our Systems and Services segments and our EBIT may fluctuate from quarter‑to‑quarter and year‑to‑year and are likely to continue to vary due to a number of factors, many of which are beyond our control, including fluctuations in foreign exchange rates, increased competition and increased expenses. To pursue our growth strategy, we have expanded by establishing operations in different countries. While the subsidiaries in India and China are in the start‑up phase, we may not be able to achieve our desired gross margin and EBIT targets for those subsidiaries. This may lead to a weaker margin and EBIT contribution from these subsidiaries to us.

 

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The long sales cycle for our products makes the timing of our revenues difficult to predict.

 

Generally, our 3D printers have a long sales cycle. Because our 3D printers are complex and typically involve significant capital investments by prospective purchasers, we and our sales agents generally need to invest a significant amount of time educating prospective purchasers about the benefits of our products. As a result, before purchasing our products, potential purchasers may spend a substantial amount of time performing internal assessments before making a purchase. This may cause us to devote significant effort in advance of a potential sale without any guarantee of receiving any related revenues. Delays in sales could cause significant variability in our revenues and operating results for any particular period. In addition to that, delays in sales could lead to an increase in work in progress resulting in an allowance for slow-moving inventories.

 

Demand for our products may not increase adequately.

 

The marketplace for industrial manufacturing is dominated by conventional manufacturing methods that do not involve additive manufacturing technology. We may not be able to develop effective strategies to raise awareness among potential customers of the benefits of our additive manufacturing technology. If additive manufacturing technology does not gain market acceptance as an alternative for industrial manufacturing, or if the marketplace adopts additive manufacturing based on a technology other than our technology, we may not be able to increase or sustain the level of sales of our products and machines and our results of operations would be adversely affected as a result. If we are not able to manage the conversion from work in progress to sales, it could lead to an undesirable increase of inventory resulting in allowance for slow-moving inventory.

 

We may not be able to significantly increase the number of materials for use in our 3D printers fast enough to meet our business plan, and, if we are successful, we may attract more competitors into our markets, some of which may be much larger than we are. Furthermore, we may not be able to develop our 3D printers to serve in a mass production environment.

 

Our business plan is dependent in part upon our ability to steadily increase the number of qualified materials in which our 3D printers can print, since this will increase our addressable market. However, qualifying new materials is a complicated engineering task, and there is no way to predict whether, or when, any given material will be qualified. If we cannot hire a sufficient number of skilled people to work on qualifying new materials for printing or if we lack the resources necessary to create a steady flow of new materials, we will not be able to meet our business goals and a competitor may emerge that is better at qualifying new materials, either of which would have an adverse effect on our business results.

 

If, however, we succeed in qualifying a growing number of materials for use in our 3D printers as well as developing our 3D printers to serve in a mass production environment, that should increase our addressable market, both as to customers and products for customers. However, as we create a larger addressable market, our market may become more attractive to other 3D printing companies or large companies that are not 3D printing companies but which may see an economic opportunity in the markets we have created. Similarly, if our focus on selling large 3D printers and 3D printed products to industrial companies proves successful, an increase in the number of competitors in that particular market is likely to adversely affect our business and financial results.

 

Customers may decide to order parts rather than to purchase new or used and refurbished 3D printers. This may result in a significant loss of revenues in the Systems segment.

 

Our Systems segment revenues largely depend on our ability to sell new or used and refurbished 3D printers to customers. There may be various reasons why customers may choose to order parts from us rather than to purchase the full 3D printer equipment, such as increased convenience, lower maintenance costs, etc. If there is an increasing trend for our customers to place parts orders in lieu of equipment purchase orders and we are unable to reverse that trend, we may experience significant losses in revenues in the Systems segment, which in turn could adversely affect our business and financial results.

 

We are highly dependent upon sales to certain industries.

 

Our revenues of machines and products are relatively concentrated in companies in the automotive, foundry, film and entertainment, aerospace and art and architecture industries and those industries’ respective suppliers. To the

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extent any of these industries experiences a downturn and we are unable to penetrate and expand into other industries, our results of operations may be adversely affected. Additionally, if any of these industries or their respective suppliers or other providers of manufacturing services develop new technologies or alternatives to manufacture the products that are currently manufactured using our 3D printers, it may adversely affect our results of operations.

 

If our relationships with suppliers, especially with limited source suppliers of components of and consumables for our products, were to terminate or our manufacturing arrangements were to be disrupted, our business could be adversely affected.

 

We purchase components and certain sub‑assemblies for our systems and consumables that are used in our print materials from third‑party suppliers. While there are several potential suppliers of most of the components and sub‑assemblies for our systems, and for most of the consumables for our print materials, we currently choose to use only a limited number of suppliers for several of these components and materials. Our reliance on a limited number of vendors involves a number of risks, including:

 

·

potential shortages of some key components;

 

·

product performance shortfalls, if traceable to particular product components, since the supplier of the faulty component cannot readily be replaced;

 

·

discontinuation of a product on which we rely;

 

·

potential insolvency of these vendors; and

 

·

reduced control over delivery schedules, manufacturing capabilities, quality and costs.

 

In addition, we require any new supplier to become “qualified” pursuant to our internal procedures. The qualification process involves evaluations of varying durations, which may cause production delays if we were required to qualify a new supplier unexpectedly. We generally assemble our systems based on our internal forecasts and the availability of consumables, assemblies, components and finished goods that are supplied to us by third parties, which are subject to various lead times. If certain suppliers were to decide to discontinue production of an assembly, component or consumable that we use, the unanticipated change in the availability of supplies, or unanticipated supply limitations, could cause delays in, or loss of, sales, increased production or related costs and, consequently, reduced margins, and damage to our reputation. If we are unable to find a suitable supplier for a particular component, consumable or compound, we could be required to modify our existing products to accommodate substitute components, consumables or compounds. In addition, because we use a limited number of suppliers, increases in the prices charged by our suppliers may have an adverse effect on our results of operations, as we may be unable to find a supplier who can supply us at a lower price. As a result, the loss of a limited source supplier could adversely affect our relationships with our customers and our results of operations and financial condition.

 

We may not be able to manage the expansion of our operations effectively in order to achieve our projected levels of growth.

 

We have expanded our operations significantly in recent periods, including both our German and U.S. operations, and our business plan calls for further expansion over the next several years, including UK, Asia and North America. After the restructuring of our UK operation, we are more focused in addressing the automotive and aerospace industry. Our expansion in Asia is proceeding through our subsidiaries in India and China. The legal, market and cultural environment in both India and China represent challenges for our management. We anticipate that further development of our infrastructure and an increase in the number of our employees will be required to achieve our planned broadening of our product offerings and client base, improvements in our 3D printers and materials used in our 3D printers, and our ongoing international growth. In particular, we must increase our marketing and services staff to support new marketing and service activities and to meet the needs of both new and existing customers. Our ability to successfully increase our marketing efforts is not guaranteed, and if we are not able to successfully increase our marketing efforts, we may not be able to grow our business as intended. Our future success will depend in part upon the ability of our management to manage our growth effectively. If our management is unsuccessful in meeting these challenges, we may not be able to achieve our anticipated level of growth, which would adversely affect our results of operations.

 

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Our operations could suffer if we are unable to attract and retain key management or other skilled employees.

 

Our success depends upon the continued service and performance of our senior management and other key personnel. Our senior management team is critical to the management of our business and operations, as well as to the development of our strategy. The loss of the services of any members of our senior management team could delay or prevent the successful implementation of our growth strategy, or the commercialization of new applications for our 3D printers or other products, or could otherwise adversely affect our ability to manage our company effectively and carry out our business plan. Members of our senior management team may resign at any time. High demand exists for senior management and other key personnel in the additive manufacturing industry, and there can be no assurance that we will be able to retain such personnel. We do not carry key‑man insurance on any member of our senior management team.

 

Our growth and success will also depend on our ability to attract and retain additional highly‑qualified scientific, technical, sales, managerial and finance personnel. We have experienced and expect to continue to experience intense competition for qualified personnel. While we intend to continue to provide competitive compensation packages to attract and retain key personnel, some of our competitors for these employees have greater resources and more experience, making it difficult for us to compete successfully for key personnel. If we cannot attract and retain sufficiently qualified technical employees for our research and development and manufacturing operations, we may be unable to develop and commercialize new products or new applications for existing products. Furthermore, possible shortages of skilled personnel, including engineers, in the regions surrounding our European facilities as well as our facilities in China and India could require us to pay more to hire and retain skilled personnel, thereby increasing our costs.

 

We may need to raise additional capital from time to time in order to meet our growth strategy as well as to support the continuation of our operation and may be unable to do so on attractive terms, or at all.

 

We intend to continue to make investments to support the growth of our business and may require additional funds to respond to business challenges, including the need to implement our growth strategy, increase market share in our current markets or expand into other markets, or broaden our technology, intellectual property or service capabilities. Accordingly, we 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 noncompliance with existing or future lending arrangements, additional financing, including raising capital by issuing equity and lease financing for sale and leaseback transactions, 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 on terms satisfactory to us, we may not be able to achieve our planned rate of growth, which will adversely affect our results of operations.

 

We need certain commercial success of the financed research and development project.

 

We entered into an investment loan commitment of a total of € 25.0 million with the European Investment Bank. This loan commitment is guaranteed by European Union under the European Fund for Strategic Investments and is limited to 50% of the total cost of a research and development project. The first loan tranche A of € 10.0 million was already disbursed, further € 15.0 million disbursement of tranches B and C depend on sales and EBITDA performance targets. The scheduled repayment of any disbursed loan tranches including interest will depend on the success of the financed research and development project.

 

We face significant competition in many aspects of our business, which could cause our revenues and gross profit margins 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

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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 have announced beginning production of 3D printers, which will further enhance the competition we face.

 

We intend to continue to follow a strategy of continuing 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.

 

If we are not able to convert our work in progress into sales, it could lead to an undesirable increase of inventory and consequently to an allowance for slow-moving inventory.

 

Our operations outside of Germany subject us to various risks, and our failure to manage these risks could adversely affect our results of operations.

 

Our business is subject to certain risks associated with doing business globally. Our sales outside of Germany represented 75%, 75%, and 73% of our total sales in 2018,  2017, and 2016, respectively. We currently have subsidiaries in China, India, the UK and the United States. One of our growth strategies is to further pursue opportunities for our business in several areas around the world, both inside and outside of Germany and Europe, any or all of which could be adversely affected by the risks set forth below. Accordingly, we face significant operational risks as a result of doing business internationally, such as:

 

·

fluctuations in foreign currency exchange rates;

 

·

potentially longer sales and payment cycles;

 

·

potentially greater difficulties in collecting accounts receivable;

 

·

potentially adverse tax consequences;

 

·

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

 

·

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

 

·

difficulties in staffing and managing foreign operations, particularly in new geographic locations;

 

·

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

 

·

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;

 

·

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

 

·

seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe;

 

·

costs and difficulties of customizing products for foreign countries;

 

·

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

 

·

transportation delays;

 

·

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

11


 

 

·

becoming subject to the laws, regulations and court systems of multiple jurisdictions.

 

Our failure to manage the market and operational risks associated with our international operations effectively could limit the future growth of our business and adversely affect our results of operations.

 

Our international operations pose currency risks, which may adversely affect our operating results and net income.

 

Our operating results may be affected by volatility in currency exchange rates and our ability to effectively manage our currency transaction risks. Currency exchange rate fluctuations have had an impact on our results because voxeljet AG provided intercompany loans to its subsidiaries in foreign currency. As we realize upon our strategy to expand internationally, our exposure to currency risks will increase. We do not manage our foreign currency exposure in a manner that would eliminate the effects of changes in foreign exchange rates. Therefore, changes in exchange rates between these foreign currencies and the euro will affect our revenues, cost of goods sold, and operating margins, and could result in exchange losses in any given reporting period.

 

We incur currency transaction risks whenever we enter into either a purchase or a sale transaction using a different currency from the currency in which we report revenues. In such cases we may suffer an exchange loss because we do not currently engage in currency swaps or other currency hedging strategies to address this risk.

 

Given the volatility of exchange rates, we can give no assurance that we will be able to effectively manage our currency transaction risks or that any volatility in currency exchange rates will not have an adverse effect on our results of operations.

 

We may engage in future acquisitions that could disrupt our business, cause dilution to our shareholders and harm our financial condition and operating results.

 

While we currently have no specific plans to acquire any other businesses, we may, in the future, engage in joint ventures with or make acquisitions of, or investments in, companies that we believe have products or capabilities that are a strategic or commercial fit with our current business or otherwise offer opportunities for our company. In connection with these acquisitions or investments, we may:

 

·

issue ADSs or other forms of equity that would dilute our existing shareholders’ percentage of ownership;

 

·

incur debt and assume liabilities; and

 

·

incur amortization expenses related to intangible assets or incur large and immediate write‑offs.

