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, and its wholly-owned subsidiaries, ExOne Americas LLC (United States); ExOne GmbH (Germany); ExOne Property GmbH (Germany); and ExOne KK (Japan). Collectively, the consolidated group is referred to as the “Company”.

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, 2020 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, 2020, 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; revenue (including the allocation of a sales contract’s total transaction price to each performance obligation for contracts with multiple performance obligations); and equity-based compensation (including the valuation of certain equity-based compensation awards issued by the Company). 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.

Merger Transaction

On August 11, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Desktop Metal, Inc., a Delaware corporation (“DM”), Texas Merger Sub I, Inc., a Delaware corporation and wholly-owned subsidiary of DM (“Merger Sub I”) and Texas Merger Sub II, LLC, a Delaware limited liability company and wholly-owned subsidiary of DM (“Merger Sub II”).  

Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub I will merge with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of DM (the “First Merger”) and immediately thereafter, the Company will merge with and into Merger Sub II, with Merger Sub II surviving the subsequent merger (the “Second Merger”, and, together with the First Merger, the “Mergers”).

Subject to the terms and conditions of the Merger Agreement, stockholders of the Company will receive, in exchange for each share of our common stock held immediately prior to the Mergers, (i) $8.50 in cash and (ii) a number of shares of DM common stock, equal to the Exchange Ratio (defined below).

The “Exchange Ratio” shall be determined based on DM’s 20-day average closing stock price three trading days prior to closing: (i) if the average closing DM stock price is greater than or equal to $9.70, then the Exchange Ratio shall be set at 1.7522; (ii) if the average closing DM stock price is less than or equal to $7.94, then the Exchange Ratio shall be set at 2.1416; (iii) if the average closing DM stock price is less than $9.70 but greater than $7.94, then the Exchange Ratio shall be equal to 1.9274 multiplied by the quotient of (x) $8.82 divided by (y) the average closing DM stock price.  

On October 20, 2021, the Company and DM received clearance from the German Federal Ministry for Economic Affairs and Energy, a foreign investment regulatory authority, that the transactions contemplated by the Merger Agreement have been cleared pursuant to section 58a paragraph 1 of the German Foreign Trade and Payments Ordinance. Additionally, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired on October 28, 2021 at 11:59 p.m. Eastern Time. Accordingly, the Company and DM have now received all regulatory approvals required as a condition to consummate the Mergers.

On November 9, 2021, the Company held a special meeting of stockholders.  At that special meeting, the ExOne stockholders voted to approve the Merger Agreement. Pursuant to the Merger Agreement, the proposed transaction may close as soon as three business days following the date of the special meeting of ExOne stockholders, subject to customary closing conditions.

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During the three months and nine months ended September 30, 2021, the Company incurred expenses associated with the planned merger transaction of $3,376 and $3,477, respectively, all of which are included in selling, general and administrative expenses in the accompanying condensed statement of consolidated operations and comprehensive loss.

COVID-19

In March 2020, the World Health Organization declared the novel strain of coronavirus a global pandemic (“COVID-19”) and recommended containment and mitigation measures worldwide. The impact of COVID-19 and the related economic, business and market disruptions were wide-ranging and continue to be significant. As a result of COVID-19, the Company was required to temporarily close its operations at its North Huntingdon, Pennsylvania facility for the period from March 23 through March 30, 2020. In response to COVID-19, the Company has incurred incremental costs associated with protecting the health and safety of the Company’s global workforce, enhanced sanitization of the Company’s global operating facilities, and information technology capabilities for employees operating remotely. Beginning in March 2020, restrictions imposed by various governmental authorities on both domestic and international shipping and travel have caused disruptions to the timing of delivery and installation of the Company’s three-dimensional (“3D”) printing machines, resulting in negative impacts to the Company’s financial position, results of operations and cash flows. The duration and severity of the outbreak and its long-term impact on the Company’s business remain uncertain. The Company is unable to predict the impact that COVID-19 will have on its future financial position, results of operations and cash flows.

