Materialise
Annual Report 2016

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 20-F ☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGEACT OF 1934OR ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934OR ☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934Commission File Number: 001-36515 MATERIALISE NV(Exact name of Registrant as specified in its charter) Not Applicable(Translation of Registrant’s name into English)Kingdom of Belgium(Jurisdiction of incorporation or organization)Technologielaan 15, 3001 Leuven, Belgium(Address of principal executive offices) Peter Leys, telephone +32 (16) 39 66 11, facsimile +32 (16) 39 66 00, Technologielaan 15, 3001 Leuven, Belgium(Name, Telephone, and E-mail and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredAmerican Depositary Shares, each representing oneOrdinary Share, no nominal value per share The NASDAQ Stock Market LLCOrdinary Shares, no nominal value per share* The NASDAQ Stock Market LLC *Not for trading but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the Securities andExchange Commission.Securities registered or to be registered pursuant to Section 12(g) of the Act: None.Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None. The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2016 was: 47,325,438 Ordinary SharesIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ NoIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934. ☐ Yes ☒ NoIndicate 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 1934during 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 filingrequirements for the past 90 days. ☒ Yes ☐ NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe 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 thatthe registrant was required to submit and post such files). ☐ Yes ☐ NoIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See thedefinitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒Non accelerated filer ☐ Emerging growth company ☒If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected notto use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of theExchange Act. ☐Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ☐ International Financial Reporting Standards as issuedby the International Accounting Standards Board ☒ Other ☐If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected tofollow. ☐ Item 17 ☐ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). ☐ Yes ☒ No(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities ExchangeAct of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No Table of ContentsTABLE OF CONTENTS Page ITEM 1. Identity of Directors, Senior Management and Advisers 3 ITEM 2. Offer Statistics and Expected Timetable 4 ITEM 3. Key Information 5 ITEM 4. Information on the Company 36 ITEM 4A. Unresolved Staff Comments 58 ITEM 5. Operating and Financial Review and Prospects 59 ITEM 6. Directors, Senior Management and Employees 82 ITEM 7. Major Shareholders and Related Party Transactions 91 ITEM 8. Financial Information 93 ITEM 9. The Offer and Listing 94 ITEM 10. Additional Information 96 ITEM 11. Quantitative and Qualitative Disclosures About Market Risk 104 ITEM 12. Description of Securities Other than Equity Securities 105 ITEM 12D. American Depositary Shares 105 ITEM 13. Defaults, Dividend Arrearages and Delinquencies 106 ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 107 ITEM 15. Controls and Procedures 108 ITEM 16A. Audit Committee Financial Expert 109 ITEM 16B. Code Of Ethics 110 ITEM 16C. Principal Accountant Fees and Services 111 ITEM 16D. Exemption from the Listing Standards for Audit Committees 112 ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 113 ITEM 16F. Change in Registrant’s Certifying Accountant 114 ITEM 16G. Corporate Governance 115 ITEM 16H. Mine Safety Disclosure 117 ITEM 17. Financial Statements 118 ITEM 18. Financial Statements 119 ITEM 19. Exhibits 120 Table of ContentsINTRODUCTIONExcept as otherwise required by the context, references to “Materialise,” “Company,” “we,” “us” and “our” are to Materialise NV and itssubsidiaries.Our trademark portfolio contained 69 registered trademarks and 20 pending trademark applications as of December 31, 2016. All othertrademarks or trade names referred to in this annual report are the property of their respective owners. Solely for convenience, the trademarks and trade namesin this annual report are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective ownerswill not assert, to the fullest extent under applicable law, their rights thereto.All references in this annual report to “U.S. dollars” or “$” are to the legal currency of the United States and all references to “€” or “euro” are tothe currency introduced at the start of the third stage of the European economic and monetary union pursuant to the treaty establishing the EuropeanCommunity, as amended.On June 30, 2014, we sold 8,000,000 American Depositary Shares, or ADSs, each representing one ordinary share with no nominal value, orordinary shares, in our initial public offering at a price of $12.00 per ADS. In connection with the closing our initial public offering, we converted ouroutstanding Class A ordinary shares, Class B ordinary shares and Class C ordinary shares into ordinary shares and effected a stock split of our outstandingordinary shares, whereby each ordinary share was converted into four ordinary shares. The number of ordinary shares and number of shares issuable uponexercise of our outstanding warrants and conversion of our outstanding convertible bonds are presented herein on the basis of the number after this stocksplit.SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATIONThis annual report includes certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, orthe Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, concerning our business, operations andfinancial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition.Any statements that are not of historical facts may be deemed to be forward-looking statements. You can identify these forward-looking statements by wordssuch as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “aims,” or other similar expressionsthat convey uncertainty of future events or outcomes. Forward-looking statements appear in a number of places throughout this annual report and includestatements regarding our intentions, beliefs, assumptions, projections, outlook, analyses or current expectations concerning, among other things, ourintellectual property position, research and development projects, results of operations, cash needs, spending of the remaining net proceeds from our initialpublic offering, capital expenditures, financial condition, liquidity, prospects, growth and strategies, regulatory approvals and clearances, the markets andindustry in which we operate and the trends and competition that may affect the markets, industry or us.By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industrychange, and depend on economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated.Although we believe that we have a reasonable basis for each forward-looking statement contained in this annual report, we caution you that forward-lookingstatements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that are in some cases beyond ourcontrol. All of our forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from ourexpectations.Actual results could differ materially from our forward-looking statements due to a number of factors, including, without limitation, risks relatedto: • our ability to enhance and adapt our software, products and services to meet changing technology and customer needs; • fluctuations in our revenue and results of operations; • changes in volumes and patterns of customer electricity usage; • our ability to operate in a highly competitive and rapidly changing industry; • our ability to adequately increase demand for our products and services; 1Table of Contents • our collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships with third-parties; • our dependence upon sales to certain industries; • our relationships with suppliers; • our ability to attract and retain senior management and other key employees; • any disruptions to our service center operations, including by accidents, natural disasters or otherwise; • our ability to raise additional capital on attractive terms, or at all, if needed to meet our growth strategy; • our ability to adequately protect our intellectual property and proprietary technology; • our international operations; • our ability to comply with applicable governmental laws and regulations to which our products, services and operations are subject; and • other risk factors as set forth under “Item 3. Key Information—D. Risk Factors.”Any forward-looking statements that we make in this annual report speak only as of the date of such statement, and we undertake no obligationto update such statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed assuch, and should only be viewed as historical data. You should, however, review the factors and risks we describe in the reports we will file from time to timewith the SEC after the date of this annual report. See “Item 10. Additional Information—H. Documents on Display.”You should also read carefully the factors described in “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report to betterunderstand the risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, we cannot assureyou that the forward-looking statements in this annual report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate,the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as arepresentation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. 2Table of ContentsPART I ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable. 3Table of ContentsITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable. 4Table of ContentsITEM 3.KEY INFORMATIONA. Selected Financial DataThe tables below contain a summary of our financial data as of and for years ended December 31, 2016, 2015, 2014, 2013 and 2012, which havebeen derived from our consolidated financial statements prepared in accordance with International Financial Reporting Standards, as issued by theInternational Accounting Standards Board, which we refer to as IFRS. Our consolidated financial statements and the related notes as of and for the yearsended December 31, 2016, 2015 and 2014 appear elsewhere in this annual report.Our historical results are not necessarily indicative of the financial results to be expected in any future periods. You should read this informationin conjunction with our consolidated financial statements and related notes included elsewhere in this annual report, as well as the section entitled “Item 5.Operating and Financial Review and Prospects.”Consolidated Statements of Financial Position Data: As of December 31 in 000€ 2016 2015 2014 2013 2012 Inventory 7,870 5,387 3,660 3,328 3,487 Trade receivables 27,479 22,843 18,370 12,382 11,109 Cash and cash equivalents 55,912 50,726 51,019 12,598 6,417 Total assets 161,920 144,136 133,221 55,688 46,675 Total liabilities 82,887 61,181 48,054 37,953 33,338 Net assets(1) 79,033 82,955 85,167 17,735 13,337 Total equity 79,033 82,955 85,167 17,735 13,337 (1)Net assets represents total assets less total liabilities. 5Table of ContentsConsolidated Income Statements Data: For the year ended December 31 in 000€ 2016 2015 2014 2013 2012 Revenue 114,477 102,035 81,355 68,722 59,107 Cost of sales (46,706) (42,963) (32,396) (27,189) (23,792) Gross profit 67,771 59,072 48,959 41,533 35,315 Research and development expenses (17,682) (18,186) (15,093) (10,596) (9,424) Sales and marketing expenses (36,153) (36,832) (27,543) (22,360) (19,768) General and administrative expenses (20,041) (15,045) (11,645) (8,649) (8,101) Net other operating income (expenses) 6,212 7,102 5,652 4,492 4,089 Operating profit (loss) 107 (3,889) 330 4,420 2,111 Financial expenses (2,437) (2,470) (1,150) (1,260) (1,049) Financial income 2,039 3,511 3,160 273 512 Share in loss of a joint venture (1,018) (401) (81) — — Profit (loss) before taxes (1,309) (3,249) 2,259 3,433 1,574 Income taxes (1,710) 389 (387) (21) (121) Net profit (loss) of the year (3,019) (2,860) 1,872 3,412 1,453 Net profit (loss) attributable to: The owners of the parent (3,019) (2,807) 2,061 3,509 1,551 Non-controlling interest — (53) (189) (97) (98) Earnings per share attributable to the owners of the parent Basic (0.06) (0.06) 0.05 0.09 0.04 Diluted (0.06) (0.06) 0.05 0.09 0.04 Weighted average number of ordinary shares for basic earnings per share 47,325 47,224 43,118 37,840 37,724 Weighted average number of ordinary shares adjusted for effect of dilution 47,325 47,224 43,288 38,204 38,064 Consolidated Statements of Comprehensive Income Data: Net profit (loss) (3,019) (2,860) 1,872 3,412 1,453 Other comprehensive income (loss), net of taxes (1,833) 624 126 (31) (19) Total comprehensive income (loss) for the year, net of taxes (4,852) (2,236) 1,998 3,381 1,434 Other Data (unaudited): For the year ended December 31 in 000€ 2016 2015 2014 2013 2012 Adjusted EBITDA (unaudited)(2) 9,458 3,687 5,752 7,610 5,023 6Table of Contents(2)We calculate EBITDA as net profit plus income taxes, financial expenses (less financial income), depreciation and amortization, and share in loss ofjoint venture. We calculate Adjusted EBITDA by adding non-recurring initial public offering related expenses and non-cash stock-based compensationexpenses to EBITDA. Disclosure in this prospectus of EBITDA and Adjusted EBITDA, which are non-IFRS financial measures, is intended as asupplemental measure of our performance that is not required by, or presented in accordance with, IFRS. EBITDA and Adjusted EBITDA should not beconsidered as alternatives to net profit or any other performance measure derived in accordance with IFRS. Our presentation of EBITDA and AdjustedEBITDA should not be construed to imply that our future results will be unaffected by unusual or non-recurring items. For additional information, see“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Other Financial Information.” The following tablereconciles net profit to EBITDA and Adjusted EBITDA for the periods presented: For the year ended December 31 in 000€ 2016 2015 2014 2013 2012 Net profit (loss) (3,019) (2,860) 1,872 3,412 1,453 Income taxes 1,710 (389) 387 21 121 Financial expenses 2,437 2,470 1,150 1,260 1,049 Financial income (2,039) (3,511) (3,160) (273) (512) Depreciation and amortization 8,374 6,810 4,565 3,190 2,911 Share in loss of joint venture 1,018 401 81 — — EBITDA (unaudited) 8,481 2,921 4,895 7,610 5,022 Non-recurring initial public offering expenses(a) — — 182 — — Non-cash stock-based compensation expenses(b) 977 766 675 — — Adjusted EBITDA (unaudited) 9,458 3,687 5,752 7,610 5,022 (a)Non-recurring initial public offering expenses represent fees and costs incurred in connection with our initial public offering.(b)Non- cash stock-based compensation expenses represent the cost of equity-settled and cash-settled share-based payments to employees.Exchange RatesOur financial reporting currency is the euro. Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollaramounts received by owners of the ADSs on conversion of dividends, if any, paid in euro on the ordinary shares and will affect the U.S. dollar price of theADSs on the NASDAQ Global Select Market. The table below shows the period end, average, high and low exchange rates of U.S. dollars per euro for theperiods shown. Average rates are computed by using the noon buying rate of the Federal Reserve Bank of New York for the euro on the last business day ofeach month during the relevant year indicated or each business day during the relevant month indicated. The rates set forth below are provided solely foryour convenience and may differ from the actual rates used in the preparation of the consolidated financial statements included in this annual report andother financial data appearing in this annual report. Year Ended December 31, High Low Average Year End 2012 1.3463 1.2062 1.2859 1.3186 2013 1.3816 1.2774 1.3284 1.3779 2014 1.3927 1.3927 1.3927 1.3927 2015 1.2015 1.0524 1.1096 1.0859 2016 1.1516 1.0375 1.1072 1.0552 7Table of ContentsMonth High Low Average PeriodEnd October 2016 1.1212 1.0866 1.1014 1.0962 November 2016 1.1121 1.0560 1.0792 1.0578 December 2016 1.0758 1.0375 1.0545 1.0552 January 2017 1.0794 1.0416 1.0635 1.0794 February 2017 1.0802 1.0551 1.0650 1.0618 March 2017 1.0882 1.0514 1.0691 1.0698 April 2017 (through April 21, 2017) 1.0758 1.0606 1.0657 1.0694 The noon buying rate of the Federal Reserve Bank of New York for the euro on April 21, 2017 was €1.00 = 1.0694. 8Table of ContentsB.Capitalization and IndebtednessNot applicable. C.Reasons for the Offer and Use of ProceedsNot applicable. D.Risk FactorsRisks Relating to Our BusinessWe may not be able to maintain or increase the market share or reputation of our software and other products and services that they need to remain orbecome a market standard.The additive manufacturing, or 3D printing, industry is rapidly growing on a global scale and is subject to constant innovation andtechnological change. A variety of technologies compete against one another in our market, which is driven, in part, by technological advances and end-userrequirements and preferences, as well as by the emergence of new standards and practices. As the additive manufacturing market evolves, the industrystandards that are adopted and adhered to are a function of the inherent qualities of the technology as well as the willingness of members of the industry toadopt them. To remain competitive, we depend in large part on our ability to increase and maintain market share and influence in the industry in order to berecognized as a market standard. Nonetheless, in the future, our influence in setting standards for the additive manufacturing industry may be limited and thestandards adopted by the market may not be compatible with our present or future products and services.We may not be successful in continuing to enhance and adapt our software, products and services in line with developments in market technologies anddemands.Our present or future software, products and services could be rendered obsolete or uneconomical by technological advances by one or more ofour present or future competitors or by other technologies. Our ability to remain competitive will depend, in large part, on our ability to enhance and adaptour current software, product and services to developments in market technologies and demands and to enhance and develop new 3D printing softwaresolutions, products and services. We believe that to remain competitive we must continuously enhance and expand the functionality and features of ourproducts, services and technologies. However, there can be no assurance that we will be able to: • maintain and enhance the market share of our current products, services and technologies; • enhance our existing product, services and technologies; • continue to leverage advances in 3D printing technology; • develop new products, services and technologies that address the increasingly sophisticated and varied needs of prospective end-users; • respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis; • develop products and services that are cost effective or that otherwise gain market acceptance; or • adequately protect our intellectual property as we develop new products, services and technologies and anticipate intellectual propertyclaims from third parties. 9Table of ContentsThe research and development programs that we are currently engaged in, or that we may establish in the future, may not be successful and our significantinvestments in these programs may be lost.To remain competitive, we currently, and we intend to continue to, invest significant amounts in various research and development programs.There can be no assurances, however, that these research and development programs will improve our existing additive manufacturing software solutions,products and services or create new software, products or services. Even if some of these programs are successful, it is possible that the new software, productsor services developed from such programs will not be commercially viable, that new 3D printing technologies that we, or others, develop will eventuallysupplant our current 3D printing technologies, that changes in the manufacturing or use of 3D printers will adversely affect the need or demand for oursoftware, products or services or that our competitors will create or successfully market 3D printing technologies that will replace our solutions, products andservices in the market. As a result, any of our software solutions, products or services may be rendered obsolete or uneconomical and our significantinvestments in all or some of our research and development programs may be lost.Existing and increased competition may reduce our revenue and profits.The market segments in which we operate, Materialise Software, Materialise Medical and Materialise Manufacturing, are characterized byvigorous competition, by entry of competitors with innovative technologies, by consolidation of companies with complementary products, services andtechnologies, and by entry of large corporations in any one or more of our market segments.In particular, the barriers to enter the software, medical and industrial markets with 3D printing solutions are decreasing rapidly.In the Materialise Software segment, the availability of computing devices with continually expanding performance at progressively lowerprices contributes to the ease of market entry. Additionally, there are certain open source software applications that are being offered free of charge or for anominal fee that can place additional competitive pressure on us. In addition, 3D printer manufacturers, which closely work with their customers, maysuccessfully bundle their own software solutions with their equipment, which may make our independent software solutions obsolete. In addition, companiesthat have greater financial, technical, sales and marketing and other resources, including market leaders with significant in-house capacities in softwaredevelopment, or existing computer-aided design, or CAD, software providers, may, at any point in time, enter the additive manufacturing market and veryrapidly gain a significant share of the markets that we target.In the Materialise Medical segment, medical device companies are investing in 3D printing solutions that may compete with our softwaresolutions, products and services. Companies that initially rely on us to enter the additive manufacturing market for medical applications may, as they gainexperience and as 3D printing technology gains strategic importance, decide to develop their own in-house solutions and enter the market themselves withtheir own software, products or services, thus becoming competitors and denying us continued access to their distribution channels.In the Materialise Manufacturing segment, as additive manufacturing gains importance as a strategic technology, our customers are likely tobring 3D manufacturing in-house and reduce or even discontinue using our 3D printing services. In addition, competitors with more efficient or profitablebusiness models, superior techniques or more advanced technologies may take market share away from us.Because of these and other factors, competitive conditions in the industry are likely to intensify in the future. Increased competition could resultin price reductions, reduced revenue and operating margins and loss of market share, any of which would likely harm our results of operations.We rely on collaborations with users of our additive manufacturing solutions to be present in certain large scale markets and, indirectly, to expand intopotentially high-growth specialty markets. Our inability to continue to develop or maintain these relationships in the future could harm our ability toremain competitive in existing markets and expand into other markets.Our strategy includes entering into collaborations with our customers in certain large-scale markets and leveraging these collaborations to enterinto other underserved specialty markets. For example, in the medical market, we have entered into collaborations with Zimmer Biomet Holdings, Inc.(previously Zimmer Holdings, Inc., which acquired Biomet, Inc. and changed its name to Zimmer Biomet Holdings, Inc.), or Zimmer Biomet, Encore Medical,L.P. (d/b/a DJO Surgical), or DJO Surgical, DePuy Synthes Companies of Johnson & Johnson, or DePuy Synthes, as well as with Global OrthopaedicTechnology Pty Ltd, or Global Orthopaedic Technology, Limacorporate Spa, or Lima, Mathys AG, or Mathys, Howmedica Osteonics Corp., or Stryker, andCorin Ltd, or Corin. Increased adoption of our software, products and services, especially in potentially high-growth specialty markets, will depend in part onour 10Table of Contentscurrent and future collaborators’ willingness to continue to adopt our additive manufacturing solutions in their markets and on our ability to continue tocollaborate with these and other players. Certain of our customers that have initially relied on our 3D printing software and services have announced theirintention to bring their 3D printing operations in-house and enter the market themselves, and other customers may also do so in the future as they gainexperience and as 3D printing technology gains strategic importance, thus denying us continued access to their distribution channels. In addition, a changeof control of any of our collaboration partners may negatively impact our relationship. If we are not able to maintain our existing collaborations and developnew collaborative relationships, our foothold in larger markets and expansion into potentially high-growth specialty markets could be harmed significantly.Our revenue and results of operations may fluctuate.Our revenue and results of operations may fluctuate from quarter-to-quarter and year-to-year and are likely to continue to vary due to a number offactors, many of which are not within our control. You should not rely on our past results as an indication of our future performance.Fluctuations in our results of operations and financial condition may occur due to a number of factors, including, but not limited to, those listedbelow and those identified throughout this annual report: • our ability to continue, renew or replace relationships with key customers; • the degree of market acceptance of our software and our products; • the mix of software, products and services that we sell during any period, as well as the mix of the various markets in which we make salesduring said periods; • a decline in new or renewed periodic licenses or maintenance contracts; • delays in the introduction of new features; • the entry of new competitors into our market; • the development and degree of market acceptance of new competitive systems or processes by others; • changes in our pricing policies or those of our competitors, including our responses to price competition; • changes in the amount we spend in our marketing and other efforts; • delays between our expenditures to develop, acquire or license new technologies and processes, and the generation of sales relatedthereto; • the amounts we spend on, and the success rate of, our research and development activities; • changes in the regulatory environment, including changes in regulatory laws and regulations and the interpretation thereof, applicable toour software programs, products or services; • delays in obtaining regulatory approval for our software programs, products or services; • interruptions to or other problems with our website and interactive user interface, information technology systems, manufacturingprocesses or other operations; • general economic and industry conditions that affect end-user demand and end-user levels of product design and manufacturing,including the adverse effects of global economic uncertainties; and • changes in accounting rules and tax laws.Demand for additive manufacturing generally and our additive manufacturing software solutions, products and services in particular may not increaseadequately.The industrial and medical industries are generally dominated by conventional production methods with limited use of additive manufacturingtechnology in certain specific instances. If additive manufacturing technology, in particular but not limited to, for the production of end parts does not gainmore mainstream market acceptance, or gains market acceptance at a significantly slower pace than currently expected, or if the marketplace adopts additivemanufacturing based on a technology other than the technologies that we currently use or serve, we may not be able to meet our growth objectives or increaseor sustain the level of sales of our additive manufacturing software solutions, products and services, and our results of operations would be adversely affectedas a result. 11Table of ContentsWe are dependent upon sales to certain industries.Our revenue from products are currently relatively concentrated in the industrial and medical industries, and particularly in the automotive andorthopedic/cranio-maxillofacial segments within such industries, respectively. To the extent any of these industries experiences a downturn and we areunable to penetrate and expand in other industries, our results of operations may be adversely affected. Additionally, if any of these industries or theirrespective suppliers or other providers of manufacturing services develop new technologies or alternatives to manufacture the products that are currentlymanufactured using our 3D printing software, products and services, it may adversely affect our results of operations.If our relationships with suppliers, including with limited source suppliers of consumables, were to terminate or our manufacturing arrangements were tobe disrupted, our business could be adversely affected.We purchase consumables and other components that are used in our production from third-party suppliers. We currently use only a limitednumber of suppliers for several of the consumables for our print materials. Our reliance on a limited number of vendors involves a number of risks, including: • potential shortages of some key consumables or other components; • printed material performance or quality shortfalls, if traceable to particular consumables or other components, since the supplier of thefaulty consumable or component cannot readily be replaced; • discontinuation of a consumable or other component on which we rely; • potential insolvency of these vendors; and • reduced control over delivery schedules, manufacturing capabilities, quality and costs.If certain suppliers were to decide to discontinue production, or the supply to us, of a consumable or other component that we use, theunanticipated change in the availability of supplies, or unanticipated supply limitations, could cause delays in, or loss of, sales, increased production orrelated costs and, consequently, reduced margins, and damage to our reputation. In addition, because we use a limited number of suppliers, increases in theprices charged by our suppliers may have an adverse effect on our results of operations, as we may be unable to find a supplier who can supply us at a lowerprice. As a result, the loss of a limited source supplier could adversely affect our relationships with our customers and our results of operations and financialcondition.We depend on the knowledge and skills of our senior management and other key personnel, and if we are unable to retain and motivate them or recruitadditional qualified personnel, our operations could suffer.Our success depends upon the continued service and performance of our senior management and other key personnel, including engineers,designers, software developers and product managers, and our ability to identify, hire, develop, motivate and retain qualified personnel in the future.Competition for senior management and key employees in our industry is intense and we cannot guarantee that we will be able to retain our personnel orattract new, qualified personnel. We may need to invest significant amounts of cash and equity to attract and retain new employees and we may not realizereturns on these investments. The loss of the services of members of our senior management or key employees could prevent or delay the implementation andcompletion of our strategic objectives, could divert management’s attention to seeking certain qualified replacements or could adversely affect our ability tomanage our company effectively. Each member of senior management as well as our key employees may resign at any time. Only some of the members of oursenior management are subject to non-competition agreements, which may also be difficult to enforce. Accordingly, the adverse effect resulting from the lossof certain members of senior management or other key employees could be compounded by our inability to prevent them from competing with us. We do notcarry key-man insurance on any member of our senior management team or other key personnel. If we lose the ability to hire and retain key executives andemployees with a diversity and high level of skills in appropriate domains (such as research and development and sales), it could have a material adverseimpact on our business activities and results of operations.We may need to raise additional capital from time to time in order to meet our growth strategy and may be unable to do so on attractive terms, or at all.We intend to continue to make investments to support the growth of our business and may require additional funds to respond to businesschallenges, including the need to implement our growth strategy, increase market share in our current markets or expand into other markets, or broaden ourtechnology, intellectual property or service capabilities. Accordingly, we may require additional investments of capital from time to time, and our existingsources of cash and any funds generated from operations may not 12Table of Contentsprovide us with sufficient capital. For various reasons, including any noncompliance with existing or future lending arrangements, additional financing, maynot be available when needed, or may not be available on terms favorable to us. If we fail to obtain adequate capital on a timely basis or if capital cannot beobtained on terms satisfactory to us, we may not be able to achieve our planned rate of growth, which will adversely affect our results of operations.Our international operations subject us to various risks, and our failure to manage these risks could adversely affect our results of operations.We face significant operational risks as a result of doing business internationally, such as: • fluctuations in foreign currency exchange rates; • potentially longer sales and payment cycles; • potentially greater difficulties in collecting accounts receivable; • potentially adverse tax consequences, including liabilities imposed from inconsistent enforcement; • challenges in providing solutions across a significant distance, in different languages and among different cultures; • transportation delays; • becoming subject to the different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliancewith a wide variety of foreign laws, treaties and regulations; • reduced protection of, or significant difficulties in enforcing, intellectual property rights in certain countries; • difficulties in staffing and managing foreign operations, particularly in new geographic locations; • restrictions imposed by local labor practices and laws on our business and operations, including unilateral cancellation or modificationof contracts; • expropriation or nationalization of property; • rapid changes in government, economic and political policies and conditions, political or civil unrest or instability, terrorism orepidemics and other similar outbreaks or events; • operating in countries with a higher incidence of corruption and fraudulent business practices; • seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe; • costs and difficulties of customizing products for foreign countries; and • tariffs, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreignmarkets.We maintain important software research and development and engineering centers in Malaysia and Ukraine. In Malaysia, the government may exercisesubstantial control over certain sectors of the economy through regulation and state ownership. In Ukraine, the political and economic situation, in general,and the relations among Ukraine, United States, the European Union and Russia, in particular, remain unstable. We continue to monitor the situation inUkraine and have a risk mitigation plan designed to limit the impact on our operations in case of escalation of the instability in that region. However,escalation could have a significant impact on our operations, in particular in the event where internet services would no longer be available in Ukraine orwhere the situation would become such that our employees would no longer be able to work from their homes. Our facility in Ukraine does not focus on salesto the Ukrainian market and mainly provides supporting activities for our global operations. Any material disruption of these supporting activities, however,could significantly impact our ability to further develop our products and to continue to service our customers globally. Moreover, changes in the laws andregulations of Malaysia or Ukraine, or in their interpretation or enforcement, including with respect to operations such as ours, which rely to a large extent onlocal private entrepreneurs, may significantly impact our activities in Malaysia or Ukraine, which would limit our future growth and adversely affect ourresults of operations. Our failure to manage the market and operational risks associated with our international operations effectively could limit the futuregrowth of our business and adversely affect our results of operations. 13Table of ContentsOur international operations pose currency risks, which may adversely affect our results of operations and net income.Our results of operations may be affected by volatility in currency exchange rates and our ability to effectively manage our currency transactionrisks. In general, we conduct our business, earn revenue and incur costs in the local currency of the countries in which we operate. During the year endedDecember 31, 2016, approximately 68% of our revenue was generated, and approximately 61% of our total costs were incurred in, euros. As we continue toexpand internationally, our exposure to currency risks will increase. Historically, we have not managed our foreign currency exposure in a manner that wouldeliminate the effects of changes in foreign exchange rates. Changes in exchange rates between the foreign currencies in which we do business and the eurowill affect our revenue, cost of sales, and operating margins, and could result in exchange losses in any given reporting period.Changes in tax laws, treaties or regulations could adversely affect our financial results.Our future effective tax rates could be adversely affected by changes in tax laws, treaties and regulations, both internationally and domestically,including possible changes to the patent income deduction regime in Belgium or the way it proportionately impacts our effective tax rate. An increase of ourfuture effective tax rates could have a material adverse effect on our business, financial position, results of operations and cash flows. 14Table of ContentsWe may engage in acquisitions or investments that could disrupt our business, cause dilution to our shareholders and harm our financial condition andresults of operations.We have in the past and intend to continue to evaluate opportunities to acquire or invest in, companies that we believe have products, services,competencies or capabilities that are a strategic or commercial fit with any of our businesses or that otherwise offer opportunities for our company. Forexample, in 2015, we acquired Cenat BVBA, a provider of embedded computing software and solutions for additive manufacturing control systems based inBelgium and, in 2015, we also purchased the remaining 22.3% interest in Mobelife NV, to become the 100% owner of Mobelife NV. In connection with theseacquisitions or investments, we may: • issue ADSs or other forms of equity that would dilute our existing shareholders’ percentage of ownership; • incur debt and assume liabilities; and/or • incur amortization expenses related to intangible assets or incur large and immediate write-offs.If we complete an acquisition or investment, we cannot assure you that it will ultimately strengthen our competitive position or that it will beviewed positively by customers, suppliers, employees, financial markets or investors. Furthermore, future acquisitions or investments could pose numerousadditional risks to our operations, including: • problems integrating the purchased business, products, services or technologies; • challenges in achieving strategic objectives, cost savings and other anticipated benefits; • increases to our expenses; • the assumption of significant liabilities that exceed the limitations of any applicable indemnification provisions or the financialresources of any indemnifying party; • inability to maintain relationships with key customers, vendors and other business partners of our current or acquired businesses; • diversion of management’s attention from their day-to-day responsibilities; • difficulty in maintaining controls, procedures and policies during the transition and integration; • entrance into marketplaces where we have no or limited prior experience and where competitors have stronger marketplace positions; • potential loss of key employees, particularly those of the acquired entity; and • historical financial information may no longer be representative or indicative of our results as a combined company.Alternatively, while certain acquisitions or investments may be of strategic importance for the execution of our business plan, we may notultimately be able to complete such acquisitions or investments on favorable terms, or at all, which may in turn materially affect our ability to grow or evencause us to lose market share, and could have a material adverse effect on our business, financial condition and results of operations.We may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships with third parties that may not result in thedevelopment of commercially viable products or the generation of significant future revenue.In the ordinary course of our business, we may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances orpartnerships to develop proposed products or services and to pursue new markets. For example, in the Materialise Medical segment, we have establishedcollaboration relationships with leading medical device companies for the development and distribution of our surgical planning software, services, andproducts, including with Zimmer Biomet, DJO Surgical, DePuy Synthes, Global Orthopaedic Technology, Lima and Mathys. Furthermore, in the MaterialiseSoftware segment, we have established a collaboration with Siemens PLM, or Siemens, and, in the Materialise Manufacturing segment, we have established acollaboration with HOYA Vision Care Company, or HOYA. Proposing, negotiating and implementing collaborations, in-licensing arrangements, jointventures, strategic alliances or partnerships may be a lengthy and complex process. Other companies, including those with substantially greater financial,marketing, sales, technology or other business resources, may compete with us for these opportunities or arrangements. We may not succeed in maintaining,renewing or extending existing collaborations or in identifying, securing, or completing any such new 15Table of Contentstransactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all. We may also not realize the anticipated benefits ofany such transaction or arrangement. In particular, these collaborations may not result in the development of products or services that achieve commercialsuccess or result in significant revenue and could be terminated prior to developing any products or services.Additionally, we may not be in a position to exercise sole decision making authority regarding the transaction or arrangement, which couldcreate the potential risk of creating impasses on decisions, and our collaboration partners may have economic or business interests or goals that are, or thatmay become, inconsistent with our business interests or goals. It is possible that conflicts may arise with our current or future collaboration partners, such asconflicts concerning the achievement of performance milestones, or the interpretation of terms under any agreement, such as those related to financialobligations or the ownership or license rights or control of intellectual property developed before or during the collaboration. If any conflicts arise with ourcurrent or future collaboration partners, they may act in their self-interest, which may be adverse to our best interest, and they may breach their obligations tous. In addition, we have limited control over the amount and timing of resources that our current collaboration partners or any future collaboration partnersdevote to our collaboration partners’ or our future products or services. Disputes with our collaboration partners may result in litigation or arbitration thatwould increase our expenses and divert the attention of our management. Further, these transactions and arrangements are contractual in nature and may beterminated or dissolved under the terms of the applicable agreements and, in such event, we may not continue to have rights to the products or access to themarkets relating to such transaction or arrangement or may need to purchase such rights at a premium.Failure to comply with the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation could result in fines, criminal penalties andan adverse effect on our business.We operate in a number of countries throughout the world, and are committed to doing business in accordance with applicable anti-corruptionlaws. We are subject, however, to the risk that our officers, directors, employees, agents and collaboration partners may take action determined to be inviolation of such anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act 2010 and the Belgian Penal Code, aswell as trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of Commerce. Any such violation could result insubstantial fines, sanctions, civil and/or criminal penalties or curtailment of operations in certain jurisdictions, and might adversely affect our results ofoperations. In addition, actual or alleged violations could damage our reputation and ability to do business.Errors or defects in our software or other products could cause us to incur additional costs, lose revenue and business opportunities, damage ourreputation and expose us to potential liability.Sophisticated software and complex 3D printed products may contain errors, defects or other performance problems at any point in the life of theproduct. If errors or defects are discovered in our current or future software or other products, we may not be able to correct them in a timely manner, orprovide an adequate response to our customers. We may therefore need to expend significant financial, technical and management resources, or divert someof our development resources, in order to resolve or work around those defects. We may also experience an increase in our service and warranty costs.Particularly in the medical sector, errors or defects in our software or products could lead to claims by patients against us and our customers and expose us tolawsuits that may damage our and our customers’ reputations. Claims may be made by individuals or by classes of users. Our product liability and relatedinsurance policies may not apply or sufficiently cover any product liability lawsuit that arises from defective software or products. Customers such as ourcollaboration partners may also seek indemnification for third party claims allegedly arising from breaches of warranties under our collaboration agreements.Errors, defects or other performance problems in our software or other products may also result in the loss of, or delay in, the market acceptance ofour software, our products and related 3D printing or engineering services or postponement of customer deployment. Such difficulties could also cause us tolose customers and, particularly in the case of our largest customers, the potentially substantial associated revenue which would have been generated by oursales to companies participating in our customer’s supply chain. Technical problems, or the loss of a customer with a particularly important global reputation,could also damage our own business reputation and cause us to lose new business opportunities.We rely on our information technology systems to manage numerous aspects of our business and customer and supplier relationships, and a disruption ofthese systems could adversely affect our results of operations.We rely on our information technology systems and databases to manage numerous aspects of our business and to provide analytical informationto management. Our information technology systems allow us to, among other things, optimize our software development and research and developmentefforts, organize our in-house 3D printing services logistics, efficiently purchase products from our suppliers, provide other procurement and logistic services,ship and invoice products to our customers on a timely basis, 16Table of Contentsmaintain cost-effective operations and generally provide service to our customers. Our information technology systems are an essential component of ourbusiness and growth strategies, and a disruption to our information technology systems could significantly limit our ability to manage and operate ourbusiness efficiently. Although we take steps to secure our information technology systems, including our computer systems, intranet and internet sites, emailand other telecommunications and data networks, the security measures we have implemented may not be effective and our systems may be vulnerable to,among other things, damage and interruption from power loss, including as a result of natural disasters, computer system and network failures, loss oftelecommunication services, operator negligence, loss of data, security breaches, computer viruses and other disruptive events. Any such disruption couldadversely affect our reputation, brand and financial condition.A breach of security in our products or computer systems may compromise the integrity of our products, harm our reputation, create additional liabilityand adversely impact our financial results.We make significant efforts to maintain the security and integrity of our product source code and computer systems. The risk of a security breachor disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has increased asthe number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. These threats include identity theft,unauthorized access, DNS attacks, wireless network attacks, viruses and worms, advanced persistent threat (APT), application centric attacks, peer-to-peerattacks, phishing, backdoor trojans and distributed denial of service (DDoS) attacks. Any of the foregoing could attack our products and computer systems.Despite significant efforts to create security barriers to such programs, it is virtually impossible for us to entirely eliminate this risk. Like all software productsand computer systems, our software products and computer systems are vulnerable to such cyber attacks. The impact of cyber attacks could disrupt the properfunctioning of our software products and computer systems, cause errors in the output of our or our customers’ work, allow unauthorized access to sensitive,proprietary or confidential information of our company, our customers or the patients that we and our customers serve through our medical solutions.Moreover, as we continue to invest in new lines of products and services we are exposed to increased security risks and the potential for unauthorized accessto, or improper use of, the information of our product and service users. If any of the foregoing were to occur, our reputation may suffer, customers may stopbuying our products or services, we could face lawsuits and potential liability, and our results of operations could be adversely affected.We rely on third party technology, platform, carriers, server and hardware providers, and a failure of service by these providers could adversely affect ourbusiness and reputation.We rely upon a third party provider to host our main servers. If this provider is unable to handle current or higher volumes of use, experiencesany interruption in operations or ceases operations for any reason or if we are unable to agree on satisfactory terms for a continued hosting relationship, wewould be forced to enter into a relationship with other service providers or assume hosting responsibilities ourselves. If we are forced to switch hostingfacilities, we may not be successful in finding an alternative service provider on acceptable terms or in hosting the computer servers ourselves. We may alsobe limited in our remedies against our third party hosting provider in the event of a failure of service. A failure or limitation of service or available capacityby our third party hosting provider could adversely affect our business and reputation.Workplace accidents or environmental damage could result in substantial remedial obligations and damage to our reputation.Accidents or other incidents that occur at our service centers and other facilities or involve our personnel or operations could result in claims fordamages against us. In addition, in the event we are found to be financially responsible, as a result of environmental or other laws or by court order, forenvironmental damages alleged to have been caused by us or occurring on our premises, we could be required to pay substantial monetary damages orundertake expensive remedial obligations. The amount of any costs, including fines or damages payments that we might incur under such circumstancescould substantially exceed any insurance we have to cover such losses. Any of these events, alone or in combination, could have a material adverse effect onour business, financial condition and results of operations and could adversely affect our reputation.Our operations are subject to environmental laws and other government regulations that could result in liabilities in the future.We are subject to local environmental laws and regulations governing our operations, including, but not limited to, emissions into the air andwater and the use, handling, disposal and remediation of hazardous substances. A certain risk of environmental liability is inherent in our productionactivities. Under certain environmental laws, we could be held solely or jointly and severally responsible, regardless of fault, for the remediation of anyhazardous substance contamination at our service centers and other facilities and the respective consequences arising out of human exposure to suchsubstances or other environmental damage. We may not have been and may not be at all times in complete compliance with environmental laws, regulationsand permits, and the nature of our operations exposes us to the risk of liabilities or claims with respect to environmental and worker health and safety matters.If we violate or fail to 17Table of Contentscomply with environmental laws, regulations and permits, we could be subject to penalties, fines, restrictions on operations or other sanctions, and ouroperations could be interrupted. The cost of complying with current and future environmental, health and safety laws applicable to our operations, or theliabilities arising from past releases of, or exposure to, hazardous substances, may result in future expenditures. Any of these developments, alone or incombination, could have a material adverse effect on our business, financial condition and results of operations.If our service center operations are disrupted, sales of our 3D printing services, including the medical devices that we print, may be affected, which couldhave an adverse effect on our results of operations.We have six 3D printing service centers in Europe, the United States and Asia, including our principal 3D printing service center located inLeuven, Belgium. If the operations of these facilities are materially disrupted, whether by fires or other industrial accidents, extreme weather, natural disasters,labor stoppages, acts of terror, or otherwise, we would be unable to fulfill customer orders for the period of the disruption, we would not be able to recognizerevenue on orders, we could suffer damage to our reputation, and we might need to modify our standard sales terms to secure the commitment of newcustomers during the period of the disruption and perhaps longer. Depending on the cause of the disruption, we could incur significant costs to remedy thedisruption and resume providing 3D printing services. Such a disruption could have an adverse effect on our results of operations.We could experience unforeseen difficulties in building and operating key portions of our 3D printing infrastructure.We have designed and built our own 3D printing operations, 3D printer platforms and other key portions of our technical infrastructure throughwhich we serve our products and services, and we plan to continue to expand the size of our infrastructure through expanding our 3D printing facilities. Theinfrastructure expansion we may undertake may be complex, and unanticipated delays in the completion of these projects or availability of components maylead to increased project costs, operational inefficiencies, or interruptions in the delivery or degradation of the quality of our products. In addition, there maybe issues related to this infrastructure that are not identified during the design and implementation phases, which may only become evident after we havestarted to fully utilize the underlying equipment, that could further degrade the user experience or increase our costs.We may not have adequate insurance for potential liabilities, including liabilities arising from litigation.In the ordinary course of business, we have been, and in the future may be, subject to various product and non-product related claims, lawsuitsand administrative proceedings seeking damages or other remedies arising out of our commercial operations, including litigation related to defects in oursoftware or other products. We maintain insurance to cover our potential exposure for a number of claims and losses. However, our insurance coverage issubject to various exclusions, self-retentions and deductibles, may be inadequate or unavailable to protect us fully, and may be cancelled or otherwiseterminated by the insurer. Furthermore, we face the following additional risks related to our insurance coverage: • we may not be able to continue to obtain insurance coverage on commercially reasonable terms, or at all, including with respect to ouractivities in the medical industry; • we may be faced with types of liabilities that are not covered under our insurance policies, such as environmental contamination, terroristattacks or alleged infringements of third parties’ intellectual property rights, and that exceed any amounts that we may have reserved forsuch liabilities; • the amount of any liabilities that we may face may exceed our policy limits; and • we may incur losses resulting from the interruption of our business that may not be fully covered under our insurance policies.Even a partially uninsured claim of significant size, if successful, could have a material adverse effect on our business, financial condition,results of operations and liquidity. However, even if we successfully defend ourselves against any such claim, we could be forced to spend a substantialamount of money in litigation expenses, our management could be required to spend valuable time defending these claims and our reputation could suffer,any of which could adversely affect our results of operations.Current and future global economic uncertainties and political conditions may adversely affect our results of operations.Our results of operations could be substantially affected not only by global economic conditions, but also by local operating and economicconditions, which can vary substantially by market. Unfavorable conditions can depress sales in a given market and may result in actions that adverselyaffect our margins, constrain our operating flexibility or result in charges that are unusual or 18Table of Contentsnon-recurring. Certain macroeconomic events, such as the current adverse conditions in the global economy, including most recently with the marketdisruptions caused by the economic and political challenges facing China and Brazil and specific Eurozone countries such as Greece, Ireland, Italy, Portugal,and Spain, and the exit by the United Kingdom from the European Union (commonly referred to as “Brexit”) could have a more wide-ranging and prolongedimpact on the general business environment, which could also adversely affect us. These economic developments could affect us in numerous ways, many ofwhich we cannot predict. We are unable to predict the likely duration and severity of the current disruption in financial markets and adverse economicconditions, or the effects these disruptions and conditions could have on us.In addition, political and economic developments could also result in changes to legislation or reformation of government policies, rules andregulations, including in relation to tax and trade. Such changes could have a significant impact on our business by increasing the cost of doing business,affecting our ability to sell our software, products and services and negatively impacting our profitability. For example, as a result of the June 2016 Brexitreferendum, the British government will begin negotiating the terms of the United Kingdom’s future relationship with the European Union. Although it isunknown what those terms will be, it is possible that there will be greater restrictions on imports and exports between the United Kingdom and EuropeanUnion countries and increased regulatory complexities. These changes may adversely affect our operations and financial results.We face potential liability related to the privacy and security of personal information we collect.In particular, but not exclusively, in connection with our Materialise Medical segment, we may have access to personal information that issubject to a number of U.S. federal and state, E.U. and other applicable foreign laws protecting the confidentiality of certain patient health or other privateinformation, including patient records, and restricting the use and disclosure of that protected information.In the United States, we are subject to the Health Insurance Portability and Accountability Act, or HIPAA, the Health Information Technology forEconomic and Clinical Health Act of 2009, regulations issued pursuant to these statutes, state privacy and security laws and regulations. These statutes,regulations and contractual obligations impose numerous requirements regarding the use and disclosure of personal health information with which we mustcomply.In the European Union, the Data Protection Directive, or DPD, imposes strict regulations and establishes a series of requirements regarding thestorage of personally identifiable information on computers or recorded on other electronic media. This has been implemented by all E.U. member statesthrough national privacy laws. DPD provides for specific regulations requiring all non-E.U. countries doing business with E.U. member states to provideadequate data privacy protection when receiving personal data from persons in any of the E.U. member states.Although there are legal mechanisms to allow for the transfer of personal data from the E.U. to the U.S., in October 2015 the European Court ofJustice invalidated the Safe Harbor framework and increased uncertainty around compliance with European Union restrictions on cross-border data transfers.As a result of the decision, it was no longer possible to rely on safe harbor certification as a legal basis for the transfer of personal data from the E.U. to entitiesin the U.S. On February 29, 2016, however, the European Commission announced an agreement with the United States Department of Commerce, or the DOC,to replace the invalidated Safe Harbor framework with a new E.U.-U.S. “Privacy Shield.” On July 12, 2016, the European Commission adopted a decision onthe adequacy of the protection provided by the Privacy Shield. The Privacy Shield is intended to address the requirements set out by the European Court ofJustice in its ruling by imposing more stringent obligations on companies, providing stronger monitoring and enforcement by the DOC and Federal TradeCommission, and making commitments on the part of public authorities regarding access to information. U.S. companies have been able to certify to the DOCtheir compliance with the privacy principles of the Privacy Shield since August 1, 2016. The Privacy Shield, however, is currently being challenged inEuropean courts. Adherence to the Privacy Shield is not, however, mandatory. U.S.-based companies are permitted to rely either on their adherence to theE.U.-U.S. Privacy Shield or on the other authorized means and procedures to transfer personal data provided by the DPD.In December 2015, a proposal for an E.U. General Data Protection Regulation, intended to replace the current EU DPD, introducing new dataprotection requirements in the E.U., as well as substantial fines for breaches of the data protection rules, was agreed between the European Parliament, theCouncil of the European Union, and the European Commission. The EU General Data Protection Regulation entered into force on May 24, 2016 and willapply from May 25, 2018.In addition, the use and disclosure of personal health and other private information is subject to regulation in other jurisdictions in which we dobusiness or expect to do business in the future. Those jurisdictions may attempt to apply such laws extraterritorially or through treaties or other arrangementswith European governmental entities. We might unintentionally violate such laws, such laws may be modified and new laws may be enacted in the futurewhich may increase the chance that we violate them. For example, on May 25, 2018, the E.U. General Data Protection Regulation, or GDPR, will becomeeffective and will replace all national privacy laws of the E.U. member states. The GDPR contains rules relating to the collection and processing of personalinformation, which are not identical to the current rules under national privacy laws and which contain more strict provisions. Any such developments, ordevelopments stemming from enactment or modification of other laws, or the failure by us to comply with their requirements or to accurately anticipate theapplication or interpretation of these laws could create material liability to us, result in adverse publicity and negatively affect our medical business. 19Table of ContentsOur failure to accurately anticipate the application or interpretation of these statutes, regulations and contractual obligations as we develop ourmedical and other products and services, a failure by us to comply with their requirements ( e.g ., evolving encryption and security requirements) or anallegation that defects in our medical or other products have resulted in noncompliance by our customers could create material civil and/or criminal liabilityfor us, resulting in adverse publicity and negatively affecting our medical business. Any legislation or regulation in the area of privacy and security ofpersonal information could affect the way we operate and could harm our business. The costs of compliance with, and the other burdens imposed by, theseand other laws or regulatory actions may prevent us from selling our solutions or increase the costs associated with selling our products and services, and mayaffect our ability to invest in or jointly develop our products and services in the United States, the European Union and in foreign jurisdictions. Further, wecannot assure you that our privacy and security policies and practices will be found sufficient to protect us from liability or adverse publicity relating to theprivacy and security of personal information.Risks Related to Our Materialise Medical Segment and Regulatory EnvironmentOur medical business, financial condition, results of operations and cash flows could be significantly and negatively affected by substantial governmentregulations.Our medical products are subject to rigorous regulation by the European Commission, the U.S. Food and Drug Administration, or the FDA, andnumerous other applicable governmental authorities. In general, the development, testing, manufacturing and marketing of our medical products are subjectto extensive regulation and review by numerous governmental authorities in the European Union, the United States and in other markets where we arecurrently active or may become active in the future. The regulatory process requires the expenditure of significant time, effort and expense to bring newmedical products to market, and we cannot be certain that we will receive regulatory approvals, certifications or registrations in any country in which we planto market our medical products. For example, the timing for bringing our medical products such as our innovative X-ray knee guide system and our patientspecific devices such as our hip revision implants to certain key markets such as the United States, if at all, will depend to a large extent of the regulatoryapprovals.The laws and regulations, including the requirements for approvals, certifications or registrations and the time required for regulatory review,vary from country to country. The regulatory approval process outside the European Union and the United States may include all of the risks associated withobtaining CE or FDA clearance or approval in addition to other risks. Clearance or approval by the FDA in the United States, or declaration of conformityassessment and affixing a CE mark in the EEA, does not ensure approval or certification by regulatory authorities in other countries, and approval orcertification by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries. We may be required to performadditional pre-clinical or clinical studies even if FDA clearance or approval, or the right to bear the CE label, has been obtained. We may not obtainregulatory approvals or certifications outside the European Union and the United States on a timely basis, if at all. If we fail to receive necessary approvals tocommercialize our medical products in jurisdictions outside the European Union and the United States on a timely basis, or at all, our medical business,financial condition and results of operations could be adversely affected.In addition, we are required to implement and maintain stringent reporting, labeling and record keeping procedures and make our facilities andoperations subject to periodic inspections, both scheduled and unannounced, by the regulatory authorities. The medical device industry is also subject to amyriad of complex laws and regulations governing reimbursement, which varies from jurisdiction to jurisdiction in the European Union and which includesMedicare and Medicaid reimbursement in the United States as well as healthcare fraud and abuse laws, with these laws and regulations being subject tointerpretation. In many instances, the industry does not have the benefit of significant regulatory or judicial interpretation of these laws and regulations. Incertain public statements, governmental authorities have taken positions on issues for which little official interpretation was previously available. Some ofthese positions appear to be inconsistent with common practices within the industry but that have not previously been challenged.Various governmental agencies have become increasingly vigilant in recent years in their investigation of various business practices.Governmental and regulatory actions against us can result in various actions that could adversely impact our medical operations, including: • the recall or seizure of products; • the suspension or revocation of the authority necessary for the production or sale of a product; • the delay of our ability to introduce new products into the market; • the suspension of shipments from particular manufacturing facilities; • the issuance of warning letters or untitled letters; • the imposition of operating restrictions; 20Table of Contents • the imposition of injunctions; • the imposition of fines and penalties; • the exclusion of our products from being reimbursed by healthcare programs in the European Union or U.S. federal and state healthcareprograms (such as Medicare, Medicaid, Veterans Administration health programs and Civilian Health and Medical Program of theUniformed Services); • the delay or denial of customs clearance of our products for import in certain jurisdictions; and • other civil or criminal sanctions against us.Failure to comply with applicable regulatory requirements could also result in civil actions against us and other unanticipated expenditures. Anyof these actions, in combination or alone, or even a public announcement that we are being investigated for possible violations of these laws, could have amaterial adverse effect on our medical business, financial condition, results of operations and cash flows. If investigated, we cannot assure that the costs ofdefending or resolving those investigations or proceedings would not have a material adverse effect on our financial condition, results of operations and cashflows.In many of the countries in which we market our medical products, we are subject to regulations affecting, among other things, clinical efficacy,product standards, packaging requirements, labeling requirements, import/ export restrictions, tariff regulations, duties and tax requirements. Many of theregulations applicable to our medical surgical guides, models, implants and software products in these countries are similar to those of the EuropeanCommission and the FDA. In addition, in many countries the national health or social security organizations require our medical products to be qualifiedbefore they can be marketed with the benefit of reimbursement eligibility. Failure to receive or delays in the receipt of relevant foreign qualifications alsocould have a material adverse effect on our medical business, financial condition, results of operations and cash flows.As the government regulators in the European Union, United States and elsewhere have become increasingly stringent, we may be subject tomore rigorous regulation by governmental authorities in the future.Modifications to our medical products marketed in the United States may require new 510(k) clearances or premarket approvals, or may require us tocease marketing or recall the modified products until clearances are obtained.Any modification to a 510(k)-cleared device that could significantly affect its safety or efficacy, or that would constitute a major change in itsintended use, technology, materials, packaging and certain manufacturing processes, may require a new 510(k) clearance or, possibly, a premarket approval,or PMA. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) clearance or PMA in the first instance, but theFDA may (and often does) review the manufacturer’s decision. The FDA may not agree with a manufacturer’s decision regarding whether a new clearance orapproval is necessary for a modification, and may retroactively require the manufacturer to submit a premarket notification requesting 510(k) clearance or anapplication for PMA. We have made modifications to our medical products in the past and may make additional modifications in the future that we believedid not or will not require additional clearances or approvals. No assurance can be given that the FDA would agree with any of our decisions not to seek510(k) clearance or PMA. If the FDA requires us to cease marketing and recall the modified device until we obtain a new 510(k) clearance or PMA, ourmedical business, financial condition, results of operations and future growth prospects could be materially adversely affected. Further, our medical productscould be subject to recall if the FDA determines, for any reason, that our products are not safe or effective. Any recall or FDA requirement that we seekadditional approvals or clearances could result in significant delays, fines, increased costs associated with modification of a product, loss of revenue andpotential operating restrictions imposed by the FDA.Healthcare policy changes, including legislation to reform the U.S. healthcare system, could adversely affect us.From time to time, legislation is drafted and introduced that could significantly change the statutory provisions governing the clearance orapproval, manufacture and marketing of a medical device. In addition, regulations and guidance are often revised or reinterpreted in ways that maysignificantly affect our medical business and our medical products. It is impossible to predict whether legislative changes will be enacted or regulations,guidance or interpretations changed, and what the impact of such changes, if any, may be.For instance, in 2010, the U.S. Patient Protection and Affordable Care Act, as amended by the U.S. Health Care and Education Reconciliation Act of2010, or collectively, the PPACA, was enacted, which included, among other things, the following measures: an excise tax on any entity that manufactures orimports medical devices offered for sale in the United States; a Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conductcomparative clinical effectiveness research; reporting and disclosure requirements on device manufacturers for any “transfer of value” made or distributed toprescribers and other healthcare providers, 21Table of Contentseffective March 30, 2013 (referred to as the Physician Sunshine Payment Act); payment system reforms including a national pilot program on paymentbundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services throughbundled payment models, beginning on or before January 1, 2013; and an independent payment advisory board that will submit recommendations to reduceMedicare spending if projected Medicare spending exceeds a specified growth rate. Some of the provisions of the PPACA have yet to be fully implemented,while certain provisions have been subject to U.S. judicial and Congressional challenges. In January 2017, Congress voted to adopt a budget resolution forfiscal year 2017, that while not a law, is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the PPACA.Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the PPACA towaive, defer, grant exemptions from, or delay the implementation of any provision of the PPACA that would impose a fiscal burden on states or a cost, fee,tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress alsocould consider subsequent legislation to replace elements of the PPACA that are repealed. Thus, the full impact of the PPACA, any law replacing elements ofit, and the political uncertainty surrounding any repeal or replacement legislation on our business remains unclear.The excise tax described above was suspended on December 18, 2015 by the Consolidated Appropriations Act, 2016, which includes a two-yearmoratorium on the tax effective January 1, 2016 to December 31, 2017. We cannot predict what healthcare programs and regulations will be ultimatelyimplemented at the U.S. federal or state level, or at the E.U. level or within the implementing legislation of the individual E.U. Member States, or the effect ofany future legislation or regulation. However, these provisions as adopted could meaningfully change the way healthcare is delivered and financed, and maymaterially impact numerous aspects of our medical business. In particular, any changes that lower reimbursements or reduce medical procedure volumescould adversely affect our medical business and results of operations.In addition, in the future there may continue to be additional proposals relating to the reform of the healthcare systems of the United States, theEuropean Union, any individual Member State of the European Union or any other jurisdiction where we may operate. On June 14, 2016, the Europeanlawmakers and regulators published the draft versions of the new Medical Device Regulations. If and when adopted, the new regulations will make majorchanges in the requirements for approval or clearance and compliance for all medical devices. Certain of these proposals could limit the prices we are able tocharge for our medical products, or the amounts of reimbursement available for our medical products, and could limit the acceptance and availability of ourmedical products. The adoption of some or all of these proposals could have a material adverse effect on our financial position and results of operations.Furthermore, initiatives sponsored by government agencies, legislative bodies and the private sector to limit the growth of healthcare costs,including price regulation and competitive pricing, are ongoing in markets where we do business. We could experience a negative impact on our results ofoperations due to increased pricing pressure in certain or all of the markets in which we operate. Governments, hospitals and other third-party payors couldreduce the amount of approved reimbursements for our products. Reductions in reimbursement levels or coverage or other cost-containment measures couldunfavorably affect our future results of operations.Our financial performance may be adversely affected by medical device tax provisions in the health care reform laws.The PPACA imposes a deductible excise tax equal to 2.3% of the sales price of a medical device on any entity that manufactures, produces orimports medical devices offered for sale in the United States, with limited exceptions, beginning in 2013. These taxes could have a material, negative impacton our results of operations and our cash flows. The excise tax has, however, been suspended on December 18, 2015 by the Consolidated Appropriations Act,2016, which includes a two-year moratorium on the tax effective January 1, 2016 to December 31, 2017. Absent further legislative action, this excise tax willbe automatically reinstated for medical device sales starting on January 1, 2018. We cannot predict if the suspension of this tax will be extended or ifadditional regulations will be implemented in a manner that could adversely affect us.The use, including the misuse or off-label use, of our medical services and products may be deemed unauthorized use or improper promotion, which couldharm our image in the marketplace or result in injuries that lead to product liability suits and could be costly to our business or result in regulatorysanctions.Medical decisions may only be made and operations may only be executed by trained professionals who are authorized to do so in thejurisdictions in which they operate.Our medical services and products are generally designed to support surgeons in the planning and performance of their operations. In ourmedical software products set up, training and engineering support, we make it very clear that responsibility for medical decisions rests exclusively with theresponsible surgeon, who is responsible for carefully reviewing and explicitly approving the 22Table of Contentssurgical plan and/or the design of the medical device that is proposed by our software and engineers. Nonetheless, we cannot assure that patients, hospitals,surgeons or other parties will not try to hold us responsible for all or a part of the medical decisions underlying the operations that we support, exposing us topotential litigation or civil and criminal liability for unauthorized medical decision-making. Such actions or liability could lead governmental agencies toconclude that our products or services are used improperly, all of which could significantly damage our reputation and could materially impair the continuedadoption of our medical services and product offering in the market.In the markets in which we operate, our medical promotional materials and training methods must comply with numerous applicable laws andregulations, including the prohibition on the promotion of a medical device for a use that has not been cleared or approved by the relevant regulator orsupervisory body. Use of a device outside of its cleared or approved indication is known as “off-label” use. If a relevant governmental authority determinesthat our medical promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotionalmaterials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine andcriminal penalties. In that event, our reputation could be damaged and adoption of our medical products would be impaired. Although we train our sales forcenot to promote our medical products for off-label uses, and our instructions for use in all markets specify that our products are not intended for use outside ofthose indications cleared for use, competent regulatory agency could conclude that we have engaged in off-label promotion. In addition, there may beincreased risk of injury if surgeons attempt to use our medical products off-label. 23Table of ContentsSurgeons also may misuse our medical products or use improper techniques if they are not adequately trained, potentially leading to injury andan increased risk of product liability. Product liability claims are expensive to defend and could divert our management’s attention and result in substantialdamage awards against us. Any of these events could adversely affect our medical business, results of operations and reputation and our ability to attract andretain customers for our products and services.If our marketed medical devices are defective or otherwise pose safety risks, the relevant governmental authorities could require their recall, or we mayinitiate a recall of our products voluntarily.The relevant governmental authorities may require the recall of commercialized products in the event of material deficiencies or defects indesign or manufacture or in the event that a product poses an unacceptable risk to health. Manufacturers, on their own initiative, may recall a product if anymaterial deficiency in a device is found. A government mandated or voluntary recall could occur as a result of an unacceptable risk to health, componentfailures, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our medical products would divert managerial andfinancial resources and have an adverse effect on our financial condition and results of operations. Any recall could impair our ability to produce our medicalproducts in a cost-effective and timely manner in order to meet our customers’ demands. We also may be required to bear other costs or take other actions thatmay have a negative impact on our future revenue and our ability to generate profits. We may initiate voluntary recalls involving our medical products in thefuture that we determine do not require notification of the relevant regulatory body. If a governmental agency disagrees with our determinations, they couldrequire us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our revenue. Inaddition, the relevant authority could take enforcement action for failing to report the recalls when they were conducted.If our Materialise Medical segment products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject tomedical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.Under the FDA medical device reporting regulations, or MDR, we are required to report to the FDA any incident in which our medical producthas malfunctioned and would be likely to cause or contribute to a death or serious injury if the malfunction happened again. If we fail to report these eventsto the FDA within the required timeframes, or at all, the FDA could take enforcement action against us. Any adverse event involving our medical productscould result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection, mandatory recall or otherenforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of ourtime and capital, distract management from operating our business, and may harm our reputation and financial results.In the European Economic Area, we must comply with the E.U. Medical Device Vigilance System, the purpose of which is to improve theprotection of health and safety of patients, users and others by reducing the likelihood of reoccurrence of incidents related to the use of a medical device.Under this system, incidents must be reported to the competent authorities of the Member States of the European Economic Area. An incident is defined asany malfunction or deterioration in the characteristics and/or performance of a device, as well as any inadequacy in the labeling or the instructions for usewhich, directly or indirectly, might lead to or might have led to the death of a patient or user or of other persons or to a serious deterioration in their state ofhealth. Incidents are evaluated by the European Economic Area competent authorities to whom they have been reported, and where appropriate, informationis disseminated between them in the form of National Competent Authority Reports, or NCARs. The E.U. Medical Device Vigilance System is furtherintended to facilitate a direct, early and harmonized implementation of Field Safety Corrective Actions, or FSCAs, across the Member States of the EuropeanEconomic Area where the device is in use. An FSCA is an action taken by a manufacturer to reduce a risk of death or serious deterioration in the state ofhealth associated with the use of a medical device that is already placed on the market. An FSCA may include the recall, modification, exchange, destructionor retrofitting of the device. FSCAs must be communicated by the manufacturer or its legal representative to its customers and/or to the end users of thedevice through Field Safety Notices. 24Table of ContentsOur Materialise Medical segment’s 3D printing operations are required to operate within a quality management system that is compliant with theregulations of various jurisdictions, including the requirements of ISO 13485, and the U.S. Quality System Regulation, which is costly and could subject usto enforcement action.We are subject to the regulations of various jurisdictions regarding the manufacturing process for our medical products, including therequirements of ISO 13485. Within the United States, we are required to comply with the Quality System Regulation, which covers, among other things, themethods of documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of ourmedical products. Compliance with these regulations is costly and time-consuming. In addition, the FDA enforces the U.S. Quality System Regulationthrough periodic announced and unannounced inspections of manufacturing facilities. The failure by a manufacturer to comply with applicable statutes andregulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately respond to any adverse inspectional observations orproduct safety issues, could result in, among other things, any of the following enforcement actions: • untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; • customer notifications or repair, replacement, refunds, recall, detention or seizure of our medical products; • operating restrictions or partial suspension or total shutdown of production; • refusing or delaying requests for 510(k) clearance or PMA of new products or modified products; • withdrawing 510(k) clearances or PMAs that have already been granted; • refusal to grant export approval for our medical products; or • criminal prosecution.Any of these actions could impair our ability to produce our medical products in a cost-effective and timely manner in order to meet ourcustomers’ demands. We also may be required to bear other costs or take other actions that may have a negative impact on our future revenue and our abilityto generate profits. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatoryrequirements, which could result in our failure to produce our medical products on a timely basis and in the required quantities, if at all.We may be subject to or otherwise affected by U.S. federal and state, European or other healthcare laws, including fraud and abuse and health informationprivacy and security laws, and could face substantial penalties if we are unable to fully comply with such laws.Healthcare regulation by U.S. federal and state, European or other governments could significantly impact our medical business. Healthcarefraud and abuse and health information privacy and security laws potentially applicable to our medical operations include: • the U.S. federal Anti-Kickback Law, which constrains our marketing practices and those of our independent sales agencies, educationalprograms, pricing, bundling and rebate policies, grants for physician-initiated trials and continuing medical education, and otherremunerative relationships with healthcare providers, by prohibiting, among other things, soliciting, receiving, offering or providingremuneration, intended to induce the purchase or recommendation of an item or service reimbursable under a U.S. federal healthcareprogram, such as the Medicare or Medicaid programs; • U.S. federal false claims laws which prohibit, among other things, knowingly presenting, or causing to be presented, claims for paymentfrom Medicare, Medicaid, or other third-party payors that are false or fraudulent; • HIPAA, and its implementing regulations, which created federal criminal laws that prohibit executing a scheme to defraud any healthcarebenefit program or making false statements relating to healthcare matters and which also imposes certain regulatory and contractualrequirements regarding the privacy, security and transmission of individually identifiable health information; • U.S. state laws analogous to each of the above federal laws, such as anti-kickback and false claims laws that may apply to items orservices reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of certainhealth information, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicatingcompliance efforts; and 25Table of Contents • similar foreign laws and regulations governing healthcare fraud and abuse, patient data privacy, interactions with healthcareprofessionals and related laws and regulations that apply to us in the countries in which we operate.If our past or present operations are found to be in violation of any of such laws or any other governmental regulations that may apply to us, wemay be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from U.S. federal healthcare programs and the curtailment orrestructuring of our operations. Similarly, if the healthcare providers or entities with whom we do business are found to be non-compliant with applicablelaws, they may be subject to sanctions, which could also have a negative impact on us. Any penalties, damages, fines, curtailment or restructuring of ouroperations could adversely affect our ability to operate our medical business and our financial results. The risk of our company being found in violation ofthese laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are opento a variety of interpretations. Further, the PPACA, among other things, amends the intent requirement of the U.S. federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the PPACA providesthat the government may assert that a claim including items or services resulting from a violation of the U.S. federal anti-kickback statute constitutes a falseor fraudulent claim for purposes of the false claims statutes. Any action against us for violation of these laws, even if we successfully defend against them,could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.Risks Related to Our Intellectual PropertyIf we are unable to obtain patent protection for our products or otherwise protect our intellectual property rights, our business could suffer.We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality and other contractual arrangements with ouremployees, end-users and others to maintain our competitive position. Our success depends, in part, on our ability to obtain patent protection for or maintainas trade secrets our proprietary products, technologies and inventions and to maintain the confidentiality of our trade secrets and know-how, operate withoutinfringing upon the proprietary rights of others and prevent others from infringing upon our business proprietary rights.Despite our efforts to protect our proprietary rights, it is possible that competitors or other unauthorized third parties may obtain, copy, use ordisclose or otherwise circumvent our technologies, software, inventions, processes or improvements. We cannot assure you that any of our existing or futurepatents or other intellectual property rights will be enforceable, will not be challenged, invalidated or circumvented, or will otherwise provide us withmeaningful protection or any competitive advantage. In addition, our pending patent applications may not be granted, and we may not be able to obtainforeign patents or elect to file applications corresponding to our U.S., E.U. or other patents. We intend to expand our business to certain countries that maynot provide the same level of patent or other intellectual property protection as the United States and the European Union. Even if we assert our patents orobtain additional patent or similar protection in such countries, effective enforcement of such patents or other rights may not be available. If our patents donot adequately protect our technology, our competitors may be able to offer products or services similar to ours or potential customers may gain illegal accessto our proprietary technology. Our competitors may also be able to develop similar technology independently or design around our patents, and we may notbe able to detect the unauthorized use of our proprietary technology or take appropriate steps to prevent such use. Any of the foregoing events would lead toincreased competition and lower revenue or gross margins, which could adversely affect our results of operations.Moreover, several recent changes to the U.S. patent laws may impact our ability to obtain and enforce our intellectual property rights. Forexample, the Leahy-Smith America Invents Act, or the AIA, includes a number of significant changes to U.S. patent law, including provisions that affect theway patent applications will be prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office, or USPTO, recently developed newregulations and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA, and in particular,the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the AIA will have on the operation ofour business. In addition, in recent years, the courts have interpreted U.S. patent laws and regulations differently, and in particular the U.S. Supreme Court hasdecided a number of patent cases and continues to actively review more patent cases than it has in the past. Some of these changes or potential changes maynot be advantageous for us, and may make it more difficult to obtain adequate patent protection or to enforce our patents against parties using them without alicense or payment of royalties. These changes could increase the costs and uncertainties surrounding the prosecution of our patent applications and theenforcement or defense of our patent rights, all of which could have a material adverse effect on our business and financial condition. 26Table of ContentsWe may not be able to protect our trade secrets and intellectual property.While some of our technology is licensed under patents belonging to others or is covered by process patents which are owned or applied for byus, much of our technology is not protected by patents. Furthermore, patents are jurisdictional in nature and therefore only protect us in certain markets,rather than globally. We have devoted substantial resources to the development of our technology, trade secrets, know-how and other unregisteredproprietary rights. While we enter into confidentiality and invention assignment agreements intended to protect such rights, such agreements can be difficultand costly to enforce or may not provide adequate remedies if violated. Such agreements may be breached and confidential information may be willfully orunintentionally used or disclosed in violation of the agreements, or our competitors or other parties may learn of the information in some other way. Wecannot legally prevent one or more other companies from developing similar or identical technology to our unpatented technology and accordingly, it islikely that, over time, one or more other companies may be able to replicate our technology, thereby reducing our technological advantages. If we do notprotect our technology or are unable to develop new technology that can be protected by patents or as trade secrets, we may face increased competition fromother companies, which may adversely affect our results of operations.We may incur substantial costs enforcing or acquiring intellectual property rights and defending against third-party claims as a result of litigation orother proceedings.In connection with the enforcement of our intellectual property rights, opposing third parties from obtaining patent rights or disputes related tothe validity or alleged infringement of our or third-party intellectual property rights, including patent rights, we have been and may in the future be subject orparty to claims, negotiations or complex, protracted litigation.While we strive to avoid infringing the intellectual property rights of third parties, we cannot provide any assurances that we will be able toavoid any claims that our products and technology, including the technology that we license from others, infringe the intellectual property rights of thirdparties. Patent applications in the United States and most other countries are confidential for a period of time until they are published, and the publication ofdiscoveries in scientific or patent literature typically lags actual discoveries by several months or more. As a result, the nature of claims contained inunpublished patent filings around the world is unknown to us, and we cannot be certain that we were the first to conceive inventions covered by our patentsor patent applications or that we were the first to file patent applications covering such inventions. Furthermore, it is not possible to know in which countriespatent holders may choose to extend their filings under the Patent Cooperation Treaty or other mechanisms. Moreover, the patent landscape in the field of 3Dprinting is very complex and freedom to operate examinations are costly and time-consuming. We have not obtained extensive freedom to operate reports inthe past for each and all of our products and services, nor do we intend to install on a general basis freedom to operate examinations for our future productsand services. In addition, we may be subject to intellectual property infringement claims from individuals, vendors and other companies, including those thatare in the business of asserting patents, but are not commercializing products or services in the field of 3D printing, or our customers may seek to invokeindemnification obligations to involve us in such intellectual property infringement claims. Furthermore, although we maintain certain procedures to help toensure that the items we 3D print on behalf of customers do not infringe upon the intellectual property rights of others, we cannot be certain that ourprocedures will be effective in preventing any such infringement.Intellectual property disputes and litigation, regardless of the merit or resolution, could cause us to incur significant costs in enforcing, orresponding to, defending and resolving such claims. In addition, such claims can be costly and disruptive to our business operations by diverting attentionand energies of management and key technical personnel, by prohibiting or otherwise impairing our ability to commercialize new or existing products orservices and by increasing our costs of doing business. We may not prevail in any such dispute or litigation, and an adverse decision in any legal actioninvolving intellectual property rights, including any such action commenced by us, could limit the scope of our intellectual property rights and the value ofthe related technology. Third-party claims of intellectual property infringement successfully asserted against us may require us to redesign infringingtechnology or enter into costly settlement or license agreements on terms that are unfavorable to us, prevent us from manufacturing or licensing certain of ourproducts, subject us to injunctions restricting our sale of products and use of infringing technology, cause severe disruptions to our operations or the marketsin which we compete, impose costly damage awards or require indemnification of our sales agents and end-users. In addition, as a consequence of suchclaims, we may incur significant costs in acquiring the necessary third-party intellectual property rights for use in our products and services or developingnon-infringing substitute technology. Any of the foregoing developments may have a material adverse effect on our business, financial condition and resultsof operations.Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to governmental patent agencies, including the USPTO in several stages overthe lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, feepayment and other similar provisions during the patent application process. While an 27Table of Contentsinadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in whichnoncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevantjurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure torespond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or ourlicensors fail to maintain the patents and patent applications covering our products and processes, our competitive position could be adversely affected.We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.Certain of our past and present employees were previously employed at other companies, including our competitors or potential competitors.Some of these employees executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment.Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claimsthat we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’sformer employer. We are not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to defendagainst such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable personnel or intellectual propertyrights. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.If disputes arise, we could lose rights that are important to our business or be subject to restrictions on the conduct of our business.We have license agreements with respect to certain intellectual property that is important to our business and that may include exclusivity andnon-competition undertakings. For example, we have an arrangement with Materialise Dental NV, the entity that resulted from the spinoff of our formerdental related business and was acquired by a third party, that distinguishes the dental business that Materialise Dental NV now pursues from the businesses,such as Cranio-Maxio Facial, or CMF, that we continue to pursue following the sale. Disputes may arise between the counterparties to these agreements andus that could result in termination of these agreements. If we fail to comply with our obligations under our intellectual property-related agreements, ormisconstrue the scope of the rights granted to us or restrictions imposed on us under these agreements, the counterparties may have the right to terminatethese agreements or sue us for damages or equitable remedies, including injunctive relief. Termination of these agreements, the reduction or elimination ofour rights under these agreements, or the imposition of restrictions under these agreements that we have not anticipated may result in our having to negotiatenew or reinstated licenses with less favorable terms, or to cease commercialization of licensed technology and products. This could materially adverselyaffect our business.Certain technologies and patents have been developed with collaboration partners and we may face restrictions on this jointly developed intellectualproperty.We have entered into collaborations with a number of industrial and medical device companies, including Zimmer-Biomet, DJO Surgical, DePuySynthes, Global Orthopaedic Technology, Lima, Mathys, Siemens and HOYA. We have, in some cases individually and in other cases along with ourcollaboration partners, filed for patent protection for a number of technologies developed under these agreements and may in the future file for furtherintellectual property protection and/or seek to commercialize such technologies. Under some of these agreements, certain intellectual property developed byus and the relevant partner may be subject to joint ownership by us and the partner and our commercial use of such intellectual property may be restricted, ormay require written consent from, or a separate agreement with, the partner. In other cases, we may not have any rights to use intellectual property solelydeveloped and owned by the partner. If we cannot obtain commercial use rights for such jointly-owned intellectual property or partner-owned intellectualproperty, our future product development and commercialization plans may be adversely affected. For additional information, see “Item 4. Information on theCompany—B. Business Overview—Intellectual Property.”Our use of open source software may expose us to additional risks and harm our intellectual property.Some of our proprietary software, including some of our 3D printing software, may use or incorporate open source software. Some open sourcesoftware licenses require users who distribute open source software as part of their own software product to publicly disclose all or part of the source code tosuch software product or make available any derivative works of the open source code on unfavorable terms or at no cost. We monitor, on an ongoing basis,whether our proprietary software, including that in our 3D printing software, would make use of any open source software that could require us to disclose ourproprietary source code, which could adversely affect our business. 28Table of ContentsRisks Related to the ADSsThe ADSs may experience price and volume fluctuations.The stock market generally has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to theoperating performance of listed companies. Broad market and industry factors may negatively affect the market price of the ADSs, regardless of our actualoperating performance. The market price and liquidity of the market for the ADSs may be higher or lower than the price you paid and may be significantlyaffected by numerous factors, some of which are beyond our control. These factors include: • significant volatility in the market price and trading volume of securities of companies in our sector, which is not necessarily related tothe operating performance of these companies; • the mix of products that we sell, and related services that we provide, during any period; • delays between our expenditures to develop and market new products and the generation of sales from those products; • changes in the amount that we spend to develop, acquire or license new products, technologies or businesses; • changes in our expenditures to promote our products and services; • success or failure of research and development projects of us or our competitors; • announcements of acquisitions by us or one of our competitors; • the general tendency towards volatility in the market prices of shares of companies that rely on technology and innovation; • changes in regulatory policies or tax guidelines; • changes or perceived changes in earnings or variations in operating results; • any shortfall in revenue or net income from levels expected by investors or securities analysts; and • general economic trends and other external factors.Any of these could result in a material decline in the price of the ADSs.Members of our board of directors and senior management own a significant percentage of our ordinary shares and are able to exert significant influenceover matters subject to shareholder approval.Members of our board of directors and senior management beneficially owned approximately 71.3% of our outstanding ordinary shares(including ordinary shares represented by ADSs), as of December 31, 2016. These shareholders have significant influence over the election of members of ourboard of directors and the outcome of corporate actions requiring shareholder approval, including dividend policy, mergers, share capital increases,amendments of our articles of association and other extraordinary transactions. For example, these shareholders may be able to influence the outcome ofelections of members of our board of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other majorcorporate transactions. In addition, our articles of association provide that, as long as Wilfried Vancraen, our founder and Chief Executive Officer, HildeIngelaere, an Executive Vice President of our company who is also Mr. Vancraen’s spouse, and their three children, Linde, Sander and Jeroen Vancraen, orcollectively the Family Shareholders, control, directly or indirectly, in the aggregate at least 20% of the voting rights attached to our ordinary shares, amajority of our directors must be appointed by our shareholders from a list of candidates proposed by the Family Shareholders. This concentration ofownership within this group of shareholders and the rights of the Family Shareholders prevent or discourage unsolicited acquisition proposals or offers forour ordinary shares or ADSs that you may feel are in your best interest as one of our shareholders. The interests of these existing shareholders or the FamilyShareholders may not always coincide with your interests or the interests of other shareholders, and they may act in a manner that advances their best interestsand not necessarily those of other shareholders, including seeking a premium value for their ordinary shares, which might affect the prevailing market pricefor the ADSs. 29Table of ContentsThe dilutive effect of our warrants and convertible bonds could have an adverse effect on the future market price of the ADSs or otherwise adversely affectthe interests of our shareholders.Based on outstanding granted warrants and outstanding convertible bonds, as of December 31, 2016, there were outstanding granted warrants tosubscribe for an aggregate of 1,681,000 ordinary shares at a weighted average exercise price of €8.25 per share, and €1.0 million of outstanding convertiblebonds convertible into an aggregate of 508,904 ordinary shares at a conversion price of €1.97 per share. The warrants and convertible bonds likely will beexercised or converted if the market price of the ADSs equals or exceeds the applicable exercise or conversion price. To the extent such securities areexercised or converted, additional ordinary shares will be issued, which would dilute the ownership of existing shareholders.You may not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your rightto vote.Except as described in the deposit agreement related to the ADSs, holders of ADSs are not able to exercise voting rights attaching to the ordinaryshares evidenced by the ADSs on an individual basis. Under the terms of the deposit agreement, holders of ADSs may instruct the depositary to vote theordinary shares underlying their ADSs, but only if we ask the depositary to ask for their instructions. Otherwise, holders of ADSs are not able to exercise theirright to vote, unless they withdraw our ordinary shares underlying the ADSs they hold to vote them in person or by proxy. However, holders of ADSs may notknow about the meeting far enough in advance to withdraw those ordinary shares. If we ask for the instructions of holders of ADSs, the depositary, upontimely notice from us, will notify holders of ADSs of the upcoming vote and arrange to deliver our voting materials to them. Upon our request, the depositarywill mail to holders of ADSs a shareholder meeting notice which contains, among other things, a statement as to the manner in which voting instructions maybe given, including an express indication that such instructions may be given or deemed given to the depositary to give a discretionary proxy to a persondesignated by us if no instructions are received by the depositary from holders of ADSs on or before the response date established by the depositary.However, no voting instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which we inform thedepositary that (i) substantial opposition exists, or (ii) such matter materially and adversely affects the rights of shareholders. We cannot guarantee thatholders of ADSs will receive the voting materials in time to ensure that they can instruct the depositary to vote their shares. In addition, the depositary’sliability to holders of ADSs for failing to execute voting instructions or for the manner of executing voting instructions is limited by the deposit agreement.As a result, holders of ADSs may not be able to exercise their right to give voting instructions or to vote in person or by proxy and they may not have anyrecourse against the depositary or our company if their shares are not voted as they have requested or if their shares cannot be voted.You may not receive distributions on our ordinary shares represented by the ADSs or any value for them if it is illegal or impractical to make themavailable to holders of ADSs.Under the terms of the deposit agreement, the depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or thecustodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions inproportion to the number of our ordinary shares your ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it maybe unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to take any other action to permit the distribution ofthe ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive the distributions we make on our ordinary sharesor any value from them if it is unlawful or impractical to make them available to you. These restrictions may have a material adverse effect on the value ofyour ADSs.We have no present intention to pay dividends on our ordinary shares in the foreseeable future and, consequently, your only opportunity to achieve areturn on your investment during that time is if the price of the ADSs appreciates.We have no present intention to pay dividends on our ordinary shares in the foreseeable future. Any recommendation by our board of directors topay dividends will depend on many factors, including our financial condition, results of operations, legal requirements and other factors. Furthermore,pursuant to Belgian law, the calculation of amounts available for distribution to shareholders, as dividends or otherwise, must be determined on the basis ofour non-consolidated statutory financial statements prepared under generally accepted accounting principles in Belgium, or Belgian GAAP. In addition, inaccordance with Belgian law and our articles of association, we must allocate each year an amount of at least 5% of our annual net profit under our statutorynon-consolidated accounts (prepared in accordance with Belgian GAAP) to a legal reserve until the reserve equals 10% of our share capital. Our legal reservecurrently meets this requirement. As a consequence of these facts, there can be no assurance as to whether dividends or other distributions will be paid out inthe future or, if they are paid, their amount. 30Table of ContentsAs a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the SECthan U.S. domestic issuers. This may limit the information available to holders of ADSs.We are a “foreign private issuer,” as defined in the rules and regulations of the U.S Securities and Exchange Commission, or the SEC, and,consequently, we are not subject to all of the disclosure requirements applicable to U.S. domestic issuers. For example, we are exempt from certain rules underthe Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizationsapplicable to a security registered under the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and“short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities.Moreover, we are not required to file periodic reports and consolidated financial statements with the SEC as frequently or as promptly as U.S. domesticissuers. Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies. As a foreign privateissuer, we file an annual report on Form 20-F within four months of the close of each year ended December 31 and furnish reports on Form 6-K relating tocertain material events promptly after we publicly announce these events. However, although we intend to continue to issue quarterly financial information,because of the above exemptions for foreign private issuers, we are not required to do so, and, therefore, our shareholders will not be afforded the sameprotections or information generally available to investors holding shares in public companies organized in the United States.We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.As a foreign private issuer, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Actand related rules and regulations. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recentlycompleted second fiscal quarter. Accordingly, we will next make a determination with respect to our foreign private issuer status on June 30, 2017. There is arisk that we will lose our foreign private issuer status in the future.We would lose our foreign private issuer status if, for example, more than 50% of our assets are located in the United States and more than 50%of our outstanding ordinary shares are held of record by U.S. residents. As of December 31, 2016, an immaterial amount of our assets were located in theUnited States. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly greater than the costs weincur as a foreign private issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domesticissuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. We would be requiredunder current SEC rules to prepare our consolidated financial statements in accordance with U.S. GAAP and modify certain of our policies to comply withcorporate governance practices associated with U.S. domestic issuers. Such conversion and modifications would involve significant additional costs. Inaddition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available toforeign private issuers such as the ones described above and exemptions from procedural requirements related to the solicitation of proxies.We are an “emerging growth company” and we intend to take advantage of reduced disclosure and governance requirements applicable to emerginggrowth companies, which could result in the ADSs being less attractive to investors.We are an “emerging growth company,” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act, and we intend tocontinue to take advantage of certain exemptions from various reporting and governance requirements that are applicable to other public companies that arenot emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of theSarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and reduced disclosure obligations regarding executive compensation in our periodic reports andother public filings. Investors may find the ADSs less attractive because we rely on such exemptions. If some investors find the ADSs less attractive as a result,there may be a less active trading market for the ADSs and the price of the ADSs may be more volatile. We may take advantage of these reporting andgovernance exemptions until we are no longer an emerging growth company, which in certain circumstances could be as late as December 31, 2019.In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition periodprovided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth companycan delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We currently prepare ourconsolidated financial statements in accordance with IFRS, which do not have separate provisions for publicly traded and private companies. However, in theevent we convert to U.S. GAAP while we are still an emerging growth company, we may be able to take advantage of the benefits of this extended transitionperiod and, as a result, during such time that we delay the adoption of any new or revised accounting standards, our consolidated financial statements maynot be comparable to other companies that comply with all public company accounting standards. 31Table of ContentsWe have identified material weaknesses in our internal controls over financial reporting and if we fail to establish and maintain an effective system ofinternal control over financial reporting, we may not be able to accurately report our financial condition, results of operations or cash flows, which mayadversely affect investor confidence in us.The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controlsand procedures. In particular, we are required, under Section 404 of the Sarbanes-Oxley Act, to perform system and process evaluations and testing of ourinternal controls over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of ourinternal control over financial reporting. This assessment must include disclosure of any material weaknesses in our internal control over financial reportingidentified by our management or our independent registered public accounting firm. A material weakness is a control deficiency, or combination of controldeficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interimconsolidated financial statements will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires anattestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, for as longas we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of the exemption permitting us not to comply with theindependent registered public accounting firm attestation requirement. At the time when we are no longer an emerging growth company, our independentregistered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented,designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future.Although we have expanded our accounting and compliance teams with additional staff and consultants with appropriate experience andtechnical accounting knowledge, our compliance with Section 404 will require that we incur further substantial accounting expenses and expend moresignificant management efforts. We currently do not have an internal audit group, and we may need to hire additional accounting and financial staff andconsultants with appropriate experience and technical accounting knowledge, and compile the system and process documentation necessary to perform theevaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion.During the evaluation and testing process, we identified material weaknesses in our internal control over financial reporting, and concluded that our internalcontrol over financial reporting was not effective as of December 31, 2016. See “Item 15. Controls and Procedures.” We cannot assure you that we will beable to remedy the material weaknesses in a timely fashion or at all, or that there will not be material weaknesses or significant deficiencies in our internalcontrol over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accuratelyreport our financial condition, results of operations or cash flows. If we are unable to remedy the material weaknesses and conclude that our internal controlover financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiencyin our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market priceof the ADSs could decline, and we could be subject to sanctions or investigations by the NASDAQ Stock Market, the SEC or other regulatory authorities.Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems requiredof public companies, could also restrict our future access to the capital markets.We have incurred and will incur significant increased costs as a result of operating as a company whose ADSs are publicly traded in the United States, andour management is required to devote substantial time to new compliance initiatives.As a company whose ADSs are publicly traded in the United States, we have incurred and will incur significant legal, accounting, insurance andother expenses that we did not incur prior to our initial public offering. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform andConsumer Protection Act and related rules implemented by the SEC and the NASDAQ Stock Market have imposed various requirements on publiccompanies, including requiring establishment and maintenance of effective disclosure and financial controls. These costs will increase at the time when weare no longer an emerging growth company eligible to rely on exemptions under the JOBS Act from certain disclosure and governance requirements. Ourmanagement and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increaseour legal and financial compliance costs and make some activities more time-consuming and costly. These laws and regulations could also make it moredifficult and expensive for us to attract and retain qualified persons to serve on our board of directors or its committees. Furthermore, if we are unable tosatisfy our obligations as a public company, we could be subject to delisting of the ADSs, fines, sanctions and other regulatory action and potentially civillitigation. 32Table of ContentsYou may be subject to limitations on the transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when itdeems doing so expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons,including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holderson its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuseto deliver, transfer or register transfers of the ADSs generally when our share register or the books of the depositary are closed, or at any time if we or thedepositary thinks that it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of thedeposit agreement, or for any other reason in accordance with the terms of the deposit agreement. As a result, you may be unable to transfer your ADSs whenyou wish to.If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding theADSs, the market price for the ADSs and trading volume could decline.The trading market for the ADSs is influenced by research or reports that industry or securities analysts publish about our business. If one or moreanalysts who cover us downgrade the ADSs, the market price for the ADSs would likely decline. If one or more of these analysts cease to cover us or fail toregularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the ADSsto decline.It may be difficult for investors outside Belgium to serve process on or enforce foreign judgments against us or our directors and senior management.We are a Belgian limited liability company. None of the members of our board of directors and senior management is a resident of the UnitedStates. All or a substantial portion of the assets of such non-resident persons and most of our assets are located outside the United States. As a result, it maynot be possible for investors to effect service of process upon such persons or on us or to enforce against them or us a judgment obtained in U.S. courts.Original actions or actions for the enforcement of judgments of U.S. courts relating to the civil liability provisions of the federal or state securities laws of theUnited States are not directly enforceable in Belgium. The United States and Belgium do not currently have a multilateral or bilateral treaty providing forreciprocal recognition and enforcement of judgments, other than arbitral awards, in civil and commercial matters. In order for a final judgment for thepayment of money rendered by U.S. courts based on civil liability to produce any effect on Belgian soil, it is accordingly required that this judgment berecognized or be declared enforceable by a Belgian court in accordance with Articles 22 to 25 of the 2004 Belgian Code of Private International Law.Recognition or enforcement does not imply a review of the merits of the case and is irrespective of any reciprocity requirement. A U.S. judgment will,however, not be recognized or declared enforceable in Belgium if it infringes upon one or more of the grounds for refusal which are exhaustively listed inArticle 25 of the Belgian Code of Private International Law. These grounds mainly require that the recognition or enforcement of the foreign judgmentshould not be a manifest violation of public policy, that the foreign courts must have respected the rights of the defense, that the foreign judgment should befinal, and that the assumption of jurisdiction by the foreign court may not have breached certain principles of Belgian law. In addition to recognition orenforcement, a judgment by a federal or state court in the United States against us may also serve as evidence in a similar action in a Belgian court if it meetsthe conditions required for the authenticity of judgments according to the law of the state where it was rendered. The findings of a federal or state court in theUnited States will not, however, be taken into account to the extent they appear incompatible with Belgian public policy.Holders of ADSs are not treated as shareholders of our company.Holders of ADSs with underlying shares in a Belgian limited liability company are not treated as shareholders of our company, unless theywithdraw our ordinary shares underlying the ADSs that they hold. The depository is the holder of the ordinary shares underlying the ADSs. Holders of ADSstherefore do not have any rights as shareholders of our company, other than the rights that they have pursuant to the deposit agreement.We are a Belgian limited liability company but are not a listed company in Belgium, and shareholders of our company may have different and in somecases more limited shareholder rights than shareholders of a listed company in Belgium or of a U.S. listed corporation.We are organized as a limited liability company (naamloze vennootschap / société anonyme) under the laws of Belgium. Our corporate affairs aregoverned by Belgian corporate law. From a Belgian corporate law point of view, we qualify as a public company (een vennootschap die een openbaarberoep op het spaarwezen heeft gedaan / une société ayant fait publiquement appel à l’épargne), but not as a listed company (genoteerde vennootschap /société cotée) because none of our securities are listed on any regulated market 33Table of Contentsin the European Economic Area. The Belgian corporate law provisions that are applicable to Belgian listed companies do therefore not apply to us.Furthermore, we are not subject to most of the disclosure obligations applicable to Belgian listed companies. As a result, shareholders of our company maynot enjoy certain of the rights and protection generally afforded to shareholders of a Belgian listed company.You should also be aware that the rights provided to our shareholders under Belgian corporate law and our articles of association differ in certainrespects from the rights that you would typically enjoy as a shareholder of a U.S. corporation under applicable U.S. federal and state laws.Under Belgian corporate law, except in certain limited circumstances, our shareholders may not ask for an inspection of our corporate records,while under Delaware corporate law any shareholder, irrespective of the size of his or her shareholdings, may do so. Shareholders of a Belgian corporation arealso unable to initiate a derivative action, a remedy typically available to shareholders of U.S. companies, in order to enforce a right of our company, in casewe fail to enforce such right ourselves, other than in certain cases of director liability under limited circumstances. In addition, a majority of our shareholdersmay release a director from any claim of liability we may have, including if he or she has acted in bad faith or has breached his or her duty of loyalty,provided, in some cases, that the relevant acts were specifically mentioned in the convening notice to the shareholders’ meeting deliberating on thedischarge. In contrast, most U.S. federal and state laws prohibit a company or its shareholders from releasing a director from liability altogether if he or she hasacted in bad faith or has breached his or her duty of loyalty to the company. Finally, Belgian corporate law does not provide any form of appraisal rights inthe case of a business combination. For additional information on these and other aspects of Belgian corporate law and our articles of association, see “Item10. Additional Information—B. Memorandum and Articles of Association.” As a result of these differences between Belgian corporate law and our articles ofassociation, on the one hand, and U.S. federal and state laws, on the other hand, in certain instances, you could receive less protection as a shareholder of ourcompany than you would as a shareholder of a U.S. corporation.As a foreign private issuer, we are not subject to certain NASDAQ Stock Market corporate governance rules applicable to U.S. listed companies.We rely on provisions in the Listing Rules of the NASDAQ Stock Market that permit us to follow our home country corporate governancepractices with regard to certain aspects of corporate governance. This allows us to follow Belgian corporate law and the Belgian Company Code, which differin significant respects from the corporate governance requirements applicable to U.S. companies listed on the NASDAQ Global Select Market. See “Item 16G.Corporate Governance.”Holders of ADSs or ordinary shares have limited rights to call shareholders’ meetings or to submit shareholder proposals, which could adversely affecttheir ability to participate in the governance of our company.Except under limited circumstances, only the board of directors may call a shareholders’ meeting. Shareholders who collectively own at least20% of the ordinary shares of our company may require the board of directors or the statutory auditor to convene a special or an extraordinary generalmeeting of shareholders. As a result, the ability of holders of the ADSs or ordinary shares to participate in and influence the governance of our company islimited.Holders of the ADSs have limited recourse if we or the depositary fail to meet our respective obligations under the deposit agreement or if theywish to involve us or the depositary in a legal proceeding.The deposit agreement expressly limits the obligations and liability of us and the depositary. Neither we nor the depositary will be liable to theextent that liability results from the fact that we: • are prevented or hindered in performing any obligation by circumstances beyond their control; • exercise or fail to exercise discretion under the deposit agreement; • perform our obligations without negligence or bad faith; • take any action based upon advice of or information from legal counsel, accountants, any person presenting shares for deposit, anyholder of the ADSs or any other qualified person; or • rely on any documents we believe in good faith to be genuine and properly executed.In addition, neither we nor the depositary has any obligation to participate in any action, suit or other proceeding in respect of the ADSs whichmay involve it in expense or liability unless it is indemnified to its satisfaction. These provisions of the deposit agreement will limit the ability of holders ofthe ADSs to obtain recourse if we or the depositary fails to meet our respective obligations under the deposit agreement or if they wish to involve us or thedepositary in a legal proceeding. 34Table of ContentsInvestors may not be able to participate in equity offerings, and ADS holders may not receive any value for rights that we may grant.In accordance with Belgian corporate law, our articles of association provide for preferential subscription rights to be granted to our existingshareholders to subscribe on a pro rata basis for any issue for cash of new shares, convertible bonds or warrants that are exercisable for cash, unless such rightsare canceled or limited by resolution of our shareholders’ meeting or the board of directors. Our shareholders’ meeting or board of directors may cancel orrestrict such rights in future equity offerings. In addition, certain shareholders (including those in the United States, Australia, Canada or Japan) may not beentitled to exercise such rights even if they are not canceled unless the rights and related shares are registered or qualified for sale under the relevantlegislation or regulatory framework. As a result, there is the risk that investors may suffer dilution of their shareholding should they not be permitted toparticipate in preference right equity or other offerings that we may conduct in the future.If rights are granted to our shareholders, as the case may be, but if by the terms of such rights offering or for any other reason, the depositary maynot either make such rights available to any ADS holders or dispose of such rights and make the net proceeds available to such ADS holders, then thedepositary may allow the rights to lapse, in which case ADS holders will receive no value for such rights.Shareholders in jurisdictions with currencies other than the euro face additional investment risk from currency exchange rate fluctuations in connectionwith their holding of our shares.Any future payments of dividends on shares will be denominated in euro. The U.S. dollar—or other currency—equivalent of any dividends paidon our shares or received in connection with any sale of our shares could be adversely affected by the depreciation of the euro against these other currencies.In order to satisfy our obligations as a public company, we may need to hire additional qualified accounting and financial personnel and consultants withappropriate experience.As a public company, we need to establish and maintain effective disclosure and financial controls. We have hired additional accounting andfinancial personnel and consultants with experience and technical accounting knowledge in this respect, but we may need to hire additional personnel andconsultants with appropriate experience and technical accounting knowledge. It is difficult to recruit and retain such personnel and consultants, and ouroperating expenses and operations are and will be impacted by the direct costs of their employment or engagement and the indirect consequences related tothe diversion of management resources from research and development efforts.We do not expect to be a passive foreign investment company for U.S. federal income tax purposes; however, there is a risk that we may be classified as apassive foreign investment company, which could result in materially adverse U.S. federal income tax consequences to U.S. investors.We do not expect to be a passive foreign investment company, or a PFIC. However, the relevant rules are not entirely clear and certain aspects ofthe tests will be outside our control; therefore, no assurance can be given that we will not be classified as a PFIC for any taxable year. If you are a U.S.taxpayer and we are determined to be a PFIC at any time during your holding period, you may be subject to materially adverse consequences, includingadditional tax liability and tax filing obligations. See “Item 10. Additional Information—E. Taxation—U.S. Taxation—Passive Foreign InvestmentCompany.” 