 

We may not be able to complete future acquisitions on favorable terms, if at all. If we do complete an additional acquisition, we cannot assure you that it will ultimately strengthen our competitive position or that it will be viewed positively by customers, financial markets or investors. Furthermore, future acquisitions could pose numerous additional risks to our operations, including:

 

·

problems integrating the purchased business, products or technologies;

 

·

challenges in achieving strategic objectives, cost savings and other anticipated benefits;

 

·

increases to our expenses;

 

·

the assumption of significant liabilities that exceed the limitations of any applicable indemnification provisions or the financial resources of any indemnifying party;

 

·

inability to maintain relationships with key customers, vendors and other business partners of the acquired businesses;

 

·

diversion of management’s attention from their day‑to‑day responsibilities;

 

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·

difficulty in maintaining controls, procedures and policies during the transition and integration;

 

·

entrance into marketplaces where we have no or limited prior experience and where competitors have stronger marketplace positions;

 

·

potential loss of key employees, particularly those of the acquired entity

 

 

Global economic, political and social conditions have adversely impacted our sales and may continue to do so.

 

The uncertain direction and relative strength of the global economy, difficulties in the financial services sector and credit markets, continuing geopolitical uncertainties and other macroeconomic factors all affect spending behavior of potential end users of our products. The prospects for economic growth in Europe, the United States, India, China and other countries remain uncertain and may cause end users to further delay or reduce technology purchases. In particular, a substantial portion of our sales are made to customers in countries in Europe, which has experienced a significant economic crisis beginning in 2007.

 

For example, in June 2016, the UK held a non-binding advisory referendum in which voters voted for the UK to exit the EU ("Brexit"). The referendum has created significant uncertainty about the future relationship between the UK and the EU.  Political or geographical events, such as Brexit, or diplomatic tensions could result in changes in trade policy, taxes, market volatility or currency exchange rate fluctuations, and resulting uncertainty in the economy and markets that could have a long-term adverse impact on our results and financial condition, particularly as a result of increased trade barriers in the form of customs duties in relation to the European single market. In extreme cases, we could experience interruptions in production due to the processing of customs formalities or reduced customer spending in the wake of weaker economic performance.  If global economic conditions remain volatile for a prolonged period or if European economies experience further disruptions, our results of operations could be adversely affected.

 

Failure to comply with the U.S. Foreign Corrupt Practices Act or other applicable anti‑corruption legislation could result in fines, criminal penalties and an adverse effect on our business.

 

We operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti‑corruption laws. We are subject, however, to the risk that our officers, directors, employees, agents and collaborators may take action determined to be in violation of such anti‑corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act 2010 and the European Union Anti‑Corruption Act, as well as trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of Commerce. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties or curtailment of operations in certain jurisdictions, and might adversely affect our results of operations. In addition, actual or alleged violations could damage our reputation and ability to do business.

 

Our indebtedness could adversely affect our financial condition.

 

We have a total debt of € 17.2 million outstanding as of December 31, 2018 out of which €10 million is borrowed from the European Investment Bank (EIB). We are obliged to pay a Performance Participation Interest (PPI) on an increase of the market price of our shares. Payment of this PPI to EIB may adversely affect our financial condition and have a significant negative impact our cash flows.

 

We incur significant costs in our efforts to remediate material weaknesses.

 

As of December 31, 2018, we did not maintain an effective control environment. Material weaknesses and control deficiencies were identified in our internal controls over financial reporting. We have developed and are in the process of implementing various measures in connection with our remediation of the material weaknesses identified in our ongoing efforts to improve our internal control over financial reporting. We will continue to expend significant financial and information-technology resources to remediate these material weaknesses and deficiencies. The process of remediating these material weaknesses and deficiencies may divert the attention of management and other resources from our ongoing business, and this remediation process, if we are successful at all, may require several years to complete.

 

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We rely on our information technology systems to manage numerous aspects of our business and customer and supplier relationships, and a disruption of these systems could adversely affect our results of operations.

 

We rely on our information technology, or IT, systems to manage numerous aspects of our business and provide analytical information to management. 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 our IT systems could significantly limit our ability to manage and operate our business efficiently. In 2018, we did not have effective general information technology general controls (GITCs) over our information technology system that supports the Company’s financial reporting processes to ensure that information used in financial reporting is timely, current, accurate, complete, accessible, protected and verifiable and retained, specifically inappropriate user creation and authorization assignment and ineffective program change management due to lack of proper documentation and approval. Accordingly, automated process-level controls and manual controls that are dependent upon the completeness and accuracy of information derived from IT systems are also determined to be ineffective. Additionally, the Company did not have effective end-user computing controls over manual spreadsheets used in the financial reporting process. Further, 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, computer viruses and other disruptive events. Any such disruption could adversely affect our reputation, brand and financial condition.

 

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 systems may contain undetected defects or errors when first introduced or as enhancements are released that, despite testing, are not discovered until after a system has been used. This could result in delayed market acceptance of those systems 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.

 

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

 

Customers may use our 3D printers to print parts that could be used in a harmful way or could otherwise be dangerous. For example, there have been news reports that 3D printers were used to print guns or other weapons. We have little, if any, control over what objects our customers print using our 3D printers, and it may be difficult, if not impossible, for us to monitor and prevent customers from printing weapons with our 3D printers. While we have never printed weapons in any of our service centers, 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 printers.

 

A loss of a significant number of our sales agents would impair our ability to sell our products and services and could reduce our revenues and adversely impact our operating results.

 

We expect a significant portion of our sales of our products to be made with the assistance of our network of sales agents. We rely heavily on these sales agents to facilitate sales of our products to end‑users in their respective geographic regions. Furthermore, we rely on sales agents to service our products. These sales agents are generally not precluded from selling our competitors’ products in addition to ours. In addition, they may not be effective in selling our products or servicing our end‑users. Further, if a significant number of these sales agents were to terminate their relationships with us or otherwise fail or refuse to facilitate sales of our products, we may not be able to find replacements that are as qualified or as successful. If these sales agents do not perform as anticipated or if we are unable to find qualified and successful replacements, our sales will suffer, which would have a material adverse effect on our revenues and operating results.

 

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Workplace accidents or environmental damage could result in substantial remedial obligations and damage to our reputation.

 

Accidents or other incidents that occur at our facilities or involve our personnel or operations could result in claims for damages against us. In addition, in the event we are found to be financially responsible, as a result of environmental or other laws or by court order, for environmental damages alleged to have been caused by us or occurring on our premises, we could be required to pay substantial monetary damages or undertake expensive remedial obligations. The amount of any costs, including fines or damages payments that we might incur under such circumstances could substantially exceed any insurance we have to cover such losses. Any of these events, alone or in combination, could have a material adverse effect on our business, financial condition and results of operations and could adversely affect our reputation.

 

Our operations are subject to environmental laws and other government regulations which could result in liabilities in the future.

 

We are subject to domestic and foreign environmental laws and regulations governing our operations, including, but not limited to, emissions into the air and water and the use, handling, disposal and remediation of hazardous substances. A certain risk of environmental liability is inherent in our production activities. Under certain environmental laws, we could be held solely or jointly and severally responsible, regardless of fault, for the remediation of any hazardous substance contamination at our facilities and at facilities where our products are used and the respective consequences arising out of human exposure to such substances or other environmental damage. We may not have been and may not be at all times in complete compliance with environmental laws, regulations and permits, and the nature of our operations exposes us to the risk of liabilities or claims with respect to environmental and worker health and safety matters. If we violate or fail to comply with environmental laws, regulations and permits, we could be subject to penalties, fines, restrictions on operations or other sanctions, and our operations could be interrupted.

 

The cost of complying with current and future environmental, health and safety laws applicable to our operations, or the liabilities arising from past releases of, or exposure to, hazardous substances, may result in future expenditures. Any of these developments, alone or in combination, could have a material adverse effect on our business, financial condition and results of operations.

 

We may not have adequate insurance for potential liabilities, including liabilities arising from litigation.

 

In the ordinary course of business, we have been, and in the future may be, subject to various product and non‑product related claims, lawsuits and administrative proceedings seeking damages or other remedies arising out of our commercial operations, including litigation related to defects in our products. We maintain insurance to cover our potential exposure for most claims and losses. However, our insurance coverage is subject to various exclusions, self‑retentions and deductibles, may be inadequate or unavailable to protect us fully, and may be cancelled or otherwise terminated by the insurer. Furthermore, we face the following additional risks related to our insurance coverage:

 

·

we may not be able to continue to obtain insurance coverage on commercially reasonable terms, or at all;

 

·

we may be faced with types of liabilities that are not covered under our insurance policies, such as environmental contamination or terrorist attacks, and that exceed any amounts that we may have reserved for such liabilities;

 

·

the amount of any liabilities that we may face may exceed our policy limits; and

 

·

we may incur losses resulting from the interruption of our business that may not be fully covered under our insurance policies.

 

Even a partially uninsured claim of significant size, if successful, could have a material adverse effect on our business, financial condition, results of operations and liquidity. However, even if we successfully defend ourselves against any such claim, we could be forced to spend a substantial amount of money in litigation expenses, our management could be required to spend valuable time defending these claims and our reputation could suffer, any of which could adversely affect our results of operations.

 

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If our manufacturing facility or any of our on‑demand parts service centers are disrupted, sales of our products may be affected, which could result in loss of revenues and unforeseen costs.

 

We manufacture our machines at our facility in Germany. We currently operate on‑demand parts service centers located in Germany, the United Kingdom, the United States, China and plan to operate in other locations in the future. If the operations of these facilities are materially disrupted, whether by natural disasters, demonstrations, acts of terror, or otherwise, we would be unable to fulfill customer orders for the period of the disruption, we would not be able to recognize revenues on orders, we could suffer damage to our reputation, and we might need to modify our standard sales terms to secure the commitment of new customers during the period of the disruption and perhaps longer. Depending on the cause of the disruption, we could incur significant costs to remedy the disruption and resume product shipments. Such a disruption could have an adverse effect on our results of operations.

 

We may have exposure to greater than anticipated tax liabilities which could adversely affect our operating results.

 

Our future income taxes could be adversely affected by changes in tax laws, regulations, accounting principles or interpretations thereof, in jurisdictions around the world. In addition, there is a risk that amounts paid or received in transactions between us and one of our international subsidiaries could be deemed for transfer pricing purposes to be lower or higher than we previously recognized or expected to recognize, or that distributions to us from one of our international subsidiaries could be subject to withholding tax. Our determination of our tax liability is always subject to review by applicable tax authorities. Any negative outcome of such a review could have an adverse effect on our operating results and financial condition. In addition, the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment, and there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and could adversely affect our operating results.

 

Risks Related to Our Intellectual Property

 

If we are unable to obtain patent protection for our products or otherwise protect our intellectual property rights, our business could suffer.

 

We rely on a combination of patents, trademarks, trade secrets and confidentiality agreements and other contractual arrangements with our employees, end‑users and others to maintain our competitive position. Our success depends, in part, on our ability to obtain patent protection for or maintain as trade secrets our proprietary products, technologies and inventions and to maintain the confidentiality of our trade secrets and know‑how, operate without infringing upon the proprietary rights of others and prevent others from infringing upon our business proprietary rights.

 

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. We cannot assure you that any of our existing or future patents or other 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. In addition, our pending patent applications may not be granted, and we may not be able to obtain foreign patents or elect to file applications corresponding to our U.S. and E.U. patents. The laws of certain countries outside the United States and European Union may not provide the same level of patent protection as in the United States and the European Union, so even if we assert our patents or obtain additional patents in countries outside of the United States and the European Union, effective enforcement of such patents 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.

 

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

 

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, much of our key technology is not protected by patents. Furthermore, patents are jurisdictional in nature and therefore only protect us in certain markets, rather than globally. In particular, in fast‑growing markets such as China and India, our technology is not protected by patents. We have devoted substantial

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resources to the development of our technology, trade secrets, know‑how and other unregistered proprietary rights. While we enter into confidentiality and invention assignment agreements intended to protect such rights, such agreements can be difficult and costly to enforce or may not provide adequate remedies if violated. Such agreements may be breached and confidential information may be willfully or unintentionally disclosed, or our competitors or other parties may learn of the information in some other way. Since 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.

 

We enjoy license rights and exclusivity of certain patents and intellectual property and cannot adequately estimate the effects of their expiration upon the entrance or advancement of competitors into the additive manufacturing industrial market.

 

We have exclusive and non‑exclusive license rights to certain patents that we utilize in the industrial market. Some of these patents have already expired, and others will expire within the next one to three years. We cannot adequately estimate the effect that the expiration of these patents will have upon the entrance or advancement of other additive manufacturing manufacturers into the industrial market. See “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”

 

We may be subject to claims alleging patent infringement.

 

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.

 

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

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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.

 

Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non‑compliance with these requirements.

 

Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office, or USPTO, and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non‑compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non‑payment of fees and failure to properly legalize and submit formal documents. If we or our exclusive licensors fail to maintain the patents and patent applications covering our products and processes, our competitive position would be adversely affected.

 

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. As we expand our operations into the United States and elsewhere, we may face similar claims with regard to our future employees in these countries.

 

Certain of our employees and patents are subject to German law.