Recently Issued Accounting Guidance

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (the “FASB”). Recently issued ASUs not listed below either were assessed and determined to be not applicable or are currently expected to have no impact on the consolidated financial statements of the Company.

In May 2021, the FASB issued ASU 2021-04, “Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”. This ASU clarifies the accounting treatment for freestanding equity-classified written call options that are modified or exchanged as part of or directly related to a modification or an exchange of existing debt.  This ASU becomes effective for the Company on January 1, 2022. Early adoption is permitted. This guidance would only be applicable to the consolidated financial statements of the Company in the event that freestanding equity-classified written call options were modified or exchanged as a part of or directly related to the modification or exchange of existing debt.  As no such transactions have occurred during the current year and no such transactions are anticipated, management determined that the adoption of this ASU will not have an impact on the consolidated financial statements of the Company.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses.” This ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. As a smaller reporting company pursuant to Rule 12b-2 of the Securities Exchange Act of 1934, as amended, these changes become effective for the Company on January 1, 2023. Management is currently evaluating the potential impact of these changes on the consolidated financial statements of the Company.

Note 2. Common Stock Offerings

In September 2020, the Company entered into an Equity Distribution Agreement with Canaccord Genuity LLC (“Canaccord”) pursuant to which Canaccord agreed to act as sales agent in the sale of up to $25,000 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”). In February 2021, the Company terminated the Equity Distribution Agreement.  At the time of the termination of the Equity Distribution Agreement, the remaining maximum offering capacity was $9,269. The Company did not sell any shares of its common stock under the Equity Distribution Agreement during 2021 prior to its termination. There were no fees or penalties incurred by the Company in connection with the termination of the Equity Distribution Agreement.

In February 2021, following the termination of the Equity Distribution Agreement, the Company entered into an underwriting agreement with Stifel, Nicolaus & Company, Incorporated, Canaccord and certain other underwriters pursuant to which the Company agreed to issue and sell up to 1,666,667 shares of its common stock at a public offering price of $54.00 per share. Under the agreement, the Company agreed to pay underwriting discounts and commissions of $2.835 per share, as well as reimburse the underwriters for certain expenses. In addition, the Company granted the underwriters a 30-day option to purchase up to an additional 205,907 shares of its common stock at the public offering price, less underwriting discounts and commissions. The underwriters exercised their option to purchase 205,907 shares of the Company’s stock in-full.

As a result of this common stock offering, during February 2021, the Company sold 1,872,574 shares of its common stock and received net proceeds (after deducting underwriting discounts and commissions) of $95,725. The Company incurred expenses (other

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than underwriting discounts and commissions) associated with the common stock offering of $266, all of which was recognized during the three months ended March 31, 2021.

The Company has not sold any shares of its common stock through common stock offerings subsequent to the February 2021 common stock offering.

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 any of the periods presented.

Note 4. Loss Per Share

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

As the Company incurred a net loss during each of the three months and nine months ended September 30, 2021 and 2020, basic average common shares outstanding and diluted average common shares outstanding were the same because the effect of potential shares of common stock, including stock options (436,973 – 2021 and 654,617 – 2020) and unvested restricted stock issued (182,011 – 2021 and 199,391 – 2020), was anti-dilutive.

The information used to compute basic and diluted net loss per common share was as follows for the periods indicated:

Note 5. Revenue

The Company derives revenue from the sale of 3D printing machines and 3D printed and other products, materials and services. Revenue is recognized when the Company satisfies its performance obligation(s) under a contract (either implicit or explicit) by transferring the promised product or service to a customer, which is when (or as) the customer obtains control of the product or service. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenue) basis. Shipping and handling costs are included in cost of sales.

