UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2017

OR

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

For the transition period from to

Commission File No. 001-35806

The ExOne Company

(Exact name of registrant as specified in its charter)

Delaware	46-1684608
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

127 Industry Boulevard

North Huntingdon, Pennsylvania 15642

(Address of principal executive offices) (Zip Code)

(724) 863-9663

(Registrant’s telephone number, including area code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐  (Do not check if a small reporting company)	Small reporting company	☐
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of November 9, 2017, 16,158,619 shares of common stock, par value $0.01, were outstanding.

IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY

Since our initial public offering, we have continued to qualify as an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An EGC may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies.

As an EGC:

• We are exempt from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;

• We are permitted to provide less extensive disclosure about our executive compensation arrangements;

• We are not required to give our stockholders non-binding advisory votes on executive compensation or golden parachute arrangements; and

• We have elected to use an extended transition period for complying with new or revised accounting standards.

We may choose to take advantage of some, but not all, of these reduced burdens. We will continue to operate under these provisions until December 31, 2018, or such earlier time that we are no longer an EGC. We would cease to be an EGC if we have more than $1.07 billion in annual revenues, qualify as a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which requires us to have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

The ExOne Company and Subsidiaries

Condensed Statement of Consolidated Operations and Comprehensive Loss (Unaudited)

(in thousands, except per-share amounts)

	Quarter Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Revenue	$	15,887		$	12,988		$	37,555		$	33,157
Cost of sales		11,790			9,428			29,829			24,215
Gross profit		4,097			3,560			7,726			8,942
Operating expenses
Research and development		2,871			1,898			7,219			5,737
Selling, general and administrative		6,062			5,234			18,338			15,222
		8,933			7,132			25,557			20,959
Loss from operations		(4,836	)		(3,572	)		(17,831	)		(12,017	)
Other expense (income)
Interest expense		24			22			69			276
Other (income) expense  ̶  net		(11	)		(8	)		134			(306	)
		13			14			203			(30	)
Loss before income taxes		(4,849	)		(3,586	)		(18,034	)		(11,987	)
Provision for income taxes		14			25			23			43
Net loss	$	(4,863	)	$	(3,611	)	$	(18,057	)	$	(12,030	)
Net loss per common share:
Basic	$	(0.30	)	$	(0.23	)	$	(1.13	)	$	(0.76	)
Diluted	$	(0.30	)	$	(0.23	)	$	(1.13	)	$	(0.76	)
Comprehensive loss:
Net loss	$	(4,863	)	$	(3,611	)	$	(18,057	)	$	(12,030	)
Other comprehensive income:
Foreign currency translation adjustments		1,194			489			4,713			2,288
Comprehensive loss	$	(3,669	)	$	(3,122	)	$	(13,344	)	$	(9,742	)

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

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The ExOne Company and Subsidiaries

Condensed Consolidated Balance Sheet (Unaudited)

(in thousands, except per-share and share amounts)

	September 30,			December 31,
	2017			2016
Assets
Current assets:
Cash and cash equivalents	$	17,706		$	27,825
Restricted cash		1,098			330
Accounts receivable  ̶  net of allowance of $1,494 (2017) and $1,566 (2016)		6,539			6,447
Inventories  ̶  net		16,643			15,838
Prepaid expenses and other current assets		2,293			1,159
Total current assets		44,279			51,599
Property and equipment  ̶  net		49,489			51,134
Intangible assets  ̶  net		152			668
Other noncurrent assets		781			777
Total assets	$	94,701		$	104,178
Liabilities
Current liabilities:
Current portion of long-term debt	$	135		$	132
Current portion of capital leases		25			72
Accounts payable		4,311			2,036
Accrued expenses and other current liabilities		5,033			5,124
Deferred revenue and customer prepayments		7,533			7,371
Total current liabilities		17,037			14,735
Long-term debt  ̶  net of current portion		1,543			1,644
Capital leases  ̶  net of current portion		41			10
Other noncurrent liabilities		9			9
Total liabilities		18,630			16,398
Contingencies and commitments
Stockholders' equity
Common stock, $0.01 par value, 200,000,000 shares authorized,    16,092,114 (2017) and 16,017,115 (2016) shares issued and outstanding		161			160
Additional paid-in capital		173,158			171,116
Accumulated deficit		(87,226	)		(68,761	)
Accumulated other comprehensive loss		(10,022	)		(14,735	)
Total stockholders' equity		76,071			87,780
Total liabilities and stockholders' equity	$	94,701		$	104,178

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

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The ExOne Company and Subsidiaries

Condensed Statement of Consolidated Cash Flows (Unaudited)

(in thousands)

	Nine Months Ended
	September 30,
	2017			2016
Operating activities
Net loss	$	(18,057	)	$	(12,030	)
Adjustments to reconcile net loss to net cash used for operations:
Depreciation and amortization		4,966			4,280
Equity-based compensation		2,043			1,104
Amortization of debt issuance costs		4			209
Deferred income taxes		—			(29	)
Recoveries for bad debts  ̶  net		(51	)		(256	)
Provision (recoveries) for slow-moving, obsolete and lower of cost or market    inventories  ̶  net		1,872			(356	)
(Gain) loss from disposal of property and equipment  ̶  net		(322	)		163
Changes in assets and liabilities, excluding effects of foreign currency    translation adjustments:
Decrease in accounts receivable		288			4,681
(Increase) decrease in inventories		(2,772	)		399
(Increase) decrease in prepaid expenses and other assets		(1,438	)		795
Increase (decrease) in accounts payable		2,032			(1,296	)
Decrease in accrued expenses and other liabilities		(522	)		(1,259	)
(Decrease) increase in deferred revenue and customer prepayments		(938	)		1,687
Net cash used for operating activities		(12,895	)		(1,908	)
Investing activities
Capital expenditures		(874	)		(690	)
Proceeds from sale of property and equipment		3,702			52
Net cash provided by (used for) investing activities		2,828			(638	)
Financing activities
Net proceeds from issuance of common stock  ̶  registered direct offering    to a related party		—			12,447
Net proceeds from issuance of common stock  ̶  at the market offerings		—			595
Payments on long-term debt		(102	)		(102	)
Payments on capital leases		(64	)		(61	)
Net cash (used for) provided by financing activities		(166	)		12,879
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		882			138
Net change in cash, cash equivalents, and restricted cash		(9,351	)		10,471
Cash, cash equivalents, and restricted cash at beginning of period		28,155			19,672
Cash, cash equivalents, and restricted cash at end of period	$	18,804		$	30,143
Supplemental disclosure of noncash investing and financing activities
Transfer of internally developed 3D printing machines from inventories to    property and equipment for internal use or leasing activities	$	2,363		$	2,666
Transfer of internally developed 3D printing machines from property and equipment to    inventories for sale	$	597		$	1,276
Property and equipment acquired through financing arrangements	$	48		$	—
Property and equipment included in accounts payable	$	94		$	15
Property and equipment included in accrued expenses and other current liabilities	$	84		$	—
Advance deposits on property and equipment	$	12		$	203

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

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The ExOne Company and Subsidiaries

Condensed Statement of Changes in Consolidated Stockholders’ Equity (Unaudited)

(in thousands)

										Accumulated
										other			Total
	Common stock				Additional		Accumulated			comprehensive			stockholders'
	Shares		$		paid-incapital		deficit			loss			equity
Balance at December 31, 2015		14,447	$	144	$	156,627	$	(54,163	)	$	(13,535	)	$	89,073
Registered direct offering of common stock to a    related party, net of issuance costs		1,424		15		12,432		—			—			12,447
At the market offerings of common stock, net    of issuance costs		92		1		594		—			—			595
Net loss		—		—		—		(12,030	)		—			(12,030	)
Other comprehensive income		—		—		—		—			2,288			2,288
Equity-based compensation		32		—		1,104		—			—			1,104
Balance at September 30, 2016		15,995	$	160	$	170,757	$	(66,193	)	$	(11,247	)	$	93,477
Balance at December 31, 2016		16,017	$	160	$	171,116	$	(68,761	)	$	(14,735	)	$	87,780
Cumulative-effect adjustment due to the adoption of    Financial Accounting Standards Board    Accounting Standards Update 2016-16		—		—		—		(408	)		—			(408	)
Net loss		—		—		—		(18,057	)		—			(18,057	)
Other comprehensive income		—		—		—		—			4,713			4,713
Equity-based compensation		75		1		2,042		—			—			2,043
Balance at September 30, 2017		16,092	$	161	$	173,158	$	(87,226	)	$	(10,022	)	$	76,071

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

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The ExOne Company and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per-share and share amounts)

Note 1. Basis of Presentation

Organization

The ExOne Company (“ExOne”) is a corporation organized under the laws of the state of Delaware. ExOne was formed on January 1, 2013, when The Ex One Company, LLC, a Delaware limited liability company, merged with and into a Delaware corporation, which survived and changed its name to The ExOne Company (the “Reorganization”). As a result of the Reorganization, The Ex One Company, LLC became ExOne, the common and preferred interest holders of The Ex One Company, LLC became holders of common stock and preferred stock, respectively, of ExOne, and the subsidiaries of The Ex One Company, LLC became the subsidiaries of ExOne. The condensed consolidated financial statements include the accounts of ExOne, its wholly-owned subsidiaries, ExOne Americas LLC (United States); ExOne GmbH (Germany); ExOne Property GmbH (Germany); ExOne KK (Japan); ExOne Italy S.r.l (Italy); ExOne Sweden AB (Sweden); and through September 2016, MWT—Gesellschaft für Industrielle Mikrowellentechnik mbH (Germany). Collectively, the consolidated group is referred to as the “Company”.

On September 15, 2016, the Company completed a transaction merging its MWT—Gesellschaft für Industrielle Mikrowellentechnik mbH (Germany) subsidiary with and into its ExOne GmbH (Germany) subsidiary. The purpose of this transaction was to further simplify the Company’s legal structure. There were no significant accounting or tax related impacts associated with the merger of these wholly owned subsidiaries.