 

The majority 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 management’s 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 and we may be required under German law to increase the compensation due to such employees for the use of the patents. 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.

 

If we fail to comply with our obligations under our intellectual property-related agreements or if we receive an adverse court decision in a lawsuit regarding these agreements, we could lose rights that are important to our business or be subject to restrictions on the conduct of our business.

We have license and co-ownership agreements with respect to certain intellectual property that is important to our business with both Z Corp and The ExOne Company, or ExOne, respectively, that impose restrictions on our use of certain intellectual property. We are party to other intellectual property-related agreements that also are important to our

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business. Disputes may arise between the counterparties to these agreements and us that could result in termination of these agreements, costly litigation or arbitration that diverts management’s attention and company resources, regulatory review or restrictions on the conduct of our business. If we fail to comply with our obligations under our intellectual property-related agreements, or receive an adverse court decision in a lawsuit regarding these agreements, the counterparties may have the right to terminate these agreements or sue us for damages or equitable remedies, including injunctive relief. Termination of these agreements, the reduction or elimination of our rights under these agreements, or the imposition of restrictions under these agreements may result in our having to negotiate new or reinstated licenses with less favorable terms, or to cease commercialization of licensed technology and products. This could materially adversely affect our business. In March 2018, ExOne GmbH, a subsidiary of ExOne, notified us of their intent not to pay their annual license fees under an existing intellectual property-related agreement and asserted their rights to claim damages pursuant to an alleged material breach of the agreement. While we dispute these claims, the matter could result in one or more of the risks discussed herein. 

 

Certain technologies and patents have been developed with partners and we may face restrictions on this jointly‑developed intellectual property.

 

We have entered into cooperation agreements with a number of industrial and commercial partners, as well as university partners. We have, in some cases individually and in other cases along with our partners, filed for patent protection for a number of technologies developed under these agreements and may in the future file for further intellectual property protection and/or seek to commercialize such technologies. Under some of these agreements, certain intellectual property developed by us and the relevant partner may be subject to joint ownership by us and the partner and our commercial use of such intellectual property may be restricted, or may require written consent from, or a separate agreement with, the partner. In other cases, we may not have any rights to use intellectual property solely developed and owned by the partner. If we cannot obtain commercial use rights for such jointly‑owned intellectual property or partner‑owned intellectual property, our future product development and commercialization plans may be adversely affected.

 

Risks related to our ADSs

 

The price of our ADSs may fluctuate significantly.

 

The stock market generally, including our ADSs, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of listed companies. Broad market and industry factors may negatively affect the market price of our ADSs, regardless of our actual operating performance. The market price and liquidity of the market for our ADSs may fluctuate and may be significantly affected by numerous factors, some of which are beyond our control. 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;

 

·

our material weakness in our internal controls;

 

·

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 and the related risk of obsolete inventory;

 

·

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 3D printers;

 

·

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

 

·

announcements of acquisitions by us or one of our competitors;

 

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·

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 revenues or net income from levels expected by investors or securities analysts; and

 

·

general economic trends and other external factors.

 

Substantial future sales of our ordinary shares or ADSs in the public market, or the perception that these sales could occur, could cause the price of the ADSs to decline.

 

Future sales of a substantial number of our shares or ADSs, or the perception that such sales will occur, could cause a decline in the market price of the ADSs. We have filed a registration statement on Form F-3 with the SEC utilizing a "shelf" registration process, and such shelf registration statement was declared effective on August 28, 2017. Under this shelf registration process, subject to any applicable US securities law rules and regulations, we may offer from time to time up to an aggregate of $75,000,000 of our ordinary shares, debt securities, warrants and rights to subscribe for ordinary shares, in one or more offerings. Pursuant to such shelf registration statement, in October 2018, we issued 972,000 ordinary shares, equivalent to 4,860,000 ADSs, in an underwritten public offering (the “October 2018 Issuance”). In November 2018, we issued additional 144,000 ordinary shares, equivalent to 720,000 ADSs, upon the exercise of the over-allotment option exercised by the underwriter (the “November 2018 Issuance” and together with the October 2018 Issuance, the “Issuance”).  

 

To the extent that we raise additional funds through the issuance and sale of equity or other securities that are convertible into or exchangeable for, or that represent the right to receive, ordinary shares or substantially similar securities, the terms may include liquidation or other preferences that adversely affect shareholder rights and the existing shareholders' ownership interests will be diluted if the statutory shareholders' subscription right is not exercised by the shareholders or is excluded by the general shareholders' meeting or the management board.  

 

To the extent that we raise additional funds through the issuance and sale of equity or other securities that are convertible into or exchangeable for, or that represent the right to receive, ordinary shares or substantially similar securities, the terms may include liquidation or other preferences that adversely affect shareholder rights and the existing shareholders' ownership interests will be diluted if the statutory shareholders' subscription right is not exercised by the shareholders or is excluded by the general shareholders' meeting or the management board.

 

Under the German Stock Corporation Act, every shareholder is entitled to subscription rights for new ordinary shares to be issued or for other new securities that are convertible into or exchangeable for, or that represent the right to receive, ordinary shares or substantially similar securities.

 

However, our shareholders at the general shareholders' meeting can resolve to exclude such statutory subscription rights with an affirmative vote of a majority of at least three-quarters of the share capital represented at the meeting. An exclusion of subscription rights also requires a report from the management board to the effect that the interests of our company in excluding the subscription rights outweigh the interests of the shareholders to be entitled to a subscription. An exclusion of subscription rights may be permissible without such justification if our company is increasing the capital in return for cash contributions, the amount of the capital increase does not exceed 10 per cent of the existing share capital of our company, and the issue price of the new shares is not significantly lower than the trading price for shares in our company of the same class and having the same features already listed at the time of the final determination of the issue price. The trading price may also be determined by the market price of an ADS listed on the New York Stock Exchange, multiplied by the number of ADSs which represent a share.

 

Shareholders at the general shareholders' meeting may also authorize the management board to exclude the statutory shareholders' subscription right for new ordinary shares to be issued or for other new securities that are convertible into or exchangeable for, or that represent the right to receive, ordinary shares or substantially similar securities.

 

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After the Issuance, the management board is utilizing the authorized share capital pursuant to Section 5 of the articles of association of our company – which authorizes the management board, with the consent of the supervisory board, to increase our company's registered share capital in one or more tranches by up to an additional EUR 744,000 by issuing up to 744,000 new shares (equivalent to 3,720,000 ADSs) against contributions in cash or in kind.  The management board is  authorized to exclude the statutory shareholders' subscription rights with the consent of the supervisory board (i) to exclude fractional amounts resulting from the subscription ratio from the statutory shareholders' subscription right, (ii) in case of capital increases in kind, in particular, but without limitation, to acquire companies, divisions of companies or interests in companies or (iii) in case of capital increases in cash provided that the issue price of the new shares is not substantially lower than the trading price for shares in our company of the same class and having the same conditions already listed at the time of the final determination of the issue price (the trading price shall also be understood to mean the price of an ADS listed at the New York Stock Exchange multiplied by the number of ADSs representing one share) and further provided that the amount of the share capital represented by the shares issued in this context under the exclusion of the statutory shareholders' subscription tight does not exceed 10 per cent of the share capital both at the time when such authorization came into effect and when it is utilized.

 

In addition, shareholders at the general shareholders' meeting may from time to time cancel, amend or grant new authorizations to the management board to exclude the statutory shareholders' subscription rights, also for capital increases in cash for the purpose of issuing shares that are to be placed on the US capital market or with institutional investors from any jurisdiction by means of ADSs, and in the same context also to cover an over-allotment option granted to the issuing banks.

 

Our principal shareholders and management own a significant percentage of our ordinary shares and will be able to exert significant influence over matters subject to shareholder approval.

 

Members of our Management Board currently beneficially own 18.2% of our ordinary shares (including ordinary shares represented by ADSs). These shareholders have significant influence over the outcome of all matters requiring shareholder approval. For example, these shareholders may be able to influence the outcome of elections of members of our Supervisory Board, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transactions. This may prevent or discourage unsolicited acquisition proposals or offers for our ordinary shares or ADSs that you may feel are in your best interest as one of our shareholders. The interests of this group of shareholders may not always coincide with your interests or the interests of other shareholders, and they may act in a manner that advances their best interests and not necessarily those of other shareholders, including seeking a premium value for their ordinary shares, which might affect the prevailing market price for our ADSs.

 

Holders of our ADSs may not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right to vote.

 

Except as described in this annual report and the deposit agreement relating to our ADSs, holders of the ADSs will not be able to exercise voting rights attaching to the ordinary shares evidenced by the ADSs on an individual basis. Under the terms of the deposit agreement, holders of the ADSs appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the ordinary shares represented by the ADSs. You may not receive voting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.

 

You may not receive distributions on our ordinary shares represented by the ADSs or any value for them.

 

Under the terms of the deposit agreement relating to our ADSs, the depositary for the ADSs has agreed to pay to you the cash dividends, if any, or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to holders of ADSs. In addition, with respect to distributions of rights to subscribe for additional ordinary shares or ADSs, such distributions will only be made if we request such rights be made available to holders of the ADSs. We have no obligation to take any other action to permit the distribution of the ADSs, ordinary shares, rights or anything else to holders of the ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value from them. These restrictions may have a material adverse effect on the value of your ADSs.

 

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We have no present intention to pay dividends on our ordinary shares in the foreseeable future and, consequently, your only opportunity to achieve a return on your investment during that time is if the price of our ADSs appreciates.

 

We have no present intention to pay dividends on our ordinary shares in the foreseeable future. Any recommendation by our Management and Supervisory Boards to pay dividends will depend on many factors, including our financial condition, results of operations, legal requirements and other factors. Accordingly, if the price of our ADSs declines in the foreseeable future, you will incur a loss on your investment, without the likelihood that this loss will be offset in part or at all by potential future cash dividends.

 

As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the SEC than U.S. companies. This may limit the information available to holders of ADSs.

 

We are a “foreign private issuer,” as defined in the SEC rules and regulations, and, consequently, we are not subject to all of the disclosure requirements applicable to companies organized within the United States. For example, we are exempt from certain rules under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, members of our Management Board and Supervisory Board and our principal shareholders are exempt from the reporting and “short‑swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less publicly‑available information concerning our company than there is for U.S. public companies.

 

As a foreign private issuer, we file an annual report on Form 20‑F within four months of the close of each year ended December 31 and furnish reports on Form 6‑K relating to certain material events promptly after we publicly announce these events. In addition, under the New York Stock Exchange Listed Company Manual, we must submit to the SEC a Form 6-K that includes interim earnings reports on a semi-annual basis. Although we intend to issue quarterly financial information, because of the above exemptions for foreign private issuers, we are not required to do so, and, therefore, holders of our ADSs may not be afforded the same protections or information generally available to investors holding shares in public companies organized in the United States.

 

As a foreign private issuer, we are not subject to certain New York Stock Exchange corporate governance rules applicable to U.S. listed companies.

 

We rely on provisions in the New York Stock Exchange Listed Company Manual that permit us to follow our home country corporate governance practices with regard to certain aspects of corporate governance. This allows us to follow German corporate law and the German Corporate Governance Code, which differ in significant respects from the corporate governance requirements applicable to U.S. companies listed on the New York Stock Exchange.

 

In accordance with our New York Stock Exchange listing, our Audit Committee is required to comply with or satisfy an exemption from the provisions of Section 301 of the Sarbanes‑Oxley Act and Rule 10A‑3 of the Exchange Act, both of which are also applicable to listed U.S. companies. Because we are a foreign private issuer, however, we generally are permitted to follow home country practice in lieu of the corporate governance standards provided in the New York Stock Exchange Listed Company Manual. In particular, we are not required to comply with the requirements that the members of our Audit Committee satisfy financial literacy standards, that a majority of the members of our Supervisory Board must be independent, that our Audit Committee and Compensation and Nominating Committee adopt written charters and that we adopt and disclose corporate governance guidelines. If some investors find the ADSs less attractive as a result of these differences, there may be a less active trading market for the ADSs and the price of the ADSs may be more volatile. See “Item 16G. Corporate Governance.”

 

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

 

As a foreign private issuer, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act and related rules and regulations. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter. Accordingly, we

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will next make a determination with respect to our foreign private issuer status on June 30, 2019. There is a risk that we will lose our foreign private issuer status in the future.

 

We would lose our foreign private issuer status if, for example, more than 50% of our assets are located in the United States and we continue to fail to meet additional requirements necessary to maintain our foreign private issuer status. As of December 31, 2018, approximately 11% of our assets were located in the United States, although this may increase as we expand our operations in the United States. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly greater than the costs we incur as a foreign private issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. We would be required under current SEC rules to prepare our financial statements in accordance with U.S. GAAP and modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. Such conversion and modifications would involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on the New York Stock Exchange that are available to foreign private issuers such as the ones described above and exemptions from procedural requirements related to the solicitation of proxies.