Certain of the Company’s contracts with customers contain multiple performance obligations. Sales of 3D printing machines may also include optional equipment, materials, replacement components and services (installation, training and other services, including maintenance services and/or an extended warranty). Certain other contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using

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the Company’s best estimate of stand-alone selling price for each distinct product or service in the contract, which is generally based on an observable price.

When the Company sells products to customers, revenue is recognized at a point in time. The Company’s contracts for 3D printing machines generally include substantive customer acceptance provisions. Revenue under these contracts is recognized when customer acceptance provisions have been satisfied. For all other product sales, the Company recognizes revenue at the point in time in which the customer obtains control of the product, which is generally when product title passes to the customer upon delivery. In certain cases, title does not transfer and revenue is not recognized until the customer has received the products at its physical location.

The Company’s revenue from service arrangements includes deferred maintenance contracts and extended warranties that can be purchased at the customer’s option. The Company generally provides a standard one-year warranty on the Company’s 3D printing machines, which is considered an assurance type warranty, and not considered a separate performance obligation (Note 8). Revenue associated with deferred maintenance contracts is generally recognized at a point in time when the related services are performed where sufficient historical evidence indicates that the costs of performing the related services under the contract are not incurred on a straight-line basis, with such revenue recognized in proportion to the costs expected to be incurred. Revenue associated with extended warranties is generally recognized over time on a straight-line basis over the related contract period.

The Company generates certain revenues through the sale of research and development services. Revenue under research and development service contracts is generally recognized over time where progress is measured in a manner that reflects the transfer of control of the promised goods or services to the customer. Depending on the facts and circumstances surrounding each research and development service contract, revenue is recognized over time using either an input measure (based on the entity’s direct costs incurred in an effort to satisfy the performance obligations) or an output measure (specifically units or parts delivered, based upon certain customer acceptance and delivery requirements).

A portion of the Company’s service revenue is generated through contracts with the federal government under fixed-fee, cost reimbursable and time and materials arrangements (certain of which may have periods of performance greater than one year). Revenue under these contracts is generally recognized over time using an input measure based upon direct costs incurred.

The following table summarizes the Company’s revenue by product group for the periods indicated:

The timing of revenue recognition, billings and cash collections results in billed receivables, unbilled receivables (contract assets) and deferred revenue and customer prepayments (contract liabilities) in the accompanying condensed consolidated balance sheet. The Company considers a number of factors in its evaluation of the creditworthiness of its customers, including past due amounts, past payment history, and current economic conditions. For 3D printing machines, the Company’s terms of sale vary by transaction. To reduce credit risk in connection with 3D printing machine sales, the Company may, depending upon the circumstances, require customers to furnish letters of credit or bank guarantees or to provide advanced payment (either partial or in full). For 3D printed and other products and materials, the Company’s terms of sale generally require payment within 30 to 60 days after delivery, although the Company also recognizes that longer payment periods are customary in certain countries where it transacts business. Service arrangements are generally billed in accordance with specific contract terms and are typically billed in advance or in proportion to performance of the related services.

For the nine months ended September 30, 2021, the Company recognized revenue of $9,361 related to contract liabilities at January 1, 2021. There were no other significant changes in contract liabilities during the nine months ended September 30, 2021. Contract assets were not significant during the nine months ended September 30, 2021.

As of September 30, 2021, the Company had approximately $57,300 of remaining performance obligations (including contract liabilities), which is also referred to as backlog, of which approximately $50,700 is expected to be fulfilled during the next twelve months notwithstanding uncertainty related to the impact of COVID-19 (Note 1) including, but not limited to, international shipping and travel restrictions brought about by COVID-19, which could have an adverse effect on the timing of delivery and installation of products and/or services to customers.

The Company has elected to apply the practical expedient associated with incremental costs of obtaining a contract, and as such, sales commission expense is generally expensed when incurred because the amortization period would be one year or less. These costs are recorded within selling, general and administrative expenses.

