<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ________________.
Commission file number 0-27286
-------
HELISYS, INC.
(exact name of small business issuer as specified in its charter)
Delaware 95-4552813
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
24015 Garnier Street, Torrance, California 90505
(Address of principal executive offices)
(310) 891-0600
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
YES [X] NO [_]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
<TABLE>
<CAPTION>
<S> <C>
Class Outstanding at October 31, 1997
----- -------------------------------
Common Stock, $.001 par value 4,025,251
</TABLE>
Page 1 of __ Pages
Exhibit Index on Page __
<PAGE>
HELISYS, INC.
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets as of July 31, 1997
and October 31, 1997 (unaudited).......................... 3
Statements of Operations (unaudited) for the three months
ended October 31, 1996 and 1997........................... 5
Statements of Cash Flows (unaudited) for the three months
ended October 31, 1996 and 1997........................... 6
Notes to Financial Statements............................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 7
Part II. Other Information
Item 1. Legal Proceedings............................................. 13
Item 2. Change in Securities.......................................... 13
Item 3. Defaults Upon Senior Securities............................... 13
Item 4. Submission of Matters to a Vote of Security Holders........... 13
Item 5. Other Information............................................. 13
Item 6. Exhibits and Reports on Form 8-K.............................. 13
Signatures............................................................... 14
</TABLE>
2
<PAGE>
HELISYS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, 1997 October 31, 1997
------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 626,976 $ 121,193
Accounts receivable, net of allowance for
doubtful accounts of $357,000 as of
July 31, 1997, and $275,272 as of
October 31, 1997.......................... 2,047,480 2,441,672
Inventories................................ 2,544,235 2,568,461
Income taxes receivable.................... 578,537 568,576
Prepaid expenses........................... 60,619 73,425
---------------------------
Total current assets..................... 5,857,847 5,773,327
---------------------------
Property, plant and equipment:
Land....................................... 838,000 838,000
Building and improvements.................. 1,344,122 1,344,122
Office furniture and equipment............. 582,314 582,314
Machinery and equipment.................... 869,252 779,769
---------------------------
3,633,688 3,544,205
Less - Accumulated depreciation............ 851,251 872,353
---------------------------
Property, plant and equipment, net......... 2,782,437 2,671,852
---------------------------
Other assets................................. 26,131 25,749
---------------------------
$8,666,415 $8,470,928
===========================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
HELISYS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, 1997 October 31, 1997
------------- ----------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capital lease obligation................ $ 42,176 $ 38,945
Bank line of credit...................... - 500,000
Note payable............................. - 200,000
Accounts payable......................... 1,188,806 1,632,543
Accrued liabilities...................... 796,496 618,996
Customer deposits........................ 37,497 32,498
Deferred maintenance revenue............. 963,718 860,619
Deferred gross profits................... 263,860 248,244
----------------------------------
Total current liabilities.............. 3,292,553 4,131,845
----------------------------------
Long-term debt and capital lease
obligation, net of current portion........ 1,836,995 1,829,004
----------------------------------
Stockholders' equity:
Preferred stock, $.001 par value
1,000,000 shares authorized, none
issued or outstanding................... - -
Common stock, $.001 par value
Authorized 20,000,000 shares............