 

Because we are no longer an “emerging growth company,” as defined in the JOBS Act, we must incur additional expenses and devote increased management time to compliance with additional disclosures that are applicable to companies that are not emerging growth companies.

 

For as long as we qualified as an emerging growth company, we were permitted to take advantage of reduced regulatory and reporting requirements that are otherwise generally applicable to public companies. These included, without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and other public filings. However, because we ceased to be an emerging growth company effective as of December 31, 2018, we have incurred and expect in the future to incur additional expenses and to devote increased management time toward ensuring compliance with those requirements applicable to companies that are not emerging growth companies.

 

In particular, beginning with this Annual Report on Form 20-F, our independent registered public accounting firm is required to provide an annual attestation report regarding the effectiveness of our internal control over financial reporting. Testing and maintaining internal control over financial reporting can divert our management’s attention from other matters that are important to the operation of our business. If our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our ADSs could be negatively affected, and we could become subject to investigations by the SEC or other regulatory authorities or to stockholder litigation, which could have an adverse impact on the market price or our common stock and cause us to incur additional expenses.

 

Changes in accounting standards could impact our reported results.

 

The IASB, or other regulatory bodies, periodically introduce modifications to financial accounting and reporting standards or issue new financial accounting and reporting standards under which we prepare our consolidated financial statements. These changes can materially impact the means by which we report financial information, affecting our reported results of operations. Also, we could be required to apply new or revised standards retroactively.

 

More specifically, several new or amended standards and interpretations to IFRS are expected over the coming years. In particular, IFRS 16  “Leases” went into effect on January 1, 2019. With respect to IFRS 16, we have evaluated our assessment of the impact thereof. 

 

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Our management has concluded that our disclosure controls and procedures are ineffective due to material weaknesses in our internal control over financial reporting. If we are unable to establish and maintain effective internal control over financial reporting or if we are unable to remediate these material weaknesses, our ability to produce accurate and reliable financial statements could be impaired, and the market price of our ADSs may be negatively affected.

 

The Sarbanes‑Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In connection with the preparation of our financial statements as of December 31, 2018, we concluded there were a material weaknesses in our control environment. A material weakness is a 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 and corrected on a timely basis. See “Item 15. Controls and Procedures.”.  

 

In addition, as of December 31, 2017 and December 31, 2016, we identified a material weakness in non-standard transactions, including revenue recognition for non-standard service transactions, which are not reviewed in sufficient detail by personnel with appropriate technical expertise to ensure that the accounting treatment in accordance with IFRS is appropriate, and in the design and operations of controls over financial reporting that resulted from the lack of controls over the valuation of work-in-process inventories, respectively.

 

While we have remediated prior material weaknesses, we cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Our 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. In addition, we may not be able to prevent or detect a material misstatement in our financial statements on a timely basis or at all. Such misstatements could result in a future restatement of our financial statements, could cause us to fail to meet our reporting obligations, or could cause investors to lose confidence in our reported financial information, leading to a decline in the price of our ADSs or litigation. Furthermore, our reputation could be harmed and our customers’ and partners’ confidence in us may be impaired, all of which could damage our business. See “Item 15. Controls and Procedures.”

 

We incur significant increased costs as a result of operating as a company whose ADSs are publicly traded in the United States, and our management is required to devote substantial time to new compliance initiatives.

 

As a company whose ADSs commenced trading in the United States in October 2013, we incur significant legal, accounting, insurance and other expenses that we did not incur before going public. In addition, the Sarbanes Oxley Act, the Dodd‑Frank Wall Street Reform and Consumer Protection Act and related rules implemented by the SEC and the New York Stock Exchange have imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel must devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time‑consuming and costly. For example, these rules and regulations have made it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These laws and regulations could also make it more difficult and expensive for us to attract and retain qualified persons to serve on our Supervisory Board or its committees or on our Management Board. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of the ADSs, fines, sanctions and other regulatory action and potentially civil litigation.

 

U.S. investors may have difficulty enforcing civil liabilities against our Company or members of our Management and Supervisory boards.

 

The members of our Management and Supervisory Boards are non‑residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible, or may be very difficult, to serve process on such persons or us in the United States or to enforce judgments obtained in U.S. courts against them or us based on civil liability provisions of the securities laws of the United States. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in Germany. An award for monetary damages under the U.S. securities laws would be considered punitive if it does not seek to compensate the claimant for loss or damage suffered and is intended to punish the defendant. The enforceability of any judgment in Germany will depend on the particular facts of the case as well as the laws and treaties in effect at the time.

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Litigation in Germany is also subject to rules of procedure that differ from the U.S. rules, including with respect to the taking and admissibility of evidence, the conduct of the proceedings and the allocation of costs. Proceedings in Germany would have to be conducted in the German language, and all documents submitted to the court would, in principle, have to be translated into German. For these reasons, it may be difficult for a U.S. investor to bring an original action in a German court predicated upon the civil liability provisions of the U.S. federal securities laws against us and the members of our Management and Supervisory Boards. The United States and Germany do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters, though recognition and enforcement of foreign judgments in Germany is possible in accordance with applicable German laws.

 

You may be subject to limitations on the transfer of your ADSs.

 

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems doing so expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks that it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement. As a result, you may be unable to transfer your ADSs when you wish to.

 

If securities or industry analysts do not publish research or reports about our business, or if they or anyone else gives negative recommendations regarding our ADSs, the market price for our ADSs and trading volume could decline.

 

The trading market for our ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade our ADSs, the market price for our ADSs would likely decline. If other individuals, including short sellers, disseminate negative information regarding our business or our ADSs, the market price for our ADSs may also decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our ADSs to decline.

 

Your rights as a shareholder in a German corporation may differ from your rights as a shareholder in a U.S. corporation.

 

We are organized as a stock corporation (Aktiengesellschaft) under the laws of Germany. You should be aware that the rights of shareholders under German law differ in important respects from those of shareholders in a U.S. corporation. These differences include, in particular:

 

·

Under German law, certain important resolutions, including, for example, capital decreases, measures under the German Transformation Act (Umwandlungsgesetz), such as mergers, conversions and spin‑offs, the issuance of convertible bonds or bonds with warrants attached and the dissolution of the German stock corporation apart from insolvency and certain other proceedings, require the vote of a 75% majority of the capital present or represented at the relevant shareholders’ meeting. Therefore, the holder or holders of a blocking minority of 25% or, depending on the attendance level at the shareholders’ meeting, the holder or holders of a smaller percentage of the shares in a German stock corporation may be able to block any such votes, possibly to our detriment or the detriment of our other shareholders.

 

·

As a general rule under German law, a shareholder has no direct recourse against the members of the management board or supervisory board of a German stock corporation in the event that it is alleged that they have breached their duty of loyalty or duty of care to the German stock corporation. Apart from insolvency or other special circumstances, only the German stock corporation itself has the right to claim damages from members of either board. A German stock corporation may waive or settle these damages claims only if at least three years have passed and the shareholders approve the waiver or settlement at the shareholders’ meeting with a simple majority of the votes cast, provided that a minority holding, in the aggregate, 10% or more of the German stock corporation’s share capital does not have its opposition formally noted in the minutes maintained by a German civil law notary.

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For more information, we have provided summaries of relevant German corporation law and of our articles of association under “Item 6. Directors, Senior Management and Employees—C. Board Practices” and “Item 10. Additional Information—B. Memorandum and Articles of Association.”

 

Exchange rate fluctuations may reduce the amount of U.S. dollars you receive in respect of any dividends or other distributions we may pay in the future in connection with your ADSs.

 

Under German law, the determination of whether we have been sufficiently profitable to pay dividends is made on the basis of our unconsolidated annual financial statements prepared under the German Commercial Code (Handelsgesetzbuch) in accordance with accounting principles generally accepted in Germany. Exchange rate fluctuations may affect the amount in U.S. dollars that our shareholders receive upon the payment of cash dividends or other distributions we declare and pay in euro, if any. Such fluctuations could adversely affect the value of our ADSs and, in turn, the U.S. dollar proceeds that holders receive from the sale of our ADSs.

 

In the event we are or become treated as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes, U.S. holders of our ADSs could be subject to adverse U.S. federal income tax consequences.

 

In the event we were treated as a PFIC, U.S. holders (as defined in “Item 10. Additional Information—E. Taxation—U.S. Taxation of ADSs”) of our ADSs could be subject to adverse U.S. federal income tax consequences. These consequences include the following: (i) if our ADSs are “marketable stock” for purposes of the PFIC rules and a U.S. holder makes a mark‑to‑market election with respect to its ADSs, the U.S. holder will be required to include annually in its U.S. federal taxable income an amount reflecting any year‑end increase in the value of its ADSs, (ii) if a U.S. holder does not make a mark‑to‑market election, it may incur significant additional U.S. federal income taxes on income resulting from distributions on, or any gain from the disposition of, our ADSs, as such income generally would be allocated over the U.S. holder’s holding period for its ADSs and subject to tax at the highest rates of U.S. federal income taxation in effect for such years, with an interest charge then imposed on the resulting taxes in respect of such income, and (iii) dividends paid by us would not be eligible for reduced individual rates of U.S. federal income tax. We do not intend to furnish holders with the information necessary to make a “qualified electing fund” election in lieu of a mark-to-market election. In addition, U.S. holders that own an interest in a PFIC are required to file additional U.S. federal tax information returns.

 

A U.S. holder may in certain circumstances mitigate adverse tax consequences of the PFIC rules by filing an election to treat the PFIC as a qualified electing fund, or a QEF. However, in the event that we are or become a PFIC, we do not intend to comply with the reporting requirements necessary to permit U.S. holders to elect to treat us as a QEF. See “Item 10. Additional Information—E. Taxation—Additional United States Federal Income Tax Consequences—PFIC Rules.”

 

ITEM 4.  INFORMATION ON THE COMPANY

 

A.          HISTORY AND DEVELOPMENT OF THE COMPANY

 

voxeljet AG is a stock corporation organized under the laws of Germany. The legal predecessor of our company was founded as Generis GmbH on May 5, 1999. On January 7, 2004, Generis GmbH changed its name to Voxeljet Technology GmbH.

On July 2, 2013, the shareholders of Voxeljet Technology GmbH incorporated VXLT 2013 AG, which was registered in the commercial register of the local court (Amtsgericht) of Augsburg, Germany on July 11, 2013 under number HRB 27999.

Voxeljet Technology GmbH was subsequently merged by way of merger through assumption into VXLT 2013 AG on July 29, 2013 effective as of September 12, 2013 upon registration of the merger in the commercial register of the surviving entity, VXLT 2013 AG. The merger had retroactive effect as of January 1, 2013. As part of the merger, VXLT 2013 AG changed its name to voxeljet AG effective upon the registration of the merger in the commercial register. By way of merger through assumption, upon effectiveness, voxeljet AG, as the surviving entity, took over all assets and liabilities of Voxeljet Technology GmbH by universal assumption and accession under German mandatory law, and Voxeljet Technology GmbH ceased to exist.

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On October 23, 2013, we sold 5,600,000 ADSs in our initial public offering at a price of $13.00 per ADS, thereby raising $72.8 million (before underwriting discounts and costs). The ADSs we sold in the initial public offering represented new shares issued in a capital increase resolved by our shareholders for the purposes of the initial public offering on October 11, 2013.

 

On April 16, 2014, we completed a follow‑on offering of 3,000,000 ADSs at a public offering price of $15.00 per ADS. Net proceeds from the follow‑on offering to the Company were approximately $41.4 million. On April 24, 2014, the underwriters in the follow‑on offering purchased 450,000 ADSs from certain of the Company’s shareholders (the “Selling Shareholders”) pursuant to the overallotment option they were granted in the follow‑on offering. The Company did not receive any proceeds from the sale of ADSs by the Selling Shareholders.

 

On October 17, 2018, we issued 972,000 ordinary shares, equivalent to 4,860,000 American Depository Shares (“ADS”), at an offering price of $2.57 per ADS (the “Public Offering Price”). The Company received net proceeds of approximately $10.6 million. Members of our management board, who are also significant shareholders, purchased an aggregate number of 233,462 ADSs in this offering at the Public Offering Price. On November 8, 2018, we closed the over-allotment option in which we issued additional 144,000 ordinary shares, equivalent to 720,000 ADSs. The Company received net proceeds of approximately $1.6 million. 

 

Our website is www.voxeljet.de. This website address is included in this annual report as an inactive textual reference only. The information and other content appearing on our website are not part of this annual report. Our principal executive offices are located at Paul‑Lenz‑Straße 1a, 86316 Friedberg, Germany, and our telephone number is +49 821 7483 100. Our agent for service of process in the United States is Corporation Service Company, located at 1090 Vermont Avenue N.W., Washington, DC 20005, telephone number (800) 927‑9800.

 

Capital Expenditures

 

Our capital expenditures amounted to €3.9 million,  €3.6 million and €3.7 million, for the years ended December 31, 2018,  2017, and 2016, respectively. In 2018 the capital expenditures mainly comprised 3D printers to be used in our Services segment. In 2017 and 2016, our principal capital expenditures were for the construction of a new office building and production facility located in Friedberg, Germany for approximately € 1.9 million and € 3.1 million, respectively. At the end of 2016, the amount of € 3.1 million was recognized as an asset under construction since the construction of the building on the property was not completed until October 2017. For further information about the property we purchased in Friedberg, Germany, see “—D. Property, Plants and Equipment.”