Accounts receivable and net investment in sales-type leases are reported at their net realizable value. The Company carries its investment in sales-type leases based on discounting the minimum lease payments by the interest rate implicit in the lease, less an allowance for doubtful accounts. The Company’s estimate of the allowance for doubtful accounts related to accounts receivable and net investment in sales-type leases is based on the Company’s evaluation of customer accounts with past-due outstanding balances or

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specific accounts for which it has information that the customer may be unable to meet its financial obligations. Based upon review of these accounts, and management’s analysis and judgment, the Company records a specific allowance for that customer’s accounts receivable or net investment in sales-type lease balance to reduce the outstanding balance to the amount expected to be collected. The allowance is re-evaluated and adjusted periodically as additional information is received that impacts the allowance amount reserved. At September 30, 2021 and December 31, 2020, the allowance for doubtful accounts was $529 and $576, respectively. During the three months ended September 30, 2021 and 2020, the Company recorded net provision for bad debts of $15 and $15, respectively. During the nine months ended September 30, 2021 and 2020, the Company recorded net recoveries for bad debts of $38 and $4, respectively.

Restricted cash at September 30, 2021 included $1,270 of cash collateral required by a German bank for short-term financial guarantees and letters of credit issued by ExOne GmbH in connection with certain commercial transactions requiring security (Note 9) and $600 of 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

Restricted cash at December 31, 2020 included $508 of 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 above are considered legally restricted by the Company.

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, 2021 and December 31, 2020, the allowance for slow-moving and obsolete inventories was $2,870 and $2,678, respectively, and has been reflected as a reduction to inventories (principally raw materials and components). The following table summarizes changes in the allowance for slow-moving and obsolete inventories for the periods indicated:

Reductions for sale, consumption or scrap of previously reserved amounts for the nine months ended September 30, 2020 consisted principally of certain raw material and component inventories associated with the Company’s former Exerial 3D printing platform,

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which were disposed of during the period. There was no significant benefit or charge recorded during the nine months ended September 30, 2020 in connection with the related disposals.

During the nine months ended September 30, 2020, the Company recorded a charge of $205 to cost of sales in the accompanying condensed statement of consolidated operations and comprehensive loss associated with certain inventories for which cost was determined to exceed net realizable value.

Note 8. Product Warranty Reserves

Substantially all of the Company’s 3D printing machines are covered by a standard one-year 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 the associated product warranty reserves is recorded to cost of sales in the period that such a determination is made.

At September 30, 2021 and December 31, 2020, the product warranty reserves balance was $1,011 and $1,335, respectively, and has been reflected in accrued expense and other current liabilities in the accompanying condensed consolidated balance sheet. The following table summarizes changes in the product warranty reserves balance for the periods indicated:

Note 9. Contingencies and Commitments

Contingencies

On March 1, 2018, the Company’s ExOne GmbH subsidiary notified Voxeljet AG that it had materially breached a 2003 Patent and Know-How Transfer Agreement and asserted its rights to set-off damages as a result of the breaches against the annual license fee due from the Company under the agreement. At this time, the Company cannot reasonably estimate a contingency, if any, related to this matter.

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

Commitments

In the normal course of its operations, ExOne GmbH issues short-term financial guarantees and letters of credit to third parties in connection with certain commercial transactions requiring security through a credit facility with a German bank. The credit facility provides a capacity amount of $4,057 (€3,500) for the issuance of financial guarantees and letters of credit for commercial transactions requiring security.  The credit facility does not require cash collateral for the issuance of financial guarantees and letters of credit for commercial transactions requiring security for amounts up to $1,159 (€1,000).  Amounts in excess of $1,159 (€1,000) require cash collateral under the credit facility.