35Table of ContentsITEM 4.INFORMATION ON THE COMPANYA. History and Development of the CompanyMaterialise NV was incorporated in Belgium on June 28, 1990 as a limited liability company under Belgian company law.On June 30, 2006, we split off our dental business through a partial de-merger, whereby the Belgian company Materialise Dental NV was formed.On July 24, 2006, an affiliate of DENTSPLY International Inc. acquired 40% of Materialise Dental NV, and subsequently increased its shareholding inMaterialise Dental NV to 45.59% in October 2008 and to 100% in February 2011, and our shareholders received aggregate proceeds of approximately€34.5 million from such split off and the staggered sale of our dental business.On April 23, 2007, we increased our shareholding in the French company OBL SA from 33% to 100%, for a purchase price of €1.5 million. OBLSA is assigned to our Materialise Medical segment.On October 10, 2008, we formed the Belgian company Mobelife NV, in which we initially owned 80.36% of the shares. On March 5, 2015, wepurchased the remaining 22.3% interest and, as a result, we own 100% of the shares of Mobelife NV. On December 5, 2016, after a transfer of all assets ofMobelife NV to Materialise NV, Mobelife NV was dissolved and ceased to exist. The business of Mobelife NV has been fully integrated in and is continuedby our Materialise Medical segment.On January 21, 2011, we acquired 100% of the shares of the German company Marcam Engineering GmbH, which specializes in softwaresolutions for 3D printed metal products, for a purchase price of €2.0 million. Marcam Engineering GmbH is assigned to our Materialise Software segment.On February 28, 2013, we spun off our fixturing business to a newly incorporated subsidiary, RapidFit NV. Through a capital increase, the Tinafund of the Flemish investment company PMV NV acquired 16.66% of the shares of RapidFit NV on June 27, 2013. For additional information regarding ouragreement with PMV regarding RapidFit NV, see “—RapidFit NV Shareholders’ Agreement” below. On September 30, 2013, RapidFit NV, through an assetpurchase agreement, acquired for a purchase price of €0.4 million Advanced Machining, Ltd., a Michigan corporation, which is assigned to our MaterialiseManufacturing segment. On December 31, 2016, we decided to transfer all the assets and activities of RapidFit, LLC, a subsidiary of RapidFit NV.On January 28, 2014, we acquired e-prototypy (which was subsequently renamed Materialise) SA, located in Wroclaw, Poland, which operateswhat we believe to be one of the largest 3D printing service centers in Poland, for a purchase price of €1.3 million. The company, which is assigned to ourMaterialise Manufacturing segment, specializes in the production of additive manufactured prototypes and end-parts and also provides scanning and reverseengineering services.On April 29, 2014, we established RS Print NV, a 50/50 joint venture with RS Scan International NV, a Belgian company that designs and sells,among other things, foot scanning equipment and customized footwear. RS Print NV is active in the combined business of (i) providing technology for thedesign and additive manufacturing of customized footwear and footwear components and (ii) producing, with additive manufacturing technology, suchfootwear products. Each party contributed €500,000 to the joint venture at its incorporation and further contributions have been made (as part of acommitment to contribute an additional €4.0 million).On June 30, 2014, we sold 8,000,000 ADSs in our initial public offering at a price of $12.00 per ADS, and received net proceeds ofapproximately $88.3 million. The ADSs we sold in the initial public offering represented new ordinary shares issued in a capital increase resolved by ourshareholders for the purposes of the initial public offering on April 23, 2014.On October 21, 2014, we acquired OrthoView Holdings Limited, a leading provider of 2D digital pre-operative planning and templatingsolutions for orthopedic surgeons, for a cash payment of £8.47 million. OrthoView Holdings Limited is located in the United Kingdom and employsapproximately 23 people. OrthoView Holdings Limited’s software is a 2D digital pre-operative planning and templating solution for orthopedic surgeons.OrthoView Holdings Limited’s software imports a digital X-ray image from a picture archiving and communication system, or PACS, and positions thetemplates of suitable prostheses on the X-ray image at the correct scale. We are gradually adding 3D surgical pre-planning tools and related 3D printedmedical devices to OrthoView Holdings Limited’s product offering.On March 10, 2015, we acquired the Belgian-based company Cenat BVBA. With Cenat BVBA’s proprietary technology on machine control, wehave added new software solutions for ensuring adequate quality control in additive manufacturing production processes. 36Table of ContentsOur principal executive and registered offices are located at Technologielaan 15, 3001 Leuven, Belgium. Our telephone number is +32 (16) 3966 11. We are registered with the Register of Legal Entities of Leuven under the number 0441.131.254. Our agent for service of process in the United States isMaterialise USA, LLC, located at 44650 Helm Ct., Plymouth, Michigan 48170, telephone number (734) 259-6445. Our internet website iswww.materialise.com. The information contained on, or accessible through, our website is not incorporated by reference into this annual report and shouldnot be considered a part of this annual report.Capital ExpendituresOur capital expenditures amounted to €17.6 million, €14.4 million and €13.2 million for the years ended December 31, 2016, 2015, and 2014,respectively. In 2016, our main capital expenditures were €6.1 million related to building constructions in Belgium and Poland and €8.3 million for newmachinery and installations, mainly in Europe. In 2015, our main capital expenditures were €3.3 million for land in Belgium and Poland for the extension ofour headquarters and the addition of production facilities, respectively, €1.1 million for buildings in the United States and €7.3 million for additionalmachinery for our production facilities. In 2014, our main capital expenditures were €2.5 million for the acquisition of the 34 Fused Deposition Modeling, orFDM, printers and related equipment that we previously operated under a prior cooperation agreement with Stratasys Ltd. until December 2014, and€6.4 million for the acquisition of additional printers (including the metal printers that we acquired for the purpose of printing our own complex surgerymedical implants). As of December 31, 2016, we have committed expenditures for the amount of €10.2 million related to the construction of the newbuildings in Belgium and Poland, which we expect will mainly be financed by means of bank loans.B. Business OverviewOur MissionOur mission is to make a significant and lasting contribution to a better and healthier world through innovative applications of additivemanufacturing using our software and hardware infrastructure.Our CompanyWe are a leading provider of additive manufacturing and medical software and of sophisticated 3D printing services. Our customers are active ina wide variety of industries, including healthcare, automotive, aerospace, art and design and consumer products. Since our founding in 1990 by our ChiefExecutive Officer, Wilfried Vancraen, we have consistently focused on developing innovative applications of additive manufacturing technologies. Webelieve our proprietary software platforms, which enable and enhance the functionality of 3D printers and of 3D printing operations, have become a marketstandard for professional 3D printing. We believe that our commitment to enabling 3D printing technologies has significantly supported and accelerated theacceptance and proliferation of additive manufacturing in the industrial and medical sectors and will continue to play an instrumental role as the industryevolves. In the healthcare sector, we bring software and medical devices to the market. Our medical software products include surgical planning tools thatallow medical professionals to make 3D printable designs of the human anatomy. Our medical devices include surgical guides as well as customized medicalimplants. In our 3D printing service centers, including what we believe to be the world’s largest single-site additive manufacturing service center in Leuven,Belgium, we print medical devices, prototypes, production parts, and consumer products. As of December 31, 2016, our team consisted of 1,432 full-timeequivalent employees, or FTEs, and fully dedicated consultants. Our portfolio of intellectual property features 180 patents and 192 pending patentapplications as of December 31, 2016. For the year ended December 31, 2016, we generated €114.5 million of revenue, representing 12.2% growth over theprior year, net loss of €3.0 million and Adjusted EBITDA of €9.5 million. For a description of Adjusted EBITDA and a reconciliation of our net profit to ourAdjusted EBITDA, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Other Financial Information.”Our Core CompetenciesOur established and proven business model integrates our three research-based core competencies: (i) software development, (ii) 3D printing, and(iii) engineering, which act as complementary incubators for our new products and function as integrated support centers for our existing products. Theinteraction and synergies among our software development, 3D printing and engineering teams position us well to continuously develop and supportinnovative applications of 3D printing that often integrate all three core competencies.Software Development. Our expertise in developing 3D printing software originated from our efforts to enable 3D printing applications and to continuallyimprove processes within our own additive manufacturing operations. As a result of our continued deployment over the course of more than 25 years ofhuman, intellectual and economic capital to software development, a number of our products, including Magics and Streamics, have evolved into industry-leading flagship products. Our software competency has evolved into a well-structured organization with 325 FTEs and fully dedicated consultants as ofDecember 31, 2016 based at our headquarters in 37Table of ContentsBelgium and our local field offices in Germany, Malaysia, Ukraine, Poland, China and the United Kingdom. Our software development team works in closepartnership with the commercial groups that are active in our various market segments through project teams that support our various products and services.These project teams rely, in turn, on research and development groups that develop libraries of software code that can be shared in multiple products andservices across various markets. We have an established quality management system for the development of our software products that is ISO 9001 certified.We are also ISO13485 certified for our medical applications and our medical applications comply with the regulatory requirements of several jurisdictions,including Europe and the United States.3D Printing. As a pioneer in the additive manufacturing industry, we believe we have an extensive history of 3D printing millions of parts utilizing a broadarray of technologies, often in highly regulated environments, for thousands of commercial, industrial and medical customers. We operate some of the mostsophisticated printing machines currently available on the market, as well as our own proprietary stereolithography-based technology, Mammoth, to providea very broad range of technologies, sizes, materials and finishing degrees and to address the needs of customers across a large number of potential markets.Production is organized in multiple production lines that are dedicated to the Medical and the Industrial Production segments that we serve. Our 3D printinggroup, which operates in an ISO 9001-certified quality management system, in an ISO 13485-certified system for the production of medical devices, and in anEN9100 certified system for the production of plastic aerospace parts, has its own maintenance and research team that utilizes an in-house laboratory facilitywhere products can be tested. The wide variety of products that are processed by our multiple production lines are logistically streamlined through ourproprietary database systems that manage the entire process from order intake to 3D printing to final shipment. As of December 31, 2016, we had productionteams consisting of 281 FTEs and fully dedicated consultants who are spread throughout our headquarters in Belgium and our local field offices in the CzechRepublic, Germany, Poland, Japan and the United States. As of December 31, 2016, we operated a total of 144 3D printers and six vacuum casting machinesat these service centers. (See “—Manufacture and Supply” for more detailed information about the printers we operate).Engineering. Our engineering expertise is integral to our entire business, as it enhances our software development and 3D printing expertise. Our engineerswork in teams that support customers in different market segments. These teams work directly with our customers to identify new, and customize and refineexisting, 3D printing applications and to increase productivity, efficiency and ease of use across all aspects of the solutions we provide. Our engineeringteams have particular expertise in industrial and medical applications, including patient-specific surgical guides, models and implants with the applicablemarket clearances. Our teams are highly specialized, especially in the medical field, and include quality controllers, development researchers for newhardware concepts and trainers who bring new engineers to the required level of expertise. Our engineers operate within the framework of a certified qualitymanagement system. Our engineering teams make extensive use of our proprietary software tools and have direct access to our 3D printing center wheredevelopments can be tested in an actual production environment. As of December 31, 2016, we had engineering teams consisting of 189 FTEs and fullydedicated consultants based at our headquarters in Belgium and our local field offices in Malaysia, Ukraine and Colombia.Our Market SegmentsThe product and service offerings developed by our three core competencies are offered through a market oriented organization that is activeacross three principal market segments: (i) Materialise Software, (ii) Materialise Medical, and (iii) Materialise Manufacturing. We believe that our customersbenefit significantly from the synergistic interplay between our core competencies and the three market segments on which we focus and which provideconstant end-user feedback to the product development and support teams within our core competencies. For example, we believe our software programshave become globally leading products in the markets we serve as a result of many factors including the sharing of knowledge within our central softwaredevelopment group as well as our in-house production operations, which enable us to continuously innovate, refine and focus our software solutions andprovide us with valuable insight into our customers’ objectives and needs. Similarly, certain aspects of the equipment, processes and know-how that enableus to print surgical guides cleared by the FDA, and CE-labeled implants are applicable to certain industrial markets we serve, including automotive andaerospace, where our customers have stringent requirements for high quality precision parts.Our Materialise Software SegmentIn our Materialise Software segment, we offer proprietary software worldwide through programs and platforms that enable and enhance the functionality of3D printers and of 3D printing operations. We have developed software that interfaces between almost all types of 3D printers, and various softwareapplications and capturing technologies, including CAD packages and 3D scanners, by enabling data preparation and process planning. Our programsinterface with machines manufactured by leading original equipment manufacturers, or OEMs, such as 3D Systems Corporation, Arcam AB, Concept LaserGmbH, envisionTEC GmbH, EOS GmbH, The ExOne Company, Renishaw PLC, SLM Solutions Group AG, Stratasys Ltd. and voxeljet AG. In addition, wehave entered into a partnership agreement with Siemens for the integration of our additive manufacturing technology into Siemens’ NX software, which willenable the streamlining of the design to manufacturing process for products being produced using additive manufacturing. We offer software that enables ourcustomers to more efficiently organize the entire workflow of a 3D printing operation with multiple 3D printing machines, 38Table of Contentsmany operators and complex data flow and logistical requirements. We believe that the capabilities of our software products and their unique compatibilitywith almost all 3D printing systems continue to set standards in the professional 3D printing software market. Customers operating machines from multipleOEMs and customers running large 3D printing operations are among those who can benefit the most from our software packages and we believe that in manycases those customers demand compatibility with our software from the systems OEMs.As of December 31, 2016, our Materialise Software segment (including core competencies) had a team of approximately 251 FTEs and fully dedicatedconsultants, with approximately 39% based at our headquarters in Belgium and the remaining employees distributed throughout our local field offices inChina, Germany, Japan, Malaysia, the United Kingdom and the United States.Business Model. We generate revenue in our Materialise Software segment from our software licenses, maintenance contracts, hardware controller sales forour Materialise Controllers and custom software development services. We license our software products to our customers on either a time-based or perpetualbasis, in which case we offer annual maintenance contracts that provide for software updates and support. We charge our custom software developmentservices either on a time and material or on a fixed-cost basis. For the years ended December 31, 2016, 2015 and 2014, our Materialise Software segmentgenerated revenue of €30.1 million, €25.8 million and €18.1 million, respectively, representing 26.3%, 25.3% and 22.2% of our total revenue, respectively,and 16.8%, 42.6% and 34.7% growth over the prior year, respectively.Software Products. We have a diversified portfolio comprised of software applications addressing different 3D market opportunities. Our decades ofexperience in the additive manufacturing industry are reflected in the sophisticated 3D printing software and business management tools we provide for ourcustomers. We believe that each of our software applications is, or has the potential of becoming, one of the leading technologies in its domain. We believethat our neutral platform approach positions our software to drive greater innovation and choice in the 3D printer software ecosystem, and provides 3D printerusers with more powerful and flexible printing capabilities.In particular, we offer the following software applications: • Magics. Magics enables customers to import a wide variety of CAD formats and to export standard tessellation language, or STL, filesready for additive manufacturing. Magics’ applications include repairing and optimizing 3D models; analyzing parts; making process-related design changes on customers’ STL files; designing support structures; documenting customer projects; nesting multiple parts in asingle print run; and process planning.Our Magics platform is enhanced with modules that further expand functionality and utility for our customers. For instance, the Magics Import Moduleplays an important role in efficiently moving CAD designs through to manufactured products by importing nearly all standard CAD formats intoMagics. The Magics Structures Module was designed to help customers to reduce weight and material usage in their designs. We also have developedlogistical modules such as the Magics SG Module, which offers tools for support structure design during the 3D printing process, and the MagicsSintermodule, which offers solutions for automated part nesting, protecting small and fragile parts and locating them after building. • Streamics. Complementary to Magics is our Streamics product, which is a central additive manufacturing logistics and control systemthat links operators, 3D printers (including those from various OEMs and based on different technologies), processes, materials andshipment flows together to improve customer service and save time and money. Streamics provides a user-friendly, server-based system,which centralizes our customers’ project data and makes it easier to collaborate among team members and communicate with customers.The configurable modules are designed to facilitate communication, support the organization and execution of data preparation, planmachine capacity, and guide post-processing steps, allowing additive manufacturing teams to quickly adapt to business and marketchanges. • 3-maticSTL. 3-maticSTL is a versatile application that permits, among other things, design modification, design simplification, 3Dtexturing, re-meshing and forward engineering directly to standard additive manufacturing STL files. 39Table of Contents • MiniMagics and MiniMagicsPro. MiniMagics and MiniMagicsPro provide solutions for our customers working in data preparation, or inquoting and quality control teams. MiniMagics allows customers to view STL files and communicate in an efficient way with theiraccount manager by seeing the same visualization of the part on their respective screens. MiniMagicsPro is a professional STL filecommunication tool that allows account managers to access multiple file formats and exchange annotations and comments with thecustomer, and generate quotations taking into account file quality and the appropriate build orientation of each part. MiniMagics Pro isdesigned to give our customers’ quality control and finishing teams the ability to compare measurement results with the initial designand deliver professional quality reports. • Build Processors and Machine Control Software. We work in close collaboration with a wide variety of 3D printer OEMs to developcustomized and integrated solutions for their additive manufacturing machines. Our build processors automatically translate the 3Dmodel data into layer data to provide sliced geometry and can link the latter with the appropriate build parameters to feed the machinecontrol software. Another key benefit of our build processors is that they allow for a two-way communication between Magics and 3Dprinters. In essence, the build processor not only tells the machine what to do, but is also capable of receiving feedback from the machineallowing the operator to trace and store data on specific jobs for quality control and other purposes. Our machine control softwareinterprets sliced build data that is transferred to 3D printers and steers such machines, helping to ensure smooth and trouble-freeproduction. As a result of our acquisition of Marcam Engineering GmbH in 2011, which is now fully integrated into our softwaredevelopment operations, we were able to expand our coverage of metal sintering machines. • e-Stage. e-Stage is a software solution that increases additive manufacturing productivity by automating STL support generation,optimizing the STL build process, and reducing the time our customers spend on finishing work such as build support removal andsanding. e-Stage is designed to allow our customers to use less material, to be able to 3D nest and to minimize failed builds. • Materialise Controller. Materialise Controller controls and steers additive manufacturing machines using embedded Materialisesoftware, and is fully integrated into the Materialise 3D printing software platform. It is engineered towards research and developmentapplications, machine manufacturers and those who want to control or adapt the production process to their specific needs. • 3DPrintCloud. Through this cloud based software-as-a-service (SaaS) solution, we make 3D printing functionality available online forintegration into web-based and desktop applications. Next to the application programming interface (API) offering, a web-basedapplication is available enabling upload and manipulation of design files. This solution is subscription based, and started with initialofferings of basic print preparation operations, such as fixing and printability checks. We expect that it will be extended followinggrowing market needs for SaaS access to the Materialise Software portfolio .Sales & Marketing. We market and distribute our software directly through our sales force as well as through our own website and third-party distributors.Our Belgian team oversees our global marketing strategy and sales processes. Our local field office employees manage sales for particular markets andprovide pre- and post-sales technical support to our customers. In addition, OEMs and local dealers often distribute our software products together with their3D printers, with our software enhancing the printers’ value proposition and broadening the suite of applications available to the machines. Our sales forcewill typically follow up on these OEM or distributor sales to offer follow on products and services to the machine users.Customers. We believe we have a reputation for providing high-quality software in the marketplace and have strong relationships with leading multinationalcustomers and other key users of additive manufacturing. The customers for our Materialise Software segment include 3D printing machine OEMs as well asmanufacturers in a variety of other industries, such as the automotive, aerospace, consumer goods and hearing aid industries, and external 3D printing servicebureaus. Our Materialise Software segment customer base is spread across Asia, Europe and the United States.For the years ended December 31, 2016, 2015 and 2014, our ten largest customers in the Materialise Software segment represented 15.6%, 10.5%and 12.3%, respectively, of our Materialise Software segment’s revenue.Competition. In our Materialise Software segment, we face indirect competition from the software developed by 3D printing OEMs, which are often more“closed ecosystem”-oriented (i.e., only focused on their own machines), and from companies that offer software that addresses one or more specific functionalareas covered by our software solutions, such as providers of traditional CAD solutions. We compete directly with other providers of additive manufacturingmanagement and machine control software, including open source software providers. 40Table of ContentsGrowth Opportunities. As the number of internal and external service or production centers across the 3D printing industry grows with these 3D printingoperations running more complex mixes of machines from different manufacturers and based on various technologies, as 3D printing will be increasinglyused for the manufacturing of complex or customized end parts, and as the number of 3D printer manufacturers increases with new players initially focusingmore on the hardware than on the software component of their 3D printers, we believe the demand for highly performing industrial 3D printing softwareplatforms is likely to grow accordingly. Furthermore, we believe that the worldwide market for additive manufacturing software is tied to the growth of theoverall additive manufacturing sector and in particular the number of industrial 3D printing systems in operation. As the volume of industrial 3D printingsystems sold grows with increased adoption of additive manufacturing processes, 3D printing software, in particular in the professional segment of themarket, will increasingly be needed to interface with these systems and allow for more efficient operation of those systems.We believe that we can continue to expand our market penetration through expanding relationships with customers and OEMs, and through thecontinued innovation of our software products to adapt to and meet market demands. In order to be able to do so, we intend to bring our teams closer to ourcustomer base worldwide, which will require continued investments in the expansion of our marketing and sales presence. In order to be able to meet thedemands of new entrants on the market, we also intend to continue to invest significantly in the development of our software products, including furtheringtheir compatibility with almost all 3D printers on the market. For example, we believe the market for metal-based printing will be a key growth area in theadditive manufacturing industry and, while we believe we currently have a strong market position in software for metal printing, we are also committed toresearch and development of metal-based technologies, such as machine integration and porous structures generation. 41Table of ContentsOur Materialise Medical SegmentIn our Materialise Medical segment, our product and services offering addresses what we believe to be long-term trends in the medical industrytowards personalized, functional and evidence-based medicine.As of December 31, 2016, our Materialise Medical segment consisted of approximately 523 FTEs, with approximately 30% based at our headquartersin Belgium and the remaining employees distributed throughout our local field offices in Australia, China, Colombia, France, Germany, Japan, Malaysia, theUnited Kingdom and the United States.Business Model. We generate revenue in our Materialise Medical segment through clinical services and medical software. We sell medical devices that weprint for our customers and sell licenses to our medical software packages and software maintenance contracts. We also provide custom software developmentand engineering services, for which we charge either on a time and material or on a fixed cost basis. The majority of these medical devices that we printed in2016 were surgical guides (and related bone models) that were distributed to surgeons through our collaboration partners Zimmer Biomet, DJO Surgical,DePuy Synthes, Stryker, Global Orthopaedic Technology, Corin, Mathys and Lima. We also started to print patient-specific implants that we sell directly tohospitals or distribute through DePuy Synthes. The customer base for our medical software products includes academic institutions, medical devicecompanies and hospitals. For the years ended December 31, 2016, 2015 and 2014, our Materialise Medical segment generated revenue of €37.9 million,€34.9 million and €30.0 million, respectively, representing 33.1%, 34.2% and 36.9% of our total revenue, respectively, and 8.8%, 16.1% and 7.3% growthover the prior year, respectively.Medical Software. Our software allows medical-image based analysis and engineering as well as patient-specific design of surgical devices and implants. Ourcustomers include leading research institutes, renowned hospitals and major medical device companies. Our medical software often serves as an introductionto our capabilities and in certain cases leads to clinical services opportunities. Our medical software packages are: • Materialise Mimics Innovation Suite. The Materialise Mimics Innovation Suite is a complete set of tools developed for biomedicalprofessionals that allows them to perform a multitude of engineering operations based on medical imaging data. The suite consists ofseveral complementary products and services, including Materialise Mimics, Materialise 3-matic, engineering services and medicalmodels, as well as consultancy and custom software development. • Materialise Mimics. Materialise Mimics is software specifically developed for medical image processing that can be used to segmentaccurate 3D models from medical imaging data (for example, from CT or MRI) to measure accurately in 2D and 3D and to export 3Dmodels for additive manufacturing or to Materialise 3-matic. These patient-specific models can be used for a variety of engineeringapplications directly in Materialise Mimics or Materialise 3-matic, or may be exported to third party software focused on statisticalanalysis, CAD or finite element analysis (which is used to predict how a product reacts to real-world forces such as vibration, heat andfluid flow). • Materialise 3-matic. Materialise 3-matic focuses on anatomical design and is able to combine CAD tools with pre-processing capabilitiesdirectly on the anatomical data coming from Materialise Mimics. It enables our customers to conduct thorough 3D measurements andanalysis, design a patient-specific implant, a surgical guide, or a benchtop model, and to prepare the anatomical data and/or resultingimplants for simulation. • Materialise OrthoView. Materialise OrthoView is a 2D digital pre-operative planning and templating solution for orthopedicsurgeons. The software imports a digital X-ray image from a Picture Archiving and Communication System, or PACS, and positions thetemplates of suitable prostheses on the X-ray image at the correct scale. Materialise OrthoView currently serves more than 11,000orthopedic surgeons in 60 countries globally, focusing primarily on joint replacements. We acquired OrthoView Holdings Limited inOctober 2014, and have included the OrthoView solution in our portfolio of pre-operative planning solutions and have been graduallyintegrating 3D solutions in the OrthoView product. 42Table of Contents • Materialise Mimics inPrint. With Materialise Mimics inPrint, clinicians can easily create files for 3D printing and use anatomicallyaccurate models to help simulate or evaluate options for patient-specific surgical treatment. This software was designed specificallyaround the needs of clinicians to integrate seamlessly into their existing workflow. Materialise Mimics inPrint allows clinicians to getpatient images from PACS and directly import them to start the 3D printing process. The software is compatible with digital imaging andcommunications in medicine, or DICOM, standard, which ensures easy connections with all modern imaging systems. By sharing virtualor printed 3D models as an interactive PDF on any device, communication is both immediate and clear with co-workers, the surgical teamand patients. • Materialise ProPlan CMF. Materialise ProPlan CMF is a software package developed for oral, maxillofacial, nose, throat and plasticsurgeons. The software allows surgeons to pre-operatively plan their surgeries in 3D based on (CB)CT or MRI images using a set of toolsto analyze, measure and reconstruct the patient’s anatomy. With the software the surgeon can also plan the movements (translations androtations) of the mandible or maxilla and preplan the reconstruction of defects.Clinical Services. Using our FDA-cleared and CE compliant medical software, we analyze 3D medical images of patients and provide their doctors withvirtual surgical planning services for their review and approval. In most cases, we also design and 3D print surgical guides that uniquely fit a specific patientand allow the surgeon to conduct the operation in accordance with the approved surgical plan. In certain circumstances, we deliver 3D printed customizedpatient-specific medical implants. In our 3D printing centers in Belgium and the United States, we have separate production lines, with an aggregate of 24machines that only print devices for our Materialise Medical segment.We believe that our medical image-based simulation and planning software and 3D printing technology can assist medical device companies,hospitals and clinicians in solving complex problems, ranging from virtual preparation tools, over patient-specific surgical guides, to patient-specificimplants which can contribute to increased quality of life.Utilizing our SurgiCase Connect tool, surgeons upload CT or MRI medical image data and submit their cases to us, track their cases and reviewthem as interactive virtual 3D models. SurgiCase Connect enables our clinical engineers to better support the surgeons in the creation of surgical plans andguides. Surgeons using our orthopedics and CMF clinical services work together with our clinical engineers to turn their patients’ medical image data intovirtual surgical plans, and patient-specific 3D printed precise surgical and customized anatomical models to optimize surgical planning. In the framework ofour collaborations with certain leading medical device companies, our SurgiCase Connect tool is rebranded and adapted to the specific product offering andneeds of our collaboration partners.Our 3D printed surgical guides include joint replacement guides for knee, shoulder and hip replacement surgeries, osteotomy guides and CMFguides, and our 3D printed implants include hip-revision implants, shoulder and CMF implants. The surgical guides we print for U.S. based patients areFDA-cleared, and our medical devices for EEA-based patients bear the appropriate CE labels. We address large surgical markets in orthopedics and CMFthrough collaboration agreements with leading medical device companies, including Zimmer-Biomet, DJO Surgical, DePuy Synthes, and Lima. Pursuant tothese agreements, we print joint replacement and CMF guides that our collaboration partners distribute under their own brands, together with their ownimplants, in the United States, Europe, Japan and Australia. We leverage our collaboration partners’ distribution capabilities to extend our reach into theselarge markets, and our collaboration partners utilize our 3D printing-related expertise to provide surgical planning and customized devices to surgeons. Wealso address certain high value-added, specialty applications by providing the full solution ourselves, including the delivery of CE-labeled implants andguides directly to the hospital or surgeon. Such applications include customized hip revision, shoulder and CMF implants in a patented porous matrixconfiguration and osteotomy guides. Our CMF implants, hip revision and shoulder implants and osteotomy guides are currently distributed in Europe, andour CMF implant activities are conducted through our subsidiary OBL SA. The shoulder and hip revision implant activities, which used to be conductedthrough our subsidiary Mobelife NV, are now conducted through our company, following the dissolution of Mobelife NV.We also work with customers to print anatomical models that may be used for a wide range of applications such as sizing of medical devices,clinical trials, training, patient communications and marketing. For example, our HeartPrint service provides 3D printed cardiovascular anatomical models.These models are printed using our proprietary process that makes possible a superior final product that is flexible. We also print transparent or multi-colormodels for better visualization of the anatomy. Each of our core competencies was instrumental in developing the HeartPrint technology. 43Table of ContentsSales and Marketing. We distribute our medical software through our direct sales force, our website and PACS partners (some of which partners also includeour OrthoView solutions in their product offering to hospitals). We distribute our 3D printed medical devices primarily through our agreements with ourcollaboration partners such as Zimmer Biomet, Depuy Synthes and Stryker. In specialty markets, we market and distribute our 3D printed medical devices andother clinical services through our experienced engineers who develop a close collaboration with key opinion leaders in each of these market segments.All our activities in our Materialise Medical segment are coordinated and supervised from our headquarters in Belgium, which supervisesproduct management and sales of our medical devices and software products. Our medical software sales teams are organized by target markets, including theorthopedic, CMF, cardiovascular, academic and hospital markets. Sales representatives in our local field offices focus on the sale of medical software in theirrespective markets. The product management and sales of our CMF implants are centralized in the France office of OBL, while product management and salesof our shoulder and hip revision implants activities are coordinated at our headquarters in Belgium.Customers. The customers for our Materialise Medical segment mainly include medical device companies, hospitals, universities and industrial companies.For the year ended December 31, 2016, Zimmer Biomet, DJO Surgical, DePuy Synthes, and Lima collectively represented 43.9% of the sales of this segmentand total software sales represented 37.1% of our total Materialise Medical segment sales. Most of our other clinical service sales to customers are executedon the basis of single transaction contracts or purchase orders. These contracts and purchase orders lay out the pricing, delivery and other terms of the order.Collaboration Partners. We collaborate with leading medical device companies for the development and distribution of our surgical planning software,services, and products, including with Zimmer Biomet, DJO Surgical, DePuy Synthes, Global Orthopaedic Technology, Lima and Mathys. Pursuant to thesearrangements, we develop and license software and sell surgical guides, including for use in the fields of knee and shoulder replacement, CMF and thoracicprocedures that our collaboration partners may then distribute under their own brands, together with their own implants, mainly in the United States, Europe,Japan and Australia. In addition, we grant licenses to collaboration partners to use, market and distribute such software or surgical guides. Some of thelicenses we have granted to our products and software provide for exclusive rights, including with respect to a particular field of medicine or to the softwareor product developed during the collaboration, and certain collaboration partners may have rights of first refusal with respect to related products orcollaborations. The compensation structures under these arrangements vary and may include an upfront fee, royalties, milestone payments linked to certaintargets, and fees for the service, maintenance and training we provide in connection with our software and products.Competition. In our Materialise Medical segment, we compete with a number of companies that provide 3D printed surgical models or medical devices, suchas Medical Modeling, as well as with medical device companies that are developing in-house capacity to offer 3D printed medical devices and relatedsoftware services. Our medical software competes with companies that include SimpleWare, 3mensio, Apollo and WITHIN Lab.Growth Opportunities. The Materialise Medical segment is the market where we believe we can most directly realize our mission statement and contribute toa healthier world. We are currently investing significantly in the development of new product offerings as well as the expansion of our distribution channel inthe various sub-segments of our Materialise Medical segment. In the surgical guide business, our growth over the last few years has come primarily from theknee-implant market, a market where medical devicecompanies are currently developing their own guide solutions. We have been developing solutions for additional joints and have recently launched guidesfor shoulders and hips. We have also developed other applications, such as malunion and osteotomy surgical guides. We intend to further diversify ourproduct portfolio through product development as well as and entering into new collaborations. For example, we are making significant investments inresearch to produce 3D printable models based on X-ray data.In the implant business, the extensive clinical evidence that both OBL SA and Mobelife NV have developed with key opinion leaders over thelast few years regarding the efficacy of our customized CMF and hip revision implant solutions is now gradually finding its way into scientific publications.We believe that this development will help the growth of our CMF and hip revision implant activities, which we intend to further support throughdistributors as well as our local sales offices. In addition, we expect to leverage our experience with existing implant activities to develop new applicationsfor other rare conditions that may benefit significantly from a patient-specific solution. We expect that both our existing CMF and hip revision implantactivities and the development of applications for new specialty markets will require additional significant investments in the near future.As a result of the trend that we see in the medical community towards more patient-specific devices and treatments, a growing number ofacademic, clinical and commercial researchers are focusing on customized medical treatments. Because these new products and treatments can only bebrought to the market in compliance with very strict regulatory requirements, we believe there is an opportunity for providers of safe and stable medicalsoftware tools, such as our company, that can pass significant regulatory scrutiny. 44Table of ContentsWe believe that our medical services and software may also help to reduce the clinical trial effort and expense for medical device companies byallowing more efficient bench-top modelling, testing and simulations and by increasing efficiency in the selection of eligible patients.In general, our customers use our Mimics Innovation Suite either as a research and development tool for the development of new medical devicesor innovative surgical approaches or as a production tool for the manufacturing of customized or customizable medical devices. The needs and priorities ofour Mimics Innovation Suite customers vary depending on their primary use. Customers that focus on research and development applications prefer anadvanced, rapidly evolving tool that gives them immediate access to our latest innovations. In contrast, customers that focus on production require a morestatic product that has passed extensive testing and verification required for regulatory purposes. We have launched two versions of our Mimics InnovationsSuite, through which we aim to better tailor the product to this differentiated customer base.As we intend to continue to invest in product development and market penetration, we will require certain capital commitments and mayexperience an impact to our revenue and profitability levels in the near term. However, we expect such investments to form the basis of stable annual revenuegrowth in the longer term.Our medical engineering services offerings, which we continue to build, assist medical device companies in their designs. Our engineers not onlyserve the orthopedic field but also the cardiovascular field where new and customized approaches are being developed and sizing of devices is an importantdevelopment area. As product managers in the medical device industry continue to recognize the value of, and need for, specialized advice and assistance inthe design of new 3D printable devices, our medical engineering services may grow accordingly.Our Materialise Manufacturing SegmentIn our Materialise Manufacturing segment, we primarily offer 3D printing services to industrial and commercial customers, the majority of whichare located in Europe. In addition, we have identified, and provide 3D printing services to, certain specialty growth markets in both the industrial andconsumer marketplaces.Many of the parts we print require functionality that cannot be delivered using other production processes. We believe that our industrialcustomers value the high quality, accuracy, complexity, durability, functionality and diversity in terms of size, scale and materials of the 3D printing servicesthat we can offer. We deliver products to highly regulated industries, such as aerospace, healthcare, machine manufacturing, quality control equipment andconsumer goods, where our applications, technology and hardware capabilities enable us to adhere to high quality standards in a certified productionenvironment.As of December 31, 2016, our Materialise Manufacturing segment consisted of 426 FTEs and fully dedicated consultants, with based 42% at ourheadquarters in Belgium and the remaining employees distributed throughout our local field offices in Austria, the Czech Republic, France, Germany, Italy,Poland, Spain, Sweden and the United Kingdom.Business Model. We generate revenue in our Materialise Manufacturing segment through the sale of parts that we print for our customers. For the years endedDecember 31, 2016, 2015 and 2014, our Materialise Manufacturing segment generated revenue of €46.4 million, €41.4 million and €33.2 million,respectively, representing 40.5%, 40.6% and 40.8% of our total revenue, respectively, and 12.1%, 24.6% and 22.0% growth over the prior year, respectively.For the year ended December 31, 2016, approximately 80.0% of the revenue was derived from the printing services offered by our additive manufacturingsolutions business and 20.0% of the revenue was derived from our niche industrial and consumer solutions, RapidFit+ and i.materialise. Of the revenuegenerated by our additive manufacturing solutions business for the year ended December 31, 2016, approximately 59.4% was derived from rapid prototypingand approximately 40.6% was derived from additive manufacturing of end parts.Industrial Services. We offer the following services in our Materialise Manufacturing segment: 45Table of Contents • Additive Manufacturing Solutions. We provide design and engineering services and rapid prototyping and additive manufacturing ofproduction parts to customers serving the automotive, consumer goods, industrial goods, art and architecture and aerospace markets. Inour service centers in Belgium, the Czech Republic and Poland and Germany, as of December 31, 2016, we operated 120 3D printers andsix vacuum casting machines, producing both prototypes and production parts based on our customers’ product designs. Our servicecenters offer a variety of 3D printing technologies including stereolithography, laser sintering, FDM, PolyJet, powder binding, Multi JetFusion, selective laser melting(or SLM), and vacuum casting. In order to meet specific customer needs for very large printed parts, wedeveloped Mammoth, our own proprietary stereolithography technology, which we believe is capable of printing parts larger than thoseproduced using any other stereolithography technology by utilizing a build area of approximately 1.26 cubic meters with a length of 2meters. We currently operate 15 Mammoth 3D printers in our Belgian service center. • Niche Industrial and Consumer Solutions. We have developed additive manufacturing solutions that serve certain specialty industrialand consumer applications. Our RapidFit+ business utilizes additive manufacturing to provide the automotive market with customized,highly precise and, in certain cases, patent protected measurement and fixturing tools. We engineer and 3D print fixtures that allowautomobile manufacturers and their suppliers to improve the quality control and efficiency of their manufacturing processes by allowingthem to inspect and measure component parts, such as bumpers, before assembly. Through the use of additive manufacturing technology,we believe that RapidFit+ fixtures provide more functionality and flexibility than the traditional fixtures that are currently widely usedin the automotive industry. In 2013, we established a subsidiary, RapidFit Inc., in the United States to directly access the U.S. automotivemarket. In 2015, we expanded our RapidFit Inc. production capabilities with one 3D printer. In 2016, we fully integrated the RapidFit+business into our Materialise Manufacturing segment.In the consumer market, i.materialise, our global online 3D printing service that caters to the “home professional.” Designers, students, inventors andeveryday consumers who want to create something unique can utilize our online service to produce their own products and, if they desire, share theirproducts with, and even offer them for sale to others through our platform. Users can upload their 3D designs, choose from a large selection of materialsand colors, and instantly see the price for such models in the desired scale and quantities. Users can also buy 3D printed products from the catalogue of.MGX by Materialise or other third party designs on our i.materialise website. .MGX by Materialise is a collection of 3D printed lamps, furniture, andother home furnishings and accessories, many of which have been developed in collaboration with well-known designers to showcase theopportunities that additive manufacturing offers to create products with a new look and innovative functionality. Pieces from the .MGX collectionhave become design icons featured in world renowned museums, including the Museum of Modern Art in New York and the Centre Pompidou in Paris,and have won many awards, including the Visionaries! award by the Museum of Art & Design, the Global Venice Award 2013 and the Red Dot DesignAward. Through the .MGX by Materialise collection, we gain access to professionals as well as home designers. In 2016, we fully integrated thei.Materialise platform into our Materialise Manufacturing segment.Sales and Marketing. We market our services to our additive manufacturing solutions business customers using our sales force and through our website. Ourmore complex product offerings are addressed directly by our specialized sales managers who are located throughout Europe in close proximity to our largeraccounts and who align our customers’ needs with the wide range of 3D printing technologies that we offer. More straightforward products can be ordereddirectly by our customers through our “Materialise OnSite” web portal, a proprietary automated system that takes orders, provides quotes and manages theprinting process from start to finish, and allows customers to track the manufacturing and shipment process of their product online. Within our larger salesteams, specialized sales managers focus either on rapid prototyping, which is our traditional and well-established market, or the additive manufacturing ofend-use production parts, which is the market where we see opportunities for significant growth. Our marketing team in Belgium oversees our globalmarketing strategy. In addition, employees at our Belgian headquarters and in our local field offices manage sales for particular markets and accounts andprovide back office and production management support to our customers.We have separate teams dedicated to the fixtures market where our account managers’ thorough technical knowledge is key to effectivelymanaging our RapidFit+ application. All sales for our i.materialise platform are through our website. The i.materialise sales and marketing team is mainlylocated at our headquarters in Belgium. 46Table of ContentsCustomers. The customers for our Materialise Manufacturing segment are from a wide variety of industries, including automotive, aerospace, healthcare,industrial machining, art and design and consumer products For these customers, we offer a complete set of services ranging from co-creation, to design andengineering, rapid prototyping, and certified manufacturing of end-use parts, including the RapidFit+ service offered to automotive customers.Through our co-creation offering, we work together with customers to solve complex design challenges and to discuss how the introduction of 3Dprinting can affect product development, manufacturing workflow, business models and customer experiences. For example, a co-creation with HOYA, incollaboration with Hoet Design Studio, saw the launch of the world’s first vision-centric, 3D-tailored eyewear solution, Yuniku, in the fall of 2016. Yunikuenables individualized lens and frame design through a sophisticated end-to-end digital supply chain, which includes a custom 3D scanner and softwareplatform, co-created by us and HOYA, directly linked to our Manufacturing factory where we provide our Certified Additive Manufacturing services.Through our Design and Engineering service, we also provide support for those customers looking for support in their initial concept design or withmaximizing a design for 3D printing. Our Design and Engineering team, which is comprised of highly specialized designers and CAD engineers, offersdedicated design and software support for additive manufacturing, including remodeling and file preparation, as well as 3D scanning and measuring.The customers of both our Materialise OnSite and i.materialise platforms order through our website. Materialise OnSite customers tend to beindustrial customers looking to rapid prototype parts quickly and reliably, often taking advantage of fast-lane machines to ensure short lead times for time-critical projects. For i.materialise, while there is a potential to address the wide consumer market with this platform, we prefer to describe our currentcustomers as “home professionals.” Our i.materialise client base includes independent designers and CAD hobbyists that often sell their creations or theirservices to others, including, in certain instances, through the i.materialise gallery. We believe this is an interesting subsegment of the market to focus onbecause these customers often have recurring needs and require a quality level that the market generally expects from us. Through i.materialise’s APIs,companies can also partner with i.materialise to give their own customers a cloud-based, 3D-printing solution on their website, streamlining the ordering,manufacturing and shipping processes through a direct link to our factory for 3D printing. In 2016, Microsoft used the i.materialise API to offer a cloud-based3D print solution for Windows 10 users, and PTC did the same for Creo 4.0 software users.Most of our straightforward additive manufacturing and rapid prototyping solutions are executed on the basis of single transaction contracts orpurchase orders with the customer. These contracts and purchase orders lay out the pricing, delivery and other terms of the order. For our Certified AdditiveManufacturing service, an entirely new approach to ensure parts are made according to agreed standards is required, for which we have set processes toonboard new customers. An example of this is our dedicated aerospace manufacturing line, backed by certifications EN9100 and EASA Part 21G, throughwhich we are currently manufacturing plastic parts for Airbus’s A350 XWB. We expect that as demand for our Certified Additive Manufacturing servicegrows, more long-term agreements may be entered into.For the automotive manufacturers and their suppliers that use our RapidFit+ service, the fixtures are custom engineered by dedicated teams. OurRapidFit+ customers, which include their quality departments, expect that fixtures meet high accuracy standards. A number of automotive OEMs in Europeare currently considering our innovative solution as a potential new standard, while a solid base of automotive Tier 1 suppliers in Europe has embracedRapidFit as one of their fixture solutions. We see that a growing number of global Tier 1 suppliers with facilities in the United States are currently placinglimited orders with a view to investigating the advantages of our RapidFit+ technology.Competition. In our additive manufacturing solutions business, we compete with a number of companies that provide industrial 3D printing services,including ARK, Cresilas, Protolabs and 3D Systems Corporation. In addition, larger accounts tend to move their 3D printing production in-house once theirorders have reached certain volumes, which not only creates opportunities for our Materialise Software segment but also for our Materialise Manufacturingsegment in terms of capacity balancing services. In the measurement and quality control fixture market addressed by RapidFit+, we are not aware of anydirect competition coming from 3D printing companies. We do have competition, however, from a large group of smaller companies that are active in thisfield. While there are multiple startup companies seeking to address the home 3D printing services market, we believe that Shapeways and Sculpteo are themost prominent direct competitors of i.materialise based on their global reach. i.materialise focuses on standing out as a brand in terms of service andreliability.Growth Opportunities. We believe that we can continue to meet the growing industrial demand for 3D printing services, in particular by increasing thenumber and capacity of our 3D printing service centers in Europe. 47Table of ContentsWe believe that there is particular potential to grow our presence in the markets for additive manufacturing of industrial end products, includingfixtures for the automotive industry and consumer 3D printed products. In recent years, more companies have been using additive manufacturing forproduction across a broad range of industrial sectors, including aerospace, orthopedic implants, surgical guides, dental copings and hearing devices. Additivemanufacturing is also being used to manufacture specialty furniture, accessories for the home and office, personal accessories, fashion products, jewelry andfootwear.For industrial end parts, we intend to continue to invest in the expansion and creation of certified 3D manufacturing environments that meet thehigh standards of the specialized segments of the industrial production market that we focus on. In addition, we believe that our local sales teams, which arein close proximity to our customers, as well as our engineering teams, which can bring in additional expertise where required, are important and rather uniqueassets in this market that are worthwhile to continue to invest in.We consider i.materialise as a component of our long-term strategy that may eventually penetrate the large consumer market once the generalpublic becomes more familiar with 3D printing technology and logistic chains become more suitable to address this vast market. We intend to graduallyinvest in growing our presence in this market by initially addressing more focused customer groups such as “home professionals.”Geographic InformationOur revenues by geographical area for the year ended December 31, 2016 were 26.9% for the Americas, 59.3% for Europe and 13.8% for Asia, ascompared to 30.4% for the Americas, 57.8% for Europe and 11.8% for Asia, for the same period in 2015, and 31.4% for the Americas, 58.2% for Europe and10.4% for Asia for the same period in 2014. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results.”Manufacture and SupplyWe produce our 3D printed products at our service centers in Belgium, the Czech Republic, Germany, Poland, Japan and the United States. Weprint substantially all of products in-house using a variety of technologies, including stereolithography, laser sintering, FDM, PolyJet, powder binding, MultiJet Fusion, SLM and vacuum casting, and only subcontract the manufacture of products if certain other technologies (such as CNC machined componentsand metal parts) are required or for capacity balancing purposes. As of December 31, 2016, we operated a total of 144 3D printers and six vacuum castingmachines at these service centers, which include distinct areas dedicated to the machinery, quality control, cleaning and labeling of our products. The tablebelow provides selected information about our 3D printers: Technology Size Manufacturer NumberStereolithography Small/Medium Size 3D Systems Corporation 25 Medium Size Materialise 3 Mammoth Materialise(1) 15PolyJet Connex Stratasys Ltd. 4FDM Small Size(2) Stratasys Ltd. 2 Medium Size(3) Stratasys Ltd. 25 Large Size(4) Stratasys Ltd. 10Laser Sintering Small Size EOS GmbH 4 Medium Size 3D Systems Corporation 9 Medium Size EOS GmbH 15 Large Size EOS GmbH 18Multi Jet Fusion Medium Size HP 1Powder BindingVacuum Casting Medium SizeSmall SizeMedium SizeMedium SizeLarge Size 3D Systems CorporationMCP HEK GmbHMCP HEK GmbHSCHUHLMCP HEK GmbH 51212 48Table of ContentsDirect Metal Laser Sintering Medium Size EoS GmbH 3 Medium Size Concept Laser GmbH 4 Medium Size Renishaw 1 (1)We have proprietary stereolithography machines based on our patented curtain coat technologies. The original curtain coat machines had a mediumsized build volume. These medium sized machines have subsequently been adapted to become the extra-large sized Mammoth machines.(2)Small size machines are machines with a build volume of less than 250×250×250 mm.(3)Medium size machines have a build volume of less than 500×500×500 mm.(4)Large size machines have a build volume of more than 500×500×500 mm. 49Table of ContentsAs of December 31, 2016, 24 printers produced parts exclusively for our Materialise Medical segment, while the other 120 printers and sixvacuum casting machines printed parts for our Industrial Production segment.As of December 31, 2016, all of our 3D printers and vacuum casting machines were either owned or held under a financial lease. At the end of thelease agreements (which are typically for a period of five years), we have an option to purchase the machines for a value of approximately 1.0% of theiroriginal value. We are responsible for the maintenance of such leased equipment.We devote significant time and attention to the quality control of our products during the printing process by maintaining a comprehensivequality control program, which, among other things, includes the control and documentation of all material specifications, operating procedures, equipmentmaintenance and quality control methods. In addition, we inspect all of our raw materials to be used in our products throughout the printing process. Wecontrol our production orders through the use of labels or visual references on our internal database, bar-codes, controlled prints and routers, which enables usto trace our products during the printing process. Upon completion of the production process, we package and label our products.The raw materials used in the printing of our products are mainly aluminium and Ti alloy powders epoxy based photocurable resins, PA12 basedpowders and a suite of thermoplastic filaments like ABS and Ultem.With the exception of FDM-materials, we believe that none of our other raw material requirements is limited to any significant extent by criticalsupply or price volatility. We continuously look for second sourcing of our raw materials in order not to be dependent on a single supplier in case a supplyissue was to occur. We monitor the costs of our raw materials in order to optimize the cost/performance whilst not jeopardizing the expectations of ourcustomers and the safe use of the materials in critical applications. In 2016, Stratasys was our single supplier for FDM-materials, although we source a broadrange of different material grades from Stratasys.Our 3D printing operations for our patient-specific surgical guides, models and implants are subject to extensive regulation. We operate acertified quality management system in line with the U.S. Quality System Regulation, good manufacturing practice regulations and ISO 13485. We areregistered with regulatory authorities in the United States, Europe, Canada, Australia and other jurisdictions. We CE mark our products where required. Ourservice centers are subject to periodic and sometimes unannounced inspections by regulatory authorities, including inspections by the FDA.Research and DevelopmentWe have an ongoing research and development program to improve and expand the capabilities of our existing technology portfolio, whichreflects our continued investments in a range of disciplines, including software development, industrial, mechanical and biomedical engineering, physics andchemistry.We have a long history of research and development through collaborations, which augment our internal development efforts. Our earliest jointresearch projects date from the early 1990s with market leading collaboration partners such as Siemens AG, Zeneca and the University of Leuven ( KatholiekeUniversiteit Leuven ), or KU Leuven. Many of our innovations are based on industrial collaborations such as those with Phonak Staefa Switzerland andZimmer Biomet. As of December 2016, we were active in 24 government funded research projects. With our platform technologies and strong track record insuccessful commercialization of scientific innovations, we receive many requests for participation in new development projects. While we strongly protectour intellectual property in our core competencies, many of our products require collaborations in order to create healthy ecosystems for their successfulimplementation.As of December 31, 2016, we had more than 60 active research and development projects in various stages of completion and more than 200FTEs and fully dedicated consultants working on research and development in our facilities in Belgium, France, Germany, Poland, the United Kingdom,Ukraine, China and Malaysia.For the year ended December 31, 2016, our research and development expenses were €17.7 million, or 15.4% of our revenue, as compared to€18.2 million, or 17.8% of our revenue, in 2015.Our research and development projects include the following: 1.Various software development projects including projects related to engineering and design for 3D printing, multiplatform applications (forexample, applications for Windows, Apple and Android) and improving existing technological challenges (for example, the handling of largeamounts of data and advanced image segmentation), which are expected to benefit both our Materialise Software and Materialise Medicalsegments; 50Table of Contents 2.A research project to understand and streamline the different additive manufacturing technologies (sintering, stereolithography, FDM and SLM); 3.A research project in our Materialise Medical segment to develop patient specific implants for orthognathic and bone repositioning surgeries; 4.A research project in our Materialise Medical segment that aims at creating 3D printable guides on the basis of x-ray data; 5.Release of a research version of Mimics software that allows post-operative analysis of implant placement using x-ray data; 6.A research project in our Materialise Medical segment regarding automation of segmentation of medical images and using them for populationanalysis; 7.Continued investment in our Materialise Manufacturing segment in our RapidFit+ and i.materialise businesses; and 8.Several research projects related to improving the maturity, reliability and quality of the additive manufacturing process, which are expected tobenefit our three segments.We also regularly apply for research and development grants and subsidies under European, Belgian, British, French, German and Czech grantrules. The majority of these grants and subsidies are non-refundable. We have received grants and subsidies from different authorities, including the Flemishgovernment (VLAIO, or Vlaams Agentschap Innoveren en Ondernemen, the former IWT) and the European Union (FP7 and H2020 framework programs).We expect to continue to invest significantly in research and development in the future.Intellectual PropertyWe regard our intellectual property rights as valuable to our business and protect our technology portfolio through a combination of patent,copyright, trademark, trade secret and other intellectual property laws, confidentiality and other contractual provisions and other measures. The nature andextent of legal protection associated with each such intellectual property right depends on, among other things, the type of intellectual property right and thegiven jurisdiction in which such right arises.As of December 31, 2016, our portfolio of intellectual property features 180 issued patents and an additional 192 pending patent applicationsprimarily in the United States, the European Union and Japan. Of these, our issued patents expire between approximately 2020 and 2035, while our currentlypending patent applications will generally remain in effect for 20 years from the date of the initial applications. We believe that, while our patents provide uswith a competitive advantage, our success depends primarily on our business development, applications know-how and ongoing research and developmentefforts. Accordingly, we believe that the expiration of any single patent, or the failure of any single patent application to result in an issued patent, would notbe material to our business or financial position.As is the case in the 3D printing industry generally, the development of our products, processes and materials has required considerableexperience, manufacturing and processing know-how and research and development activities. We protect our proprietary products, processes and materialsas trade secrets through nondisclosure and confidentiality agreements with our employees, consultants and customers.In addition, we own the trademark registrations for “Materialise” (Benelux, United States, U.K., International, Malaysia, India and Thailand), andtrademark registrations and pending applications for many of our services and software solutions, including “Streamics,” “Mimics,” “3-matic,” “Magics,”“RapidFit+,” “MGX by Materialise,” “Heartprint,” “ADaM,” “Engineering on Anatomy” and “Surgicase,” among others.We are party to various licenses and other arrangements that allow us to practice and improve our technology under a broad range of patents,patent applications and other intellectual property, including agreements with our collaboration partners, Zimmer Biomet, DJO Surgical, DePuy Synthes,Global Orthopaedic Technology, Lima, Mathys, Stryker, Corin, Siemens and HOYA.There can be no assurance that the steps we take to protect our proprietary rights will be adequate or that third parties will not infringe ormisappropriate such rights. We have been subject to claims and expect to be subject to legal proceedings and claims from time to time in the ordinary courseof our business. In particular, we may face claims from third parties that we have infringed their 51Table of Contentspatents, trademarks or other intellectual property rights. Such claims, even if not meritorious, could result in the expenditure of significant financial andmanagerial resources. Any unauthorized disclosure or use of our intellectual property could make it more expensive to do business and harm our operatingresults.SeasonalityAlthough end markets such as healthcare, automotive, aerospace and consumer products may experience some seasonality, the historical impactof seasonality on the revenue of our Materialise Manufacturing and Materialise Medical segments has not been material. Historically, the revenue of ourMaterialise Software segment has been greater in the fourth quarter, as compared to the revenue of each of the other quarters. A number of our customers maketheir initial software purchase in the fourth quarter prior to the end of their annual budget cycle and tend to renew, extend or broaden the scope of theirlicenses on the anniversary date of their first purchase. In addition, we have in the past often brought new releases on the market in the third quarter of thecalendar year, which may also have an impact on sales in the subsequent quarter.Regulatory / Environmental MattersEnvironmental MattersOur facilities and operations are subject to extensive U.S. federal, state and local, European and other applicable foreign environmental andoccupational health and safety laws and regulations. These laws and regulations govern, among other things, air emissions; wastewater discharges; thegeneration, storage, handling, use and transportation of hazardous materials; the handling and disposal of hazardous wastes; the cleanup of contamination;and the health and safety of our employees. Under such laws and regulations, we are required to obtain permits from governmental authorities for some of ouroperations. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators. We could also beheld responsible for costs and damages arising from any contamination at our past or present facilities or at third-party waste disposal sites.Compliance with laws and regulations relating to the discharge of materials into the environment or otherwise relating to the protection of theenvironment has not had a material impact on capital expenditures, earnings or the competitive position of our subsidiaries and us. We are not the subject ofany legal or administrative proceedings relating to the environmental laws of Belgium or any country in which we have facilities. We have not received anynotices of any violations of any such environmental laws.Healthcare Regulatory MattersIn our Materialise Medical segment, we are subject to extensive and complex U.S. federal, state and local, European and other applicable foreignhealthcare and medical devices laws and regulations.Both before and after approval or clearance our medical products and product candidates are subject to extensive regulation. In the UnitedStates, the FDA under the Federal Food, Drug and Cosmetic Act primarily regulates us. In Europe and in other foreign jurisdictions in which we sell ourmedical products, many of the regulations applicable to our medical devices and products in these countries are similar to those of the FDA. Together, theseregulations govern, among other things and where applicable, the following activities in which we are involved: • product development; • product testing; • product clinical trial compliance; • product manufacturing; • product labeling and instructions for use; • product safety, product safety reporting, recalls and field corrective actions; • product packaging and storage; 52Table of Contents • product registration, market clearance or approval; • product modifications; • product marketing, advertising and promotion; • product import and export, restrictions, tariff regulations, duties and tax requirements; • product sales and distribution; • post-market surveillance, including reporting of deaths or serious deterioration in the state of health and malfunctions that, if they wereto recur, could lead to death or serious deterioration in the state of health; • record keeping procedures; • registration for reimbursement; and • necessity of testing performed in country by distributors for licenses.Failure to comply with the Federal Food, Drug and Cosmetic Act could result in, among other things, warning letters, civil penalties, delays inapproving or refusal to approve a medical device candidate, product recall, product seizure, interruption of production, operating restrictions, suspension orwithdrawal of product approval, injunctions or criminal prosecution. In non-U.S. countries, failure to comply with applicable laws and regulations couldresult in similar actions, and in the suspension or withdrawal of Quality Management System certification which may be a prerequisite to market medicaldevices.The time required to obtain clearance required by foreign countries may be longer or shorter than that required for FDA clearance, andrequirements for licensing a product in a foreign country may differ significantly from FDA requirements. 53Table of ContentsC. Organizational StructureThe following illustrates our corporate structure as of the date of this annual report: 54Table of Contents 55Table of ContentsRapidFit NV Shareholders’ AgreementOn June 27, 2013, we entered into a shareholders’ agreement with PMV-TINA Comm.VA, or PMV, with respect to our subsidiary RapidFit NV, ofwhich we own 83.33% and PMV owns 16.66%. Pursuant to the agreement, we have the right to appoint four out of the five members of the board of directorsand PMV has the right to appoint one director, who has approval rights for certain company decisions and transactions, including with respect to certainacquisitions, dispositions or pledges of assets, the budget, officers, and issuance or offering of shares of RapidFit NV. The shareholders’ agreement containsprovisions regarding restrictions against the transfer of shares, put and call options, anti-dilution warrants, liquidation preference, tag along rights and dragalong rights. For additional information regarding the accounting treatment of the put and call options and warrants, see Note 11 to our audited consolidatedfinancial statements.D. Property, Plants and EquipmentOur corporate headquarters and our largest 3D printing service center are located in Leuven, Belgium. We currently own office and servicespaces in Belgium as well as in the Czech Republic, France and the United States. We also lease other service centers and sales offices, which are located inAustria, China, France, Germany, Japan, Malaysia, Ukraine, the United Kingdom, the United States, Poland, Colombia, Australia and Italy. The aggregateannual lease payments for our facilities in 2016, 2015 and 2014 were €1.6 million, €1.2 million and €1.2 million, respectively. The table below providesselected information regarding our facilities. Location Ownership Use Approximate Area Lease ExpirationLeuven, Belgium* Owned Corporateheadquarters;production 34,593 sq. m. N/APlymouth, Michigan, United States Owned Office;production;parking 3.89 acres N/ANorthville, Michigan, United States Owned Condo 1,072 sq. ft. N/ASterling Heights, Michigan, UnitedStates Leased Office; production 14,235 sq. ft. April 30, 2020Saint Marcel les Valence, France Owned Office 1,100 sq. m. N/AYokohama, Japan Leased Office 343 sq. m. March 31, 2018Kawasaki, Japan Leased Production 205 sq. m. May 14, 2018Ústí nad Labem, Czech Republic Owned Office; production 16,013 sq. m. N/AVienna, Austria Leased Office 34 sq. m. December 31, 2021Gilching, Germany Leased Office 399 sq. m. December 31, 2021Bremen, Germany Leased Office 499 sq. m. October 31, 2018Bremen, Germany Leased Office; production 628 sq. m. Indefinite termPetaling Jaya, Malaysia Leased Office 13,935 sq. ft. May 31, 2019Chatillon, France Leased Office 545 sq. m. September 30, 2025Kiev, Ukraine Leased Office 2,680 sq. m. June 28, 2018Sheffield, United Kingdom Leased Office 1,950 sq. ft. January 31, 2018 (partially)andNovember 30, 2017 (partially)Southampton, United Kingdom Leased Office 1,999 sq. m. August 6, 2018Shanghai, China Leased Office 1,200 sq. m June 8, 2019Medellin, Colombia Leased Office 120 sq. m. December 1, 2017Wroclaw, Poland*Sydney, AustraliaMilan, Italy LeasedLeasedLeased Office; productionOfficeOffice 1,037 sq. m.30 sq. m.43 sq. m. August 31, 2017August 31, 2017November 30, 2020*In Belgium, we have acquired additional land (with a surface area of 13,500 sq. m.) and have started construction on an expansion of our existing officebuilding with additional office and production space (10,000 sq. m.). The targeted date for the start of usage of the new office space is July 2017. InPoland, we acquired land (with a surface area of 2.3975 hectare) and have started construction on a new office building with additional office andproduction space (10,000 sq.m.). The targeted date for the start of usage of the new office space is July 2017. 56Table of ContentsSee also “—B. Business Overview—Manufacture and Supply” for information about the printers we operate and “—Regulatory / Environmental Matters—Environmental Matters” for information about environmental matters and “Item 5. Operating and Financial Review and Prospects—B. Liquidity and CapitalResources—Indebtedness” for more information about indebtedness secured by mortgages. 57Table of ContentsITEM 4A.UNRESOLVED STAFF COMMENTSNot applicable. 58Table of ContentsITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSThe following discussion and analysis should be read in conjunction with the information set forth in “Item 3. Key Information—A. SelectedFinancial Data,” and our consolidated financial statements and accompanying notes included elsewhere herein.This section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from thosecontained in forward-looking statements. Factors that could cause or contribute to such differences include, without limitation, those discussed in thesections entitled “Item 3. Key Information—D. Risk Factors,” “Special Note Regarding Forward-Looking Information” and “Item 4. Information on theCompany—A. Business Overview” and elsewhere in this annual report.A. Operating ResultsOverviewCompany OverviewWe are a leading provider of additive manufacturing and medical software and of sophisticated 3D printing services. Our customers are active ina wide variety of industries, including healthcare, automotive, aerospace, art and design and consumer products. Since our founding in 1990 by our ChiefExecutive Officer, Wilfried Vancraen, we have consistently focused on developing innovative applications of additive manufacturing technologies. Webelieve our proprietary software platforms, which enable and enhance the functionality of 3D printers and of 3D printing operations, have become a marketstandard for professional 3D printing. We believe that our commitment to enabling 3D printing technologies has significantly supported and accelerated theacceptance and proliferation of additive manufacturing and will continue to play an instrumental role as the industry evolves. In the healthcare sector, ourtechnology is responsible for the design and manufacture of customized, patient-specific medical devices that includes both surgical guides (and relatedbone models) as well as customized implants. In our 3D printing service centers, including what we believe to be the world’s largest single-site additivemanufacturing service center in Leuven, Belgium, we print medical devices, prototypes, production parts, and consumer products. As of December 31, 2016,our team consisted of 1,432 FTEs and fully dedicated consultants. Our portfolio of intellectual property featured 180 patents and 192 pending patentapplications as of December 31, 2016. For the year ended December 31, 2016, we generated €114.5 million of revenue, representing 12.2% growth over theprior year, net loss of €3.0 million and Adjusted EBITDA of €9.5 million. For a description of Adjusted EBITDA and a reconciliation of our net profit to ourAdjusted EBITDA, see “—Other Financial Information” below.SeasonalityAlthough end markets such as healthcare, automotive, aerospace and consumer products may experience some seasonality, the historical impacton our Materialise Medical and Materialise Manufacturing segments has not been material. Historically, the revenue of our Materialise Software segmenthave been stronger in the fourth quarter of the calendar year (which is also our fiscal year) as compared to the revenue of each of the other quarters. A numberof our customers have purchased their first release in the fourth quarter and tend to renew, extend and/or broaden the scope of their license on the anniversarydate of their first purchase. In addition, we have in the past often released new software products and versions in the third quarter of the calendar year, whichmay also have an impact on sales in the subsequent quarter.Growth StrategyIn our Materialise Software segment, we expect that the demand for software platforms such as ours, which interface with virtually all 3D printers,is likely to grow as sales of 3D printing systems, in particular for professional use, continue to grow. We believe that we can continue to increase the marketpenetration of our software platforms by expanding relationships with OEMs as well as with industrial users of 3D printers. In order to be able to do so, weintend to bring our teams closer to our customer base worldwide, which will require important investments in the expansion of our marketing and salespresence. In order to be able to meet, in particular, the demands of new entrants to the addictive manufacturing market, we intend to also invest significantlyin the development of our software products, including in order to further their compatibility with the hardware and software of as many as possible otherplayers in the ecosystem. On March 10, 2015, we acquired the Belgian-based company Cenat BVBA. With Cenat BVBA’s proprietary technology onmachine control, we have added new software solutions for ensuring adequate quality control in additive manufacturing production processes. 59Table of ContentsIn our Materialise Medical segment, we intend to invest significantly in the development of new clinical services offerings, in both large scaleand specialty markets, because we believe that there are growth opportunities for new applications and because we acknowledge that some of ourcollaboration partners will bring their own solutions to the market replacing certain of our current product offerings. We also intend to further target thehospital market even more than in the past and have re-oriented our sales force and expanded our product portfolio in line with this strategy. Becausecustomized medical products and treatments can only be brought to the market in compliance with very strict regulatory requirements, we believe there is anopportunity for providers of safe medical software tools, such as our company, that can pass significant regulatory scrutiny. In order to form the basis of stableannual revenue growth in the longer term, we have transitioned from a perpetual to a time-based license model for certain of our medical software products.In our Materialise Manufacturing segment, we believe that demand for 3D printing services will continue to grow. We believe that there isparticular potential to grow our presence in the markets for additive manufacturing of end products (in particular industrial end parts, such as fixtures for theautomotive industry). For industrial end parts, we intend to continue to invest in the expansion and creation of certified 3D manufacturing environments thatmeet the high standards of the specialized segments of the industrial market that we focus on. In addition, we believe that the cooperation between our localsales teams, which are in close proximity to our customers, and our engineering teams, which can bring in additional expertise where required, is an importantasset to further increase our customer base. We believe that, in the highly consolidated and still consolidating automotive market, a high added valuetechnology such as ours can be a driver for the consolidation of the currently fragmented submarket of measurement fixtures. We have further integratedi.materialise in our Materialise Manufacturing segment. We engage in co-creation sessions with a limited number of carefully chosen partners who have theintention of transforming their manufacturing ecosystem through the use of 3D printing. Our partnership with HOYA is a good example of the result of theseco-creation sessions. We believe that there is potential for similar partnerships in other markets.Recent DevelopmentsThere has been no other significant change in our financial condition or results of operations since December 31, 2016.Key Income Statement ItemsRevenueRevenue is generated primarily by the sale of our software and 3D printed products and services.In our Materialise Software segment, we generate revenues from software licenses, maintenance contracts and custom software developmentservices and sales of Materialise Controller.In our Materialise Medical segment, we generate revenue through the sale of medical devices that we print for our customers and from the sale oflicenses on our medical software packages, software maintenance contracts and custom software development and engineering services.In our Materialise Manufacturing segment, we generate revenue through the sale of parts that we print for our customers.Software. Software revenue is comprised of perpetual and time-based licenses, maintenance revenue and software development service fees. Oursoftware products are mainly licensed pursuant to one of two payment structures: (i) perpetual licenses, for which the customer pays an initial fee for aperpetual license and subsequently pays fees for maintenance under separate maintenance contracts, generally on an annual basis, or (ii) time-based licenses(generally annual licenses), for which the customer pays equal periodic fees to keep the license active. Perpetual licenses require the payment of fees formaintenance, technical support and product updates. Time-based licenses entitle the customer to corrective maintenance and product updates withoutadditional charge. We generally recognize revenue from our time-based licenses and our maintenance revenue ratably on a straight-line basis over the term ofthe applicable license or maintenance contracts. Our software revenue depends upon both incremental sales of software licenses to both new and existingcustomers and renewals of existing time-based licenses and maintenance contracts. Sales and renewals are also driven by our customers’ usage and budgetcycle. Software development services are typically charged either on a time and materials basis or on a fixed fee basis. 60Table of Contents3D printed products and services. 3D printed products revenue is derived from our network of 3D printing service centers. Our service centersnot only utilize our 3D printing technology to print products but are also full-service operations that provide support and services such as pre-productioncollaboration prior to printing the product. Revenue from 3D printed products depends upon the volume of products that we print for our customers. Sales ofthese products are linked to the number of our 3D printing machines that are installed and active worldwide. We have dedicated teams and production linesfor industrial applications and medical applications. All medical products require a highly regulated production environment. Whereas both segments use thesame 3D printing technologies, the complex combination of our engineering and software solutions in connection with medical applications results in highermargins for our medical applications.Cost of SalesOur cost of sales includes raw materials, external subcontracting services, labor costs, manufacturing overhead expenses, depreciation andreserves for inventory obsolescence. Our manufacturing overhead expenses include quality assurance, manufacturing engineering, material procurement,inventory control, facilities, equipment and information technology and operations supervision and management.Research and Development ExpensesOur research and development activities primarily consist of engineering and research programs associated with our products under developmentas well as research and development activities associated with our core technologies and processes. Research and development expenses are primarily relatedto employee compensation, including salary, fringe benefits, share-based compensation and temporary employee expenses. We also incur expenses forsoftware and materials, supplies, costs for facilities and equipment, depreciation, and outside design and outside research support.Development expenditures on an individual project are recognized as an intangible asset when we can demonstrate: • the technical feasibility of completing the intangible asset so that the asset will be available for use or sale; • the intention to complete and the ability to use or sell the asset; • how the asset will generate future economic benefits; • the availability of resources to complete the asset; and • the ability to measure reliably the expenditure during development.We have determined that the conditions for recognizing internally generated intangible assets from proprietary software, surgical guide andother product development activities are not met until shortly before the products are available for sale, unless the development is done based upon specificrequest of the customer and subject to an agreement. As such, development expenditures not satisfying the above criteria and expenditures on the researchphase of internal projects are recognized in the consolidated income statement as incurred.Sales and Marketing ExpensesOur sales and marketing expenses primarily consist of employee compensation, including salary, fringe benefits and share-based compensationfor our marketing, sales and business development functions. Other significant expenses include travel, depreciation, product demonstration samples,brochures, websites and trade show expenses.General and Administrative ExpensesOur general and administrative expenses primarily consist of employee compensation, including salary, fringe benefits and share-basedcompensation for our executive, financial, human resources, information technology support and regulatory affairs and administrative functions. Othersignificant expenses include outside legal counsel, independent auditors and other outside consultants, insurance, facilities, depreciation and informationtechnologies expenses. 61Table of ContentsOther Operational IncomeOther operating income mainly consists of government grants, withholding tax exemptions for qualifying researchers and recharges of costsincurred for third parties. The government grants are directly related to our research and development effort conducted in our business segments or in ourcentral research and development department. Similarly, the withholding tax exemptions are granted as a cost reduction for qualifying researchers, and are assuch directly related to the level of research and development activity.Government grants are recognized as income on a systematic basis over the periods in which we recognize expenses for the related costs forwhich the grants are intended to compensate.Financial ExpensesOur financial expenses primarily include costs associated with our interest payments on our debt obligations.Critical Accounting Policies and Accounting EstimatesThe preparation of our consolidated financial statements requires management to make judgments, estimates and assumptions that affect thereported amounts of revenue, expenses, assets and liabilities, and the accompanying disclosures. Uncertainty about these assumptions and estimates couldresult in outcomes that require a material adjustment to the carrying amount of assets or liabilities for future periods.On an ongoing basis, we evaluate our estimates, assumptions and judgments, including those related to revenue recognition, developmentexpenses, share-based payment transactions, income taxes, impairment of goodwill, intangible assets and property, plant & equipment and businesscombinations.We based our assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existingcircumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond our control. Suchchanges are reflected in the assumptions when they occur.Revenue RecognitionFor revenue recognition, the significant estimates and judgments relate to allocation of value to our separate elements in our multiple-elementarrangements and in identifying stage of completion of our customized development of software components for customers. Software development servicesare mostly billed on a time and material basis or occasionally on a fixed fee basis.With respect to the allocation of value to the separate elements, we are using the stand-alone selling prices or management’s best estimates ofselling prices to estimate the fair value of the software and software-related services to separate the elements and account for them separately. Elements insuch an arrangement are also sold on a stand-alone basis and stand-alone selling prices are available. Revenue is allocated to each deliverable based on thefair value of each individual element and is recognized when the revenue recognition criteria described above are met. When we provide softwaredevelopment services considered essential to the functionality of the software, we recognize revenue from the software development services as well as anyrelated software licenses on a percentage of completion basis whereby the arrangement consideration is recognized as the services are performed, as measuredby an observable input.We determine the percentage-of-completion by comparing labor hours incurred to-date to the estimated total labor hours required to completethe project. We consider labor hours to be the most reliable, available measure of progress on these projects. Adjustments to estimates to complete are made inthe periods in which facts resulting in a change become known. When the estimate indicates that a loss will be incurred, such loss is recorded in the periodidentified. Significant judgments and estimates are involved in determining the percent complete of each contract. Different assumptions could yieldmaterially different results.Our revenue recognition policies require management to make significant estimates. Management analyzes various factors, including a review ofspecific transactions, historical experience, creditworthiness of customers and current market and economic conditions. Changes in judgments based uponthese factors could impact the timing and amount of revenue and cost recognized and thus affects our results of operations and financial condition. 62Table of ContentsDevelopment ExpensesUnder International Accounting Standards 38, or IAS 38, internally generated intangible assets from the development phase are recognized ifcertain conditions are met. These conditions include the technical feasibility, intention to complete, the ability to use or sell the asset under development,and the demonstration of how the asset will generate probable future economic benefits. The cost of a recognized internally generated intangible assetcomprises all directly attributable cost necessary to make the asset capable of being used as intended by management. In contrast, all expenditures arisingfrom the research phase are expensed as incurred.Determining whether internally generated intangible assets from development are to be recognized as intangible assets requires significantjudgment, particularly in determining whether the activities are considered research activities or development activities, whether the product enhancement issubstantial, whether the completion of the asset is technically feasible considering a company-specific approach and the probability of future economicbenefits from the sale or use.Management has determined that the conditions for recognizing internally generated intangible assets from our software development activitiesare not met until shortly before the developed products are available for sale unless the development is done based upon specific request of the customer andsubject to an agreement. As such, development expenditures not satisfying the above criteria and expenditures on the research phase of internal projects arerecognized in the consolidated income statement as incurred. This assessment is monitored by us on a regular basis.Share-Based Payment TransactionsWe measure the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at whichthey are granted and measured the cost of cash-settled transactions by reference to the fair value of the equity instrument at the date of reporting. We haveapplied the Black-Scholes valuation model to estimate fair value. Using this model requires management to make assumptions with regards to volatility andexpected life of the equity instruments. The assumptions used for estimating fair value for share-based payment transactions are disclosed in Note 13 to ourconsolidated financial statements and are estimated as follows: • Volatility is estimated based on the average annualized volatility of our company and of a number of quoted peers in the 3D printingindustry; • Estimated life of the warrant is estimated to be until the first exercise period which is typically the month after their vesting; • Fair value of the shares is determined based on the price of our ADSs on NASDAQ at the date of issuance. For the grants prior to theinitial public offering, the fair value of the shares was estimated based on a discounted cash flow model with three-year cash flowprojections and a multiple of EBITDA determined based on a number quoted peers in the 3D printing industry. • The dividend return is estimated by reference to the historical dividend payment of our company. Currently, this is estimated to be zeroas no dividends have been paid since inception.Income TaxesDeferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which thelosses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon thelikely timing and the level of future taxable profits together with future tax planning strategies.As of December 31, 2016, we had €9.5 million (2015: €12.2 million; 2014: €10.3 million) of tax losses carry forward and other tax credits suchas investment tax credits and notional interest deduction, of which €1.6 million related to Materialise NV (2015: €2.0 million; 2014: €3.6 million). Theselosses relate to Materialise NV and subsidiaries that have a history of losses, do not expire, except for the notional interest deduction of €0.3 million in 2016(2015: €0.4 million; 2014: €0.3 million) and may not be used to offset taxable income elsewhere our consolidated group.With respect to the unused tax losses of Materialise NV, no deferred tax assets have been recognized in 2016, 2015 or 2014, given that it in viewof the Belgian Patent Income Deduction there is an uncertainty to what extent these tax losses will be used in future years. The Belgian Patent IncomeDeduction allows companies to deduct 80% of the qualifying gross patent income from the taxable basis. Currently we are preparing a detailed analysis ofour tax situation and tax planning. Once this analysis has been finalized, we will on which basis reassess the need for a valuation allowance on the deferredtax assets. 63Table of ContentsWith respect to the unused tax losses and credits of our subsidiaries, deferred tax assets have been recognized for €0.1 million only (2015:€0.9 million; 2014: €58,000). We have not recognized deferred tax assets on unused tax losses totaling €8.9 million in 2016 (2015: €9.7 million; 2014: €9.2million) given that it is not probable that sufficient positive taxable base will be available in the foreseeable future against which these tax losses can beutilized.If we were able to recognize all unrecognized deferred tax assets, net profit would have increased by €3.0 million in 2016, in which €0.8 millionof tax losses were utilized. Further details on taxes are disclosed in Note 20 to our consolidated financial statements.Impairment of Goodwill, Intangible Assets and Property, Plant & EquipmentWe had goodwill for a total amount of €8.9 million as of December 31, 2016 (2015: €9.7 million; 2014: €7.7 million) which has been subject toan impairment test. Goodwill is tested for impairment based on a discounted cash flow model with cash flows for the next five years derived from the budgetand a residual value considering a perpetual growth rate. The value in use is sensitive to the discount rate used for the discounted cash flow model as well asthe expected future cash-inflows and the growth rate used for extrapolation purposes. The key assumptions used to determine the value in use for the differentcash generating units, or CGUs, are disclosed and further explained in Note 5 to our consolidated financial statements.When events or changes in circumstances indicate that the carrying amount of the intangible assets and property, plant and equipment may notbe recoverable, we estimate the value in use for the individual assets, or when not possible, at the level of CGUs to which the individual assets belong. Noimpairment charges were recorded during 2016 (2015: €0.1 million; 2014: € nil).Business CombinationsWe determine and allocate the purchase price of an acquired business to the assets acquired and liabilities assumed as of the businesscombination date. The purchase price allocation process requires us to use significant estimates and assumptions, including • estimated fair value of the acquired intangible assets; • estimated fair value of property, plant and equipment; and • estimated fair value of the contingent consideration.The contingent consideration as included in the financial statements is recorded at fair value at the date of acquisition and is reviewed on aregular basis, at least annually. The fair value of the contingent consideration is based on risk-adjusted future cash flows of different scenarios discountedusing appropriate interest rates. The structure of the possible scenarios and the probability assigned to each one of them is reassessed by management at everyreporting period and requires judgement from management about the outcome and probability of the different scenarios as well as the evolution of thevariables.While we are using our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired andliabilities assumed at the date of acquisition, our estimates and assumptions are inherently uncertain and subject to refinement. Examples of critical estimatesin valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to: • future expected cash flows from customer contracts and relationships, software license sales and maintenance agreements; • the fair value of the plant and equipment • the fair value of the deferred revenue; and • discount rates.Recent Accounting PronouncementsThe standards and interpretations that are issued, but not yet effective, up to the date of issuance of our financial statements are disclosed in ourfinancial statements included elsewhere in this annual report. We believe the following standards may have an effect on our results of operations or financialposition: 64Table of ContentsIFRS 9 Financial InstrumentsIn July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition andMeasurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classificationand measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early applicationpermitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedgeaccounting, the requirements are generally applied prospectively, with some limited exceptions.IFRS 9 requires us to record expected credit losses on all of our debt securities, loans and trade receivables, either on a 12-month or lifetimebasis. We expect to apply the simplified approach and record lifetime expected losses on all trade receivables.We plan to adopt the new standard on the required effective date. We expect no significant impact on our balance sheet and equity.IFRS 15 Revenue from Contracts with CustomersIFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15,revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to acustomer.The standard provides a single, principles based five step model to be applied to all contracts with customers as follows: • Identify the contract(s) with a customer; • Identify the performance obligations in the contract; • Determine the transaction price; • Allocate the transaction price to the performance obligations in the contract; and • Recognize revenue when (or as) the entity satisfies a performance obligation.The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or amodified retrospective application is required for annual periods beginning on or after January 1, 2018. We plan to adopt the new standard on the requiredeffective date. We have performed a preliminary assessment of IFRS 15, which is subject to changes arising from a more detailed ongoing analysis. Once theanalysis is performed, the transition method will be chosen. Based on the current sales contracts, both methods are feasible from implementation perspectiveand we do not expect a significant impact in the implementation. Furthermore, we are considering the clarifications issued by the IASB in April 2016 and willmonitor any further developments.We will continue to assess individual contracts to determine the performance obligations included, relating to licenses and royalty based sales,maintenance and support services and the estimated variable considerations and related constraints.IFRS 15 provides presentation and disclosure requirements, which are more detailed than under current IFRS. The presentation requirementsrepresent a significant change from current practice and significantly increases the volume of disclosures required in our financial statements. Many of thedisclosure requirements in IFRS 15 are completely new. In 2016 we developed and started testing appropriate systems, internal controls, policies andprocedures necessary to collect and disclose the required information.Our directors are currently reviewing the impact of the implementation of IFRS 15 and have yet to conclude on whether it will have a significantimpact on our financial statements in the year of initial application. This analysis is expected to be finalized in the last quarter of 2017.IFRS 16, LeasesIFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles forthe recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet modelsimilar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g.,personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize aliability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., theright-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-useasset. 65Table of ContentsLessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change infuture lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of theremeasurement of the lease liability as an adjustment to the right-of-use asset.IFRS 16 is effective for annual periods beginning on or after January 1, 2019, subject to endorsement by the European Union. Early applicationis permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospectiveapproach. The standard’s transition provisions permit certain reliefs. We are however not intending to early adopt this standard.During 2017 we plan to assess the potential effect of IFRS 16 on our consolidated financial statements. To see the volume of operating leases,please refer to Note 22 of our financial statements included elsewhere in this annual report.Other Financial InformationWe believe EBITDA and Adjusted EBITDA are meaningful measures to our investors to enhance their understanding of our financialperformance. Although EBITDA and Adjusted EBITDA are not necessarily a measure of our ability to fund our cash needs, we understand that it is frequentlyused by securities analysts, investors and other interested parties as a measure of financial performance and to compare our performance with the performanceof other companies that report EBITDA or Adjusted EBITDA. Our calculation of EBITDA and Adjusted EBITDA may not be comparable to similarly titledmeasures reported by other companies.We calculate EBITDA as net profit plus income taxes, financial expenses (less financial income), depreciation and amortization, and share in lossof joint venture. We calculate Adjusted EBITDA by adding non-recurring initial public offering related expenses and non-cash stock-based compensationexpenses to EBITDA. Disclosure in this annual report of EBITDA and Adjusted EBITDA, which are non-IFRS financial measures, is intended as asupplemental measure of our performance that is not required by, or presented in accordance with, IFRS. EBITDA and Adjusted EBITDA should not beconsidered as alternatives to net profit or any other performance measure derived in accordance with IFRS. Our presentation of EBITDA and AdjustedEBITDA should not be construed to imply that our future results will be unaffected by unusual or non-recurring items.Reconciliation of Net Profit to Adjusted EBITDA (unaudited) on a Consolidated Basis For the year ended December 31 in 000€ 2016 2015 2014 Net profit (3,019) (2,860) 1,872 Income taxes 1,710 (389) 387 Financial expenses 2,437 2,470 1,150 Financial income (2,039) (3,511) (3,160) Depreciation and amortization 8,374 6,810 4,565 Share in loss of joint venture 1,018 401 81 EBITDA (unaudited) 8,481 2,921 4,895 Non-recurring initial public offering expenses(1) — — 182 Non-cash stock-based compensation expenses(2) 977 766 675 Adjusted EBITDA (unaudited) 9,458 3,687 5,752 (1)Non-recurring initial public offering expenses represent fees and costs incurred in connection with our initial public offering.(2)Non-cash stock-based compensation expenses represent the cost of equity-settled and cash-settled share-based payments to employees. 66Table of ContentsResults of OperationsComparison of the Years Ended December 31, 2016 and 2015 For the year ended December 31 in 000€, except percentages Notes 2016 2015 % Change Revenue 114,477 102,035 12.2% Cost of sales (46,706) (42,963) 8.7% Gross profit 67,771 59,072 14.7% Research and development expenses (17,682) (18,186) -2.8% Sales and marketing expenses (36,153) (36,832) -1.8% General and administrative expenses (20,041) (15,045) 33.2% Net other operating income (expenses) 6,212 7,102 -12.5% Operating (loss) profit 107 (3,889) -102.8% Financial expenses (2,437) (2,470) -1.3% Financial income 2,039 3,511 -41.9% Share in loss of joint venture (1,018) (401) 153.9% (Loss) profit before taxes (1,309) (3,249) -59.7% Income taxes (1,710) 389 -539.6% Net (loss) profit (3,019) (2,860) 5.6% 67Table of ContentsComparison of the Years Ended December 31, 2016 and 2015 by Segment in 000€, except percentages MaterialiseSoftware MaterialiseMedical MaterialiseManufac-turing TotalSegments Adjustments &Eliminations(1) Consolidated For the year ended December 31, 2016 Revenues 30,122 37,910 46,406 114,438 39 114,477 Segment EBITDA (unaudited) 10,130 894 3,848 14,872 (6,391) 8,481 Segment EBITDA % 33.6% 2.4% 8.3% 13.0% 7.4% in 000€, except percentages MaterialiseSoftware MaterialiseMedical MaterialiseManufac-turing TotalSegments Adjustments &Eliminations(1) Consolidated For the year ended December 31, 2015 Revenues 25,798 34,856 41,381 102,035 — 102,035 Segment EBITDA (unaudited) 9,093 422 1,645 11,160 (8,239) 2,921 Segment EBITDA % 35.2% 1.2% 4.0% 10.9% 2.9% (1)Adjustments & Eliminations to Revenues consist of occasional one-off sales by our core competencies not allocated to any of our segments.Adjustments & Eliminations to Segment EBITDA consist of corporate research and development, corporate headquarter costs and other operatingincome (expense).Revenue. Revenue was €114.5 million in the year ended December 31, 2016 compared to €102.0 million in the year ended December 31, 2015,an increase of €12.5 million, or 12.2%.Revenue by geographical area is presented as follows: For the year endedDecember 31, in 000€ 2016 2015 Americas 30,804 30,990 Europe 67,883 58,939 Asia 15,790 12,106 Total 114,477 102,035 Revenue generated in Europe increased by €8.9 million, or 15.2%, in the year ended December 31, 2016 compared to the year endedDecember 31, 2015, mainly as a result of increased revenue in our Materialise Manufacturing and Materialise Medical segments. Revenue generatedthroughout the Americas remained stable at around €31.0 million in the year ended December 31, 2016 compared to the year ended December 31, 2015.Revenue generated in Asia increased by €3.7 million, or 30.4%, in the year ended December 31, 2016 compared to the year ended December 31, 2015,primarily boosted by the increased revenue in our Materialise Software segment. 68Table of ContentsRevenue from our Materialise Software segment increased from €25.8 million in the year ended December 31, 2015 to €30.1 million in the yearended December 31, 2016, which represented an increase of €4.3 million, or 16.8%. This growth was primarily fueled by a 24.6% increase in recurrent salesfrom annual and renewed licenses and maintenance fees. Over the same period, sales of services and manufacturing control platforms increased by 27.8% and499.0%, respectively.Revenue from our Materialise Medical segment increased from €34.9 million in the year ended December 31, 2015 to €37.9 million in the yearended December 31, 2016, representing an increase of €3.0 million, or 8.8%. Medical software growth was 7.4%, partner sales growth 4.2%, and direct salesgrowth 45.2%. Within our medical software department recurrent sales from annual and renewed licenses and maintenance fees increased by 19.6%, whilesales of perpetual licenses decreased by 23.4% in line with the new sales model that was introduced in April 2014, whereby, except for research and academiccenters, our medical software will generally be offered through time-based licenses (and no longer on a perpetual basis). Recurrent revenues from annual andrenewed licenses and maintenance fees represented 64.9% of total medical software revenues in the year ended December 31, 2016, compared to 56.8% in theyear ended December 31, 2015.Revenue from our Materialise Manufacturing segment increased from €41.4 million in the year ended December 31, 2015 to €46.4 million in theyear ended December 31, 2016, representing an increase of €5.0 million, or 12.1%. We increased the number of 3D printers dedicated to the MaterialiseManufacturing segment from 112 3D printers and six vacuum casting machines at December 31, 2015 to 120 3D printers and six vacuum casting machines atDecember 31, 2016. Our i.materialise and Rapid Fit businesses, which we previously referred to as our growth businesses, are part of our MaterialiseManufacturing segment. Although these activities are becoming more mature, and were fully integrated into the Materialise Manufacturing business linesduring the fourth quarter in order to create additional synergies, they have adversely impacted overall profit for the segment. Revenue from our MaterialiseManufacturing segment excluding i.materialise and RapidFit (which we sometimes refer to as our “additive manufacturing solutions” business) increasedfrom €34.1 million in the year ended December 31, 2015 to €37.1 million in the year ended December 31, 2016, representing an increase of €3.0 million, or8.9%. Our additive manufacturing solutions business sold in the years ended December 31, 2015 and 2016 a wide variety of products (most of which wereuniquely customized), based on a wide variety of materials and produced by means of multiple 3D printing technologies. In the year ended December 31,2016, our additive manufacturing solutions business experienced stronger growth in its manufacturing of end parts than in its prototyping activities, with27.7% and 3.5% growth, respectively.During the year ended December 31, 2016, and across our various segments, 38.1% of our revenue was derived from Materialise Software andMaterialise Medical software licenses and related services, as compared to 37.0% in the year ended December 31, 2015, 40.6% of our revenues was derivedfrom the sale of printed industrial and consumer products, which was identical to the year ended December 31, 2015, and 21.3% of our revenues was derivedfrom the sale of medical devices (guides as well as implants) that were brought to the market together with complex software planning solutions, includingroyalties and other fees, as compared to 22.5% in the year ended December 31, 2015.Cost of sales. Cost of sales was €46.7 million in the year ended December 31, 2016 compared to €43.0 million in the year ended December 31,2015, an increase of €3.7 million, or 8.7%. This increase in cost of sales was primarily attributable to increased salaries and to increases in depreciationexpenses.Gross profit. Mainly as a result of increased efficiency in the Materialise Manufacturing segment, the overall gross profit margin (our gross profitdivided by our revenue) increased to 59.2% in the year ended December 31, 2016 from 57.9% in the year ended December 31, 2015. For the year endedDecember 31, 2016, gross profit of €67.8 million reflected growth of 14.7% compared to the prior year.Research and development, or R&D, sales and marketing, or S&M, and general and administrative, or G&A, expenses. R&D, S&M and G&Aexpenses increased, in the aggregate, 5.4% to €73.9 million for the year ended December 31, 2016 from €70.1 million in the year ended December 31, 2015.R&D expenses decreased from €18.2 million to €17.7 million, S&M expenses decreased slightly from €36.8 million to €36.2 million, and G&A expensesincreased 33.2% from €15.0 million to €20.0 million. These changes compared to last year primarily reflected the managerial structure and support we haveimplemented within our S&M and R&D groups to support their significant growth since our initial public offering. A number of employees with mixed roleswithin these groups have evolved into more managerial/administrative roles, and their cost as well as certain other expenses are now categorized into G&A.This increase of R&D, S&M and G&A expenses in aggregate was mainly attributable to an increase of payroll expenses and an increase in purchases of goodsand services.Net other operating income. Net other operating income decreased from €7.1 million in the year ended December 31, 2015 to €6.2 million in theyear ended December 31, 2016. This decrease in other operating income was primarily attributable to a decrease in grants and funding for research anddevelopment projects of €0.6 million. 69Table of ContentsFinancial expenses. Financial expenses decreased from €2.5 million in the year ended December 31, 2015 to €2.4 million in the year endedDecember 31, 2016, a decrease of €0.1 million.Financial income. Financial income decreased from €3.5 million in the year ended December 31, 2015 to €2.0 million in the year endedDecember 31, 2016. Of this €2.0 million of financial income, €1.9 million was related to foreign currency exchange gains that should be considered jointlywith €1.5 million of foreign currency losses under financial expenses. These were primarily due to foreign exchange fluctuations on the portion of the initialpublic offering proceeds held in U.S. dollars.Income taxes. Income taxes in the year ended December 31, 2016 resulted in an expense of €1.7 million, which was a combination of deferred taxbookings, and income taxes due over the result for the period. The income taxes are influenced by research and development tax incentives and patentincome deduction (which is a favorable tax regime for income derived from patents).Net profit. As a result of the factors described above, the net loss was €3.0 million in the year ended December 31, 2016 compared to a net loss of€2.9 million in the year ended December 31, 2015, a decrease of €0.1 million.EBITDA. As a result of the factors described above, our consolidated EBITDA increased from €2.9 million in the year ended December 31, 2015to €8.5 million in the year ended December 31, 2016, an increase of €5.6 million, or 193.1%, and our total segment EBITDA increased from €11.2 million inthe year ended December 31, 2015 to €14.9 million in the year ended December 31, 2016, an increase of €3.7 million, or 33.3%.Our Materialise Software segment’s EBITDA increased from €9.1 million in the year ended December 31, 2015, to €10.1 million in the year endedDecember 31, 2016, an increase of €1.0 million, or 11.4%. As a result of accelerated efforts in rolling out new projects, this segment’s EBITDA margin (thesegment’s EBITDA divided by the segment’s revenue) decreased from 35.2% for the year ended December 31, 2015 to 33.6% in the year ended December 31,2016.Our Materialise Medical segment’s EBITDA increased from €0.4 million in the year ended December 31, 2015 to €0.9 million in the year endedDecember 31, 2016. The segment’s EBITDA margin increased from 1.2% in the year ended December 31, 2015 to 2.4% in the year ended December 31, 2016,which was mainly the result of an increase of the segment’s gross margin by 7.5% compared to an increase of 4.5% across the segment’s operational expenses.Our Materialise Manufacturing segment’s EBITDA increased from €1.6 million in the year ended December 31, 2015 to €3.8 million in the yearended December 31, 2016. The EBITDA of our “additive manufacturing solutions” business (which excludes i.materialise and RapidFit) increased from€4.3 million in the year ended December 31, 2015 to €5.6 million in the year ended December 31, 2016, resulting in EBITDA margins of 15.1% in the yearended December 31, 2016 and 12.5% in the year ended December 31, 2015. This increase in EBITDA was influenced by the increased efficiency in theproduction process. 70Table of ContentsReconciliation of Net Profit to Segment EBITDA For the year endedDecember 31, in 000€ 2016 2015 Net profit (3,019) (2,860) Income taxes 1,710 (389) Finance costs 2,437 2,470 Finance income (2,039) (3,511) Share in loss of joint venture 1,018 401 Operating profit 107 (3,889) Depreciation and amortization 8,374 6,810 Corporate research and development 1,673 2,955 Corporate headquarters costs 8,646 9,700 Other operating income (expense) (3,928) (4,416) Segment EBITDA (unaudited) 14,872 11,160 Comparison of the Years Ended December 31, 2015 and 2014 For the year ended December 31 in 000€, except percentages 2015 2014 % Change Revenue 102,035 81,355 25.4% Cost of sales (42,963) (32,396) 32.6% Gross profit 59,072 48,959 20.7% Research and development expenses (18,186) (15,093) 20.5% Sales and marketing expenses (36,832) (27,543) 33.7% General and administrative expenses (15,045) (11,645) 29.2% Net other operating income (expenses) 7,102 5,652 25.7% Operating (loss) profit (3,889) 330 -1278.5% Financial expenses (2,470) (1,150) 114.8% Financial income 3,511 3,160 11.1% Share in loss of joint venture (401) (81) 395.1% (Loss) profit before taxes (3,249) 2,259 -243.8% Income taxes 389 (387) -200.5% Net (loss) profit (2,860) 1,872 -252.8% 71Table of ContentsComparison of the Years Ended December 31, 2015 and 2014 by Segment in 000€, except percentages MaterialiseSoftware MaterialiseMedical MaterialiseManufac-turing TotalSegments Adjustments &Eliminations(1) Consolidated For the year ended December 31, 2015 Revenues 25,798 34,856 41,381 102,035 — 102,035 Segment EBITDA (unaudited) 9,093 422 1,645 11,160 (8,239) 2,921 Segment EBITDA % 35.2% 1.2% 4.0% 10.9% 2.9% in 000€, except percentages MaterialiseSoftware MaterialiseMedical MaterialiseManufac-turing TotalSegments Adjustments &Eliminations(1) Consolidated For the year ended December 31, 2014 Revenues 18,095 30,034 33,222 81,351 4 81,355 Segment EBITDA (unaudited) 6,586 2,917 1,144 10,647 (5,752) 4,895 Segment EBITDA % 36.4% 9.7% 3.4% 13.1% 6.0% (1)Adjustments & Eliminations to Revenues consist of occasional one-off sales by our core competencies not allocated to any of our segments.Adjustments & Eliminations to Segment EBITDA consist of corporate research and development, corporate headquarter costs and other operatingincome (expense).Revenue. Revenue was €102.0 million in the year ended December 31, 2015 compared to €81.4 million in the year ended December 31, 2014, anincrease of €20.6 million, or 25.4%. Excluding revenue from OrthoView, which we acquired in October 2014, total revenue increased by 20.9%.Revenue by geographical area is presented as follows: For the year endedDecember 31, in 000€ 2015 2014 Americas 30,990 25,511 Europe 58,939 47,358 Asia 12,106 8,486 Total 102,035 81,355 Revenue generated in Europe increased by €11.6 million, or 24.5%, in the year ended December 31, 2015 compared to the year endedDecember 31, 2014, mainly as a result of increased revenue in our Materialise Manufacturing and Materialise Medical segments. Revenue generatedthroughout the Americas increased by €5.5 million, or 21.5%, in the year ended December 31, 2015 compared to the year ended December 31, 2014,primarily as a result of increased revenue in our Materialise Software and Materialise Medical segment. Revenue generated in Asia increased by €3.6 million,or 42.7%, in the year ended December 31, 2014 compared to the year ended December 31, 2013, primarily boosted by the increased revenue in ourMaterialise Software segment.Revenue from our Materialise Software segment increased from €18.1 million in the year ended December 31, 2014 to €25.8 million in the yearended December 31, 2015, which represented an increase of €7.7 million, or 42.6%. This growth was primarily fueled by a 44.1% increase in new licensesales and a 73.4% increase of OEM-driven sales. Over the same period, our recurring software related revenue (maintenance contracts and renewals of annuallicenses) increased by 44.7% and our service revenues increased by 45.2%. In our Materialise Software segment, we consider both our first time annuallicense sales and our new perpetual license sales as important sources of potential follow on revenue. Our first time annual licenses create potential forrenewals, while our perpetual licenses, which are in many instances sold together with the sale of a 3D printer by a manufacturer, not only create potential forfuture maintenance revenue but are also an important source for follow on sales of additional software modules to the customer. These follow on sales areconsidered new software sales. 72Table of ContentsRevenue from our Materialise Medical segment increased from €30.0 million in the year ended December 31, 2014 to €34.9 million in the yearended December 31, 2015, representing an increase of €4.8 million, or 16.1%. Revenue from clinical services (which is derived from the sale of clinicaldevices, which we bring to the market in combination with software solutions and engineering services) increased by 4.7%, while revenue from the sale ofmedical software and related services increased by 50.1%. Organically, excluding the revenue of Orthoview, which we acquired in October 2014, medicalsoftware growth was 14.5%. Revenue from new medical software licenses (new perpetual licenses and first time annual licenses) and related services increasedby 41.7%, while our recurring medical software related revenue (maintenance contracts and renewals of annual licenses) increased by 104.1%. Our medicalsoftware is modular, with some modules licensed out as a perpetual license which include a maintenance scheme, while the newer modules are licensed on anannual basis. Since April 2014, we have adopted a new model, whereby, except for research and academic centers, our medical software will only be offeredthrough time-based licenses (and no longer on a perpetual basis).Revenue from our Materialise Manufacturing segment increased from €33.2 million in the year ended December 31, 2014 to €41.4 million in theyear ended December 31, 2015, representing an increase of €8.2 million, or 24.6%. We increased the number of 3D printers dedicated to the MaterialiseManufacturing segment from 98 3D printers and six vacuum casting machines at December 31, 2014 to 112 3D printers and six vacuum casting machines atDecember 31, 2015. i.materialise and Rapid Fit are part of our Materialise Manufacturing segment. As of December 31, 2015, both businesses were in apre-profitability investment phase, which adversely impacted overall profit for the segment. Revenue from our Materialise Manufacturing segment excludingi.materialise and RapidFit (which we sometimes refer to as our “additive manufacturing solutions” business) increased from €28.1 million in the year endedDecember 31, 2014 to €34.1 million in the year ended December 31, 2015, representing an increase of €6.0 million, or 21.9%. Our additive manufacturingsolutions business sold, in the year ended December 31, 2014 as well as in the same period in 2015, a wide variety of products (most of which are uniquelycustomized), based on a wide variety of materials and produced by means of multiple 3D printing technologies. In the year ended December 31, 2015, ouradditive manufacturing solutions business experienced stronger growth in its manufacturing of end parts than in its prototyping activities, with 40.1% and18.0% growth, respectively.During the year ended December 31, 2015, and across our various segments, 37.0% of our revenue was derived from Materialise Software andMaterialise Medical software licenses and related services, as compared to 32.3% in the year ended December 31, 2014, 40.6% of our revenues was derivedfrom the sale of printed industrial and consumer products, as compared to 40.8% in the year ended December 31, 2014, and 22.5% of our revenues wasderived from the sale of medical devices (guides as well as implants) that were brought to the market together with complex software planning solutions,including royalties and other fees, as compared to 27.1% in the year ended December 31, 2014.Cost of sales. Cost of sales was €43.0 million in the year ended December 31, 2015 compared to €32.4 million in the year ended December 31,2014, an increase of €10.6 million, or 32.6%. This increase in cost of sales was primarily attributable to increased salaries and to increases in raw materialsand external subcontracting services.Gross profit. As a result of the relatively lower revenue growth in the Materialise Medical segment and the set-up of new production lines in boththe Materialise Medical and Materialise Manufacturing segments, the overall gross profit margin (our gross profit divided by our revenue) decreased slightlyto 57.9% in the year ended December 31, 2015 from 60.2% in the year ended December 31, 2014. For the year ended December 31, 2015, gross profit of€59.1 million reflected growth of 20.7% compared to the prior year.Research and development expenses. Research and development expenses were €18.2 million in the year ended December 31, 2015 compared to€15.1 million in the year ended December 31, 2014, an increase of €3.1 million, or 20.5%. This increase in research and development expenses was primarilyattributable to an increased investment in medical research projects, which increased by €1.8 million, and software development, which increased by€1.0 million, as compared to the year ended December 31, 2014. 73Table of ContentsSales and marketing expenses. Sales and marketing expenses increased from €27.5 million in the year ended December 31, 2014 to€36.8 million in the year ended December 31, 2014, an increase of €9.3 million, or 33.7%. This increase was primarily attributable to an increase inheadcount in connection with our efforts to increase our sales volume, resulting in increased payroll expenses related to sales and marketing expenses.General and administrative expenses. General and administrative expenses were €15.0 million in the year ended December 31, 2015 comparedto €11.6 million in the year ended December 31, 2014, an increase of €3.4 million, or 29.2%. This reflects increased investments in corporate functions suchas human resources and finance, as well as increased legal, accounting and other services mainly in connection with our operating as a public companysubsequent to our initial public offering.Net other operating income. Net other operating income increased from €5.7 million in the year ended December 31, 2014 to €7.1 million in theyear ended December 31, 2015. This increase in other operating income was primarily attributable to an increase in grants and funding for research anddevelopment projects of €1.4 million. In the year ended December 31, 2015, €5.4 million out of the €7.1 million net other operating income was a release ofgrant income directly related to the level of research and development effort, consisting of withholding tax exemptions for qualifying researchers,development grants, and partial funding of research and development contracts, as compared to €3.6 million in the year ended December 31, 2014.Financial expenses. Financial expenses increased from €1.2 million in the year ended December 31, 2014 to €2.5 million in the year endedDecember 31, 2015, an increase of €1.3 million.Financial income. Financial income increased from €3.2 million in the year ended December 31, 2014 to €3.5 million in the year endedDecember 31, 2015. Of the €3.5 million financial income, €3.1 million is related to foreign currency exchange gains that should be considered jointly withthe €1.6 million foreign currency losses under financial expenses. This is primarily due to foreign exchange fluctuations on the portion of the initial publicoffering proceeds held U.S. dollars.Income taxes. Income taxes in the year ended December 31, 2015 resulted in an income of €0.4 million, as a combination of deferred tax assetbookings, and small income taxes mainly due to the level of income before tax, and research and development tax incentives and patent income deduction(which is a favorable tax regime for income derived from patents).Net profit. As a result of the factors described above, net loss was €2.9 million in the year ended December 31, 2015 compared to a net profit of€1.9 million in the year ended December 31, 2014, a decrease of €4.7 million.EBITDA. As a result of the factors described above, our consolidated EBITDA decreased from €4.9 million in the year ended December 31, 2014to €2.9 million in the year ended December 31, 2015, a decrease of €2.0 million, or 40.3%, and our total segment EBITDA increased from €10.6 million inthe year ended December 31, 2014 to €11.2 million in the year ended December 31, 2015, an increase of €0.5 million, or 4.8%.Our Materialise Software segment’s EBITDA increased from €6.6 million in the year ended December 31, 2014, to €9.1 million in the year endedDecember 31, 2015, an increase of €2.5 million, or 38.1%. As a result of a 47.2% increase in sales and marketing and research and development expenses, thissegment’s EBITDA margin (the segment’s EBITDA divided by the segment’s revenue) decreased from 36.4% for the year ended December 31, 2014 to 35.2%in the year ended December 31, 2015.Our Materialise Medical segment’s EBITDA decreased from €2.9 million in the year ended December 31, 2014 to €0.4 million in the year endedDecember 31, 2015. The segment’s EBITDA margin decreased from 9.7% in the year ended December 31, 2014 to 1.2% in the year ended December 31,2015, which was mainly the result of an increase of 26.3% across operational expenses compared to the increase in revenues of 16.1%.Our Materialise Manufacturing segment’s EBITDA increased from €1.1 million in the year ended December 31, 2014 to €1.6 million in the yearended December 31, 2015. The EBITDA of our “additive manufacturing solutions” business (which excludes i.materialise and RapidFit) increased from€4.1 million in the year ended December 31, 2014 to €4.3 million in the year ended December 31, 2015, resulting in EBITDA margins of 12.5% in the yearended December 31, 2015 and 14.5% in the year ended December 31, 2014. This decrease in EBITDA was influenced by the increase of cost of sales and theestablishment of new production lines. 74Table of ContentsReconciliation of Net Profit to Segment EBITDA For the year endedDecember 31, in 000€ 2015 2014 Net profit (2,860) 1,872 Income taxes (389) 387 Finance costs 2,470 1,150 Finance income (3,511) (3,160) Share in loss of joint venture 401 81 Operating profit (3,889) 330 Depreciation and amortization 6,810 4,565 Corporate research and development 2,955 2,487 Corporate headquarters costs 9,700 6,573 Other operating income (expense) (4,416) (3,308) Segment EBITDA (unaudited) 11,160 10,647 B. Liquidity and Capital ResourcesPrior to our initial public offering, we historically funded our operations principally from cash generated from operations and borrowings. OnJune 30, 2014, we completed our initial public offering of 8,000,000 ADSs at a price of $12.00 per ADS, and received net proceeds of approximately$88.3 million. As we continue to grow our business, we envision funding our operations through multiple sources, including the remaining proceeds from ourinitial public offering, future earnings and cash flow from operations and borrowings.We expect our main uses of cash in the future will be funding our business operations and capital expenditures, as in the past. We believe that wewill have sufficient liquidity to satisfy the operating requirements of our business through the next 12 months.Our liquidity plans are subject to a number of risks and uncertainties, including those described in the section of this annual report titled “Item 3.Key Information—D. Risk Factors,” some of which are outside of our control. Macro-economic conditions could hinder our business plans, which could, inturn, adversely affect our financing strategy.Cash FlowsThe table below summarizes our cash flows from operating activities, investing activities and financing activities for the years endedDecember 31, 2016, 2015 and 2014. For the year ended December 31 in 000€ 2016 2015 2014 Net cash flow from operating activities 8,495 2,353 4,839 Net cash flow from/(used in) investing activities (12,640) (2,794) (31,245) Net cash flow from/(used in) financing activities 9,266 (1,788) 62,057 Net increase of cash and cash equivalents 5,121 (2,229) 35,651 Comparison of Year Ended December 31, 2016 and 2015Net cash flow from operating activities was €8.5 million in the year ended December 31, 2016 compared to €2.4 million in the year endedDecember 31, 2015, an increase of €6.1 million, or 254.2%. The increase in cash flow from operating activities was primarily the result of a higher EBITDA (+€5.6 million). 75Table of ContentsNet cash flow used in investing activities was €12.6 million in the year ended December 31, 2016 compared to €2.8 million in the year endedDecember 31, 2015, an increase of €9.8 million, or 350.0%. The increase in cash flow used in investing activities was primarily due to the repayment of ourinvestments in held-to-maturity investments (€10.0 million).Net cash flow used in financing activities was €9.3 million in the year ended December 31, 2016 compared to net cash flow from financingactivities of €-1.8 million in the year ended December 31, 2015, a fluctuation of €11.1 million. The fluctuation in cash flow used in or from financingactivities was primarily related to increased proceeds from loans and borrowings.Comparison of Year Ended December 31, 2015 and 2014Net cash flow from operating activities was €2.4 million in the year ended December 31, 2015 compared to €4.8 million in the year endedDecember 31, 2014, a decrease of €2.4 million, or 50.0%. The decrease in cash flow from operating activities was primarily the result of a lower EBITDA (-€2.0 million).Net cash flow used in investing activities was €2.8 million in the year ended December 31, 2015 compared to €31.2 million in the year endedDecember 31, 2014, a decrease of €28.4 million, or 91.0%. The decrease in cash flow used in investing activities was primarily the lower level of acquisitionsduring 2015 compared to 2014. During 2015, we acquired Cenat BVBA (€1.6 million), compared to e-prototypy and OrthoView Holdings Limited in 2014(€10.4 million). In addition, during 2015, our investments in held-to-maturity investments (€10.0 million) were repaid in full.Net cash flow used in financing activities was €1.8 million in the year ended December 31, 2015 compared to net cash flow from financing activities of€62.1 million in the year ended December 31, 2014, a decrease of €63.9 million, or 102.9%. The decrease in cash flow used in financing activities wasprimarily related to the receipt of the net proceeds from our initial public offering in 2014 (€64.2 million) and our not conducting comparable capitalincreases in 2015.Investments in Property, Plant and Equipment and Intangible AssetsThe table below describes our investments in property, plant and equipment and intangible assets for the years ended December 31, 2016, 2015and 2014: For the year ended December 31 in 000€ 2016 2015 2014 Purchase of property, plant and equipment 15,306 12,836 12,228 Purchase of intangible assets 2,342 1,521 923 Total 17,648 14,357 13,151 76Table of ContentsIndebtednessAs of December 31, 2016, we had loans and borrowings in the total amount of €33.8 million, with fixed interest rates varying from 0% to 5.40%.These loans include secured bank loans used to finance the construction of office and production facilities and loans and finance leases with Ailanthus NV, arelated party.The following table sets forth our principal indebtedness as of the dates indicated: As of December 31 in 000€ Interestrate Maturity 2016 2015 2014 €5,000 bank loan 4.61% Jun-2027 3,847 4,125 4,390 €4,050 bank loan 1.24% Dec-2032 4,050 — — €2,390 bank loan 1.36% Oct-2020 1,847 2,392 — €2,354 bank loan 1.15% Sep-2032 2,354 — — €2,000 bank loan 4.43% Nov-2020 658 808 952 €1,800 bank loan 0.92% Sep-2023 1,738 — — €1,750 bank loan 5.40% Dec-2022 906 1,019 1,138 €1,600 investment loan 1.55% Nov-2022 1,382 1,600 — €1,000 convertible bond 3.70% Oct-2020 1,000 1,000 1,011 €1,000 straight loan 1.79% Feb-2015 — — 1,000 €899 investment loan 1.12% Dec-2022 775 900 — €750 bank loan 1.07% Sep-2023 750 — — €630 institutional loan 0.25% Sep-2021 630 — — €613 bank loan 0.77% Jun-2023 570 — — €612 bank loan 0.85% Dec-2023 612 — — €609 bank loan 1.96% Mar-2019 — 405 529 €500 bank loan 1.78% Dec-2018 205 305 404 €490 bank loan 1.02% Mar-2023 439 — — €486 bank loan 0.78% Jun-2023 452 — — €468 bank loan 0.76% Sep-2023 452 — — €450 bank loan 0.93% Dec-2023 450 — — €448 bank loan 5.11% Dec-2019 200 271 345 €425 bank loan 0.78% Jun-2023 395 — — €414 bank loan 0.76% Sep-2023 399 — — €400 loan with related party 4.23% Oct-2025 266 290 313 Interest free loan agreements — Oct-2016;Mar-2020 306 856 1,652 Obligations under finance lease with related party 0.00% 2015-2017 — — 1,087 Obligations under finance leases (third parties) — 2016-2023 7,339 5,823 3,127 Short term credit agreements 0.90% Jun-2015 — — 325 Short term credit agreements 1.08% Jun-2016 — 25 — Other loans — — 1,784 1,270 1,074 Total loans and borrowings 33,806 21,089 17,347 of which current 5,539 4,482 5,499 non-current 28,267 16,607 11,848 K€5,000 secured bank loanThis bank loan has been used to finance the construction of a portion of our office and production building in Leuven (Belgium). The loan termcommenced on December 23, 2011 and was completely drawn at €5.0 million as of June 30, 2012. The loan matures on June 30, 2027. The loan bears a fixedinterest rate of 4.61% with monthly fixed installments as from July 1, 2012. This bank loan is secured with a mortgage on the building. 