 

B.          BUSINESS OVERVIEW

 

Our Company

 

We are a leading provider of high‑speed, large‑format 3D printers and on‑demand parts services to industrial and commercial customers. Our 3D printers employ a powder binding, additive manufacturing technology to produce parts using various material sets, which consist of particulate materials and proprietary chemical binding agents. We offer our customers the highest volumetric output rate in the industry due to the combination of our large build boxes and print speeds. We provide our 3D printers and on‑demand parts services to industrial and commercial customers serving the automotive, aerospace, film and entertainment, art and architecture, engineering and consumer product end markets.

 

We currently offer seven different 3D printer platforms, with build boxes that range from 300 × 200 × 150 millimeters to 4,000 × 2,000 × 1,000 millimeters and various print speeds, which produce volumetric output rates ranging from 0.4 liters per hour to 123.0 liters per hour. All of our platforms support our commercialized material sets, sand and plastics, along with their respective proprietary chemical binding agents. We develop our material sets according to the needs of our industrial and commercial customers, and we are currently in varying stages of developing new material sets, including shell molding and chromite sands, PMMA‑based plastics, ceramics, silicon carbide, tungsten carbide and cement.

 

Our business is divided into two principal segments: Systems and Services.

 

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In our Systems segment, we focus on the sale, production and development of 3D printers. In addition, we sell refurbished 3D printers which were produced for and used in our Services segment and provide printers to customers under operating lease agreements. We also provide consumables, including particulate materials and proprietary chemical binding agents, maintenance contracts and spare parts to our customers.

 

In our Services segment, we print on‑demand parts for our customers. We operate service centers in Germany, the United Kingdom, the United States and China. At our service centers, we create parts, molds, cores and models based on designs produced using 3D computer‑aided design, or CAD, software. Furthermore, there are customers who order casted parts directly from us. In those cases, we provide molds or models to external suppliers who then cast the parts for our customers. We believe our service center in Germany is one of the largest additive manufacturing service centers in Europe.

 

We sold our first 3D printer in 2002 and commenced our on‑demand parts services business in 2003. As of December 31, 2018,  we had an installed base of 171 printers worldwide, and we operated service centers in Germany, the United States, the United Kingdom and China. Our service centers in Germany and the United States each have approximately 43,000 square feet of production space. Our service centers in the United Kingdom and China have approximately 10,000 square feet and approximately 7,400 square feet of production space, respectively. On March 1, 2019, our Chinese service center moved into a new facility with more than 78,000 square feet of production space, storage and office space.

 

Our Additive Manufacturing Technology

 

Our printers build or print parts from digital designs produced using 3D CAD software by successively depositing thin layers of particulate materials. A printhead passes over each layer and deposits our proprietary chemical binding agent in the selected areas where the finished product will be created.

 

The following is a graphical depiction illustrating our manufacturing process:

 

Picture 2

 

Our 3D Printers

 

We currently produce seven 3D printer platforms. Our 3D printers consist of a build box that includes a machine platform and a controller. Our 3D printers differ based on build box size and print speeds, but all utilize our technology and can support each of our existing material sets and each of our material sets that are currently in development. As of December 31, 2018, we had an installed base of 171 printers worldwide, which includes (i) printers in our service centers and (ii) printers which are no longer commercially available, but which we believe our customers continue to use.

 

The following table is a comparison of our 3D printer platforms:

 

 

 

 

 

 

 

 

 

 

 

Platform

 

VX4000

 

VX2000

 

VX1000

 

VXC800

 

Build Box (millimeters)

 

4,000 X 2,000 X 1,000

 

2,000 X 1,000 X 1,000

 

1,000 X 600 X 500

 

850 X 500 X 8

 

External Dimensions (millimeters)

 

20,000 X 7,800 X 4,000

 

5,000 X 3,000 X 2,300

 

3,000 X 2,800 X 2,150

 

5,000 X 2,800 X 2,500

 

Print Resolution (dots per inch)

 

200

 

200, 600

 

200, 600

 

200

 

Layer Thickness (micrometers)

 

120 - 300

 

100 - 400

 

100 - 300

 

120 - 300

 

Volumetric Output Rate (liters per hour)

 

123

 

47

 

23

 

18

 

Date of Introduction

 

2011

 

2013

 

2011

 

2012

 

 

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Platform

 

VX500

 

VX200

 

VX200 HSS

 

 

 

Build Box (millimeters)

 

500 X 400 X 300

 

300 X 200 X 150

 

320 X 170 X 200

 

 

 

External Dimensions (millimeters)

 

1,800 X 1,800 X 1,700

 

2,100 X 1,500 X 1,400

 

1700 X 900 X 1500

 

 

 

Print Resolution (dots per inch)

 

200, 600

 

200, 600

 

360

 

 

 

Layer Thickness (micrometers)

 

80 - 150

 

150

 

80 - 100

 

 

 

Volumetric Output Rate (liters per hour)

 

3

 

0.7

 

0.39 - 0.49

 

 

 

Date of Introduction

 

2007

 

2012

 

2017

 

 

 

 

Materials

 

Our commercialized material sets are comprised of sand and plastic particulate materials and their respective proprietary chemical binding agents. We believe these material sets are well suited for our commercial and industrial customers because these materials either (i) are commonly used in their existing manufacturing processes or (ii) match or exceed desired performance characteristics of existing materials being utilized in their manufacturing processes. Our sand material set offerings include four types of sands: (i) silica, (ii) kerphalite, (iii) zirconium oxide and (iv) chromite, with furan, inorganic, shell molding and phenol resins as proprietary chemical binding agents. Our plastics material set offering is based on Poly(methyl methacrylate), or PMMA, and Polypor B and C as the proprietary chemical binding agents.

 

We are currently in varying stages of development of new material sets which include the following particulate materials:

 

·

different types of sands;

 

·

different types of ceramics;

 

·

silicon carbide and other hard metals;

 

·

cement;

 

·

polyamide;

 

·

thermoplastic polyurethane

 

On‑demand Parts Services

 

At our service centers, we create parts, molds, cores and models for a variety of industrial and commercial customers based on designs produced using 3D CAD software. We receive orders directly from customers and indirectly through our sales agents.

 

Our service centers in Germany and the United States each have approximately 43,000 square feet of production space. Our service centers in the United Kingdom and China have approximately 10,000 square feet and approximately 7,400 square feet of production space, respectively. On March 1, 2019, our Chinese service center moved into a new facility with more than 78,000 square feet of production space, storage and office space.

 

We help our customers move from the design stage to the production stage by assisting them in evaluating the optimal design and material sets for their production needs. After printing parts, we employ a thorough cleaning, finishing, quality control review and packaging and shipping process to ensure the customer receives high‑quality and immediately‑usable parts. Based on our capacity utilization, the lead time required for us to print a part for a customer ranges from three to 21 days and is typically five business days. Due to the size of the printers’ build boxes utilized in our German service center, specifically the VX4000 printer, we are able to print more parts simultaneously on one printer than anyone else in the industry, resulting in cost‑effective and quick turnaround times for our customers’ print jobs and increased revenue and profitability for us.

 

Our technicians also train customers on operating, maintaining and troubleshooting our 3D printers through hands‑on experience at our German service center. Additionally, our technicians provide field support to our customers

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as needed. After the warranty period, we offer maintenance contracts to our customers. Those contracts include scheduled service visits where we maintain and clean the 3D printers as well as on demand visits and troubleshooting, in case of sudden problems.

 

Our Customers

 

We are in the market for industrial part production utilizing additive manufacturing and are one of the few providers of additive manufacturing solutions to industrial customers, including the foundry, automotive, heavy equipment, power fluid handling and aerospace industries. We believe we have a reputation for providing high‑quality systems and services in the marketplace with strong relationships with a number of leading multinational customers, including Daimler AG, BMW AG, Ford Motor Company, Volkswagen AG and Porsche SE, as well as with other key users of additive manufacturing, and technical universities such as the University of Rostock, and the Vaal University of Technology. Purchasers of our printers also include original equipment manufacturers, government agencies and independent service bureaus that provide rapid prototyping and manufacturing services to their customers. Many of our customers have been customers for over a decade. We also collaborate on research and development projects with a number of our automotive and technical university customers, including Daimler AG, BMW AG, Ford Motor Company, Volkswagen AG and the Technical University of Munich. As our customers integrate additive manufacturing into their production processes, they typically continue to utilize our on‑demand parts service center for a variety of reasons, including for incremental capacity and for parts printed from different material sets.

 

We conduct a significant portion of our business with a limited number of customers. Our top five customers represented 20%, 19% and 24% of total revenues for the years ended December 31, 2018, 2017, and 2016, respectively. These customers primarily purchased 3D printers, while one of the top five customers primarily ordered printed parts. In the year ended December 31, 2018, there were no customers who accounted for more than 10% of our revenues. Sales of on‑demand parts and consumables tend to be from repeat customers that may utilize the capability of our on‑demand parts service centers for one month or longer. Sales of 3D printers are low volume and generate significant revenues, but the same customers do not necessarily buy printers in each period. Timing of customer purchases is dependent on the customer’s capital budgeting cycle, which may vary from period to period. The nature of the revenues from 3D printers does not leave us dependent upon a single or a limited number of customers. Rather, the timing of the sales can have a material effect on our period‑to‑period financial results.

 

Sales and Marketing

 

We sell our 3D printers and related consumables both through our direct sales force and with the assistance of our network of more than 20 third-party sales agents globally. Our sales organization, including our dedicated sales, service and application engineers, is responsible for worldwide sales of our 3D printers and on‑demand parts services, as well as for the management and coordination of our growing sales agent network. Our direct sales force focuses primarily on customers in Europe, North America and Asia Pacific, while our sales agents are responsible for facilitating sales in other areas of the world where we do not operate directly. We have entered into partnership agreements with each of our sales agents, which grant the sales agent the right to market our products in a specified territory on either an exclusive or non‑exclusive basis, depending on the sales agent; however, all sales contracts for our products are entered into between us and our customers. Certain of these sales agents also provide maintenance services to customers in their specified territories. Our application engineers provide professional services through pre‑sales support and assist existing customers so that they can take advantage of our latest consumables and techniques to improve part quality and machine productivity. This group also leverages our customer contacts to help identify new application opportunities that utilize our proprietary processes. As of December 31, 2018, our worldwide sales staff for systems and parts consisted of 53 employees. We also expect that our subsidiaries in Europe, North America and Asia Pacific will improve market access through local market development and allow the targeting of specific customers.

 

Educating our customers and raising awareness in our target markets about the many uses and benefits of our 3D printing technology is an important part of our sales process. We believe that customers who experience the efficiency gains, decreased lead times, increased design flexibility and reduced costs of 3D printing as compared to subtractive manufacturing are more likely to purchase our 3D printers and/or utilize our on‑demand parts services. We encourage potential purchasers of our 3D printers to first utilize our on‑demand parts services so that they can experience firsthand the benefits of our 3D printing technology. We currently market our brand and our services at industry conferences, trade shows, and across various forms of digital and traditional media and plan to increasingly expand our marketing efforts in North America in conjunction with our geographic expansion to that region.

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Services and Warranty

 

Our fully‑trained service technicians perform installations of our 3D printers. For the first year following the purchase of one of our 3D printers, we provide complimentary service and support under the statutory warranty. We also offer service contracts under which our customers can purchase maintenance and services beyond the one‑year term of the warranty. These service contracts contain varying degrees of support services and are priced accordingly. Finally, we sell spare parts which we maintain in stock to assist in providing service expeditiously to our customers. Historically, we have not experienced a high level of warranty claims.

 

Manufacturing and Suppliers

 

Manufacturing

 

We assemble our 3D printers at our facility in Friedberg, Germany using components sourced from distributors of standard electrical or mechanical parts, as well as from manufacturers which design custom parts tailored to the proprietary designs of our machines. We periodically review the quality and performance of our distributors and manufacturers. Upon completion of the assembly of our 3D printers, we perform tests to ensure that the printer is functioning properly before the system is shipped and again after the system is installed at the customer’s site.

 

To provide customers with assurance regarding the quality and consistency of our systems, we obtained ISO 9001:2008 certification for our facility in Germany in 2010. ISO 9001:2008 provides a structure for a quality management system that strives for customer satisfaction, consistent quality and efficiency. In addition, there are internal benefits such as improved customer satisfaction, interdepartmental communications, work processes and customer‑ and‑supplier partnerships. The ISO 9000 family of standards relates to quality management systems and is designed to help organizations ensure that they meet the needs of customers and other stakeholders.