The Company filed a registration statement on Form S-3 (No. 333-203353) with the Securities and Exchange Commission (“SEC”) on April 10, 2015.  The purpose of the Form S-3 was to register, among other securities, debt securities. Certain subsidiaries of the Company (other than any minor subsidiary) are co-registrants with the Company (“Subsidiary Guarantors”), and the registration statement registered guarantees of debt securities by one or more of the Subsidiary Guarantors. The Subsidiary Guarantors are 100% owned by the Company and any guarantees by the Subsidiary Guarantors will be full and unconditional.

Basis of Presentation

The condensed consolidated financial statements of the Company are unaudited. The condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the results of operations, financial position and cash flows of the Company. All material intercompany transactions and balances have been eliminated in consolidation. The results reported in these condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. The December 31, 2016 condensed consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). This Quarterly Report on Form 10-Q should be read in connection with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, which includes all disclosures required by GAAP.

The preparation of these condensed consolidated financial statements requires the Company to make certain judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. Areas that require significant judgments, estimates and assumptions include accounting for accounts receivable (including the allowance for doubtful accounts); inventories (including the allowance for slow-moving and obsolete inventories); product warranty reserves; contingencies; income taxes (including the valuation allowance on certain deferred tax assets and liabilities for uncertain tax positions); equity-based compensation (including the valuation of certain equity-based compensation awards issued by the Company); and testing for impairment of long-lived assets (including the identification of asset groups by management, estimates of future cash flows of identified asset groups and fair value estimates used in connection with assessing the valuation of identified asset groups). The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Certain amounts relating to restricted cash ($330) and intangible assets – net ($668) in the accompanying condensed consolidated balance sheet at December 31, 2016, have been reclassified from prepaid expenses and other current assets and other noncurrent assets, respectively, to conform to current period presentation. Certain amounts relating to provision (recoveries) for slow-moving, obsolete and lower of cost or market inventories – net ($356) and amortization of debt issuance costs ($5) in the accompanying condensed statement of consolidated cash flows for the nine months ended September 30, 2016, have been reclassified from decrease in inventories and decrease in prepaid expenses and other assets, respectively, to conform to current period presentation.

Recently Adopted Accounting Guidance

On January 1, 2017, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-16, “Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory.” This ASU modifies existing guidance and is intended to reduce diversity in practice with respect to the accounting for the income tax consequences of intra-entity transfers of assets. The ASU indicates that the former exception to income tax accounting that requires companies to defer the income tax effects of certain intercompany transactions would apply only to intercompany inventory transactions. That is, the exception no longer applies

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to intercompany sales and transfers of other assets (e.g., property and equipment or intangible assets). Under the former exception, income tax expense associated with intra-entity profits in an intercompany sale or transfer of assets was eliminated from earnings. Instead, that cost was deferred and recorded on the balance sheet (e.g., as a prepaid asset) until the assets left the consolidated group. Similarly, the entity was prohibited from recognizing deferred tax assets for the increases in tax bases due to the intercompany sale or transfer. A modified retrospective basis of adoption was required for this ASU. As a result, a cumulative-effect adjustment of approximately $408 has been recorded to accumulated deficit on January 1, 2017, in connection with this adoption. This cumulative-effect adjustment relates to the prepaid expense associated with intra-entity transfers of property and equipment included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet at December 31, 2016.

On January 1, 2017, the Company adopted FASB ASU 2016-17, “Consolidation: Interests Held through Related Parties That Are under Common Control.” This ASU modifies former guidance with respect to how a decision maker that holds an indirect interest in a variable interest entity (“VIE”) through a common control party determines whether it is the primary beneficiary of the VIE as part of the analysis of whether the VIE would need to be consolidated. Under the ASU, a decision maker needs to consider only its proportionate indirect interest in the VIE held through a common control party. Previous guidance had required the decision maker to treat the common control party’s interest in the VIE as if the decision maker held the interest itself. The Company does not have significant involvement with entities subject to consolidation considerations impacted by VIE model factors addressed by this ASU. Management has determined that the adoption of this ASU did not have an impact on the condensed consolidated financial statements of the Company.

On January 1, 2017, the Company adopted FASB ASU 2015-11, “Inventory: Simplifying the Measurement of Inventory.” This ASU requires inventories to be measured at the lower of cost and net realizable value, with net realizable value defined as the estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal and transportation. Management has determined that the adoption of this ASU did not have an impact on the condensed consolidated financial statements of the Company.

Recently Issued Accounting Guidance

The Company considers the applicability and impact of all ASUs issued by the FASB. Recently issued ASUs not listed below were assessed and determined to be either not applicable or are currently expected to have no impact on the consolidated financial statements of the Company.

In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation: Scope of Modification Accounting.” This ASU requires registrants to apply modification accounting unless three specific criteria are met. The three criteria are: the fair value of the award is the same before and after the modification, the vesting conditions are the same before and after the modification and the classification as a debt or equity award is the same before and after the modification. This ASU becomes effective for the Company on January 1, 2018, and is to be applied prospectively to new awards granted after adoption. Early adoption is permitted. Management is currently evaluating the potential impact of this ASU on the consolidated financial statements of the Company.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments.” This ASU is intended to reduce diversity in practice in how certain cash receipts and payments are presented and classified in the statement of cash flows. The standard provides guidance in a number of situations including, among others, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. The ASU also provides guidance for classifying cash receipts and payments that have aspects of more than one class of cash flows. This ASU becomes effective for the Company on January 1, 2019. Early adoption is permitted. Management is currently evaluating the potential impact of this ASU on the consolidated financial statements of the Company.

In February 2016, the FASB issued ASU 2016-02, “Leases.” As a result of this ASU, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. As a result of this ASU, lessor accounting is largely unchanged and lessees will no longer be provided with a source of off-balance sheet financing. This ASU becomes effective for the Company on January 1, 2019. Early adoption is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Management is currently evaluating the potential impact of this ASU on the consolidated financial statements of the Company.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This ASU created a comprehensive framework for all entities in all industries to apply in the determination of when to recognize revenue, and, therefore, supersedes virtually all existing revenue recognition requirements and guidance. This framework is expected to provide a consistent and comparable methodology for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply the following steps: identify the

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contract(s) with a customer, identify the performance obligations in the contract(s), determine the transaction price, allocate the transaction price to the performance obligations in the contract(s), and recognize revenue when, or as, the entity satisfies a performance obligation. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date,” which deferred the effective date of this guidance for the Company until January 1, 2019, or January 1, 2018, in the event that the Company no longer qualifies as an EGC.  Early adoption is permitted, but the Company may adopt the changes no earlier than January 1, 2017 (regardless of EGC status). Management is currently evaluating the potential impact of these collective changes on the consolidated financial statements of the Company.

Note 2. Liquidity

On February 6, 2013, the Company commenced an initial public offering of 6,095,000 shares of its common stock at a price to the public of $18.00 per share, of which 5,483,333 shares of common stock were sold by the Company and 611,667 shares of common stock were sold by a selling stockholder (including consideration of the exercise of the underwriters’ over-allotment option). The Company received approximately $90,371 in unrestricted net proceeds in connection with this offering (net of underwriting commissions and offering costs).

On September 9, 2013, the Company commenced a secondary public offering of 3,054,400 shares of its common stock at a price to the public of $62.00 per share, of which 1,106,000 shares of common stock were sold by the Company and 1,948,400 shares of common stock were sold by selling stockholders (including consideration of the exercise of the underwriters’ over-allotment option). The Company received approximately $64,948 in unrestricted net proceeds in connection with this offering (net of underwriting commissions and offering costs).

On January 8, 2016, the Company announced that it had entered into an At Market Issuance Sales Agreement (“ATM”) with FBR Capital Markets & Co. (“FBR”) and MLV & Co. LLC (“MLV”) pursuant to which FBR and MLV agreed to act as distribution agents in the sale of up to $50,000 in the aggregate of ExOne common stock in “at the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”). Both FBR and MLV were identified as related parties to the Company on the basis of significant influence in that a member of the Board of Directors of the Company also served as a member of the Board of Directors of FBR (which controlled MLV). The terms of the ATM were reviewed and approved by a sub-committee of the Board of Directors of the Company (which included each of the members of the Audit Committee of the Board of Directors except for the identified director who also held a position on the Board of Directors of FBR). This related party determination ended on June 1, 2017, when the identified director ceased serving as a member of the Board of Directors of FBR. Terms of the ATM require a 3.0% commission on the sale of common stock under the ATM and an initial reimbursement of certain legal expenses of $25. During the quarter ended March 31, 2016, the Company sold 91,940 shares of common stock under the ATM at a weighted average selling price of approximately $9.17 per share resulting in gross proceeds to the Company of approximately $843. Unrestricted net proceeds to the Company from the sale of common stock under the ATM during the quarter ended March 31, 2016 were approximately $595 (after deducting offering costs of approximately $248, including certain legal, accounting and administrative costs associated with the ATM, of which approximately $50 was paid to FBR or MLV relating to the aforementioned initial reimbursement of certain legal expenses and commissions on the sale of common stock under the ATM). There have been no sales of shares of common stock under the ATM during any periods subsequent to the quarter ended March 31, 2016.

On January 11, 2016, the Company announced that it had entered into a subscription agreement with Rockwell Forest Products, Inc. and S. Kent Rockwell for the registered direct offering and sale of 1,423,877 shares of ExOne common stock at a per share price of $9.13 (a $0.50 premium from the closing price on the close of business on January 8, 2016). Both Rockwell Forest Products, Inc. and S. Kent Rockwell were identified as related parties to the Company as S. Kent Rockwell served as Chairman and CEO of the Company and was the controlling shareholder of Rockwell Forest Products, Inc. at the time of the transaction. The terms of this transaction were reviewed and approved by a sub-committee of independent members of the Board of Directors of the Company (which included each of the members of the Audit Committee of the Board of Directors). The sub-committee of independent members of the Board of Directors of the Company were advised on the transaction by an independent financial advisor and independent legal counsel. Concurrent with the approval of this sale of common stock under the terms identified, a separate sub-committee of independent members of the Board of Directors of the Company approved the termination of the Company’s revolving credit facility with RHI Investments, LLC.  Following completion of the registered direct offering on January 13, 2016, the Company received gross proceeds of approximately $13,000. Unrestricted net proceeds to the Company from the sale of common stock in the registered direct offering were approximately $12,447 (after deducting offering costs of approximately $553).