77Table of ContentsK€4,050 secured bank loanThis bank loan has been used to finance the construction of a portion of our office and production building in Leuven (Belgium). The loan provides fordrawings up to a total amount of €12.0 million and was first drawn on December 28, 2016 in an amount of €4.1 million. The loan matures on December 31,2032. The loan bears a fixed interest rate of 1.24%. Repayment of principal will only start as of December 1, 2022. This bank loan is secured with a mortgage.K€2,390 bank loanThis bank loan has been used to finance our Polish operations. The loan term commenced on October 22, 2015 and is repaid in 60 fixed monthly payments.The loan bears a fixed interest rate of 1.36%.K€2,354 secured bank loanThis bank loan has been used to finance the construction of our office and production building in Poland. The loan provides for drawings up to a totalamount of €6.0 million and was first drawn on December 28, 2016 in an amount of €2.4 million. The loan matures on September 30, 2032. The loan bears afixed interest rate of 1.15%. The repayment of principal will only start as of June 1, 2019. This bank loan is secured with a mortgage.K€2,000 secured bank loanThis bank loan has been used to finance the construction of a portion of our office and production building in Leuven. The loan term commenced onDecember 1, 2005 with a maturity of 15 years. The loan bears a fixed interest rate of 4.43% with monthly fixed installments. This bank loan is secured with amortgage on the building.K€1,800 bank loanThis bank loan has been used to finance the purchase of production equipment. The loan term commenced on October 28, 2016 with a maturity of sevenyears. The loan bears a fixed interest rate of 0.92% with monthly fixed installments.K€1,750 secured bank loanThis bank loan has been used to finance the construction of an office in the Czech Republic. The loan term commenced on November 1, 2008 with a maturityof 14 years. The loan bears a fixed interest rate of 5.40% with monthly fixed installments. This bank loan is secured with a mortgage on the building.K€1,600 investment loanThis loan has been used to finance the operations of Materialise USA and has a term of seven years. The loan bears a fixed interest rate of 1.55% andpayments are due each quarter.K€1,000 convertible bond loanWe issued on October 28, 2013 1,000 convertible bonds to a related party for a total amount of €1.0 million. The bonds have been fully subscribed by amember of our senior management and his spouse. The bonds have a maturity of seven years, bear an annual interest rate of 3.7% and are convertible, intoordinary shares at a conversion price of €1.97 per share. Upon initial recognition, an amount of €0.1 million was recognized in consolidated reserves,reflecting the fair value of the conversion option. For additional information, see “Description of Share Capital—Share Capital.”K€1,000 straight loanRapidfit N.V. previously obtained a straight loan in order to finance its working capital needs. The loan was repaid by the end of 2016.K€900 investment loanThis loan has been used to finance our Polish operations and has a term of seven years. The loan bears interest at a fixed rate of 1.12% with monthlyinstallments. 78Table of ContentsK€750 bank loanThis loan has been used to finance our operations and has a term of seven years. The loan bears interest at a fixed rate of 1.07% with monthly installments.K€630 institutional loanThis loan has been used to finance our German production operations. The loan provides for drawings up to a total amount of €2.0 million, and as ofDecember 31, 2016, €0.6 million had been drawn. The loan is repayable over a four-year period, beginning in September 2017. The loan bears interest at afixed rate of 0.25% with quarterly installments.K€613 bank loanThis loan was contracted to finance the purchase of a 3D printer and has a term of seven years. The loan bears interest at a fixed rate of 0.77% with monthlyinstallments.K€612 bank loanThis loan was contracted to finance the purchase of a 3D printer and has a term of seven years. The loan bears interest at a fixed rate of 0.85% with monthlyinstallments.K€609 bank loanThis bank loan was contracted in order to finance the acquisition of machines.K€500 secured bank loanThis bank loan has been used to finance the purchase of a 3D printing machine. The loan term commenced on December 1, 2013 with a maturity of five years.The loan bears interest at a fixed rate of 1.78% with monthly fixed installments. This loan is secured.K€414–K€490 bank loansSeveral bank loans, with maturities of five to seven years and with various installment periods, have been used to finance the purchase of 3D printers andother equipment. The loans bear interest at annual rates of 0.76% to 5.11%.Interest-free loansWe have several interest-free loans with an outstanding nominal amount of K€308 (2015: K€881; 2014: K€1,595). The interest-free loans have been initiallymeasured at fair value, which is the present value of the future installments with a discounting rate of 3.04%. The maturity of the remaining loans is Februaryand March 2020 and have either monthly or quarterly installments. The carrying value at 31 December 2016 is €0.3 million (2015: €0.9 million; 2014: €1.7million). The difference between the carrying value and the nominal value is recognized as financial income over the loan period. The loans have beengranted by either government organizations or business partners.Loans with related partyWe have entered into a loan agreement, with a fixed interest rate of 4.23%, with Ailanthus NV, which is a related party and shareholder, for the financing ofan office building in France. For additional information, see “Certain Relationships and Related Party Transactions.”For additional information regarding our loans and borrowings, see Note 13 to our audited consolidated financial statements.Material Unused Sources of LiquidityOur cash and cash equivalents as of December 31, 2016, 2015 and 2014 were €55.9 million, €50.7 million and €51.0 million, respectively. Ourunused lines of credit as of December 31, 2016, 2015 and 2014 were €3.1 million, €4.4 million and €4.3 million, respectively, and primarily consisted ofstraight loans. 79Table of ContentsTransfers from SubsidiariesThe amount of dividends payable by our subsidiaries to us is subject to, among other restrictions, general limitations imposed by the corporatelaws, capital transfer restrictions and exchange control restrictions of the respective jurisdictions where those subsidiaries are organized and operate. Forexample, China has very specific approval regulations for all capital transfers to or from the country and certain capital transfers to and from Ukraine aresubject to obtaining a specific permit. Dividends paid to us by certain of our subsidiaries may also be subject to withholding taxes in certain jurisdictions. Ofour cash and cash equivalents held outside of Belgium as of December 31, 2016, 2015 and 2014, the amount of cash that would have been subject towithholding taxes if transferred to us by way of dividends and the amount of cash that could not have been transferred by law, or the transfer of which wouldhave been subject to prior approval that was beyond our control, was in each case immaterial.C. Research and Development, Patents and LicensesFor the years ended December 31, 2016, 2015 and 2014, our research and development expenses were €17.7 million, €18.2 million and€15.1 million, respectively, and were 15.4%, 17.8% and 18.6% of our revenue, respectively. For more information regarding our research and developmentprogram, see “Item 4. Information on the Company—B. Business Overview—Research and Development.”D. Trend InformationOther than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that arereasonably likely to have a material effect on our revenues, profitability, liquidity or capital resources, or that would cause the disclosed financialinformation to be not necessarily indicative of future operating results or financial conditions.E. Off-Balance Sheet ArrangementsWe do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financialcondition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material toinvestors. 80Table of ContentsF. Tabular Disclosure of Contractual ObligationsThe table below sets forth our contractual obligations as of December 31, 2016: in 000€ Total Less than 1year 1-3 years 3-5 years More than 5years Loans and borrowings 26,411 3,223 6,374 5,748 11,066 Financial lease commitments 7,395 2,287 3,503 1,057 548 Scheduled interest payments(1) 3,122 540 910 666 1,006 Operating lease commitments 4,621 2,012 1,964 561 84 Purchase obligations 1,290 439 851 0 0 Total 42,839 8,501 13,602 8,032 12,704 (1)Scheduled interest payments comprises the interest payable on loans and borrowings and financial lease commitments. No interest is payable on theother contractual obligations in the above table.In relation to our property, plant and equipment, we had committed expenditures of €10.2 million as of December 31, 2016. These commitmentsrelate to the construction of the new buildings in Belgium and Poland and are not included in the above table.Effective as of January 1, 2017, we have refinanced certain operating lease commitments related to vehicles into financial lease commitments inan amount of €1.7 million. These commitments are also not included in the above table.G. Safe HarborSee “Special Note Regarding Forward-Looking Information” on page 1 of this annual report. 81Table of ContentsITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA. Directors and Senior ManagementThe following table sets forth certain information with respect to the current members of our board of directors and senior management: Name Age Position Directors: Wilfried Vancraen 55 Founder, Director & Chief Executive Officer Peter Leys 52 Executive Chairman A Tre C CVOA, represented by Johan De Lille 54 Director Hilde Ingelaere 55 Director & Executive Vice President Pol Ingelaere 81 Director Jürgen Ingels 46 Director Jozef Vander Sloten 54 Director Godelieve Verplancke 57 Director Senior Management and Executive Committee Members: Wilfried Vancraen 55 Founder, Director & Chief Executive Officer Peter Leys 52 Executive Chairman Hilde Ingelaere 54 Director & Executive Vice President Seaquence BVBA, represented by Johan Pauwels 49 Executive Vice President Wim Michiels 48 Executive Vice President Bart Van der Schueren 50 Executive Vice President, Chief TechnologyOfficer Alfinco BVBA, represented by Johan Albrecht 53 Executive Vice President, Chief FinancialOfficer Ioberan BVBA, represented by Stefaan Motte 42 Vice President, Software Segment De Vet Management bvba, represented by Brigitte de Vet-Veithen 46 Vice President, Medical Segment Level 5 BVBA, represented by Jurgen Laudus 38 Vice President, Manufacturing Segment Welkeraad BVBA, represented by Sabine Demey 48 Vice President, Software Development Foqus BVBA, represented by Nicolas Foqué 42 Vice President, Human Resources Carla Van Steenbergen 42 Chief Legal Officer *Executive Committee: As of January 1, 2017, an Executive Committee has been established, consisting of our senior management and Messrs. Motte,Laudus and Foqué and Mrs. de Vet, Demey and Van Steenbergen.Each of our current directors was appointed at the 2016 annual general meeting of shareholders. One of our previous directors, MarcelDemeulenaere, resigned effective at the 2016 annual general meeting of shareholders. The term of the directorship of each member of our board of directorswill expire at the 2017 annual general meeting of shareholders. The business address of the members of our board of directors is the same as our businessaddress: Technologielaan 15, 3001 Leuven, Belgium. Our board of directors has determined that three members of our board of directors, Jürgen Ingels,Godelieve Verplancke and A Tre C CVOA, represented by Johan De Lille are independent under Belgian law and the NASDAQ Stock Market listingrequirements.The following is a brief summary of the business experience of the current members of our board of directors:Wilfried Vancraen. Wilfried Vancraen has served as one of our directors and as our Chief Executive Officer since founding our company in July1990. Mr. Vancraen previously worked as a research engineer and consultant at the Research Institute of the Belgian Metalworking Industry, where he wasintroduced to 3D printing. Passionate about this new technology and firm in his belief that it could help create a better and healthier world, he foundedMaterialise in July 1990. Mr. Vancraen holds several patents related to the technical and medical applications of 3D printing and remains committed to usingthe technology to make positive changes in people’s lives. In recent years, Mr. Vancraen has been awarded the RTAM/SME Industry Achievement Award,the highest honor in the 3D printing industry, has been selected as the most influential person in additive manufacturing by industry professionals and TCTMagazine, and has been listed one of the five leading players in his sector by the Financial Times. He is also the recipient of a 2013 Visionaries! award fromthe Museum of Art and Design in New York. Mr. Vancraen holds a Master of Science in Electro-Mechanical Engineering and a Masters in BusinessAdministration from KU Leuven. 82Table of ContentsPeter Leys. Peter Leys has served as one of our directors and as our Executive Chairman since 2013. Previously, from 1990 to 2013, Mr. Leys wasat the Brussels office of Baker & McKenzie CVBA, where he focused on mergers and acquisitions, and capital markets. Mr. Leys lectures a mergers andacquisitions contract design course at the KU Leuven. Mr. Leys holds a Candidacy Degree in Philosophy from KU Leuven and Master of Law degrees fromKU Leuven and the University of Georgia.Johan De Lille. Johan De Lille has represented A Tre C CVOA as one of our directors since July 2006, and A Tre C CVOA has been anindependent director of Materialise since 2006. Mr. De Lille started his professional career as an auditor at Arthur Andersen LLP in 1988. In 1994, he becameVice President & Group Controller of Ackermans & van Haaren NV, a Belgian public holding company. In 1999, he became Chief Financial Officer ofEasdaq/Nasdaq Europe and took on the role of Chief Financial Officer of Option NV, a Belgian public technology company, in 2001. Mr. De Lille joinedDelhaize Group, a Belgian public company, as Vice President & Controller in September 2002, and later became Chief Internal Auditor of the DelhaizeGroup in August 2006, and Chief Financial Officer of Delhaize Belgium in January 2009. Since 2013, Mr. De Lille has acted as Chief Financial &Information Officer of BMT Group, an industrial family owned holding company active in high-precision machining. Mr. De Lille serves as an independentdirector on the board of directors of Boma NV, a Belgian private company specializing in cleaning products. In 1988, Mr. De Lille was the award winner forthe best final paper of the Department of Economics from KU Leuven. In 2010, he received the CFO Magazine Award for the Best Finance Team of the yearfor Working Capital in Belgium. Mr. De Lille holds a Masters degree in Economics, with a major in Econometrics and Mathematical Economics, from KULeuven.Hilde Ingelaere. Hilde Ingelaere has served as one of our directors since December 1997 (first as representative of Ailanthus NV and in herindividual capacity since June 2015) and has been our Executive Vice President since January 2011. Since joining our company in 1990, Ms. Ingelaere hasmanaged several staff departments, including the human resources, finance and legal departments. Ms. Ingelaere currently serves as Executive Vice Presidentof our Materialise Medical segment. Prior to joining our company, from 1989 to 1992, Ms. Ingelaere was a business analyst with Plant Genetic Systems. From1986 to 1989, Ms. Ingelaere was at Bristol Myers Squib where she focused on cardiovascular clinical research. Ms. Ingelaere holds a Masters inBioengineering from KU Leuven, where she focused on Biotechnology, and a Masters in Business Administration from KU Leuven.Pol Ingelaere. Pol Ingelaere has served as one of our directors since 2011. Mr. Ingelaere has been involved for many years in education and thesciences, teaching physics, chemistry and biology to final grade college students in Belgium. In 1981 Mr. Ingelaere was appointed as an inspector for allscience teachers in West Flanders, Belgium. Mr. Ingelaere has been an active member of a number of educational commissions. Mr. Ingelaere holds a Mastersdegree in Biology from the University of Ghent and an International Certificate in Human Ecology from the Free University of Brussels.Jürgen Ingels. Jürgen Ingels has served as one of our independent directors since November 2013. Mr. Ingels is Founder and Managing Partnerof SmartFin Capital, a growth stage private equity fund that was set up in December 2014. In October 2014, Mr. Ingels sold Clear2Pay NV/S.A., a globalinnovative payments software technology company he founded in 2000, to FIS Global. The clients of Clear2Pay include global and major regional financialinstitutions such as ING Group, Banco Santander, S.A., Crédit Agricole S.A., BNP Paribas, The U.S. Federal Reserve, Royal Bank of Scotland, The People’sBank of China (PBOC). In 2012 Mr. Ingels co-founded NGdata, Inc., a global big data technology company. Mr. Ingels started his career in private equity in1997 at Dexia NV/S.A., where his role was focused on investing in technology companies. Mr. Ingels currently serves as a director on the board of directorsfor UnifiedPost NV, Guardsquare NV, Projective NV, Itineris NV, Newtec NV, Itiviti AB, Willemen Groep and Maria DB. In 2016 Mr. Ingels founded B-hive, aEuropean fintech hub based in Brussels. Mr. Ingels holds a Masters degree in Business Administration and a Masters degree in Political and Social Sciencesfrom the University of Antwerp.Jozef Vander Sloten. Jozef Vander Sloten has served as one of our directors since January 2007. Mr. Vander Sloten is a full professor at theFaculty of Engineering Science, KU Leuven and chaired the Division of Biomechanics for two terms from 2006 to 2014. He chaired the Leuven MedicalTechnology Centre (L-MTC), which he founded in 2008 until the end of his two terms in 2016. Mr. Vander Sloten teaches engineering mechanics, problemsolving and engineering design, computer integrated surgery systems, and medical device design including regulatory affairs. From 2006 to 2012, he servedas program director of the Master in Biomedical Engineering at KU Leuven. His research interests are computer applications in musculoskeletalbiomechanics and computer integrated surgery, on which he authored more than 160 journal papers. Mr. Vander Sloten is a Founding Fellow of the EuropeanAlliance for Medical and Biological Engineering and Science, where he previously served as president in 2006, president-elect in 2005 and secretary-generalfrom 2003 to 2004. In 2015, he was elected as a member of the International Academy for Medical and Biological Engineering. Mr. Vander Sloten holds aMasters degree in Mechanical Engineering and a PhD in Mechanical Engineering – Biomedical Engineering from KU Leuven. Since 2016 he is Vice-Deanfor International Affairs at the Faculty of Engineering Science, KU Leuven.Godelieve Verplancke. Godelieve Verplancke has served as one of our independent directors since June 2015. Ms. Verplancke began her careerin 1984 with The Beecham Group (now part of GlaxoSmithKline), and has since held key management positions with Merck & Co., as well as Bristol-MyersSquibb, where she served as Managing Director, leading their 83Table of ContentsBelgian/GDL subsidiary, until 2012. Ms. Verplancke has also served as a board member for Brussels-based Europe Hospitals, the Imelda Hospital inBonheiden, the Euronext fund, Quest for Growth and the Stichting tegen Kanker. She is also the founder and managing director of Qaly@Beersel, an elderlycare center in Belgium. In addition to being a medical doctor (MD – KU Leuven), Ms. Verplancke holds a postgraduate degree in Economics and a Master inBusiness Administration from the University of Antwerp. She has also completed courses at INSEAD, CEDEP, Columbia University and the Vlerick BusinessSchool, and is a certified Executive Coach (PCC).Our Board of Directors has established an Executive Committee, within the meaning of article 524bis of the Belgian Companies Code. Thefollowing is a brief summary of the professional experience of the members of our Executive Committee, which was established effective as of January 1,2017:Johan Pauwels. Johan Pauwels has served as an Executive Vice President of our company since January 2011 and has been with our companysince our founding. In 1990, Mr. Pauwels completed his Master’s thesis on stereolithography on the very first 3D printing machine at Materialise. Aftergraduating in 1991, Mr. Pauwels stayed on with our company, focusing on software development to support our 3D printing services. Throughout his careerwith our company, Mr. Pauwels has held several positions, including Software Sales Manager and Director of Sales, and is currently an Executive VicePresident responsible for global sales organization and our sales offices around the world. Mr. Pauwels holds a Masters’ degree in Electro-MechanicalEngineering from KU Leuven.Wim Michiels. Wim Michiels has served as an Executive Vice President of our company since January 2011 and has been with our companysince 1999, first as international sales manager for the prototyping service bureau, then as General Manager Asia Pacific, operating out of the MaterialiseMalaysia branch office. In 2006, Mr. Michiels returned to our headquarters to start a new assignment as Division Manager for our software division. In 2011,he became Executive Vice President to the company, focusing mainly on business development. Finally, Mr. Michiels came back to Malaysia in September2012 to become the head of Materialise Malaysia Sdn. Bhd. and to further support the Asian market as corporate vice president. Mr. Michiels holds aMasters’ degree in Mechanical Engineering from KU Leuven.Bart Van der Schueren. Bart Van der Schueren has served as an Executive Vice President of our company since January 2011 and as our ChiefTechnology Officer since 2016. Prior to joining Materialise, Mr. Van der Schueren was at KU Leuven as a liaison engineer for the newly founded Materialiseand established the basic research activities for the company while also founding the research activities in 3D printing at the KU Leuven. Mr. Van derSchueren then went on to obtain a PhD in selective laser metal sintering. In 1995, Mr. Van der Schueren officially joined Materialise and ran the servicebureau. Over the years, his dedication and expertise has grown the service bureau from a regional player to one of the most prominent additive manufacturingfacilities in Europe. In 2011, Mr. Van der Schueren became an Executive Vice President of our company, responsible for the Materialise Manufacturingsegment and focusing on production and engineering services. Mr. Van der Schueren holds a PhD in Selective Laser Metal Sintering and a Masters’ degree inMechanical Engineering from KU Leuven.Johan Albrecht. Johan Albrecht has represented Alfinco BVBA as our Chief Financial Officer since August 2015. Mr. Albrecht joinedMaterialise from BARC NV, a global central laboratory that supports the pharmaceutical and biotech industry in the development of new drugs, where heserved as Chief Financial Officer between 1989 and 2015, with responsibility for its worldwide financial and business reporting and controlsystems. Mr. Albrecht was also a member of BARC NV’s executive committee and a director in its subsidiaries in Belgium, the United States, China,Australia, Singapore and South Africa. After Cerba European Lab, a network of 200 laboratories, acquired BARC NV in 2007, Mr. Albrecht also joined CerbaEuropean Lab’s executive committee in 2011. Prior to joining BARC NV, Mr. Albrecht served in various financial capacities with Pizzaland Benelux (UnitedBiscuits), Applied Data Research and Minit International. Mr. Albrecht holds a postgraduate degree in corporate finance from KU Leuven and a Bachelor ofScience in Business Administration from HU Brussels University.Stefaan Motte. Stefaan Motte serves as Vice President and General Manager of the Materialise Software segment, and as such is responsible forthe general strategic management of that segment. Mr. Motte joined us in April 2010, with an initial focus on growing our cranio-maxillofacial business.From 2012 onwards, Mr. Motte’s scope broadened to orthopaedic applications as he took up the role of Director of the Clinical Business Unit. From 2015onwards, Mr. Motte assumed his current role leading the Software business. Mr. Motte has been a member of the Materialise Executive Committee since2010. Prior to joining Materialise, Mr. Motte was a software architect and project manager with Koninklijke Philips NV from 2001 to 2006. From 2006 to2010, Mr. Motte worked with NXP semiconductors as a competence center manager, and a member of the NXP Belgium management team. Mr. Motte holds aMaster of Science degree in Mathematics from KU Leuven and a Master of Science degree in Applied Informatics from KU Leuven. In 2017 Mr. Motte wasappointed Fellow of the Faculty of Science, KU Leuven. 84Table of ContentsBrigitte de Vet-Veithen. Brigitte de Vet-Veithen has represented De Vet Management bvba as Vice President Medical since June 2016. Mrs deVet-Veithen has almost 20 years of experience in the Healthcare and Life Sciences Sector. She has worked in various management roles for Johnson &Johnson, ultimately serving as Vice President for the EMEA region of Cordis Neurovascular and General Manager of Cordis in Germany. Before joiningMaterialise she has held various leadership roles as representative of De Vet Management bvba including the role of Chief Executive Officer of Acertysgroup, a provider of medical devices, software, services and supplies to hospitals and medical professionals. Mrs de Vet-Veithen holds a Master of BusinessAdministration with a Major in Engineering from HEC Liege and an MBA from INSEAD.Jurgen Laudus. Jurgen Laudus serves as Vice-President of our Manufacturing unit. Mr. Laudus joined us in August 2001 as project manager andcontinued to our UK office to become Rapid Tooling manager in 2003. For two years, Mr Jurgen was responsible for both our Rapid Tooling sales supportand production management. In 2005, Mr Jurgen returned to Belgium to become international production manager for our additive manufacturing servicesand later on sales manager, playing an active role in the growth of the AM production activities of Materialise. Mr. Laudus holds a Master of Science degreein Engineering from the KU Leuven.Sabine Demey. Sabine Demey represents Welkeraad bvba as CIO and Vice President Software Research & Development for Materialise sinceJanuary, 1st 2017. Sabine Demey is also Director of Materialise Ukraine LLC. Sabine Demey has served as Director of our Software Research &Development & Information Technology groups since 2011. Ms. Demey joined Materialise in 1997 and started research in the applications of 3D printing inthe dental industry which resulted in the development of our first medical guides and patents. Ms. Demey has served in several positions related to softwaredevelopment and medical applications of 3D printing, including the development and launch of our CMF business line. Ms. Demey holds a Masters inEngineering Sciences, Computer Science, Mechatronrics from KU Leuven (1991) and a PhD in Engineering Sciences from KU Leuven (1996).Nicolas Foqué. Nicolas Foqué has served as our Vice President of Human Resources since May 2013. Mr. Foqué joined Materialise in 2007 afterworking over seven years for Electrabel, one of the largest Belgian utilities companies. Mr. Foqué headed the Software for Additive Manufacturing businessgroup for several years, and served as Chief Financial Officer of RapidFit NV from April 2012 to April 2013, prior to becoming our Manager of HumanResources in 2013. Mr. Foqué holds a Master of Science in Mining Engineering from KU Leuven.Carla Van Steenbergen. Carla Van Steenbergen graduated from the law faculty of KU Leuven in 1999. After having worked for three years at theBrussels based law firm, Marx Van Ranst Vermeersch & Partners, she temporarily moved to London to earn a LLM degree at King’s College London. Uponher return to Belgium, she started working as in-house legal counsel for our company, a position which she holds to this day. Over the years, our legaldepartment has expanded, changing Ms. Van Steenbergen’s role from the sole company lawyer to that of a legal team manager. She is our Compliance Officerand a member of our Executive Committee in addition to being secretary to the Board of Directors.Family RelationshipsWilfried Vancraen and Hilde Ingelaere are spouses. Pol Ingelaere is the father of Hilde Ingelaere. No other family relationship exists between anymembers of our board of directors or senior management. 85Table of ContentsB. CompensationCompensation of DirectorsOur Remuneration and Nomination Committee recommends the level of remuneration for directors. These recommendations are subject toapproval by our board of directors and, subsequently, by our shareholders at the annual general meeting. During the year ended December 31, 2016, only thedirectorships of Mr. Vancraen, Mr. Leys, Ms. Ingelaere, Mr. De Lille, Mr. Vander Sloten, Mr. Ingels, Mr. Weyns and of Ms. Verplancke were remunerated. See“—Compensation of Senior Management” for more information about the remuneration of the directorships of Mr. Vancraen, Mr. Leys and Ms. Ingelaere.During the year ended December 31, 2016, Mr. De Lille, Mr. Vander Sloten, Mr. Ingels, Mr. Weyns and Ms. Verplancke each received annual remunerationequal to €10,000. In addition, Mr. De Lille, Mr. Vander Sloten, Mr. Ingels, Mr. Weyns and Ms. Verplancke each received a remuneration of €1,250 perphysical board meeting that he or she attends and €625 for each board meeting that is held via conference call (lasting more than one hour) and that he or sheattends.In addition, the Chairman of the Audit Committee and the Chairman of the Remuneration and Nomination Committee received annualremuneration of €7,500 and €2,500 respectively. Each independent member (including the Chairman) of the Audit Committee or the Remuneration andNomination Committee received a remuneration of €1,250 for each physical committee meeting that he or she attends, and €625 for each committee meetingthat is held via conference call (lasting more than one hour) and that he or she attends. The Remuneration and Nomination Committee benchmarks directors’compensation against peer companies to ensure that it is competitive. In addition, our board of directors sets and revises, from time to time, the rules and levelof compensation for directors carrying out a special mandate or sitting on one or more of the board of directors committees and the rules for reimbursement ofdirectors’ business-related out-of-pocket expenses.Compensation of Senior ManagementIn 2016, our senior management received in the aggregate total gross compensation of €1.2 million which included base salary, bonus payments,company car allowance and other benefits. This amount also includes the remuneration of the directorships of Mr. Vancraen, Mr. Leys and Ms. Ingelaere.Compensation of Executive CommitteeWe have entered into employment or consultancy agreements with each member of our Executive Committee. As of January 1, 2017, allemployment agreements that were previously in place with the members of our Executive Committee have been terminated and have been replaced withservices agreements (Contracts for Paid Office as a member of the Executive Committee). The terms of these agreements are substantially similar. Theseagreements generally provide for an annual base salary. In addition to the fixed remuneration components, under the terms of these agreements, members ofour Executive Committee are entitled to certain additional benefits (including mobile phone and director and officer liability insurance) and reimbursementof necessary and reasonable expenses. These consultancy agreements with members of our Executive Committee provide for payments and benefits(including upon termination of employment) that we believe are in line with customary market practice for similar companies who are operating in ourindustry. 86Table of ContentsC. Board PracticesService ContractsExcept as described above under “—B. Compensation of Executive Committee,” we do not have service contracts with any member of our Boardof Directors or Executive Committee.Board of Directors PracticesDecisions are generally made by our board of directors as a whole. However, decisions on certain matters may be delegated to committees of ourboard of directors or to the Executive Committee to the extent permitted by law and our articles of association. The chairperson, or if he or she is preventedfrom doing so, the vice chairperson, chairs the meetings of our board of directors and determines the order in which the agenda items are discussed, themethod and order of the voting, any adjournment of the discussion and passing of resolutions on individual agenda items after a due assessment of thecircumstances.Our board of directors transferred management powers to the Executive Committee, except for the general policy of the company and otherpowers which are reserved by Belgian company law to the board of directors. The Executive Committee is supervised by our board of directors. Thefollowing actions are comprised under general policy of our company and are thus excluded from the powers of the Executive Committee: • mergers and acquisitions; • transfer and waive of intellectual property rights to third parties; • granting of exclusivity rights to third parties with an important impact on the freedom of a particular business segment; • nomination and removal of members of the Executive Committee; • opening of offices abroad and nomination and removal of managers thereof; • conclusion of financial loans; • sale and purchase of real estate; and • cancellation of a particular product line.Our board of directors entrusted the daily management of the company to Wilfried Vancraen, our Chief Executive Officer, in conformity witharticle 525 of the Belgian Companies Code.Pursuant to our articles of association, our board of directors may form committees from among its members and charge them with theperformance of specific tasks. The committees’ tasks, authorizations and processes are determined by our board of directors. Where permissible by law andour articles of association, important powers of our board of directors may also be transferred to committees.Audit CommitteeThe Audit Committee consists of three members: Johan De Lille (Chairman), Godelieve Verplancke and Jürgen Ingels. Our board of directors hasdetermined that Messrs. De Lille and Ingels and Ms. Verplancke are independent under Rule 10A-3 of the Exchange Act and the applicable rules of theNASDAQ Stock Market and that each of Messrs. De Lille and Ingels and Ms. Verplancke qualifies as an “audit committee financial expert” as defined underthe Exchange Act.Our Audit Committee assists our board of directors in overseeing the accuracy and integrity of our accounting and financial reporting processesand audits of our consolidated financial statements, the implementation and effectiveness of an internal control system and our compliance with legal andregulatory requirements, the independent auditors’ qualifications and independence and the performance of the independent auditors.The Audit Committee’s duties and responsibilities to carry out its purposes include, among others: • the review of our accounting processes; • the review of the effectiveness of our internal systems of control, risk management and compliance; 87Table of Contents • the consideration and recommendation of the nomination, compensation, retention and termination of the Company’s statutory auditorfor Belgian company law purposes and the Company’s independent auditor for SEC purposes, the commissioning of the auditors toconduct audits, agreeing on additional services to be provided by the auditors under their respective engagements, the establishment ofthe scope and the main review points of the audit and oversight of the auditors’ work (including resolution of disagreements with theauditors); • the preparation of our board of directors’ resolution on our consolidated financial statements; • reviewing our interim consolidated financial statements that are made public or otherwise filed with any securities regulatory authority; • discussing any flaws relating to our internal control systems, as reported by our board of directors to the audit committee; • monitoring our bookkeeping and records; and • the establishment of procedures for (i) the receipt, retention and treatment of complaints we receive regarding accounting, internalaccounting controls or auditing matters and (ii) the confidential, anonymous submission by our employees of concerns regardingquestionable accounting or auditing matters.Our Audit Committee is entitled to review information on any point it wishes to verify, and is authorized to acquire such information from any ofour employees. It is also authorized to obtain independent advice, including legal advice, if this is necessary for an inquiry into any matter under itsresponsibility. It is entitled to call on the resources that will be needed for this task. It is entitled to receive reports directly from the auditors, includingreports with recommendations on how to improve our control processes.Remuneration and Nomination CommitteeOur Remuneration and Nomination Committee consists of three members: Wilfried Vancraen, Jozef Vander Sloten and Johan De Lille. Our boardof directors has determined that Mr. De Lille is independent under the applicable rules of the NASDAQ Stock Market.Our Remuneration and Nomination Committee assists our board of directors in its decisions relating to the remuneration policy and individualremuneration packages for our board of directors and Chief Executive Officer, the appointment of directors, the Chief Executive Officer and the othermembers of senior management.The Remuneration and Nomination Committee’s duties and responsibilities to carry out its purposes include, among others: • identifying individuals qualified to become members of our board of directors, consistent with criteria approved by our board ofdirectors; • recommending to our board of directors the director nominees for each annual general meeting, taking into account any nominationrights that certain shareholders may have under our articles of association; • recommending to our board of directors director nominees to fill vacancies; • recommending to our board of directors qualified and experienced directors for service on the committees of the board of directors; • recommending to our board of directors the compensation of the members of senior management; • recommending to our board of directors any incentive compensation plans and equity-based plans, and awards thereunder, and profit-sharing plans for our employees; • evaluating the performance of our Chief Executive Officer; and • advising our board of directors on other compensation issues. 88Table of ContentsD. EmployeesThe table below sets out information about the number of FTEs and fully dedicated consultants, which consultants included individualprofessionals who are registered as private entrepreneurs in Ukraine and who work exclusively with our company. As of December 31 2016 2015 2014 Total 1,432 1,304 1,244 Core competencies:* 3D printing 281 207 180 Software development 325 309 315 Engineering 189 165 158 Segments: Materialise Software 251 118 100 Materialise Medical 523 257 233 Materialise Manufacturing 426 112 131 Additional staff 232 136 127 *As of 2016, people reported as being part of the three core competencies are included also in the segment reporting and allocated to one of the foursegments. The total of 1,432 is the sum of the four lines under “segments.”We currently do not have a work council or trade union delegation. We have a health and safety committee entitled to certain information andconsultation rights under Belgian law, at our Belgian headquarters. We consider our employee relations to be good and have never experienced a workstoppage.E. Share OwnershipThe following table sets forth information relating to beneficial ownership of our ordinary shares, as of December 31, 2016, for each member ofour board of directors and senior management as of December 31, 2016: Ordinary Shares BeneficiallyOwned as of December 31, 2016 Name of beneficial owner(1) Number(2) Percent(2) Wilfried Vancraen(3) 33,095,964 69.9 Peter Leys(4) 508,904 1.1 A Tre C CVOA, represented by Johan De Lille(5) — — Pol Ingelaere 15,861 * Jürgen Ingels(6) 83,000 — Jozef Vander Sloten 12,000 * Godelieve Verplancke — — Hilde Ingelaere(3) 33,095,964 69.9 Johan Pauwels(7) 188,188 * Wim Michiels(8) 52,000 * Bart Van der Schueren(9) 226,052 * Johan Albrecht(10) 1,284 — *Less than 1%(1)Except as otherwise indicated, the address for each of the persons named above is Technologielaan 15, 3001 Leuven, Belgium. 89Table of Contents(2)Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned bya person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of December 31,2016, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are notincluded in the computation of the percentage ownership of any other person. Except as otherwise indicated, we believe the persons named in thistable have sole voting and investment power with respect to all ordinary shares shown as beneficially owned by them, subject to community propertylaws where applicable and to the information contained in the footnotes to this table.(3)Consists of (i) 5,329,664 ordinary shares held by Mr. Vancraen, (ii) 276,000 ordinary shares held by Ms. Ingelaere, (iii) 40,000 ADSs held byMr. Vancraen, (iv) 14,021,612 ordinary shares jointly held by Mr. Vancraen and Ms. Ingelaere through Idem, a civil partnership ( burgerlijkemaatschap / société civile de droit commun ) that is controlled and managed by Mr. Vancraen and Ms. Ingelaere, and (v) 13,428,688 ordinary sharesheld by Ailanthus NV, which is owned and controlled by Mr. Vancraen and Ms. Ingelaere. Mr. Vancraen and Ms. Ingelaere may be deemed to sharevoting power and investment power over these shares. Does not include (i) 1,500 warrants issued and granted to Mr. Vancraen or 1,500 warrants issuedand granted to Ms. Ingelaere under the 2013 Warrant Plan, which warrants are exercisable for 6,000 ordinary shares and 6,000 ordinary shares,respectively, at €2.14 per share, vest 25% on a yearly basis beginning in October 2018 and expire in 2023, (ii) 18,180 warrants issued and granted toMr. Vancraen or 18,180 warrants issued and granted to Ms. Ingelaere under the 2014 Warrant Plan, which warrants are exercisable for 18,180 ordinaryshares and 18,180 ordinary shares, respectively, at €8.81 per share, vest 25% on a yearly basis beginning in October 2018 and expire in 2024 or (iii)15,000 warrants issued and granted to Mr. Vancraen or 15,000 warrants issued and granted to Ms. Ingelaere under the 2015 Warrant Plan, whichwarrants are exercisable for 15,000 ordinary shares and 15,000 ordinary shares, respectively, at €6.45 per share, vest 10% on September 2018, 20% onSeptember 2019, 30% on September 2020 and 40% on September 2021, and expire in 2025.(4)Consists of 508,904 ordinary shares issuable upon conversion of 1,000 convertible bonds which have been issued to and subscribed by Mr. Leys andMs. Kindt and which can be converted at a conversion price of €1.97 per share and expire in 2020. Does not include (i) 72,774 warrants issued andgranted to Mr. Leys under the 2013 Warrant Plan, which warrants are exercisable for 291,096 ordinary shares at €1.97 per share, vest 25% on a yearlybasis beginning in October 2017 and expire in 2023 or (ii) 15,000 warrants issued and granted to Mr. Leys under the 2015 Warrant Plan, whichwarrants are exercisable for 15,000 ordinary shares at €6.45 share, vest 10% on September 2018, 20% on September 2019, 30% on September 2020 and40% on September 2021, and expire in 2025.(5)The address for A Tre C CVOA is Timmermansstraat 32, 8340 Damme, Belgium.(6)Consists of (i) 50,000 ordinary shares held by Jinvest BVBA, which is owned and controlled by Mr. Ingels, (ii) 33,000 ADSs held by Jinvest BVBA.The address for Jinvest BVBA is Clemenceauxstraat 177A, 2860 Sint-Katelijne-Waver, Belgium.(7)Consists of ordinary shares held jointly with Mr. Pauwels’ spouse Kristine Van Muylder. Mr. Pauwels and Ms. Van Muylder may be deemed to sharevoting power and investment power over these shares. Does not include (i) 1,500 warrants issued and granted to Mr. Pauwels under the 2013 WarrantPlan, which warrants are exercisable for 6,000 ordinary shares at €2.14 per share, vest 25% on a yearly basis beginning in October 2018 and expire in2023, (ii) 18,180 warrants issued and granted to Mr. Pauwels under the 2014 Warrant Plan, which warrants are exercisable for 18,180 ordinary shares at€8.81 per share, vest 25% on a yearly basis beginning in October 2018 and expire in 2024 or (iii) 15,000 warrants issued and granted to Mr. Pauwelsunder the 2015 Warrant Plan, which warrants are exercisable for 15,000 ordinary shares at €6.45 per share, vest 10% on September 2018, 20% onSeptember 2019, 30% on September 2020 and 40% on September 2021, and expire in 2025.(8)Consists of (i) 32,000 ordinary shares held by Mr. Michiels, (ii) 20,000 ADSs held by Mr. Michiels, and (iii) 600 ADSs held by Mr. Michiels’ spouseEllen Dhoore. Mr. Michiels and Ms. Dhoore may be deemed to share voting power and investment power over these shares. Does not include (i) 1,200warrants issued and granted to Mr. Michiels under the 2013 Warrant Plan, which warrants are exercisable for 4,800 ordinary shares at €2.14 per share,vest on a yearly basis beginning in October 2013 and expire in 2023, (ii) 18,180 warrants issued and granted to Mr. Michiels under the 2014 WarrantPlan, which warrants are exercisable for 18,180 ordinary shares at €8.81 per share, vest 25% on a yearly basis beginning in October 2018 and expire in2024 or (iii) 15,000 warrants issued and granted to Mr. Michiels under the 2015 Warrant Plan, which warrants are exercisable for 15,000 ordinaryshares at €6.45 per share, vest 10% on September 2018, 20% on September 2019, 30% on September 2020 and 40% on September 2021, and expire in2025.(9)Does not include (i) 1,500 warrants issued and granted to Mr. Van der Schueren under the 2013 Warrant Plan, which warrants are exercisable for 6,000ordinary shares at €2.14 per share, vest 25% on a yearly basis beginning in October 2018 and expire in 2023, (ii) 18,180 warrants issued and granted toMr. Van der Schueren under the 2014 Warrant Plan, which warrants are exercisable for 18,180 ordinary shares at €8.81 per share, vest 25% on a yearlybasis beginning in October 2018 and expire in 2024 or (iii) 15,000 warrants issued and granted to Mr. Van der Schueren under the 2015 Warrant Plan,which warrants are exercisable for 15,000 ordinary shares at €6.45 per share, vest 10% on September 2018, 20% on September 2019, 30% onSeptember 2020 and 40% on September 2021, and expire in 2025.(10)Consists of 1,284 ADSs held by Mr. Albrecht. Does not include (i) 18,180 warrants issued and granted to Mr. Albrecht under the 2014 Warrant Plan,which warrants are exercisable for 18,180 ordinary shares at €8.81 per share, vest 25% on a yearly basis beginning in October 2018 and expire in 2024or (ii) 15,000 warrants issued and granted to Mr. Albrecht under the 2015 Warrant Plan, which warrants are exercisable for 15,000 ordinary shares at€6.45 per share, vest 10% on September 2018, 20% on September 2019, 30% on September 2020 and 40% on September 2021, and expire in 2025. 90Table of ContentsITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA. Major ShareholdersThe following table sets forth information relating to beneficial ownership of our ordinary shares, as of December 31, 2016, for each person whois known by us to own beneficially 5% or more of our outstanding ordinary shares: Ordinary Shares BeneficiallyOwned as of December 31, 2016 Name of Beneficial Owner(1) Number(2) Percent(2) Wilfried Vancraen(3) 33,095,964 69.9 Hilde Ingelaere(3) 33,095,964 69.9 Ailanthus NV(4) 13,428,688 28.4 (1)Except as otherwise indicated, the address for each of the persons named above is Technologielaan 15, 3001 Leuven, Belgium.(2)Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned bya person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of December 31,2016, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are notincluded in the computation of the percentage ownership of any other person. Except as otherwise indicated, we believe the persons named in thistable have sole voting and investment power with respect to all ordinary shares shown as beneficially owned by them, subject to community propertylaws where applicable and to the information contained in the footnotes to this table.(3)Consists of (i) 5,329,664 ordinary shares held by Wilfried Vancraen, (ii) 276,000 ordinary shares held by Hilde Ingelaere, (iii) 40,000 ADSs held byMr. Vancraen, (iv) 14,021,612 ordinary shares jointly held by Mr. Vancraen and Ms. Ingelaere through Idem, a civil partnership ( burgerlijkemaatschap / société civile de droit commun ) that is controlled and managed by Mr. Vancraen and Ms. Ingelaere, and (v) 13,428,688 ordinary sharesheld by Ailanthus NV, which is owned and controlled by Mr. Vancraen and Ms. Ingelaere. Mr. Vancraen and Ms. Ingelaere may be deemed to sharevoting power and investment power over these shares. Does not include (i) 1,500 warrants issued and granted to Mr. Vancraen or 1,500 warrants issuedand granted to Ms. Ingelaere under the 2013 Warrant Plan, which warrants are exercisable for 6,000 ordinary shares and 6,000 ordinary shares,respectively, at €2.14 per share, vest 25% on a yearly basis beginning in October 2018 and expire in 2023, or (ii) 18,180 warrants issued and granted toMr. Vancraen or 18,180 warrants issued and granted to Ms. Ingelaere under the 2014 Warrant Plan, which warrants are exercisable for 18,180 ordinaryshares and 18,180 ordinary shares, respectively, at €8.81 per share, vest 25% on a yearly basis beginning in October 2018 and expire in 2024.(4)Ailanthus NV is owned and controlled by Hilde Ingelaere, a member of our board of directors and one of our Executive Vice Presidents, and byWilfried Vancraen, a member of our board of directors and our Chief Executive Officer. Mr. Vancraen and Ms. Ingelaere may be deemed to share votingpower and investment power over these shares.None of our shareholders have different voting rights from other shareholders, except that as long as the Family Shareholders control, directly orindirectly, in the aggregate at least 20% of the voting rights attached to our ordinary shares, a majority of our directors must be appointed by our shareholdersfrom a list of candidates proposed by the Family Shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change ofcontrol of our company.As of December 31, 2016, there were 28 individual holders of record entered in our share register. The number of individual holders of record isbased exclusively upon our share register and does not address whether a share or shares may be held by the holder of record on behalf of more than oneperson or institution who may be deemed to be the beneficial owner of a share or shares in our company. As of December 31, 2016, 71.8% of our outstandingordinary shares were held in Belgium by 28 holders of record. As of December 31, 2016, assuming that all of our ordinary shares represented by ADSs are heldby residents of the United States, approximately 28.3% of our outstanding ordinary shares were held in the United States by one holder of record, the Bank ofNew York Mellon, depositary of the ADSs. At such date, there were outstanding 13,378,370 ADSs, each representing one of our ordinary shares, and in theaggregate representing approximately 28.3% of our outstanding ordinary shares. The actual number of holders is greater than these numbers of recordholders, and includes beneficial owners whose ADSs are held in street name by brokers and other nominees. This number of holders of record also does notinclude holders whose shares may be held in trust by other entities. 91Table of ContentsB. Related Party TransactionsSince January 1, 2016, there has not been, nor is there currently proposed, any material transaction or series of similar material transactions towhich we were or are a party in which any of the members of our board of directors or senior management, holders of more than 10% of any class of our votingsecurities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest, other than thecompensation and shareholding arrangements we describe in “Item 6. Directors, Senior Management and Employees” and “—A. Major Shareholders,” andthe transactions we describe below.Ailanthus NVAilanthus NV, a shareholder and director that is owned and controlled by Mr. Vancraen and Ms. Ingelaere, has provided several loans andfinancial leases to us for the purchase of machinery and a portion of our office and production buildings.As of December 31, 2016 we had one finance lease obligation with Ailanthus NV for our land and buildings in Leuven (a different finance leaseobligation expired on March 31, 2013 and resulted in a transfer of ownership from of the related land and buildings Ailanthus to us). In October 2001, weentered into a finance lease agreement with Ailanthus NV to lease land and a portion of a new production building. The lease had a term of 15 years andincluded a purchase option for the land and the building. This finance lease expired on September 20, 2016 and we have decided to exercise the purchaseoption, scheduling the transfer of the land to take place in the first half of 2017 (subject to completion of all required formalities). For additional information,see Note 14 to our audited consolidated financial statements.Ailanthus NV has granted us one other loan at a fixed interest rates of 4.23% with maturity in 2025. The purpose of the loan is to finance abuilding in France. For additional information, see Note 14 to our audited consolidated financial statements.We rent apartments on a regular basis from Ailanthus NV in order to host our employees from foreign subsidiaries who are visiting ourheadquarters in Leuven. The total amount paid to Ailanthus NV for rent in 2016 was €0.13 million.Convertible Bonds IssuanceOn October 28, 2013 we issued to Mr. Leys and his spouse 1,000 convertible bonds at an issuance price of €1,000 per bond. The bonds have amaturity of seven years, bear an annual interest rate of 3.7% and can be converted into ordinary shares at a conversion price of €1.97 per share.Registration Rights AgreementOn September 15, 2016, we entered into a registration rights agreement with certain holders of our ordinary shares, warrants and convertiblebonds, including [certain of our directors, senior management and consultants], which we refer to as the Registration Rights Agreement. In accordance withthe terms of the Registration Rights Agreement, we filed a shelf registration statement on Form F-3 to register up to 35,032,250 ordinary shares represented by35,032,250 ADSs to be sold by the selling shareholders from time to time. These ordinary shares consist of ordinary shares previously issued to and ordinaryshares issuable upon exercise of warrants or conversion of convertible bonds held by the selling shareholders, as well as ordinary shares underlying ADSs thatwere acquired by the selling shareholders on the NASDAQ Global Select Market.C. Interests of Experts and CounselNot applicable. 92Table of ContentsITEM 8. FINANCIAL INFORMATIONA. Consolidated Financial Statements and Other InformationSee “Item 3.A. Key Information—Selected Financial Data” and “Item 18. Financial Statements.”Legal or Arbitration ProceedingsFrom time to time, we may be subject to various claims or legal or arbitration proceedings that arise in the ordinary course of our business. Weare currently involved in a legal proceeding with Dentsply Implants NV regarding the alleged wrongful termination of a supply agreement we entered intowith Dentsply Implants NV in 2010. The court of first instance ruled in favor of Dentsply Implants NV that we have wrongfully terminated the relationship.We have appealed this decision before the court has pronounced itself on the monetary damages. The amount of damages which Dentsply Implants NV isclaiming is €2.7 million. While we are confident about the chances that the first instance decision will be overruled, we believe that, in the event that the firstinstance decision would be confirmed, the amount of monetary damages that we would be exposed to, will not have a material impact in our business,financial conditions or result of operations. We are currently not a party to, and we are not aware of any threat of, any other legal or arbitration proceedings,which, in the opinion of our management, is likely to have or could reasonably possibly have a material adverse effect on our business, financial condition orresults of operations.Policy on Dividend DistributionWe have never declared or paid any cash dividends on our shares, and we have no present intention of declaring or paying any dividends in theforeseeable future. Any recommendation by our board of directors to pay dividends, subject to compliance with applicable law and any contractualprovisions that restrict or limit our ability to pay dividends, including under agreements for indebtedness that we may incur, will depend on many factors,including our financial condition, results of operations, legal requirements, capital requirements, business prospects and other factors that our board ofdirectors deems relevant.All of the shares represented by the ADSs have the same dividend rights as all of our other outstanding shares. In general, distributions ofdividends proposed by our board of directors require the approval of our shareholders at a shareholders’ meeting, although our board of directors may declareinterim dividends without shareholder approval.Furthermore, pursuant to Belgian law, the calculation of amounts available for distribution to shareholders, as dividends or otherwise, must bedetermined on the basis of our non-consolidated statutory Belgian GAAP financial statements. In addition, in accordance with Belgian law and our articles ofassociation, we must allocate each year an amount of at least 5% of our annual net profit under our statutory non-consolidated accounts (prepared inaccordance with Belgian GAAP) to a legal reserve until the reserve equals 10% of our share capital. Our legal reserve currently meets this requirement. As aconsequence of these facts there can be no assurance as to whether dividends or other distributions will be paid out in the future or, if they are paid, theiramount.For information regarding the Belgian withholding tax applicable to dividends and related U.S. reimbursement procedures, see “Item 10.Additional Information—E. Taxation—Belgian Taxation.”B. Significant ChangesNone. 93Table of ContentsITEM 9. THE OFFER AND LISTINGA. Offer and Listing DetailsPrice HistoryThe ADSs, each representing one ordinary share, have been listed on the NASDAQ Global Select Market under the symbol “MTLS” sinceJune 25, 2014. Prior to that date, there was no public trading market for ADSs or our ordinary shares.The following table sets forth the reported high and low closing sale prices of the ADSs on the NASDAQ Global Select Market for the periodsindicated: Per ADS (in $) High Low Annual: June 25, 2014 (date of listing) to December 31, 2014 14.46 8.02 Year ended December 31, 2015 9.95 6.49 Year ended December 31, 2016 8.47 5.38 Quarterly: Three months ended March 31, 2015 9.95 6.70 Three months ended June 30, 2015 9.25 6.49 Three months ended September 30, 2015 9.91 7.22 Three months ended December 31, 2015 8.87 7.06 Three months ended March 31, 2016 8.38 5.38 Three months ended June 30, 2016 7.57 6.53 Three months ended September 30, 2016 7.91 6.11 Three months ended December 31, 2016 8.47 6.37 Three months ended March 31, 2017 9.35 7.25 Monthly: October 2016 8.47 6.83 November 2016 8.45 6.37 December 2016 8.41 7.54 January 2017 8.27 7.25 February 2017 9.35 8.23 March 2017 9.13 8.02 April 2017 (through April 27, 2017) 10.99 8.79 B. Plan of DistributionNot applicable.C. MarketsThe ADSs have been listed on the NASDAQ Global Select Market under the symbol “MTLS” since June 25, 2014.D. Selling ShareholdersNot applicable.E. DilutionNot applicable. 94Table of ContentsF. Expenses of the IssueNot applicable. 95Table of ContentsITEM 10. ADDITIONAL INFORMATIONA. Share CapitalNot applicable.B. Memorandum and Articles of AssociationThe information called for by this item has been reported previously in our registration statement on Form F-1 (Registration No. 333-194982)under the heading “Description of Share Capital,” which is incorporated herein by reference, and is supplemented by the following additional informationrelated to changes in our share capital:The share capital of Materialise NV was increased following the exercise of warrants previously issued under our 2007 Warrant Plan onNovember 27, 2014, with €73,696 (including issuance premium) against the issuance of 75,200 new ordinary shares, and on November 20, 2015 with€96,040 (including issuance premium) against the issuance of 98,000 new ordinary shares. The 2007 Warrant Plan 2007 is now terminated. There are nooutstanding warrants issued under this plan.On March 5, 2015, the board of directors increased the share capital of Materialise NV by €578,917 (including issuance premium) against theissuance of 80,180 new ordinary shares, pursuant to the powers granted to it by the extraordinary general meeting of shareholders held on April 23, 2014.On December 18, 2015, the board of directors adopted a new warrant plan, our 2015 Warrant Plan, and issued 1,400,000 warrants, which warrantsare exercisable for 1,400,000 new ordinary shares, pursuant to the powers granted to it by the extraordinary general meeting of shareholders held on April 23,2014. As of December 31, 2016, 350,000 of the warrants were granted.C. Material ContractsWe have not entered into any material contracts in the prior two years other than in the ordinary course of business and other than thosedescribed elsewhere in “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions,” “Item 10. Additional Information—Memorandum and Articles of Association,” or elsewhere in this annual report, and the contracts we describe below.D. Exchange ControlsThere are no Belgian exchange control regulations that impose limitations on our ability to make, or the amount of, cash payments to residentsof the United States. See “Item 5. Operating and Financial Review—G. Liquidity and Capital Resources—Transfers from Subsidiaries” for a discussion ofvarious restrictions applicable to transfers of funds by our subsidiaries.E. TaxationBelgian TaxationThe following paragraphs are a summary of material Belgian tax consequences of the ownership of ADSs by an investor. The summary is basedon laws, treaties and regulatory interpretations in effect in Belgium on the date of this document, all of which are subject to change, including changes thatcould have retroactive effect.The summary only discusses Belgian tax aspects which are relevant to U.S. holders of ADSs, or Holders. This summary does not address Belgiantax aspects which are relevant to persons who are residents in Belgium or engaged in a trade or business in Belgium through a permanent establishment or afixed base in Belgium. This summary does not purport to be a description of all of the tax consequences of the ownership of ADSs, and does not take intoaccount the specific circumstances of any particular investor, some of which may be subject to special rules, or the tax laws of any country other thanBelgium. This summary does not describe the tax treatment of investors that are subject to special rules, such as banks, insurance companies, collectiveinvestment undertakings, dealers in securities or currencies, persons that hold, or will hold, ADSs in a position in a straddle, share-repurchase transaction,conversion transactions, synthetic security or other integrated financial transactions. Investors should consult their own advisers regarding the taxconsequences of an investment in ADSs in the light of their particular circumstances, including the effect of any state, local or other national laws. 96Table of ContentsIn addition to the assumptions mentioned above, it is also assumed in this discussion that for purposes of the domestic Belgian tax legislation,the owners of ADSs will be treated as the owners of the ordinary shares represented by such ADSs. However, the assumption has not been confirmed orverified with the Belgian Tax Administration.Dividend Withholding TaxAs a general rule, a withholding tax of 30% is levied on the gross amount of dividends paid on the ordinary shares represented by the ADSs,subject to such relief as may be available under applicable domestic or tax treaty provisions. Dividends subject to the dividend withholding tax include allbenefits attributed to the ordinary shares represented by the ADSs, irrespective of their form, as well as reimbursements of statutory share capital by us, exceptreimbursements of fiscal capital made in accordance with the Belgian Company Code. In principle, fiscal capital includes paid-up statutory share capital, andsubject to certain conditions, the paid-up issue premiums and the cash amounts subscribed to at the time of the issue of profit sharing certificates.In case of a redemption by us of own shares represented by ADSs, the redemption distribution (after deduction of the portion of fiscal capitalrepresented by the redeemed shares) will be treated as a dividend which in certain circumstances may be subject to a withholding tax of 30%, subject to suchrelief as may be available under applicable domestic or tax treaty provisions. In case of a liquidation of our Company, any amounts distributed in excess ofthe fiscal capital will be subject to a 30% withholding tax, subject to such relief as may be available under applicable domestic or tax treaty provisions.For non-resident individuals and companies, the dividend withholding tax will be the only tax on dividends in Belgium, unless the non-residentholds ADSs in connection with a business conducted in Belgium, through a fixed base in Belgium or a Belgian permanent establishment.Relief of Belgian Dividend Withholding TaxUnder the Belgium-United States Tax Treaty, or the Treaty, under which we are entitled to benefits accorded to residents of Belgium, there is areduced Belgian withholding tax rate of 15% on dividends paid by us to a U.S. resident which beneficially owns the dividends and is entitled to claim thebenefits of the Treaty under the limitation of benefits article included in the Treaty, or Qualifying Holders. If such Qualifying Holder is a company that ownsdirectly at least 10% of our voting stock, the Belgian withholding tax rate is further reduced to 5%. No withholding tax is however applicable if theQualifying Holder, is: (i) a company that is a resident of the United States that has owned directly ADSs representing at least 10% of our capital for a12-month period ending on the date the dividend is declared, or (ii) a pension fund that is a resident of the United States, provided that such dividends arenot derived from the carrying on of a business by the pension fund or through an associated enterprise.Under the normal procedure, we or our paying agent must withhold the full Belgian withholding tax (without taking into account the Treatyrate). Qualifying Holders may make a claim for reimbursement for amounts withheld in excess of the rate defined by the Treaty. The reimbursement form(Form 276 Div-Aut.) may be obtained from the Bureau Central de Taxation Bruxelles-Etranger, 33 Boulevard Roi Albert II, 33 (North Galaxy Tower B7),1030 Brussels, Belgium. Qualifying Holders may also, subject to certain conditions, obtain the reduced Treaty rate at source. Qualifying Holders shoulddeliver a duly completed Form 276 Div-Aut. no later than ten days after the date on which the dividend becomes payable. U.S. holders should consult theirown tax advisors as to whether they qualify for reduction in withholding tax upon payment or attribution of dividends, and as to the procedural requirementsfor obtaining a reduced withholding tax upon the payment of dividends or for making claims for reimbursement.Withholding tax is also not applicable, pursuant to Belgian domestic tax law, on dividends paid to certain U.S. pension funds that are notengaged in any business or other profit making activity and are exempted from income taxes in the United States, provided that such pension fund is notcontractually obligated to redistribute the dividends to any beneficial owner of such dividends for whom it would manage the ADSs and subject to certainprocedural formalities.Finally, a reduced withholding tax rate of 1.6995% is available, pursuant to Belgian domestic tax law, to dividends paid to a non-residentcorporate shareholder (located in the European Economic Area or in a country with which Belgium has entered in a double tax treaty including sufficientinformation exchange provisions) to the extent that it holds a participation in our company representing less than 10% of our capital but the acquisitionvalue of which is at least €2.5 million and provided that certain other conditions are met, i.e. that (i) this holding has been held in full ownership for anuninterrupted period of at least one year (ii) this non-resident corporate shareholder is subject to a corporate income tax regime similar to Belgian corporateincome tax regime without benefitting from a notably advantageous tax regime as compared to the ordinary income tax regime, (iii) its legal form is (similarto one of the legal forms) listed in the annex I, part A, of the E.U. directive dated 30 November 2011 (2011/96/EU). This reduced withholding tax will applyonly if and to the extent that the ordinary Belgian withholding tax cannot be credited or reimbursed to the non-resident corporate shareholder referred tobelow and subject to certain procedural formalities. 