Issued and outstanding 4,025,251 shares
as of July 31, 1997, and October 31,
1997 respectively...................... 4,026 4,026
Additional paid-in capital................ 6,008,570 6,008,570
Accumulated deficit....................... (2,445,442) (3,474,754)
Deferred compensation..................... (30,287) (27,763)
----------------------------------
Total stockholders' equity.............. 3,536,867 2,510,079
----------------------------------
$ 8,666,415 $ 8,470,928
==================================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
HELISYS, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the
-------
Three Months Ended
------------------
October 31
----------
1996 1997
---- ----
<S> <C> <C>
Net sales..................................... $ 1,942,721 $ 2,513,751
Cost of sales................................. 1,437,211 1,820,772
------------------------------
Gross profit................................ 505,510 692,979
------------------------------
Operating expenses:
Selling, general and administrative......... 1,286,592 1,129,268
Research and development.................... 809,158 572,792
------------------------------
2,095,750 1,702,060
------------------------------
Loss from operations..................... (1,590,240) (1,009,081)
------------------------------
Other income (expense):
Interest/other income....................... 33,209 45,120
Interest/other expense...................... (65,180) (65,351)
------------------------------
(31,971) (20,231)
Loss before income tax benefit........... (1,622,211) (1,029,312)
Benefit for income tax................... 528,000 -
------------------------------
Net loss................................. $(1,094,211) $(1,029,312)
==============================
Net loss per common and common
equivalent share........................ (0.27) (0.26)
Common and common equivalent shares
used in computing per share amount.... 4,000,000 4,025,251
==============================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
HELISYS, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the
-------
Three Months Ended
------------------
October 31,
-----------
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................... $(1,094,211) $(1,029,312)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................ 107,338 110,585
Deferred income taxes....................... 157,000 -
Amortization of deferred compensation....... - 2,524
Changes in operating assets and liabilities:
Accounts receivable....................... 800,368 (394,192)
Inventories............................... (368,118) (24,226)
Income taxes receivable................... (380,697) 9,961
Prepaid expenses.......................... (81,615) (12,806)
Other assets.............................. 4,129 382
Accounts payable.......................... 125,485 443,737
Accrued liabilities....................... 70,803 (177,500)
Customer deposits......................... - (4,999)
Deferred maintenance revenues............. (140,459) (103,099)
Deferred gross profits.................... (137,298) 15,616
------------------------------
Net cash used in operating activities... (937,275) (1,194,561)
------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment. (73,137) -
------------------------------
Net cash used in investing activities..... (73,137) -
------------------------------
Cash flows from financing activities:
Payments on long term debt and capital
lease obligations......................... (18,109) (11,222)
Net borrowings on line of credit facility.. - 500,000
Proceeds from issuance of note payable..... - 200,000
------------------------------
Net cash provided by (used in) financing
activities................................... (18,109) 688,778
-----------------------------
Net increase (decrease) in cash............ (1,028,521) (505,783)
Cash, beginning of period..................... 2,600,249 626,976
------------------------------
Cash, end of period........................... $ 1,571,728 $ 121,193
==============================
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest... $ 65,180 $ 46,058
Cash paid (received) during the period for
income taxes.............................. (304,303) -
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
HELISYS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles to be presented for complete financial statements. The accompanying
financial statements include all adjustments (consisting only of normal
recurring accruals) which are, in the opinion of management, necessary for a
fair presentation of the results for the interim periods presented. Operating
results for the three month period ending October 31, 1997, are not necessarily
indicative of the results that may be expected for the year ending July 31,
1998. Certain reclassifications have been made to the 1997 financial statements
to conform with the 1998 presentation.
The financial statements and related disclosures have been prepared with the
presumption that users of the interim financial information have read or have
access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the
audited financial statements and the related notes thereto included in the
Company's Annual Report on Form 10-KSB as filed with the Securities and Exchange
Commission on December 4, 1997.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. For the years ended July 31, 1996 and 1997 and
for the three months ended October 31, 1997, the Company reported a net loss of
$886,695, $3,031,671 and $1,029,319 and negative cash flows from operations of
$2,438,241, $1,826,864 and $1,194,561, respectively. These conditions raise
substantial doubt about the company's ability to continue as going concern.
Management's plans to overcome these conditions include continuing cost-cutting
programs implemented in 1997 and raising additional debt and equity capital to
fund operations. In November 1997, the Company successfully amended its existing
credit facility and secured a $500,000 infusion of cash ($200,000 of which was
advanced to the Company at October 31, 1997 and reflected as a note payable in
the Company's financial statements) in exchange for issuing 80,000 shares of
convertible preferred stock to an investment banker. There can be no assurance
that the Company will be successful in returning to profitability, obtaining
additional capital or that the capital raised will be sufficient to fund the
Company's operations until such time as the Company is able to operate
profitably. If the Company is unsuccessful in returning to profitable operations
or in raising additional capital it may be unable to continue as a going
concern.