The Company has incurred a net loss in each of its annual periods since its inception. As shown in the accompanying condensed statement of consolidated operations and comprehensive loss, the Company incurred a net loss of approximately $4,863 and $18,057 for the quarter and nine months ended September 30, 2017, respectively. As noted above, the Company has received cumulative unrestricted net proceeds from the sale of its common stock of approximately $168,361 to fund its operations. At September 30, 2017, the Company had approximately $17,706 in unrestricted cash and cash equivalents.

Management believes that the Company’s existing capital resources will be sufficient to support the Company’s operating plan. If management anticipates that the Company’s actual results will differ from its operating plan, management believes it has sufficient capabilities to enact cost savings measures to preserve capital. Further, the Company may seek to raise additional capital to support its growth through additional debt, equity or other alternatives (including asset sales) or a combination thereof.

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Note 3. Accumulated Other Comprehensive Loss

The following table summarizes changes in the components of accumulated other comprehensive loss:

	Quarter Ended						Nine Months Ended
	September 30,						September 30,
Foreign currency translation adjustments	2017			2016			2017			2016
Balance at beginning of period	$	(11,216	)	$	(11,736	)	$	(14,735	)	$	(13,535	)
Other comprehensive income		1,194			489			4,713			2,288
Balance at end of period	$	(10,022	)	$	(11,247	)	$	(10,022	)	$	(11,247	)

Foreign currency translation adjustments consist of the effect of translation of functional currency financial statements (denominated in the euro and Japanese yen) to the reporting currency of the Company (United States dollar) and certain long-term intercompany transactions between subsidiaries for which settlement is not planned or anticipated in the foreseeable future.

There were no tax impacts related to income tax rate changes and no amounts were reclassified to earnings for either of the periods presented.

Note 4. Loss Per Share

The Company presents basic and diluted loss per common share amounts. Basic loss per share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the applicable period. Diluted loss per share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares and common equivalent shares outstanding during the applicable period.

As the Company incurred a net loss during each of the quarters and nine months ended September 30, 2017 and 2016, basic average shares outstanding and diluted average shares outstanding were the same because the effect of potential shares of common stock, including stock options (696,137 – 2017 and 317,637 – 2016) and unvested restricted stock issued (67,505 – 2017 and 112,504 – 2016), was anti-dilutive.

The information used to compute basic and diluted loss per common share was as follows:

	Quarter Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Net loss	$	(4,863	)	$	(3,611	)	$	(18,057	)	$	(12,030	)
Weighted average shares outstanding (basic and diluted)		16,069,453			15,997,146			16,048,257			15,912,628
Net loss per common share:
Basic	$	(0.30	)	$	(0.23	)	$	(1.13	)	$	(0.76	)
Diluted	$	(0.30	)	$	(0.23	)	$	(1.13	)	$	(0.76	)

Note 5. Restructuring

On January 26, 2017, the Company committed to a plan to consolidate certain of its three-dimensional (“3D”) printing operations from its North Las Vegas, Nevada facility into its Troy, Michigan and Houston, Texas facilities and exit its non-core specialty machining operations in its Chesterfield, Michigan facility. These actions were taken as a result of the accelerating adoption rate of the Company’s sand printing technology in North America which has resulted in a refocus of the Company’s operational strategy.

As a result of these actions, during the quarter ended March 31, 2017, the Company recorded charges of approximately $984, including approximately $110 associated with involuntary employee terminations, approximately $7 associated with other exit costs and approximately $867 associated with asset impairments. Charges associated with involuntary employee terminations and other exit costs were recorded to cost of sales in the accompanying condensed statement of operations and comprehensive loss. Charges associated with asset impairments were split between cost of sales ($598), as a component of depreciation expense, and selling, general and administrative expenses ($269), as a component of amortization expense, in the accompanying condensed statement of operations and comprehensive loss. During the quarter ended June 30, 2017, the Company recorded a charge of approximately $32 associated with an additional involuntary employee termination which required a service commitment through April 2017. This charge was recorded to cost of sales in the accompanying condensed statement of operations and comprehensive loss. There have been no additional charges recorded associated with this plan in subsequent periods. There are no additional charges expected to be incurred associated with this plan in future periods. The Company has settled all amounts associated with involuntary employee terminations and other exit costs.

Charges associated with asset impairments relate principally to the Company’s plan to exit its non-core specialty machining operations in its Chesterfield, Michigan facility. On April 21, 2017, the Company sold to a third party certain assets associated with these operations including inventories (approximately $79), property and equipment (approximately $2,475) and other contractual

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rights (approximately $269). Total gross proceeds from the sale of these assets were approximately $2,050. After deducting costs directly attributable to the sale of these assets (approximately $128), the Company recorded an impairment loss during the quarter ended March 31, 2017, of approximately $859 split between property and equipment ($590) and intangible assets ($269) based on the excess of the carrying value over the estimated fair value of the related assets at March 31, 2017, and a loss on disposal (recorded to cost of sales in the accompanying condensed statement of operations and comprehensive loss) during the quarter ended June 30, 2017, of approximately $42. Additionally, the Company recorded an impairment loss during the quarter ended March 31, 2017, of approximately $8 associated with certain property and equipment which was abandoned in connection with the Company’s exit of its North Las Vegas, Nevada facility.

Separate from the transaction described above, on May 9, 2017, the Company sold to a third party certain property and equipment (principally land and building) associated with its North Las Vegas, Nevada facility. Total gross proceeds from the sale of these assets were approximately $1,950. After deducting costs directly attributable to the sale of these assets (approximately $137), the Company recorded a gain on disposal (recorded to cost of sales in the accompanying condensed statement of operations and comprehensive loss) during the quarter ended June 30, 2017, of approximately $347.

In April 2016, the Company committed to a plan to consolidate certain of its 3D printing operations in its Auburn, Washington facility into its North Las Vegas, Nevada facility and reorganize certain of its corporate departments as part of its 2016 operating plan. As a result of these actions, during the quarter ended June 30, 2016, the Company incurred a net charge of approximately $170 including, $57 associated with involuntary employee terminations and $113 associated with the disposal of certain property and equipment related to the Auburn, Washington facility which was either sold or abandoned. This net charge was split between cost of sales ($129), research and development ($2) and selling, general and administrative expenses ($39) in the accompanying statement of consolidated operations and comprehensive loss. In addition to the net charge incurred by the Company in connection with this plan, the Company also has an operating lease commitment for the Auburn, Washington facility with a lease term through December 2018. At the time of closure of this facility, the Company was able to secure a firmly committed sublease arrangement with a third party which fully offsets its remaining contractual operating lease liability. There have been no additional charges recorded associated with this plan in subsequent periods. There are no additional charges expected to be incurred associated with this plan in future periods. The Company has settled all amounts associated with involuntary employee terminations.

Note 6. Impairment

During the quarter ended September 30, 2017, as a result of continued operating losses and cash flow deficiencies, the Company identified a triggering event requiring a test for the recoverability of long-lived assets held for use at the asset group level. Assessing the recoverability of long-lived assets held for use requires significant judgments and estimates by management.

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

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

Note 7. Cash, Cash Equivalents, and Restricted Cash

The following provides a reconciliation of cash, cash equivalents, and restricted cash as reported in the accompanying condensed consolidated balance sheet to the same such amounts shown in the accompanying condensed statement of consolidated cash flows:

	September 30,		December 31,
	2017		2016
Cash and cash equivalents	$	17,706	$	27,825
Restricted cash		1,098		330
Cash, cash equivalents, and restricted cash shown in the    condensed statement of consolidated cash flows	$	18,804	$	28,155

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Restricted cash at September 30, 2017 includes approximately $768 associated with cash collateral required by a German bank for a financial guarantee issued by ExOne GmbH in connection with a commercial transaction requiring security. Restricted cash at both September 30, 2017 and December 31, 2016 includes approximately $330 associated with cash collateral required by a United States bank to offset certain short-term, unsecured lending commitments associated with the Company’s corporate credit card program. Each of the balances described are considered legally restricted by the Company.

Note 8. Inventories

Inventories consist of the following:

	September 30,		December 31,
	2017		2016
Raw materials and components	$	7,306	$	7,429
Work in process		6,253		5,166
Finished goods		3,084		3,243
	$	16,643	$	15,838

Raw materials and components consist of consumable materials and component parts and subassemblies associated with 3D printing machine manufacturing and support activities. Work in process consists of 3D printing machines and other products in varying stages of completion. Finished goods consist of 3D printing machines and other products prepared for sale in accordance with customer specifications.

At September 30, 2017 and December 31, 2016, the allowance for slow-moving and obsolete inventories was approximately $3,364 and $1,517, respectively, and has been reflected as a reduction to inventories (principally raw materials and components). Included in the allowance for slow-moving and obsolete inventories at September 30, 2017, is approximately $1,631 related to certain raw material and component inventories associated with the Company’s Exerial 3D printing machine platform (see further discussion below).

During the quarter ended June 30, 2017, the Company recorded a charge of approximately $1,460 to cost of sales in the accompanying condensed statement of consolidated operations and comprehensive loss attributable to certain raw material and component inventories (principally machine frames and other fabricated components) associated with the Company’s Exerial 3D printing machine platform based on decisions made by the Company during the period related to certain design changes and improvements to the underlying platform (rendering certain elements of the previous design obsolete).

During the quarter ended June 30, 2016, the Company recorded a credit of approximately $507 to cost of sales in the accompanying condensed statement of consolidated operations and comprehensive loss attributable to the reversal of a previously recorded reserve for certain inventories associated with the Company’s laser micromachining product line which was discontinued at the end of 2014, based on the sale of such laser micromachining inventories during the period.  

During the quarter and nine months ended September 30, 2017, the Company recorded a (credit) charge of approximately ($11) and $116, respectively, to cost of sales in the accompanying condensed statement of consolidated operations and comprehensive loss associated with certain work in process inventories for which cost was determined to exceed net realizable value. There were no such credits or charges recorded by the Company during the quarter or nine months ended September 30, 2016.