97Table of ContentsCapital Gains and LossesPursuant to the Treaty, capital gains and/or losses realized by a Qualifying Holder from the sale, exchange or other disposition of ADSs do notfall within the scope of application of Belgian domestic tax law.Capital gains realized on ADSs by a corporate Holder which is not entitled to claim the benefits of the Treaty under the limitation of benefitsarticle included in the Treaty are generally not subject to taxation in Belgium unless the corporate Holder is acting through a Belgian permanentestablishment. Capital losses are not deductible.Private individual Holders who are not entitled to claim the benefits of the Treaty under the limitation of benefits article included in the Treatyand which are holding ADSs as a private investment will, as a rule, not be subject to tax on any capital gains arising out of a disposal of ADSs. Losses will, asa rule, not be deductible in Belgium.However, if the gain realized by such individual Holders on ADSs is deemed to be realized outside the scope of the normal management of suchindividual’s private estate and the capital gain is obtained or received in Belgium, the gain will be subject to a final professional withholding tax of 30.28%.The Official Commentary to the ITC 1992 stipulates that occasional transactions on a stock exchange regarding ADSs should not be considered astransactions realized outside the scope of normal management of one’s own private estate.Capital gains realized by such individual Holders on the disposal of ADSs for consideration, outside the exercise of a professional activity, to anon-resident company (or a body constituted in a similar legal form), to a foreign state (or one of its political subdivisions or local authorities) or to anon-resident legal entity who is established outside the European Economic Area, are in principle taxable at a rate of 16.5% if, at any time during the fiveyears preceding the sale, such individual Holders has owned directly or indirectly, alone or with his/her spouse or with certain relatives, a substantialshareholding in us (that is, a shareholding of more than 25% of our shares).Capital gains realized by a Holder upon the redemption of ADSs or upon our liquidation will generally be taxable as a dividend. See “—Dividend Withholding Tax.”Estate and Gift TaxThere is no Belgian estate tax on the transfer of ADSs upon the death of a Belgian non-resident.Donations of ADSs made in Belgium may or may not be subject to gift tax in Belgium depending on the modalities under which the donation iscarried out.Belgian Tax on Stock Exchange TransactionsA tax on stock exchange transactions (taxe sur les operations de bourse/taks op de beursverrichtingen) is generally levied on the purchase andthe sale, and on any other acquisition and transfer for consideration of existing ADSs on the secondary market carried out by a Belgian resident investorthrough a professional intermediary if (i) executed in Belgium through a professional intermediary, or (ii) deemed to be executed in Belgium, which is thecase if the order is directly or indirectly made to a professional intermediary established outside of Belgium, either by private individuals having their usualresidence in Belgium, or legal entities for the account of their seat or establishment in Belgium.The applicable rate amounts to 0.27% of the consideration paid but with a cap of €1,600 per transaction and per party. The tax is due separatelyfrom each party to any such transaction, i.e., the seller (transferor) and the purchaser (transferee), both collected by the professional intermediary.However, if the intermediary is established outside of Belgium, the tax will in principle be due by the ordering private individual or legal entity,unless that individual or entity can demonstrate that the tax has already been paid. Professional intermediaries established outside of Belgium can, subject tocertain conditions and formalities, appoint a Belgian representative for tax purposes, which will liable for the tax on stock exchange transactions in respect ofthe transactions executed through the professional intermediary.Belgian non-residents who purchase or otherwise acquire or transfer, for consideration, ADSs in Belgium for their own account through aprofessional intermediary may be exempt from the stock market tax if they deliver a sworn affidavit to the intermediary in Belgium confirming theirnon-resident status. 98Table of ContentsIn addition to the above, no stock market tax is payable by: (i) professional intermediaries described in Article 2, 9° and 10° of the Law ofAugust 2, 2002 acting for their own account, (ii) insurance companies described in Article 2, §1 of the Law of 9 July 1975 acting for their own account,(iii) professional retirement institutions referred to in Article 2, 1° of the Law of October, 27 2006 relating to the control of professional retirement institutionsacting for their own account, or (iv) collective investment institutions acting for their own account.No stock exchange tax will thus be due by Holders on the subscription, purchase or sale of ADSs, if the Holders are acting for their own account.In order to benefit from this exemption, the Holders must file with the professional intermediary in Belgium a sworn affidavit evidencing that they arenon-residents for Belgian tax purposes.Proposed Financial Transactions TaxThe European Commission has published a proposal for a Directive for a common financial transactions tax, or FTT, in Belgium, Germany,Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia, or collectively, the Participating Member States.The proposed FTT has a very broad scope and could, if introduced in its current form, apply to certain dealings in ADSs in certain circumstances.Under current proposals, the FTT could apply in certain circumstances to persons both within and outside of the Participating Member States. Generally, itwould apply to certain dealings in ADSs where at least one party is a financial institution, and at least one party is established in a Participating MemberState.A financial institution may be, or be deemed to be, “established” in a Participating Member State in a broad range of circumstances, including bytransacting with a person established in a Participating Member State.The FTT proposal remains subject to negotiation between the Participating Member States. It may therefore be altered prior to anyimplementation, the timing of which remains unclear. Additional EU Member States may decide to participate. Prospective Holders of ADSs are advised toseek their own professional advice in relation to the FTT.U.S. TaxationThe following is a discussion of the material U.S. federal income tax considerations to U.S. holders (as defined below) of acquiring, holding anddisposing of the ADSs. The following discussion applies only to U.S. holders that purchase ADSs in the Offering, will hold ADSs as capital assets for U.S.federal income tax purposes (generally, assets held for investment) and that are not residents of, or ordinarily resident in, Belgium for tax purposes nor holdtheir ADSs as part of a permanent establishment in Belgium. The discussion also does not address any aspect of U.S. federal taxation other than U.S. federalincome taxation. In particular, this summary does not address all tax considerations applicable to investors that own (directly or by attribution) 10% or moreof our voting stock, nor does this summary discuss all of the tax considerations that may be relevant to certain types of investors subject to special treatmentunder the U.S. federal income tax laws (such as financial institutions, insurance companies, real estate investment trusts, regulated investment companies,investors liable for the alternative minimum tax, certain U.S. expatriates, individual retirement accounts and other tax-deferred accounts, partnerships or otherpass-through entities for U.S. federal income tax purposes, tax-exempt organizations, dealers in securities or currencies, securities traders that electmark-to-market tax accounting, investors that will hold the ADSs as part of constructive sales, straddles, hedging, integrated or conversion transactions forU.S. federal income tax purposes or investors whose “functional currency” is not the U.S. dollar).The following summary is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, U.S. Treasury Regulations thereunder,published rulings of the U.S. Internal Revenue Service, or the IRS, the income tax treaty between the United States and Belgium, or the U.S.-Belgium Treaty,and judicial and administrative interpretations thereof, in each case as available on the date of this annual report. Changes to any of the foregoing, or changesin how any of these authorities are interpreted, may affect the tax consequences set out below, possibly retroactively. No ruling will be sought from the IRSwith respect to any statement or conclusion in this discussion, and there can be no assurance that the IRS will not challenge such statement or conclusion inthe following discussion or, if challenged, a court will uphold such statement or conclusion.For purposes of the following summary, a “U.S. holder” is a beneficial owner of ADSs that is for U.S. federal income tax purposes: (i) a citizen orindividual resident of the United States, (ii) a corporation or other entity treated as a corporation for U.S. federal income tax purposes created or organized inor under the laws of the United States or any state thereof (including the District of Columbia), (iii) an estate, the income of which is subject to U.S. federalincome taxation regardless of its source or (iv) a trust if (x) a court within the United States is able to exercise primary supervision over its administration and(y) one or more United States persons (as defined in the Code) have the authority to control all of the substantial decisions of such trust. 99Table of ContentsIf a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) holds ADSs, the U.S. federal income taxconsequences to the partners of such partnership will depend on the activities of the partnership and the status of the partners. A partnership considering aninvestment in ADSs, and partners in such partnership, should consult their own tax advisers about the consequences of the investment.We do not expect to be a Passive Foreign Investment Company, or a PFIC, and the discussion under “—Distributions by Us” and “—Proceedsfrom the Sale, Exchange or Retirement of the ADSs” below assumes we will not be a PFIC. See “—Passive Foreign Investment Company” discussion below. 100Table of ContentsProspective purchasers of ADSs should consult their own tax advisers with respect to the U.S. federal, state, local and non-U.S. taxconsequences to them in their particular circumstances of acquiring, holding, and disposing of, ADSs.Ownership of ADSs in GeneralThe discussion below is based, in part, on representations by the Depositary and assumes that each obligation under the deposit agreement andany related agreement will be performed in accordance with its terms.For U.S. federal income tax purposes, an owner of ADSs generally will be treated as the owner of the ordinary shares represented by such ADSs.However, the U.S. Treasury has expressed concerns that parties to whom interests such as the ADSs are delivered in transactions similar to pre-releasetransactions may be taking actions that are inconsistent with the claiming of foreign tax credits for U.S. holders of ADSs. Accordingly, the analysis of thecreditability of Belgian taxes could be affected by actions taken by parties to whom the ADSs are pre-released. No gain or loss will be recognized if youexchange ADSs for the ordinary shares represented by those ADSs. Your tax basis in such ordinary shares will be the same as your tax basis in such ADSs, andthe holding period in such ordinary shares will include the holding period in such ADSs.Distributions by UsSubject to the application of the passive foreign investment company rules discussed below, the U.S. dollar value of distributions paid by us(including the amount of any taxes withheld) out of its earnings and profits, as determined under U.S. federal income tax principles, will be subject to tax asforeign source ordinary dividend income and will be includible in your gross income upon receipt by the Depositary. However, we do not maintaincalculations of its earnings and profits in accordance with U.S. federal income tax accounting principles. U.S. holders should therefore assume that anydistribution by us with respect to ordinary shares or ADSs will constitute ordinary dividend income. Subject to applicable limitations, so long as the ADSs areregularly traded on the NASDAQ Global Select Market, we expect that dividends paid by us will be classified as “qualified dividend income” generallysubject to tax at lower rates than other items of ordinary income when received by individuals and other non-corporate U.S. holders. Dividends received onthe ordinary shares or ADSs will not be eligible for the dividends received deduction allowed to corporations receiving dividends from U.S. corporations.The U.S. dollar value of distributions paid by us will be calculated by reference to the exchange rate in effect on the date the dividenddistribution is received by the Depositary, regardless of when the Depositary converts the payments into U.S. dollars. If the foreign currency is converted bythe Depositary on a later date, a U.S. holder will be required to recognize foreign currency gain or loss in respect of the foreign currency based on thedifference between the rate at which it is converted and the rate on the date the dividend was received by the Depositary.Subject to certain limitations, Belgian withholding tax, if any, paid in connection with any distribution with respect to ordinary shares or ADSsmay be claimed as a credit against your U.S. federal income tax liability if you elect not to take a deduction for any non-U.S. income taxes for that taxableyear; otherwise, such Belgian withholding tax may be taken as a deduction. If you are eligible for benefits under the Treaty or are otherwise entitled to arefund for the taxes withheld, you will not be entitled to a foreign tax credit or deduction for the amount of any Belgian taxes withheld in excess of themaximum rate under the Treaty or for the taxes with respect to which you can obtain a refund from the Belgian taxing authorities. As the relevant rules arevery complex, you should consult your own tax advisor concerning the availability and utilization of the foreign tax credit or deductions for non-U.S. taxesin your particular circumstances.Proceeds from the Sale, Exchange or Retirement of the ADSsUpon the sale, exchange or retirement of ADSs, a U.S. holder will generally recognize U.S. source capital gain or loss equal to the difference, ifany, between the U.S. dollar amount realized on the sale, exchange or retirement and the U.S. holder’s tax basis in the ADSs (generally their cost in U.S.dollars). Any gain or loss generally will be long-term capital gain or loss if the ADSs have been held for more than a year. The deductibility of capital lossesis subject to limitations.Gain or loss you recognize on the sale, exchange or retirement of ADSs will generally be U.S. source. If any taxes are withheld from such amountsbut are eligible to be refunded, you will not be entitled to a foreign tax credit or deduction with respect to such taxes. If there are amounts withheld that arenot eligible to be refunded, you still may not be able to claim a foreign tax credit with respect to such amounts unless you have excess foreign source incomeof the correct type from other sources because foreign tax credits generally cannot be used against U.S. source income. As the relevant rules are very complex,you should consult your own tax advisor concerning the availability and utilization of the foreign tax credit or deductions for non-U.S. taxes in yourparticular circumstances. 101Table of ContentsPassive Foreign Investment CompanyWe believe that we were not a PFIC for the tax year ended December 31, 2016, and we do not expect to be classified as a PFIC for U.S. federalincome tax purposes for the current tax year ending December 31, 2017, or for the foreseeable future. However, the application of the relevant rules to ourbusinesses is not entirely clear and certain aspects of the relevant tests will be outside our control; therefore, no assurance can be given that we will not be aPFIC for any taxable year. If we are a PFIC at any time during the holding period of a U.S. holder, the U.S. holder would be subject to potentially materiallygreater amounts of tax and subject to additional U.S. tax form filing requirements. In addition, a non-corporate U.S. holder will not be eligible for qualifieddividend income treatment on dividends received from us if we are treated as a PFIC for the taxable year in which the dividends are received or for thepreceding taxable year.A non-U.S. corporation is a PFIC in any taxable year in which, after taking into account certain look-through rules, either (i) at least 75% of itsgross income is passive income or (ii) at least 50% of the average value (determined on a quarterly basis) of its assets is attributable to assets that produce orare held to produce passive income. Passive income generally includes dividends, interest, rents, royalties, gross income from certain commoditiestransactions, and capital gains. If a non-U.S. corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated forpurposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the othercorporation’s income. Although the determination of whether a non-U.S. corporation is a PFIC for a given taxable year is based on its income and assets forthat taxable year, as determined under the PFIC rules, once a non-U.S. corporation is a PFIC for any taxable year, it generally remains a PFIC for any investorsthat owned interests in all or a portion of such taxable year even if it would not otherwise qualify as a PFIC in later taxable years. We do not undertake tomonitor our PFIC status on an ongoing basis.The Code imposes additional taxes on gains from the sale or other disposition of, and “excess distributions” with respect to, shares of a PFICowned directly (or deemed to be owned directly or indirectly under certain attribution rules) by a U.S. holder. In general, an excess distribution is anydistribution to the U.S. holder that is greater than 125% of the average annual distributions received by the U.S. holder (including return of capitaldistributions) during the three preceding taxable years or, if shorter, the U.S. holder’s holding period for the ADSs. If we were a PFIC in any year in which aU.S. holder held the ADSs (i) the gain or excess distribution would be allocated ratably over the U.S. holder’s holding period for the ADSs, (ii) the amountallocated to the taxable year in which the gain or excess distribution was realized and to any year before we became a PFIC would be taxable as ordinaryincome, (iii) the amount allocated to each other prior year would be subject to tax at the highest rate in effect for that year and (iv) the interest chargegenerally applicable to underpayments of tax would be imposed in respect of the tax allocated to each such year. For these purposes, a U.S. holder who usesthe ADSs as collateral for a loan would be treated as having disposed of such ADSs.Different rules apply to a U.S. holder that makes a valid mark-to-market election with respect to the ADSs. This election can be made if the ADSsare considered to be “marketable securities” for purposes of the PFIC rules. The ADSs should be marketable securities for these purposes to the extent they are“regularly traded” on the NASDAQ Global Select Market. Generally, shares are treated as “regularly traded” in any calendar year in which more than a deminimis quantity of the shares are traded on a qualified exchange on at least 15 days during each calendar quarter. Subject to certain limitations, a U.S. holderthat makes a valid mark-to-market election with respect to the ADSs would be required to take into account the difference, if any, between the fair marketvalue at the end of each taxable year and the fair market value at the end of the preceding taxable year (or the acquisition price in the first year the election isin effect) of those ADSs, as ordinary income or ordinary loss (but only to the extent of the net amount previously included as income by the U.S. holder as aresult of the mark-to-market election). A U.S. holder’s basis in the ADSs will be increased by the amount of any ordinary income inclusion and decreased bythe amount of any ordinary loss taken into account under the mark-to-market rules. Gains from an actual sale or other disposition of the ADSs for which thiselection has been properly made would be treated as ordinary income, any losses incurred on a sale or other disposition of the ADSs would be treated as anordinary loss to the extent of any net mark-to-market gains for prior years and any additional loss would be capital loss.Even if a valid mark-to-market election is made with respect to the ADSs, there is a significant risk that indirect interests in any of oursubsidiaries that are PFICs will not be covered by this election but will be subject to the excess distribution rules described above. Under these rules,distribution from, and dispositions of interests in, these subsidiaries, as well as certain other transactions, generally will be treated as a distribution ordisposition subject to the discussion above regarding excess distributions.Investors in certain PFICs are able to make an election to treat the PFIC as a “qualified electing fund,” or QEF, which may mitigate theconsequences of the rules described above. However, if we are classified as a PFIC, U.S. holders will not be able to make this election.Prospective U.S. holders are urged to consult their own tax advisers about the consequences of holding the ADSs if we are considered a PFIC inany taxable year, including the availability of the mark-to-market election, and whether making the election would be advisable in their particularcircumstances. In particular, U.S. holders should consider carefully the impact of a mark-to-market election with respect to their ADSs given that there is asignificant risk that we will have subsidiaries that are classified as PFICs. 102Table of ContentsMedicare TaxCertain U.S. holders who are individuals, estates and trusts will be required to pay an additional 3.8% tax on some or all of their “net investmentincome,” which generally includes its dividend income and net gains from the disposition of the ADSs. U.S. holders should consult their own tax advisorsregarding the applicability of this additional tax on their particular situation.Information Reporting and Backup WithholdingInformation returns may be filed with the IRS in connection with distributions on the ADSs and the proceeds from the sale or other disposition ofthe ADSs unless a U.S. holder establishes that it is exempt from the information reporting rules. A U.S. holder may be subject to backup withholding on thesepayments if it fails to provide its tax identification number to the paying agent and comply with certain certification procedures. The amount of any backupwithholding from a payment to a U.S. holder will be allowed as a credit against its U.S. federal income tax liability and may entitle the U.S. holder to a refund,provided that the required information is timely furnished to the IRS.Tax Return Disclosure RequirementU.S. federal income tax law requires certain U.S. investors to disclose information relating to investments in securities of a non-U.S. issuer.Failure to comply with applicable disclosure requirements could result in the imposition of substantial penalties. U.S. holders should consult their own taxadvisors regarding any disclosure obligations.F. Dividends and Paying AgentsNot applicable.G. Statement by ExpertsNot applicable.H. Documents on DisplayWe previously filed with the SEC our registration statement on Form F-1 (Registration No. 333-194982), as amended, and our registrationstatement on Form F-3 (Registration No. 333-213649), including the prospectuses contained therein, to register our ordinary shares. We have also filed withthe SEC a related registration statement on F-6 (Registration No. 333-196734) to register the ADSs.We are subject to the periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Ourannual reports on Form 20-F are due within four months after each fiscal year end. We are not required to disclose certain other information that is requiredfrom U.S. domestic issuers. Also, as a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing of proxy statementsto shareholders and our directors, senior management and principal shareholders are exempt from the reporting and short-swing profit recovery provisionscontained in Section 16 of the Exchange Act.Reports and other information we file may be reviewed and copied at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Youmay also request copies of these documents upon payment of a duplicating fee by writing to the SEC. For further information on the public reference facility,please call the SEC at 1-800-SEC-0330. Our SEC filings, including the registration statement, are also available to you on the SEC’s website athttp://www.sec.gov.We have filed our amended and restated articles of association and all other deeds that are to be published in the annexes to the Belgian StateGazette with the clerk’s office of the Commercial Court of Leuven (Belgium), where they are available to the public. A copy of our amended and restatedarticles of association is also be publicly available as an exhibit to our registration statement on Form F-1 (registration No. 333-194982). In accordance withBelgian law, we must prepare audited annual statutory and consolidated financial statements. The audited annual statutory and consolidated financialstatements and the reports of our board and statutory auditor relating thereto are filed with the Belgian National Bank, where they are available to the public.I. Subsidiary InformationNot applicable. 103Table of ContentsITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are exposed to market risk from fluctuations in interest rates and foreign currency exchange rates which may adversely affect our results ofoperations and financial condition. We seek to minimize these risks through regular operating and financing activities.Interest Rate RiskOur outstanding loans are primarily fixed interest rate loans and we therefore are not subject to market risk associated with immediate changes ininterest rates.Foreign Exchange Rate RiskWe transact business globally and are subject to risks associated with fluctuating foreign exchange rates. The geographic areas outside of theEurozone to which we sell our products and services are generally not considered to be highly inflationary. In the years ended December 31, 2016, 2015 and2014, 32%, 32% and 27% of our revenue, respectively, were derived from sales in a currency different from the euro. Receivables denominated in a foreigncurrency are initially recorded at the exchange rate at the transaction date and subsequently re-measured in euro based on period-end exchange rates.Transaction gains and losses that arise from exchange rate fluctuations are charged to income.Additionally, we are exposed to credit risk, liquidity risk and challenges related to capital management.Credit riskCredit risk is the risk that third parties may not meet their contractual obligations resulting in a loss for us. We are exposed to credit risk from ouroperating activities and from our financing activities, which are mainly deposits with financial institutions. We limit this exposure by contracting with credit-worthy business partners or with financial institutions which meet high credit rating requirements. In addition, the portfolio of receivables is monitored on acontinuous basis. Credit risk is limited to a specified amount with regard to individual receivables.Liquidity riskThe liquidity risk is that we may not have sufficient cash to meet our payment obligations. This risk is countered by day-by-day liquiditymanagement at the corporate level. We have has historically entered into financing and lease agreements with financial institutions to finance significantprojects and certain working capital requirements. We still have undrawn lines of credit totaling K€3,063 at December 31, 2016 (2015: K€4,355; 2014:K€4,320). These line of credit arrangements do not contain significant financial covenants.Capital managementThe primary objective of our capital management strategy is to ensure we maintain healthy capital ratios to support our business and maximizeshareholder value. Capital is defined as our shareholders’ equity.We consistently review our capital structure and make adjustments in light of changing economic conditions. We made no changes to ourcapital management objectives, policies or processes during the years ended December 31, 2016, 2015 and 2014. 104Table of ContentsITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESD. American Depositary SharesBank of New York Mellon serves as the depositary for the ADSs. Each ADS represents one ordinary share (or a right to receive one ordinaryshare) deposited with the principal Amsterdam office of ING Securities Services, Inc., as custodian for the depositary. Each ADS also represents any othersecurities, cash or other property which may be held by the depositary. The depositary’s corporate trust office at which the ADSs will be administered islocated at 101 Barclay Street, New York, New York 10286. The Bank of New York Mellon’s principal executive office is located at One Wall Street, NewYork, New York 10286.A deposit agreement among us, the depositary and the ADS holders sets out the ADS holder rights as well as the rights and obligations of thedepositary. New York law governs the deposit agreement and the ADRs. A copy of the deposit agreement is incorporated by reference as an exhibit to thisannual report on Form 20-F.Pursuant to the terms of the deposit agreement, you, as an ADS holder, will be required to pay the following fees to the depositary: Persons depositing or withdrawing ordinary sharesor ADS holders must pay to the depositary: For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) Issuance of ADSs, including issuances resulting from a distribution ofordinary shares or rights or other property Cancellation of ADSs for the purpose of withdrawal, including if thedeposit agreement terminates$0.05 (or less) per ADS Any cash distribution to youA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the shares had been deposited for issuance ofADSs Distribution of securities distributed to holders of deposited securitieswhich are distributed by the depositary to you$0.05 (or less) per ADS per calendar year Depositary servicesRegistration or transfer fees Transfer and registration of ordinary shares on our share register to or fromthe name of the depositary or its agent when you deposit or withdrawsharesExpenses of the depositary Cable, telex and facsimile transmissions (when expressly provided in thedeposit agreement) converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADS or ordinary shares underlying an ADS, such as share transfertaxes, stamp duty or withholding taxes As necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecurities As necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for thepurpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees fromthe amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services bydeduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. Thedepositary may collect any of its fees by deduction from any cash distribution payable to ADS holders that are obligated to pay those fees. The depositarymay generally refuse to provide fee-based services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse or share revenue from the fees collected from ADS holders, or waive feesand expenses for services provided, generally relating to costs and expenses arising out of establishment and maintenance of the ADS program. In performingits duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are affiliates of the depositary and that may earnor share fees or commissions. 105Table of ContentsPART II ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone. 106Table of ContentsITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSMaterial Modifications to the Rights of Security HoldersNone.Use of ProceedsOur Registration Statement on Form F-1 (Registration No. 333-194982), relating to our underwritten initial public offering of ADSs, eachrepresenting one ordinary share with no nominal value per share, was declared effective by the SEC on June 24, 2014. On June 30, 2014, we consummatedour initial public offering and sold 8,000,000 ADSs at a public offering price of $12.00 per ADS for an aggregate offering price of $96.0 million. We receivednet proceeds from our initial public offering of approximately $88.3 million, after deducting the underwriting discount of approximately $6.7 million andoffering expenses of approximately $2.4 million, and reimbursement by the underwriters of certain offering expenses. On July 7, 2014, certain sellingshareholders that participated in our initial public offering sold 1,200,000 ADSs at a public offering price of $12.00 per ADS pursuant to the underwriters’exercise in full of their over-allotment option for an aggregate offering price of $14.4 million. We did not receive any of the proceeds from the sale of ADSsby the selling shareholders. Piper Jaffray & Co. and Credit Suisse Securities (USA) LLC acted as joint book-running managers for the offering.During the year ended December 31, 2016, the net proceeds from our initial public offering were used as a buffer for our working capital, unfinancedcapital expenditures, financing activities and general corporate purposes. However, as a result of our positive cash flow, our cash equivalents increased to€55.9 million from €50.7 million as of December 31, 2015. 107Table of ContentsITEM 15.CONTROLS AND PROCEDURESDisclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of ourdisclosure controls and procedures as of December 31, 2015. 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 acompany in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified inthe SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that informationrequired 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’smanagement, 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 achievingtheir objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based onthis evaluation, management concluded as of December 31, 2015 that our disclosure controls and procedures were not effective at the reasonable assurancelevel due to material weaknesses in our internal control over financial reporting, which is described below under “Management’s Annual Report on InternalControl Over Financial Reporting.”Management’s Annual Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f)and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed by, or under the supervision of, our Chief ExecutiveOfficer and Chief Financial Officer and effected by our management and other personnel to provide reasonable assurance regarding the reliability of ourfinancial reporting and the preparation of our financial statements for external reporting purposes in accordance with IFRS. Internal control over financialreporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactionsand dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements inaccordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorizationof our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition of our assets that could have a material effect on our financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatement. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with our policies and procedures may deteriorate.Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of ourinternal control over financial reporting as of December 31, 2016, based on the updated framework in the Internal Control—Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission in 2013. Management has concluded that our internal control over financialreporting was not effective as of December 31, 2016. Although many individual policies, procedures and controls are in place and appropriate financialsystems have been, and are being, implemented to establish an effective internal control environment, and management believes some progress has beenmade in our developing an effective internal control environment since December 31, 2015, there continues to be material weaknesses identified by ourmanagement in our internal control over financial reporting related to the lack of an overall, formalized framework and common policies, IT general controls,and procedures and controls for financial consolidation and reporting, all of which are either not designed and in place or not operating effectively. As aresult, a number of adjustments to our consolidated financial statements were identified and made during the course of the audit, the most important of whichrelated to adjustments in our accounting for joint-ventures under IFRS and the disclosure of certain tax credits as non-current assets. In addition, we identifieda classification error related to our reporting of deferred income being reported as current instead of non-current liabilities. Specifically, throughSeptember 30, 2016, we presented all deferred income associated with maintenance and license contracts and project contracts as a current liability when, infact, a portion of such deferred income related to contractual periods that were more than 12 months after the reporting date and therefore such portion shouldhave been presented as non-current. We detected this at December 31, 2016 as part of our year-end close process and have corrected this (See note 2 to ourconsolidated financial statements).These corrections had no impact on our consolidated income statements, the computations of our basic and dilutedearnings per share, our consolidated statements of comprehensive income, our consolidated statements of changes in equity or our consolidated cash flowstatements for the years ended December 31, 2015 and 2014.Notwithstanding the identified material weaknesses and management’s assessment that internal control over financial reporting was ineffectiveas of December 31, 2016, management believes that the audited consolidated financial statements contained in this Annual Report on Form 20-F fairlypresent, in all material respects, our financial condition, results of operations and cash flows for the fiscal years presented in conformity with IFRS. 108Table of ContentsAs an emerging growth company, we have taken, and are taking, actions to remediate the material weaknesses in our internal control overfinancial reporting. Key elements of the remediation effort made and being made, include, but are not limited to, the following initiatives: • Continuing to establish an overall, formalized framework and adopt and implement common policies, procedures and controls forfinancial consolidation and reporting, including defining user-access rights to our financial systems, formalizing approval, review andreporting protocols, enhancing our information systems and lines of communication, and formalizing effective information technologypolicies and procedures; and • Continuing to communicate roles and responsibilities to all personnel involved with or having an impact on the financial reportingfunction, providing the necessary training to personnel and building internal control knowledge.We believe that the measures described above will assist in remediating the material weaknesses identified above and further strengthen ourinternal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine thatadditional measures are necessary to address any future control deficiencies.Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm because the JOBS Act provides anexemption from such requirement as we qualify as an emerging growth company.Changes in Internal Control over Financial ReportingWith the oversight of senior management and our audit committee, and prior to the issuance of the December 31, 2016 financial statements, wehave put into place a comprehensive plan to continue to remediate the underlying causes of the identified material weaknesses, which are described aboveunder “Management’s Annual Report on Internal Control Over Financial Reporting.”In addition, during the year ended December 31, 2016, we took certain actions to remediate the material weakness in our internal control overfinancial reporting as of December 31, 2015 that was previously identified by our management and described in our annual report on Form 20-F for the fiscalyear ended December 31, 2015. The key elements of the remediation effort during 2016, included, but were not limited to, the following initiatives:(i) Building an overall, formalized framework and adopting and implementing common policies, procedures and controls for financialconsolidation and reporting, including defining user-access rights to our financial systems, formalizing approval, review and reporting protocols, enhancingour information systems and lines of communication, and formalizing effective information technology policies and procedures; and(ii) Communicating roles and responsibilities to all personnel involved with or having an impact on the financial reporting function, providingthe necessary training to personnel and building internal control knowledge.Other than as discussed above, there were no changes in our internal control over financial reporting that occurred during the period covered bythis report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that Johan De Lille, Jürgen Ingels and Godelieve Verplancke are “audit committee financial experts” asdefined in Item 16A of Form 20-F under the Exchange Act and are independent under Rule 10A-3 under the Exchange Act. 109Table of ContentsITEM 16B.CODE OF ETHICSWe have adopted a written code of conduct and ethics that outlines the principles of legal and ethical business conduct under which we dobusiness. The code of conduct and ethics applies to all of our directors, senior management and employees, including our Chief Executive Officer and ChiefFinancial Officer. We have posted this code of conduct and ethics on our website at www.materialise.com. This website address is included in this annualreport as an inactive textual reference only, and the information and other content appearing on our website are not incorporated by reference into this annualreport. We have not granted any waivers from any provision of our code of conduct and ethics since its adoption. 110Table of ContentsITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESBDO Bedrijfsrevisoren Burg. CVBA was engaged as our independent registered public accounting firm in 2016 and 2015 in connection with ourSEC reporting obligations, and as our statutory auditor for Belgian company and tax law purposes in 2016. In 2015, Grant Thornton Bedrijfsrevisoren cvbawas our statutory auditor for Belgian company and tax law purposes. The following table sets forth by category of service the total fees for services providedby BDO Bedrijfsrevisoren Burg. CVBA during 2016 and 2015, and Grant Thornton Bedrijfsrevisoren CVBA during 2015. For the year endedDecember 31 in 000€ 2016 2015 Audit Fees 361 273 Audit-Related Fees 10 15 Tax Fees — — All Other Fees — — Total 371 288 Audit FeesAudit fees consist of the aggregate fees billed in connection with the audit of our annual consolidated and statutory financial statements andinternal controls, the issuance of comfort letters and interim reviews of our quarterly financial information.Audit-Related FeesAudit-related fees are fees for services that are traditionally performed by the independent accountants, including consultations concerningfinancial accounting and reporting, and employee benefit plan audits, and due diligence on mergers or acquisitions.Tax FeesNo tax fees were paid to BDO Bedrijfsrevisoren Burg. CVBA for the fiscal years ended December 31, 2016 and December 31, 2015.All Other FeesNo other fees were paid to BDO Bedrijfsrevisoren Burg. CVBA for the fiscal years ended December 31, 2016 and December 31, 2015.Audit Committee Pre-Approval Policies and ProceduresThe pre-approval of the Audit Committee or member thereof, to whom pre-approval authority has been delegated, is required for the engagementof our independent auditors to render audit or non-audit services. Audit Committee pre-approval of audit and non-audit services will not be required if theengagement for the services is entered into pursuant to pre-approval policies and procedures established by our audit committee regarding our engagement ofthe independent auditors, provided the policies and procedures are detailed as to the particular service, our audit committee is informed of each serviceprovided and such policies and procedures do not include delegation of the Audit Committee’s responsibilities under the Exchange Act to our management.Audit Committee pre-approval of non-audit services (other than review and attest services) also will not be required if such services fall within availableexceptions established by the SEC.All audit related fees for the fiscal years ended December 31, 2016 and 2015 were pre-approved under the pre-approval policies of the AuditCommittee. 111Table of ContentsITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNone. 112Table of ContentsITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNone. 113Table of ContentsITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNone. 114Table of ContentsITEM 16G.CORPORATE GOVERNANCEThe Listing Rules of the NASDAQ Stock Market include certain accommodations in the corporate governance requirements that allow foreignprivate issuers, such as us, to follow “home country” corporate governance practices in lieu of the otherwise applicable corporate governance standards of theNASDAQ Stock Market. The application of such exceptions requires that we disclose each noncompliance with the NASDAQ Stock Market Listing Rulesthat we do not follow and describe the Belgian corporate governance practices we do follow in lieu of the relevant NASDAQ Stock Market corporategovernance standard. We follow Belgian corporate governance practices in lieu of the corporate governance requirements of the NASDAQ Stock Market inrespect of the following: •Quorum at Shareholder Meetings. NASDAQ Stock Market Listing Rule 5620(c) requires that for any meeting of shareholders, the quorum must beno less than 33 1/3% of the outstanding ordinary shares. There is no quorum requirement under Belgian law for our shareholders’ meetings, exceptas provided for by law in relation to decisions regarding certain matters. •Independent Director Majority on Board/Meetings. NASDAQ Stock Market Listing Rules 5605(b)(1) and (2) require that a majority of the boardof directors must be comprised of independent directors and that independent directors must have regularly scheduled meetings at which onlyindependent directors are present. We are not required under Belgian law to have any independent directors on our board of directors. However, ourarticles of association provide that our board of directors must be comprised of at least seven and no more than 11 directors, of which at least threedirectors must be independent directors under Belgian law. We do not intend to require our independent directors to meet separately from the fullboard of directors on a regular basis or at all although the board of directors is supportive of its independent members voluntarily arranging to meetseparately from the other members of our board of directors when and if they wish to do so. •Director Nominations/Remuneration and Nomination Committee Composition. NASDAQ Stock Market Listing Rule 5605(d)(2) requires thatcompensation of officers must be determined by, or recommended to, the board of directors for determination, either by a majority of theindependent directors, or a compensation committee comprised solely of independent directors. NASDAQ Stock Market Listing Rule 5605(e)requires that director nominees be selected, or recommended for selection, either by a majority of the independent directors or a nominationscommittee comprised solely of independent directors. Under Belgian law, we are not subject to any such requirements. In particular, we are notrequired by Belgian law to set up any compensation or nominations committees within our board of directors, and are therefore not subject to anyBelgian legal requirements as to the composition of such committees either. However, our articles of association provide that our board of directorsmay form committees from among its members. See “Item 16. Directors, Senior Management and Employees—C. Board of Directors Practices —Board of Directors Practices.” Our board of directors has set up and appointed a Remuneration and Nomination Committee. Our Remuneration andNomination Committee is currently comprised of three directors, one of whom is independent. In addition, as long as the Family Shareholderscontrol, directly or indirectly, in the aggregate at least 20% of the voting rights attached to our ordinary shares, a majority of our directors must beappointed by our shareholders from a list of candidates proposed by the Family Shareholders. •Shareholder Approval of Equity Compensation Plans. NASDAQ Stock Market Listing Rule 5635(c) requires shareholder approval prior to theissuance of securities in connection with equity-based compensation of officers, directors, employees or consultants. On December 18, 2015, ourboard of directors adopted a stock option plan, the 2015 Warrant Plan. Warrants under the 2015 Warrant Plan may be offered upon decision by ourboard of directors (or its proxy holder(s)) to employees, consultants and directors of our company and our subsidiaries. In lieu of the NASDAQ StockMarket Listing Rule 5635(c), we followed Belgian law regarding the issuance of shares or securities in connection with the remuneration of thedirectors and/or the employees of a Belgian company.Under Belgian company law, a Belgian company may issue shares or grant rights to acquire shares pursuant to a resolution of the general meeting ofshareholders or, within certain limits, pursuant to a resolution of the board of directors if so authorized by the shareholders’ meeting (the so-called authorizedcapital). By resolution of our extraordinary shareholders’ meeting of April 23, 2014, which entered into force on June 30, 2014, our shareholders authorizedour board of directors, for a period of five years from August 18, 2014, to increase our share capital, in one or more transactions (including through theissuance of warrants), up to a maximum amount of €2,714,634.83 (of which €2,710,008.33 remained available prior to the issuance of the warrants under the2015 Warrant Plan). On December 18, 2015, our board of directors decided, in connection with the adoption of the 2015 Warrant Plan, to increase the sharecapital with a maximum amount of €80,738 (excluding any issue premium), subject to the exercise of the warrants issued under the 2015 Warrant Plan. 115Table of ContentsPursuant to Belgian company law and the authorization granted by the shareholders’ meeting of April 23, 2014, our board of directors is also authorized toissue shares or grant rights to acquire shares in the framework of incentive plans, such as warrant plans or other plans, for the benefit of directors, consultantsand members of personnel of our company and of our subsidiaries. As an exception to the foregoing, Belgian company law provides that warrants that aremainly reserved to one or more determined persons other than members of personnel cannot be issued by the board of directors under the authorized capital,but requires specific approval by the shareholders’ meeting. However, given that the warrants under the 2015 Warrant Plan will not be mainly reserved to oneor more determined persons other than members of personnel, these warrants do not fall within this exception and our board of directors was thereforeauthorized to issue such warrants without seeking any additional shareholder approval.The 2015 Warrant Plan provides the terms and conditions governing the procedures for the granting of the warrants to employees, consultants and directorsof our Company and of our subsidiaries. These terms and conditions include, among others, the determination of the exercise price and the vesting period.The granting of the warrants, and the determination of the applicable terms and conditions, is entrusted to our board of directors or to one or more proxyholders designated by our board of directors. 116Table of ContentsITEM 16H.MINE SAFETY DISCLOSURENot applicable. 117Table of ContentsPART III ITEM 17.FINANCIAL STATEMENTSNot applicable. 118Table of ContentsITEM 18.FINANCIAL STATEMENTSSee our consolidated financial statements beginning on page F-1 of this annual report. 119Table of ContentsITEM 19.EXHIBITS 1.1 Articles of Association of Materialise NV (English translation) (incorporated by reference to Exhibit 1.1 to the Company’s Annual Report on Form20-F for the year ended December 31, 2015) 2.1 Deposit Agreement, dated as of June 24, 2014, among Materialise NV and The Bank of New York Mellon (incorporated by reference to Exhibit 4.1to the Company’s Registration Statement on Form F-1 (File No. 333-194982)) 2.2 Form of American Depositary Receipt (included in Exhibit 2.1) Certain instruments relating to long-term debt as to which the total amount of securities authorized thereunder does not exceed 10% of the totalassets of Materialise NV and its subsidiaries on a consolidated basis have been omitted in accordance with Form 20-F. The Company hereby agreesto furnish a copy of any such instrument to the SEC upon request. 4.1 2007 Warrant Plan (English translation) (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form F-1 (No.333-194982)) 4.2 2013 Warrant Plan (English translation) (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form F-1 (No.333-194982)) 4.3 2014 Warrant Plan (English translation) (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form F-1 (No.333-194982)) 4.4 Form of Warrant Agreement under 2014 Warrant Plan (English translation) (incorporated by reference to Exhibit 4.6 to the Company’s RegistrationStatement on Form S-8 (No. 333-197236)) 4.5 2015 Warrant Plan (English translation) (incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 20-F for the year endedDecember 31, 2015) 4.6 Form of Warrant Agreement under 2015 Warrant Plan (English translation) (incorporated by reference to Exhibit 4.4 to the Company’s RegistrationStatement on Form S-8 (File No. 333-212445)) 4.7 Lease, dated September 30, 2002, between Ailanthus NV and Materialise NV (English translation) (incorporated by reference to Exhibit 10.5 to theCompany’s Registration Statement on Form F-1 (No. 333-194982)) 4.8 Registration Rights Agreement, dated September 15, 2016, among Materialise NV and the Holders party thereto (incorporated by reference toExhibit 4.8 to the Company’s Registration Statement on Form F-3 (No. 333-213649)) 8.1 Subsidiaries of Materialise NV12.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200213.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200223.1 Consent of BDO Bedrijfsrevisoren Burg. CVBA, independent registered public accounting firm 120Table of ContentsSignaturesThe registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized theundersigned to sign this annual report on its behalf. MATERIALISE NVBy: /s/ Wilfried VancraenName: Wilfried VancraenTitle: Chief Executive OfficerDate: April 28, 2017 121Table of ContentsINDEX TO CONSOLIDATED FINANCIAL STATEMENTSConsolidated Financial Statements for the Years Ended December 31, 2016, 2015 and 2014 Report of Independent Registered Public Accounting Firm F-2 Consolidated income statements F-3 Consolidated statements of comprehensive income F-4 Consolidated statements of financial position F-5 Consolidated statements of changes in equity F-7 Consolidated cash flow statements F-10 Notes to the consolidated financial statements F-12 F-1Table of ContentsReport of Independent Registered Public Accounting FirmBoard of Directors and ShareholdersMaterialise NVLeuven, BelgiumWe have audited the accompanying consolidated statements of financial position of Materialise NV as of December 31, 2016, December 31, 2015 andDecember 31, 2014 and the related consolidated income statements, statements of comprehensive income, changes in equity, and cash flows for each of thethree years in the period ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Materialise NV atDecember 31, 2016, December 31, 2015 and December 31, 2014, and the results of its operations and its cash flows for each of the three years in the periodended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.The consolidated financial statements as of December 31, 2015 and 2014 and for each of the two years in the period ended December 31, 2015, have beenrestated to reflect adjustments relating to current deferred income and non-current deferred income as described in Note 2 to the consolidated financialstatements.Zaventem, BelgiumApril 28, 2017BDO Bedrijfsrevisoren Burg. CVBARepresented byBert Kegels/s/ Bert Kegels F-2Table of ContentsConsolidated income statements For the year ended December 31 (in thousands euros, except per share data) Notes 2016 2015 2014 Revenue 20.1 114,477 102,035 81,355 Cost of sales 20.2 (46,706) (42,963) (32,396) Gross profit 67,771 59,072 48,959 Research and development expenses 20.3 (17,682) (18,186) (15,093) Sales and marketing expenses 20.4 (36,153) (36,832) (27,543) General and administrative expenses 20.5 (20,041) (15,045) (11,645) Net other operating income / (expenses) 20.6 6,212 7,102 5,652 Operating (loss) profit 107 (3,889) 330 Financial expenses 20.8 (2,437) (2,470) (1,150) Financial income 20.9 2,039 3,511 3,160 Share in loss of joint venture 8 (1,018) (401) (81) (Loss) profit before taxes (1,309) (3,249) 2,259 Income taxes 20.10 (1,710) 389 (387) Net (loss) profit of the year (3,019) (2,860) 1,872 Net (loss) profit attributable to: The owners of the parent (3,019) (2,807) 2,061 Non-controlling interest — (53) (189) Earnings per share attributable to ordinary owners of the parent Basic 21 (0.06) (0.06) 0.05 Diluted 21 (0.06) (0.06) 0.05 The accompanying notes form an integral part of these consolidated financial statements. F-3Table of ContentsConsolidated statements of comprehensive income For the year ended December 31 (in thousands euros) Notes 2016 2015 2014 Net (loss) profit of the year (3,019) (2,860) 1,872 Other comprehensive (loss) income Exchange differences on translation of foreign operations * (1,833) 624 126 Other comprehensive (loss) income, net of taxes (1,833) 624 126 Total comprehensive (loss) income of the year, net of taxes (4,852) (2,236) 1,998 Total comprehensive (loss) income attributable to: The owners of the parent (4,852) (2,183) 2,187 Non-controlling interest — (53) (189) *May be reclassified subsequently to profit & lossThe accompanying notes form an integral part of these consolidated financial statements. F-4Table of ContentsConsolidated statements of financial position For the year ended December 31 (in thousands of euros) Notes 2016 2015 2014 Assets Non-current assets Goodwill 5 8,860 9,664 7,714 Intangible assets 6 9,765 9,657 7,727 Property, plant & equipment 7 45,063 38,400 30,212 Investments in joint ventures 8 — 1,018 419 Deferred tax assets 20.10 336 1,092 232 Other non-current assets 9 2,154 356 328 Total non-current assets 66,178 60,187 46,632 Current assets Inventories 9 7,870 5,387 3,660 Trade receivables 10 27,479 22,843 18,370 Held to maturity investments 11 — — 10,000 Other current assets 9 4,481 4,993 3,540 Cash and cash equivalents 11 55,912 50,726 51,019 Total current assets 95,742 83,949 86,589 Total assets 161,920 144,136 133,221 The accompanying notes form an integral part of these consolidated financial statements. F-5Table of Contents For the year ended December 31 (in thousands of euros) Notes 2016 2015* 2014* Equity and liabilities Equity Share capital 12 2,729 2,729 2,788 Share premium 12 79,019 78,098 76,650 Consolidated reserves 12 (1,603) 1,407 5,764 Other comprehensive income (1,112) 721 97 Equity attributable to the owners of the parent 79,033 82,955 85,299 Non-controlling interest 12 — — (132) Total equity 79,033 82,955 85,167 Non-current liabilities Loans & borrowings 14 28,267 16,607 11,848 Deferred tax liabilities 20.10 1,325 2,068 1,329 Deferred income 16 3,588 1,905 1,970 Other non-current liabilities 15 1,873 2,244 969 Total non-current liabilities 35,053 22,824 16,116 Current liabilities Loans & borrowings 14 5,539 4,482 5,499 Trade payables 13,400 9,712 7,205 Tax payables 926 255 128 Deferred income 16 17,822 14,696 10,449 Other current liabilities 17 10,147 9,212 8,657 Total current liabilities 47,834 38,357 31,938 Total equity and liabilities 161,920 144,136 133,221 *The years 2015 and 2014 have been restated to reflect the reclassification of the long-term deferred income. See note 2 for more information.The accompanying notes form an integral part of these consolidated financial statements. F-6Table of ContentsConsolidated statements of changes in equity Attributable to the owners of the parents (In thousands of euros) Notes Sharecapital Sharepremium Reserves Othercompre-hensiveincome Total Non-controllinginterest Totalequity At 1 January, 2016 2,729 78,098 1,407 721 82,955 — 82,955 Net loss — — (3,019) — (3,019) — (3,019) Other comprehensive loss — — — (1,833) (1,833) — (1,833) Total comprehensive income (loss) — — (3,019) (1,833) (4,852) — (4,852) Equity-settled share-based payment expense 13 — 921 9 — 930 — 930 At 31 December, 2016 2,729 79,019 (1,603) (1,112) 79,033 — 79,033 The accompanying notes form an integral part of these condensed interim consolidated financial statements. F-7Table of Contents Attributable to the owners of the parents (In thousands of euros) Notes Sharecapital Sharepremium Reserves Othercompre-hensiveincome Total Non-controllinginterest Totalequity At 1 January, 2015 2,788 76,650 5,764 97 85,299 (132) 85,167 Net loss — — (2,807) — (2,807) (53) (2,860) Other comprehensive income — — — 624 624 — 624 Total comprehensive income (loss) — — (2,807) 624 (2,183) (53) (2,236) Transfer share capital to share premium - correction 12 (69) 69 — — — — — Capital increase in cash 12 5 575 — — 580 — 580 Capital increase through exercise of warrants 12 5 90 — — 95 — 95 Acquisition NCI Mobelife 12 — — (1,562) — (1,562) 185 (1,377) Equity-settled share-based payment expense 13 — 714 12 — 726 — 726 At 31 December, 2015 2,729 78,098 1,407 721 82,955 — 82,955 The accompanying notes form an integral part of these condensed interim consolidated financial statements. F-8Table of Contents Attributable to the owners of the parents (In thousands of euros) Notes Sharecapital Sharepremium Reserves Othercompre-hensiveincome Total Non-controllinginterest Totalequity At 1 January, 2014 2,235 12,321 3,198 (29) 17,725 10 17,735 Net profit — — 2,061 — 2,061 (189) 1,872 Other comprehensive income — — — 126 126 — 126 Total comprehensive income (loss) — — 2,061 126 2,187 (189) 1,998 Equity-settled share-based payment expense 13 — 604 11 — 615 — 615 Capital increase initial public offering 12 480 70,004 — — 70,484 — 70,484 IPO Transaction costs 12 — (6,279) — — (6,279) — (6,279) Capital increase Rapidfit+ 12 — — 750 — 750 — 750 Written put option on NCI 12 — — (273) — (273) — (273) Payment Uncalled capital Mobelife 12 — — (7) — (7) 40 33 Capital increase Mobelife through exercise of warrants 13 — — 24 — 24 7 31 Capital increase through exercise of warrants 13 73 — — — 73 — 73 At 31 December, 2014 2,788 76,650 5,764 97 85,299 (132) 85,167 The accompanying notes form an integral part of these condensed interim consolidated financial statements. F-9Table of ContentsConsolidated cash flow statements For the year ended December 31 in 000€ Notes 2016 2015 2014 Operating activities Net (loss) profit of the year (3,019) (2,860) 1,872 Non-cash and operational adjustments Depreciation of property, plant & equipment 7 6,420 5,122 3,498 Amortization of intangible assets 6 1,954 1,585 1,067 Impairment of goodwill 5 — 104 — Share-based payment expense 13 977 769 675 Loss (gain) on disposal of property, plant & equipment 7 (149) (62) 23 Government grants — — (8) Movement in provisions 18 (116) — Movement reserve for bad debt 10 77 254 361 Financial income 20.9 (172) (413) (260) Financial expense 20.8 983 901 1,031 Impact of foreign currencies (400) (1,530) (2,781) Share in loss of a joint venture (equity method) 8 1,018 401 81 Deferred tax expense (income) 20.10 374 (761) 73 Income taxes 20.10 1,338 373 314 Fair value adjustment contingent consideration 4 (455) — — Other (78) — 23 Working capital adjustment & income tax paid — — — Increase in trade receivables and other receivables (6,465) (6,645) (5,749) Decrease (increase) in inventories (2,482) (1,671) (311) Increase in trade payables and other payables 9,086 7,148 5,177 Income tax paid (530) (246) (247) Net cash flow from operating activities 8,495 2,353 4,839 The accompanying notes form an integral part of these consolidated financial statements. F-10Table of Contents For the year ended December 31 in 000€ Notes 2016 2015 2014 Investing activities Purchase of property, plant & equipment 7 (12,237) (8,907) (9,581) Purchase of intangible assets 6 (2,342) (1,641) (923) Proceeds from the sale of property, plant & equipment (net) 7 1,928 338 103 Acquisition of subsidiary 4 — (1,619) (10,364) Investments in joint-ventures 8 — (1,000) (500) Investments in investments held to maturity 11 — 10,000 (10,000) Interest received 11 35 20 Net cash flow used in investing activities (12,640) (2,794) (31,245) Financing activities Proceeds from loans & borrowings and convertible debt 14 14,669 5,672 3,299 Repayment of loans & borrowings 14 (2,796) (4,711) (3,914) Repayment of finance leases 14 (1,898) (1,546) (1,403) Proceeds from the exercise of warrants 13 — 95 73 Capital increase in subsidiary by non-controlling interest — — 781 Purchase of non-controlling interest 12 — (1,377) — Contribution unpaid capital non-controlling interest — — 35 Capital increase in parent company 12 — 580 70,484 Direct attributable expense capital increase 12 — — (6,279) Interest paid (630) (589) (606) Other financial income (expense) (79) 88 (413) Net cash flow from (used in) financing activities 9,266 (1,788) 62,057 Net increase of cash & cash equivalents 5,121 (2,229) 35,651 Cash & cash equivalents at beginning of the year 11 50,726 51,019 12,598 Exchange rate differences on cash & cash equivalents 65 1,936 2,770 Cash & cash equivalents at end of the year 11 55,912 50,726 51,019 The accompanying notes form an integral part of these consolidated financial statements. F-11Table of ContentsNotes to the consolidated financial statements1 Corporate informationMaterialise NV is a limited liability company with its registered office at Technologielaan 15, 3001 Leuven, Belgium. The consolidated financial statementscomprise Materialise NV (the “Company” or “Parent”) and its subsidiaries (collectively, the “Group”). See Note 26 for a list of subsidiaries of the Company.The Group is a leading provider of additive manufacturing (AM) software and of sophisticated 3D printing services. The products and services of the Groupare organized in the three segments: Materialise Medical, Materialise Software and Materialise Manufacturing. The Group sells its products in Europe,Americas and Asia.The consolidated financial statements of the Group for the year ended December 31, 2016 were approved and authorized for issue on April 28, 2017 inaccordance with a resolution of the Parent’s Board of Directors. F-12Table of Contents2 Basis of preparationThe consolidated financial statements of the Group for the three years ended December 31, 2016 were prepared in accordance with the International FinancialReporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) (collectively “IFRS”) and with International FinancialReporting Standards (IFRS) as adopted by the European Union (“EU-IFRS”).These consolidated financial statements have been prepared on a historical cost basis, except for the assets and liabilities that have been acquired as part of abusiness combination which have been initially recognized at fair value and certain financial instruments which are measured at fair value.The consolidated financial statements are presented in thousands of euros (K€ or thousands of €) and all “currency” values are rounded to the nearestthousand (€000), except when otherwise indicated.The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Groupmanagement to exercise judgment in applying the Group’s accounting policies. The areas where significant judgment and estimates have been made inpreparing the financial statements and their effect are disclosed in Note 3.New standards, interpretations and amendments adopted by the GroupThe Group has adopted the following new and revised standards and interpretations issued by the IASB and IFRIC that are relevant to its operations andeffective for accounting periods beginning on January 1, 2016. • Amendments to IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciations and Amortization, effective for annual periodsbeginning on January 1, 2016. • Amendments to IFRS 11 – Accounting for Acquisition of Interests in Joint Operations, effective for annual periods beginning on January 1,2016. • Annual Improvements to IFRS 2012-2014 Cycle, effective for annual periods beginning on January 1, 2016. • Amendments to IFRS 10, IFRS 12 and IAS 28 – Investment Entities: Applying the Consolidation Exception, effective for annual periodsbeginning on January 1, 2016. • Amendments to IAS 1 – Disclosure Initiative, effective for annual periods beginning on January 1, 2016.The application of the above new standards and interpretations did not have a significant impact on the financial position and the results of the Group.Classification errorThrough September 30, 2016, the Group presented all deferred income associated with maintenance and license contracts and project contracts as a currentliability while a portion of such deferred income relates to contractual periods that are more than 12 months after the reporting date and therefore suchportion should have been presented as non-current. The Group has an increasing volume of software and project contracts with a contractual term of morethan 12 months.For the financial reporting year ended December 31, 2016, the Group is presenting portions of its deferred income associated with such contracts as currentand non-current liabilities. This presentation has been applied retroactively for the financial reporting year ended December 31, 2015 and 2014.The impact on the statement of financial position is as follows: For the year endedDecember 31 in 000€ 2015 2014 Deferred income - current - prior to change 16,509 11,652 Deferred income - current - restated 14,696 10,449 Reclassified non-current deferred maintenance revenue 1,813 1,203 Deferred income - non-current - prior to change 92 767 Deferred income - non-current - restated 1,905 1,970 F-13Table of Contents3 Summary of significant accounting policiesBasis for consolidationThe consolidated financial statements comprise the financial statements of the Group and its subsidiaries.Entities are fully consolidated from the date of acquisition, which is the date when the Group obtains control, and continue to be consolidated until the datewhen such control ceases. The financial statements of the entities are prepared for the same reporting period as the parent company, using consistentaccounting policies. All intra-Group balances, transactions, unrealized gains and losses resulting from intra-Group transactions and dividends are fullyeliminated.The Group attributes profit or loss and each component of other comprehensive income to the owners of the parent company and to the non-controllinginterest based on present ownership interests, even if the results in the non-controlling interest have a negative balance.A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over thesubsidiary, it will derecognize the assets (including goodwill) and liabilities of the subsidiary, any non-controlling interest and the other components ofequity related to the subsidiary. Any surplus or deficit arising from the loss of control is recognized in profit or loss. If the Group retains an interest in theprevious subsidiary, then such interest is measured at fair value at the date the control is lost.The proportion allocated to the parent and non-controlling interests in preparing the consolidated financial statements is determined based solely on presentownership interests.The following changes to the consolidation scope occurred in 2016: • Liquidation of the subsidiary Rapit Fit Holding Inc on February 17, 2016; • Merger of the subsidiary Cenat BVBA with Materialise NV on June 29, 2016; • Incorporation of the subsidiary Materialise S.R.L. (Italy) on July 29, 2016; • Incorporation of the subsidiary Materialise Australia PTY Ltd on September 30, 2016; • Merger of the subsidiary Elbimmo NV with Materialise NV on November 7, 2016; • Liquidation of the subsidiary Materialise Metal BVBA on December 5, 2016; • Liquidation of the subsidiary Mobelife NV on December 5, 2016;Non-controlling interestsThe Group has the choice, on a transaction by transaction basis, to initially recognize any non-controlling interest in the acquiree which is a presentownership interest and entitles its holders to a proportionate share of the entity’s net assets in the event of liquidation at either acquisition date fair value or,at the present ownership instruments’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets. Other components ofnon-controlling interest such as outstanding share options are generally measured at fair value. The Group has not elected to take the option to use fair valuein acquisitions completed to date and currently does not have non-controlling interest resulting from business combinations.Foreign currency translationThe Group’s consolidated financial statements are presented in euros, which is also the parent company’s functional currency. For each entity, the Groupdetermines the functional currency, and items included in the financial statements of each entity are measured using the functional currency.Financial statements of foreign subsidiariesForeign subsidiaries use the local currencies of the country where they operate. The statement of financial position is translated into euro at the closing rateon the reporting date and their income statement is translated at the average exchange rate at each month-end. Differences resulting from the translation of thefinancial statements of said subsidiaries are recognized in other comprehensive income as “exchange differences on translation of foreign operations”. F-14Table of ContentsForeign currency transactionsTransactions denominated in foreign currencies are translated into euro at the exchange rate at the end of the previous month-end. Monetary items in thestatement of financial position are translated at the closing rate at each reporting date and the relevant translation adjustments are recognized in financial oroperating result depending on its nature.Business combinations and goodwillBusiness combinations are accounted for using the acquisition method at the acquisition date, which is the date at which the Group obtains control over theentity. The cost of an acquisition is measured as the amount of the consideration transferred to the seller, measured at the acquisition date fair value, and theamount of any non-controlling interest in the acquiree.The Group measures goodwill initially at cost at the acquisition date, being: • the fair value of the consideration transferred to the seller, plus • the amount of any non-controlling interest in the acquiree, plus • if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree re-measured at the acquisition date,less • the fair value of the net identifiable assets acquired and assumed liabilitiesGoodwill is recognized as an intangible asset with any impairment in carrying value being charged to the consolidated income statement. Where the fairvalue of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidatedincome statement on acquisition date.Acquisition costs incurred are expensed and included in general and administrative expenses.Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value ofthe contingent consideration, which is deemed to be an asset or liability, will be recognized either as a profit or loss or as a change to other comprehensiveincome. If the contingent consideration is classified as equity, it should not be re-measured until it is finally settled within equity.Acquisition of non-controlling interests are accounted for as an equity transaction.Investments in joint venturesThe Group carries investment in a joint venture (RS Print NV). The Group’s investments in its joint venture is accounted for using the equity method. Underthe equity method, the investment in the joint venture was initially recognized at cost. The carrying amount of the investment is adjusted to recognizechanges in the Group’s share of net assets of the joint venture since the acquisition date. Goodwill relating to the joint venture is included in the carryingamount of the investment and is not tested for impairment individually.The income statement reflects the Group’s share of the results of operations of the joint venture. Any change in other comprehensive income of the jointventure is presented as part of the Group’s other comprehensive income. In addition, when there has been a change recognized directly in the equity of thejoint venture, the Group recognizes its share of the change in the statement of changes in equity. Unrealized gains and losses resulting from transactionsbetween the Group and the joint venture are eliminated to the extent of the interest in the joint venture.After application of the equity method, the Group determines whether it is necessary to recognize an impairment loss on its investment in its joint venture. Ateach reporting date, the Group determines whether there is objective evidence that the investment in the joint venture is impaired. If there is such evidence,the Group calculates the amount of impairment as the difference between the recoverable amount of the Group’s interest in the joint venture (higher of valuein use and fair value less costs to sell), and then recognizes the loss as ‘Share of profit or loss of joint ventures’ in the income statement. F-15Table of ContentsProperty, plant and equipmentProperty, plant and equipment is stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes borrowingcosts directly attributable to construction projects if the asset necessarily takes a substantial period of time to get ready for its intended use, it is probable thatthey will result in future economic benefits to the group and the cost can be measured reliably. When significant parts of property, plant and equipment arerequired to be replaced at intervals, the Group recognizes such parts as individual assets with specific useful lives and depreciates them accordingly.Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the property, plant and equipment as a replacement if therecognition criteria are satisfied. All other repair and maintenance costs are recognized in the income statement as incurred.Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows: • Buildings: 20-30 years• Furniture, Plant & Equipment 3-15 years• Property leased Assets - 20-30 years or lease term if shorter• Leased machines 5-10 years or lease term if shorterLand is not depreciated.A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end ofthe lease term, the asset is depreciated over the shorter of the estimated useful life of the asset or the lease term.An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefitsare expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceedsand the carrying amount of the asset) is included in the income statement when the asset is derecognized.The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year-end and adjusted prospectively, if appropriate.LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date, whether fulfillment ofthe arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitlyspecified in an arrangement.Finance leases which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at thecommencement of the lease at the fair value of the leased item or, if lower, at the present value of the minimum lease payments. Lease payments areapportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.Finance charges are recognized as financial expenses in the consolidated income statement.Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an “operating lease”), the total rentals payable underthe lease are charged to the consolidated income statement on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognizedas a reduction of the rental expense over the lease term on a straight-line basis.Borrowing costsBorrowing costs directly attributable to the acquisition, construction or production of a qualified asset that necessarily takes a substantial period of time toprepare for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur.Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. F-16Table of ContentsResearch and developmentResearch and development includes the costs incurred by activities related to the development of software solutions (new products, updates andenhancements), guides and other products.Development activities involve the application of research findings or other knowledge to a plan or a design of new or substantially improved (software)products before the start of the commercial use.Development expenditures on an individual project are recognized as an intangible asset when the Group can demonstrate: • the technical feasibility of completing the intangible asset so that the asset will be available for use or sale; • its intention to complete and its ability to use or sell the asset; • how the asset will generate future economic benefits; • the availability of resources to complete the asset; • the ability to measure reliably the expenditure during development.The Group has determined that the conditions for recognizing internally generated intangible assets from proprietary software, guide and other productdevelopment activities are not met until shortly before the products are available for sale, unless the development is done based upon specific request of thecustomer and subject to an agreement. As such, development expenditures not satisfying the above criteria and expenditures on the research phase of internalprojects are recognized in the consolidated income statement as incurred.Intangible assets other than goodwillIntangible assets comprise acquired technology and customer portfolio, patents and licenses, goodwill and technology and customers acquired in connectionwith business combinations. Those intangible assets are measured on initial recognition at cost, except for the acquired technology and customers arisingfrom business combinations, which are measured initially at fair value. Following initial recognition, intangible assets other than goodwill are carried at costless any accumulated amortization and accumulated impairment losses, if any.The useful life of the intangible assets is as follows: • Software: 3 years;• Patents and licenses: 5 years;• Acquired customers: 5-10 years;• Technology: 6-10 years.The intangible assets with finite lives are amortized over their useful economic life and assessed for impairment whenever there is an indication that theintangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least atthe end of each reporting period. The amortization expense on intangible assets with finite lives is recognized in the consolidated income statement based onits function which may be “cost of sales”, “sale & marketing expenses”, “research & development expenses” and “general and administrative expenses”.Impairment of goodwill and other non-financial assets (excluding inventories and deferred tax assets)Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Othernon-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written downaccordingly.Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest Group of assets to whichit belongs for which there are separately identifiable cash flows; its cash generating units (‘CGUs’). Goodwill is allocated on initial recognition to each of theGroup’s CGUs that are expected to benefit from the synergies of the combination giving rise to the goodwill. F-17Table of ContentsThe Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs towhich the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-termgrowth rate is calculated and applied to future cash flows projected after the fifth year.Impairment charges are included in profit or loss, except, where applicable, to the extent they reverse gains previously recognized in other comprehensiveincome. An impairment loss recognized for goodwill is not reversed.Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operationdisposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in thiscircumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.InventoriesInventories are valued at the lower of cost and net realizable value.Costs incurred in bringing each product to its present location and condition are accounted for as follows: • Raw materials: purchase cost on a first in, first out basis; and • Finished goods and work in progress: cost of direct materials and labor and a proportion of manufacturing overheads based on the normaloperating capacity, but excluding borrowing costsNet realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary tomake the sale.A write-off of inventories is estimated based on an ageing or rotation analysis.Financial assetsFinancial assets include loans, deposits, receivables and held-to-maturity investments measured at amortized cost. The Group currently does not haveavailable for sale financial investments.Financial assets measured at amortized costThe Group has loans and receivables and held-to-maturity investments that are measured at amortized cost.The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position.Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of threemonths or less, and – for the purpose of the statement of cash flows – bank overdrafts. Bank overdrafts are shown within loans and borrowings in currentliabilities on the consolidated statement of financial position.The Group has held-to-maturity investments only during 2014. Non-derivative financial assets with fixed or determinable payments and fixed maturities areclassified as held to maturity when the Group has the positive intention and ability to hold them to maturity.Financial assets that are classified as loans and receivables and held-to-maturity are initially measured at fair value plus transaction costs and subsequently atamortized cost using the effective interest rate method (EIR). Amortized cost is calculated by taking into account any discount or premium on acquisitionand fees or costs that are an integral part of the EIR. The EIR amortization is included under financial income in the consolidated income statement. Thelosses arising from impairment are recognized in the consolidated income statement under other operating expenses or financial expenses.Financial assets measured at fair valueThe Group does not currently have financial assets classified as financial assets at fair value through profit or loss except for a call option on non-controllinginterests in Rapidfit+ as disclosed in Note 12. F-18Table of ContentsImpairment of financial assetsThe group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financialasset or a group of financial assets is to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred after theinitial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the groupof financial assets that can be reliably estimated.If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carryingamount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value ofthe estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate formeasuring any impairment loss is the current effective interest rate.The carrying amount of the asset is reduced through the use of an allowance account and the amount of loss is recognized in the income statement.Financial liabilitiesThe Group has financial liabilities measured at amortized cost which include loans and borrowings, trade payables and other payables and financialliabilities resulting from written put options on non-controlling interests. The Group currently does not have financial liabilities held for trading.Financial liabilities at amortized costThose financial liabilities are recognized initially at fair value plus directly attributable transaction costs and are measured at amortized cost using theeffective interest rate method. Gains and losses are recognized in the income statement when the liabilities are derecognized as well as through the effectiveinterest rate method amortization process.Written put options on non-controlling interestThe Group recognizes a financial liability for the written put options on non-controlling interest. The written put options have a variable redemption pricebased on a formula as specified in the contract (see Note 12). • The financial liability is initially recognized at fair value and the fair value is reclassified from non-controlling interest and, for any amounthigher than the non-controlling interest, from consolidated reserves. • The fair value is determined as the present value of the redemption amount. • Any change in the fair value as a result of a change in the estimated redemption price is recognized directly in consolidated reserves. Anyunwinding effect of the present value of the redemption price is recognized directly in profit and loss (financial cost). • No share of profit is allocated to the non-controlling interest. • Upon exercise of the written put option, the carrying value will be reclassified to consolidated reserves. When the written put option is notexercised, the carrying value of the financial liability is derecognized against consolidated reserves.Compound financial instrumentsThe Group has issued convertible debt which is accounted for as a compound financial instrument. For those instruments, the Group determines the carryingamount of the liability component by measuring the fair value of a similar liability (including any embedded non-equity derivative features) that does nothave an associated equity component. The carrying amount of the equity instrument is then determined by deducting the fair value of the financial liabilityfrom the fair value of the compound financial instrument as a whole.DerecognitionA financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. F-19Table of ContentsOffsettingFinancial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currentlyenforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilitiessimultaneously.Share capitalFinancial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financialasset. The Group’s ordinary shares are classified as equity instruments.ProvisionsProvisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resourcesembodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.Pensions benefitsThe Group has a defined contribution obligation where the Group pays contributions based on salaries to an insurance company, in accordance with the lawsand agreements in each country.The Belgian defined contribution pension plans are by law with variable minimum returns based on the Belgian government bonds, with a minimum of1.75% and a maximum of 3.75%, effective for contributions paid as from 2016. For contribution paid until 2015, the minimum guaranteed return is 3.25% onemployer contributions and 3.75% on employee contributions.These plans qualify as defined benefit plans. However for the years 2015 and before, when taken into account the historical discussions on how to account forthese specific type of plans where the contributions paid are subject to a minimum guaranteed return at the level of IFRIC, the Company believes theapplication of the projected unit credit method to these plans is troublesome and will not provide a faithful representation of the liability with respect tothese promises. The Group has adopted a retrospective approach whereby the net liability recognized in the statement of financial position is based on thesum of the positive differences, determined by individual plan participant, between the minimum guaranteed reserves and the benefits accrued at the closingdate based on the actual rates of return.Contributions are recognized as expenses for the period in which employees perform the corresponding services. Outstanding payments at the end of theperiod are shown as other current liabilities.As from 2016, those plans are accounted for as a defined benefit plan however are considered not material.Share based paymentsDirectors and employees (including senior executives) of the Group receive remuneration in the form of share-based payments, whereby employees renderservices as consideration for equity instruments (equity-settled transactions). The Group currently has only warrants and share-appreciation rights as share-based payments.Equity-settled transactionsEquity-settled share-based payments to employees and others providing similar services are measured, indirectly, at the fair value of the equity instrumentsgranted. The cost of equity-settled transactions is recognized, together with a corresponding increase in other capital reserves in equity, over the period inwhich the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at each reporting date untilthe vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that willultimately vest. The income statement expense or credit for a period represents the movement in cumulative expense recognized at the beginning and end ofthat period and is recognized as employee benefits expense. F-20Table of ContentsThe Group does currently only have equity-settled share-based payments that have service-based vesting conditions and no instruments with market vestingconditions.No expense is recognized for awards that do not ultimately vest.When the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the originalterms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based paymenttransaction, or is otherwise beneficial to the employee as measured at the date of modification.When an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognized for the award isrecognized immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However,if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards aretreated as if they were a modification of the original award, as described in the previous paragraph.Cash-settled transactionsThe Group has cash-settled share-based payment transaction for certain employees in certain countries due to legal requirements (in the form of share-appreciation rights). The cost of cash-settled transactions is measured initially at fair value at the grant date. This fair value is expensed over the period untilthe vesting date with recognition of a corresponding liability. The liability is remeasured to fair value at each reporting date up to, and including thesettlement date, with changes in fair value recognized in employee benefits expense.Revenue recognitionThe Group’s revenue, which is presented net of sales taxes, is primarily generated by the sale of our software and 3D printed products and services. Softwarerevenue is comprised of perpetual and periodic licenses, maintenance revenue and software development service fees. Perpetual license holders may opt totake an annual maintenance contract, which leads to annual fees. Periodic licenses entitle the customer to maintenance, support and product updates withoutadditional charge. 3D printed product revenue is derived from our network of 3D printing service centers and may include support and services such aspre-production collaboration prior to printing the product.The Group sells its products and software through its direct sales force and through authorized distributors.Software license revenue, maintenance and/or software development service fees may be bundled in one arrangement, or may be sold separately.The Group recognizes revenue for goods including software when all the significant risks and rewards have been transferred to the customer, no continuingmanagerial involvement usually associated with ownership of the goods is retained, no effective control over the goods sold is retained, the amount ofrevenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the entity and the costs incurred or tobe incurred in respect of the transaction can be measured reliably.3D printed productsThe Group recognizes revenue on the sale of goods to the customer or distributor upon shipment or delivery taking into account the shipment terms (usuallyEx-works or FOB Time of Shipment Incoterms (International Commercial Terms)).Perpetual licensed softwareThe sale and/or license of software products is deemed to have occurred when a customer either has taken possession of or has the ability to take immediatepossession of the software and the software key.Perpetual software licenses can include one year maintenance and support services. The Company sells these maintenance services also on a stand-alonebasis and is therefore capable of determining their fair value. On this basis, the amount of the embedded maintenance is separated from the fee for theperpetual license and is recognized ratably over the period to which they relate. F-21Table of ContentsTime-based licensed softwareThe time-based license agreements include the use of a software license for a fixed term and maintenance and support services during the same period. TheCompany does not sell time-based licenses without maintenance and support services and therefore revenues for the entire arrangements are recognizedratably over the term.Maintenance and support servicesThe Group recognizes revenue from maintenance and support services ratably on a straight-line basis over the term that the maintenance service is provided.In general, maintenance services are not automatically renewed.A maintenance and support contract may include a reinstatement for previous years when the customer did not have a maintenance and support contractpreviously. Revenue from reinstatements are recognized immediately when the maintenance and support services commence.Software development services (SDS)SDS include customized development of software components for customers. The Group recognizes revenue on SDS agreements based either on time andmaterial basis or on the stage of completion of each service contract and when the stage of completion can be measured reliably.The Company determines the percentage-of-completion by comparing labor hours incurred to-date to the estimated total labor hours required to complete theproject. The Company considers labor hours to be the most reliable available measure of progress on these projects. Adjustments to the Company’s estimatesof the time to completion are made when facts resulting in a change become known. When the estimate indicates that a loss will be incurred, such loss isrecognized immediately.Multiple element arrangementsThe Group has entered into a number of multiple element arrangements, such as when selling perpetual licenses that may include maintenance and support(included in price of perpetual licenses) and time-based licenses (that include embedded maintenance and support, both of which may be sold with softwaredevelopment services, training, and other product sales). In some cases, the Group delivers software development services bundled with the sale of thesoftware.In multiple element arrangements, whether sold to end-customers or to collaboration partners, the Company uses either the stand-alone selling prices ormanagement’s best estimate of selling prices to determine the fair value of each separate element within the arrangement, including software and software-related services such as maintenance and support. In general, elements in such arrangements are also sold on a stand-alone basis and stand-alone sellingprices are available. Where a selling price does not exist on a stand-alone basis or an estimate cannot be made for such element, as it may not be soldseparately, then the remaining fees within the contract are recognized over the contractual period on a straight-line basis.Revenue is allocated to each deliverable based on the fair value of each individual element and is recognized when the revenue recognition criteria describedabove are met, except for time-based licenses which are not unbundled. When software development services are performed and are considered essential tothe functionality of the software, the Group recognizes revenue from the software development services on a stage of completion basis, and the revenue fromthe software when the related development services have been completed.Contracts with collaboration partners in the medical segment also include multiple elements such as software, maintenance and support services, training,software development services, 3D printed products and royalties. Revenue from those contracts is determined and recognized consistent with other multipleelement arrangements.For certain contracts with collaboration partners, the Company also receives up-front fees, paid by customers for certain exclusivity rights granted only onpreviously acquired perpetual software licenses, which may be bundled with transfer of title, rights and ownership of certain software products andmaintenance and support services. The Group recognizes revenues in such arrangements using the reverse-residual method, where fees for the items that aredeemed separate elements, such as maintenance and support services, training, software development services, 3D printed products and royalties arerecognized based on their estimated fair value as each element is delivered. The remaining fees within the arrangement are recognized on a straight-line basisover the period of exclusivity, which is up to five years. F-22Table of ContentsRoyalty incomeRoyalty income is recognized on an accrual basis as revenue when the royalty is earned. Such royalty income is earned when the corresponding 3D printedgoods have been delivered to the customer.Interest incomeFor all financial instruments measured at amortized cost, interest income is recorded using the effective interest rate, which is the rate that exactly discountsthe estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carryingamount of the financial asset or liability. Interest income is included under financial income in the income statement.Government grantsGovernment grants are recognized when there is reasonable assurance that the grant will be received and all attached conditions will be complied with. Whenthe grant relates to development costs or another expense, it is recognized as income over the grant period necessary to match the income on a systematicbasis to the costs that it is intended to compensate.Such grants have been received from the Belgian federal and regional governments and from the European Union in the forms of grants linked to certain of itsresearch and development programs, reduced payroll taxes and the financing of the construction of an office building in Leuven (Belgium).Where retention of a government grant related to assets or to income, is dependent on the Company satisfying certain criteria, it is initially recognized asdeferred income. When the criteria for retention have been satisfied, the deferred income balance is released to other operating income in the consolidatedincome statement on a systematic basis over the periods in which the entity recognizes as expenses the related costs for which the grants are intended tocompensate.Any government grants recognized as income do not have any unfulfilled conditions or other contingencies attached to them, as otherwise we would not berecognizing income for such.Other financial income and expensesOther financial income and expenses include mainly foreign currency gains or losses on financial transactions and bank related expenses.TaxesCurrent income taxIncome tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The taxrates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date.Current income tax relating to items that are recognized directly in equity is recognized in equity and not in the income statement. Management periodicallyevaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishesprovisions where appropriate.Deferred taxDeferred tax is calculated using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and theircarrying amounts for financial reporting purposes.Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductibletemporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized. F-23Table of ContentsThe carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxableprofit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date andare recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, basedon tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilitiesand the deferred taxes relate to the same taxable entity and the same taxation authority.Sales taxRevenue, expenses and assets are recognized net of the amount of VAT, except: • Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax isrecognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • Receivables and payables that are stated with the amount of sales tax included.The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financialposition. F-24Table of ContentsNew and revised standards not yet adoptedThe standards and interpretations that are issued, but not yet effective, up to the closing date of the Group’s financial statements are disclosed below.A number of new standards, amendments to standards, and interpretations are not effective for 2016, and therefore have not been applied in preparing theseaccounts.IFRS 9 Financial InstrumentsIn July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurementand all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification andmeasurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early applicationpermitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedgeaccounting, the requirements are generally applied prospectively, with some limited exceptions.IFRS 9 requires us to record expected credit losses on all of our debt securities, loans and trade receivables, either on a 12-month or lifetime basis. We expectto apply the simplified approach and record lifetime expected losses on all trade receivables.We plan to adopt the new standard on the required effective date. We expect no significant impact on our balance sheet and equity.IFRS 15 Revenue from Contracts with CustomersIFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue isrecognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.The standard provides a single, principles based five step model to be applied to all contracts with customers as follows: • Identify the contract(s) with a customer; • Identify the performance obligations in the contract; • Determine the transaction price; • Allocate the transaction price to the performance obligations in the contract; and • Recognize revenue when (or as) the entity satisfies a performance obligation.The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modifiedretrospective application is required for annual periods beginning on or after January 1, 2018. We plan to adopt the new standard on the required effectivedate. We have performed a preliminary assessment of IFRS 15, which is subject to changes arising from a more detailed ongoing analysis. Once the analysis isperformed, the transition method will be chosen. Based on the current sales contracts, both methods are feasible from implementation perspective and we donot expect a significant impact in the implementation. Furthermore, we are considering the clarifications issued by the IASB in April 2016 and will monitorany further developments.We will continue to assess individual contracts to determine the performance obligations included, relating to licenses and royalty based sales, maintenanceand support services and the estimated variable considerations and related constraints.IFRS 15 provides presentation and disclosure requirements, which are more detailed than under current IFRS. The presentation requirements represent asignificant change from current practice and significantly increases the volume of disclosures required in Company’s financial statements. Many of thedisclosure requirements in IFRS 15 are completely new. In 2016 we developed and started testing appropriate systems, internal controls, policies andprocedures necessary to collect and disclose the required information. F-25Table of ContentsOur directors are currently reviewing the impact of the implementation of IFRS 15 and have yet to conclude on whether it will have a significant impact onour financial statements in the year of initial application. This analysis is expected to be finalized in the last quarter of 2017.IFRS 16, LeasesIFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition,measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to theaccounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personalcomputers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability tomake lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset).Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future leasepayments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of theremeasurement of the lease liability as an adjustment to the right-of-use asset.IFRS 16 is effective for annual periods beginning on or after January 1, 2019, subject to endorsement by the European Union. Early application is permitted,but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. Thestandard’s transition provisions permit certain reliefs. We are however not intending to early adopt this standard.During 2017 we plan to assess the potential effect of IFRS 16 on our consolidated financial statements. To see the volume of operating leases, please refer toNote 22.The other standards, interpretations and amendments issued by the IASB and relevant for the Group, but not yet effective are not expected to have a materialimpact on the Group’s future consolidated financial statements: • Annual Improvements to IFRSs 2014-2016 Cycle (December 2016); • IFRS 2: Share-based Payment — Amendments to clarify the classification and measurement of share-based payment transactions (June 2016); • IFRS 7: Financial Instruments: Disclosures (Amendments December 2011) — Deferral of mandatory effective date of IFRS 9 and amendments totransition disclosures • IFRS 7: Financial Instruments: Disclosures (Amendment November 2013) — Additional hedge accounting disclosures (and consequentialamendments) resulting from the introduction of the hedge accounting chapter in IFRS 9 • IFRS 9: Financial Instruments — Classification and Measurement (Original issue July 2014, and subsequent amendments) • IFRS 10 Consolidated Financial Statements — Amendments regarding the sale or contribution of assets between an investor and its associate orjoint venture (September 2014) • IAS 7: Cash flow statement — Amendments as result of the Disclosure initiative (January 2016) • IAS 12: Income taxes — Amendments regarding the recognition of deferred tax assets for unrealized losses (January 2016) • IAS 28: Investments in Associates and Joint Ventures — Amendments regarding the sale or contribution of assets between an investor and itsassociate or joint venture (September 2014) • IAS 39: Financial Instruments: Recognition and Measurement — Amendments for continuation of hedge accounting (fair value hedge of interestrate exposure) when IFRS 9 is applied (November 2013) • IFRIC 22: Foreign Currency Transactions and Advance Consideration (December 2016) F-26Table of ContentsSignificant accounting judgments, estimates and assumptionsThe preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reportedamounts of revenue, expenses, assets and liabilities, and the accompanying disclosures. Uncertainty about these assumptions and estimates could result inoutcomes that require a material adjustment to the carrying amount of assets or liabilities for future periods.On an ongoing basis, the Group evaluates its estimates, assumptions and judgments, including those related to revenue recognition, development expenses,share-based payment transactions, income taxes, impairment of goodwill, intangible assets and property, plant & equipment and business combinations.The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstancesand assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Suchchanges are reflected in the assumptions when they occur.Revenue recognitionFor revenue recognition, the significant estimates and judgments relate to allocation of value to our separate elements in our multiple-element arrangementsand in identifying stage of completion of our customized development of software components for customers. Software development services are mostlybilled on time & material basis or occasionally on a fixed basis.With respect to the allocation of value to the separate elements, the Company is using the stand-alone selling prices or management best estimates of sellingprices to estimate the fair value of the software and software-related services to separate the elements and account for them separately. Elements in such anarrangement are also sold on a stand-alone basis and stand-alone selling prices are available. Revenue is allocated to each deliverable based on the fair valueof each individual element and is recognized when the revenue recognition criteria described above are met. When we provide software development servicesconsidered essential to the functionality of the software, we recognize revenue from the software development services as well as any related software licenseson a percentage of completion basis whereby the arrangement consideration is recognized as the services are performed, as measured by an observable input.We determine the percentage-of-completion by comparing labor hours incurred to-date to the estimated total labor hours required to complete the project. Weconsider labor hours to be the most reliable, available measure of progress on these projects. Adjustments to estimates to complete are made in the periods inwhich facts resulting in a change become known. When the estimate indicates that a loss will be incurred, such loss is recorded in the period identified.Significant judgments and estimates are involved in determining the percent complete of each contract. Different assumptions could yield materiallydifferent results.Our revenue recognition policies require management to make significant estimates. Management analyzes various factors, including a review of specifictransactions, historical experience, creditworthiness of customers and current market and economic conditions. Changes in judgments based upon thesefactors could impact the timing and amount of revenue and cost recognized and thus affects our results of operations and financial condition.Development expensesUnder IAS 38, internally generated intangible assets from the development phase are recognized if certain conditions are met. These conditions include thetechnical feasibility, intention to complete, the ability to use or sell the asset under development, and the demonstration of how the asset will generateprobable future economic benefits. The cost of a recognized internally generated intangible asset comprises all directly attributable cost necessary to makethe asset capable of being used as intended by management. In contrast, all expenditures arising from the research phase are expensed as incurred.Determining whether internally generated intangible assets from development are to be recognized as intangible assets requires significant judgment,particularly in determining whether the activities are considered research activities or development activities, whether the product enhancement issubstantial, whether the completion of the asset is technical feasible considering a company-specific approach, the probability of future economic benefitsfrom the sale or use.Management has determined that the conditions for recognizing internally generated intangible assets from proprietary software, guide and other productdevelopment activities are not met until shortly before the products are available for sale, unless the development is done based upon specific request of thecustomer and subject to an agreement. As such, development expenditure not satisfying the above criteria and expenditure on the research phase of internalprojects are recognized in the consolidated income statement as incurred. This assessment is monitored by the Group on a regular basis. F-27Table of ContentsShare-based payment transactionsThe Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which theyare granted and measured the cost of cash-settled transactions by reference to the fair value of the equity instrument at the date of reporting. The Group hasapplied the Black-Scholes valuation model to estimate fair value. Using this model requires management to make assumptions with regards to volatility andexpected life of the equity instruments. The assumptions used for estimating fair value for share-based payment transactions are disclosed in Note 13 and areestimated as follows: • Volatility is estimated based on the average annualized volatility of the Group; • Estimated life of the warrant is estimated to be until the first exercise period which is typically the month after their vesting; • Fair value of the shares is determined based on the share price of the Group on Nasdaq at the date of issuance. For the grants prior to the initialpublic offering, the fair value of the shares was estimated based on a discounted cash flow model with 3-year cash flow projections and a multipleof EBITDA determined based on a number quoted peers in the 3D printing industry. • The dividend return is estimated by reference to the historical dividend payment of the Group. Currently, this is estimated to be zero as nodividends have been paid since inception.Income taxesDeferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can beutilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timingand the level of future taxable profits together with future tax planning strategies.As at 31 December 2016, the Group had K€9,451 (2015: K€12,231; 2014: K€10,293) of tax losses carry forward and other tax credits such as investment taxcredits and notional interest deduction, of which K€1,570 related to Materialise NV (2015: K€2,009; 2014: K€3,634). These losses relate to the parent andsubsidiaries that have a history of losses, do not expire, except for the notional interest deduction of K€315 in 2016 (2015: K€402; 2014: K€338) and maynot be used to offset taxable income elsewhere in the Group.With respect to the unused tax losses of Materialise NV, no deferred tax assets have been recognized in 2016, 2015 and 2014, given that it in view of theBelgian Patent Income Deduction there is an uncertainly to which extent these tax losses will be used in future years. The Belgian Patent Income Deductionallows companies to deduct 80% of the qualifying gross patent income from the taxable basis. Currently the Company is updating the detailed analysis of itstax situation and tax planning. Once this analysis has been finalized, the Company will reassess the need for a valuation allowance on the deferred tax assets.With respect to the unused tax losses and credits of the other entities, deferred tax assets have been recognized for K€109 only (2015: K€906; 2014: K€58).The Group has not recognized deferred tax assets on unused tax losses totaling K€8,877 in 2016 (2015: K€9,660 ; 2014: K€9,226) given that it is notprobable that sufficient positive taxable base will be available in the foreseeable future against which these tax losses can be utilized.If the Group was able to recognize all unrecognized deferred tax assets, net profit would have increased by K€3,017 in 2016 during which K€783 of taxlosses were utilized. Further details on taxes are disclosed in Note 20.10.Impairment of goodwill, intangible assets and property, plant & equipmentThe Group has goodwill for a total amount of K€8,860 as at December 31, 2016 (2015: K€9,664 ; 2014: K€7,714 ) which has been subject to an impairmenttest. The goodwill is tested for impairment based on a discounted cash flow model with cash flows for the next five years derived from the budget and aresidual value considering a perpetual growth rate. The value in use is sensitive to the discount rate used for the DCF model as well as the expected futurecash-inflows and the growth rate used for extrapolation purposes. The key assumptions used to determine the value in use for the different CGUs are disclosedand further explained in Note 5.When events or changes in circumstances indicate that the carrying amount of the intangible assets and property, plant and equipment may not berecoverable, we estimate the value in use for the individual assets, or when not possible, at the level of CGUs to which the individual assets belong. Noimpairment charges have been recorded during 2016 (2015: K€104; 2014: K€216). F-28Table of ContentsBusiness combinationsWe determine and allocate the purchase price of an acquired business to the assets acquired and liabilities assumed as of the business combination date. Thepurchase price allocation process requires us to use significant estimates and assumptions, including • estimated fair value of the acquired intangible assets; • estimated fair value of property, plant and equipment; and • estimated fair value of the contingent consideration.The contingent consideration as included in the financial statements is recorded at fair value at the date of acquisition and is reviewed on a regular basis, atleast annually. The fair value of the contingent consideration is based on risk-adjusted future cash flows of different scenarios discounted using appropriateinterest rates. The structure of the possible scenarios and the probability assigned to each one of them is reassessed by management at every reporting periodand requires judgement from management about the outcome and probability of the different scenarios as well as the evolution of the variables.While we are using our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilitiesassumed at the date of acquisition, our estimates and assumptions are inherently uncertain and subject to refinement. Examples of critical estimates invaluing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to: • future expected cash flows from customer contracts and relationships, software license sales and maintenance agreements; • the fair value of the plant and equipment • the fair value of the deferred revenue; and • discount rates. F-29Table of Contents4 Business CombinationsAcquisitions in 2016The Group has not completed any Business Combinations during the year 2016Acquisitions in 2015AldemaThe Group signed a sale and purchase agreement on 26 February 2015 to acquire all of the shares and voting interests of Aldema BVBA, an entityincorporated in Belgium, for a total purchase consideration in cash of K€76. Aldema BVBA had developed expertise in metal 3D printing and is integrated inthe Materialise Manufacturing segment.The fair values of the identifiable assets and liabilities at the date of acquisition were: in thousands of euro Fair value atacquisition date Assets PP&E 306 Inventory 17 Trade receivables 22 345 Liabilities Financial debts (295) Trade payables (34) Other liabilities (117) (446) Total identified assets and liabilities (101) Goodwill 177 Acquisition price paid in cash 76 Cash flow from business combination Cash & cash equivalents acquired — Acquisition price (76) Total cash flow (76) The carrying value of the acquired assets and liabilities equaled its fair value. As such, the amount of excess paid was fully accounted for as goodwill.The contribution of the acquired business to the revenue and net loss was respectively K€4 and K€(105) as of 31 December 2015. The revenue and the netloss of the acquired business as if it would have been acquired at 1 January 2015 is not materially different.The goodwill recognized is primarily attributable to the expected synergies and the accelerated go-to-market time for the products developed with theacquired technology. The goodwill is not deductible for income tax purposes. F-30Table of ContentsCenatThe Group signed a sale and purchase agreement on 10 March 2015 to acquire all of the shares and voting interests of Cenat BVBA for a consideration incash of K€1,547 and a contingent consideration related to certain targets set over the coming years between K€0 and K€2.250. The fair value of thiscontingent consideration as of December 31, 2015 was estimated at K€1,310.This Belgian-based company was primarily acquired for its technology in the field of embedded computing software and solutions for additivemanufacturing control systems.The fair values of the identifiable assets and liabilities at the date of acquisition were: in thousands of € Carryingvalue atacquisitiondate Fair valueadjustments Fair valueatacquisitiondate Assets Technology 3 1,671 1,674 PP&E 34 — 34 Inventory 39 — 39 Trade receivables 2 — 2 Other current assets 32 — 32 Cash 4 — 4 114 1,671 1,785 Liabilities Financial debts (8) — (8) Deferred tax liabilities — (568) (568) Trade payables (22) — (22) Other liabilities (39) — (39) (69) (568) (637) Total identified assets and liabilities 45 1,103 1,148 Goodwill 1,709 Acquisition price 2,857 Cash flow from business combination Cash & cash equivalents acquired 4 Consideration paid in cash (1,547) Total cash flow (1,543) As of December 31, 2015 the fair value of the technology amounts to K€1,674. The deferred tax liabilities comprise the tax effect of the fair value adjustmentfor the technology platform. The fair value of the contingent consideration payable was valued at K€1,310 and relates to the achievement of certain financialtargets related to revenue and production costs as a percentage of revenue set for the next years up to 2019. The contingent consideration is payable in theyears 2018, 2019 and 2020.The contribution of the acquired business to the revenue and net loss was respectively K€0 and K€(500) as of 31 December 2015. The revenue and the netloss of the acquired business as if it would have been acquired at 1 January 2015 is not materially different.The goodwill recognized is primarily attributable to the expected synergies and the accelerated go-to-market time for the products developed with theacquired technology. The goodwill is not deductible for income tax purposes.The total amount of the acquisition related costs were not material. F-31Table of ContentsAcquisitions in 2014E-prototypyThe Group signed a sale and purchase agreement on 23 January 2014 to acquire all of the shares and voting interests of e-prototypy, an entity incorporated inPoland, for a total purchase consideration in cash of K€1,260. The entity e-prototypy is a provider of rapid prototypes and 3D printing in Poland since 2008and is integrated in the industrial production segment.The acquisition meets the definition of a business.The fair values of the identifiable assets and liabilities at the date of acquisition were: in thousands of euro Carryingvalue atacquisitiondate Fair valueadjustments Fair valueatacquisitiondate Assets Customer relationships — 93 93 Favorable contract — 87 87 Other intangible assets 4 — 4 Property, plant & equipment 756 — 756 Other assets 229 — 229 989 180 1,169 Liabilities Deferred tax liabilities — (34) (34) Other liabilities (695) — (695) (695) (34) (729) Total identified assets and liabilities other than goodwill 294 146 440 Goodwill 820 Acquisition price paid in cash 1,260 The cash flow from the business combination is as follows: Cash & cash equivalents acquired 98 Acquisition price (1,260) Total cash flow (1,162) The fair value of the customer relationship amounts to K€93 and the fair value of property, plant & equipment (mainly 3D printers) amounts to K€756. Thedeferred tax liabilities comprise the tax effect of the fair value adjustment for the customer relationships. There were no contingent considerations payable.The fair value of the receivables at acquisition date is K€98 which equals the gross contractual amounts receivable.The contribution of the acquired business to the revenue and net loss was respectively K€1,115 and K€(264) as of 31 December 2014. The revenue and thenet loss of e-Prototype since 1 January 2014 is not materially different.The goodwill recognized is primarily attributable to the expected synergies, acquiring the market leadership in Poland and highly skilled workforce. Thegoodwill is not deductible for income tax purposes.The total amount of the acquisition related costs were not material. F-32Table of ContentsOrthoviewOn 21 October 2014 the Group acquired all shares of OrthoView Holdings (“Orthoview”), a United Kingdom based company specializing in OrthopedicPre-Operative Planning Software. Orthoview generates income mainly in the US, Europe, Japan & Latin-America using its two main sale channels: direct salesand PACS (“Picture Archiving Communication System”) partners. The acquisition meets the definition of a business. Orthoview is integrated in the medicalsegment.The fair values of the identifiable assets and liabilities at the date of acquisition were: in thousands of euros Carryingvalue atacquisitiondate Fair valueadjustments Fair valueatacquisitiondate Assets Technology — 1,278 1,278 Customer relations — 4,688 4,688 Other intangible assets 1 — 1 Property, plant & equipment 11 — 11 Cash and cash equivalents 1,522 — 1,522 Other assets 909 — 909 2,443 5,966 8,409 Liabilities Deferred tax liability 226 (1,325) (1,099) Deferred income (1,754) 346 (1,408) Accrued charges (84) — (84) Other liabilities (154) — (154) (1,766) (979) (2,745) Total identified assets and liabilities 677 4,987 5,664 Goodwill 5,060 Acquisition price paid in cash 10,724 Cash flow from business combination Cash & cash equivalents acquired 1,522 Acquisition price (10,724) Total cash flow (9,202) The accounting for the business combination was finalized during 2015 whereby the fair value of the deferred income has been reduced from K€1,754 toK€1,408 impacting also the fair values of the customer relationships and the technology. The fair value of the customer relationship amounts to K€4,688 andthe fair value of the technology amounts to K€1,278. The deferred tax liabilities comprise the tax effect of the fair value adjustment for the customerrelationships, technology and deferred income. The purchase price paid at the acquisition date amounted to KGBP 8,472 or K€10,724. The fair value of thereceivables is K€909 which equals the gross contractual amounts receivable.There are no contingent considerations payable.The goodwill recognized is primarily attributable to the expected synergies that will be realized by increasing the sales of OrthoView’s products through theMaterialise sales organization and by integrating the Group’s 3D technology in the OrthoView’s Orthopedic Pre-Operative Planning Software. The goodwillis not deductible for income tax purposes.The contribution of the acquired business to the revenue and net profit of the Group for the year ended 31 December 2014 were respectively K€937 andK€265. The pro forma revenue and the pro forma net profit of the acquired business would have been K€3,438 and K€797, respectively, if the business wouldhave been acquired on 1 January 2014.The total amount of the acquisition related costs is K€157 which have been recognized in the line “General and administrative expenses”. F-33Table of ContentsChanges in the measurement of the contingent consideration for previous acquisitionsCenatThe Group signed a sale and purchase agreement on 10 March 2015 to acquire all of the shares and voting interests of Cenat BVBA for a consideration incash of K€1,547 and a contingent consideration related to certain targets set over the coming years between K€0 and K€2.250. The fair value of thiscontingent consideration was estimated at time of time of final accounting (31 December 2015) at K€1,310 .The Group has re-estimated the fair value of the contingent consideration at 31 December 2016 to K€909, based on the historical results and the forecastedfinancial information for the period 2017 to 2019. The fair value adjustment resulted in a gain of K€455 recorded in the line “other operating income(expenses)”.The undiscounted earn-out scenarios range from K€610 to K€1,507 . The probabilities for each scenario range from 0 % to 40 % whereby a cumulativeprobability of at least 50% is allocated to the scenarios with a undiscounted consideration between K€610 and K€641. F-34Table of Contents5 GoodwillThe goodwill has been allocated to the cash generating units (“CGU”) as follows: For the year ended December 31 in thousands of euros 2016 2015 2014 CGU: MAT NV SAM BE 3,241 3,241 1,532 CGU: e-Prototype 775 801 820 CGU: Rapidfit+ (USA) — — 107 CGU: OrthoView 4,667 5,445 5,255 CGU: MAT NV Manufacturing (Metal) 177 177 — Total 8,860 9,664 7,714 The changes in the carrying value of the goodwill can be presented as follows for the year 2016, 2015 and 2014: in 000€ Gross Impair-ment Total At 1 January 2014 1,612 — 1,612 Additions 5,997 — 5,997 Impairment — — — Currency translation 105 — 105 At 31 December 2014 7,714 — 7,714 Additions 1,769 — 1,769 Impairment — (104) (104) Currency translation 285 — 285 At 31 December 2015 9,768 (104) 9,664 Additions — — — Impairment — — — Currency translation (804) — (804) At 31 December 2016 8,964 (104) 8,860 The goodwill of Orthoview (UK) and of e-Prototype (PL) include respectively K€(777) and K€(27) impact of currency translation.The goodwill related to the acquired business of CENAT during 2015 is allocated to the cash generating unit MAT NV SAM BE.The Group has performed an impairment test based on a discounted cash flow model with cash flows for the next five years derived from the budget and aresidual value considering a perpetual growth rate.The MAT NV 3D Printing software (BE) and Cenat CGU are included in the reportable segment Materialise Software. The Rapidfit+ (USA), e-Prototypy (PL)and Mat Metal CGU are included in the reportable segment “Materialise Manufacturing”. The CGU Orthoview (UK) is included in the reportable segment“Materialise Medical”. F-35Table of ContentsCGU: MAT NV 3D Printing software (BE)The goodwill allocated to the CGU MAT NV 3D Printing software (BE) relates to the goodwill from the acquisition of CENAT in 2015 and the goodwillrelated to Marcam (DE-3D Printing Software).The impairment test is based on the projected discounted cash flows resulting from the CGU MAT NV 3D Printing software, considering a period of 5 years.The main assumptions for goodwill impairment testing include a pre-tax discount rate (based on WACC) of 7.17% and a perpetual growth rate of 2%. Otherassumptions include the year-on-year growth rate of the revenue, gross margin and the operating costs which has been determined by management based onpast experience. It was concluded that the value in use is higher than the carrying value of the cash generating unit of €23.2 million. Based on the sensitivityanalysis where the year-on-year growth rate of the revenue, gross margin and the operating costs would be zero and the sensitivity analysis where discountrate would increase with 1%, the value in use would be significantly higher than the carrying value of the cash generating units.CGU e-prototypeThe impairment test on the GCU e-prototype is based on the projected discounted cash flows resulting, considering a period of 5 years. The main assumptionsinclude a pre-tax discount rate (based on WACC) of 10.55% and a perpetual growth rate of 5%. Other assumptions include the year-on-year growth rate of therevenue, gross margin and the operating costs which has been determined by management based on past experience and significant capex in new 3D printingequipment expected to realize in 2017 which will positively impact revenue during 2017 and beyond. It was concluded that the value in use is higher thanthe carrying value of the cash generating unit of €1.9 million. Based on the sensitive analysis where the year-on-year growth rate of the revenue, gross marginand the operating costs would be zero and the sensitivity analysis where discount rate would increase with 1%, the value in use would be significantly higherthan the carrying value of the cash generating units.CGU OrthoviewThe impairment test on the GCU Orthoview is based on the projected discounted cash flows resulting, considering a period of 5 years .The main assumptionsinclude a pre-tax discount rate (based on WACC) of 11.17% and a perpetual growth rate of 2%. Other assumptions include the year-on-year growth rate of therevenue, gross margin and the operating costs which have been determined by management based on past experience. It was concluded that the value in useis higher than the carrying value of the cash generating unit of €9.8 million. Based on the sensitive analysis where the year-on-year growth rate of therevenue, gross margin and the operating costs would be zero and the sensitivity analysis where discount rate would increase with 1%, the value in use wouldbe higher than the carrying value of the cash generating unit. The Orthoview business is being integrated more and more in the existing software businesswithin our Materialise Medical segment. Synergies that are expected from joined product lines are not taken into account in the current impairment review.For 2016 management believes that Orthoview can still be considered a separate cash generating unit. Per end of 2016 we believe that the goodwill forOrthoview is not impaired. F-36Table of Contents6 Intangible assetsThe changes in the carrying value of the intangible assets can be presented as follows for the years 2016, 2015 and 2014: in thousands of euros Patents &licenses Software Acquiredcustomersandtechnology Total Acquisition value At 1 January 2014 1,664 730 199 2,593 Additions 595 244 84 923 Acquisition of a subsidiary 1 1 6,343 6,345 Disposals (2) (16) — (18) Exchange differences — — 81 81 Other 84 8 (63) 29 At 31 December 2014 2,342 967 6,644 9,953 Additions 761 671 89 1,521 Acquisition of a subsidiary — 3 1,474 1,477 Disposals — (6) — (6) Currency translation 89 143 (112) 120 Other 10 1 430 441 At 31 December 2015 3,202 1,779 8,525 13,506 Additions 606 1,736 — 2,342 Acquisition of a subsidiary — — — — Disposals (18) (212) — (230) Transfer between accounts — 490 — 490 Currency translation (2) (26) (923) (951) Other — 2 (6) (4) At 31 December 2016 3,788 3,769 7,596 15,153 F-37Table of Contentsin thousands of euros Patents&licenses Software Acquiredcustomersandtechnology Total Amortization At 1 January 2014 (670) (474) (10) (1,154) Additions (326) (203) (538) (1,067) Disposals — 18 — 18 Other — (2) (21) (23) At 31 December 2014 (996) (661) (569) (2,226) Additions (465) (269) (851) (1,585) Disposals — 5 — 5 Other (10) (33) — (43) At 31 December 2015 (1,471) (958) (1,420) (3,849) Additions (576) (559) (819) (1,954) Disposals 3 239 — 242 Transfer between accounts — — — — Currency translation 2 26 144 172 Other — 1 — 1 At 31 December 2016 (2,042) (1,251) (2,095) (5,388) Net carrying value At 31 December 2016 1,746 2,518 5,501 9,765 At 31 December 2015 1,731 821 7,105 9,657 At 31 December 2014 1,346 306 6,075 7,727 At 1 January 2014 994 256 189 1,439 Patent & licenses include only the direct attributable external costs incurred in registering the patent and obtaining the license. Software relates to purchasedsoftware for internal use only except for software development on certain application interfaces that were almost fully funded by a third party. The softwaredevelopment capitalized, after deduction of the funding, amounts to K€39The ‘Acquired customers and technology’ have been recognized as part of the acquisition of Advanced Machining Ltd, E-Prototypy, OrthoView and Cenat(see Note 4).At 31 December 2016, the remaining amortization period for the acquired customers is 7.75 years for OrthoView, 2.00 years for E-Prototypy and 8.25 yearsfor Cenat (2015: 8.75 years for OrthoView, 3.00 years for E-Prototypy and 9.25 years for Cenat).The total amortization charge for 2016 is K€1,954 (2015: K€1,585 ; 2014: K€1,067 ) which is included in lines cost of sales, research and developmentexpenses, sales and marketing expenses and general and administrative expenses of the consolidated income statement. F-38Table of Contents7 Property, plant & equipmentThe changes in the carrying value of the property, plant and equipment can be presented as follows for the year 2016 and 2015: in thousands of euros Land &buildings Plant &equipment Leasedassets Construc-tion inprogress Total Acquisition value At 1 January 2015 13,268 30,139 7,116 999 51,522 Additions 4,333 4,693 1,200 2,610 12,836 Acquired from business combinations 5 29 306 — 340 Disposals — (680) (325) — (1,005) Transfers 1,824 (1,106) 645 (1,484) (121) Currency Translation 289 320 (9) (11) 589 Other — 13 — — 13 At 31 December 2015 19,719 33,408 8,933 2,114 64,174 Additions 8 4,916 2,483 7,899 15,306 Business combinations — — — — — Disposals (2) (2,266) (699) (6) (2,973) Transfers 3 4,180 540 (5,330) (607) Currency Translation 69 — (20) (25) 24 Other — (39) 4 — (35) At 31 December 2016 19,797 40,199 11,241 4,652 75,889 Amortization At 1 January 2015 (2,451) (16,354) (2,505) — (21,310) Depreciation charge for the year (582) (3,183) (1,357) — (5,122) Disposals — 686 44 — 730 Transfers (1,281) (12) 1,293 — — Currency Translation (55) (51) (1) — (107) Other — (13) 48 — 35 At 31 December 2015 (4,369) (18,927) (2,478) — (25,774) Depreciation charge for the year (709) (4,048) (1,663) — (6,420) Disposals 2 541 669 — 1,212 Transfers — 117 — — 117 Currency Translation (17) 6 2 — (9) Other — 48 — — 48 At 31 December 2016 (5,093) (22,263) (3,470) — (30,826) Net book value At 31 December 2016 14,704 17,936 7,771 4,652 45,063 At 31 December 2015 15,350 14,481 6,455 2,114 38,400 At 1 January 2015 10,817 13,785 4,611 999 30,212 F-39Table of ContentsThe changes in the carrying value of the property, plant and equipment can be presented as follows for the year 2014: in thousands of euros Land &buildings Plant &equipment Leasedassets Construc-tion inprogress Total Acquisition value At 1 January 2014 11,778 21,702 4,636 693 38,809 Additions 180 5,577 2,647 3,824 12,228 Acquired from business combinations — 713 54 — 767 Disposals — (536) — (95) (631) Transfers 1,092 2,539 (217) (3,421) (7) Currency Translation 218 144 (4) (2) 356 Other — — — — — At 31 December 2014 13,268 30,139 7,116 999 51,522 Amortization At 1 January 2014 (1,774) (14,322) (2,096) — (18,192) Depreciation charge for the year (492) (2,295) (711) — (3,498) Acquired from business combinations — — — — — Disposals — 506 — — 506 Transfers (155) (144) 299 — — Currency Translation (30) (99) 3 — (126) Other — — — — — At 31 December 2014 (2,451) (16,354) (2,505) — (21,310) Net book value At 31 December 2014 10,817 13,785 4,611 999 30,212 At 1 January 2014 10,004 7,380 2,540 693 20,617 F-40Table of ContentsThe investments in property, plant & equipment in 2016 amounted to K€15,306 (2015: K€12,836 ; 2014: K€12,228) and mainly related to the buildingconstructions in Leuven and Poland (K€6,098), the investment into new machines and installations (acquired and leased – K€8,254) and the investment incomputer equipment (K€890). The investments in 2015 related to the acquisition of land in Leuven (K€2,026) and in Poland (K€1,283) and the investmentinto new machines and installations (acquired and leased – K€7,298). The additions of 2014 essentially related to the acquisitions of leased and purchasedmachines.The Group realized a net gain on disposal of property, plant and equipment of K€149 in 2016 (2015: a net gain of K€73; 2014: a loss of K€23).No impairment of property, plant and equipment was recorded.Land and buildingsThe carrying value of land included in land and buildings at 31 December 2016 included K€0 of assets under construction (2015: K€0 ; 2014: K€1,764).Finance leasesThe carrying value of finance leases at 31 December 2016 was K€7,771 (2015: K€6,455; 2014: K€4,611). Finance leases are included in the column leasedassets and mainly relate to 3D printing machines with a carrying value of K€7,771 at 31 December 2016 (2015: K€6,455; 2014: K€4,148) and for whichdepreciation of K€1,663 was recorded in 2016 (2015: K€1,357; 2014: K€643). New finance leases in 2016 amount to K€2,757 (2015: K€3,808; 2014:K€2,647) and mainly relate to leased machinery (3D printing machines).Assets under constructionIn 2016 the assets under construction mainly