(2) EARNINGS (LOSS) PER COMMON SHARE
- ------------------------------------
Earnings per share is computed using the weighted average number of shares
outstanding and dilutive stock equivalents from the Company's stock option plan,
calculated using the treasury stock method. Such common stock equivalents are
excluded from the loss per share calculation as their effect is anti-dilutive
for the periods ending October 31, 1997 and 1996.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted for interim and
annual financial statements for fiscal years ending after December 31, 1997. At
that time, the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under the new
requirements, primary earnings per share will be replaced by basic earnings per
share from which the dilutive effect of stock options will be excluded. The
impact of adopting Statement No. 128 will result in no change in primary loss
per share for the periods ended October 31, 1997 and 1996 due to the anti-
dilutive effect of common stock equivalents during these periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
7
<PAGE>
The Company designs, develops, manufactures and markets rapid prototyping
systems used by manufacturers, design engineering firms, universities and others
to make physical models, industrial patterns and prototypes directly from 3-D
CAD files. The Company's systems use the Company's LOM technology to produce
physical models and other three-dimensional objects used as models, or in the
preliminary testing of the form, fit or function of a part, or the conversion of
patterns into usable parts through secondary processes, such as sand casting and
rubber molding, or in industrial pattern making and similar applications. The
Company also sells sheet-form materials and other supplies used with its LOM
systems.
During its early years, the Company obtained government funding to conduct
research and development activities relating to its Laminated Object
Manufacturing ("LOM") technology process. Commencing in 1991, commercial
operations were funded through the receipt of advance deposits from customers to
cover the costs of manufacturing the LOM systems. More recently, the Company
has funded its cash requirements primarily from cash flow from operations, a
bank credit line and additional equity investments.
The future growth of the Company is dependent upon market acceptance of its
latest-generation rapid prototyping systems, as well as continued sales of
materials and services. During fiscal year ended July 31,1997 the Company began
to implement cost-cutting programs in an effort to return to profitability.
Further staff reductions took place in August 1997, the first month of the new
fiscal year, as the number of employees was reduced by approximately 10 percent.
The Company began commercial shipment of its latest-generation rapid prototyping
systems, the LOM-2030H, in October 1996. In addition, the Company commenced
shipment of its latest generation LOM-1015 Plus, as well as the Company's new
plastic material handling systems in March 1997, and new composite material
handling systems in November 1997. There can be no assurance that the Company
will achieve market acceptance of the LOM-2030H and LOM-1015 Plus or that sales
revenue generated by the LOM-2030H or LOM-1015 Plus and existing products and
services will be commensurate with current and future levels of the Company's
operating expenses.
The Company has experienced significant losses from operations in the two most
recent fiscal years and in the most recent quarter ended October 31, 1997 and
anticipates experiencing further losses in fiscal 1998. Although the Company
anticipates achieving profitable operations in the future, there can be no
assurance that profitable operations will ever be achieved. The Company's
ability to achieve profitable operations in the future will depend in large part
on achieving significant sales of its latest-generation LOM systems. Moreover,
there can be no assurance that even if the Company generates anticipated product
and materials/services sales, the Company will not continue to incur losses from
operations. The likelihood of the long-term success of the Company must be
considered in light of the expenses, difficulties and delays frequently
encountered in the development and commercialization of new products and
competitive factors in the marketplace. Additionally, the Company used cash of
approximately $1.2 million in operations during the three months ended October
31, 1997. While the Company expects sales of its existing products and its
latest-generation LOM systems to support current and future levels of research
and development and other expenses, there can be no assurance that
8
<PAGE>
the Company will achieve such sales levels. In November 1997 the Company amended
its existing credit facility and obtained an additional credit facility from
Comerica Bank. These facilities provide for aggregate maximum borrowings of
$1,000,000. In addition, the Company issued 80,000 shares of the Company's
preferred Series A stock, par value $.001 per share, to an investment banker for
$500,000, in November 1997 ($200,000 of which was advanced to the Company at
October 31, 1997 and reflected as a note payable in the Company's financial
statements). If the Company is unable to generate sufficient sales or to reduce
expenses to match its sales levels, the Company will require additional debt or
equity financing to continue operations. There can be no assurance that the
Company will be able to obtain such financing or obtain such financing on terms
acceptable to the Company.