 

Inventory and Suppliers

 

We maintain an inventory of certain parts to facilitate the timely assembly of products required by our production plan. While most components used in our 3D printers are available from multiple suppliers, certain of these components are only available from limited sources. We consider our limited‑source suppliers, including the suppliers of our printheads, to be reliable; however, the loss of one of these suppliers could result in a delay in our operations. This type of delay could require us to find and re‑qualify components supplied by one or more new vendors. Although we consider our relationships with our suppliers to be good, we continue to develop risk management plans for these critical suppliers. Regarding inventory we defined targets for raw materials as well as for work in progress. The strategy includes meeting customer expectation and demand for spare parts, wear parts as well as 3D printers with an attractive lead time.

 

Research and Development

 

We have an ongoing research and development program to develop new 3D printers and material sets and to improve and expand the capabilities of our existing 3D printers and related material sets. As of December 31, 2018, we had various active research and development projects in different stages of completion. All research and development costs are charged to expense as incurred, as the criteria set forth in IAS 38 for capitalizing such costs have not yet been met. Our development efforts are augmented by development arrangements with research institutions, customers and suppliers of material and hardware, among others.

 

In addition to our internally‑developed technology platforms and the related software, we have licensed the rights to intellectual property developed by third parties through licensing agreements that may obligate us to pay a license fee or royalty, typically based upon a dollar amount per unit or a percentage of the revenues generated by such products.

 

Our research and development expenses were € 6.3 million, € 5.5 million, and € 5.7 million for the years ended December 31, 2018,  2017, and 2016, respectively.

 

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A significant portion of our research and development expenditures has been focused upon developing proprietary systems, processes and materials, including:

 

·

the qualification of new print materials, including phenolic resins and inorganic binders, PMMA‑based and other plastics, ceramics, silicon carbide and cement;

 

·

the development of new or enhanced proprietary chemical binding agents;

 

·

the development of new or enhanced binding mechanisms;

 

·

the mechanics of spreading powders in a build box;

 

·

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

 

·

synchronizing all of the above to print ever‑increasing volumes of material per unit time.

 

We also regularly apply for research and development grants and subsidies under European and German grant rules for small and medium enterprises. The majority of these grants and subsidies are non‑refundable. We have received grants and subsidies from different authorities, including the German Federal Ministry of Economics and Technology (Bundesministerium für Wirtschaft und Technologie), the Bavarian Research Foundation (Bayerische Forschungsstiftung) and the German Federal Foundation Environment (Deutsche Bundesstiftung Umwelt).

 

We expect to continue to invest significantly in research and development in the future.

 

Intellectual Property

 

We consider our proprietary technology to be important to the development, manufacture, and sale of our products and seek to protect such technology through a combination of patents, trademarks, and trade secrets. We also have in place confidentiality agreements and other contractual arrangements with our employees, consultants, customers and others.

 

Patents.  As of February 28, 2019, we owned or co-owned 60 issued U.S. patents and 37 pending U.S. patent applications. In addition, we own or co‑own patent rights in Europe, Asia, Brazil and Canada. In total, as of February 28, 2019 our patent portfolio consisted of over 402 patents and patent applications. Our currently issued patents will expire at different times in the future, with the earliest expiring in 2019 and the latest expiring in 2035. Our currently pending applications will generally remain in effect for 20 years from the date of the initial applications.

 

These patent assets are complemented by our marketing, business development and applications know‑how and our ongoing research and development efforts. Nevertheless, there can be no assurance that our patents, licenses or other intellectual property rights will afford us a meaningful competitive advantage in the fast‑paced and innovative field in which we operate.

 

Trade Secrets.  As is true in our industry generally, 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. We protect our proprietary processes and technologies with a blend of patent protection and trade secret protection. As part of our overall intellectual property strategy, we protect our non‑patented proprietary knowledge as trade secrets through confidentiality controls and through the use of nondisclosure and confidentiality agreements.

 

Licenses.    We are a party to various licenses and other arrangements that allow us to practice and improve our technology under a range of patents, patent applications and other intellectual property, including license agreements with ExOne, 3D Systems (Z Corp), Bego Medical GmbH, Bego, and Evonik IP GmbH each described in more detail below.

 

In 2003, we entered into an agreement with Extrude Hone GmbH (now doing business as ExOne) related to patents and technologies using certain binders, methods and equipment for 3-D printing processes, including sand-based 3-D printing. Under the terms of this agreement, ExOne purchased an ownership share in certain patents and related

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technologies from us. Further, we granted ExOne certain rights to exploit these technologies and ExOne entered into an ongoing obligation to pay royalties to us. The parties also agreed to share revenues generated from any licenses granted by ExOne. The agreement states that we are permitted to use machines and provide services relating to these technologies, but not to make or sell machines utilizing these technologies without ExOne's consent, although ExOne has an obligation to consent if the machines do not compete with products engineered, manufactured or sold by ExOne or its affiliates. If we intend to sell any of the intellectual property that is the subject of this agreement, ExOne has the option to acquire it at fair market value. Similarly, ExOne has a right of first refusal regarding the purchase of any developments and improvements we make to such intellectual property and a set of six patents (including one U.S. patent) related to wax technologies, as well as the right to negotiate to receive a license to such developments and improvements. We later signed an amendment with ExOne specifically allowing us to use the subject patents for our 3D printers working with plastics in exchange for the payment of a license fee. The obligation of both parties to pay royalties under this agreement extends until the expiration of the last issued patent included in the list of transferred patent assets.

 

While the agreement states that our rights are limited regarding use of certain binders and sand-based casting methods in 3D printers with ExOne, we believe these limitations will not materially impact the growth of our business, as we are able to continue certain activities in compliance with the agreement and we have developed processes which do not rely upon the subject patent portfolio, associated agreements and related technologies. If needed, we will take steps to protect our ability to continue such activities including by challenging the validity or enforceability of certain provisions of the agreement. In March 2018, ExOne GmbH, a subsidiary of ExOne, notified us of their intent not to pay their annual license fees under this agreement and asserted their rights to claim damages pursuant to an alleged material breach of the agreement. We are vigorously disputing these claims, however, the outcome of this matter is uncertain.

 

In 2004, we entered into a non-exclusive license and sublicense agreement with Z Corp (acquired by 3D Systems in 2012), which allows us to make, use and sell 3D printing equipment for the fabrication of plastic parts utilizing organic powder binders under certain Z Corp and Massachusetts Institute of Technology patents. In return for these rights, we agreed to pay an initial license fee and ongoing tiered royalties. We later amended this agreement, expanding our permitted use of the licensed binder-jetting technology to include inorganic powder, ceramics, and concrete printing in a process that does not require post processing other than oven baking parts or liquid infiltration, but restricting us to monochromatic color configurations. The agreement extends until the expiration of the licensed patents; however, the parties may terminate the agreement under certain conditions.

 

In 2012, we entered into a cross licensing agreement with Bego pursuant to which each party granted to the other certain exclusive rights regarding each parties’ patents and applications directed to continuous additive manufacturing. We granted to Bego an exclusive license to market patent covered products in the field of laser sintering and other related technologies, while Bego granted to us an exclusive license to market patent covered products in the field of binder-jetting technology (other than for dental applications). We also agreed to pay to Bego a royalty and to pay a participation fee to Bego in the event that we grant any sublicenses to the technology (which, to date, we have not done). This agreement automatically terminates upon the expiration of the last patent subject to the agreement.

 

In March 2015, we entered into a non-exclusive technology license agreement with Evonik IP GmbH, in which voxeljet acquired a license for a 3D printing process using polymeric materials that we believe offers distinct speed and cost benefits. This powder bed fusion process allows for production of parts with thermoplastic properties. In return for these rights, we agreed to pay an upfront payment and ongoing royalties for each royalty period, subject to the payment of a fixed minimum annual royalty if higher. The agreement shall remain in force until the expiration of the last to expire patent of the licensed patents; however, either party may terminate the agreement under certain conditions.

 

In addition to the foregoing licenses, we have also licensed additional patents that we believe can be used to expand our material set offerings.

 

Trademarks.  We have secured word and figurative trademarks for voxeljet in Europe and have international (IR) applications covering the United States, Russia, Mexico and a number of countries in Asia.

 

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Competition

 

Our principal competitors consist of other developers of 3D printing systems and providers of 3D printing services. These companies use a variety of additive manufacturing technologies, including:

 

·

fused deposition modeling;

 

·

binder jetting;

 

·

inkjet;

 

·

selective laser sintering; and

 

·

stereolithography.

 

Some of the companies that have developed and use one or more additive manufacturing technologies to compete with us include: ExOne, 3D Systems Corporation, Stratasys Ltd. and EOS GmbH.

 

These technologies, which compete for market share in the additive manufacturing industry, possess various competitive advantages and disadvantages relative to one another within key categories, including resolution, accuracy, surface quality, variety and properties of the materials they use and produce, capacity, speed, color, transparency and the ability to print multiple materials. Due to these multiple categories, we believe end users usually make technology purchasing decisions based on the characteristics that they value most for a particular application. The competitive environment that has developed is therefore intense and dynamic, as market players often position their technologies to capture multiple vertical markets.

 

Despite the challenging competitive landscape, we believe that we have several competitive advantages, including the size of our build platforms, our printing speeds, the volumetric output rate of our 3D printers and the variety of qualified material sets that we offer to commercial and industrial customers.

 

We also compete with established subtractive manufacturers in the industrial products market. However, we believe that we are well positioned to expand our share of the industrial products market as additive manufacturing gains recognition and increases its cost effectiveness. As our technologies improve and our unit cost of production decreases, we expect to be able to better compete with subtractive manufacturing on a wide range of products, thereby expanding our addressable market.

 

Seasonality

 

Historically, our results of operations have been subject to seasonal factors. Purchases of our 3D printers often follow a seasonal pattern owing to the capital budgeting cycles of our customers. Generally, 3D printer sales are higher in our second and fourth fiscal quarters than in our first and third fiscal quarters. Sales in our Services segment generally are not affected by seasonality. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our revenues and operating results may fluctuate.”

 

Regulatory/Environmental Matters

 

We are subject to environmental, health and safety regulations in Germany, as well as in the countries where our products and materials are used or sold.

 

Germany

 

Legal Requirements for Manufacturing Sites

 

Emissions Control Law.  We do require a permit granted under the Federal Emissions Control Act (Bundes‑ Immissionsschutzgesetz, or BImSchG), as we use resins (Harze) to create models for customers. Therefore, the permit was granted for the buildings “Halle 1” “and Halle 2” to us in December 2013 by the District Administration (Landratsamt) of Aichach- Friedberg. The building permit was granted under the condition (Auflage), that the amount of

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resins processed by us does not exceed 25 kilograms per hour. For the building “Halle 3”, the permit was granted in July 2016 by the District Administration (Landratsamt) of Aichach- Friedberg. The building permit was granted under the condition (Auflage), that the amount of resins processed by us does not exceed 10 kilograms per hour. Facilities that are subject to BImSchG are required to comply with the current state of the art (Stand der Technik) in emissions reduction and safety technology. We are therefore supervised by the Landesamt für Umweltschutz (LfU) and as well by the District Administration of Aichach Friedberg and have regularly give full reports about the emissions in our facilities.

 

Production, Possession and Handling of Waste and Dangerous Goods.  Our business activities result in the generation, possession and handling of waste, including hazardous waste. Under the German Act on Recycling (Kreislaufwirtschaftsgesetz, or KrWG), the generation, possession and handling of waste is subject to several obligations, depending, among other things, on the waste concerned. As the producer (Erzeuger) and possessor (Besitzer) of waste, we are generally responsible for the proper handling of this waste.

 

Section 50 of the KrWG requires producers, possessors, collectors and transporters of waste and disposal firms to verify to the competent authority proper disposal of hazardous waste (gefährliche Abfälle). Whether a certain substance qualifies as hazardous waste is determined according to the German Ordinance on the European Waste List (Verordnung über das Europäische Abfallverzeichnis).

 

We further comply with the International Maritime Dangerous Goods Code, which is accepted as an international guideline for the safe transportation or shipment of dangerous goods or hazardous materials by water.

 

We also comply with the Regulation (EC) No. 1907/2006 of the European Parliament and of the Council of December 18, 2006 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH).

 

We have trained and educated an employee to serve as our risk prevention officer (Gefahrgutbeauftragter). The risk prevention officer ensures that we comply with specific regulations and provisions when dangerous goods are shipped. In addition, we have two “Authorized Persons” (Beauftragte Personen), who are equally responsible for the risk prevention, and who are advised by the risk prevention officer. All of these persons (risk prevention officer and the authorized persons) do regularly take part in external trainings.

 

Legal Requirements Related to Products

 

Product Safety.  Our products are used in a wide range of industries. As some of our products may be used directly by customers, we are subject to the Product Safety Act (Produktsicherheitsgesetz, or ProdSG), which relates to general product safety. With the ProdSG of November 8, 2011 and the ninth regulation to the ProdSG as amended (Neunte Verordnung zum Produktsicherheitsgesetz  (Maschinenverordnung)), the German legislature transformed, among other European Directives, the Directive 2006/42/EC of the European Parliament and of the Council of May 17, 2006 on machinery into German law. The ProdSG applies whenever products are made available on the market, exhibited or used for the first time in the context of a commercial activity, but only in the absence of other legal provisions that provide for corresponding or more far‑reaching provisions.