include the building of the new production and office facility in Belgium and Poland (K€6,098) as well as theconstruction and upgrade of 3D printing machines. In 2015 and 2014 the assets under construction were mainly the construction and upgrade of 3D printingmachines that are being built by the Group.Borrowing costsBecause insignificant, no borrowing costs were capitalized during any of the years ended December 31, 2016, 2015 and 2014.PledgesLand and buildings with a carrying amount of K€10,388 (2015: K€7,479; 2014: K€7,906) and buildings under construction with a carrying amount ofK€2,206 (2015: nil; 2014: nil) are subject to pledges to secure several of the Group’s bank loans (Note 22). F-41Table of Contents8 Investments in joint venturesThe Group has one investment in the joint venture RSprint NV (Belgium). The summarized financial information of RSprint NV can be presented as follows: in 000€ 2016° 2015 2014 (Share in the) joint venture’s statement of financial position° Current assets 610 414 173 Non-current assets 132 838 381 Goodwill — — — Current liabilities (1,060) (234) (135) Non-current liabilities — — — Shareholders’ Equity (318) 1,018 419 (Share in the) joint venture income and expenses (loss)° Revenue 720 214 — Profit (loss) * (2,036) (401) (81) *there are no discontinued operations°as from 2016 the complete numbers of the joint venture’s financial statements are presented (100%), for the years 2015 and 2014 only the share ofMaterialise in the joint venture’s financial statements are presented.Total current assets include cash and cash equivalents for a total amount of K€86 per 31 December 2016 (2015: K€518 ; 2014: K€222 ). Profit (loss) includetotal deprecations and amortization for a total amount of K€34 in 2016 (2015: K€218 ; 2014: K€31 ).The movement of the carrying value of the joint venture is as follows: in 000€ Carrying value per 31 December 2014 419 Additional investment 1,000 Share in loss (401) Carrying value per 31 December 2015 1,018 Additional investment — Share in loss (1,018) Carrying value per 31 December 2016 — The Group has not recognized its share in the losses of the joint venture for a total amount of K€161 in 2016. F-42Table of Contents9 Inventories and other assetsOther non-current assetsOther non-current assets include the following: For the year ended December 31 in 000€ 2016 2015 2014 Tax credits 1,766 — — Guarantees and deposits 342 320 270 Other 46 36 58 Total non-current assets 2,154 356 328 The non-current tax credits relate to tax credits that will be realized over more than one year. In 2015 and 2014, all tax credits were presented as current basedon the assessment of the realization at that time.InventoriesInventories include the following: For the year ended December 31 in 000€ 2016 2015 2014 Raw materials 4,297 3,390 2,175 Work in progress 2,693 1,442 1,096 Finished goods 880 555 389 Total inventories (at cost or net realizable value) 7,870 5,387 3,660 The amount of the inventory written-off as an expense is K€98 (2015: K€88 ; 2014: K€50 ).Other current assetsOther current assets include the following: For the year ended December 31 in 000€ 2016 2015 2014 Deferred charges 1,483 1,442 1,034 Tax credits 176 1,285 696 Accrued income 666 254 236 Other tax receivables 604 958 253 Other non-trade receivables 1,552 1,054 1,321 Total current assets 4,481 4,993 3,540 F-43Table of Contents10 Trade receivablesThe trade receivables include the following: For the year ended December 31 in 000€ 2016 2015 2014 Trade receivables 27,990 23,348 18,660 Amortization receivables (511) (505) (290) Total 27,479 22,843 18,370 Trade receivables are non-interest bearing and are generally on payment terms of 30 to 90 days.As at 31 December 2016, trade receivables of an initial value of K€511 (2015: K€506; 2014: K€290) were impaired and fully provided for. See below forchanges in the impairment of receivables. in 000€ At 1 January, 2014 (1,252) Addition (473) Usage 1,162 Reversal 273 At 31 December, 2014 (290) Addition (424) Usage 39 Reversal 170 At 31 December, 2015 (505) Addition (266) Usage 190 Reversal 70 At 31 December, 2016 (511) F-44Table of Contents11 Cash and cash equivalents and held to maturity investmentsCash and cash equivalents include the following: For the year ended December 31 in 000€ 2016 2015 2014 Cash at bank 45,645 41,701 39,921 Cash equivalents 10,267 9,025 11,098 Total 55,912 50,726 51,019 Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and threemonths, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.As at 31 December 2014, the Group also owned held to maturity investments for an amount of K€10,000. These were investments on term accounts between 6to 12 months and earned interest at a fixed deposit rate.There were no restrictions on cash during 2016, 2015 or 2014. F-45Table of Contents12 EquityShare capitalThe share capital of the parent company Materialise NV consists of 47,325,438 ordinary nominative shares at December 31, 2016 (2015: 47,325,438 ;2014:47,147,256 ) with no nominal but par value of €0.058 in 2016 (2015: €0.058 ; 2014: €0.059 ) for a total amount of K€2,729 at 31 December 2016 (2015:K€2,729 ; 2014: K€2,788 ). in 000€, except share data Totalnumber offoundershares Totalnumber ofordinaryshares Total share-holders’capital Total share-premium Outstanding at 1 January, 2014 — 39,072,056 2,235 12,321 Capital increase IPO 30/06/2014 — 8,000,000 480 70,004 Capitalization costs IPO 30/06/2014 — — — (6,279) Equity settled share-based payments expense — — — 604 Capital increase by exercise warrants on 31/10/2014 — 75,200 73 — Outstanding on 31 December, 2014 — 47,147,256 2,788 76,650 Transfer share capital to share premium — — (69) 69 Capital increase in cash — 80,182 5 575 Capital increase via exercise of warrants — 98,000 5 90 Equity settled share-based payments expense — — — 714 Outstanding on 31 December, 2015 — 47,325,438 2,729 78,098 Transfer share capital to share premium — — — — Capital increase in cash — — — — Capital increase via exercise of warrants — — — — Equity settled share-based payments expense — — — 921 Outstanding on 31 December, 2016 — 47,325,438 2,729 79,019 The transfer of the share capital to the share premium in 2015 relates to the capital increase by exercise of warrants on October 31, 2014 whereby the Grouphas transferred an amount of K€69 to share premium as registered in the notarial deed of March 5, 2015.On March 5, 2015, the Group has issued 80,182 new shares at a price of €7.22 per share resulting in an increase of the share capital by K€5 and the sharepremium by K€575. The creation of the shares was done as part of the deal with the former shareholders of Mobelife.The shareholders’ capital increased by K€5 in 2015 (2014: K€73) as a result of the exercise of warrants outstanding and fully vested. The number of newshares issued was 98,000 at a price is €0.98 per share.On June 30, 2014, the Group has successfully completed and settled its initial public offering on Nasdaq at the initial stock price $12 and the issuance of8,000,000 new ordinary shares (post stock-split) with a total increase in share capital and share premium of K€70,484 (equivalent of K$96,000). The totalexpenses directly related to the share capital increase amounted to K€6,279 which were deducted from the share premium.In addition, the shareholders have approved on June 30, 2014 a stock-split of 1 ordinary share to 4 new ordinary shares and the pre-existing classes ofordinary shares have been eliminated. In this respect, all share amounts and the EPS were adjusted retro-actively to reflect the stock-split.Until 2013, the ordinary shares were divided in three categories: A, B and C with similar voting and dividend rights. The three categories have beeneliminated as part of the initial public offering in June 2014.The Company also issued previously 300,000 founder shares which do not represent shareholders’ capital but grant the holder voting and dividend rights.The terms & conditions are further discussed in Note 24. The General Meeting of Shareholders held on November 28, 2013 converted the 300,000 foundershares into ordinary A shares resulting in a dilution for the existing shareholders by 3.07%. Those A shares will benefit from all rights allocated to theordinary shares. F-46Table of ContentsThe shareholders of the Group have granted to the Group’s Board of Director’s, by a decision taken on April 23, 2014, the right to increase the share capitalby K€2,715 without the consent of the Shareholders for a maximum of 5 years.Share premiumIn Belgium, the portion of the capital increase in excess of par value is typically allocated to share premium.The carrying value of the share premium is K€79,019 at December 31, 2016 (2015: K€78,098; 2014: K€76,650). The change in 2016 is the result of theshare-based payment expense of K€921.The change in 2015 is the result of (i) the transfer of K€69 from share capital; (ii) the portion of the capital increase in cash of K€575; (iii) the portion of thecapital increase due to the exercise of warrants of K€90 and (iv) the result of the share-based payment expense of K€714.ReservesThe nature and purpose of the reserves is as follows: For the year endedDecember 31 in 000€ 2016 2015 2014 Legal reserve 279 226 226 Retained earnings (1,882) 1,181 5,538 Reserves (1,603) 1,407 5,764 The legal reserve is increased by reserving 5% of the yearly statutory profit until the legal reserve reaches at least 10% of the shareholders’ capital. The legalreserve cannot be distributed to the shareholders.The Group did not pay any dividend during 2016, 2015 and 2014.Non-controlling interestThe non-controlling interest is zero at December 31, 2016 and at December 31, 2015. The non-controlling interest in 2014 represents 22.31% of the shares inthe subsidiary Mobelife that are held by third parties.No non-controlling interest is recognized for the 16.67% held by a third party in RapidFit+ as the amount was reclassified to a financial liability. F-47Table of ContentsMobelifeOn March 5, 2015 the Group acquired all non-controlling interests in the subsidiary Mobelife for a total cash consideration of K€1,377. The acquisition wasaccounted for as an equity transaction resulting in a K€1,562 loss recognized in the reserves attributable to the owners of the parent. The shareholders ofMobelife paid during 2014 uncalled capital for a total amount of K€181 of which K€33 by the non-controlling interest. A loss on dilution for the Group hasbeen recognized for an amount of K€7 in 2014.At the end of December 2014, the shareholders’ capital of Mobelife was increased by K€31 as a result of the exercise of fully vested warrants. A gain indilution for the Group has been recognized in the amount of K€24.Rapidfit+On February 28, 2013, the Group has carved-out its Rapidfit+ business into a newly created entity Rapidfit+. On June 27, 2013, the investor PMV-TINA hassubscribed to 100% of the capital increase of K€1,000 resulting in a dilution of the Group’s interest in Rapidfit+ from 100% to 83.33%. As a result of thisdilution, the Group recognized a gain of K€736 in consolidated reserves at December 31, 2013.The shareholders of Rapidfit+ have decided to increase the capital of the entity as of December 23, 2014 to K€2,235. Each shareholder has participated inproportion to its interest in Rapidfit+ whereby the Group participated for K€3,750 (of which K€703 as capital increase and K€3,047 as increase sharepremium) and PMV-TINA participated for K€750 (of which K€141 as capital increase and K€609 as increase share premium). The capital increase subscribedby PMV-TINA is shown in the reserves as no non-controlling interest is presented for Rapidfit+ (see further).After the capital increase the shareholders of Rapidfit+ have decided to reduce the shareholders capital by K€1,410 by incorporating the historical losses ofK€1,328 and creating a reserve of K€82.The Group has purchased a call option and written a put-option on the non-controlling interest in Rapidfit+. The call option is accounted for in accordancewith IAS 39 and has an exercise price which is calculated according to a specified contractual formula based on the following parameters: invested capital,multiple of EBITDA minus net financial debt. Currently the call option is deeply out of the money due to the significant losses of Rapidfit+ and as such thefair value is estimated at zero at December 31, 2016. The call option is exercisable between 2015 and 2019.The written put option has been recognized as a financial liability and measured at the fair value of the redemption amount and amounts to K€735 at31 December 2016 (2015: k€673; 2014 K€639). The undiscounted estimated redemption amount totals K€875 at December 31, 2016 (2015: K€875; 2014:K€875). The redemption price has an exercise price according to a specified contractual formula based on the following parameters: invested capital,multiple of EBITDA minus net financial debt. The initial recognition resulted in a reclassification of K€264 from non-controlling interest and K€64 fromconsolidated reserves. The parameter “invested capital” of the contractual formula has been adjusted in December 2014 to reflect the impact of the capitalincrease and the exercise period has been extended with one year. As a result, the estimated redemption amount of the written put option has increased byK€273 which has been recorded in diminution of the consolidated reserves. The written put option is exercisable between 2017 and 2021.In addition, Rapidfit+ has issued 10 dilution warrants to the non-controlling interest which are exercisable upon occurrence of certain specified events. Thefair value of the dilution warrants is zero per end of 2016 (2015: zero; 2014: zero). F-48Table of Contents13 Share-based payment plansShare-based payment plans of the parentThe changes of the year for the warrant plans are as follows: 2016 2015 2014 Outstanding at 1 January 1,401,852 1,579,955 505,064 Granted 350,000 18,180 1,398,540 Forfeited / Cancelled (70,852) (98,283) (248,449) Exercised — (98,000) (75,200) Outstanding at 31 December 1,681,000 1,401,852 1,579,955 Exercisable at 31 December — — 123,163 The Group’s share-based payment plans are all equity-settled except for the IPO warrants that have been granted to certain employees in certain countries dueto legal requirements which are cash-settled.The number of outstanding warrants has been adjusted to reflect the 1-to-4 stock split decided in June 2014.Equity-settled share-based payment plansThe Group has several plans in place (2007 warrant plan, 2013 warrant plan, IPO warrant plan and 2015 warrant plan) which have similar terms except for theexercise price, except for the 2015 warrant plan.2007 warrant plan and 2013 warrant planEach warrant gives the right to the holder to one ordinary share of the parent Company. The warrants have a contractual term of 10 years and vest for 25% inthe fourth year; 25% in the fifth year; 25% in the sixth year and 25% in the seventh year. Warrants are exercisable as from the month after they have vestedand in the subsequent exercise periods. There are no cash settlement alternatives and the Group does not have a practice of cash settlement for these warrants.The warrants have a contractual term of 10 years.The Group granted in October 2013 and December 2013 under the 2013 warrant plan 323,096 warrants to senior management, directors and certainemployees with an exercise price ranging from €7.86 to €8.54. A total of 166,800 warrants were additionally granted to senior management and directors inJanuary 2014.The status of the 2007 and 2013 warrant plan at 31 December is as follows: 2016 2015 2014 Outstanding at 1 January 439,896 555,896 505,064 Granted — — 166,800 Forfeited / Cancelled (4,800) (18,000) (40,768) Exercised — (98,000) (75,200) Outstanding at 31 December 435,096 439,896 555,896 Exercisable at 31 December — — 123,163 IPO warrant planEach warrant gives the right to the holder to one ordinary share of the parent Company. The warrants have a contractual term of 10 years and vest for 25% inthe fourth year; 25% in the fifth year; 25% in the sixth year and 25% in the seventh year. Warrants are exercisable as from the month after they have vestedand in the subsequent exercise periods. There are no cash settlement alternatives and the Group does not have a practice of cash settlement for these warrants.The warrants have a contractual term of 10 years. F-49Table of ContentsThe Group granted 979,898 warrants in July 2014 and 36,151 warrants in November 2014 in the context of the initial public offering to the employees of theGroup with an exercise price of €8.81 (“IPO warrant plan”). The Group granted an additional 18,180 warrants to employees in July 2015 under the IPOwarrant plan.The status of the IPO warrant plan at 31 December is as follows: 2016 2015 2014 Outstanding at 1 January 772,859 828,342 — Granted — 18,180 1,016,052 Forfeited / Cancelled (45,260) (73,663) (187,710) Exercised — — — Outstanding at 31 December 727,599 772,859 828,342 Exercisable at 31 December — — — Warrant plan 2015The Board of Directors decided on 18 December 2015 on a new plan (“2015 warrant plan”) by which it can grant up to 1,400,000 warrants to employees.Each warrant gives the right to the holder to one ordinary share of the parent Company. The warrants vest for 10% on the second anniversary of the granting;20% on the third anniversary of the granting; 30% on the fourth anniversary of the granting and 40% on the fifth anniversary of the granting, unlessotherwise decided by the board of directors or one or more of its representatives granted powers thereto. Warrants are exercisable only after they have vestedand only during a period of (i) four weeks following the publication of the results of the parent Company of the second and fourth quarter, or (ii) if noquarterly results are published, during the month March and the month September of every year. There are no cash settlement alternatives and the Group doesnot have a practice of cash settlement for these warrants. The warrants have a term of 10 years.The Group granted 350,000 warrants in September 2016 to the employees of the Group with an exercise price of €6.45. The status of the 2015 warrant plan at31 December is as follows: 2016 Outstanding at 1 January — Granted 350,000 Forfeited / Cancelled — Exercised — Outstanding at 31 December 350,000 Exercisable at 31 December — Fair valueThe fair value of the warrants is estimated at the grant date using the Black-Scholes option pricing model, taking into account the terms and conditions uponwhich the warrants were granted.The following table provides the input to the Black-Scholes model for the 2007 warrant plan, 2013 warrant plan, IPO warrant plan and 2015 warrant plan: F-50Table of Contents Plan 2015(sept 16) IPO 2015(Nov) IPO 2014(Nov) IPO 2014(June) 2013(Dec) * 2013(Oct) * 2007* Return dividend 0% 0% 0% 0% 0% 0% 0% Expected volatility 47% 47% 50% 46% 50% 53% 56% Risk-free interest rate 0.24% 1.17% 1.12% 1.70% 2.56% 2.43% 4.25% Expected life 4.30 5.50 5.50 5.50 5.50 5.50 5.50 Exercise price (in €) 6.45 8.81 8.81 8.81 8.54 7.86 3.92 Stock price (in €) 6.42 8.08 8.67 8.81 18.09 18.09 3.92 Fair value SAR (in €) 2.41 3.30 3.94 3.83 12.23 12.77 2.15 (*)Exercise price, stock price and fair value are not adjusted for the 1 to 4 stock-split completed in June 2014.The above input for the Black-Scholes model have been determined based on the following: • The dividend return is estimated by reference to the historical dividend payment of the Group. Currently, this is estimated to be zero as nodividend have been paid since inception. • Expected volatility is estimated based on the average annualized volatility of the volatility of the Group’s stock (until Sept 2016: of a number ofquoted peers in the 3D printing industry and the volatility of the Group’s stock); • Risk-free interest rate is based on the interest rate applicable for the 10Y Belgian government bond at the grant date • Estimated life of the warrant is determined to be until the first exercise period which is typically the month after vesting; • Fair value of the shares is determined based on the share price of the Group on Nasdaq at the date of valuation. For the grants prior to the initialpublic offering, the fair value of the shares was estimated based on a discounted cash flow model with 3-year cash flow projections and a multipleof EBITDA determined based on a number of quoted peers in the 3D printing industry.The expense arising from share-based payment transactions for the warrants plans mentioned above was K€921 in 2016 (2015: K€714 ;2014:K€604 ).The weighted average remaining estimated life of the warrants outstanding as of 31 December 2016 is 4.38 years (2015: 5.50 years; 2014: 4.65 years). Theweighted average fair value for the warrants outstanding at the end of 2016 was €6.01 (2015: €3.54 ; 2014: €3.45 ). The weighted average exercise price forthe warrants outstanding at the end of 2016 was €8.06 (2015: €8.81 ; 2014: €8.46 ).The weighted average share price at the date that the 98,000 options during 2015 were exercised was €7.91.Cash-settled share-based payment plansThe Group has issued 215,688 stock appreciation rights (“SAR”) in July 2014 towards certain employees in certain countries due to legal requirements withsimilar terms and conditions as the IPO warrant plan except that the SAR will be settled in cash. The exercise price of the SAR is €8.81.The status of this plan is as follows: 2016 2015 2014 Outstanding at 1 January 189,097 195,717 — Granted — — 215,688 Forfeited / Cancelled (20,792) (6,620) (19,971) Exercised — — — Outstanding at 31 December 168,305 189,097 195,717 Exercisable at 31 December — — — The SAR plan grants the bearer the right to a cash payment equal to the difference between the exercise price and the stock price at the exercise date. Thisplan is considered a cash settled shared based payment and is as such recorded as liability. F-51Table of ContentsThe SAR’s have a contractual term of 10 years and vest for 25% in the fourth year; 25% in the fifth year; 25% in the sixth year and 25% in the seventh year.SAR’s are exercisable as from the month after they have vested and in the subsequent exercise periods.The fair value of the SAR is estimated at each reporting date using the Black-Scholes option pricing model, taking into account the terms and conditionsupon which the warrants were granted. The following table lists the input used for the Black-Scholes model: 2016 2015 Return dividend 0% 0% Expected volatility 50% 47% Risk-free interest rate 0.55% 0.98% Expected life 3.25 4.25 Exercise price (in €) 8.81 8.81 Stock price (in €) 7.30 6.48 Fair value SAR (in €) 2.17 1.87 The expense arising from share-based payment transactions for the SAR’s plan was K€46 in 2016 (2015: K€43 ; 2014: K€60 ). The carrying value of theliability at 31 December 2016 amounts to K€147 (2015: K€101 ; 2014: K€59 ). The total intrinsic value of the liability for warrants currently exercisable wasK€0 at 31 December 2016, 2015 and 2014.Share-based payment plans of MobelifeThe changes in the year for the Mobelife warrant plan 2012 and 2009 are follows: 2016 2015 2014 Outstanding at 1 January — — 404 Granted — — — Forfeited / Cancelled — — — Exercised — — (404) Outstanding at 31 December — — — Exercisable at 31 December — — — Mobelife warrant plan 2009The subsidiary Mobelife issued and granted on 30 March 2009 405 warrants to its executive management with an exercise price of €100. Each warrant givesthe holder the right to one ordinary share of Mobelife. The warrants have a contractual term of 7 years and vest for 25% in the fourth year; 25% in the fifthyear; 25% in the sixth year and 25% in the seventh year. Warrants are exercisable as from the month after they have vested and in the subsequent exerciseperiods. There are no cash settlement alternatives and the Group does not have a practice of cash settlement for these warrants.The fair value of the warrants is estimated at the grant date using the Black-Scholes option pricing model, taking into account the terms and conditions uponwhich the warrants were granted.Mobelife warrant plan 2012The subsidiary Mobelife issued on 17 January 2012 100 warrants to its executive management with an exercise price of €536. Each warrant gives the holderthe right to one ordinary share of the subsidiary Mobelife. The warrants have a contractual term of 7 years and vest for 25% in the fourth year; 25% in the fifthyear; 25% in the sixth year and 25% in the seventh year. Warrants are exercisable as from the month after they have vested and in the subsequent exerciseperiods. There are no cash settlement alternatives and the Group does not have a practice of cash settlement for these warrants.The fair value of the warrants is estimated at the grant date using the Black-Scholes option pricing model, taking into account the terms and conditions uponwhich the warrants were granted. F-52Table of ContentsThe following table lists the input to the Black-Scholes model both warrant plans: Warrantplan 2009 2012 Return dividend 0% 0% Expected volatility 31% 56% Risk-free interest rate 4.25% 4.25% Expected life 5.50 5.50 Exercise price €100.00 €536.00 Fair value shares €100.00 €536.00 Fair value option 36.89 293.64 The above input for the Black-Scholes model have been determined on the same basis as disclosed above.The expense arising from share-based payment transactions for Mobelife warrant plans was K€0 in 2016 (2015: K€0; 2014: K€2). F-53Table of ContentsShare-based payment plans of Rapidfit+The subsidiary Rapidfit+ has issued a warrant plan on 23 August 2013 where a maximum of 300 warrants can be offered to management with an exerciseprice of €553.92. In January 2014, a total of 199 warrants were granted and accepted.The changes for the year for the RapidFit+ warrant plan are as follows: 2016 2015 2014 Outstanding at 1 January 199 199 — Granted — — 199 Forfeited / Cancelled — — — Exercised — — — Outstanding at 31 December 199 199 199 Exercisable at 31 December — — — The following table lists the input to the Black-Scholes model for the RapidFit+ warrant plan: 2014 Return dividend 0% Expected volatility 50% Risk-free interest rate 2.29% Expected life 5.5 Exercise price €553.92 Fair value option €262.70 The expense arising from share-based payment transactions for Rapidfit+ warrant plan was K€10 in 2016 (2015: K€10; 2014: K€9). F-54Table of Contents14 Loans and borrowingsThe loans and borrowings include the following: For the year ended December 31 in 000€ Interestrate Maturity 2016 2015 2014 €5,000 bank loan 4.61% Jun-2027 3,847 4,125 4,390 €4,050 bank loan 1.24% Dec-2032 4,050 — — €2,390 bank loan 1.36% Oct-2020 1,847 2,392 — €2,354 bank loan 1.15% Sep-2032 2,354 — — €2,000 bank loan 4.43% Nov-2020 658 808 952 €1,800 bank loan 0.92% Sep-2023 1,738 — — €1,750 bank loan 5.40% Dec-2022 906 1,019 1,138 €1,600 investment loan 1.55% Nov-2022 1,382 1,600 — €1,000 convertible bond 3.70% Oct-2020 1,000 1,000 1,011 €1,000 straight loan 1.79% Feb-2015 — — 1,000 €899 investment loan 1.12% Dec-2022 775 900 — €750 bank loan 1.07% Sep-2023 750 — — €630 institutional loan 0.25% Sep-2021 630 — — €613 bank loan 0.77% Jun-2023 570 — — €612 bank loan 0.85% Dec-2023 612 — — €609 bank loan 1.96% Mar-2019 — 405 529 €500 bank loan 1.78% Dec-2018 205 305 404 €490 bank loan 1.02% Mar-2023 439 — — €486 bank loan 0.78% Jun-2023 452 — — €468 bank loan 0.76% Sep-2023 452 — — €450 bank loan 0.93% Dec-2023 450 — — €448 bank loan 5.11% Dec-2019 200 271 345 €425 bank loan 0.78% Jun-2023 395 — — €414 bank loan 0.76% Sep-2023 399 — — €400 loan with related party 4.23% Oct-2025 266 290 313 Interest free loan agreements — Oct-2016;Mar-2020 306 856 1,652 Obligations under finance lease with related party 0.00% 2015-2017 — — 1,087 Obligations under finance leases (third parties) — 2016-2023 7,339 5,823 3,127 Short term credit agreements 0.90% Jun-2015 — — 325 Short term credit agreements 1.08% Jun-2016 — 25 — Other loans — — 1,784 1,270 1,074 Total loans and borrowings 33,806 21,089 17,347 of which current 5,539 4,482 5,499 non-current 28,267 16,607 11,848 K€5,000 secured bank loanThis bank loan has been used to finance the construction of a portion of the office and production building in Leuven (Belgium). The loan started onDecember 23, 2011 and was completely drawn at K€5,000 as of June 30, 2012. The loan matures on 30 June 2027. The loans bears a fixed interest rate of4.61% with monthly fixed installments as from July 1, 2012. This bank loan is secured with a mortgage on the building.K€4,050 secured bank loanThis bank loan has been used to finance the construction of a portion of the office and production building in Leuven (Belgium). The loan was agreed for atotal amount of K€12,000 and was first drawn on December 28, 2016 for the amount of K€4,050. The loan matures on December 31, 2032. The loans bears afixed interest rate of 1.24%. Repayment of capital will only start as of December 1, 2022. This bank loan is secured with a mortgage on the building. F-55Table of ContentsK€2,390 bank loanThis bank loan has been used to finance the Polish operations. The loan started on October 22, 2015 and is repaid in 60 fixed monthly payments. The interestrate is fixed at 1.36%.K€2,354 secured bank loanThis bank loan has been used to finance the construction of the office and production building in Poland. The loan was agreed for a total amount of K€6,000and was first drawn on December 28, 2016 for the amount of K€2,354. The loan matures on September 30, 2032. The loan bears a fixed interest rate of 1.15%.The repayment of the capital will only start as of June 1, 2019. This bank loan is secured with a mortgage on the building.K€2,000 secured bank loanThis bank loan has been used to finance the construction of a portion of the office and production building in Leuven. The loan started on December 1, 2005with a maturity of 15 years. The loans bears a fixed interest rate of 4.43% with monthly fixed installments. This bank loan is secured with a mortgage on thebuilding.K€1,800 bank loanThis bank loan has been used to finance the purchase of production equipment. The loan started on October 28, 2016 with a maturity of 7 years. The loansbears a fixed interest rate of 0.92% with monthly fixed installments.K€1,750 secured bank loanThis bank loan has been used to finance the construction of an office in Czech Republic. The loan started on November 1, 2008 with a maturity of 14 years.The loans bears a fixed interest rate of 5.40% with monthly fixed installments. This bank loan is secured with a mortgage on the building.K€1,600 investment loanThis loan was contracted to finance the operations of Materialise USA and runs for 7 years. Interest is fixed at 1.55% and payments are done each quarter.K€1,000 convertible bond with related partyThe Group has issued on October 28, 2013 1,000 convertible bonds with a related party for a total amount of K€1,000. The bonds have been fully subscribedby a member of our senior management.The conditions of the convertible bond can be summarized as follows: • Number of convertible bonds: 1,000 • Nominal value per bond: K€1 • Contractual life: 7 years • Interest: 3.7% • Conversion period: from 1 January 2017 until maturity • Conversion price: €1.97The maximum number of ordinary shares that can be issued upon conversion is 508,904.The Group has estimated the fair value of a similar liability however without any conversion option by reference to a number of quoted peers in Belgium. Thefair value was estimated at K€907. Upon initial recognition, an amount of K€93 was recognized in consolidated reserves reflecting the fair value of theconversion option. F-56Table of ContentsStraight loanRapidfit N.V. has obtained a straight loan in order to finance its working capital needs. The loan was repaid by the end of 2016.K€900 investment loanThis loan was contracted to finance the operations of Materialise Poland and runs for 7 years. Interest is fixed at 1.12% and payments are monthly.K€750 bank loanThis loan was contracted to finance the operations of Materialise NV and runs for 7 years. Interest is fixed at 1.07% and payments are monthly.K€630 institutional loanThis loan was contracted with a financial institution in Germany to finance the production operations of Materialise Germany for a maximum amount ofK€2,000. Per end of 2016 K€630 has been drawn. The loan is repayable over a 4 year period, starting as of September 2017 with a fixed interest rate of 0.25%payable per quarter.K€613 bank loanThis loan was contracted to finance the purchase of a 3D printer and runs for 7 years. Interest is fixed at 0.77% and payments are monthly.K€612 bank loanThis loan was contracted to finance the purchase of a 3D printer and runs for 7 years. Interest is fixed at 0.85% and payments are monthly.K€609 bank loanThis bank loan was contracted in order to finance the acquisition of machines.K€500 secured bank loanThis bank loan has been used to finance the purchase of a 3D printing machine. The loan started on December 1, 2013 with a maturity of 5 years. The loansbear a fixed interest rate of 1.78% with monthly fixed installments and is secured.K€414-K€490 bank loansSeveral bank loans were contracted to finance the purchase of 3D printers and other equipment. The maturity ranges from 5 to 7 years, and the annual interestrate varies between 0.76% and 5.11%.Interest-free loan agreementsThe Group has several interest-free loans with an outstanding nominal amount of K€308 (2015: K€881; 2014: K€1,595). The interest-free loans have beeninitially measured at fair value, which is the present value of the future installments with a discounting rate of 3.04%. The maturity of the remaining loans isFebruary and March 2020 and have either monthly or quarterly installments. The carrying value at December 31, 2016 is K€306 (2015: K€856; 2014:K€1,652). The difference between the carrying value and the nominal value is recognized as financial income over the loan period.The loans have been granted by either government organizations or business partners. F-57Table of ContentsFinance lease obligations with related partiesThe Group has signed two finance lease obligations with Ailanthus NV, a related party to and shareholder of, the Company, for the land and building inLeuven. In April 1998, the Group has signed a finance lease agreement with Ailanthus NV to lease land and a portion of the office and production building.The lease has a term of 15 years and includes a purchase option for the land and the building. The Group has determined that this lease is a finance leasebecause (i) the purchase option is assumed to be significantly lower than the fair value of the land and building and (ii) it was very likely at inception of thelease that the Group would exercise its purchase option. The amounts outstanding as of December 31, 2016 is K€0 (2015: K€0; 2014: K€1,000). The interestexpense for the year 2016 is K€0 (2015: K€0; 2014: K€0). The term of the lease expired at March 31, 2013 and the purchase option has been exercised.Ownership has been transferred on February 18, 2015.In October 2001, the Group has signed a finance lease agreement with Ailanthus NV to lease land and a portion of a new production building. The lease has aterm of 15 years and a purchase option for the land and the building. The Group has determined that this lease is a finance lease because (i) the purchaseoption is assumed to be significantly lower than the fair value of the land and building and (ii) it was very likely at inception of the lease that the Groupwould exercise its purchase option. The amounts outstanding as of December 31, 2016 is K€74 (2015: K72; €2014: K€86). The interest expense for the year2016 is K€4 (2015: K€5; 2014: K€6). The term of the lease expired on September 20, 2016 and the purchase option will be exercised by notary deed in 2017.Ailanthus NV has granted another loan at fixed interest rate of 4.23% which matures in 2025. The purpose of the loan is to finance the purchase of a buildingin France. The amounts outstanding as of December 31, 2016 is K€266 (2015: K€290; 2014: K€313). The interest expense for the year 2016 is K€12 (2015:K€13; 2014: K€14) and is included in the “other loans” in the above table.Finance lease obligations with third partiesThe Group has several finance lease obligations mainly with financial institutions and related to the financing of buildings and various other items of plantand equipment such as 3D printers. F-58Table of Contents15 Other non-current liabilitiesThe other non-current liabilities consist of the following: For the year ended December 31 in 000€ 2016 2015 2014 Written-put option Rapidfit+ 735 673 638 Contingent consideration 909 1,310 — Advances received on contracts — 81 93 Provisions 69 53 169 Other 160 127 69 Total 1,873 2,244 969 We refer to Note 12 for a description of the written-put options Rapidfit+.The contingent consideration of K€909 at 31 December 2016 (2015: K€1,310) relates to the business combination of CENAT.The impact of the accounting treatment of the Belgian contribution plans with a minimal guarantee is not material as only a limited number of people canbenefit. No provisions have been recognized as of 31 December 2016, 2015 and 2014. As such, no further disclosures have been provided. F-59Table of Contents16Deferred incomeDeferred income consists of the following: For the year ended December 31 in 000€ 2016 2015* 2014* Deferred maintenance & license 16,799 13,136 9,521 Deferred (project) fees 4,134 2,738 2,105 Deferred government grants 419 703 593 Other 58 24 200 Total 21,410 16,601 12,419 of which current 17,822 14,696 10,449 non-current 3,588 1,905 1,970 *The years 2015 and 2014 have been restated to reflect the reclassification of the long-term deferred income. We refer to Note 2 for more information.The deferred maintenance and license consist of maintenance fees paid up-front which are deferred and amortized over the maintenance period.The deferred (project) fees consist of one-time and advance payments received which are deferred over the contractual period.The deferred government grants relate to grants received from the government mainly in relation to research projects. The grants are recognized as incomeunder “other operating income”. F-60Table of Contents17Other current liabilitiesOther current liabilities include the following: For the year ended December 31 in 000€ 2016 2015 2014 Payroll-related liabilities 7,873 7,162 5,827 Non-income tax payables 694 913 988 Accrued charges 946 645 837 Advances received 581 338 503 Other current liabilities 53 154 502 Total 10,147 9,212 8,657 F-61Table of Contents18Fair valueFinancial assetsThe carrying value and fair value of the financial assets for 31 December 2016, 2015 and 2014 can be presented as follows: Carrying value Fair value in 000€ 2016 2015 2014 2016 2015 2014 Financial assets Loans and receivables measured at amortized cost Trade receivables (current) 27,479 22,843 18,370 27,479 22,843 18,370 Other financial assets (non-current) 388 356 328 388 356 328 Other current assets 2,312 1,751 3,540 2,312 1,751 3,540 Cash & cash equivalents 55,912 50,726 51,019 55,912 50,726 51,019 Total loans and other receivables 86,091 75,676 73,257 86,091 75,676 73,257 Held to maturity investments — — 10,000 — — 10,005 Total held-to-maturity investment — — 10,000 — — 10,005 The fair value of the financial assets has been determined on the basis of the following methods and assumptions: • The carrying value of the cash and cash equivalents and the current receivables approximate their fair value due to their short term character; • The fair value of the held to maturity investments is calculated as the present value of the interest income and nominal amount using the interestrates applicable at reporting date (level 2 inputs); • Other current financial assets such as current other receivables are being evaluated on the basis of their credit risk and interest rate. Their fairvalue is not different from their carrying value on 31 December 2016, 2015 and 2014Financial liabilities:The carrying value and fair value of the financial liabilities for 31 December 2016, 2015 and 2014 can be presented as follows: F-62Table of Contents Carrying value Fair value in 000€ 2016 2015 2014 2016 2015 2014 Financial liabilities measured at amortized cost Loans & Borrowings 33,806 21,089 17,347 34,619 21,449 17,761 Trade payables 13,400 9,712 7,205 13,400 9,712 7,205 Other liabilities 794 1,345 2,004 794 1,345 2,004 Total financial liabilities measured at amortized cost 48,000 32,146 26,556 48,813 32,506 26,970 Financial liabilities measured at fair value Contingent consideration 909 1,310 — 909 1,310 — Written put option on NCI 735 673 638 735 673 638 Total financial liability measured at fair value 1,644 1,983 638 1,644 1,983 638 Total non-current 30,071 18,851 12,817 30,714 19,259 13,284 Total current 19,573 15,278 14,377 19,743 15,230 14,324 The fair value of the financial liabilities has been determined on the basis of the following methods and assumptions: • The carrying value of current liabilities approximates their fair value due to the short term character of these instruments; • Loans and borrowings are evaluated based on their interest rates and maturity date. Most interest bearing debts have fixed interest rates and theirfair value is subject to changes in interest rates and individual creditworthiness. The interest-free loans have already been recognized initially atfair value based on a present value technique (level 2 inputs) and are subsequently measured at amortized cost. Their carrying valueapproximates their fair value. • The fair value of the written put option on non-controlling interest has been determined based on the present value of the redemption amount(level 3 inputs). • The fair value of the contingent consideration has been determined based on the latest long-term business plans of the Cenat business (level 3inputs).Fair value hierarchyThe Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: • Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities; • Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly orindirectly; and • Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.The Group has no financial instruments carried at fair value in the statement of financial position on 31 December 2016, 2015 and 2014 except for a calloption and written put option on non-controlling interest and the contingent consideration for the acquisition of Cenat: • The fair value of the written put option is determined based on the present value of the redemption amount and is considered level 3. Theredemption amount is a formula (see Note 12) and is estimated on historical financial figures. The impact on the income statement isK€50 during 2016 (2015: K€35 ; 2014: K€25 ). F-63Table of Contents • The fair value of the call option is estimated at zero as the call option is deeply out of the money (see Note 12). • The fair value of the contingent consideration is estimated based on the current business plans of Cenat and is primarily dependent on achievingcertain targets based on future hardware revenue and productions cost level. The fair value of this contingent consideration was initiallyestimated at K€1,310 (31 December 2015). A fair value adjustment was recognized in 2016 bringing tthe fair value of the contingentconsideration to K€909 per 31 December 2016 (see Note 4). A decrease (increase) of the future hardware revenue by an average of 10% assumingstable production cost, would result in a decrease (increase) of the fair value by K€40 (K€39). Higher (lower) production costs by an average of10% assuming stable hardware sales would result in a decrease (increase) of the fair value by K€7 (K€7). F-64Table of Contents19Segment informationFor management purposes, the Group is organized into segments based on their products, services and industry and has the following three reportablesegments: • The Materialise Medical segment, which develops and delivers medical software solutions, medical devices and other related products andservices; • The Materialise Software segment, which develops and delivers additive manufacturing software solutions and related services; and • The Materialise Manufacturing segment, which delivers 3D printed products and related services.The measurement principles used by the Group in preparing this segment reporting are also the basis for segment performance assessment and are inconformity with IFRS. The Chief Executive Officer of the Group acts as the chief operating decision maker. As a performance indicator, the chief operatingdecision maker controls the performance by the Group’s revenue and EBITDA. EBITDA is defined by the Group as net profit plus finance expenses, lessfinancial income plus income taxes, plus depreciation, amortization and impairment.The following table summarizes the segment reporting for each of the reportable periods ending 31 December. Corporate research and development,headquarters’ function, financing and income taxes are managed on a Group basis and are not allocated to operating segments. As management’s controllinginstrument is mainly revenue-based, the reporting information does not include assets and liabilities by segment and is as such not available per segment. in 000€ MaterialiseSoftware MaterialiseMedical MaterialiseManufact-uring Totalsegments Adjust-ments &elimi-nations Consoli-dated For the year ended 31 December, 2016 Revenues 30,122 37,910 46,406 114,438 39 114,477 Segment EBITDA 10,130 894 3,848 14,872 (6,391) 8,481 Segment EBITDA % 33.6% 2.4% 8.3% 13.0% 7.4% For the year ended 31 December, 2015 Revenues 25,798 34,856 41,381 102,035 — 102,035 Segment EBITDA 9,093 422 1,645 11,160 (8,239) 2,921 Segment EBITDA % 35.2% 1.2% 4.0% 10.9% 2.9% For the year ended 31 December, 2014 Revenues 18,095 30,034 33,222 81,351 4 81,355 Segment EBITDA 6,586 2,917 1,144 10,647 (5,752) 4,895 Segment EBITDA % 36.4% 9.7% 3.4% 13.1% 6.0% F-65Table of ContentsThe segment EBITDA is reconciled with the consolidated net profit (loss) of the year as follows: For the year ended 31 December, in 000€ 2016 2015 2014 Segment EBITDA 14,872 11,160 10,647 Depreciation, amortization and impairment (8,374) (6,810) (4,565) Corporate research and development (1,673) (2,955) (2,487) Corporate headquarter costs (8,646) (9,700) (6,573) Other operating income (expense) 3,928 4,416 3,308 Operating (loss) profit 107 (3,889) 330 Financial expenses (2,437) (2,470) (1,150) Financial income 2,039 3,511 3,160 Income taxes (1,710) 389 (387) Share in loss of joint venture (1,018) (401) (81) Net (loss) profit (3,019) (2,860) 1,872 Entity-wide disclosuresWe refer to the Note 20.1 for the revenue by geographical area, based on location of the customer. The total revenue realized in the country of domicile(Belgium) in 2016 amounts to K€7,534 (2015: K€7,202; 2014: K€6,746).The total non-current assets, other than financial instruments, deferred tax assets and tax credits, by geographical area is as follows: For the year ended 31December, in 000€ 2016 2015 United States of America (USA) 4,697 5,032 Americas other than USA 35 13 Europe (without Belgium) 23,984 22,436 Belgium 34,074 30,315 Asia 898 943 Total 63,688 58,739 The totals of the above table includes goodwill, intangible assets, property, plant & equipment and investments in joint ventures as disclosed in theconsolidated statements of financial position.Please note that for the period ending December 31, 2014 the information is not available. F-66Table of Contents20Income and expenses20.1 RevenueRevenue by geographical area is presented as follows: For the year ended December 31 in 000€ 2016 2015 2014 United States of America (USA) 29,267 29,400 24,478 Americas other than USA 1,537 1,590 1,033 Europe 67,883 58,939 47,358 Asia 15,790 12,106 8,486 Total 114,477 102,035 81,355 The Group has no customers (2015: none; 2014: one (within medical segment)) with individual sales larger than 10% of the total revenue. In previous years,one customer represented 11.3% of total revenue in 2014.The revenue by category is presented as follows: For the year ended December 31 in 000€ 2016 2015 2014 Software licenses 38,071 20,068 14,483 Software services 5,159 19,188 11,828 Clinical devices 18,315 14,556 14,675 Clinical services 1,908 3,098 1,510 Printed parts 46,445 39,651 32,511 Royalties and other fees 4,579 5,474 6,348 Total 114,477 102,035 81,355 20.2 Cost of salesCost of sales include the following selected information: For the year ended December 31 in 000€ 2016 2015 2014 Purchase of goods and services (25,374) (25,203) (18,739) Amortization and depreciation (5,007) (3,173) (2,624) Payroll expenses (16,161) (14,524) (10,910) Other expenses (164) (63) (123) Total (46,706) (42,963) (32,396) 20.3 Research and development expensesResearch and development expenses include the following selected information: in 000€ 2016 2015 2014 Purchase of goods and services (3,177) (2,176) (3,042) Amortization and depreciation (478) (1,047) (702) Payroll expenses (13,985) (14,874) (11,279) Other (42) (89) (70) Total (17,682) (18,186) (15,093) F-67Table of Contents20.4 Sales and marketing expensesSales and marketing expenses include the following selected information: For the year ended December 31 in 000€ 2016 2015 2014 Purchase of goods and services (7,450) (8,330) (6,339) Amortization and depreciation (563) (1,108) (436) Payroll expenses (27,828) (26,655) (20,173) Other (312) (739) (595) Total (36,153) (36,832) (27,543) 20.5 General and administrative expensesGeneral and administrative expenses include the following selected information: For the year ended December 31 in 000€ 2016 2015 2014 Purchase of goods and services (5,488) (3,774) (2,748) Amortization and depreciation (2,326) (1,482) (803) Payroll expenses (11,895) (9,270) (7,872) Other (332) (519) (222) Total (20,041) (15,045) (11,645) 20.6 Net other operating income (expense)The net other operating income (expense) can be detailed as follows: For the year ended December 31 in 000€ 2016 2015 2014 Government grants 4,181 4,788 3,632 Capitalized expenses (asset construction) 12 693 749 Net foreign currency exchange gains / (losses) 452 361 518 Tax Credits 741 588 — Other 826 672 753 Total 6,212 7,102 5,652 The Company has received government grants from the Belgian federal and regional governments and from the European Community in the forms of grantslinked to certain of its research and development programs and reduced payroll taxes.Any government grants recognized as income do not have any unfulfilled conditions or other contingencies attached to them. F-68Table of Contents20.7 Payroll expensesThe following table shows the breakdown of payroll expenses for 2016, 2015 and 2014: For the year ended December 31 in 000€ 2016 2015 2014 Short-term employee benefits (50,714) (48,372) (37,192) Social security expenses (10,136) (9,076) (7,255) Expenses defined contribution plans (388) (758) (627) Other employee expenses (8,631) (7,117) (5,159) Total (69,869) (65,323) (50,234) Total registered employees at the end of the period 1,432 1,304 1,100 20.8 Financial expensesFinancial expenses includes the following selected information: For the year ended December 31 in 000€ 2016 2015 2014 Interest expense (665) (615) (606) Foreign currency losses (1,453) (1,568) (119) Other financial expenses (319) (287) (425) Total (2,437) (2,470) (1,150) 20.9 Financial incomeFinancial income includes the following selected information: For the year ended December 31 in 000€ 2016 2015 2014 Foreign currency exchange gains 1,853 3,098 2,900 Amortization discount interest free loans 14 40 62 Other finance income 172 373 198 Total 2,039 3,511 3,160 F-69Table of Contents20.10 Income taxesCurrent income taxThe following table shows the breakdown of the tax expense for 2016, 2015 and 2014: For the year ended December 31 in 000€ 2016 2015 2014 Estimated tax liability for the period (1,698) (373) (197) Tax adjustments to the previous period — — — Deferred income taxes (12) 762 (190) Total tax income (loss) for the period (1,710) 389 (387) The current tax expense is equal to the amount of income tax owed to the tax authorities for the year, under the applicable tax laws and rates in effect in thevarious countries.Deferred taxDeferred tax is presented in the statement of financial position under non-current assets and non-current liabilities, as applicable. The following table showsthe breakdown of the deferred tax assets, deferred tax liability and the deferred tax expense for 2016, 2015 and 2014: in 000€ 2016 2015 2014 2016 2015 2014 Tax losses, notional interest deduction and other tax benefits 109 906 58 Amortization development assets and other intangible assets 227 186 170 Deferred revenue — — 4 Depreciation property, plant & equipment — — — Borrowing cost — — — Financial leasings — — — Inventory — — — Other non-current assets — — — Total deferred tax assets 336 1,092 232 (756) 860 (174) Property, plant & equipment (452) (363) (277) Intangible assets (873) (1,705) (1,281) Tax losses, notional interest deduction and other tax benefits — — 229 Total deferred tax liabilities (1,325) (2,068) (1,329) 744 (98) (16) Total deferred tax income (loss) (12) 762 (190) The Group has unused tax losses, tax credits and notional interest deduction available in an amount of K€9,451 for 2016 (2015:K€12,231 ; 2014:K€10,293 )of which K€1,570 for 2016 (2015:K€2,009 ; 2014: K€3,634 ) relating to Materialise NV. A total of K€315 in 2016 (2015:K€402 ; 2014:K€338 ) relates tounused notional interest deduction with an expiration date of 31 December 2018. F-70Table of ContentsWith respect to the net operating losses of Materialise NV, no deferred tax assets, have been recognized given that it in view of the Belgian Patent IncomeDeduction there is an uncertainty as to what extend these tax losses will be used in future years. The Belgian Patent Income Deduction allows companies todeduct 80% of the qualifying gross patent income from the taxable basis. Currently the Company is preparing a detailed analysis of its tax situation and taxplanning. Once this analysis has been finalized, the Company will determine the basis on which to reassess the need for a valuation allowance on the deferredtax assets.With respect to the net tax losses of the other entities in the Group, no deferred taxes have been recognized in 2016 except for K€109 (2015:K€906 ;2014:K€58 ), given that it is unclear whether there will be a positive taxable base in the near future for the other entities with fiscal losses.Relationship between Tax Expense and Accounting Profit For the year ended December 31 in 000€ 2016 2015 2014 Profit (loss) before tax (1,309) (3,249) 2,259 Income tax at statutory rate of 33,99% 445 1,104 (768) Effect of different local tax rate 663 445 105 Tax adjustments to the previous period — — — Non-deductible expenses (453) (394) (275) Capitalized initial public offering transaction costs — — 308 Research and development tax credits & patent income deduction 3,664 1,872 1,316 Notional interest deduction Belgium 351 365 — Non recognition of deferred tax asset (6,767) (4,510) (1,206) Recognition of deferred tax assets on previous years tax losses — 742 — Non-taxable income 729 — — Use of previous years tax losses and tax credits for which no deferred tax assets wasrecognized 50 693 — Taxes on other basis (342) — — Other (50) 72 133 Income tax expense as reported in the consolidated income statement (1,710) 389 (387) F-71Table of Contents21Earnings per shareBasic earnings per share amounts are calculated by dividing the net profit (loss) of the year attributable to ordinary equity holders of the parent company bythe weighted average number of ordinary shares outstanding during the year.Diluted earnings per share amounts are calculated by dividing the net profit (loss) attributable to ordinary equity holder of the parent company by theweighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued onconversion of all warrants.The net profit (loss) of the year used for the basic and diluted earnings per share are reconciled as follows: For the year ended December 31 in 000€ 2016 2015 2014 Net profit attributable to ordinary equity holders of the parent for basic earnings (3,019) (2,807) 2,061 Interest on convertible bonds — — — Net profit attributable to ordinary equity holders of the parent adjusted for the effect ofdilution (3,019) (2,807) 2,061 The convertible bond and the warrants are anti-dilutive as per 31 December 2016 and as such has not been considered for adjusting the net profit. We refer toNotes 13 and 14 for information on the number of instruments that could potentially be dilutive but which were not considered in the calculation above.The following reflects the share data used in the basic and diluted earnings per share computations: For the year ended December 31 in 000€ 2016 2015 2014 Weighted average number of ordinary shares for basic earnings per share 47,325 47,224 43,118 Effect of dilution: Share options — — 170 Convertible loan — — — Weighted average number of ordinary shares adjusted for effect of dilution 47,325 47,224 43,288 The earnings per share are as follows: For the year ended December 31 2016 2015 2014 Earnings per share attributable to ordinary owners of the parent Basic (0.06) (0.06) 0.05 Diluted (0.06) (0.06) 0.05 F-72Table of Contents22Commitments and contingent liabilitiesOperating lease commitmentsThe Group has operating lease commitments mainly related to buildings and cars as follows: For the year ended December 31 in 000€ 2016 2015 2014 Within 1 year 2,012 908 1,138 Between 2 and 3 years 1,964 1,074 919 Between 4 and 5 years 561 541 34 More than 5 years 84 15 — Total 4,621 2,538 2,091 The total lease payments recognized in the consolidated income statement are K2,451 in 2016 (2015: K€1,165; 2014: K€1,188). Per January 1, 2017 theGroup has refinanced operating car lease commitments into financial lease commitments for an amount of K€1,699. These commitments are not included inthe above schedule, nor in the below finance lease commitments overview.Finance lease commitmentsThe Group has finance leases for the building and various other items of plant and equipment. Future minimum lease payments under finance lease with thepresent value of the net minimum lease payments are as follows: 31 December 2016 31 December 2015 31 December 2014 in 000€ Minimumleasepayments Presentvalue ofpayments Minimumleasepayments Presentvalue ofpayments Minimumleasepayments Presentvalue ofpayments Within one year 2,400 2,287 1,769 1,682 2,077 2,048 Between two and three years 3,640 3,503 4,345 3,968 1,595 1,468 Between four and five years 1,206 1,057 261 254 784 703 More than five years 587 548 — — — — Total 7,833 7,395 6,375 5,904 4,456 4,219 Less finance charges (438) — (471) — (237) — Present value of minimum lease payments 7,395 7,395 5,904 5,904 4,219 4,219 Mortgages and pledgesThe Group has several loans secured by a mortgage on the building. The carrying value of related property, plant & equipment is K€12,594 (2015: K€7,479;2014 K€7,906). The total outstanding mortgages and pledges are K€32,362 in 2016 (2015: K€12,028; 2014: K€12,147).Included in the above, the Group also has pledges on the business goodwill (“fonds de commerce”) of the Company for a total amount of K€4,491 in 2015(2015: K€3,491; 2014: K€3,491).Other commitmentsThe Group has outstanding non-cancellable contracts with a future commitment of K€1,290 at 31 December 2016 (2015: K€288; 2014: K€196). Forproperty, plant & equipment, we have committed expenditures of K€10,204 as per 31 December 2016 (2015: K€505; 2014: nil). These commitments relate tothe construction of the new buildings in Belgium and Poland. F-73Table of ContentsContingent liabilitiesThe Group is currently involved in a legal proceeding with Dentsply Implants NV regarding the alleged wrongful termination of a supply agreement betweenthe Company and Dentsply Implants NV entered into in 2010. The court of first instance ruled, in favor of Dentsply Implants NV, that we have wrongfullyterminated the relationship. We have appealed this decision before the court has pronounced itself on the monetary damages. The amount of damages whichDentsply Implants NV is claiming is €2.7 million. While we are confident about the chances that the first instance decision will be overruled, we believe that,in the event that the first instance decision would be confirmed, the amount of monetary damages that we would be exposed to, will not have a materialimpact in our business, financial conditions or result of operations. We are currently not a party to, and we are not aware of any threat of, any other legalproceedings, which, in the opinion of our management, is likely to have or could reasonably possibly have a material adverse effect on our business, financialcondition or results of operations. F-74Table of Contents23RisksThe Group is mainly exposed to liquidity risk, interest rate risk and credit riskForeign exchange riskThe Group has primarily exposure to the USD as foreign currency. During 2016, 2015 and 2014 the changes in the USD did not have a significant impact onthe operating profit of the Group.During 2016 the USD impact on the cash and term accounts held in USD funded through the initial public offering proceeds was positive for an amount ofK€320.If the USD (rate for 1 EUR) would have appreciated by 10%, the net result would have been K€1,006 lower, excluding the effect of the cash and termaccounts held in USD. If the USD (rate for 1 EUR) would have depreciated by 10%, the net result would have been K€823 higher, excluding the effect of thecash and term accounts held in USDLiquidity riskThe liquidity risk is that the Group may not have sufficient cash to meet its payment obligations. This risk is countered by day-by-day liquidity managementat the corporate level. The Group has historically entered into financing and lease agreements with financial institutions to finance significant projects andcertain working capital requirements. The Group still has undrawn lines of credit totaling K€3,063 at 31 December 2016 (2015: K€4,355; 2014: K€4,320).These line of credit arrangements do not contain significant financial covenants.The range of contracted obligations and related carrying amounts are as follows: in 000€ < 1 year 2 to 3 years 4-5 years > 5 years Total At 31 December, 2016 Loan & borrowings 6,050 10,787 7,471 12,620 36,928 Trade payables 13,400 — — — 13,400 Other current liabilities 794 — — — 794 Total 20,244 10,787 7,471 12,620 51,122 < 1 year 2 to 3 years 4-5 years > 5 years Total At 31 December, 2015 Loan & borrowings 4,691 10,989 4,187 3,230 23,097 Trade payables 9,712 — — — 9,712 Other current liabilities 1,345 — — — 1,345 Total 15,748 10,989 4,187 3,230 34,154 < 1 year 2 to 3 years 4-5 years > 5 years Total At 31 December, 2014 Loan & borrowings 4,885 5,221 3,498 5,568 19,172 Trade payables 7,205 — — — 7,205 Other current liabilities 2,004 — — — 2,004 Total 14,094 5,221 3,498 5,568 28,381 F-75Table of ContentsInterest rate riskThe Group has loans outstanding primarily with a fixed interest rate and is, therefore, not subject to immediate changes in interest rates.Credit riskCredit risk is the risk that third parties may not meet their contractual obligations resulting in a loss for the Group. The Group is exposed to credit risk from itsoperating activities and from its financing activities, which are mainly deposits with financial institutions. The Group limits this exposure by contractingwith credit-worthy business partners or with financial institutions which meet high credit rating requirements. In addition, the portfolio of receivables ismonitored on a continuous basis. Credit risk is limited to a specified amount with regard to individual receivables.The following is an aging schedule of trade receivables: in 000€ Total Non-due < 30 days 31-60 days 61-90 days 91-180 days > 181 days 31 December, 2016 27,479 15,590 6,434 1,885 490 2,008 1,072 31 December, 2015 22,843 15,104 3,402 1,348 814 1,057 1,118 31 December, 2014 18,370 11,946 3,144 1,197 558 1,094 431 Capital managementThe primary objective of the Group’s shareholders’ capital management strategy is to ensure it maintains healthy capital ratios to support its business andmaximize shareholder value. Capital is defined as the Group shareholder’s equity.The Group consistently reviews its capital structure and makes adjustments in light of changing economic conditions. The Group made no changes to itscapital management objectives, policies or processes during the years ended 31 December 2016, 2015 and 2014. F-76Table of Contents24Related party transactionsThe compensation of key management personnel of the Group is as follows: For the year ended December 31 in 000€ 2016 2015 2014 Short-term employee benefits 2,693 2,638 2,636 Post-employment benefits 116 109 93 Termination benefits — 22 118 Total 2,809 2,769 2,847 Warrants granted 199,500 18,180 307,160 Warrants outstanding 790,752 593,448 673,756 The amounts disclosed in the table are the amounts recognized as an expense during the reporting period related to key management personnel.The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year: in 000€ Sale ofgoods to Purchasesfrom Interestexpense Receivables Liabilities Non-executive director’s of the Group 2016 — 72 50 — 972 2015 — 99 12 — 932 2014 — 52 11 — 920 Shareholders of the Group 2016 — 117 16 — 378 2015 — 214 18 — 447 2014 25 264 20 — 1,514 Joint ventures 2016 527 — — 601 — 2015 547 — — 189 — 2014 595 — — 200 — Related party – Ailanthus NVAilanthus NV, shareholder and director of the Group, has provided several loans and financial leases to the Group for the purchase of machinery and a portionof the office and production buildings. We refer to Note 14 for details.The Group rent apartments on a regular basis from Ailanthus NV in order to host our employees from foreign subsidiaries who are visiting our headquarters inLeuven. The total amount paid to Ailanthus NV for rent in 2016 was K€141 (2015: K€167; 2014: K€168).Related party – Convertible debtThe Group has issued on 28 October 2013 1,000 convertible bonds for a total amount of K€1,000. The bonds have been fully subscribed by a member of oursenior management. We refer to Note 14 for more details.Founder sharesAt the inception of the Company, the other shareholders granted a total of 300,000 founder shares (“oprichtersaandelen”) to the founder and CEO of theGroup, Mr. Wilfried Vancraen, in his capacity as shareholder. In accordance with Belgian Company Law, these founder shares do not represent shareholders’capital but grant the holder voting and dividend rights. No other terms and conditions were attached to these founder shares and no dividends has been paidby the Group to the shareholders since inception.The General Meeting of Shareholders held at 28 November 2013 converted the 300,000 founder shares to ordinary A shares. Converting the founder sharesinto ordinary A Shares did not confer any substantial advantage to their holder but resulted in a dilution for the existing shareholders by 3,07%. Those Ashares will benefit from all rights attached to the ordinary shares. F-77Table of Contents25Events subsequent to the statement of financial position dateThere are no significant events subsequent to the statement of financial position date that would require adjustments or disclosures to the financialstatements. F-78Table of Contents26 Overview of consolidated entities Name Country ofincorporation % equityinterest 2016 2015 2014 2013 Materialise NV Belgium 100% 100% 100% 100% Materialise France SAS France 100% 100% 100% 100% Materialise GmbH Germany 100% 100% 100% 100% Materialise Japan K.K. Japan 100% 100% 100% 100% Materialise Czech Republic SRO Czech Republic 100% 100% 100% 100% Materialise USA, LLC United States 99% 99% 99% 99% Materialise UK Limited United Kingdom 100% 100% 100% 100% OBL SAS France 100% 100% 100% 100% Materialise Austria GmbH Austria 100% 100% 100% 100% Mobelife NV (liquidated) Belgium — 100% 77.7% 80.6% Materialise NY LLC (liquidated) United States — — — 100% Marcam (merged with Materialise GmbH) Germany — 100% 100% 100% Materialise Malaysia SDN. Bhd. Malaysia 100% 100% 100% 100% Materialise Ukraine LLC Ukraine 100% 100% 100% 100% RapidFit NV Belgium 83.3% 83.3% 83.3% 83.3% RapidFit, LLC United States 83.3% 83.3% 83.3% 83.3% Meridian Technique Limited United Kingdom 100% 100% 100% — OrthoView, LLC United States 100% 100% 100% — OrthoView Holdings Limited United Kingdom 100% 100% 100% — Meridian (Corporate Trustee) Limited United Kingdom 100% 100% 100% — OrthoView Limited United Kingdom 100% 100% 100% — Materialise SA Poland 100% 100% 100% — Materialise Colombia SAS Colombia 100% 100% 100% — RSPRINT powered by Materialise NV (joint venture) Belgium 50.0% 50.0% 50.0% — Materialise Shanghai Co.Ltd China 100% 100% 100% — Cenat bvba (merged with Materialise NV) Belgium — 100% — — Mat Metal bvba (liquidated) Belgium — 100% — — Elbimmo NV (merged with Materialise NV) Belgium — 100% — — Rapidfit Holding LLC (liquidated) United States — 100% — — Materialise Australia PTY Ltd Australia 100% — — — Materialise S.R.L. Italy 100% — — — F-79EXHIBIT 8.1SUBSIDIARIES OF MATERIALISE NV Name Jurisdiction ofIncorporationMaterialise France SAS FranceMaterialise GmbH GermanyMaterialise Japan K.K. JapanMaterialise Czech Republic SRO The Czech RepublicMaterialise USA, LLC USA – MichiganMaterialise UK Limited United KingdomOBL SAS FranceMaterialise Austria GmbH AustriaMaterialise Malaysia SDN. Bhd. MalaysiaMaterialise Ukraine LLC UkraineRapidFit NV BelgiumRapidFit, LLC USA – MichiganMaterialise SA PolandMeridian Technique Limited United KingdomOrthoView, LLC USA – DelawareOrthoView Holdings Ltd. United KingdomMeridian (Corporate Trustee) Limited United KingdomOrthoView Limited United KingdomMaterialise Colombia SAS ColombiaRSPRINT powered by Materialise NV BelgiumMaterialise Shanghai Co. Ltd. ChinaMaterialise Australia PTY Ltd AustraliaMaterialise S.R.L. Italy EXHIBIT 12.1CERTIFICATIONI, Wilfried Vancraen, certify that: 1.I have reviewed this annual report on Form 20-F of MATERIALISE NV (the “company”); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4.The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the company and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by theannual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controlover financial reporting.Date: April 28, 2017 By: /s/ Wilfried Vancraen Wilfried Vancraen Chief Executive Officer EXHIBIT 12.2CERTIFICATIONI, Johan Albrecht, certify that: 1.I have reviewed this annual report on Form 20-F of MATERIALISE NV (the “company”); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4.The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the company and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by theannual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controlover financial reporting.Date: April 28, 2017 By: /s/ Johan Albrecht Johan Albrecht Alfinco BVBA Chief Financial Officer EXHIBIT 13.1CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of MATERIALISE NV (the “Company”) on Form 20-F for the fiscal year ended December 31, 2016, as filed with theU.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Wilfried Vancraen, certify, pursuant to 18 U.S.C. section 1350, as adoptedpursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (i)the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934, as amended; and (ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: April 28, 2017 By: /s/ Wilfried Vancraen Wilfried Vancraen Chief Executive Officer EXHIBIT 13.2CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of MATERIALISE NV (the “Company”) on Form 20-F for the fiscal year ended December 31, 2016, as filed with theU.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Johan Albrecht, certify, pursuant to 18 U.S.C. section 1350, as adoptedpursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (i)the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934, as amended; and (ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: April 28, 2017 By: /s/ Johan Albrecht Johan Albrecht Alfinco BVBA Chief Financial Officer EXHIBIT 23.1Consent of Independent Registered Public Accounting FirmMaterialise NVLeuven, BelgiumWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-197236 and No. 333-212445) and Form F-3 (No.333-213649) of Materialise NV of our report dated April 28, 2017, relating to the consolidated financial statements which appears in this Annual Report onForm 20-F. Our report contains an explanatory paragraph relating to the Company’s restatement of its consolidated financial statements as described in Note2 to the consolidated financial statements.BDO Bedrijfsrevisoren Burg. CVBAOn behalf of it,Bert Kegels/s/ Bert KegelsZaventem, BelgiumApril 28, 2017

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