9
<PAGE>
RESULTS OF OPERATIONS
Net Sales. The Company's gross sales include sales of LOM systems, materials
used in the LOM process, and services, which consist primarily of contracts for
the repair and maintenance of installed LOM systems. Net sales consist of gross
sales less the amount of discounts, returns and allowances, plus any income in
excess of costs incurred on research and development grants. Net sales for the
three months ended October 31, 1997, were approximately $2,514,000, an increase
of approximately $571,000, or 29.4%, compared to net sales of approximately
$1,943,000 for the three months ended October 31, 1996. This increase was
primarily a result of the increase in the number of LOM systems shipped and
recognizable as revenue to 15 during the quarter ended October 31, 1997, as
compared to 8 systems for the quarter ended October 30, 1996. Sales of materials
and service for the three months ended October 31, 1997, increased by
approximately $130,000, or 15.1% over sales of materials and services in the
three months ended October 31, 1996, primarily due to the increased number of
systems that have been sold.
Product Mix Percentages:
- ------------------------
<TABLE>
<CAPTION>
Three months Ended
------------------------------------
October 31, 1996 October 31, 1997
---------------- -----------------
<S> <C> <C>
LOM Systems 62.4% 65.8%
Materials and Service 37.6% 34.2%
</TABLE>
LOM System Units Sold During the
- ---------------------------------
Periods Indicated:
- ------------------
<TABLE>
<CAPTION>
LOM-1015s LOM-2030s
--------- ---------
<S> <C> <C>
Three Months ended October 31, 1996 2 6
Three Months ended October 31, 1997 6 9
</TABLE>
As of October 31, 1996 and 1997, the Company had deferred revenue in the amount
of approximately $309,000 and $248,244, respectively, relating to shipment of
LOM systems subject to either agreements providing the customer the right to
exchange such systems for an upgraded version or agreements for which the fees
are not fixed or determinable.
Gross Profit. Cost of sales consists primarily of the costs of labor, raw
materials and overhead used in the production of the Company's rapid prototyping
systems. Gross profit for the three months ended October 31, 1997, was
approximately $693,000, an increase of approximately $187,000, or 37.0%,
compared to gross profit of approximately $506,000 for the three months ended
October 31, 1996. Gross profit as a percentage of sales increased from 26.0% in
the three months ended October 31, 1996 to 27.6% in the three months ended
October 31, 1997, primarily as a result of increased sales due to the
availability of the 2030H and 1015 Plus systems, which began shipment in October
1996 and March 1997, respectively.
10
<PAGE>
However, gross margins decreased in the quarter ended October 31, 1997 as
compared to the quarter ended July 31, 1997, primarily as a result of price
concessions due to the strength of the dollar in the overseas market.
Selling, General and Administrative Expense. Selling, general and
administrative expense consists primarily of commissions, sales and
administrative salaries, office expenses and general overhead. Selling, general
and administrative expense for the three months ended October 31, 1997, was
approximately $1,129,000, a decrease of approximately $158,000, or 12.3%,
compared to approximately $1,287,000 for the three months ended October 31,
1996. The decrease is mainly attributable to the cost reduction efforts the
Company instituted beginning in January 1997 and the savings is related to the
reduction of employees and employee related expenses. Staff reductions of
approximately 10% were instituted in January 1997 and once again in August 1997.
Research and Development Expense. Research and development expense consists
of engineering costs incurred in the development and enhancement of LOM systems
and new materials research. Research and development expense also includes
costs expended to secure government grants, which the Company uses to subsidize
certain research activities. To the extent that grants are awarded to the
Company, the costs incurred in performing the grant are offset by income
received from the grant. Research and development expense for the three months
ended October 31, 1997, was approximately $573,000, a decrease of approximately
$236,000, or 29.2%, compared to approximately $809,000 for the three months
ended October 31, 1996. The decrease was primarily due to the reduction and
elimination of the development costs of the latest-generation LOM-2030H, which
began shipment in October 1996, and the LOM-1015 Plus which was introduced in
March 1997, as well as cost reductions and staff reductions of approximately 10%
which were instituted in January 1997 and in August 1997.
Income (Loss) from Operations. Loss from operations for the three months
ended October 31, 1997, was $1,009,081, compared to a loss of $1,590,000 for the
three months ended October 31, 1996. The loss resulted primarily from decreased
sales, as compared to the quarter ended July 31, 1997. The loss was less than
the loss in the comparable quarter during the prior year primarily due to the
availability of the LOM-1015 Plus and 2030H systems which were introduced in
March 1997 and October 1996, respectively, and the cost reduction measures
discussed above.