At September 30, 2021, total outstanding financial guarantees and letters of credit issued by ExOne GmbH under the credit facility were $2,429 (€2,096), with expiration dates ranging from November 2021 through March 2023. At September 30, 2021, cash collateral of $1,270 (€1,096) was required for financial guarantees and letters of credit issued under the credit facility (included in restricted cash in the accompanying condensed consolidated balance sheet). At December 31, 2020, total outstanding financial guarantees and letters of credit issued by ExOne GmbH under the amended credit facility were $928 (€756). At December 31, 2020, no cash collateral was required for financial guarantees and letters of credit issued under the credit facility.

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Note 10. Related Party Revolving Credit Facility

On March 12, 2018, the Company and its ExOne Americas LLC and ExOne GmbH subsidiaries, as guarantors (collectively, the “Loan Parties”), entered into a Credit Agreement and related ancillary agreements with LBM Holdings, LLC (“LBM”), a company controlled by S. Kent Rockwell, who was the Executive Chairman of the Company (a related party) at such date and is currently Chairman of the Company, relating to a $15,000 revolving credit facility (the “Credit Agreement”) to provide additional funding to the Company for working capital and general corporate purposes. The Credit Agreement provided a credit facility for a term of three years (through March 12, 2021), bearing interest at a rate of one-month LIBOR plus an applicable margin of 500 basis points. The Credit Agreement required a commitment fee of 75 basis points, or 0.75%, on the unused portion of the facility, payable monthly in arrears. In addition, an up-front commitment fee of 125 basis points, or 1.25% ($188), was required at closing. Borrowings under the Credit Agreement were collateralized by the accounts receivable, inventories and machinery and equipment of the Loan Parties.

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

Under the terms of the amended credit facility, the Company could make prepayments against outstanding borrowings, reduce the credit commitment or terminate the credit commitment at any time without penalty.

The Company incurred $265 in debt issuance costs associated with the inception of the credit facility (including the aforementioned up-front commitment fee paid at closing to LBM) and $49 in debt issuance costs associated with the Amendment.

On March 5, 2021, the Company terminated the related party revolving credit facility.  There were no penalties associated with the Company’s termination of the credit facility. Due to the termination, the Company accelerated the amortization of the remaining debt issuance costs associated with the credit facility, resulting in recognition of a $105 loss on the extinguishment of debt during the three months ended March 31, 2021.

During the three months ended March 31, 2021, the Company recorded interest expense related to the credit facility of $129, comprised of the aforementioned $105 loss on extinguishment of debt, $18 associated with the commitment fee on the unused portion of the revolving credit facility and $6 associated with the amortization of debt issuance costs.

As the credit facility was terminated in March 2021, there was no interest expense related to the credit facility recognized subsequent to the three months ended March 31, 2021.  There were no borrowings under the credit facility during 2021 prior to its termination.

During the three months and nine months ended September 30, 2020, the Company recorded interest expense related to the credit facility of $34 and $113, respectively. Included in interest expense for the three months and nine months ended September 30, 2020 was $8 and $35, respectively, associated with amortization of debt issuance costs, and $26 and $78, respectively, associated with the commitment fee on the unused portion of the revolving credit facility.

There were no borrowings under the credit facility during the three or nine months ended September 30, 2020.

Paycheck Protection Program Loan

On April 18, 2020, the Company entered into an unsecured promissory note (the “Note”) with an unrelated United States bank (the “Lender”) reflecting a loan in the principal amount of $2,194 (the “Loan”). The Loan was granted pursuant to the Paycheck Protection Program (the “PPP”) administered by the United States Small Business Administration (the “SBA”) as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

Pursuant to the terms of the Note, the Loan bore interest at a rate of 1.00% per annum and matured on April 18, 2022 (the “Maturity Date”). Under the terms of the Note, principal and interest payments on the Loan were deferred until November 18, 2020, at which time equal installments of principal and interest would have been due and payable monthly through the Maturity Date. Subsequent to the Company entering into the Note, in June 2020, the Paycheck Protection Program Flexibility Act of 2020 was enacted, which extended the deferral of principal and interest payments on the Loan from November 2020 to August 2021.  Pursuant to the terms of

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the PPP, the Loan, or a portion thereof, could be forgiven if Loan proceeds were used for qualifying expenses as described in the CARES Act, such as payroll costs, costs used to continue group health care benefits, mortgage interest payments, rent and utilities. The Company used all of the Loan proceeds for qualifying expenses.