Note 9. Product Warranty Reserves

Substantially all of the Company’s 3D printing machines are covered by a standard twelve month warranty. Generally, at the time of sale, a liability is recorded (with an offset to cost of sales) based upon the expected cost of replacement parts and labor to be incurred over the life of the standard warranty. Expected cost is estimated using historical experience for similar products. The Company periodically assesses the adequacy of the product warranty reserves based on changes in these factors and records any necessary adjustments if actual experience indicates that adjustments are necessary. Future claims experience could be materially different from prior results because of the introduction of new, more complex products, a change in the Company’s warranty policy in response to industry trends, competition or other external forces, or manufacturing changes that could impact product quality. In the event that the Company determines that its current or future product repair and replacement costs exceed estimates, an adjustment to these reserves would be charged to cost of sales in the period such a determination is made.

The following table summarizes changes in product warranty reserves (such amounts reflected in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet for each respective period):

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	Quarter Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Balance at beginning of period	$	1,075		$	992		$	1,115		$	1,308
Provisions for new issuances		243			403			763			699
Payments		(174	)		(146	)		(427	)		(648	)
Reserve adjustments		(100	)		(89	)		(466	)		(235	)
Foreign currency translation adjustments		14			4			73			40
Balance at end of period	$	1,058		$	1,164		$	1,058		$	1,164

Note 10. Contingencies and Commitments

Contingencies

On July 1, 2017, the Company (through its ExOne GmbH subsidiary) entered into a Settlement Agreement with Kocel Foundry Limited (also known as Kocel CSR Casting Company, Limited) and Kocel Group (Hong Kong) Limited (collectively, “Kocel”) relating to settlement of the arbitration case (no. 100019-2017) administered by the Swiss Chambers’ Arbitration Institution Notice of Arbitration, as filed by the Company on January 25, 2017. Among other things, the Settlement Agreement provided for a cash payment from ExOne GmbH to Kocel of approximately $811 and a settlement and release of claims related to a sales agreement between the parties for certain 3D printing machines and related equipment (the “Sales Agreement”). Based on the terms of the Settlement Agreement, including the final acceptance by Kocel of the 3D printing machines and related equipment, and relief from further obligation, liability or warranty for both parties (excluding certain intellectual property considerations), the Company recorded revenue of approximately $2,762 associated with the Sales Agreement (net of the cash payment made by ExOne GmbH to Kocel, such payment made on July 5, 2017) and the related cost of sales, during the quarter ending September 30, 2017.

The Company and its subsidiaries are subject to various litigation, claims, and proceedings which have been or may be instituted or asserted from time to time in the ordinary course of business. Other than the matter further described above, management does not believe that the outcome of any pending or threatened matters will have a material adverse effect, individually or in the aggregate, on the financial position, results of operations or cash flows of the Company.

Commitments

In the normal course of its operations, ExOne GmbH issues financial guarantees and letters of credit to third parties in connection with certain commercial transactions requiring security. ExOne GmbH maintains a credit facility agreement with a German bank which provides for various short-term financings in the form of overdraft credit, financial guarantees, letters of credit and collateral security for commercial transactions for approximately $1,500 (€1,300). In addition, ExOne GmbH may use the credit facility agreement for short-term, fixed-rate loans in minimum increments of approximately $100 (€100) with minimum terms of at least thirty days. The overdraft credit interest rate is fixed at 10.2% while the interest rate associated with commercial transactions requiring security (financial guarantees, letters of credit or collateral security) is fixed at 1.75%. The credit facility agreement has an indefinite term and is subject to cancellation by either party at any time upon repayment of amounts outstanding or expiration of commercial transactions requiring security. There is no commitment fee associated with the credit facility agreement. There are no negative covenants associated with the credit facility agreement. The credit facility agreement has been guaranteed by the Company. At September 30, 2017 and December 31, 2016, there were no outstanding borrowings in the form of overdraft credit or short-term loans under the credit facility agreement. At September 30, 2017, total outstanding financial guarantees and letters of credit issued by ExOne GmbH under the credit facility agreement were approximately $865 (€732). Included in the total outstanding financial guarantees and letters of credit issued by ExOne GmbH are approximately $584 (€494) with expiration dates ranging from October 2017 through July 2018 and approximately $281 (€238) which have no expiration date. At December 31, 2016, total outstanding guarantees and letters of credit issued by ExOne GmbH under the credit facility agreement were approximately $400 (€380).

In addition to amounts issued by ExOne GmbH under the credit facility agreement, during the quarter ended March 31, 2017, ExOne GmbH entered into separate agreements with the same German bank for additional capacity for financial guarantees and letters of credit associated with certain commercial transactions requiring security. Terms of the separate agreements are substantially similar to those of the existing credit security agreement except that the German bank required cash collateral to be posted by ExOne GmbH in connection with any related issuance. At September 30, 2017, total outstanding financial guarantees and letters of credit issued by ExOne GmbH under these separate agreements were approximately $768 (€650) which expired in October 2017.

Note 11. Income Taxes

The provision for income taxes for the quarters ended September 30, 2017 and 2016 was $14 and $25, respectively. The provision for income taxes for the nine months ended September 30, 2017 and 2016 was $23 and $43, respectively. The Company has completed a discrete period computation of its provision for income taxes for each of the periods presented. Discrete period computation is as a result of jurisdictions with losses before income taxes for which no tax benefit can be recognized and an inability to generate reliable estimates for results in certain jurisdictions as a result of inconsistencies in generating net operating profits (losses) in those jurisdictions.

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The effective tax rate for the quarters ended September 30, 2017 and 2016 was 0.3% (provision on a loss) and 0.7% (provision on a loss), respectively. The effective tax rate for the nine months ended September 30, 2017 and 2016 was 0.1% (provision on a loss) and 0.4% (provision on a loss), respectively. The effective tax rate differs from the United States federal statutory rate of 34.0% for each of the periods presented primarily due to net changes in valuation allowances for the periods.

The Company has provided a valuation allowance for its net deferred tax assets as a result of the Company not generating consistent net operating profits in jurisdictions in which it operates. As such, any benefit from deferred taxes in any of the periods presented has been fully offset by changes in the valuation allowance for net deferred tax assets. The Company continues to assess its future taxable income by jurisdiction based on recent historical operating results, the expected timing of reversal of temporary differences, various tax planning strategies that the Company may be able to enact in future periods, the impact of potential operating changes on the business and forecast results from operations in future periods based on available information at the end of each reporting period. To the extent that the Company is able to reach the conclusion that its net deferred tax assets are realizable based on any combination of the above factors in a single, or in multiple, taxing jurisdictions, a reversal of the related portion of the Company’s existing valuation allowances may occur.

The Company has a liability for uncertain tax positions related to certain capitalized expenses and intercompany transactions. At September 30, 2017 and December 31, 2016, the liability for uncertain tax positions was approximately $846 and $754, respectively, and is included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet. At September 30, 2017 and December 31, 2016, the Company had an additional liability for uncertain tax positions related to its ExOne GmbH (Germany) subsidiary of approximately $304 and $232, respectively, which were fully offset against net operating loss carryforwards. At September 30, 2017 and December 31, 2016, the Company had an additional liability for uncertain tax positions related to its ExOne KK (Japan) subsidiary of approximately $554 and $416, respectively, which were fully offset against net operating loss carryforwards.

In July 2017, local taxing authorities in Japan completed their examination of the Company’s ExOne KK (2014-2016) subsidiary, resulting in an income tax obligation of approximately $5, which was reflected in the provision for income taxes in the accompanying condensed statement of consolidated operations during the quarter ended June 30, 2017. At September 30, 2017, the Company’s ExOne GmbH (2010-2013) and ExOne Property GmbH (2013) subsidiaries were under examination by local taxing authorities. The Company is unable to reasonably predict an outcome related to this examination, the result of which may be material in a future period to the financial position, results from operations and cash flows of the Company.

Note 12. Equity-Based Compensation

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

Stock options and restricted stock issued by the Company are generally subject to service conditions resulting in annual vesting on the anniversary of the date of grant over a period typically ranging between one and three years. Certain stock options and restricted stock issued by the Company vest immediately upon issuance. Stock options issued by the Company have a contractual life which expires over a period typically ranging between five and ten years from the date of grant subject to continued service to the Company by the participant.

The following table summarizes the total equity-based compensation expense recognized for awards issued under the Plan:

	Quarter Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Equity-based compensation expense recognized:
Stock options	$	768	$	347	$	1,244	$	490
Restricted stock		440		203		799		614
Total equity-based compensation expense before income taxes		1,208		550		2,043		1,104
Benefit for income taxes*		—		—		—		—
Total equity-based compensation expense net of income taxes	$	1,208	$	550	$	2,043	$	1,104

* The benefit for income taxes from equity-based compensation for each of the periods presented has been determined to be $0 based on valuation allowances against net deferred tax assets.

At September 30, 2017, total future compensation expense related to unvested awards yet to be recognized by the Company was approximately $1,145 for stock options and $449 for restricted stock. Total future compensation expense related to unvested awards

13

yet to be recognized by the Company is expected to be recognized over a weighted-average remaining vesting period of approximately 1.3 years.

During the nine months ended September 30, 2017, the fair value of stock options granted was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	February 10, 2017	August 14, 2017
Weighted average fair value per stock option	$5.46 - $5.75	$3.40 - $4.38
Volatility	62.89% - 63.75%	61.68% - 67.92%
Average risk-free interest rate	1.89% - 1.94%	1.40% - 1.82%
Dividend yield	0.00%	0.00%
Expected term (years)	5.0 - 5.5	2.5 - 5.5

During the nine months ended September 30, 2016, the fair value of stock options granted was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	August 12, 2016		August 19, 2016
Weighted average fair value per stock option	$8.07		$7.97
Volatility		66.43%		66.24%
Average risk-free interest rate		1.18%		1.20%
Dividend yield		0.00%		0.00%
Expected term (years)		6.0		5.5

For certain stock option awards, volatility is estimated based on the historical volatility of the Company when the expected term of the award is less than the period for which the Company has been publicly traded. For certain stock option awards, volatility is estimated based on the historical volatilities of certain peer group companies when the expected term of the award exceeds the period for which the Company has been publicly traded. The average risk-free rate is based on a weighted average yield curve of risk-free interest rates consistent with the expected term of the awards. Expected dividend yield is based on historical dividend data as well as future expectations. Expected term is calculated using the simplified method as the Company does not have sufficient historical exercise experience upon which to base an estimate.

The activity for stock options was as follows:

	Nine Months Ended
	2017							2016
	Numberof Options			WeightedAverage Exercise Price		Weighted Average Grant Date Fair Value		Numberof Options			WeightedAverage Exercise Price		Weighted Average Grant Date Fair Value
Outstanding at beginning of period		314,303		$	15.62	$	9.38		210,970		$	17.43	$	10.67
Stock options granted		389,000		$	8.16	$	3.89		139,000		$	13.72	$	8.00
Stock options exercised		—		$	—	$	—		—		$	—	$	—
Stock options forfeited		(500	)	$	15.74	$	9.60		(6,001	)	$	15.74	$	9.60
Stock options expired		(6,666	)	$	17.43	$	10.67		(26,332	)	$	17.74	$	10.87
Outstanding at end of period		696,137		$	11.51	$	6.35		317,637		$	15.77	$	9.48
Stock options exercisable at end of period		427,953		$	12.67	$	7.16		178,304		$	17.01	$	10.32
Stock options expected to vest at end of period		268,184		$	9.66	$	5.06		132,908		$	14.18	$	8.38

At September 30, 2017, intrinsic value associated with stock options exercisable was approximately $586. At September 30, 2017, intrinsic value associated with stock options expected to vest was approximately $659. The weighted average remaining contractual term of stock options exercisable and expected to vest at September 30, 2017, was approximately 6.7 years and 7.2 years, respectively. There were no stock option exercises during the nine months ended September 30, 2017 or 2016.

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The activity for restricted stock was as follows:

	Nine Months Ended
	2017					2016
	Shares of Restricted Stock			Weighted Average Grant Date Fair Value		Shares of Restricted Stock			Weighted Average Grant Date Fair Value
Outstanding at beginning of period		94,171		$	14.29		77,670		$	19.57
Restricted stock granted		60,000		$	9.01		74,500		$	11.78
Restricted stock vested		(74,999	)	$	12.40		(35,998	)	$	19.25
Restricted stock forfeited		(11,667	)	$	14.28		(3,668	)	$	19.46
Outstanding at end of period		67,505		$	11.69		112,504		$	14.52
Restricted stock expected to vest at end of period		67,505		$	11.69		112,504		$	14.52

Restricted stock vested during the nine months ended September 30, 2017 and 2016, had a fair value of approximately $670 and $351, respectively.

Note 13. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.

The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1	Observable inputs such as quoted prices in active markets for identical investments that the Company has the ability to access.
Level 2	Inputs include:
	Quoted prices for similar assets or liabilities in active markets;
	Quoted prices for identical or similar assets or liabilities in inactive markets;
	Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
	Inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.
Level 3	Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

The Company is required to disclose its estimate of the fair value of material financial instruments, including those recorded as assets or liabilities in its consolidated financial statements, in accordance with GAAP.

15

During the quarter ended March 31, 2017, the Company entered into two separate foreign exchange forward contracts with a German bank in an effort to hedge the variability of certain foreign exchange risks between the Euro (the functional currency of the Company’s ExOne GmbH subsidiary) and British Pound Sterling (the currency basis for cash flows resulting from a commercial sales arrangement with a customer). The first of the two foreign exchange forward contracts was both entered into and settled (in connection with cash received from the customer) during the quarter ended March 31, 2017, resulting in a realized gain on settlement of approximately $16 (€15). The second of the two foreign exchange forward contracts was settled on August 31, 2017, resulting in a realized gain on settlement of approximately $14 (€12). Neither of the contracts was designated as a hedging instrument and accordingly, realized and unrealized gains (losses) for all periods have been recorded to other (income) expense – net in the accompanying condensed statement of consolidated operations and comprehensive loss. The Company has classified both contracts as Level 2 fair value measurements.  

The carrying values and fair values of other financial instruments (assets and liabilities) not required to be recorded at fair value were as follows:

	September 30,				December 31,
	2017				2016
	Carrying Value		Fair Value		Carrying Value		Fair Value
Cash and cash equivalents	$	17,706	$	17,706	$	27,825	$	27,825
Restricted cash	$	1,098	$	1,098	$	330	$	330
Current portion of long-term debt*	$	135	$	140	$	132	$	138
Current portion of capital leases	$	25	$	25	$	72	$	72
Long-term debt  ̶  net of current portion*	$	1,543	$	1,570	$	1,644	$	1,674
Capital leases  ̶  net of current portion	$	41	$	41	$	10	$	10

 * Carrying values at September 30, 2017 and December 31, 2016 are net of unamortized debt issuance costs of approximately $32 and $36, respectively.

The carrying amounts of cash and cash equivalents, restricted cash, current portion of long-term debt and current portion of capital leases approximate fair value due to their short-term maturities. The fair value of long-term debt – net of current portion and capital leases – net of current portion have been estimated by management based on the consideration of applicable interest rates (including certain instruments at variable or floating rates) and other available information (including quoted prices of similar instruments available to the Company). Cash and cash equivalents and restricted cash are classified in Level 1; current portion of long-term debt, current portion of capital leases, long-term debt – net of current portion and capital leases – net of current portion are classified in Level 2.

Note 14. Concentration of Credit Risk

During the quarters and nine months ended September 30, 2017 and 2016, the Company conducted a significant portion of its business with a limited number of customers, though not necessarily the same customers for each respective period. For the quarters ended September 30, 2017 and 2016, the Company’s five most significant customers represented approximately 46.0% and 36.0% of total revenue, respectively. For the nine months ended September 30, 2017 and 2016, the Company’s five most significant customers represented approximately 22.2% and 21.4% of total revenue, respectively. At September 30, 2017 and December 31, 2016, accounts receivable from the Company’s five most significant customers were approximately $2,293 and $1,867, respectively.

Note 15. Related Party Transactions

Revenues

Sales of products and/or services to related parties for the quarters ended September 30, 2017 and 2016 were approximately $8 and $1, respectively. Sales of products and/or services to related parties for the nine months ended September 30, 2017 and 2016 were approximately $25 and $73, respectively. None of the transactions met a threshold requiring review and approval by the Audit Committee of the Board of Directors of the Company.  

There were no amounts due from related parties at September 30, 2017.Amounts due from related parties at December 31, 2016, were approximately $1 and are reflected in accounts receivable – net in the accompanying condensed consolidated balance sheet. In addition, the Company has received prepayments for certain undelivered services to a related party of approximately $8 at September 30, 2017, which are reflected in deferred revenue and customer prepayments in the accompanying condensed consolidated balance sheet. There were no prepayments received from related parties at December 31, 2016.

Expenses

During the quarters ended September 30, 2017 and 2016, purchases from related parties were approximately $4 and $3, respectively. During the nine months ended September 30, 2017 and 2016, purchases from related parties were approximately $12 and $13, respectively. Purchases by the Company during the quarters and nine months ended September 30, 2017 and 2016 included website design services and leased office space from related parties under common control by the Executive Chairman of the Company (formerly the Chairman and CEO of the Company through August 19, 2016). None of the transactions met a threshold requiring review and approval by the Audit Committee of the Board of Directors of the Company.

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The Company also receives the benefit of the corporate use of an airplane from a related party under common control by the Executive Chairman of the Company (formerly the Chairman and CEO of the Company through August 19, 2016) for no consideration. The Company estimates the fair market value of the benefits received during the quarter and nine months ended September 30, 2016 were approximately $17 and $21, respectively. There were no such benefits received during the quarter or nine months ended September 30, 2017.

Amounts due to related parties at September 30, 2017 and December 31, 2016, were approximately $1 and $1, respectively. Amounts due to related parties for both periods are reflected in accounts payable in the accompanying condensed consolidated balance sheet.

Revolving Credit Facility with a Related Party

On October 23, 2015, ExOne and its ExOne Americas LLC and ExOne GmbH subsidiaries, as guarantors, entered into a Credit Agreement (the “Credit Agreement”) with RHI Investments, LLC (“RHI”), a related party, on a $15,000 revolving credit facility to (i) assist the Company in its efforts to finance customer acquisition of its 3D printing machines and 3D printed and other products and services and (ii) provide additional funding for working capital and general corporate purposes.  RHI was determined to be a related party based on common control by the former Chairman and CEO of the Company (the Executive Chairman of the Company effective August 19, 2016). Prior to execution, the Credit Agreement was subject to review and approval by a sub-committee of independent members of the Board of Directors of the Company (which included each of the members of the Audit Committee of the Board of Directors).  The Company incurred approximately $215 in debt issuance costs associated with the Credit Agreement.

On January 10, 2016, the Company delivered notice to RHI of its intent to terminate the Credit Agreement in connection with the closing of a registered direct offering of common stock to an entity under common control by the former Chairman and CEO of the Company (the Executive Chairman of the Company effective August 19, 2016). There were no borrowings under the Credit Agreement from January 1, 2016 through the effective date of its termination, January 13, 2016.  In connection with the termination, the Company settled its remaining accrued interest under the Credit Agreement of approximately $5 relating to the commitment fee on the unused portion of the revolving credit facility (100 basis points, or 1.0% on the unused portion of the revolving credit facility). In addition, during the quarter ended March 31, 2016, the Company recorded approximately $204 to interest expense related to the accelerated amortization of debt issuance costs. Upon termination of the Credit Agreement, all liens and guaranties in respect thereof were released.

Other

Refer to Note 2 for further discussion relating to two separate equity offerings during the quarter ended March 31, 2016, certain elements of which qualified as related party transactions.

Note 16. Subsequent Events

The Company has evaluated all of its activities and concluded that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes to the condensed consolidated financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(dollars in thousands, except per-share amounts)

The following discussion and analysis should be read together with our unaudited condensed consolidated financial statements and related notes thereto set forth in this Quarterly Report on Form 10-Q as well as our Annual Report on Form 10-K for the year ended December 31, 2016.

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

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

In addition to items described under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, the following factors, among others, could cause results to differ materially from forward-looking statements or historical performance: our ability to enhance our current 3D printing machinesand technology and develop new 3D printing machines; our ability to qualify more industrial materials in which we can print; timing and length of sales of3D printing machines; demand for our products; our ability to achieve cost savings through consolidation or exiting of certain North American operations; the impact of increases in operating expenses and expenses relating to proposed investments and alliances; the availability of skilled personnel; the impact of market conditions and other factors on the carrying value of long-lived assets; our competitive environment and our competitive position; our ability to continue as a going concern; individual customer contractual requirements; the impact of customer specific terms in machine sale agreements on the period in which we recognize revenue; the impact of loss of key management; risks related to global operations including effects of foreign currency and risks related to the situation in the Ukraineand the United Kingdom’s referendum to withdraw from the European Union;demand for aerospace, automotive, heavy equipment, energy/oil/gas and other industrial products; our plans regarding increased international operations in additional international locations; the scope, nature or impact of alliances and strategic investments and our ability to integrate strategic investments; sufficiency of funds for required capital expenditures, working capital, and debt service; the adequacy of sources of liquidity; the effect of litigation, contingencies and warranty claims;liabilities under laws and regulations protecting the environment; the impact of governmental laws and regulations; operating hazards, war, terrorism and cancellation or unavailability of insurance coverage; the impact of disruption of our manufacturing facilities, production service centers (“PSCs”) or ExOne adoption centers (“EACs”); the adequacy of our protection of our intellectual property; expectations regarding demand for our industrial products, operating revenues, operating and maintenance expenses, insurance expenses and deductibles, interest expenses, debt levels, and other matters with regard to outlook; andmaterial weaknesses in our internal control over financial reporting.

Overview

Our Business

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

Outlook

Our 2017 priorities include the following:

• Continue to accelerate the adoption rate of binder jet technologies. We plan to grow our market leading position with respect to 3D printing solutions for customers and continue advancing our innovations in direct and indirect printing, principally through an expansion of our fine powder direct printing capabilities and development activities associated with larger format direct and indirect 3D printing machines.

• Evaluation of our business model. We continue to focus our efforts on optimizing our business model, including maximizing our facility utilization and our gross profit. We have consolidated certain of our operations to achieve

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efficiencies and we will continue to consider additional strategic decisions resulting in further consolidation, elimination or other modification to our existing machine manufacturing, PSC and other operations, including, but not limited to, converting certain of our PSCs into EACs. We are reviewing our product lines to better manage our product marketing and delivery to our customers to accelerate the adoption rate of our technologies. We are continuously reviewing the industry for developments in printing technologies, materials, methods, innovations, or services that offer strategic benefits that can improve, accelerate or advance our products or services.

• Strengthening our commercial team and reprioritizing our focus. We have added new talent to our commercial leadership team and have added new tools and processes to improve the efficiency and effectiveness of our selling efforts. As our global installed base of 3D printing machines continues to grow, we continue to invest in our customer-centric approach to managing our operations (including talent addition and the process of converting certain of our PSCs into EACs). Our goal is to collaborate with our customers and remain the market leader and supplier of choice for binder jet technologies and products for industrial applications.

Recent Developments

On January 26, 2017, we committed to a plan to consolidate certain of our 3D printing operations from our North Las Vegas, Nevada facility into our Troy, Michigan and Houston, Texas facilities and exit our non-core specialty machining operations in our Chesterfield, Michigan facility. These actions were taken as a result of the accelerating adoption rate of our sand printing technology in North America which has resulted in a refocus of our operational strategy.

As a result of these actions, during the quarter ended March 31, 2017, we recorded charges of approximately $984, including approximately $110 associated with involuntary employee terminations, approximately $7 associated with other exit costs and approximately $867 associated with asset impairments. Charges associated with involuntary employee terminations and other exit costs were recorded to cost of sales in the accompanying condensed statement of operations and comprehensive loss. Charges associated with asset impairments were split between cost of sales ($598), as a component of depreciation expense, and selling, general and administrative expenses ($269), as a component of amortization expense, in the accompanying condensed statement of operations and comprehensive loss. During the quarter ended June 30, 2017, we recorded a charge of approximately $32 associated with an additional involuntary employee termination which required a service commitment through April 2017. This charge was recorded to cost of sales in the accompanying condensed statement of operations and comprehensive loss. There have been no additional charges recorded associated with this plan in subsequent periods. There are no additional charges expected to be incurred associated with this plan in future periods. We have settled all amounts associated with involuntary employee terminations and other exit costs.

Charges associated with asset impairments relate principally to our plan to exit our non-core specialty machining operations in our Chesterfield, Michigan facility. On April 21, 2017, we sold to a third party certain assets associated with these operations including inventories (approximately $79), property and equipment (approximately $2,475) and other contractual rights (approximately $269). Total gross proceeds from the sale of these assets were approximately $2,050. After deducting costs directly attributable to the sale of these assets (approximately $128), we recorded an impairment loss during the quarter ended March 31, 2017, of approximately $859 split between property and equipment ($590) and intangible assets ($269) based on the excess of the carrying value over the estimated fair value of the related assets at March 31, 2017, and a loss on disposal (recorded to cost of sales in the accompanying condensed statement of operations and comprehensive loss) during the quarter ended June 30, 2017, of approximately $42. Additionally, we recorded an impairment loss during the quarter ended March 31, 2017, of approximately $8 associated with certain property and equipment which was abandoned in connection with our plan to exit our North Las Vegas, Nevada facility.

Separate from the transaction described above, on May 9, 2017, we sold to a third party certain property and equipment (principally land and building) associated with our North Las Vegas, Nevada facility. Total gross proceeds from the sale of these assets were approximately $1,950. After deducting costs directly attributable to the sale of these assets (approximately $137), we recorded a gain on disposal (recorded to cost of sales in the accompanying condensed statement of operations and comprehensive loss) during the quarter ended June 30, 2017, of approximately $347.

The consolidation of our 3D printing operations from our North Las Vegas, Nevada facility into our Troy, Michigan and Houston, Texas facilities is not expected to have a significant impact on our revenues in future periods. We expect annualized cost savings related to this consolidation of approximately $600, with approximately $570 in the form of cash cost savings (principally employee and facility maintenance costs) and approximately $30 in the form of reduced depreciation expense. All cost savings associated with this consolidation are expected to benefit cost of sales. We expect to invest these cost savings into technological or process advancements that support either long-term cost benefits or revenue growth.

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We expect annualized reductions in revenue related to our exit of our non-core specialty machining operations in our Chesterfield, Michigan facility of approximately $1,400. Revenues associated with our non-core specialty machining operations in our Chesterfield, Michigan facility were approximately $346 for the nine months ended September 30, 2017 and approximately $427 and $1,075 for the quarter and nine months ended September 30, 2016, respectively. We expect annualized cost savings related to this exit of approximately $500, with approximately $200 in the form of cash cost savings (principally employee-related and other operating costs), approximately $200 in the form of reduced depreciation expense and approximately $100 in the form of reduced amortization expense. Cost savings associated with the exit of this facility are expected to benefit cost of sales by approximately $400 and selling, general and administrative expenses by approximately $100. We expect to invest these cost savings into technological or process advancements that support either long-term cost benefits or revenue growth.

On March 22, 2017, we terminated our Cooperation Agreement with Swerea SWECAST AB (“Swerea”), resulting in an exit of our PSC operations in Jönköping, Sweden, effective April 1, 2017. Also on March 22, 2017, we agreed to a leasing agreement with Beijer Industri AB, effective April 1, 2017, related to our 3D printing machine and related equipment located on the Swerea premises, previously covered under our Cooperation Agreement with Swerea. Both of these actions were taken in connection with our continuing evaluation of our business model in an effort to both streamline our existing European operations, and to take strategic advantage of our existing relationship with Beijer Industri AB in promoting indirect binder jet technologies in Scandinavia. There were no penalties or other adverse effects associated with our termination of our Cooperation Agreement with Swerea. There were no significant effects on our results of operations or financial position associated with these actions.  

Impairment

During the quarter ended September 30, 2017, as a result of continued operating losses and cash flow deficiencies, we identified a triggering event requiring a test for the recoverability of long-lived assets held for use at the asset group level. Assessing the recoverability of long-lived assets held for use requires significant judgments and estimates by management.

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

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

Backlog

At September 30, 2017, our backlog was approximately $20,900 of which approximately $17,900 is expected to be fulfilled during the next twelve months. At December 31, 2016, our backlog was approximately $19,700.

Results of Operations

Net Loss

Net loss for the quarter ended September 30, 2017, was $4,863, or $0.30 per basic and diluted share, compared with a net loss of $3,611 or $0.23 per basic and diluted share, for the quarter ended September 30, 2016. Net loss for the nine months ended September 30, 2017, was $18,057, or $1.13 per basic and diluted share, compared with a net loss of $12,030 or $0.76 per basic and diluted share, for the nine months ended September 30, 2016. The increase in our net loss for both periods was principally due to a net decrease in our gross profit (as a percentage of sales) along with increases in research and development and selling, general and administrative expenses (all changes further described below).

Revenue

The following table summarizes revenue by product line:

	Quarter Ended								Nine Months Ended
	September 30,								September 30,
	2017				2016				2017				2016
3D printing machines	$	8,552	53.8	%	$	6,489	50.0	%	$	17,081	45.5	%	$	13,461	40.6	%
3D printed and other products,    materials and services		7,335	46.2	%		6,499	50.0	%		20,474	54.5	%		19,696	59.4	%
	$	15,887	100.0	%	$	12,988	100.0	%	$	37,555	100.0	%	$	33,157	100.0	%

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Revenue for the quarter ended September 30, 2017, was $15,887 compared with revenue of $12,988 for the quarter ended September 30, 2016, an increase of $2,899, or 22.3%. The increase in revenue was as a result of increases in revenue attributable to both of our product lines (3D printing machines and 3D printed and other products, materials and services). The increase in revenues from 3D printing machines resulted from a slightly higher volume of units sold (12 3D printing machines sold during the quarter ended September 30, 2017, as compared to 11 3D printing machines sold during the quarter ended September 30, 2016) and a favorable mix of 3D printing machines sold (as we sold eight indirect printers during the quarter ended September 30, 2017, as compared to six indirect printers during the quarter ended September 30, 2016, indirect printers generally bearing a higher average selling price than direct printers). The increase in revenues from 3D printed and other products, materials and services principally resulted from an increase in revenues from our direct PSC printing operations as a result of increased customer acceptance of our binder jet technologies and an increase in service revenues (maintenance services and replacement components for 3D printing machines) based on an increased global installed base of 3D printing machines. These increases in revenues from 3D printed and other products, materials and services were offset by a decrease in product sales associated with our former specialty machining operation located in our Chesterfield, Michigan facility (approximately $427) following the sale of certain assets associated with this operation in April 2017.

Revenue for the nine months ended September 30, 2017, was $37,555 compared with revenue of $33,157 for the nine months ended September 30, 2016, an increase of $4,398, or 13.3%. The increase in revenue was as a result of increases in revenue attributable to both of our product lines (3D printing machines and 3D printed and other products, materials and services). The increase in revenues from 3D printing machines resulted primarily from an increase in volume of 3D printing machines sold (25 3D printing machines sold during the nine months ended September 30, 2017, as compared to 21 3D printing machines sold during the nine months ended September 30, 2016) and a favorable mix of 3D printing machines sold (as we sold 14 indirect printers during the quarter ended September 30, 2017, as compared to 11 indirect printers during the quarter ended September 30, 2016, indirect printers generally bearing a higher average selling price than direct printers). The increase in revenues from 3D printed and other products, materials and services principally resulted from an increase in revenues from our direct PSC printing operations as a result of increased customer acceptance of our binder jet technologies and an increase in service revenues (maintenance services and replacement components for 3D printing machines) based on an increased global installed base of 3D printing machines. These increases in revenues from 3D printed and other products, materials and services were offset by a decrease in product sales associated with our former specialty machining operation located in our Chesterfield, Michigan facility (approximately $729) following the sale of certain assets associated with this operation in April 2017 and the absence of the sale of remaining inventories associated with our former laser micromachining product line (approximately $475) during the quarter ended June 30, 2016.

The following table summarizes 3D printing machines sold by type (refer to the “Our Machines and Machine Platforms” section of Part I, Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2016, for a description of 3D printing machines by type):

	Quarter Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
3D printing machine units sold:
Exerial		4		—		4		—
S-Max+		1		—		1		1
S-Max		1		4		7		5
S-Print		2		1		2		3
S-15		—		1		—		2
M-Flex		2		1		6		3
Innovent		2		3		5		6
X1-Lab		—		1		—		1
		12		11		25		21

Cost of Sales and Gross Profit

Cost of sales for the quarter ended September 30, 2017, was $11,790 compared with cost of sales of $9,428 for the quarter ended September 30, 2016, an increase of $2,362, or 25.1%. The increase in cost of sales was primarily due to an increase in our variable cost of sales associated with our increase in revenues.

Gross profit for the quarter ended September 30, 2017, was $4,097 compared with gross profit of $3,560 for the quarter ended September 30, 2016. Gross profit percentage was 25.8% for the quarter ended September 30, 2017, compared with 27.4% for the quarter ended September 30, 2016. The change in gross profit was the result of the increase in revenues net of the increase in cost of sales as further described above. This includes our recognition of four Exerial 3D printing machines during the quarter ended September 30, 2017 (approximately $2,762), which yielded a break-even result on a contribution margin basis. Excluding these unit sales, we benefitted from overall higher realized pricing on 3D printing machine sales and better leverage of our fixed cost base due to higher sales of 3D printed and other products, materials and services.

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Cost of sales for the nine months ended September 30, 2017, was $29,829 compared with cost of sales of $24,215 for the nine months ended September 30, 2016, an increase of $5,614, or 23.2%. The increase in cost of sales was primarily due to an increase in our variable cost of sales associated with our increase in revenues. In addition, we recognized a net charge associated with slow-moving, obsolete and lower of cost or market inventories of approximately $1,872 during the nine months ended September 30, 2017, compared to a net recovery of approximately $356 during the nine months ended September 30, 2016. The net charge recorded during the nine months ended September 30, 2017, was primarily attributable to certain raw material and component inventories (principally machine frames and other fabricated components) of approximately $1,460 recorded during the quarter ended June 30, 2017, associated with our Exerial 3D printing machine platform based on decisions made by us during the period related to certain design changes and improvements to the underlying platform (rendering certain elements of the previous design obsolete). The net recovery recorded during the nine months ended September 30, 2016, principally relates to the sale of certain inventories associated with our former laser micromachining product line (approximately $507) during the quarter ended June 30, 2016. Also, during the nine months ended September 30, 2017, we incurred costs of approximately $747 (approximately $142 in employee termination costs, $7 in other exit costs and $598 in asset impairments) associated with our consolidation of our 3D printing operations from our facility in North Las Vegas, Nevada into our Troy, Michigan and Houston, Texas facilities and our plan to exit our non-core specialty machining operations in Chesterfield, Michigan. These increases were offset by net gains on disposal of property and equipment recorded during the nine months ended September 30, 2017 (approximately $286), compared to net losses on disposal of property and equipment recorded during the nine months ended September 30, 2016 (approximately $169). Net gains on disposal of property and equipment recorded during the nine months ended September 30, 2017, primarily related to our sale of certain property and equipment (principally land and building) associated with our consolidation and exit of our North Las Vegas, Nevada PSC. Net losses on disposal of property and equipment recorded during the nine months ended September 30, 2016, primarily related to our sale and abandonment of certain property and equipment associated with our consolidation and exit of our Auburn, Washington PSC and the sale of certain machinery and equipment associated with our former specialty machining operations in Chesterfield, Michigan.

Gross profit for the nine months ended September 30, 2017, was $7,726 compared with gross profit of $8,942 for the nine months ended September 30, 2016. Gross profit percentage was 20.6% for the nine months ended September 30, 2017, compared with 27.0% for the nine months ended September 30, 2016. The decrease in gross profit was the result of the increase in revenues net of the increase in cost of sales as further described above. This includes the aforementioned recognition of Exerial units during the quarter ended September 30, 2017. Excluding these unit sales, we benefitted from overall higher realized pricing on 3D printing machine sales and better leverage of our fixed cost base (net of the items further described above) due to higher sales of 3D printed and other products, materials and services.

Research and Development

Research and development expenses for the quarter ended September 30, 2017, were $2,871 compared with research and development expenses of $1,898 for the quarter ended September 30, 2016, an increase of $973, or 51.3%. The increase in research and development expenses was primarily due to increases in employee-related costs (salaries, benefits and equity-based compensation) of approximately $295 and consulting and professional fees associated with certain machine development and other organizational development activities of approximately $521.

Research and development expenses for the nine months ended September 30, 2017, were $7,219 compared with research and development expenses of $5,737 for the nine months ended September 30, 2016, an increase of $1,482, or 25.8%. The increase in research and development expenses was primarily due to increases in employee-related costs (salaries, benefits and equity-based compensation) of approximately $362, consulting and professional fees associated with certain machine development and other organizational development activities of approximately $852 and material costs of approximately $193 (primarily associated with fine powder direct printing development activities).

Selling, General and Administrative

Selling, general and administrative expenses for the quarter ended September 30, 2017, were $6,062 compared with selling, general and administrative expenses of $5,234 for the quarter ended September 30, 2016, an increase of $828, or 15.8%. The increase in selling, general and administrative expenses was principally due to increases in employee-related costs (principally salaries, benefits and equity-based compensation) of approximately $933 associated with our investment in our commercial leadership team and executive severance costs, and consulting and professional fees of approximately $324 (principally executive consulting, legal and other administrative arrangements). These increases were offset by decreases in trade show expenses of approximately $148 and a decrease in our provision for bad debts from customers (net recoveries of approximately $183 during the quarter ended September 30, 2017, compared to a net provision of approximately $15 during the quarter ended September 30, 2016).

Selling, general and administrative expenses for the nine months ended September 30, 2017, were $18,338 compared with selling, general and administrative expenses of $15,222 for the nine months ended September 30, 2016, an increase of $3,116, or 20.5%. The increase in selling, general and administrative expenses was principally due to increases in employee-related costs (salaries, benefits and equity-based compensation) of approximately $1,522 associated with our investment in our commercial leadership team and executive severance costs, consulting and professional fees of approximately $819 (principally executive consulting, legal and other administrative arrangements), lower net recoveries for bad debts from customers (net recoveries of approximately $51 during the nine months ended September 30, 2017, compared to net recoveries of approximately $256 during the nine months ended September 30,

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2016), an impairment of intangible assets of approximately $269 during the quarter ended March 31, 2017, in connection with our plan to exit our non-core specialty machining operations at our Chesterfield, Michigan facility, and an increase in selling costs of approximately $175 (promotional expenses, trade show activities and sales commissions on 3D printing machine sales).  

Interest Expense

Interest expense for the quarter ended September 30, 2017, was $24 compared with interest expense of $22 for the quarter ended September 30, 2016, an increase of $2, or 9.1%. Amounts for both periods consisted principally of periodic interest expense associated with long-term debt and capital lease obligations.

Interest expense for the nine months ended September 30, 2017, was $69 compared with interest expense of $276 for the nine months ended September 30, 2016, a decrease of $207, or 75.0%. The decrease in interest expense was principally due to the effect of the termination of the revolving credit facility with a related party during the quarter ended March 31, 2016, which resulted in an acceleration of amortization of debt issuance costs of approximately $204.

Other (Income) Expense – Net

Other (income) expense – net for the quarter ended September 30, 2017, was ($11) compared with other (income) expense – net of ($8) for the quarter ended September 30, 2016. Amounts for both periods consisted principally of interest income on cash and cash equivalents balances offset by net foreign exchange losses on commercial transactions and certain intercompany transactions between subsidiaries either settled or planned for settlement in the foreseeable future.

Other (income) expense – net for the nine months ended September 30, 2017, was $134 compared with other (income) expense – net of ($306) for the nine months ended September 30, 2016. The change of $440 was principally due to net currency exchange losses on certain intercompany transactions between subsidiaries either settled or planned for settlement in the foreseeable future, for the nine months ended September 30, 2017, as compared to net currency exchange gains during the nine months ended September 30, 2016.

Provision for Income Taxes

The provision for income taxes for the quarters ended September 30, 2017 and 2016, was $14 and $25, respectively. The effective tax rate for the quarters ended September 30, 2017 and 2016, was 0.3% (provision on a loss) and 0.7% (provision on a loss), respectively. The provision for income taxes for the nine months ended September 30, 2017 and 2016, was $23 and $43, respectively. The effective tax rate for the nine months ended September 30, 2017 and 2016, was 0.1% (provision on a loss) and 0.4% (provision on a loss), respectively. For each of the quarters and nine months ended September 30, 2017 and 2016, the effective tax rate differs from the U.S. federal statutory rate of 34.0% primarily due to net changes in valuation allowances for the period.

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

Impact of Inflation

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

Liquidity and Capital Resources

Liquidity

We have incurred a net loss in each of our annual periods since our inception. In addition, we incurred a net loss of approximately $4,863 and $18,057 for the quarter and nine months ended September 30, 2017, respectively. In connection with the completion of our initial public offering and subsequent secondary offerings (including our ATM), we have received cumulative unrestricted net proceeds from the sale of our common stock of approximately $168,361 to fund our operations. At September 30, 2017, we had approximately $17,706 in unrestricted cash and cash equivalents.  

We believe that our existing capital resources will be sufficient to support our operating plan. If we anticipate that our actual results will differ from our operating plan, we believe we have sufficient capabilities to enact cost savings measures to preserve

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capital. Further, we may seek to raise additional capital to support our growth through additional debt, equity or other alternatives (including asset sales) or a combination thereof.

Cash Flows

The following table summarizes the significant components of cash flows for each of the nine month periods ended September 30 and our cash, cash equivalents, and restricted cash balances at September 30, 2017 and December 31, 2016:

	2017			2016
Net cash used for operating activities	$	(12,895	)	$	(1,908	)
Net cash provided by (used for) investing activities		2,828			(638	)
Net cash (used for) provided by financing activities		(166	)		12,879
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		882			138
Net change in cash, cash equivalents, and restricted cash	$	(9,351	)	$	10,471
	September 30, 2017			December 31, 2016
Cash and cash equivalents	$	17,706		$	27,825
Restricted cash		1,098			330
Cash, cash equivalents, and restricted cash shown in the    condensed statement of consolidated cash flows	$	18,804		$	28,155

Operating Activities

Net cash used for operating activities for the nine months ended September 30, 2017, was $12,895 compared with net cash used for operating activities of $1,908 for the nine months ended September 30, 2016. The change of $10,987 was due to an increase in our net loss combined with a decrease in net cash inflows from changes in assets and liabilities, including a decrease in cash inflows from customers (principally due to the implementation of more favorable liquidity terms with customers during the nine months ended September 30, 2016) and an increase in cash outflows related to inventories (based on our operating plans for delivery of 3D printing machines to customers). These changes were partially offset by a reduction in cash outflows to vendors (based on the timing of payment).

Investing Activities

Net cash provided by investing activities for the nine months ended September 30, 2017, was $2,828 compared with net cash used for investing activities of $638 for the nine months ended September 30, 2016.

Net cash provided by investing activities for the nine months ended September 30, 2017, included cash inflows of approximately $3,702 in proceeds from the sale of property and equipment, mostly attributable to our sale of assets associated with our non-core specialty machining operation in Chesterfield, Michigan and our PSC in North Las Vegas, Nevada during the quarter ended June 30, 2017. Remaining activity for both periods included cash outflows for capital expenditures consistent with our operating plans.

We expect our remaining 2017 capital expenditures to be limited to spending associated with sustaining our existing operations and strategic asset acquisition and deployment (additional estimated spending of less than $1,000).

Financing Activities

Net cash used for financing activities for the nine months ended September 30, 2017, was $166 compared with net cash provided by financing activities of $12,879 for the nine months ended September 30, 2016.

Uses of cash for the nine months ended September 30, 2017, included principal payments on outstanding debt and capital leases.

Sources of cash for the nine months ended September 30, 2016, included net proceeds from the issuance of common stock of approximately $12,447 in connection with our registered direct offering to a related party and approximately $595 in connection with our ATM. Uses of cash for the nine months ended September 30, 2016, included principal payments on outstanding debt and capital leases.

Off Balance Sheet Arrangements

In the normal course of our operations, our ExOne GmbH subsidiary issues financial guarantees and letters of credit to third parties in connection with certain commercial transactions requiring security. At September 30, 2017, total outstanding financial guarantees and letters of credit issued by us were approximately $1,633 (€1,382). Included in the total outstanding financial guarantees and letters of credit issued by us are approximately $1,352 (€1,144) with expiration dates ranging from October 2017 through July 2018 and approximately $281 (€238) which have no expiration date. At December 31, 2016, total outstanding financial guarantees and letters of credit issued by us were approximately $400 (€380). For further discussion related to financial guarantees

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and letters of credit issued by us, refer to Note 10 to the condensed consolidated financial statements in Part I Item 1 of this Quarterly Report on Form 10-Q.

Recently Issued and Adopted Accounting Guidance

Refer to Note 1 to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

Refer to Note 1 of the consolidated financial statements in Part I, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2016.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk from fluctuations in foreign currency exchange rates which may adversely affect our results of operations and financial condition. We seek to minimize these risks through regular operating and financing activities and, when we consider it to be appropriate, through the use of derivative financial instruments. We do not purchase, hold or sell derivative financial instruments for trading or speculative purposes.

The local currency is the functional currency for significant operations outside of the United States. The determination of the functional currency of an operation is made based on the appropriate economic and management indicators.

Foreign currency assets and liabilities are translated into their United States dollar equivalents based on period end spot exchange rates, and are included in stockholders’ equity as a component of other comprehensive income (loss). Revenues and expenses are translated at average exchange rates. Transaction gains and losses that arise from exchange rate fluctuations are charged to operations as incurred, except for gains and losses associated with certain long-term intercompany transactions for which settlement is not planned or anticipated in the foreseeable future, which are included in accumulated other comprehensive loss in the condensed consolidated balance sheet.

We transact business globally and are subject to risks associated with fluctuating foreign exchange rates. Approximately 68.2% and 59.3% of our consolidated revenue was derived from transactions outside the United States for the quarters ended September 30, 2017 and 2016, respectively. Approximately 61.2% and 54.0% of our consolidated revenue was derived from transactions outside the United States for the nine months ended September 30, 2017 and 2016, respectively. This revenue is generated primarily from wholly-owned subsidiaries operating in their respective countries and surrounding geographic areas. This revenue is primarily denominated in each subsidiary’s local functional currency, including the euro and Japanese yen. A hypothetical change in foreign exchange rates of +/- 10.0% for the quarter and nine months ended September 30, 2017, would result in an increase (decrease) in revenue of approximately $1,100 and $2,300, respectively. These subsidiaries incur most of their expenses (other than intercompany expenses) in their local functional currencies.

At September 30, 2017, we held approximately $18,804 in cash, cash equivalents, and restricted cash, of which approximately $15,366 was held by certain of our subsidiaries in United States dollars.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2017. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on this evaluation, management concluded as of September 30, 2017, that our disclosure controls and procedures were not effective at the reasonable assurance level due to a material weakness in our internal control over financial reporting as discussed in the Company’s Annual Report on Form 10-K filed on March 16, 2017.

As a result of the material weakness described in our Annual Report on Form 10-K, we performed additional analysis and other post-closing procedures to ensure our condensed consolidated financial statements were prepared in accordance with GAAP. Accordingly, management believes that the financial statements and related notes thereto included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

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Changes in Internal Control over Financial Reporting

With oversight from our executive management and Audit Committee of our Board of Directors, we continue to address the identified material weakness in our information technology system platform specific to our ExOne GmbH subsidiary, in particular, how this information technology system platform impacts our accounting for inventories specific to ExOne GmbH. Our approach includes the identification and remediation of known errors in the original implementation of, and subsequent changes to, this information technology system platform in an effort to reduce certain manual processes and controls necessary to ensure accurate and timely reporting of operating results associated with this subsidiary. We expect this process to be completed by December 31, 2017.

We can provide no assurance at this time that management will be able to report that our internal control over financial reporting will be effective as of December 31, 2017. As an EGC, we are exempt from the requirement to obtain an attestation report from our independent registered public accounting firm on the assessment of our internal controls pursuant to the Sarbanes-Oxley Act of 2002 until such time that we no longer qualify as an EGC.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

On July 1, 2017, the Company (through its ExOne GmbH subsidiary) entered into a Settlement Agreement with Kocel Foundry Limited (also known as Kocel CSR Casting Company, Limited) and Kocel Group (Hong Kong) Limited (collectively, “Kocel”) relating to settlement of the arbitration case (no. 100019-2017) administered by the Swiss Chambers’ Arbitration Institution Notice of Arbitration, as filed by the Company on January 25, 2017. Among other things, the Settlement Agreement provided for a cash payment from ExOne GmbH to Kocel of approximately $811,335 and a settlement and release of claims related to a sales agreement between the parties for certain 3D printing machines and related equipment.

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

Item 1A. Risk Factors.

There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

Item 6. Exhibits.

(a)(3) Exhibits

The Exhibits listed on the accompanying Index to Exhibits are filed as part of this Quarterly Report on Form 10-Q.

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EXHIBIT INDEX

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

Exhibit Number	Description	Method of Filing
10.1	Executive At-Will Employment Agreement dated August 4, 2017, by and between The ExOne Company and JoEllen Lyons Dillon.	Filed herewith.
10.2	The ExOne Company Change of Control Severance Plan dated August 8, 2017.	Filed herewith.
31.1	Rule 13(a)-14(a) Certification of Principal Executive Officer.	Filed herewith.
31.2	Rule 13(a)-14(a) Certification of Principal Financial Officer.	Filed herewith.
32	Section 1350 Certification of Principal Executive Officer and Principal Financial Officer.	Filed herewith.
101.INS	XBRL Instance Document.	Filed herewith.
101.SCH	XBRL Taxonomy Extension Schema Document.	Filed herewith.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.	Filed herewith.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.	Filed herewith.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.	Filed herewith.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.	Filed herewith.

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Signatures

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

The ExOne Company
By:	/s/ James L. McCarley
	James L. McCarley
	Chief Executive Officer
	(Principal Executive Officer)
Date:	November 9, 2017
By:	/s/ Brian W. Smith
	Brian W. Smith
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)
Date:	November 9, 2017

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