 

Under the ProdSG, a product may be made available on the market only if it complies with specific regulations for such product, or, in the absence of such specific regulations, if its intended or foreseeable use does not put the health and safety of persons at risk.

 

In addition to compliance with this safety requirement, if products are made available to consumers, manufacturers must provide consumers with the necessary information to enable them to assess the risks inherent in such product where such risks are not immediately obvious without adequate warnings and to take precautions against those risks. If manufacturers or distributors of consumer products discover that a product is dangerous, they must notify the competent authorities and, if necessary, cooperate with them. Under certain circumstances, a product may have to be recalled.

 

Occupational Health and Safety Requirements.  Where the working environment may pose threats to employees, occupational health and safety laws are applicable. German law on occupational safety is heavily influenced by the requirements of EU law. The central rules on occupational safety in Germany are contained in the Act on Occupational Safety (Arbeitsschutzgesetz, or ArbSchG), which requires employers to provide for their employees’ safety. This general obligation is put into effect through several ordinances (Rechtsverordnungen) under the ArbSchG,

35


 

which are defined in technical guidelines. One central element is the Workplaces Ordinance (Arbeitsstättenverordnung), which contains various regulations on workplace conditions relating to, for example, ventilation, temperature and illumination.

In addition, we are under surveillance of the employers' liability insurance association (Berufsgenossenschaft). All companies in Germany are obliged to be member of the Berufsgenossenschaft, who is monitoring the companies regarding compliance with the Health and Safety Requirements.

 

Potential Liability for Products and Environmental Losses

 

Our business activities are such that product liability and liability for environmental damage are possible. Under general rules of the German Civil Code (Bürgerliches Gesetzbuch, or BGB), fault‑based compensation (Schadensersatz) is to be paid for breach of contract or unlawful infringements of legally protected rights. This obligation does not only apply to our own acts but may extend to behavior of individuals that work or undertake tasks for us under Sections 278, and 831 of BGB.

 

In addition, we may be strictly liable (i.e., liable regardless of our fault), as a Producer under the Product Liability Act (Produkthaftungsgesetz, or ProdHaftG), for damages caused by a defective product. “Producer” means any participant in the production process, the importer of the defective product, any person putting a name, trademark or other distinguishing feature on the product, and any person supplying a product whose actual producer cannot be identified. “Defectiveness” means the lack of the safety which the general public is entitled to expect when taking into account, among other things, the presentation of the product and the uses to which it can reasonably be put.

 

Additionally, in case of damage to persons or property caused by our facility, we may additionally be strictly liable under the Act on Liability for Environmental Damage (Umwelthaftungsgesetz) and under the Environmental Damage Act (Umweltschadensgesetz).

 

Worldwide

 

Our operations and the activities of our employees, contractors and agents around the world are subject to the laws and regulations of numerous countries, including the United States. These laws and regulations include data privacy requirements, labor relations laws, tax laws, anti‑competition regulations, prohibitions on payments to governmental officials, federal and state environmental regulations, import and trade restrictions and export requirements. Violations of these laws and regulations could result in fines, criminal sanctions against our officers, our employees, or us and may result in prohibitions on the conduct of our business. Any such violations could also result in prohibitions on our ability to offer our products and services in one or more countries and could materially damage our reputation, our ability to attract and retain employees, our business and our operating results.

 

Our operations (particularly in those countries with developing economies) are also subject to risks of violations of laws prohibiting improper payments and bribery, including the European Union Anti‑Corruption Act, U.K. Bribery Act, U.S. Foreign Corrupt Practices Act and similar regulations in other jurisdictions. Although we have implemented policies and procedures designed to ensure compliance with these laws, our employees, contractors, and agents may take actions in violation of such policies. Any such violations, even if prohibited by our policies, could subject us to civil or criminal penalties or otherwise have an adverse effect on our business and reputation.

 

Legal Proceedings

 

From time to time, we may be subject to various claims or legal, arbitration or administrative proceedings that arise in the ordinary course of our business. We are currently not a party to any legal, arbitration or administrative proceedings which, in the opinion of our management, may have or have had in the recent past, significant effects on our business, financial condition or results of operations, including governmental proceedings pending or known to be contemplated.

 

Insurance

 

We maintain comprehensive business liability insurance coverage (Betriebshaftpflichtversicherung “Compact‑Firmenversicherung”) for our business operations. In addition, we have obtained directors and officers liability insurance, which covers expenses, capped at a certain amount, that our Management and Supervisory Board

36


 

members and our executive managers may incur in connection with their conduct as members of our Management and Supervisory Boards or executive managers. We also maintain insurance policies on our 3D printers, a group insurance policy for our employees covering occupational accidents, car insurance policies and a legal expenses insurance policy. We consider the insurance coverage we have to be adequate in light of the risks we face.

 

Geographic Information

 

Our revenues by geographic region for the year ended December 31, 2018 were EMEA 56%, Asia Pacific 21% and Americas 23%, as compared to EMEA 64%, Asia Pacific 11% and Americas 25% for the same period in 2017. In 2016, our revenues by geographic region were EMEA 60%, Asia Pacific 22% and Americas 19%. See Item 5. Operating and Financial Review and Prospects—A. Operating Results.”

 

C.          ORGANIZATIONAL STRUCTURE

 

Our corporate structure includes voxeljet AG (formerly Voxeljet Technology GmbH) and the three wholly-owned subsidiaries voxeljet America Inc. (voxeljet America), voxeljet UK Ltd. (voxeljet UK) and voxeljet India Pvt. Ltd (voxeljet India). Additionally it includes voxeljet China Co., Ltd. where we held a supermajority shareholding of 95.825% interest. Within the contribution of a lease contract on March 1, 2019 which includes 36 months free of rent, which has been negotiated by our joint venture partner Suzhou Meimai Fast Manufacturing Technology Co., Ltd, (“Meimai”), Meimai has increased there shareholding from 4.175% to 30.0% as it has been agreed within the joint venture contract. Therefore our shareholding in voxeljet China Co., Ltd. decreased to 70% on March 1, 2019. On February 5, 2014, our subsidiary, voxeljet America Inc. was incorporated in Delaware. voxeljet America Inc. is headquartered near Detroit, Michigan and conducts our North American operations. We began printing on‑demand parts at the facility in the first quarter of 2015. On October 1, 2014, we completed the acquisition of all outstanding shares of Propshop (Model Makers) Limited (“Propshop”) which became voxeljet UK Ltd, headquartered in Milton Keynes. On November 30, 2015, we established our subsidiary voxeljet India Pvt. Ltd to pursue opportunities in the industrial 3D printing market in India. voxeljet India is headquartered in the city of Pune, a large automotive and manufacturing center near Mumbai. voxeljet China was established on April 11, 2016 and is located in the city of Suzhou, near Shanghai.

 

D.          PROPERTY, PLANTS AND EQUIPMENT

 

At December 31, 2018, we owned/leased the following five properties worldwide:

 

Location

   

Primary Usage:

    

Area (Sq. Feet)

EMEA

 

 

 

 

Friedberg, Germany

 

Headquarters, production space, office space

 

135,380 

Milton Keynes, UK

 

Production space, office space

 

10,021 

 

 

 

 

 

Asia Pacific

 

 

 

 

Pune, India

 

Office space

 

1,400 

Suzhou, China

 

Production space, office space

 

7,400 

 

 

 

 

 

Americas

 

 

 

 

Canton, Michigan, USA

 

Production space, office space

 

50,000 

 

We believe that our existing facilities are adequate for our current and foreseeable requirements. The facilities in Friedberg, Germany are owned by voxeljet, while the facilities in UK, India, China and the US are leased. On March 1, 2019, our Chinese subsidiary has moved into a new building which provides us with more than 78,000 square feet of production space, storage as well as office space. 

 

ITEM 4A.  UNRESOLVED STAFF COMMENTS

 

None.

 

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ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled “Item 3. Key Information—A. Selected Financial Data” and our audited financial statements and the related notes thereto included elsewhere in this annual report. In addition to historical financial information, the following discussion contains forward‑looking statements that reflect our plans, estimates and opinions. Our actual results could differ materially from those discussed in these forward‑looking statements. Factors that could cause or contribute to these differences or cause our actual results or the timing of selected events to differ materially from those anticipated in these forward‑looking statements include those set forth under “Item 3. Key Information—D. Risk Factors,” “Special Note Regarding Forward Looking Statements” and elsewhere in this annual report.

 

A.          OPERATING RESULTS

 

Overview

 

We are a leading provider of high‑speed, large‑format 3D printers and on‑demand parts services to industrial and commercial customers. Our 3D printers employ a powder binding, additive manufacturing technology to produce parts using various material sets, which consist of particulate materials and proprietary chemical binding agents. We offer our customers the highest volumetric output rate in the industry due to the combination of our large build boxes and print speeds. We provide our 3D printers and on‑demand parts services to industrial and commercial customers serving the automotive, aerospace, film and entertainment, art and architecture, engineering and consumer product end markets.

 

We currently offer seven different 3D printer platforms, with build boxes that range from 300 × 200 × 150 millimeters to 4,000 X 2,000 X 1,000 millimeters and various print speeds, which produce volumetric output rates ranging from 0.4 liters per hour to 123.0 liters per hour. All of our platforms support our commercialized material sets, sand and plastics, along with their respective proprietary chemical binding agents. We develop our material sets according to the needs of our industrial and commercial customers, and we are currently in varying stages of developing new material sets, including shell molding and chromite sands, PMMA‑based plastics, ceramics, silicon carbide, tungsten carbide, wood powder and cement.

 

We believe that our innovations in 3D printers will continue to increase customer adoption of our additive manufacturing technology in industrial and commercial applications.

 

Our business is divided into two segments: Systems and Services.

 

In our Systems segment, we focus on the development, production and sale of 3D printers. In addition, we sell refurbished 3D printers which were produced for and used in our Services segment. Before these 3D printers are sold, they are fully refurbished and a new printhead is installed. We also provide consumables, including particulate materials and proprietary chemical binding agents, maintenance contracts, extended warranty contracts and spare parts to our customers.

 

In our Services segment, we print on‑demand custom parts for our customers. At our service centers, we create parts, molds, cores and models based on designs produced using 3D computer‑aided design, or CAD, software.

 

We sold our first 3D printer in 2002 and commenced our on‑demand parts services business in 2003. As of December 31, 2018, we had an installed base of 171 printers worldwide, and we operated service centers in Germany, the United States, the United Kingdom and China.

 

Our revenues were € 26.0 million, € 23.2 million, and € 22.3 million for the years ended December 31, 2018,  2017, and 2016, respectively.

 

Our net loss increased by € 0.2 million to a net loss of € 8.8 million in 2018 compared to a loss of € 8.6 million in 2017. In 2016 our net loss increased by € 1.7 million to a net loss of € 11.3 million compared to a loss of € 9.6 million in 2015. 

 

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Seasonality

 

Historically, our results of operations have been subject to seasonal factors. Purchases of our 3D printers often follow a seasonal pattern owing to the capital budgeting cycles of our customers. Generally, 3D printer sales are higher in our second and fourth fiscal quarters than in our first and third fiscal quarters. Sales in our Services segment generally are not affected by seasonality. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our revenues and operating results may fluctuate.”

 

Currency

 

As of December 31, 2018, we had operations in Germany, the United Kingdom, the United States, China and India. As a result, our revenue and earnings have exposure to a number of currencies, primarily the Euro, the U.S. dollar, the British Pound Sterling and the Chinese renminbi. As our presentation currency is the Euro, and the functional currencies of the businesses located outside of the Europe are primarily the U.S. dollar, the results of the businesses located outside of Europe must be translated each period to Euros. The financial statements of foreign subsidiaries are translated using the concept of the functional currency in accordance with IAS 21. The assets and liabilities of foreign subsidiaries are translated at the spot rate at the end of the period, while their income statement items are translated at average exchange rates for the respective periods. All resulting exchange differences are recognized in other comprehensive income. Gains and losses on foreign currency transactions primarily due to intercompany loans given to our subsidiaries are shown within other operating income and other operating expenses, respectively, in the consolidated statement of comprehensive loss. This calculation may differ from similarly titled measures used by other companies and, accordingly, the changes excluding the effect of foreign currency translation are not meant to substitute for changes in recorded amounts presented in conformity with IFRS nor should such amounts be considered in isolation.

 

We do not manage our foreign currency exposure in a manner that would eliminate the effects of changes in foreign exchange rates. Therefore, changes in exchange rates between these foreign currencies and the Euro will affect our revenues, cost of goods sold, and operating margins, and could result in exchange losses in any given reporting period.

 

Growth Strategy

 

Our business strategy focuses on (i) growing our Services segment in order to print more parts for our existing customers and gain new customers in Europe, Asia Pacific and Americas and (ii) using our knowledge and market position to increase sales of our 3D printers. Our growth strategy is also dependent in part on continuing our investment in research and development activities, which should enable us to meet the needs of our target customers through the development of new material sets and 3D printers with faster print speeds. Expanding our business to realize 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 additional financing may not be available when required, or may not be available on terms favorable to us. If we fail to obtain adequate cash sources on a timely basis or if funds 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.