During June 2021, the Company submitted an application to the SBA requesting full forgiveness of the Loan. On July 8, 2021, the Company received notice from the SBA that the Loan had been forgiven in full, including forgiveness of all interest accrued to date. This formal notice from the SBA legally released the Company of any obligations under the Loan. As a result, the Company recognized a gain on extinguishment of the PPP loan of $2,220 during the three months ended September 30, 2021. The total gain on extinguishment of debt of $2,220 was comprised of $2,194 related to the forgiveness of principal and $26 related to the forgiveness of accrued interest.

Building Note Payable

On May 21, 2012, the Company entered into a building note payable with an unrelated United States bank. Terms of the building note payable included monthly payments of $18, including interest at 4.00% through May 2017, and subsequently, monthly payments of $19 including interest at the monthly average yield on United States Treasury Securities plus 3.25% for the remainder of the term through May 2027.

On February 26, 2021, the Company extinguished its building note payable in-full through cash payment of $1,199. The Company did not incur any prepayment penalties related to the extinguishment of the building note payable in advance of the maturity date (May 2027). At the extinguishment date, the net carrying amount of the building note payable was $1,185. As a result, during the three months ended March 31, 2021, the Company recognized a loss on the extinguishment of debt of $14 (included in interest expense in the accompanying condensed statement of consolidated operations and comprehensive loss), which represents the write-off of unamortized debt issuance costs.

As the building note payable was terminated in February 2021, there was no interest expense related to the building note payable recognized subsequent to the three months ended March 31, 2021.  

Note 12. Income Taxes

The provision (benefit) for income taxes for the three months ended September 30, 2021 and 2020 was $1 and ($34), respectively. The (benefit) provision for income taxes for the nine months ended September 30, 2021 and 2020 was ($410) and $200, respectively. The Company has completed a discrete period computation of its provision (benefit) for income taxes for each of the periods presented. The discrete period computation was required 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.

The effective tax rate for the three months ended September 30, 2021 and 2020 was 0.0% (provision on a loss) and 1.0% (benefit on a loss), respectively. The effective tax rate for the nine months ended September 30, 2021 and 2020 was 2.4% (benefit on a loss) and 1.9% (provision on a loss), respectively.

For the three months ended September 30, 2021 and the three months and nine months ended September 30, 2020, the effective tax rate differed from the United States federal statutory tax rate of 21.0% primarily due to net changes in valuation allowances for the period.

For the nine months ended September 30, 2021, the effective tax rate differed from the United States federal statutory rate of 21.0% primarily due to net changes in valuation allowances for the period and recognition of a discrete income tax benefit of $412 related to the carryback of net operating losses in Japan.  During the three months ended March 31, 2021, the Company received confirmation from Japanese tax authorities that ExOne KK met the definition of a small or medium-sized enterprise (SME) under Japanese tax regulations, eliminating certain restrictions on the use of net operating losses to offset taxable income. ExOne KK filed amended tax returns related to tax years 2016 through 2019 to carryback net operating losses, resulting in total tax refunds of $412.

The Company has provided a valuation allowance for certain of its net deferred tax assets as a result of the Company not generating consistent net operating profits in certain jurisdictions in which it operates. As such, certain benefits from deferred taxes in the periods presented have been fully offset by changes in the valuation allowance for the related 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 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.