Other Income (Expense), net. Net other expense for the three months ended
October 31, 1997, was approximately $20,000 as compared to approximately $32,000
for the three months ended October 31, 1997. The decrease in expense was
primarily due to a $44,000 gain recognized upon settlement of an outstanding
dispute with a customer, offset by a reduction in interest income from
marketable securities and miscellaneous tax refunds.
Benefit for Income Tax. There was no tax provision or benefit from income
taxes recorded for the three months ended October 31, 1997, as compared with a
benefit for taxes of $528,000 for the three months ended October 31, 1996. No
benefit was provided due to
11
<PAGE>
the limited remaining available loss carryback and the uncertainty of
realizing loss carryforwards.
Liquidity and Capital Resources
The Company used cash of approximately $1,195,000 in operations during the
three months ended October 31, 1997, and used cash from operating activities of
approximately $937,000 for the three months ended October 31, 1996. These
operating cash flow changes are consistent with the operating losses incurred by
the Company, as well as increases in sales, accounts receivable, inventories and
accounts payable.
Working capital was approximately $2,565,000 at July 31, 1997, compared to
approximately $1,641,000 at October 31, 1997. This decrease was primarily due
to the increased net loss experienced during the three months ended October 31,
1997.
Cash used in investing activities, which includes purchases of property, plant
and equipment, was approximately $0 and $73,000 for the three months ended
October 30, 1997, and October 31, 1996, respectively.
In November 1997 the Company amended its existing credit facility and obtained
an additional credit facility from Comerica Bank. These facilities provide for
aggregate maximum borrowings of $1,000,000. The primary facility, which expires
in February 1998, provides for maximum borrowings of $500,000, subject to
borrowing base limitations for eligible accounts receivable. The secondary
facility, which expires in August 1998, provides for maximum borrowings of
$500,000. Both credit facilities are collateralized by substantially all of the
company assets except the Company's headquarters. As of October 31, 1997 the
Company had $500,000 outstanding borrowings under its revolving credit facility.
In addition, the Company issued 80,000 shares of the Company's Series A
Preferred Stock, par value $.001 per share to an investment banker for $500,000,
in November 1997. The initial $200,000 of this investment was recorded as a
note payable at October 31, 1997.
The Company believes that the net proceeds from the sale of Series A
Preferred Stock to the investment banker, together with funds from operations
and the Company's revolving credit facility, will be sufficient to meet its
capital needs for existing operations and future anticipated growth of the
Company for the next 6 to 12 months. To the extent that such amounts are
insufficient to finance the Company's working capital requirements, the Company
will be required to raise additional funds through public or private equity or
debt financing. There can be no assurance that such additional financing will
be available, if needed, or, if available, will be on terms satisfactory to the
Company.
12
<PAGE>
Impact of Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) issued SFAS No. 130,
"Reporting for Comprehensive Income" and No. 131 "Disclosure about Segments of
an Enterprise and Related Information," in June 1997. These statements are
effective for financial statements issued for periods beginning after December
15, 1997. The Company has not yet analyzed the impact of adopting these
statements.
Forward-Looking Statements
This 10-QSB report contains forward-looking statements that involve risk and
uncertainties. As discussed below in "Certain Factors That May Affect The
Company's Business and Future Results" and in the Company's Annual Report on
Form 10-KSB, as filed with the Securities and Exchange Commission on December 4,
1997, and other periodic filings with the Securities and Exchange Commission,
the Company's future operating results are uncertain and may be impacted by the
following factors, among others: uncertainty of market acceptance of the LOM-
2030H, uncertainty of the introduction and acceptance of the next generation
LOM-1015 Plus and plastic materials, potential development of similar products
by competitors, and potential future capital requirements and uncertainty of
additional funding.
Certain Factors That May Affect The Company's Business and Future Results
Operating Losses; Future Profitability and Liquidity Uncertain. The
Company has experienced significant losses from operations in the most recent
fiscal year and the quarter ended October 31, 1997 and anticipates experiencing
further losses in fiscal 1998. Although the Company anticipates achieving
profitable operations in the future, there can be no assurance that profitable
operations will ever be achieved. The Company's ability to achieve profitable
operations in the future will depend in large part on achieving significant
sales of its latest-generation LOM system machines. There can be no assurance
that, even if the Company generates anticipated product and service sales, the
Company will not continue to incur losses from operations. The likelihood of the
long-term success of the Company must be considered in light of the expenses,
difficulties and delays frequently encountered in the development and
commercialization of new products and competitive factors in the marketplace.
Additionally, the Company used cash of approximately $1.8 million in operations
during fiscal 1997 and $1.2 million in the quarter ended October 31, 1997. While
the Company expects sales of its existing products and its latest-generation LOM
systems to support current and future levels of research and development and
other expenses, there can be no assurance that the Company will achieve such
sales levels. Although the Company has secured $1.0 million line of credit with
Comerica Bank, if the Company is unable to generate sufficient sales or to
reduce expenses to match its sales levels, the Company will require additional
debt or equity financing to continue operations. There can be no assurance that
the Company will be able to obtain such financing or obtain such financing on
terms acceptable to the Company.
Quarterly Fluctuations. The Company's quarterly operating results may
fluctuate significantly due to a variety of factors, including changes in the
Company's sales and customer mix, delays in shipping new systems, the
introduction of new products and new product enhancements by the Company or its
competitors, pricing pressures, increases in expenditures relating to pursuing
the Company's business strategies, general economic conditions and other
factors. For example, because
13
<PAGE>
prospective customers may defer purchasing a LOM system in anticipation of the
release of an improved system, the Company believes that sales of its existing
rapid prototyping systems may decrease in the periods immediately preceding the
introduction of new LOM systems. In this respect, the Company believes that
sales of its earlier-generation LOM-2030 have been adversely affected in recent
periods because of the recent introduction of its latest-generation LOM-2030H
and expects that its net sales will continue to be adversely affected during the
transition to sales of its latest-generation LOM-2030H. In addition, the Company
used a portion of the proceeds of its initial public offering to accelerate
certain product development activities. The Company believes that the timing of
these expenditures affected the Company's results of operations in the last six
quarters. The decline in sales of earlier-generation LOM-2030 during this
transition period, together with increased product development expenditures,
have resulted in net losses for the Company during this transition period,
including the quarter ending October 31, 1997. The Company may continue to
experience net losses in future quarters until sales of commercial quantities of
the Company's latest-generation LOM systems are achieved, and, even once such
sales levels are achieved, net losses may continue to be experienced for the
reasons previously cited. Accordingly, there can be no assurance that the
Company will be profitable in any quarter.
Emerging Nature of Rapid Prototyping Industry; Reliance on Single Product
Line. The rapid prototyping industry is an emerging industry, and the Company
believes that the development and future growth of the rapid prototyping
industry will relate to the general trend toward increased automation of produce
design and manufacturing processes, including the expanded use of 3-D CAD.
There can be no assurance that the use of 3-D CAD will continue to expand or
that the rapid prototyping industry otherwise will continue to develop or grow.
The Company has developed and markets a single product line of rapid
prototyping systems which utilize LOM technology. The immediate prospects of
the Company will be dependent upon market acceptance of the Company's LOM
technology and systems, including the Company's latest-generation LOM systems.
There can be no assurance that the Company's LOM systems will gain significant
market acceptance or that the introduction of products embodying new or
alternate technologies or the emergence of new industry standards will not
render the Company's systems obsolete and unmarketable.
Product Reliability; Ongoing Technical Challenges. Although the LOM
technology utilized in the Company's systems has been in development since 1985,
until recently there has been only limited commercial use of LOM technology in
rapid prototyping applications. In this respect, certain of the Company's
customers have experienced performance problems with the Company's first-
generation LOM systems, which from time to time have not performed to the
Company's specifications. The Company believes that it has identified all of
these problems and that the LOM systems currently being marketed by the Company
meet applicable product specifications. Until there is sufficient customer
experience with the LOM systems sold most recently by the Company, however, the
Company will be unable to determine whether its LOM systems are consistently
performing to specifications. Furthermore, no assurance can be given that new
problems will not be identified by customers or that any such problems could be
adequately addressed by the Company in a timely manner. There can be no
assurance, therefore, that the Company's customers will not make claims against
the Company arising from dissatisfaction with the performance of the Company's
LOM systems. In the first quarter of the fiscal year ending July 31, 1997, the
Company commenced sales of the latest-generation LOM-2030 system, which the
Company believes adequately addresses certain performance problems associated
with its first-generation LOM systems and represents significant improvements in
overall product performance and reliability. There can be no assurance,
however,
14
<PAGE>
that the Company's latest-generation LOM systems will not experience similar
performance or reliability problems. In addition, the Company is unable to
predict what effect the problems associated with its first-generation LOM
systems will have on the Company's efforts to market and sell its latest-
generation LOM systems. The immediate prospects for future growth of the Company
are dependent upon market acceptance of its latest-generation rapid prototyping
systems.
Dependence on Proprietary Technology. The Company's ability to compete in
the market for rapid prototyping products may depend significantly on its
ability to protect its proprietary technology. The Company seeks to protect its
technology through a combination of patents, copyrights, trade secrets,
proprietary know-how, confidentiality agreements and ongoing development of new
products, features and designs. Any finding that the patent claims with respect
to the Company's LOM process are invalid could have a material adverse effect on
the business and prospects of the Company. An invalidation of the patent claims
relating to the Company's LOM process would not, however, affect the other
claims in the United States patents relating to the Company's LOM systems. The
laws of some foreign countries do not protect the Company's proprietary rights
to the same extent as do the laws of the United States. The Company could incur
substantial costs in seeking enforcement of its proprietary rights against
infringement or the unauthorized use of its proprietary technology by others or
in defending itself against similar claims of others. Insofar as the Company
relies on trade secrets and proprietary know-how to maintain its competitive
position, there can be no assurance that others may not independently develop
similar or superior technologies or gain access to the Company trade secrets or
know-how.
Competition. The Company's LOM systems compete with traditional
prototyping methods, such as machining, which are currently more widely used
than rapid prototyping systems. Rapid prototyping systems are designed to be
used primarily with 3-D CAD systems, and there can be no assurance that rapid
prototyping will ever become the predominant method of producing prototypes and
other three-dimensional objects. Within the rapid prototyping industry, the
Company is not aware of any other companies engaged in the commercial production
of rapid prototyping products using the LOM process. However, various companies
currently offer, or are developing, rapid prototyping equipment which utilize
alternative technologies, some of which are superior in certain respects to the
Company's LOM technology. Certain of these companies have significantly greater
financial, product development, manufacturing and marketing resources than the
Company. Furthermore, the products introduced by any of these companies could
emerge as the industry standard or otherwise render the Company's products
obsolete or unmarketable. In addition, the Company faces competition with
respect to the sale of sheet materials and other supplies used with its LOM
systems. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that the competitive
pressures faced by the Company will not adversely affect its profitability or
results of operations. See "Competition."
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities.
None.
15
<PAGE>
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on Page 16.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
October 31, 1997.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HELISYS, INC.
Date: December 15, 1997 By: /s/ Dave T. Okazaki
-----------------------
Dave T. Okazaki
Chief Financial Officer
17
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- ----------- ------
<C> <S> <C>
27.1 Financial Data Schedule 17
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 121,193
<SECURITIES> 0
<RECEIVABLES> 2,716,944
<ALLOWANCES> 275,272
<INVENTORY> 2,568,461
<CURRENT-ASSETS> 5,773,327
<PP&E> 3,544,205
<DEPRECIATION> 872,353
<TOTAL-ASSETS> 8,470,928
<CURRENT-LIABILITIES> 4,131,845
<BONDS> 1,829,004
0
0
<COMMON> 4,026
<OTHER-SE> 2,506,053
<TOTAL-LIABILITY-AND-EQUITY> 8,470,928
<SALES> 2,513,751
<TOTAL-REVENUES> 2,513,751
<CGS> 1,820,772
<TOTAL-COSTS> 1,702,060
<OTHER-EXPENSES> 19,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,058
<INCOME-PRETAX> (1,029,312)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,029,312)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,029,312)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> 0
</TABLE>