 

We intend to develop our customer base internationally, so that our revenues are not dependent on sales to any one region. We also seek to grow both our Systems and Services segments so that we are not overly reliant on either segment. We believe that this strategy will help to offset some of the variability in the Systems segment, which can be more susceptible to macroeconomic trends.

 

Outlook

 

We believe that interest in additive manufacturing is increasing as a result of increased commercialization of 3D printers and recent media attention worldwide. We occupy a defined space in the additive manufacturing market because of the size of our machines and their ability to print industrial products from qualified industrial materials. While our 3D printers may differ from those of many other additive manufacturing companies, we expect an increase in additive manufacturing to generally have a positive effect on the public’s awareness of our industry.

 

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Furthermore, we believe that additive manufacturing provides several advantages over traditional design and manufacturing processes, including:

 

·

Elimination of design constraints;

 

·

Reduced cost of complexity;

 

·

Mass customization;

 

·

Reduced time to market; and

 

·

Cost effective short run production.

 

There are a number of available additive manufacturing technologies, including powder binding, inkjet, fused deposition modeling, stereolithography and selective laser sintering. These technologies differ on the basis of accuracy, surface quality, variety and properties of consumables, capacity, speed, color variety, transparency and the ability to print multiple materials, among other factors. Our 3D printers employ a powder binding technology to produce parts using various material sets. Powder binding is a process in which layers of powder are bonded by a liquid agent that is deposited through a printhead. We believe this process has the fastest build speeds and the lowest materials cost relative to other additive manufacturing technologies.

 

We believe that our investments in additional capacity in continental Europe and service centers in the United States, the United Kingdom, and China should position us to generate growth in our Services segment in the future.

 

We also must expend significant time and resources remediating material weaknesses in our internal controls over financial reporting.

 

Key Measures of Our Business

 

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 the longer‑ term performance of our marketplace. The key metrics are as follows:

 

Revenues

 

Our revenues are generated primarily by sales of our new or used and refurbished 3D printers, consumables and custom 3D printed parts produced at our service centers. We operate in two segments: Systems and Services. The Systems segment derives its revenues from the sale of new or used and refurbished 3D printers and products and services related to our 3D printers, including consumables, which include particulate materials and proprietary chemical binding agents, maintenance contracts and spare parts. Systems revenue also includes revenues associated with the leasing of 3D printers to customers; however, revenues related to the leasing of 3D printers is not material. Within the Systems segment, we also report revenues from tailoring and development services. The Services segment derives its revenues from the on‑demand printing of parts at our service centers.

 

Our revenues are influenced by:

 

·

global macroeconomic conditions;

 

·

the adoption rate of our 3D printers and material sets;

 

·

our ability to develop new products and technologies that address the increasingly sophisticated and varied needs of prospective end‑users, particularly with respect to the physical properties of print materials and other consumables;

 

·

the capital expenditure budgets of our potential customers;

 

·

the amount of design and manufacturing activity; and

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·

the adoption of additive manufacturing technology in various industries.

 

Sales of our 3D printers, particularly our higher‑priced systems, typically involve long sales cycles, are subject to seasonality and can be difficult to forecast. Because each of our printers can represent a significant amount of revenues, a delay in a purchasing decision, our production schedule or the shipment of a printer can have a material impact on our periodic reporting of revenues.

 

From time to time, refurbished 3D printers which have been operating at the Company’s service centers are routinely sold to customers.  Before these 3D printers are sold, they are generally fully refurbished, a process which includes the installation of a new printhead. On average, these refurbished printers have been operating within the service center for 1.5 to 2.5 years prior to their sale. The proceeds from the sale of such refurbished 3D printers are recognized as Systems revenues.

 

Gross Profit

 

Our gross profit and gross profit margin for our Systems and Services segments are mainly influenced by materials, labor and energy costs. In particular, the gross profit margin in our Systems segment on sales of our 3D printers also depend on the type and status of the sold products.  Sales of refurbished printers manufactured by us typically generates lower gross profits compared to sales of new 3D printers. Inventory reserves also impact our gross profit and related margin.

 

EBITDA

 

Our EBITDA (earnings before interest and other financial result, taxes, depreciation and amortization) is mainly influenced by the gross profit from our Systems segment and Services segment as well as from the operating expenses from the functions research and development, administration and sales and marketing. In addition, other operating expense and other operating income including gains and losses from foreign exchange transactions have an impact on EBITDA. The gross profit from our Systems segment is mainly driven by materials, labor and energy costs as well as movements in inventory reserves. The gross margin drivers for our Services segment relate to revenues, materials, labor and energy costs as well as facility costs. Costs for the non‑productive functions is influenced primarily by labor. Research and development expenses are partially driven by materials. One of the main drivers of expenses for the administrative function is legal fees as well as accounting and auditing fees while sales and marketing expenses are also influenced by commissions for sales agents.

 

 Adjusted EBITDA

 

The Company uses Adjusted EBITDA as a supplemental financial measure of its financial performance. Adjusted EBITDA is defined as net income (loss), as calculated under IFRS accounting principles, interest (income) expense, provision (benefit) for income taxes, depreciation and amortization, and excluding other (income) expense resulting from foreign exchange gains or losses on the intercompany loans granted to the subsidiaries. Management believes Adjusted EBITDA to be an important financial measure because it excludes the effects of fluctuating foreign exchange gains or losses on the intercompany loans granted to its subsidiaries which are difficult to forecast for future periods.

 

Management regularly uses both IFRS and non-IFRS results and expectations internally to assess its overall performance of the business, making operating decisions, and forecasting and planning for future periods. Management believes that Adjusted EBITDA is a useful financial measure to the Company’s investors as it helps investors better understand and evaluate the projections our management board provides. The Company’s calculation of Adjusted EBITDA may not be comparable to similarly titled financial measures reported by other peer companies. Adjusted EBITDA should not be considered as a substitute to financial measures prepared in accordance with IFRS.

 

While the Company provides guidance for Adjusted EBITDA on a forward-looking basis, a reconciliation of the differences between the non-IFRS expectation and the corresponding IFRS measure (expected net income (loss)) is not available without unreasonable effort due to potentially high variability, complexity and low visibility as to the items that would be excluded from the IFRS measure in the relevant future period, such as unusual gains and losses, fluctuations in foreign currency exchange rates, the impact and timing of potential acquisitions and divestitures, and

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other structural changes or their probable significance. The variability of the excluded items may have a significant, and potentially unpredictable, impact on our future IFRS results.

 

Critical Accounting Policies and Significant Estimates

 

Please refer to “Note 5. Critical accounting judgment and key sources of estimation and uncertainty in item 18.”

 

Statements of Comprehensive Loss

 

Year Ended December 31, 2018 compared to Year Ended December 31, 2017

 

The following table sets forth certain statements of comprehensive loss data both on an actual basis and as a percentage of revenues for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

 

2018

 

2017 (i)

 

 

 

 

Amount

 

Percentage of revenues

 

Amount

 

Percentage of revenues

 

Period-over-
period change

 

 

(€ in thousands)

 

 

 

(€ in thousands)

 

 

 

(€ in thousands)

Revenues

 

€ 26,009

 

100%

 

€ 23,178

 

100%

 

€ 2,831

Cost of sales

 

16,864

 

64.8

 

13,853

 

59.8

 

3,011

Gross profit

 

9,145

 

35.2

 

9,325

 

40.2

 

(180)

Selling expenses

 

7,332

 

28.2

 

6,474

 

27.9

 

858

Administrative expenses

 

5,587

 

21.5

 

5,129

 

22.1

 

458

Research and development expenses

 

6,334

 

24.4

 

5,528

 

23.9

 

806

Other operating expenses

 

751

 

2.9

 

1,844

 

8.0

 

(1,093)

Other operating (income)

 

(1,297)

 

5.0

 

(1,001)

 

4.3

 

(296)

Operating loss

 

(9,562)

 

36.8

 

(8,649)

 

37.3

 

(913)

Finance expense

 

1,143

 

4.4

 

190

 

0.8

 

953

Finance (income)

 

(1,952)

 

7.5

 

(365)

 

1.6

 

(1,587)

Financial result

 

(809)

 

(3.1)

 

(175)

 

(0.8)

 

(634)

Net loss before income taxes

 

(8,753)

 

33.7

 

(8,474)

 

36.6

 

(279)

Income taxes

 

(11)

 

0.0

 

(80)

 

0.3

 

69

Net Loss

 

€ (8,764)

 

33.7%

 

€ (8,554)

 

36.9%

 

€ (210)

 

(i) Comparative figures for the year ended December 31, 2017 were restated for immaterial errors. For further information, see Part III, Item 18. Financial Statements, Note 6.

 

Summary

 

Our revenues increased by € 2.8 million, or 12%, to € 26.0 million in 2018 from € 23.2 million in 2017. This was mainly due to the increase in revenues from our Services segment amounting to € 2.1 million, mainly due to contributions from the German operation, voxeljet America as well as voxeljet UK. Systems revenues increased by  € 0.7 million year-over-year, mainly related to  an increase in the number of printer sales. 

 

Despite the increase in revenues, we were not able to improve our gross profit, which shows a slight decrease from € 9.3 million in 2017 to € 9.1 million in 2018.  This decrease of € 0.2 million was due to the decrease in gross margin of both segments Systems and Services. In our Services segment, we received higher gross profit contribution from our subsidiaries voxeljet America and voxeljet UK. Regarding the German operation and voxeljet China, gross profit contribution decreased. Gross profit at the German operation decreased due to the replacement of a higher number of printheads of our 3D printers running in our German service center. Gross profit from voxeljet America and voxeljet UK improved due to a higher utilization rate of our service centers.  The higher utilization regarding our American subsidiary was mainly related to a volume contract which started in July 2018 with a revenue contribution of € 1.1 million. The decrease of gross profit within the System segment was related to weaker gross profit from 3D printer sales, while gross profit contribution from system-related goods and services almost remained the same. Our consolidated gross profit margin was 35% in 2018 compared to 40% in 2017.  In the next years, we expect our gross profit margin to stabilize to approximately 40%.

 

42


 

Our operating loss increased by € 1.0 million to a loss of € 9.6 million in 2018 from a loss of € 8.6 million in 2017. This is mainly due to higher operating expenses related to sales and marketing, administration and research and development with an increase of € 0.9 million, € 0.5 million and € 0.8 million, respectively, in combination with the slight decrease in gross profit of € 0.2 million. This was partially offset by lower other operating expenses and higher other operating income resulting in a positive net impact of € 1.4 million. 

 

Revenues by Segment

 

The table below sets forth the change in revenues by segment from 2017 to 2018:

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

 

2018

 

2017

 

period-over-
period change

 

(€ in thousands)

Systems

€ 12,248

 

€ 11,534

 

€ 714

Services

13,761

 

11,644

 

2,117

Total Revenues

€ 26,009

 

€ 23,178

 

€ 2,831

 

Revenues from the Systems segment for 2018 were € 12.2 million, representing a 6.1% increase over revenues of € 11.5 million in 2017. The Company sold fourteen new and five used and refurbished 3D printers during the year ended December 31, 2018 compared to ten new and five used and refurbished 3D printers in the prior year period. In 2018 we sold a higher number of smaller printers which usually have a lower gross profit margin.

 

Revenues from the Services segment for 2018 were € 13.8 million, which represents an increase of € 2.2 million or 19.0% over revenues of € 11.6 million in 2017.  This increase was mainly due to a higher revenue contribution from our subsidiary voxeljet America. The German operation and voxeljet UK also contributed higher revenues within this segment. This was partially offset by  a lower revenue contribution by our service center of voxeljet China. The increase in revenue at our German service center is due to the robust economy in the European market. The growth in revenue at our American service center and UK service center resulted from an increasing market penetration in the respective sales regions which is accompanied by a larger customer base. 

 

Revenues by Geographic Region

 

The table below sets forth the change in revenues by geographic region from 2017 to 2018:

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2018

 

Year Ended December 31, 2017

 

Revenues

 

Percentage

 

Revenues

 

Percentage

 

(€ in thousands)

 

 

 

(€ in thousands)

 

 

EMEA

14,673

 

56.4%

 

14,832

 

64.0%

Asia Pacific

5,450

 

21.0

 

2,526

 

10.9

Americas

5,886

 

22.6

 

5,820

 

25.1

Total

26,009

 

100.0%

 

23,178

 

100.0%

 

We generated more than 55% of our revenues in the EMEA region with a declining relative proportion of our revenues. The portion of revenues in the Asia Pacific region increased due to higher printer sales, which was partially offset by decreased sales from our Services segment. The growing revenues related to system sales within the Asia Pacific region reflects the growing interest in the market in our products as well as the opportunities generated by our subsidiary voxeljet China.

 

Gross Profit and Gross Profit Margin