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Note 13. Equity-Based Compensation

On January 24, 2013, the Board adopted the 2013 Equity Incentive Plan (the “Plan”). In connection with the adoption of the Plan, 500,000 shares of common stock were reserved for issuance pursuant to the Plan, with automatic increases in such reserve available each year annually on January 1 from 2014 through 2023 equal to the lesser of 3.0% of the total outstanding shares of common stock as of December 31 of the immediately preceding year, or a number of shares of common stock determined by the Board, provided that the maximum number of shares authorized under the Plan could not exceed 1,992,241 shares, subject to certain adjustments. The maximum number of shares authorized under the Plan was reached on January 1, 2017. At September 30, 2021, 412,404 shares remained available for future issuance under the Plan.

Stock options and restricted stock issued by the Company under the Plan 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 equity-based compensation awards issued by the Company under the Plan vest immediately upon issuance. Stock options issued by the Company under the Plan have contractual lives which expire 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.

On February 5, 2020, the Compensation Committee of the Board adopted the 2020 Annual Incentive Program (the “2020 Program”) as a subplan under the Plan. The 2020 Program provided an opportunity for performance-based compensation to senior executive officers of the Company, among others. The target annual incentive for each 2020 Program participant was expressed as a percentage of base salary and was conditioned on the achievement of certain financial goals (as approved by the Compensation Committee of the Board). The Compensation Committee of the Board retained negative discretion over amounts payable under the 2020 Program. During the three months and nine months ended September 30, 2020, the Company recorded no equity-based compensation expense based on the estimated outcome of the defined financial goals for 2020 under the 2020 Program.

On February 2, 2021, the Compensation Committee of the Board adopted the 2021 Annual Incentive Program (the “2021 Program”) as a subplan under the Plan.  The 2021 Program provided an opportunity for performance-based compensation to senior executive officers of the Company, among others.  The target annual incentive for each 2021 Program participant was expressed as a percentage of base salary and was conditioned on the achievement of certain financial and/or individual performance goals (as approved by the Compensation Committee of the Board).  The Compensation Committee of the Board retained negative discretion over amounts payable under the 2021 Program.  During the three months and nine months ended September 30, 2021, the Company recorded $24 and $69, respectively, in equity-based compensation expense based on the estimated outcome of the defined financial and individual goals for 2021 under the 2021 Program.

On February 2, 2021, the Compensation Committee of the Board adopted the 2021 Executive Stock Performance Program (the “ESPP”) as a subplan under the Plan.  The ESPP provided an opportunity for senior executive officers of the Company to earn performance-based compensation based on the performance of the Company’s common stock over a one-year period ending December 31, 2021. During the three months and nine months ended September 30, 2021, the Company recorded $21 and $56, respectively, in equity-based compensation expense based on the estimated fair value of the equity-based compensation awards expected to be granted under the ESPP.

The following table summarizes the total equity-based compensation expense recognized by the Company for the periods indicated:

At September 30, 2021, total future compensation expense related to unvested awards yet to be recognized by the Company was $137 for stock options and $2,460 for restricted stock. Total future compensation expense related to unvested awards yet to be recognized by the Company is expected to be recognized over a weighted-average remaining vesting period of 0.9 years.

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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 for the periods indicated:

Volatility is estimated based on the historical volatility of the Company’s stock price consistent with the expected term of the awards. 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 for the periods indicated:

At September 30, 2021, intrinsic value associated with stock options exercisable and expected to vest was $5,966 and $322, respectively. The weighted average remaining contractual term of stock options exercisable and expected to vest at September 30, 2021, was 2.3 years and 3.6 years, respectively. Stock options with an aggregate intrinsic value of $5,906 were exercised by employees during the nine months ended September 30, 2021, resulting in proceeds to the Company from the exercise of stock options of $2,460. Stock options with an aggregate intrinsic value of $1,096 were exercised by employees during the nine months ended September 30, 2020, resulting in proceeds to the Company from the exercise of stock options of $858. The Company recorded no income tax benefit related to these exercises.

The activity for restricted stock was as follows for the periods indicated: