DTM CORP /TX/, 10-K, 1998-03-31

DTM CORP /TX/
10-K, 1998-03-31
SPECIAL INDUSTRY MACHINERY, NEC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (fee required) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to

Commission file number 0-20993

DTM CORPORATION
(Exact Name of Registrant as Specified in its Charter)

TEXAS 74-2487065
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

1611 HEADWAY CIRCLE, BUILDING 2, AUSTIN, TEXAS 78754
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (512) 339-2922

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on Which Registered
---------------------------- -------------------------------------------

COMMON STOCK, $.0002 PAR VALUE NASDAQ NATIONAL MARKET

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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 .
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

AS OF FEBRUARY 27, 1998, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NON-AFFILIATES (AFFILIATES FOR THESE PURPOSES ONLY BEING DIRECTORS, EXECUTIVE
OFFICERS AND HOLDERS OF MORE THAN 5% OF THE REGISTRANT'S COMMON STOCK) WAS
APPROXIMATELY $6.3 MILLION BASED UPON THE CLOSING PRICE OF THE REGISTRANT'S
COMMON STOCK ON SUCH DATE, $2.00 PER SHARE AS REPORTED BY THE NASDAQ NATIONAL
MARKET. AS OF FEBRUARY 27, 1998, THE REGISTRANT HAD 6,286,851 OUTSTANDING SHARES
OF COMMON STOCK.

DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------

PORTIONS OF THE PROXY STATEMENT FOR THE REGISTRANT'S 1998 ANNUAL MEETING OF
SHAREHOLDERS ARE INCORPORATED BY REFERENCE IN PART III.

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PART I

This Annual Report contains forward looking statements, within the meaning of
the Private Securities Litigation Reform Act of 1995, with respect to the
financial condition, results of operations and business of DTM Corporation (
"DTM", the "Company", or the "Registrant"). Such statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially and adversely from those set forth in the forward-looking statements,
including, without limitation: DTM may not emerge as a market leader, or even a
major market participant and its markets may not develop; price reductions,
reduced margins and loss of market share may occur as a result of increasing
competition; the Company's dependance on a single product that is priced at the
high end of the range for today's rapid prototyping products has caused it to be
adversely affected in a soft market; class action litigation is pending against
the Company; capital sufficient to finance the business may not be obtained;
intellectual property and proprietary rights may not be protected; DTM may fail
to manage or experience future growth; quarterly fluctuations in operating
results may adversely affect stock prices; the difficulty in predicting results
of operations may have a material adverse effect on the price at which the
Common Stock trades; necessary new products may not be developed; key personnel
may leave; suppliers may cause disruptions; actions by foreign governments may
limit sales; a controlling shareholder has an interest in liquidating its
interest in the Company; certain tax benefits obtained from a controlling
shareholder are no longer available ; possible issuance of preferred stock could
impact common stockholders; sales of a large block of stock and sales of shares
issuable pursuant to employee stock options could decrease stock prices; and
market price could be volatile, regardless of DTM's financial performance. The
Company cautions that the foregoing list of important factors is not exclusive.
The Company does not undertake to update any written or oral forward-looking
statement that may be made from time to time by or on behalf of the Company. See
"Item 7 Risk Factors That May Affect Future Results and Safe Harbor Statement."

ITEM 1. BUSINESS

GENERAL

DTM Corporation develops, designs, manufactures, markets and supports, on an
international basis, rapid prototyping and rapid tooling systems and related
powdered materials and services based on proprietary selective laser sintering
technology initially developed by The University of Texas. This technology uses
laser energy to melt and bond ("sinter") powdered material to create a solid
object. DTM Corporation has an exclusive worldwide license from The University
of Texas (the "UT License") to practice selective laser sintering. The UT
License includes the original patents, plus a right of first refusal to all
improvements thereon. The Company's product line of Sinterstation Systems and
related powdered materials are based on this proprietary and patented selective
laser sintering technology.

Rapid prototyping is the creation of a solid three-dimensional model or
prototype directly from computer aided design ("CAD") data files. Rapid tooling
is the creation of durable tooling that can be subsequently employed to produce
quantities of injection molded plastic parts for market introduction. Use of the
Company's Sinterstation Systems can significantly reduce the time required to
produce models and prototypes for testing actual product fit and form, ergonomic
design and functionality from what otherwise could be months or weeks to days
or, in some cases, hours. The Company's Sinterstation Systems are used in the
design, development and market introduction of products in a wide range of
industries, including, but not limited to, the automotive, aerospace, medical,
electronic, telecommunications, computer, appliance, footwear, toy and power
tool industries.

DTM Corporation was incorporated in 1987. The B.F.Goodrich Company
("BFGoodrich") currently owns approximately 50.2 % of the outstanding Common
Stock.

"ProtoForm," "RapidSteel," "Sinterstation," "SLS" and "TrueForm" are registered
trademarks of the Company in the United States. "DTM," "DuraForm," "RapidTool,"
and "SandForm," are unregistered trademarks of the Company in the United States.
"Somos" is a registered trademark of E.I. DuPont de Nemours and Company
("DuPont") in the United States.

2
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DTM's executive offices are located at 1611 Headway Circle, Building 2, Austin,
Texas 78754. The Company's telephone number is 512/339-2922 and web page is
www.dtm-corp.com.

DTM'S SELECTIVE LASER SINTERING TECHNOLOGY

The Selective Laser Sintering Process

The Company's selective laser sintering process uses laser energy to sinter
powdered material to create solid objects. The Company's Sinterstation Systems
employ a combination of software and hardware to produce functional models and
patterns from powdered materials. The patterns can, in turn, be used for
secondary processes such as the production of non-durable molds and investment
casting. Sinterstation Systems also can be used to produce metal prototype mold
inserts.

Customers input designs into the Sinterstation Systems in the form of CAD
drawings. From the CAD file, Sinterstation Systems produce models, prototypes,
patterns and tooling in the specified shape.

The RapidTool Process

The RapidTool process employs selective laser sintering along with a polymer
binder infiltration and a furnace cycle to produce steel/copper composite mold
inserts.

A variant of the RapidTool process is the production of mold inserts in
selective laser sintering machines from a copper-reinforced thermoplastic-based
material system. These inserts often can be manufactured in less than 24 hours
in a Sinterstation System without the use of a furnace.

PRODUCTS

The Sinterstation Systems

DTM's Sinterstation Systems typically include hardware, material handling
equipment, documentation, software licenses, licenses for using DTM-supplied
powdered sintering materials and installation. They can be configured for use
with a single sintering powder or for any combination of thermoplastic, foundry
sands or metal sintering powders. The size and number of objects that can be
built in the build chamber varies depending on the part size, type of sintering
powder used and part configuration. Objects that are larger than the size of the
build chamber can often be built in pieces and then assembled.

The Company has developed a large library of application software designed to
control the selective laser sintering process. This software sets parameters and
directs the various components of the platform hardware based on the type of
material being used in the build process. The Company also has designed a range
of service, support and utility software programs to assist customers in the
prototype and mold building process.

The prices for the Sinterstation Systems sold in 1997 averaged approximately
$346,000, compared to approximately $369,000 in 1996.

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Sintering Materials

The list prices for the following powdered materials range from $23 to $60 per
pound, depending on the material, except for SandForm powder, which sells for
$4.50 per pound. Characteristics and uses of selective laser sintering powders
available through DTM for use in its Sinterstation Systems are as follows:

<TABLE>
<CAPTION>
Material/ Description Characteristics Uses
Year Introduced
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C>
DuraForm Polyamide Proprietary engineering Excellent surface quality; outstanding Functional models of electronic,
Powder thermoplastic feature definition; excellent heat and computer and automotive enclosures.
1997 chemical resistance; machinable and may Plastic automotive intake manifolds.
be joined mechanically, or with Wind tunnel models. Medical device parts.
adhesives; buffs to high-gloss with wet
sanding

- ------------------------------------------------------------------------------------------------------------------------------------

Somos 201 DuPont-developed Rubber-like material that can withstand Functional, flexible models of
Thermoplastic Thermoplastic Elastomer "under-the-hood" high temperatures and rubber-based automotive parts such as
Elastomer Powder harsh environments seals, door moldings and boot covers.
1997 Parts for medical devices. Sport shoe
soles. Models for the computer and toy
industries, including membrane keyboards.

- ------------------------------------------------------------------------------------------------------------------------------------

SandForm Si & Zr Polymer-coated silica or Interchangeable with existing sand mold Sand cores and molds for producing
II Foundry zirconium sand particles and core materials; particle size and prototype sand castings for the
Sand Powders materials characteristics that enable automotive and aerospace industries.
1996/1997 fast production of smooth sand mold Production runs of sand-cast metal parts
patterns when only limited part quantities are
required. Manufacture of cast metal
parts that would be impossible to
produce using conventional technologies.

- ------------------------------------------------------------------------------------------------------------------------------------

TrueForm Polymer DTM-developed polymer Capable of producing extremely smooth, Expendable patterns for producing
Powder 1996 with very fine particle accurate pattern masters prototype investment-cast metal parts
size and spherical shape for the aerospace, medical and
automotive industries. Production runs
of investment cast metal parts when only
limited quantities are required.

- ------------------------------------------------------------------------------------------------------------------------------------

RapidSteel Metal DTM-developed carbon Creates durable metal mold inserts that Mold inserts for injection molding
Powder 1995 steel particles with a can produce thousands of plastic parts prototype plastic parts. Tooling for
polymer coating bridge and pre-production plastic
injection molding. Mold inserts for
diecasting prototype non-ferrous metal
parts.

- ------------------------------------------------------------------------------------------------------------------------------------

Nylon GR (Glass DTM-developed composite Extremely durable, flexible and strong; Functional models with fine detail and
Reinforced) Powder material consisting of stands up to harsh chemicals and high strength where testing in harsh
1995 nylon and glass beads demanding temperature environments conditions is required.

- ------------------------------------------------------------------------------------------------------------------------------------

Nylon and Fine Nylon Engineering thermoplastic Durable material that can be drilled, Functional models of actual products
1993/1994 painted and used in environments similar that require snap fits or living hinges.
to the end product; offers substantial
heat and chemical resistance

- ------------------------------------------------------------------------------------------------------------------------------------

Polycarbonate Engineering thermoplastic Durable and heat resistant Expendable patterns for producing
1991 prototype investment cast metal parts
for aerospace, medical, and automotive
industries. General purpose plastic
models for a variety of industries.

- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

The Company sells its Sinterstation Systems with the materials capabilities
selected by the customer and an initial supply of powders. Thereafter customers
can add materials capabilities by purchasing materials start-up modules, which
include an initial supply of materials plus the software developed by the
Company for optimal processing of that particular material. The Company
subcontracts with other manufacturing organizations for the production of
sintering materials or obtains those materials directly from the producer.

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RESEARCH AND DEVELOPMENT

The Company's research and development effort focuses on improving core
technologies that are critical to future growth. These include development of
new powdered sintering materials, as well as improved powder handling
technology, laser beam delivery systems and thermal control systems. The
Company's development efforts are augmented by informal development arrangements
with key customers, materials suppliers and hardware suppliers. The Company also
collaborates on research and development with The University of Texas as well as
other universities and research institutions that operate Sinterstation Systems.

During 1997, 1996 and 1995, the Company expended approximately $4.9 million,
$4.3 million and $3.5 million for research and development, respectively. In
part as a result of these R&D efforts, the Company introduced four new sintering
powders in the second half of 1997: Somos 201 powder, a new material supplied by
DuPont that yields highly flexible parts with rubber-like characteristics;
DuraForm Polyamide powder, an improved material for functional prototypes; and
two improved SandForm powders for sand casting applications. In 1996, the
Company introduced the Sinterstation Model 2500.

During 1997, the Company redirected certain research and development resources
to focus on an accelerated project to reduce the manufactured cost of certain of
its products. This project has a goal of allowing the Company more leeway to
handle increased price competition and improve its gross margins. This key
project is scheduled to be completed during 1998. Although the Company has had
success in meeting interim development goals, the reduced cost product has not
yet been fully tested, either in terms of technical performance, or in terms of
market impact. There can be no assurance that the current project or the follow
on projects will be completed successfully or that the desired results will be
achieved. Failure to achieve the ability to lower prices and increase gross
margins could have a material adverse effect on the Company and its financial
performance.

Longer term, the Company believes that the selective laser sintering technology
is capable of processing an even wider range of materials, thereby improving the
performance of the Company's products in current applications and advancing the
technology into new applications. The Company is conducting preliminary
experiments to (i) broaden the performance of the Sinterstation System to
include the production of prototype metal parts, (ii) develop new and improved
functional plastic prototyping materials, (iii) broaden the metal mold inserts
product line to include additional durable materials and (iv) develop ceramic
materials for the production of special tooling and part applications. There can
be no assurance that the Company will be able to develop these new materials or
that, if developed, these materials can be successfully marketed.

In the design of the hardware for its Sinterstation Systems, the Company has
incorporated specialized hardware technologies developed for other industries
and purchases them as components from suppliers. For example, the laser used in
its Sinterstation Systems was developed for and is used by the glass bottling
industry to etch lettering on the glass. Because DTM does not have specialized
hardware design capabilities internally, it could be adversely affected if
suppliers of specialized hardware do not continue to furnish key components, or
make available upgrades and enhancements that contribute to the improvement to
the Company's products. There can be no assurance that available specialized
hardware technologies that meet the Company's reduced cost objectives will be
available as purchased components.

The Company has increasingly relied upon the materials research of companies in
the specialty chemicals industry for formulations of powdered materials to be
used in the Company's Sinterstation Systems. Independent research, development
and manufacture of unique powdered materials could be prohibitive. There can be
no assurance that formulations will be available that meet the Company's goals
of higher performance powdered materials and powdered materials suitable for new
applications.

5
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MARKETING AND CUSTOMERS

Customers

The Company's Sinterstation Systems are purchased by manufacturers,
universities, military and defense organizations ("manufacturers") and by
service bureaus. These service bureaus utilize rapid protoyping equipment to
provide services to other organizations involved in product development. During
1997, the Company experienced a shift in the mix of its customer base to a
higher proportion of manufacturers. Gross margins realized are not significantly
different between the two groups. However, the sales cycle associated with sales
to manufacturers is generally more protracted than for service bureaus.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996
-------------------------------------------
Amount Percent Amount Percent
-------- ------- ------- ---------
<S> <C> <C> <C> <C>
Manufacturers.... $15,571 62% $13,658 56%
Service Bureaus.. 9,737 38% 10,721 44%
-------- ------- ------- ---------
Total............ $25,308 100% $24,379 100%
======== ======= ======= =========
</TABLE>

Much of the Company's historical growth has come from the sale of products to
service bureaus in North America and Europe. However, sales to service bureau
sector declined from 44% of revenues in 1996 to 38% in 1997. The decline in
service bureau share of revenues was due, in part, to a surplus of selective
laser sintering capacity in North American service bureaus in 1997. As a result,
shipments of Sinterstation Systems to North American service bureaus declined by
10% in 1997. Starting in 1996, the Company has intentionally focused on
expanding its sales to manufacturers. In part, the increase in share to 62% for
the manufacturers sector can be attributed to the Company's increased focus. In
1997, revenues derived for the manufacturers sector increased by 14% over the
prior year.

Many of the Company's customers have purchased more than one Sinterstation. In
1997, approximately 40% of Sinterstation Systems sold by the Company were to
existing customers and in 1996, 24% were sold to existing customers. DTM has
experienced significant repeat business, but cannot predict that it will
continue to do so. Failure to maintain this repeat business could have a
material adverse affect on the Company and its financial performance.

While the Company anticipates that occasional multiple unit purchases by a
single purchaser could result in a large percentage of total sales being
concentrated in one customer from time to time, it does not consider itself
dependent on any particular customer. However, during 1995 approximately 15% of
total revenues were derived from sales to Compression Inc., a service bureau. In
1997 and 1996, no customer represented 10% or more of DTM's revenues.

Product Distribution; Foreign Operations

The Company distributes its products in the United States, Canada, Western
Europe and key Pacific Rim and South American countries. In the United States
and Canada, the Company employs a direct sales force. In Germany, DTM GmbH, a
wholly owned German subsidiary, distributes DTM's products. DTM GmbH is a sales
and service organization whose efforts are augmented by sales agents in France,
Italy, Portugal, Spain and Sweden. The Company also distributes its goods and
provides services in the Pacific Rim and South America through a network of
agents, including agents in Argentina, Australia, Brazil, China, Hong Kong,
India, Indonesia, Japan, Malaysia, Singapore, South Korea and Taiwan.

6
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Over the past three years, the growth of the Company's international revenues
has outpaced its North American revenues. The Company `s international revenues
now exceed those from North America as the chart below indicates.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
--------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
-------- ------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
North America....... $ 9,501 38% $12,191 50% $ 9,395 66%
International....... 15,807 62% 12,188 50% 4,816 34%
-------- ------- ------- --------- ------- ---------
Total............... $25,308 100% $24,379 100% $14,211 100%
======== ======= ======= ========= ======= =========
</TABLE>

Gross margins realized domestically were approximately the same as those
realized internationally in 1997. Selling expenses as a percentage of revenues
were also approximately the same in 1997.

Marketing and Sales

The Company's marketing programs utilize a mix of seminars, trade shows, direct
mailings, literature, videos, press releases, telemarketing, brochures and
customer and application profiles to identify prospects that match a typical
Sinterstation System user profile.

Seasonality

The Company's revenues are affected by capital budgeting and spending patterns
in the North American market and shortened selling periods in certain
international markets. Due to these seasonal factors, the Company typically
experiences slowdowns in sales of Sinterstation Systems during the first quarter
as the result of capital spending patterns in the North American market and
during the third quarter as the result of shortened selling periods in certain
international markets.

SERVICE AND SUPPORT

The Company maintains a staff of field service and support personnel in Europe,
Singapore and North America. The field service organization is responsible for
installations of new Sinterstation Systems and for conducting the Company's
warranty service and maintenance program.

The Company also maintains a staff of applications support personnel in Europe
and North America. The Company's applications support personnel assist customers
with System operations and provide advice and assistance on building unusually
complicated parts and with keeping customers informed of changes and
advancements in the selective laser sintering technology or Sinterstation System
operating procedures.

The Company's Sinterstation Systems are sold with a broad 12-month warranty on
parts and labor. The Company's customers may continue the level of service
provided by the initial 12-month warranty by purchasing an annual maintenance
contract For those customers choosing not to purchase annual maintenance
contracts, DTM also provides repair and maintenance services on a time and
materials basis.

MANUFACTURING

The Company currently utilizes suppliers to produce certain of the major sub-
assemblies of the Sinterstation Systems. The sub-assemblies are built by
different suppliers and shipped to Austin, Texas, for assembly. The
Sinterstation System then is put through calibration and testing. Assembly and
final testing at the Company's site comprises a 21-day cycle. When the
Sinterstation System arrives at the customer's location, DTM personnel install
it and perform on-site testing.

7
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Procurement lead-time for the major sub-assemblies of the Sinterstation Systems
can be up to 16 weeks. Due to the Company's long lead time for major sub-
assemblies, it places orders for such parts on a forecast basis with the
intention of moving raw materials inventory quickly into work in process. While
the Company subcontracts for manufacture of Sinterstation System components,
powdered sintering materials and accessories from single-source, third-party
suppliers, multiple sources exist for almost all of the components of the
Company's products.

The Company's manufacturing facilities in Austin, Texas, are currently
configured to assemble and test the Sinterstation Systems. The Company believes
that it will have sufficient manufacturing capacity to fulfill demand for its
Sinterstation Systems in 1998. See Item 2 Properties.

INTELLECTUAL PROPERTY

Researchers at The University of Texas initially developed the selective laser
sintering technology commercialized by DTM. The first selective laser sintering
patent was issued to The University of Texas in 1989. The University of Texas
patents covering selective laser sintering begin to expire in 2006. DTM has an
exclusive worldwide license from The University of Texas to use the selective
laser sintering technology, the term of which continues until expiration of the
patent rights that are the subject of the UT License. The UT License includes
the original patents plus a right of first refusal for all improvements thereon.
The UT License requires that DTM commercialize the technology, which DTM has
done and continues to do in key markets. Under the UT License, DTM is required
to make royalty payments equal to 4% of net sales of Sinterstation Systems and
certain powdered materials. In connection with obtaining the UT License, the
Company issued 20,442 shares of Common Stock to The University of Texas. Under
the UT License, The University of Texas reserves the right to practice the
patented technology for research and educational purposes. The UT License can be
terminated by The University of Texas (i) if DTM becomes bankrupt or insolvent,
(ii) if DTM commits a material breach or default under the UT License and fails
to cure that breach or default within 90 days of notice thereof or (iii) as to
foreign jurisdictions, after 1997, if DTM fails to commercialize the technology
in that jurisdiction. The UT License provides that DTM will indemnify The
University of Texas from expenses or damages incurred by The University of Texas
arising from DTM's use of the licensed subject matter.

The Company has further refined and improved the selective laser sintering
process and materials and has been issued patents in its own name for many of
those developments. As of March 2, 1998, the Company owned or had exclusive
licenses to 29 Unites States patents and five allowed Unites States
applications. As of the same date, the Company owned or had exclusive licenses
to five European patents and two allowed European applications. In addition, the
Company owns or has exclusive rights to 15 other issued international patents.
Technology that is covered by existing patents or is the subject matter of
pending patent applications includes some or all of the following: (i) the
fundamental elements of the selective laser sintering process; (ii) related
inventions on powder delivery, beam delivery and thermal control; (iii) certain
of the sintering powders that DTM has developed; (iv) certain combinations of
powdered materials; and (v) certain post-processing steps for part finishing.
Pending patent applications cover recent developments in composite materials, as
well as specially tailored powder formulations that produce exceptional feature
detail and surface finish. It is anticipated that DTM will make additional
patent application filings as a result of research currently in progress.

Some of the Company's patents have been acquired from third parties other than
The University of Texas. DTM acquired certain patents in the powdered materials
area through assignment from BFGoodrich in 1992. Also in 1992, DTM acquired a
patent that was originally issued to Ross Housholder in 1981. The Company
believes that the Housholder patent is a pioneer patent in the rapid prototyping
field. This patent will expire in 1999.

Most of the key claims of the U.S. patents covering selective laser sintering,
excluding the Housholder patent, have been submitted internationally. The first
European Patent Convention patent, which was issued by the European Patent
Office ("EPO") in December 1994, gives patent protection in Austria, Belgium,

8
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France, Germany, Italy, the Netherlands, Sweden, Switzerland and the United
Kingdom. However, this patent is the subject of an opposition proceeding before
the EPO that was initiated by EOS GmbH, a competitor of the Company. The
competitor initially alleged that the patent claims have been the subject of an
unallowable amendment and that the subject matter is not novel and does not
involve an inventive step. In December 1997, the Company received a favorable
ruling from the EPO in response to these allegations. However, EOS GmbH has
recently filed an appeal before the EPO that again alleges the patent is
invalid. The Company intends to defend the validity of this patent vigorously.
See "Item 3 Legal Proceedings"

The Company has four trademarks registered with the U.S. Patent and Trademark
Office.

The Company can give no assurance that the issued patents to which it holds
rights will be adequate to protect its interests or, if challenged, held valid.
The Company's competitors could develop non-infringing systems, materials or
technologies that are equivalent or superior to those of the Company.
Competitors currently do and also may in the future practice technology covered
by DTM's patents or other legal or contractual protections regardless of the
fact that it is legally protected, forcing the Company to engage in costly
litigation to defend its interests. While DTM defends its intellectual property
vigorously, there can be no assurance that it will be successful in its various
litigations in many countries. A failure by the Company to protect its
intellectual property position could have a material adverse affect on its
business, financial condition and results of operations.

COMPETITION

The Company faces significant worldwide competition in the market for rapid
prototyping systems and materials. Several United States-based companies other
than DTM are in various stages of developing and marketing rapid prototyping
systems and services. These companies include 3D Systems Corporation ("3D
Systems"), Helisys, Inc. ("Helisys"), Sanders Prototype, Inc., Soligen
Technologies, Inc. and Stratasys, Inc. ("Stratasys"). Of these, 3D Systems,
Helisys and Stratasys compete with DTM on a worldwide basis. The Company also
faces competition in various regions outside North America from companies such
as EOS and several Japanese companies, including CMET (Mitsubishi) and Teijin.

A number of the companies participating in the rapid prototyping industry have
developed or may be developing desk-top systems that are sold or will be sold
primarily on the basis of price. DTM believes that these companies include 3D
Systems, Denken Engineering Co., Ltd., Helisys, Kira Corporation, Sanders
Prototype, Inc. and Stratasys, among others. Their products are based on ink jet
printing, plastic extrusion or paper laser cutting and laminating technologies
and generally sell for far less than the Company's products, which are not desk-
top systems.

The Company believes that its principal competitors for the plastic model,
functional prototype and pattern-creation segments of the rapid prototyping
market are 3D Systems, Teijin, CMET and EOS. 3D Systems, Teijin and CMET employ
a stereolithography ("SLA")-based process that utilizes ultraviolet light
sources to polymerize liquid monomers into a solid plastic object. 3D Systems
was the first company to commercially introduce rapid prototyping technology.
The Company competes with 3D Systems on a worldwide basis while its competition
to date with CMET and Teijin has been confined to Japan. Before 1997, EOS,
located in Munich, Germany, marketed systems based on both SLA and selective
laser sintering technologies, principally in Western Europe. In 1997, EOS
announced that it had sold its SLA product line to 3D Systems. EOS has been sued
in Germany, France and Italy by DTM for infringement of selective laser
sintering technology patents. See "Business--Intellectual Property" and
"Business--Legal Proceedings." The Company considers a process marketed by 3D
Systems to be worldwide competition for its RapidTool process and an EOS process
to be a competitor of the RapidTool process in Europe and certain Pacific Rim
countries.

The Company competes for business with other rapid prototyping companies
primarily on the basis of product performance and price, as well as reliability,
accuracy and versatility, as well as product service. The Company also competes
for business with conventional machining and milling techniques, which continue
to be the most common methods by which plastic models, functional prototypes and
tool inserts

9
<PAGE>

are manufactured. The Company is experiencing the effects of this significant
competition in the form of sales discounts, additional services and extended
terms.

The Company may be competing with other technologies that lessen the need for
physical models, such as computer visualization and new generation of CAD
programs that more reliably model and present images of assembled products.

The Company's current technology is not amenable to be configured as a desk-top
product. If mechanical design engineers and other users of design, modeling and
prototyping technologies develop a preference for either desk-top rapid
prototyping systems or approaches that are fully electronic as the standard for
proving design specifications, then the Company could be materially adversely
affected.

EXECUTIVE OFFICERS

The executive officers of the Company and their ages as of March 1, 1998 are as
follows:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS AGE POSITION
- ----------------------------------------------------- -------- ----------------------------------------
<S> <C> <C>
John S. Murchison, III 57 Chief Executive Officer and President
- ---------------------------------------------------------------------------------------------------------
Geoffrey W. Kreiger 48 Controller, Treasurer and Secretary
- ---------------------------------------------------------------------------------------------------------
Kevin McAlea, 39 Vice President, Marketing and Business
Development
- ---------------------------------------------------------------------------------------------------------
</TABLE>

John S. Murchison, III joined the Company as Chief Executive Officer and
President in September 1990. Prior to joining the Company, Mr. Murchison was
General Manager for the Pratt Group, a privately held Australian-based company
with worldwide holdings in packaging, insurance, banking and trading, from 1987
to 1990.

Geoffrey W. Kreiger joined the Company in December 1997 as Controller, Treasurer
and Secretary. Prior to joining the Company was Executive Vice President of
Austin Software Foundry, Inc., from 1996 to 1997. Prior to that he was
President, Datamarine Unit, and Chief Financial Officer and Director of
Datamarine International, Inc., a manufacturer of communications equipment and
consumer electronics, from 1988 to 1995. Mr. Kreiger is a Certified Public
Accountant.

Kevin McAlea, Ph.D. was appointed Vice President, Marketing and Business
Development in 1997. He had been Director of Process and Materials Research
since joining DTM in 1993. Before joining DTM, Dr. McAlea spent more than eight
years in materials research and development for General Electric Company. His
last position was managing the Polymer Physics Program at GE's Corporate
Research and Development Center.

EMPLOYEES

At December 31, 1997, the Company had 113 employees. Approximately 32.0% of the
Company's employees are involved in engineering, research and development and
engineering product support. The remaining employees are engaged in sales,
marketing, finance and administration. A union represents none of the Company's
employees. The Company has no prior experience with a work stoppage. The Company
has experienced the loss of personnel in certain important positions. The future
success of the Company depends on its ability to attract and retain a qualified
work force, including employees with critical management, financial, engineering
and sales and marketing skills.

10
<PAGE>

ITEM 2. PROPERTIES

The Company currently occupies a 30,000-square foot facility at 1611 Headway
Circle, Building 2, Austin, Texas. The Company's lease on this facility expired
on November 30, 1997. The Company has exercised its option to renew the lease at
then-current market rates and since November 30, 1997 remains in this facility
on a month-to-month basis while it negotiates a new long-term lease agreement.
This facility houses the bulk of the Company's operations except off-site
warehouses in Austin, Texas, primarily for the purpose of storing inventory,
that are leased under short-term arrangements. The Company intends to
consolidate its inventory in the expansion space at its main facility in 1998.
The Company also maintains off-site sales and/or service offices located in
various areas of the United States and in Singapore and offices of the Company's
German subsidiary in Hilden, Germany, all of which are leased. DTM expects that
such facilities will be sufficient to support the Company's operations through
the remainder of 1998. See "Item 1. Business--Manufacturing."

ITEM 3. LEGAL PROCEEDINGS

DTM filed an action in the United States District Court for the Eastern District
of Wisconsin in October 1995 against three parties who are operating a
Sinterstation System. DTM alleges that the defendants willfully infringed a DTM
patent on certain selective laser sintering powders. In June 1996, DTM amended
its lawsuit to also assert that one of the defendants breached an oral
settlement agreement. The Company seeks injunctive relief, damages and
attorneys' fees. The defendants have denied infringement and the existence of an
oral settlement agreement, and the defendants seek attorneys' fees. The
defendants have also asserted the affirmative defenses of patent invalidity,
implied license, and failure to mark patented articles, patent unenforceability
and invalidity of the oral settlement agreement. Discovery commenced in late
1995. In a subsequent filing, one of the defendants also has asserted claims
against DTM and BFGoodrich for violation of state and federal antitrust laws.
That defendant seeks injunctive relief as well as damages and attorneys' fees.
In July 1997, the court granted a temporary summary judgment, ruling that these
particular defendants had been given an implied license by DTM. DTM has appealed
this ruling. The contract claim against the defendants and the antitrust claim
against DTM and BFGoodrich remain outstanding and are expected to go to trial
unless this case is settled in the meantime. DTM and BFGoodrich have indicated
that they believe that the subsequent counter and cross claims for violation of
antitrust laws are without merit. It is not possible at this time to predict the
outcome of this proceeding, although a ruling unfavorable to the Company on
either the appeal of the summary judgment ruling or on the outstanding counter
and cross claims could have a material adverse effect on the Company's business
and financial performance.

The Company has initiated proceedings against EOS GmbH and related parties in a
number of courts, primarily in Europe, to enforce its patent rights in various
jurisdictions. The Company initiated patent infringement litigation in March
1996 in the 3rd Chamber--1st section of the Court of Paris, France against EOS
GmbH ("EOS"), a German competitor, against EOS S.A. (France) and against one of
EOS's customers. The Company also initiated patent infringement litigation in
April 1996 in the County Court No. 1 in Munich, Germany against EOS. In December
1996, the Company initiated similar litigation in the court of Pinerolo, Italy,
against EOS. In December 1997, the Company initiated similar litigation in No.
29 Civil Department of Tokyo District Court against Hitachi Zosen Joho System
K.K., an EOS distributor. In each of these cases, the Company has alleged that
EOS is selling rapid prototyping systems in Europe and Japan that make
unauthorized use of selective laser sintering technology covered by the European
and Japanese patents under which DTM has exclusive rights. The Company seeks
injunctive relief plus damages. It is anticipated that this litigation will be
pursued in conjunction with the EPO proceeding in which EOS has opposed the
validity of that European patent. Hearings have begun in the German, French,
Italian and Japanese lawsuits. It is not possible at this time to predict the
outcome of these proceedings. See "Item 1. Business--Intellectual Property."

EOS has informed the Company that EOS has obtained the worldwide right to
enforce certain U.S. patents owned by 3D Systems. EOS has also informed DTM that
EOS may bring patent infringement litigation

11
<PAGE>
against DTM in the U.S. courts. It is not possible at this time to predict the
outcome of this possible action, although the Company has conducted a review of
the 3D patents and believes that it is not infringing or has valid defenses. If
such a lawsuit is filed, the Company intends to defend itself vigorously.
However, a ruling that would have the effect of allowing EOS to sell rapid
protoyping systems that use selective laser sintering in the U.S. could have a
material adverse effect on the Company's business and financial performance.

The matter styled John H. Danielson and Thomas E. Harding v. DTM Corporation is
currently pending in the 225TH Judicial District in Bexar County, Texas.
Following the Company's June 18, 1997 announcement regarding earnings John J.
Danielson and Thomas E. Harding (jointly "Plaintiffs") filed suit against the
Company on November 18, 1997, in a Texas State Court in Bexar County, Texas.
Plaintiffs allege violation of federal and state securities laws in connection
with the Company's filings and public disclosures related to its initial public
offering on May 2, 1997 (the "IPO"). Plaintiffs have styled their lawsuit as a
class action, and seek to represent a purported class of purchasers of the
Company's stock in connection with the IPO. Although not formally served as of
the date hereof, the Company has been advised that on March 26, 1998, Plaintiffs
filed an amended complaint to expand their allegations and to name the following
individuals and entities as additional defendants with the Company: John S.
Murchison, III, a director and the Company's Chief Executive Officer; D. Lee
Tobler, Chairman of the Board of Directors; Marshall O. Larsen and Steven G.
Rolls, directors of the Company; and A.G. Edwards and Sons, Inc. and Ladenburg
Thalman & Co., Inc., the managing underwriters in the IPO. Plaintiffs seek
rescission and damages. If the class were certified as currently described and
the case decided in favor of the Plaintiffs, damages could include the proceeds
of the Company's IPO or approximately $22.8 million, plus interest and
Plaintiffs' attorneys fees. It is not possible at this time to predict the
outcome of this lawsuit, although the Company believes that the allegations are
without merit and intends to contest them vigorously. However, a ruling
unfavorable to the Company could have a material adverse effect on the Company's
business and financial performance.

Although the Company believes that it has meritorious defenses to the claims of
liability or for damages in the various actions against the Company, there can
be no assurance that additional lawsuits will not be filed against the Company.
Further, there can be no assurance that the foregoing actions will not have a
disruptive effect upon the operations of the Company's business, or that the
resolution of the foregoing actions will not have a material adverse effect upon
the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's Common Stock is traded on the NASDAQ National Market under the
symbol "DTMC." The high and low transaction prices for each quarter of 1997,
subsequent to the initial public offering of the Company's Common Stock on May
2, 1997 at $8 per share are set forth below.

<TABLE>
<CAPTION>
Stock Prices
1997 HIGH LOW
- ---- ---- ---
<S> <C> <C>
Second Quarter $8 1/2 $ 4
Third Quarter $ 5 $3 1/16
Fourth Quarter $3 1/8 $ 1
</TABLE>

As of February 27, 1998, the Company had 6,286,851 shares of Common Stock
outstanding, which were held by approximately 400 beneficial owners, represented
by 36 shareholders of record.

12
<PAGE>

The Company has never declared or paid cash dividends on its Common Stock and
does not anticipate that it will pay dividends in the foreseeable future. The
Company intends to reinvest any earnings in the development and expansion of its
business. Furthermore, the Company is now restricted from paying dividends by
the terms of its loan agreement with a bank and it expects that this restriction
will be part of future borrowing arrangements.

ITEM 6. SELECTED FINANCIAL DATA

The following table of selected financial data should be read in conjunction
with the Financial Statements required by Item 8 and Management's Discussion and
Analysis of Financial Condition and Results of Operation included in Item 7.

Year Ended December 31,
1997 1996 1995 1994 1993
------------------------------------------------------------------------------------
(In thousands, except share amounts)
<S> <C> <C> <C> <C> <C>

Statements of Operations Data: (C)
Revenues ............................. $ 25,308 $ 24,379 $ 14,211 $ 9,239 $ 9,582
Cost of sales ..................... 14,721 14,445 9,676 5,881 7,840
Gross margin ...................... 41.8% 40.7% 31.9% 36.3% 18.2%
Selling, general and administrative 10,579 9,980 6,620 5,249 5,588
Research and development .......... 4,871 4,292 3,521 3,840 5,798
Stock compensation (A) ............ 2,927 - - - -
Interest expense, net ............. 325 1,066 530 178 328
Cost of discontinued registration . - 752 - - -
Gain on sale of service bureau .... - - - - (238)
Tax benefit (B) ................... (827) (1,667) (2,138) (1,825) (3,084)
---------------------------------------------------------------------------------
Net loss ............................. (7,288) (4,489) (3,998) (4,084) (6,650)
=================================================================================
Net loss per common share - basic .... $ (1.45) $ (1.38) $ (1.23) $ (1.26) $ (2.05)
=================================================================================
Weighted average number of shares
outstnding ........................ 5,034,183 3,243,391 3,243,391 3,243,391 3,243,391

Balance Sheet Data (at period end):
Working capital ...................... $ 4,964 $ 1,622 $ 236 $ 342 $ 1,818
Total assets ......................... 17,548 17,897 10,639 8,560 12,384
Total debt ........................... 175 15,809 9,076 4,600 3,000
Total liabilities .................... 8,310 26,382 14,557 8,516 8,306
Shareholders' equity (deficit) ....... 9,238 (8,485) (3,918) 44 4,078

</TABLE>

------------------------------------------
(A) This item is a non-cash stock compensation charge incurred in
connection with the May 1997 IPO.
(B) Tax benefit is an allocation from majority stockholder and is no longer
available after May 1997.
(C) Includes rapid prototyping service bureau activity through December 31,
1993, at which time the Company sold its domestic service bureau.
Revenues for the year ended December 31, 1993, include approximately
$1.9 million relating to this service bureau.

13
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

BUSINESS, ENVIRONMENT AND RISK FACTORS

The following discussion and analysis should be read in conjunction with the
information set forth under "Selected Financial Data" and the Company's
Consolidated Financial Statements and notes thereto as well as the section below
under the heading "Risk Factors That May Affect Future Results and Safe Harbor
Statement." The Company's future operating results may be affected by various
trends and factors, which are beyond the Company's control. These include, among
other factors, changes in general economic conditions, rapid or unexpected
changes in technologies and uncertain business conditions that affect the rapid
prototyping and rapid tooling industry. Accordingly, past results and trends
should not be used by investors to anticipate future results or trends.

With the exception of historical information, the matters discussed below under
the heading "RESULTS OF OPERATIONS" and LIQUIDITY AND CAPITAL RESOURCES" may
include forward-looking statements that involve risks and uncertainties. The
Company wishes to caution readers that a number of important factors, including
those identified in the section entitled "Risk Factors That May Affect Future
Results and Safe Harbor Statement" as well as factors discussed elsewhere in
this report and in the Company's other reports filed with the Securities and
Exchange Commission, could affect the Company's actual results and cause actual
results to differ materially from those forward-looking statements.

OVERVIEW

DTM Corporation develops designs, manufactures, markets and supports, on an
international basis, rapid prototyping and rapid tooling systems and related
powdered sintering materials and services. The Company's Sinterstation Systems
and powdered sintering materials are based on proprietary and patented selective
laser sintering technology. The Company was incorporated in 1987, and prior to
shipment of its first Sinterstation System in 1992, it derived revenues solely
from a service bureau it operated in Austin, Texas.

As more fully described herein, the Company`s revenues have not grown to a level
that will support its cost infrastructure; thus it has yet to report a profit in
any period. Growth in 1997 tapered to 4%, whereas it had been 72% in 1996 and
54% in 1995. In 1997, the growth experienced in 1996 carried into the first two
quarters, but revenues actually decreased in the last two quarters. There was a
particularly steep decrease in sales in the third quarter of 1997 and a large
loss for that quarter was sustained because of this and other factors.

Calendar year 1997 was disappointing due to continuing losses, ongoing softness
in the North American markets, increased price competition world-wide, including
currency effects, and changes in anticipated product mix. In addition, the
Company's RapidTool process is taking longer than previously anticipated to
become a significant factor with customers.

In mid-1997, the Company initiated several internal programs to make the
Company's products more competitive in terms of capability and on price and to
lower its expenses. First, the Company began development of several sintering
materials for making new and improved metal tooling and cores in order to
increase the acceptance of the Company's Sinterstation Systems for these types
of applications. Additional sand core powdered sintering materials were
available by the end of 1997. Second, a project was accelerated to reduce the
cost of the Company's Sinterstation System to make it more competitive. Third, a
cost containment and reduction program was directed at freezing or reducing
overhead expenses to a level commensurate with the Company's current growth.
However, there can be no assurance that the Company will be able to successfully
implement any or all of these initiatives. Any failure to do so could have a
material effect on the Company, its financial condition and results of
operations.

14
<PAGE>

To achieve profitable operations, the Company must grow, while improving its
gross margins and containing its costs. There can be no assurance that the
Company's gross margins will improve in the face of expected future price
declines or other adverse factors and that failure to maintain the Company's
gross margins could have a material adverse effect on the Company's financial
condition and results of operations

A sale by the Company of one of its Sinterstation Systems can generate revenues
of over of $500,000 upon shipment. Thus the delay or acceleration of a small
number of systems can materially affect the operating results of the quarters
involved. Furthermore, new product introductions, seasonality of customer buying
patterns and other factors can cause fluctuations in quarterly operating
results.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain income
statement data as a percentage of total revenues and certain cost of sales data
as a percentage of respective product revenues and service and support revenues.

<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>

Revenues:
Products ............................ 89.0% 90.5% 88.9%
Service and support ................. 11.0 9.5 11.1
----- ----- -----
Total revenues ................ 100.0 100.0 100.0
Gross profit:
Products ............................ 43.1 41.0 30.3
Service and support ................. 31.2 38.3 44.7
Total gross profit ............ 41.8 40.7 31.9
Operating expenses:
Selling, general and administrative . 41.8 40.9 46.6
Research and development ............ 19.2 17.6 24.8
Stock compensation (EAP) ............ 11.6 - -
----- ----- -----
Total operating expenses ...... 72.6 58.5 71.4
Other income (expense):
Interest expense, net ............... (1.3) (4.4) (3.7)
Cost of discontinued registration ... (3.1)
----- ----- -----
Total other income (expense) .. (1.3) (7.5) (3.7)
Loss before income tax benefit allocated
from BFGoodrich ..................... (32.1) (25.3) (43.2)
Income tax benefit allocated from BFGoodrich 3.3 6.9 15.1
----- ----- -----
Net loss ................................... (28.8)% (18.4)% (28.1%)
===== ===== =====
</TABLE>

Revenues. Revenues increased 3.8% to $25.3 million in 1997 as compared to $24.4
million in 1996 and $14.2 million in 1995. The growth in revenues in 1997 was
attributable to market growth internationally as revenues derived
internationally grew by approximately 30% to $15.8 million, while revenues
derived from customers in North America declined by approximately 22% to $9.5
million. The growth in 1997 was also attributable to manufacturers and others
engaged in product development as sales to these customers grew by approximately
14% to $15.6 million, while revenues derived from service bureaus declined by
approximately 9% to $9.7 million. Rapid prototype service bureaus are primarily
based in North America.

The growth in 1997 occurred in the first two quarters of 1997, with revenues
contracting in the last two quarters of 1997. See "SELECTED QUARTERLY RESULTS"
below. Unit volumes of Sinterstation Systems and most powdered materials
increased slightly during 1997.

15
<PAGE>

As stated above, the Company's 1997 international revenues were $15.8 million or
62% of total revenues, compared to 50% and 34% of total revenues in 1996 and
1995, respectively. Germany was the only foreign country from which more than
10% of the Company's revenues were derived. Revenues derived from German
customers amounted to approximately 27%, 23% and 15% of total revenues in 1997,
1996 and 1995, respectively. Except in Germany, the Company's international
revenues were primarily denominated in U. S. dollars. The Company does not hedge
all of its foreign currency exchange rate risk. The effect of foreign exchange
rate fluctuations on exchange transactions and translation of foreign operations
did not have a significant impact on the Company's operating results in any
period. However, in 1997 DTM did experience downward pressure on its
international prices as the U.S. dollar strengthened significantly against most
European and Asian currencies. If this strengthening continues, the Company
expects continued downward pressure on the Company's sales prices in the
international markets.

Revenues in past periods may not be indicative of revenues in the future, which
may be affected by other business environment and risk factors previously
discussed, as well as other factors included elsewhere herein.

Gross Profit. Gross profit was $10.6 million or 41.8% of revenue in 1997,
compared to $9.9 million or 40.7% and $4.5 million or 31.9% of total revenue in
1996 and 1995, respectively. The gross profit increase was due to sequentially
higher worldwide unit volume each year. The gross margin percentage increase in
1997 was affected primarily by a product mix shift toward powdered materials,
including increased volumes of nylon powders. The gross margin percentage
increase in 1996 was affected primarily by the introduction of the Sinterstation
2500. The service and support gross margin has been declining due primarily to
the cost of servicing certain international customers.

The Company believes there is a risk that gross margin percentages may decline
in the face of the soft North American market and the strong U.S. dollar. Other
factors, including changes in material and labor costs, may also have an adverse
effect on gross margins. Past gross margins are not necessarily indicative of
future gross margins.

Selling, General and Administrative Expense. Selling, general and
administrative expense was $10.6 million or 41.8% of revenues in 1997, compared
to $10.0 million or 40.9% of revenues and $6.6 million or 46.6% of revenues in
1996 and 1995, respectively. The increase in both 1997 and in 1996 was primarily
related to the increased costs associated with sales and sales support staffs
and commission expense resulting from higher sales levels. Selling, general and
administrative expense may vary as a percentage of revenues in the future.

Research and Development Expense. Research and development expense grew by 13.5%
to $4.9 million in 1997, from $4.3 million in 1996 and $3.5 million in 1995. As
a percentage of revenues, research and development expense was 19.2%, 17.6% and
24.8% in 1997, 1996 and 1995, respectively. The increase in expense relates to
the Company's continued development of enhancements to and lower the
manufactured cost of its current products and to the development of new powdered
sintering materials. During the year, the Company continued development in the
areas of powdered materials for use in rapid prototyping, powdered materials for
use in rapid tooling and reducing the manufactured cost of the Sinterstation
Systems. In 1996, the Company developed the Sinterstation model 2500. The
Company plans to continue its commitment to research and development in 1998, as
the Company believes that the markets for its products are characterized by
technological innovation for hardware, software and powdered materials. Research
and development expense may increase in absolute dollars in future periods, and
such expenditures may vary as a percentage of sales. There can be no assurance
that the Company's research and development efforts will result in commercially
successful new technology and products in the future, and those efforts may be
affected by other factors.

Stock Compensation (EAP). In connection with the 1997 IPO, the Company incurred
a one-time non-cash stock compensation expense of approximately $2.9 million as
a result of previously outstanding stock appreciation rights converting by
formula into immediately vested stock options at exercise prices below the
market value of the common stock. This charge was recorded in the second
quarter.

16
<PAGE>

Interest Expense. Net interest expense for 1997 was $325,000, a decrease of
$741,000 compared to interest expense of $1.1 million for 1996 and $530,000 in
1995. This reflects the increase in the average daily balance of the Company's
outstanding indebtedness over 1996 and into May 1997, and then a decrease when
the Company repaid substantially all of the then outstanding indebtedness out of
the proceeds of the IPO.

Cost of Discontinued Registration. In the fourth quarter of 1996, the Company
expensed $752,000 of legal, accounting and other professional services related
to an attempted initial public offering, which was commenced in 1996 and
postponed.

Income Taxes. As a result of its tax sharing arrangement with BFGoodrich, the
Company was allocated an income tax benefit of $827,000 in 1997 compared to $1.7
million in 1996 and to $2.1 million in 1995. In May 1997, BFGoodrich ownership
interest fell below 80% and such benefits are no longer available to the
Company. In the fourth quarter of 1997 the Company recorded the final accounting
for this tax allocation arrangement.

Net Loss. The Company had net losses of $7.3 million, $4.5 million and $4.0
million in 1997, 1996 and 1995, respectively.

17
<PAGE>

SELECTED QUARTERLY RESULTS

The following table sets forth certain unaudited quarterly results of operations
for the three-month periods ended March 31, 1996 through December 31, 1997. This
information has been presented on substantially the same basis as the audited
consolidated financial statements appearing elsewhere herein. The unaudited
quarterly results of operations should be read in conjunction with the Company's
audited consolidated financial statements and related notes. The quarterly
financial information presented herein should not be relied upon as an
indication of future quarterly performance. In 1997, the quarterly increase
(decrease) in revenues in comparison to the comparable period in the prior year
was 38.6%, 22.4%, (24.5)% and (17.5)% in the first, second, third and fourth
quarters, respectively.

March June September December
----------------------------------------------------
<S> <C> <C> <C> <C>
1997:
Revenues ............................... $ 8,023 $ 6,799 $ 2,852 $ 7,634
Cost of sales ....................... 4,541 4,051 1,714 4,415
Gross margin ........................ 43.4% 40.4% 39.9% 42.2%
Selling, general and administrative . 2,957 3,066 2,266 2,290
Research and development ............ 1,133 1,260 1,203 1,275
Stock compensation (A) ............. - 2,927 - -
Interest expense (income), net ...... 300 61 (39) 3
Tax expense (benefit) (B) ........... (197) (310) 29 (349)
--------------------------------------------
Net loss ............................... $ (711) $(4,256) $(2,321) $ -
============================================
Net loss per common share - basic ...... $ (0.22) $ (0.82) $ (0.37) $ -
============================================

1996: ....................................... (C)
Revenues ............................... $ 5,790 $ 5,556 $ 3,776 $ 9,257
Cost of sales ....................... 3,469 3,342 2,185 5,449
Gross margin ........................ 40.1% 39.8% 42.1% 41.1%
Selling, general and administrative . 2,038 2,272 2,526 3,144
Research and development ............ 951 947 1,198 1,196
Interest expense, net ............... 219 248 257 342
Cost of discontinued registration ... - - - 752
Tax benefit (B) ..................... (319) (354) (781) (213)
--------------------------------------------
Net loss ............................... $ (568) $ (899) $(1,609) $(1,413)
============================================
Net loss per common share - basic ...... $ (0.18) $ (0.28) $ (0.50) $ (0.44)
============================================
</TABLE>
--------------------------------------
(A) This item is a non-cash stock compensation charge incurred in
connection with the May 1997 IPO.
(B) Tax benefit is an allocation from majority stockholder and is no
longer available after May 1997. A final accounting was made in the
three months ended December 31, 1997.
(C) Selling, general and administrative expenses for the three months
ended December 31, 1996 include unusual expenses of $250,000 for
severance costs and $268,000 of bad debt expense.
(D) Annual net loss per share does not equal the sum of the individual
quarters due to differences in the average number of shares
outstanding during the respective periods.

18
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Since the Company's inception, cash used by the Company for operations and
capital investment has exceeded cash generated by the Company. Through May 1997,
the Company generally had financed its needs through collection of revenues and
transactions with BFGoodrich and borrowings from commercial banks and other
short-term sources.

In May 1997, the Company issued common shares in an initial public offering. The
net proceeds of approximately $20.7 million were used to pay off substantially
all of the Company's then outstanding debt and to add approximately $6.0 million
to working capital.

Net cash used in operating activities (before working capital changes) was $2.0
million in 1997, while it was $2.3 million in 1996 and $1.5 million in 1995.
Working capital used cash of $932,000 in 1997, $1.8 million in 1996 and $85,000
in 1995. The Company's working capital needs increase during periods of rapid
growth such as occurred in 1996 because of a number of factors, including the
duration of the Company's manufacturing cycle and collection cycle. In 1997 the
growth tapered and receivables were a source of cash that was applied to reduce
current a liabilities. However, a $1.0 million increase in inventories during
1997 used a corresponding amount of cash. The Company attributes this build-up
in inventories to slower than expected sales in the third and fourth quarters.
The Company believes that the level of finished goods on hand at December 31,
1997 will be reduced during 1998, as it sells off this inventory.

For the years ended December 31, 1997, 1996 and 1995, BFGoodrich allocated to
the Company approximately $827,000, $1.7 million and $2.1 million, respectively,
for tax benefits resulting from inclusion of the Company in the consolidated
income tax return of BFGoodrich. Such amounts are included in "Due to/from
BFGoodrich" in changes in assets and liabilities used in operating activities
(working capital) in the Consolidated Statements of Cash Flows in the
Consolidated Financial Statements. See Note 9 to the Consolidated Financial
Statements.

The Company's investing activities include expenditures for patents and
licenses, capitalized software costs and furniture and equipment, principally
consisting of the Company's Sinterstation Systems built for internal use and
rental purposes. Net cash used by investing activities was approximately, $1.7
million, $3.0 million and $2.4 million in 1997, 1996 and 1995, respectively. For
1998, the Company has budgeted for capital expenditures of approximately $1.9
million.

The Company currently has a $2.0 million line of credit with Chase Bank, Texas
NA, with no amounts outstanding, due in April 1999. Borrowings under this line
of credit bear interest at prime plus 1.5%. Borrowings under this line must be
approved in advance by BFGoodrich, which has provided its guarantee of the line
to Chase Bank, Texas NA. There can be no assurance that BFGoodrich will approve
such bank loans when and if requested by DTM. In addition BFGoodrich has
expressed its intention to divest its interest in the Company. If BFGoodrich
were to divest its interest in the Company, it is unlikely that it would subject
itself to additional guarantee exposures under the bank agreement.

The Company believes that it has the financial resources needed to meet business
requirements, including capital expenditures, working capital requirements, the
debt obligations outstanding and operating lease commitments for facilities at
least through the next twelve months. However, there can be no assurance that
this will be the case.

EFFECT OF INFLATION

The Company's business operations are subject to inflationary pressures. Due to
the competitive environment in this industry, there can be no assurance that the
Company will be able to increase prices in the event of increased labor and
material costs.

19
<PAGE>

YEAR 2000 PLAN

The Company believes that its Sinterstation Systems have no exposures with
respect to the year 2000 issue.

The Company has begun to develop a plan to upgrade or replace its information
technology to recognize the year 2000 and begun to evaluate packaged software
solutions. The Company currently expects the project to be substantially
completed by early 1999 and to cost between $50,000 and $150,000. This estimate
includes internal costs, but excludes the costs to upgrade and replace systems
in the normal course of business. The Company does not expect this project to
have a significant effect on operations. As of December 31, 1997, approximately
$10,000 was expensed.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND SAFE HARBOR STATEMENT

Investors are cautioned that this Form 10-K contains forward-looking statements
that involve risks and uncertainties, including the following: (i) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of management and the Board of Directors; (ii) the
Company's plans and results of operations will be affected by the Company's
ability to manage its growth and working capital; (iii) the Company's business
is highly competitive and the entrance of new competitors or the expansion of
the operations by existing competitors in the Company's markets could adversely
affect the Company's plans and results of operations. In addition, the Company
identifies the risk factors discussed below which may affect the Company's
actual results and may cause actual results to differ materially from those
contained in forward looking statements.

LIMITED OPERATING HISTORY AND LACK OF PROFITABILITY. The Company was
incorporated in 1987, and prior to shipment of its first Sinterstation Systems
in 1992, it derived revenues solely from a rapid prototyping service bureau that
it operated in Austin, Texas. The Company has been unprofitable from its
inception; most recently recognizing a net loss of approximately $7.3 million
for the year ended December 31, 1997. There can be no assurance that the Company
can achieve or maintain profitability in the future.

EMERGING RAPID PROTOTYPING MARKET. The market for rapid prototyping products and
services is in an early stage of development and includes multiple, competing
technologies, many of which are not yet fully developed. Participants in this
market are moving to address new applications, many of which may not yet be
known or accepted by potential users. Rapid prototyping requires that a CAD file
describe a design. Organizations who are not using CAD are not, generally,
potential customers for rapid prototyping products and services. Significant
education of the end user in both CAD modeling and rapid prototyping in general
has in some cases been a prerequisite to product acceptance. It is not clear at
this time which one or more technologies will gain broad market acceptance.
There can be no assurance that DTM will emerge as a market leader, or even a
major market participant, as the market matures.

EMERGING RAPID TOOLING MARKET. The market for rapid tooling products and
services is even in an earlier stage of development than rapid prototyping.
Participants in this market are moving to address new applications, many of
which may not yet be known or accepted by potential users. The Companies who
make tooling using traditional machining methods have made large capital
investments in traditional equipment and have mature infrastructures for doing
so and may be highly resistant both on financial and cultural basis to adopting
new technologies. There can be no assurance that rapid tooling technologies will
evolve to the point that the perceived value will overcome those obstacles.
There can be no assurance that DTM will emerge as a market leader, or even a
major market participant, as the market matures.

PENDING CLASS ACTION LITIGATION. The Company is the defendant in a matter styled
as a class action that is pending in a Texas State court. The plaintiffs seek
recission of the May 1997 IPO and the return to certain shareholders the
proceeds of that IPO of approximately $22.8 million, plus interest and costs. An
adverse judgment may have a material adverse effect on the Company's business
and financial performance. See "Item 3. Legal Proceedings"

20
<PAGE>

COMPETITION. The market for rapid prototyping systems is intensely competitive.
In marketing its Sinterstation Systems, the Company experiences competition from
many sources. Certain of the Company's competitors are better known and have
greater financial, research and development, production and marketing resources
than DTM. Competition has increased as a result of the introduction of new
products or product enhancements by these competitors or the entry into the
industry by other companies. Industry analysts have estimated that the worldwide
market for rapid prototyping grew in 1997 by 20%. In 1997, the Company's
revenues lagged the overall industry and grew by only 4%. Increased competition
has resulted in price reductions, reduced margins and loss of market share, all
of which have materially adversely affected the Company's business and financial
results. See "Item 1. Business--Competition."

LIMITED PRODUCT COMPANY. The Company currently offers two models of
Sinterstation Systems for sale. The sale of Sinterstation Systems comprised 66%
of revenues in both 1997 and 1996. The remaining revenues were comprised of
sales of sintering materials, spare parts and services to the installed base of
Sinterstation owners. The Sinterstation Systems are priced at the premium end of
the range of today's rapid prototyping products and are sold on the basis of
performance and suitability to specific applications. In a downturn or even in a
soft market the Company's dependance upon a limited range of products, as
opposed to a wide range of products at different price points, has caused the
Company's financial performance to be adversely affected.

CAPITAL RESOURCES. The Company's future capital requirements will depend on a
number of factors, including its profitability, growth rate, working capital
requirements, expenses associated with protection of its patents and other
intellectual property and costs of future research and development activities.
It is typical of developing technology companies to need large amounts of
capital to fund growth. BFGoodrich, the Company's majority shareholder, has been
a significant source of debt and equity funding in the past. BFGoodrich has
indicated to the Company that BFGoodrich has no plans to provide future funding.
In 1997, cash used in operating activities (before working capital changes)
amounted to $2.0 million and net cash used for capital expenditures was $1.8
million for a total of $3.8 million, which was financed, primarily, through the
proceeds of the IPO. At December 31, 1997, DTM had working capital of $5.0
million. Future operating results will depend, in part, on the Company's ability
to obtain and manage capital sufficient to finance its business. The inability
of the Company to secure capital funding sufficient to meet its needs could have
a material adverse effect on the Company's business and financial performance.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. Protection of the Company's
intellectual property is an important factor in its ability to be successful in
a highly competitive market that is subject to rapid technological changes.
However, it is expensive and consumes a significant portion of time of DTM's
officers. Patent and license capital expenditures were $620,000, $698,000 and
$247,000 in 1997, 1996 and 1995, respectively. Royalty expense, included in cost
of sales, was $552,000, $676,000 and $424,000 in 1997, 1996 and 1995,
respectively. In addition, certain litigation expenses were included in Selling,
General and Administrative expense in 1997, 1996 and 1995.

In pursuing protection for its proprietary rights in its Sinterstation Systems,
materials and related technology, the Company currently relies on a combination
of patent, copyright, trademark and trade secret rights, as well as contractual
provisions. The Company typically seeks patent protection for its selective
laser sintering technology, including, where deemed appropriate, the selective
laser sintering process, the Sinterstation Systems and the materials used in the
Sinterstation Systems. However, patent protection may not always be available.
There can be no assurance that patents will be issued under any or all of the
patent applications to which the Company has rights. In addition, the laws of
various countries in which the Company's products may be sold may not protect
the Company's products and intellectual property rights to the same extent as
the laws of the United States.

Furthermore, the Company can give no assurance that the issued patents to which
it holds rights will be adequate to protect its interests or, if challenged,
held valid. The Company's competitors could develop non-infringing systems,
materials or technologies that are equivalent or superior to those of the
Company. Competitors currently do and also may practice technology covered by
DTM's patents or other legal or contractual protections regardless of the fact
that it is legally protected, forcing the Company to engage in costly litigation
to defend its interests. While DTM defends its intellectual property vigorously,
there can be no

21
<PAGE>

assurance that it will be successful in its various litigations in many
countries. If the Company were unsuccessful in enforcing its intellectual
property rights or other contractual rights in the context of third-party offers
to sell selective laser sintering systems or sintering powders or if the Company
were found to have violated state or federal antitrust laws, the Company's
future revenues might be adversely affected. In 1997, a court granted a
temporary summary judgment, ruling that a customer had been given an implied
personal license by DTM to one of DTM's patented sintering materials. This
ruling has been appealed by the Company. The inability of the Company to
successfully establish and defend its intellectual property rights could have a
material adverse effect on the Company's business and financial performance. See
"Item 1. Business--Intellectual Property" and "Item 3. Legal Proceedings."

Unrelated third parties hold many patents and pending patent applications under
which the Company is not a licensee that relate to the design and manufacture of
rapid prototyping systems and materials. If such a third party brought
infringement litigation against the Company, and if the Company was not
successful in defending such litigation or in obtaining a license, the Company's
business and financial performance could be materially adversely affected. The
Company has been threatened with such litigation by a competitor. See "Item 1.
Business--Intellectual Property" and "Item 3. Legal Proceedings."

Certain key intellectual property used in the selective laser sintering process
is licensed to the Company by The University of Texas System. As a licensee, the
Company's rights to practice the technology are not absolute. The University of
Texas could terminate, attempt to terminate or amend the license if the Company
could be shown to be in material default of the terms of the license. Even if
DTM has a basis for objection, defense of its rights as a licensee could be
costly and the outcome would be uncertain. Loss of significant rights as a
licensee under this license could have a material adverse effect on the
Company's business and financial performance. See "Item 1. Business--
Intellectual Property."

MANAGEMENT OF VARYING GROWTH. DTM has experienced varying revenue growth since
1991, recognizing increases in total net revenues from approximately $1.1
million in 1991 to approximately $25.3 million in 1997. In the third quarter of
1997, revenues began to contract overall and throughout 1997 its revenues
derived from North America contracted while its revenues derived from
international markets expanded rapidly. Also, in 1997 the Company's revenues
from customers directly involved in product development expanded while its
revenues derived from service bureaus contracted. This varying growth has, from
time to time, strained its management resources and systems. DTM's ability to
manage its varying growth effectively will depend on, among other things, its
ability to increase the capability and quality of its operational, financial and
management information systems and controls and to train, motivate, in some
cases re-deploy, manage and retain its employees. There can be no assurance that
the Company will experience future growth or be successful in managing any
future growth. Failure to manage or enter into any future growth could have a
material adverse affect on the Company's business and financial performance.

QUARTERLY FLUCTUATIONS IN OPERATING RESULTS. The Company's revenues and
operating results have varied substantially from quarter to quarter and may
continue to do so. DTM typically experiences a relatively long lead-time to
complete a Sinterstation System sale and has historically experienced no
backlog. Furthermore, new product introductions, seasonality of customer buying
patterns and other factors can cause fluctuations in quarterly results. These
fluctuations have and may continue to preclude the Company from managing its
operating results effectively from quarter to quarter. Further, a majority of
the sales of the Company's Sinterstation Systems occur at the end of the
quarter. As the duration of the current manufacturing cycle is approximately 19
weeks, this has a significant impact on the Company's ability to control its
inventories. The bunching of sales at the end of the quarter also negatively
impacts the Company's ability to predict sales, control sales prices and enforce
its standard terms. The failure of the Company to complete a particular
Sinterstation System sale in any given quarter can have a material adverse
effect on the Company's business and financial performance for that quarter and
quarterly fluctuations could cause a material adverse effect on the price at
which the Common Stock trades. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations--Selected Quarterly Results"
and "Item 1. Business--Seasonality."

NEW PRODUCTS; ENGINEERING TESTING DELAYS. The Company's ability to achieve and
maintain a significant market share depends heavily on its ability to improve
the perceived value of its Sinterstation

22
<PAGE>

Systems, through a combination of lower installed cost, lower operating costs,
higher productivity and improved ease of use. In addition, DTM must introduce
new and innovative products that facilitate increased use and more specialized
applications of existing products. DTM cannot predict with any certainty the
degree to which its ongoing research and development efforts in the areas of
Sinterstation System and materials enhancements will be successful or, if so,
when. In addition, the Company can provide no assurance of its future success in
selecting, developing, manufacturing and marketing new products. When the
Company or its competitors announce new products with capabilities or
technologies that have the potential to replace the Company's existing product
offerings, customers sometimes defer or forego purchases of existing Company
products. This could materially adversely affect the Company's business and
financial performance. While the Company performs testing prior to releasing new
product designs or product enhancements, products may contain unforeseen errors
or performance problems. The correction of errors and problems in new products
could cause delays in product introductions or shipments, require design
modifications to previously shipped products or cause adverse publicity, any of
which can adversely affect the Company's business and financial performance.

DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a substantial
extent on certain key employees. Losing the services of one or more key
employees could have a material adverse effect on the Company's business and
financial performance. The Company's success also depends on its ability to
continue to attract highly talented technical personnel. Candidates with
appropriate training and expertise may be in short supply in the geographic
areas where the Company is attempting to recruit personnel. While the Company
has put in place incentive compensation plans intended to provide motivation for
continued employment of key employees, most of the employees are not a party to
employment or non-competition agreements with the Company. During the last half
of 1997, several executive officers left the Company, including the Vice
Presidents of Engineering and Marketing and the Chief Financial Officer. The
exercise prices of employee stock options have generally been above market value
since 1997, management incentive goals have not been met for the past two years
and certain sales force incentive goals were not met last year. The Company can
give no assurance that it will be able to retain employees or continue to
attract, assimilate and retain other skilled personnel.

DEPENDENCE ON THIRD-PARTY SUPPLIERS. The Company subcontracts for manufacture of
Sinterstation System components, powdered sintering materials and accessories
from single-source, third-party suppliers. A disruption in supply or failure of
a supplier to remain competitive in functionality or price could have a material
adverse effect on the Company's sales or reputation for timely delivery, and,
hence, on the Company's business and financial performance. See "Item 1.
Business--Manufacturing."

INTERNATIONAL OPERATIONS. The Company competes on an international basis through
its wholly owned subsidiary located in Germany and through export sales derived
from its United States sales operations, principally to the Pacific Rim, Europe
(excluding Germany) and South America. In 1997, approximately 62% of the
Company's sales were made to customers outside of the United States. The Company
expects that sales to customers in countries outside of the United States will
continue to make up a significant percentage of total sales. Fluctuations in
exchange rates as well as interest rates have significantly affected DTM's sales
in foreign markets. In particular, a strengthening U.S. dollar has adversely
affected the price competitiveness on revenues realized on DTM's sales of
products and services.

The Company also maintains a subsidiary for sales and technical support in
Europe. In addition, exchange rates have adversely affected the value of
receivables arising from foreign sales. The Company does engage in some hedging
to limit the currency exchange risk related to some sales. There can be no
assurance that the Company's exposure risks associated with to international
operations will not have a material adverse effect on its liquidity, capital
resources and results of operations. The regulatory environment, including
import/export laws, protective trade policies and currency controls of foreign
governments, also could materially adversely affect the Company's business and
financial performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

CONTROL OF THE COMPANY. BFGoodrich owns approximately 50.2% of the outstanding
Common Stock. At this percentage, BFGoodrich could control elections of the
Company's Board of Directors and could control or substantially affect the
outcome of certain matters submitted to the Company's shareholders for their
vote or consent, and to prevent or delay a change in control of the Company.
BFGoodrich has advised the Company that its interest in DTM is primarily
financial and that it intends to

23
<PAGE>

divest its interest in the Company. The Company cannot predict the effect of a
sale of a controlling interest in the Company; although, depending on the
identity of the purchaser and its reason for acquiring control of the Company,
minority shareholders could be adversely affected.

LOSS OF TAX ALLOCATION AGREEMENT AND OTHER BENEFITS FROM BFGOODRICH. As a result
of the IPO, the ownership of outstanding Common Stock by BFGoodrich decreased to
less than 80%. BFGoodrich is no longer able to include DTM's income or loss in
BFGoodrich's consolidated federal income tax return; consequently, DTM has lost
the benefit of the tax allocation agreement between DTM and BFGoodrich effective
May, 1997. Without the tax benefit allocated from BFGoodrich, the Company's net
loss for 1997 would have increased from approximately $7.3 million to
approximately $8.1 million. To the extent the Company incurs future losses, the
resulting tax loss carryforward would be deferred until sufficient income is
generated by DTM to utilize the carryforward.

Historically, DTM has received certain tangible and intangible benefits from
BFGoodrich. For example, BFGoodrich currently provides DTM participation in a
group program for various types of business insurance. This arrangement is on
terms that could be considered more favorable to the Company than those that
would be available to DTM in arms-length transactions with unrelated vendors,
principally because DTM is able to take advantage of cost efficiencies
experienced by BFGoodrich due to the size of its operations. DTM will be
ineligible to take part in some insurance once BFGoodrich no longer owns a
majority of the outstanding Common Stock. Either party has the option to
terminate any of such arrangements at any time. In addition as of December 31,
1997, DTM had a current liability to BFGoodrich in the amount of $909,000. This
amount is currently non-interest bearing and is due on demand. The balance is
the result of certain payments made by BFGoodrich on behalf of DTM. This
arrangement could change at any time.

POSSIBLE ISSUANCE OF PREFERRED STOCK. The Company's Articles of Incorporation
authorize the issuance of up to 3,000,000 shares of preferred stock, $.001 par
value (the "Preferred Stock"), the terms of which would be determined by the
Board of Directors at the time of issuance, without further shareholder
approval. The Board of Directors would determine whether these shares would
carry voting rights, preferences in the payment of dividends, sinking fund
provisions and liquidation, redemption or conversion rights, if any. The Company
has no current plans to issue Preferred Stock. However, if such stock is issued
in the future, the rights of the holders of Common Stock could be materially
adversely affected. It is possible that the Board of Directors could grant
future holders of Preferred Stock rights that could restrict the Company's
ability to merge or sell its assets to a third party, resulting in preservation
of the control of the Company by its then current owners. The Preferred Stock
provisions of the Company's Articles of Incorporation could inhibit a third
party from acquiring a significant amount of the Common Stock, thereby delaying
or preventing changes of the management or control of the Company, and possibly
materially adversely affecting the Common Stock price as a result.

SHARES ELIGIBLE FOR FUTURE SALE. All shares of the Common Stock owned by
BFGoodrich are freely tradeable, subject to volume limitations of Rule 144. In
addition, BFGoodrich has rights to require the Company to register sales of its
shares of Common Stock under the Securities Act in certain circumstances.

DTM employees hold immediately exercisable options to purchase 553,150 shares of
Common Stock under the Equity Appreciation Plan. The Company registered the
issuance and the sale of the shares of Common Stock that would be issued upon
exercise of options under the Equity Appreciation Plan on a Form S-8
Registration Statement. As a result, the Common Stock acquired by employees of
DTM upon exercise of options outstanding under the Equity Appreciation Plan will
be freely tradeable (subject to compliance with certain provisions of Rule 144,
in the case of affiliates of the Company).

Sales of shares of Common Stock into the market by current shareholders or
employees exercising options could cause a decline in the price of such stock.

MARKET VOLATILITY. The Company is listed for quotation of the Common Stock on
the NASDAQ National Market. Historically, the stock market has experienced
volatility that has particularly affected the

24
<PAGE>

market price of common stock of technology-related companies. That volatility
sometimes has been unrelated to the operating performance of such companies.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information related to quantitative and qualitative disclosure regarding market
risk is set forth under the captions "Marketing and Customers" in Item 1 and in
Managements Discussion and Analysis of Financial Condition and Results of
Operations and the risk factors under Item 7 above. Such information is
incorporated by reference herein

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors 26
Consolidated Balance Sheets as of December 31, 1997 and 1996 27
Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 29
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 30
1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 31
Notes to Consolidated Financial Statements 32
</TABLE>

25
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
DTM Corporation

We have audited the consolidated balance sheets of DTM Corporation and its
subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of DTM Corporation
and its subsidiary at December 31, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.

Ernst & Young LLP
Austin, Texas
February 20, 1998

26
<PAGE>

DTM Corporation

Consolidated Balance Sheets
(In thousands, except share amounts)

<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
----------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 2,050 $ 329
Accounts receivable, net of allowance for doubtful
accounts of $495 in 1997 and $640 in 1996 4,981 7,205
Inventory 5,839 4,835
Prepaid expenses and other 404 595
----------------------------
Total current assets 13,274 12,964

Property, net 2,299 3,057
Capitalized software development costs, net of
accumulated amortization of $517 in 1997 and $292 in 1996 753 848
Patent and license fees, net of accumulated amortization
of $1,097 in 1997 and $766 in 1996 1,080 791
Other noncurrent assets 142 237
----------------------------

Total assets $17,548 $17,897
============================
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
-------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 3,839 $ 5,845
Due to BFGoodrich 909 614
Deferred revenues 1,604 1,474
Accrued expenses and other liabilities 1,783 2,640
Short-term borrowings 175 769
-------------------------------
Total current liabilities 8,310 11,342

Note payable to BFGoodrich - 4,000
Notes payable to banks - 11,040

Commitments and contingencies

Shareholders' equity (deficit):
Preferred Stock, $.001 par value, 3,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $.0002 par value, 60,000,000 shares
authorized, 6,286,851 and 3,243,391 shares issued
and outstanding at December 31, 1997 and 1996,
respectively 1 1
Additional paid-in capital 50,256 28,019
Stock options outstanding 2,905 -
Accumulated deficit (43,757) (36,469)
Cumulative translation adjustment (167) (36)
-------------------------------
Total shareholders' equity (deficit) 9,238 (8,485)
-------------------------------
Total liabilities and shareholders' equity (deficit) $ 17,548 $ 17,897
===============================
</TABLE>
See accompanying notes.

28
<PAGE>

DTM Corporation

Consolidated Statements of Operations
(In thousands, except share amounts)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
Revenue:
Products $ 22,530 $ 22,070 $ 12,632
Service and support 2,778 2,309 1,579
-----------------------------------------------
25,308 24,379 14,211
Cost of sales:
Products 12,809 13,021 8,803
Service and support 1,912 1,424 873
-----------------------------------------------
14,721 14,445 9,676
-----------------------------------------------
Gross profit 10,587 9,934 4,535

Operating expenses:
Selling, general and administrative 10,579 9,980 6,620
Research and development 4,871 4,292 3,521
Stock compensation (EAP) 2,927 - -
-----------------------------------------------
18,377 14,272 10,141
-----------------------------------------------
Operating loss (7,790) (4,338) (5,606)

Other income (expense):
Interest expense, net (325) (1,066) (530)
Cost of discontinued registration - (752) -
-----------------------------------------------
(325) (1,818) (530)
-----------------------------------------------

Loss before income tax benefit allocated
from BFGoodrich (8,115) (6,156) (6,136)
Income tax benefit allocated from
BFGoodrich 827 1,667 2,138
Net loss $ (7,288) $ (4,489) $ (3,998)
===============================================

Net loss per common share basic $(1.45) $(1.38) $(1.23)
===============================================
Weighted-average number of shares
outstanding 5,034,183 3,243,391 3,243,391
===============================================
Pro forma, giving effect to stand-alone
taxation:
Net loss $ (8,115)
===============
Net loss per share $ (1.61)
===============
Number of shares used 5,034,183
===============
</TABLE>
See accompanying notes.

29
<PAGE>

DTM Corporation

Consolidated Statements of Shareholders' Equity (Deficit)
(In thousands, except share amounts)

<TABLE>
<CAPTION>
Additional Stock Options Cumulative
Common Paid-in Outstanding Accumulated Translation
Shares Stock Capital Deficit Adjustment Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 3,243,391 $1 $28,019 $ $(27,982) $ 6 $ 44
Net loss (3,998) (3,998)
Translation adjustment 36 36
-------------------------------------------------------------------------------------------
Balance at December 31, 1995 3,243,391 1 28,019 (31,980) 42 (3,918)
Net loss (4,489) (4,489)
Translation adjustment (78) (78)
-------------------------------------------------------------------------------------------
Balance at December 31, 1996 3,243,391 1 28,019 (36,469) (36) (8,485)
Net loss (7,288) (7,288)
Translation adjustment (131) (131)
Conversion of BFGoodrich debt 187,500 1,500 1,500
Issuance of common stock in
public offering, net of expenses 2,852,191 20,707 20,707
Stock compensation (EAP) 2,927 2,927
Exercise of common stock options 3,769 30 (22) 8
-------------------------------------------------------------------------------------------
Balance at December 31, 1997 6,286,851 $1 $50,256 $2,905 $(43,757) $(167) $ 9,238
===========================================================================================
</TABLE>

See accompanying notes.

30
<PAGE>

DTM Corporation

Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (7,288) $(4,489) $(3,998)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 2,341 2,170 2,487
Stock compensation (EAP) expense 2,927 - -
Loss on disposal of equipment - - 32
Changes in assets and liabilities used in
operating activities:
Accounts receivable 2,224 (4,264) (1,314)
Inventory (1,004) (2,692) 157
Due to/from BFGoodrich 295 995 (1,064)
Prepaid expenses and other assets 286 (310) (90)
Accounts payable (2,006) 3,343 1,469
Deferred revenues 130 569 103
Accrued expenses and other liabilities (857) 566 654
--------------------------------------------
Net cash used in operating activities (2,952) (4,112) (1,564)

INVESTING ACTIVITIES
Purchases of property (889) (1,898) (1,674)
Capitalized software development costs (268) (374) (440)
Patent and license expenditures (620) (698) (247)
--------------------------------------------
Net cash used in investing activities (1,777) (2,970) (2,361)

FINANCING ACTIVITIES
Proceeds from public stock offering 20,707 - -
Proceeds from exercise of stock options 8 - -
Proceeds from notes payable 800 - 3,600
Repayments of notes payable (11,840) - -
Proceeds from short-term borrowings 371 3,448 2,681
Repayments of short-term borrowings (965) (3,355) (2,005)
Draws on line of credit from financial institutions - 2,840 -
Draws on line of credit from BFGoodrich - 3,800 200
Repayment of line of credit from BFGoodrich (2,500) - -
--------------------------------------------
Net cash provided by financing activities 6,581 6,733 4,476

Effect of foreign exchange rate changes on cash (131) (78) 36
--------------------------------------------

Net increase (decrease) in cash 1,721 (427) 587

Cash at beginning of year 329 756 169
--------------------------------------------
Cash at end of year $ 2,050 $ 329 $ 756
============================================
Noncash item:
Conversion of BFGoodrich debt to equity $ 1,500 $ - $ -
</TABLE>

See accompanying notes.

31
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements

December 31, 1997

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

DTM Corporation ("DTM" or the "Company") was formed in November 1987. Through
the proprietary and patented selective laser sintering ("SLS") process, the
Company is engaged in the development, design, manufacture, marketing and
support of rapid prototyping and rapid tooling systems. This technology,
exclusively licensed to DTM by The University of Texas, enables the fabrication
of three-dimensional solid models, prototypes or tool inserts directly from
three-dimensional computer aided design ("CAD") data. The Company's products,
related materials and maintenance and support services are available to the
worldwide, rapid prototyping market. The financial statements include the
accounts of DTM GmbH, a wholly owned German subsidiary. All significant
intercompany accounts and transactions have been eliminated.

In May 1997, the Company issued 2,852,191 common shares in a stock offering to
the public at a price of $8.00 per share. The proceeds of the offering were used
to pay off substantially all of the Company's debt and to add approximately
$6,000,000 to working capital. Prior to the stock offering, DTM was 91.55
percent owned by The BFGoodrich Company ("BFGoodrich"). At December 31, 1997,
after the stock offering and the exercise of employee stock options, DTM was
50.22 percent owned by BFGoodrich. Prior to the stock offering, DTM was
substantially reliant upon BFGoodrich for capital funding or other financial
assistance to enable DTM to meet its financial obligations.

Although DTM's financial position improved during 1997 (due to the receipt of
the cash proceeds from the stock offering and the repayment of substantially all
of the then outstanding debt), DTM continues to incur operating losses and
generate negative cash flows from operating activities.

Management has plans to improve the results of operations of the Company, which
include cost reduction efforts and a focus on increasing revenue through sales
of products and services. Based on management's cash flow projections for 1998,
management believes that the Company will have sufficient working capital to
operate the business during 1998. In the event that the Company requires
borrowings to finance operations in 1998, the Company currently has a $2,000,000
line of credit with a bank (see Note 7). Amounts drawn down under the line of
credit, if any, require the advance approval of BFGoodrich, and any such amounts
(up to the $2,000,000 amount) outstanding will be guaranteed by BFGoodrich.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

INVENTORY

Inventories are carried at the lower of cost or market, with cost determined
using the first-in, first-out (FIFO) method.

32
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

December 31, 1997

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

LONG-LIVED ASSETS

Property

Property includes equipment, office furniture and leasehold improvements and is
recorded at cost. Depreciation expense is calculated on the straight-line method
over the useful life of each asset, which lives range from three to five years.
Leasehold improvements are amortized on the straight-line method over the life
of the related lease or the useful life of the respective asset, whichever is
shorter.

Capitalized Software Development Costs

The Company's principal products include a software component. Costs incurred in
the development of software, once technological feasibility has been established
but prior to general release to customers, are capitalized. Technological
feasibility is established when a product design and working model of the
software product have been completed and when the completeness of the working
model and its consistency with the product design have been confirmed by
testing. Amortization is provided on a product by product basis at the greater
of amortization based on the estimated revenues of the products or the
straight-line amortization over their estimated economic lives of not more than
three years. DTM capitalized software development costs of $268,000 in 1997,
$374,000 in 1996 and $440,000 in 1995. Amortization expense of capitalized
software development costs of $363,000 in 1997, $369,000 in 1996 and $561,000 in
1995 is included in cost of product sales in the consolidated statements of
operations.

Patent and License Fees

Patent and license fees represent the costs associated with filing and
maintaining patent applications and obtaining, maintaining and defending rights
under patents under which DTM operates. DTM capitalized patent and license fees
of $620,000 in 1997, $698,000 in 1996 and $247,000 in 1995. These fees are
amortized for accounting purposes over a five-year estimated economic useful
life utilizing the straight-line method and are included in selling, general and
administrative expense.

The Company evaluates the carrying values of long-lived assets to determine if
the facts and circumstances suggest that they may be impaired. If this review
indicates that long-lived assets will not be recoverable, as determined based on
the undiscounted cash flows of the entity over the remaining amortization
period, the carrying value of the long-lived assets will be reduced accordingly.

TRANSLATION OF FOREIGN SUBSIDIARY FINANCIAL STATEMENTS

The financial statements of DTM GmbH (a wholly-owned subsidiary located in
Germany) are translated to U.S. dollars substantially as follows: all assets and
liabilities at year-end exchange rates; sales and expenses at average exchange
rates; and shareholders' equity at historical exchange rates. Gains and losses
from translating the financial statements of DTM GmbH are recorded directly in
shareholders' equity.

33
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

December 31, 1997

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECOGNITION OF REVENUE

Revenues from the sale of SLS systems are recognized when title has transferred
to the customer, when the Company's remaining obligations are insignificant and
when collectibility of the related receivable is probable, which is upon
shipment. The Company defers from three to six percent of the revenues,
excluding certain accessories, from each SLS system sale for warranty service.
This deferred amount represents the Company's estimate of the cost of providing
such warranty service and is recognized ratably as service and support revenue
over the 12-month warranty period.

Upon expiration of the 12-month warranty period discussed above, the Company
offers for sale to its customers an annual maintenance contract, the revenues
from which are recognized ratably as service and support revenue over the
related support period.

NET LOSS PER SHARE

In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share exclude any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share are very similar to the previously reported fully diluted earnings per
share. All net loss per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128 requirements.

CONCENTRATION OF CREDIT RISK

The Company sells its products and services to companies in diversified
industries. Credit is extended based on an evaluation of each customer's
financial condition, generally without requiring collateral. The Company
monitors its exposure to credit losses and maintains allowances for potential
losses.

DEPENDENCE ON THIRD-PARTY SUPPLIERS

The Company subcontracts for the manufacture of product sub-assemblies from
single-source, third-party suppliers. In addition, the Company has adopted a
"just-in-time" inventory system for product sub-assemblies and relies on
suppliers to provide components on a timely basis.

ADVERTISING COSTS

Advertising costs, which are expensed as incurred, were $482,000 in 1997,
$757,000 in 1996 and $596,000 in 1995.

STOCK-BASED COMPENSATION

The Company accounts for its stock-based compensation in accordance with the
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations.

FAIR VALUE OF FINANCIAL INVESTMENTS

The Company believes that the carrying amount of its financial instruments,
including debt, approximates fair value. Fair value is estimated based on quoted
market prices for similar instruments.

34
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

December 31, 1997

2. ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company maintains an allowance for doubtful accounts related to its trade
accounts receivable. The activity in this allowance account for the years ended
December 31, is as follows (in thousands):

<TABLE>
<CAPTION>
BALANCE AT CHARGES T0
BEGINNING OF COSTS AND BALANCE AT
PERIOD EXPENSES WRITE-OFFS END OF PERIOD
---------------------------------------------------------------

3. INVENTORY

Inventory at December 31 consisted of the following (in thousands):

<TABLE>
<CAPTION>
1997 1996
---------------------------------------
<S> <C> <C>
Raw materials and purchased parts $2,863 $3,312
Finished goods 3,101 1,648
---------------------------------------
5,964 4,960
Reserve for inventory obsolescence (125) (125)
---------------------------------------
$5,839 $4,835
=======================================
</TABLE>

4. PROPERTY

Property at December 31 consisted of the following (in thousands):

<TABLE>
<CAPTION>
1997 1996
-----------------------------------------

<S> <C> <C>
Equipment $ 7,637 $ 7,437
Leasehold improvements 1,336 1,366
Office furniture 365 356
-----------------------------------------

9,338 9,159
Less accumulated depreciation and
amortization (7,039) (6,102)
-----------------------------------------
$ 2,299 $ 3,057
=========================================
</TABLE>

5. PATENT AND LICENSE AGREEMENTS

On December 3, 1987, DTM entered into a patent license agreement with the Board
of Regents of The University of Texas System, whereby DTM is licensed to make,
have made and sell products utilizing the selective laser sintering technology.
In consideration of rights granted in the license agreement, DTM issued 20,442
shares of its common stock to The University of Texas System.

The agreement provides for royalty payments in the amount of four percent of
DTM's net sales for products covered by the license agreement (gross receipts
net of commissions, returns, freight, discounts and sales taxes). Royalty
expense, included in cost of sales, was $552,000 in 1997, $676,000 in 1996 and
$424,000 in 1995.

35
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

December 31, 1997

6. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following as of December
31 (in thousands):

<TABLE>
<CAPTION>
1997 1996
--------------------------------------

<S> <C> <C>
Royalties $ 204 $ 360
Payroll and related accruals 759 525
Other 820 1,755
--------------------------------------
$1,783 $2,640
======================================
</TABLE>

7. FINANCING ARRANGEMENTS

Short-Term Borrowings

At December 31, 1997 and 1996, DTM had a total of $175,000 and $769,000,
respectively, of short-term debt outstanding under the terms of a financing
arrangement with a leasing company. The weighted average interest rates on
outstanding short-term borrowings were 15 and 20 percent at December 31, 1997
and 1996, respectively. The weighted average interest rates during 1997 and 1996
were 18 and 21 percent, respectively. The debt is collateralized by certain
equipment and accounts receivable.

The Company currently has a $2,000,000 line of credit with a bank, with no
amounts outstanding, due in April 1999, and guaranteed by BFGoodrich. At
December 31, 1996, DTM had lines of credit with three banks with combined
available borrowings of $12,200,000, of which $11,040,000 was outstanding, at an
interest rate of 6.2%. In May 1997, in connection with the Company's IPO, the
then outstanding borrowings were repaid.

Interest paid in connection with all of the above financing arrangements was
approximately $471,000 in 1997, $1,079,000 in 1996 and $451,000 in 1995. Amounts
paid to BFGoodrich were approximately $118,000 in 1997 and $153,000 in 1996.

8. UNUSUAL CHARGES

In connection with the 1997 IPO, the Company incurred a one-time non-cash stock
compensation expense of approximately $2,927,000 as a result of previously
outstanding stock appreciation rights converting into immediately vested stock
options at exercise prices below the market value of the common stock. This
charge was recorded in May 1997 (see Note 11).

During 1996, DTM attempted an IPO. However, due to market volatility and other
issues the IPO was postponed. The Company incurred approximately $752,000 of
legal, accounting and other professional services related to the unsuccessful
IPO which were expensed in the fourth quarter of 1996.

36
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

December 31, 1997

9. INCOME TAXES

During the period October 31, 1990 to May 21, 1997, DTM was included in the
consolidated federal tax return of BFGoodrich. The Company recorded the tax
benefit allocated to it by BFGoodrich during that period, which credited the
Company with a tax benefit approximating the benefit that BFGoodrich derived
from the consolidation of the Company. Such benefits were paid to the Company by
BFGoodrich on a current basis. As a result of the IPO, in May 1997, BFGoodrich's
ownership interest fell below 80 percent and such benefits are no longer
available to the Company. Based on the tax sharing agreement, if BFGoodrich
loses part of the tax benefit of any losses previously utilized or has to report
additional income as the result of a federal tax audit of DTM, DTM will be
required to reimburse BFGoodrich for any additional taxes paid.

DTM has net operating loss carryforwards totaling approximately $4,200,000 for
federal income tax purposes that were incurred from inception to October 31,
1990. These carryforwards expire in the years 2002 to 2004. Although available
to DTM, these carryforwards are subject to significant annual limitations due to
changes in DTM's ownership.

In addition, DTM has a net operating loss carryforward totaling approximately
$2,313,000 for federal income tax purposes that was incurred from May 1997 to
December 1997. This carryforward expires in the year 2012.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities of DTM for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities as of December
31, 1997 and 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
-----------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards (for
periods prior to October 31, 1990) $ 1,470 $ 1,470
Net operating loss carryforward subsequent
to May 22, 1997 796 -
Stock options 1,091 -
Book over tax depreciation and amortization 594 206
Deferred revenue 529 407
Allowance for doubtful accounts 284 224
Other 234 106
-----------------------------------------
Total deferred tax assets 4,998 2,413
Valuation allowance for deferred tax assets (4,998) (2,413)
-----------------------------------------
$ - $ -
=========================================
</TABLE>

37
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

December 31, 1997
9. INCOME TAXES (CONTINUED)

A reconciliation of income tax benefit calculated at the federal statutory rate
and the provision for income tax benefit is as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
------------------------------------------------------------

<S> <C> <C> <C>
Income tax benefit at the federal
statutory rate (34%) $ 2,759 $ 2,093 $ 2,086
Net operating loss not utilized by
the Company (2,707) (2,093) (2,086)
Other (52)
Foreign taxes (22)
Income tax benefit allocated from
BFGoodrich 849 1,667 2,138
------------------------------------------------------------
$ 827 $ 1,667 $ 2,138
============================================================
</TABLE>

The exercise of certain stock options which have been granted under the
Company's Stock Option Plan give rise to compensation which is includable in the
taxable income of the applicable options holder and deductible by the Company
for federal and state income tax purposes. Any realized tax benefit arising from
exercised options in excess of the benefit previously recorded, as discussed in
Note 8, is credited to additional paid-in capital.

10. COMMITMENTS AND CONTINGENCIES

DTM leases facilities and equipment under noncancelable operating leases. Total
rent expense incurred under these leases was approximately $378,000 in 1997,
$332,000 in 1996 and $252,000 in 1995. Future minimum payments under these
leases are as follows:
<TABLE>
<S> <C>
1998 $161,000
1999 43,000
2000 9,000
2001 4,000
2002 2,000
</TABLE>

The operating lease for the Company's main facility matured in 1997. The Company
remains in this facility on a month-to-month basis while it negotiates a new
multi-year lease with the landlord.

As of December 31, 1997, the Company had purchase commitments for inventory
totaling approximately $3,425,000.

In the ordinary course of business, the Company becomes involved in legal
proceedings and claims. In one such instance, DTM filed an action in the United
States District Court for the Eastern District of Wisconsin in October 1995
against three parties who are operating an SLS System. DTM alleges that the
defendants willfully infringed a DTM patent. In June 1996, DTM amended its
lawsuit to also assert that one of the defendants breached an oral settlement
agreement. The Company seeks injunctive relief, damages and attorneys' fees. The
defendants have denied infringement and the existence of an oral settlement
agreement, and the defendants seek attorneys' fees. The defendants have also
asserted the affirmative defenses of patent invalidity, implied license, and
failure to mark patented articles, patent unenforceability and invalidity of the
oral settlement agreement. Discovery commenced in late 1995. In a subsequent
filing, one of the defendants also has asserted claims against DTM and
BFGoodrich for violation of state and federal antitrust laws. That defendant
seeks injunctive relief as well as damages and attorneys fees. In July 1997,
this court granted a temporary summary judgment that these particular defendants
had been given an implied license by DTM. DTM has filed an appeal of this
ruling. The contract claim against the defendants and

38
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

December 31, 1997

10. COMMITMENTS AND CONTINGENCIES (CONTINUED)

the antitrust claim against DTM and BFGoodrich remain for trial unless this case
is settled in the meantime. It is not possible at this time to predict the
outcome of these proceedings, although DTM and BFGoodrich have indicated that
they believe that the subsequent counter and cross claims for violation of
antitrust laws are without merit. However, a ruling unfavorable to the Company
could have a material adverse effect on the Company's business and financial
performance.

The Company has initiated patent infringement litigation in France, Germany and
Italy against a competitor and against one of that competitor's customers. The
Company also initiated patent infringement litigation in Japan against the
competitor's distributor in the Pacific Rim. In each of these cases, the Company
alleges that the competitor is selling rapid prototyping systems in Europe and
Japan that make unauthorized use of SLS technology covered by the European and
Japanese patents under which the Company has exclusive rights. The Company seeks
injunctive relief plus damages. It is anticipated that this litigation will be
pursued in conjunction with European and Japanese proceedings in which the
competitor has opposed the validity of those European and Japanese patents.
Hearings have begun in the German, French, Italian and Japanese lawsuits. It is
not possible at this time to predict the outcome of these proceedings.

DTM has been informed by this competitor that it has obtained the worldwide
right to enforce certain U.S. patents and that it may bring patent infringement
litigation against the Company in the U.S. courts. If the competitor does
initiate this litigation, the Company intends to vigorously oppose the action.
It is not possible at this time to predict the outcome of this possible action,
although the Company believes that it is not infringing or has valid defenses
and intends to contest this possible action vigorously, and that its SLS patents
around the world should be upheld. However, a ruling that would have the effect
of allowing the competitor to sell rapid prototyping systems in the U.S. could
have a material adverse effect on the Company's business and financial
performance.

A suit has been filed against the Company whereby certain plaintiffs claim that
material misstatements or omissions were made by the Company in connection with
the initial public offering of its stock. The plaintiffs have styled their
lawsuit as a class action, and they seek to represent the class of all
purchasers of the Company's stock from May 2, 1997 through June 18, 1997. On
June 18, 1997, the Company announced its anticipation that its results for the
quarter ending June 30, 1997 and the year ending December 31, 1997 would be
significantly below previous estimates. There has been no motion to certify the
proposed class to date. Plaintiffs seek rescission and damages. If the class
were certified, damages could include the proceeds of the Company's Initial
Public Offering ($22,818,000), plus interest. It is not possible at this time to
predict the outcome of this lawsuit, although the Company believes that the
allegations are without merit and intends to contest them vigorously. However, a
ruling unfavorable to the Company could have a material adverse effect on the
Company's business and financial performance.

11. COMMON STOCK AND OPTIONS

At December 31, 1997, the Company had two stock based compensation plans as
described below. The Company applies APB Opinion 25 and related interpretations
in accounting for its plans. Accordingly no compensation cost has been
recognized for the Company's stock based compensation plans, except for stock
options issued upon conversion by formula of stock appreciation rights effective
with the IPO in May 1997 at exercise prices below market value on the date of
conversion. Had compensation cost for the Company's two stock based compensation
plans been determined using the alternative accounting method based upon the
fair value prescribed by FASB Statement No. 123, the Company's pro forma net
loss for 1997 would have been $(8,048,000) and the Company's pro forma net loss
per common share for 1997 would have been $(1.60).

39
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

December 31, 1997

11. COMMON STOCK AND OPTIONS (CONTINUED)

The fair value of each option grant is estimated on the date of grant for
repricing using the Black-Scholes option pricing model with the following
weighted-average assumptions for options granted or repriced in 1997:
amortization over the respective vesting periods; no dividends; expected lives
of four years; expected stock price volatility of approximately 60%; and risk
free interest rate of 6%. These pro forma results may not be representative of
that to be expected in future years.

A summary of the status of the Company's two stock option plans for 1997 is as
follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
STOCK EXERCISE
OPTIONS PRICE
----------------------------------------
<S> <C> <C>
Outstanding at beginning of year
Granted at fair market value 96,500 $ 8.03
Granted below fair market value(a) 506,980 2.23
Granted above fair market value 117,163 13.71
Exercised (3,769) 2.23
Canceled (106,724) 11.57
--------------------
Outstanding at end of year 610,150 3.72
====================

Options exercisable at year-end 553,150 3.27
Weighted-average fair value of options
granted during the year:
Granted at fair market value $ 4.14
Granted below fair market value 6.43
Granted above fair market value 2.95
</TABLE>

(a) Represents options issued at the time of the IPO pursuant to the terms of
the stock appreciation rights agreements.

A summary of information about stock options outstanding and exercisable at
December 31, 1997 is as follows:

<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
EXERCISE OPTIONS CONTRACTUAL OPTIONS
PRICE OUTSTANDING LIFE EXERCISABLE
-------------------------------------------------------------------------
<S> <C> <C> <C>
$ 2.23 503,211 7.5 503,211
$ 8.03 57,000 9.4
$ 14.67 10,992 9.4 10,992
-------------- -------------
$ 13.53 38,947 9.4 38,947

610,150 553,150
============== =============
</TABLE>

40
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

December 31, 1997

11. COMMON STOCK AND OPTIONS (CONTINUED)

EQUITY APPRECIATION PLAN

In January 1995, the Board of Directors approved the DTM Corporation Equity
Appreciation Plan (the "SAR Plan"), which created 10,000,000 Phantom Stock
Units. Ten percent of the Phantom Stock Units were allocated for the issuance of
a like number of Phantom Stock Appreciation Rights ("SARs") under the SAR Plan
to eligible employees. Due to the terms and conditions of the SAR Plan, the SARs
or stock options outstanding thereunder were accounted for by the Company as
compensation expense immediately after the IPO date. The amount of compensation
expense so recognized was equal to the number of SARs or stock options
outstanding multiplied by the difference between the exercise price of each SAR
or stock option and the value of each SAR or stock option at the date of the
Change in Control. Upon the closing of the IPO, the Company recognized a non-
cash charge (compensation) of approximately $2.9 million to record the
appreciation in value of the SARs. The Company has reserved 553,150 shares of
Common Stock for future issuance under the SAR Plan. The SARs or stock options
granted to the Participants will become exercisable by the Participants for a
period of 10 years from the date on which the SARs or stock options are granted.
As of December 31, 1995, 1996 and 1997, there were 998,000, 840,500 and -0- SARs
outstanding, respectively. The SARs granted during 1995 were granted at a fair
value of $1.40 per SAR. During 1996, 29,000 SARs were granted at a fair value of
$9.22 per SAR. In addition, 185,000 SARs were forfeited in 1996. During 1997,
but before the IPO date, the Company granted an additional 157,500 SARs at a
fair value of $8.50 per SAR and 4,500 SARs were forfeited. The SARs granted in
1995, 1996, 1997 and subsequent to December 31, 1996 were converted to stock
options with exercise prices of approximately $2.23 per share, $13.53 per share
and $14.67 per share, respectively.

KEY EMPLOYEE STOCK OPTION PLAN

In January 1996, the Company's Board of Directors approved a DTM Corporation
Stock Option Plan (the "Option Plan"). Under the Option Plan, the Company set
aside 357,755 shares which may be awarded to key employees, as selected by
management and approved by the Compensation Committee of the Board of Directors
(the "Committee") through stock options, stock appreciation rights, limited
stock appreciation rights, restricted stock, performance shares, or other awards
as determined by the Committee. In the case of stock option awards, the option
price per share may not be less than the fair market value of a share on the
date the option is granted. Options granted under the Option Plan will vest in
three separate installments with 35 percent of the options granted becoming
exercisable on the first anniversary date of the option grant, 35 percent
becoming exercisable on the next succeeding anniversary date and 30 percent
becoming exercisable on the next succeeding anniversary date. Options will be
exercisable for a period of no more than 10 years from the date of grant. The
term of the Option Plan is five years unless terminated earlier by the Board of
Directors. In 1997, the Company granted 96,500 options at an exercise price of
$8.03. In January 1998, the Company granted 115,000 options at an exercise price
of $2.00 per share.

41
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

December 31, 1997

11. COMMON STOCK AND OPTIONS (CONTINUED)

1998 STOCK OPTION PLAN

In January 1998, the Company's Board of Directors approved a DTM Corporation
1998 Stock Option Plan (the "1998 Stock Option Plan"), subject to Shareholder
approval at the 1998 Annual Meeting. Under the 1998 Stock Option Plan, the
Company set aside 300,000 shares which may be awarded to any employee, as
selected by management and approved by the Committee, through stock options,
stock appreciation rights, limited stock appreciation rights, restricted stock,
performance shares, or other awards as determined by the Committee. In case of
stock option awards, the option price per share may not be less than the fair
market value of a share on the date the option is granted. Options granted under
the 1998 Stock Option Plan will vest in three separate installments with 35
percent of the options granted becoming exercisable on the first anniversary
date of the grant, 35 percent becoming exercisable on the next succeeding
anniversary date and 30 percent becoming exercisable on the next succeeding
anniversary date. The term of the 1998 Stock Option Plan is five years unless
terminated earlier by the Board of Directors.

12. MANAGEMENT INCENTIVE PLAN

In January 1996, the Company's Board of Directors approved a DTM Corporation
Management Incentive Plan (the "MIP Plan"). The MIP Plan provides for the grant
of incentive compensation to key management employees who have the potential to
positively influence the performance of the Company as a reward for levels of
performance above the ordinary performance standards compensated by base salary.
Under the MIP Plan, each participant is assigned a "cash bonus target" of 20 to
50 percent of base salary and the Compensation Committee of the Board of
Directors creates personal and corporate performance targets, as well as minimum
thresholds. If the minimum thresholds are met, the bonus payable will be between
50 and 150 percent of the participant's cash bonus target. No expense was
recognized in connection with the MIP Plan in 1997 or 1996.

42
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

December 31, 1997

13. GEOGRAPHIC AND CUSTOMER INFORMATION

The Company and its subsidiary, located in Germany, operate in one industry
segment: the development, manufacturing and service of SLS systems and related
products. Operations outside of the United States consist principally of sales,
marketing and customer support. Transfers between geographic areas are accounted
for at amounts which are generally above cost and consistent with the rules and
regulations of governing tax authorities. Such transfers are eliminated in the
consolidated financial statements. Identifiable assets are those assets that can
be directly associated with a particular geographic area. The following is a
summary of operations within each geographic area (in thousands):

<TABLE>
<CAPTION>
NET REVENUES TRANSFERS
FROM BETWEEN (LOSS) NET
UNAFFILIATED GEOGRAPHIC TOTAL NET INCOME FROM INCOME IDENTIFIABLE
CUSTOMERS AREAS REVENUES OPERATIONS (LOSS) ASSETS
--------------- ---------------- -------------- ---------------- ------------ --------------
1997:
<S> <C> <C> <C> <C> <C> <C>
United States $18,531 (a) $ 3,703 $22,234 $(7,468) $(6,878) $16,845
Germany 6,777 -- 6,777 (322) (410) 2,976
Eliminations -- (3,703) (3,703) -- -- (2,273)
--------------- ---------------- -------------- ---------------- ------------ --------------
$25,308 $ $25,308 $(7,790) $(7,288) $17,548
=============== ================ ============== ================ ============ ==============
1996:
United States $18,731 (a) $ 4,184 $22,915 $(4,691) $(4,767) $16,906
Germany 5,648 -- 5,648 353 278 3,103
Eliminations -- (4,184) (4,184) -- -- (2,112)
--------------- ---------------- -------------- ---------------- ------------ --------------
$24,379 $ $24,379 $(4,338) $(4,489) $17,897
=============== ================ ============== ================ ============ ==============
1995:
United States $12,056 (a) $ 2,102 $14,158 $(5,431) $(3,822) $10,446
Germany 2,155 -- 2,155 (175) (176) 2,386
Eliminations -- (2,102) (2,102) -- -- (2,193)
--------------- ---------------- -------------- ---------------- ------------ --------------
$14,211 $ $14,211 $(5,606) $(3,998) $10,639
=============== ================ ============== ================ ============ ==============

</TABLE>

(a) The Company's United States net revenues from unaffiliated customers
include export sales, principally to the Pacific Rim, Europe (excluding
Germany) and South America, of $9,030,000 in 1997, $6,540,000 in 1996 and
$2,661,000 in 1995.

The Company's revenues are derived from sales to a wide range of international
customers. During 1995, $2,111,000, approximately 15 percent of total revenues,
were from sales to one customer.

43
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information concerning the directors of the Company is set forth in the
Proxy Statement to be delivered to stockholders in connection with the Company's
Annual Meeting of Stockholders to be held during 1998 (the "Proxy Statement")
under the heading "Nominees for Director", which information is incorporated
herein by reference.

The name, age and position of each executive officer of the Company is set forth
under the heading "Executive Officers of the Registrant" in Item I of this
report, which information is incorporated herein by reference.

The information required by Item 405 of Regulation S-K is set forth in the Proxy
Statement under the heading "Compliance with Section 16(a) of the Securities
Exchange Act of 1934", which information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information concerning management compensation and transactions with
management is set forth in the Proxy Statement under the heading "Executive
Compensation and Other Information", which information is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information concerning security ownership of certain beneficial owners and
management is set forth in the Proxy Statement under the heading "Ownership of
Securities", which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information concerning certain relationships and related transactions is set
forth in the Proxy Statement under the heading "Executive Compensation and Other
Information", which information is incorporated herein by reference.

44
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Annual Report on
Form 10-K:

1. Financial Statements:

The financial statements filed as a part of this report are listed
in the "Index to Consolidated Financial Statements and Financial
Statement Schedules" at item 8.

2. Financial Statement Schedules:

None. Schedules have been omitted since the required information is
not present, or not present in amounts sufficient to require
submission of the schedule, or because the information is included
in the above listed financial statements.

3. Exhibits:

The exhibits filed as part of this report are listed under
"Exhibits" at subsection (c) of this Item 14

(b) Reports on Form 8-K:

No reports on Form 8-K were filed on behalf of the Registrant during
the last quarter the Company's 1997 calendar year.

Exhibit
Number Description of Exhibit
- --------- ----------------------

3.1 Amended and Restated Articles of Incorporation of Registrant. (filed
as exhibit 3.1 to Registration Statement on Form S-1 (Reg. No.
333-04173) (the Form S-1") and incorporated by reference hereto)

3.2 Amended and Restated Bylaws of Registrant. (filed as exhibit 3.2 to
Registration Statement on Form S-1 and incorporated by reference
hereto)

4.1 Form of Stock Certificate of Registrant. (filed as exhibit 4.1 to
Registration Statement on Form S-1 and incorporated by reference
hereto)

10.1 DTM Corporation Equity Appreciation Plan. (filed as exhibit 10.1 to
Registration Statement on Form S-1 and incorporated by reference
hereto)

10.2 Form of Supplemental Phantom Stock Appreciation Rights Agreement.
(filed as exhibit 10.2 to Registration Statement on Form S-1 and
incorporated by reference hereto)

10.3 DTM Corporation Management Incentive Plan, as Restated. (filed as
exhibit 10.3 to Registration Statement on Form S-1 and incorporated
by reference hereto)

10.4 DTM Corporation Stock Option Plan. (filed as exhibit 10.4 to
Registration Statement on Form S-1 and incorporated by reference
hereto)

10.5 Patent License Agreement between DTM Corporation and the Board of
Regents, The University of Texas, effective as of December 3, 1987.
(filed as exhibit 10.5 to Registration Statement on Form S-1 and
incorporated by reference hereto)

10.6 Supplement to Patent License Agreement between DTM Corporation and
the Board of Regents, The

45
<PAGE>

University of Texas dated March 20, 1992. (filed as exhibit 10.6 to
Registration Statement on Form S-1 and incorporated by reference
hereto)

10.11 Amended and Restated Shareholders Agreement. (filed as exhibit 10.11
to Registration Statement on Form S-1 and incorporated by reference
hereto)

10.12 Lease Agreement for Facilities in Austin, Texas (filed as exhibit
10.12 to Registration Statement on Form S-1 and incorporated by
reference hereto)

10.13 Amendment to Patent License Agreement between DTM Corporation and the
Board of Regents of The University of Texas, dated as of October 27,
1994 (filed as exhibit 10.13 to Registration Statement on Form S-1
and incorporated by reference hereto)

10.16 Credit Agreement and Revolving Promissory Note to Texas Commerce Bank
National Association, effective as of August 6, 1997 (filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1997 and incorporated by reference hereto)

10.17 First Amendment to Credit Agreement and Note to Texas Commerce Bank
National Association, dated effective as of October 1, 1997 (filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1997 and incorporated by reference hereto)

10.18 Agreement between DTM Corporation and John S. Murchison, III, dated
October 9, 1997. (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1997 and
incorporated by reference hereto)

10.19* Second Amendment to Credit Agreement and Note to Chase Bank National
Association (formerly Texas Commerce Bank National Association),
dated effective as of January 28, 1998.

10.20* Guarantee of BFGoodrich to Chase Bank National Association, dated
February 23, 1998

21.1 Subsidiaries of the Registrant. (filed as exhibit 21.1 to
Registration Statement on Form S-1 and incorporated by reference
hereto)

23.1* Consent of Independent Auditors, Ernst & Young LLP.

27.1* Current Financial Data Schedule for year ended December 31, 1997.

27.2* Financial Data Schedules for the quarters ended March 31, 1997, June
30, 1997 and September 30, 1997 and for the year ended December 31,
1996, restated for the retroactive application of Financial
Accounting Standards Board Statement 128, Earnings Per Share and
SEC:SAB 98, Earnings Per Share

27.3* Financial Data Schedules for the quarters ended March 31, 1996, June
30, 1996 and September 30, 1996 and for the year ended December 31,
1995, restated for the retroactive application of Financial
Accounting Standards Board Statement 128, Earnings Per Share and
SEC:SAB 98, Earnings Per Share

99.1* Plaintiff's Original Petition filed in Bexar County, Texas in the
matter of John H. Danielson and Thomas E. Harding v. DTM Corporation

- -----------------
* Filed herewith

46
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the Undersigned, thereunto duly authorized in the City of Austin,
Texas, on March 30, 1998.

DTM Corporation

By: /s/ John S. Murchison, III
-----------------------------------
Chief Executive Officer and
President

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE CAPACITY DATE
- --------- -------- ----

/s/ D. Lee Tobler Chairman of the Board March 30, 1998
D. Lee Tobler and Director

/s/ John S. Murchison, III Chief Executive Officer, March 30, 1998
John S. Murchison, III President and Director
(Principal Executive Officer)

/s/ Marshall O. Larsen Director March 30, 1998
Marshall O. Larsen

/s/ Alexander MacLachlan Director March 30, 1998
Alexander MacLachlan

/s/ Thomas G. Ricks Director March 30, 1998
Thomas G. Ricks

/s/ Steven G. Rolls Director March 30, 1998
Steven G. Rolls

/s/ Geoffrey W. Kreiger Controller, Treasurer and March 30, 1998
Geoffrey W. Kreiger Secretary
(Principal Financial and
Accounting Officer)

<PAGE>

EXHIBIT 10.19

SECOND AMENDMENT TO CREDIT AGREEMENT AND NOTE

THIS SECOND AMENDMENT TO CREDIT AGREEMENT AND NOTE (this "AMENDMENT") dated
effective as of January 28, 1998 (the "EFFECTIVE DATE"), is by and between DTM
CORPORATION ("BORROWER") and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a
national banking association whose principal office is located in Houston, Texas
("BANK," formerly known as Texas Commerce Bank National Association).

PRELIMINARY STATEMENT. Bank and Borrower entered into a Credit Agreement (with
- ---------------------
Borrowing Base) dated as of August 6, 1997, as amended by the First Amendment to
Credit Agreement and Note dated October 1, 1997 ("First Amendment") (as amended,
"CREDIT AGREEMENT"). The "Agreement", as used in the Credit Agreement, shall
also refer to the Credit Agreement as amended by this Amendment. All
capitalized terms defined in the Credit Agreement and not otherwise defined
herein shall have the same meanings herein as in the Credit Agreement.

Borrower has executed and delivered payable to the order of Bank its Revolving
Promissory Note dated August 6, 1997, in the original principal amount of
$6,000,000.00 (but subject to a limitation as to availability of $2,000,000.00
under the terms of the First Amendment) as amended by the First Amendment (as
amended, "Note"). The "Note" as used in the Credit Agreement and the Note shall
refer to the Note as amended by this Amendment.

The B.F. Goodrich Company ("Guarantor") has executed and delivered its guaranty
dated October 1, 1997 ("Guaranty") guaranteeing Borrower's obligations as
defined and subject to the limitations, terms and conditions set out therein.

The parties now desire to extend the stated Termination Date of the revolving
Commitment and the stated maturity date of the Note each to April 1, 1999, and
make certain other modifications to the Credit Agreement as set out herein.

NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:

1. Section 1.1 of the Credit Agreement is amended by substituting "April 1,
1999" for "June 1, 1998," wherever the latter appears (indicating the stated
Termination Date).

2. The first paragraph of the Note is amended by substituting "April 1, 1999"
for "June 1, 1998," where the latter appears (indicating the stated maturity
date of such Note).

3. In consideration of the extension of maturity provided for in this
Amendment, Borrower agrees to pay a one-time, nonrefundable fee of $7,500.00,
due and payable in full upon execution of this Amendment.

4. Borrower further acknowledges that each of the other Loan Documents is in
all other respects ratified and confirmed, and all of the rights, powers and
privileges created thereby or thereunder are ratified, extended, carried forward
and remain in full force and effect except as the Credit Agreement and the Note
are amended by this Amendment.

5. WAIVER AGREEMENT: Bank has agreed to waive Borrower's compliance with the
following specific requirements as described and limited below for the period
from the Effective Date of the Second Amendment to April 1, 1999:

1
<PAGE>

(A) The requirements in 2.1(b)(2) to submit a Borrowing Base Report with a
Request for a Loan; and submit a Borrowing Base Report on a monthly or
weekly basis; and that accounts receivable agings and listings and accounts
payable agings be submitted, all as required by the Borrowing Base Report,
Exhibit C and section 4.3;
(B) The requirement in 2.1(e) that the asset audit by Bank be found acceptable
to the Bank in is sole judgment;
(C) The representation in 3.2 regarding material adverse change and change in
the condition, financial or otherwise, of the Borrower and its Consolidated
Subsidiaries;
(D) The representation in Section 3.4 that neither Borrower nor any Subsidiary
of Borrower is in default in the payment of any other material agreement to
which it is party;
(E) The requirement to comply with the lockbox requirements and to provide
notice to account debtors of the Lockbox contained in 4.9 & 4.10 and 5.9;
(F) The restriction on additional indebtedness and liens in section 5.1 & 5.2
(G) Compliance with the financial covenants required by 5.3 as described in
Exhibit C B. 1, 2, & 3 (Tangible Net Worth; Quick Ratio and EBITDA); and
(H) The Events of Default described in 6.1(b) (c) &(d) but only as they relate
to Borrower as Obligor; and as to (c) and (d), only as to the covenants
that have been waived for purposes of 6.1(d).

The waivers contained herein do not constitute a waiver of any other defaults
not described in this Amendment that may currently exist or that may hereafter
occur. Bank's delay in exercising any of its rights under the Credit Agreement
does not constitute a waiver of any rights or interests of Bank except as
specifically agreed to in writing by Bank. This Section is not a general waiver
of the above-referenced covenants, or the Events of Default or any other
requirements contained in the Agreement or any other Loan Document. Bank has
the right to refuse to make a Loan at any time that Borrower is not in
compliance with the terms of the Agreement as amended by this Amendment If Bank
elects to make any Loans to Borrower while Borrower is out of compliance with
the Agreement or during the existence of an Event of Default, the making of the
Loan shall not constitute a waiver of any defaults then existing or thereafter
arising under the Agreement, and will not constitute the agreement of Bank to
make further Loans. This Section constitutes the only evidence of Bank's waiver
of compliance with the above cited Sections of the Credit Agreement and then
only for the period described in this Amendment.

6. This Amendment shall be included within the definition of "Loan Documents"
as used in this Agreement.

7. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each when so executed shall
be deemed an original and all of which taken together shall constitute but one
and the same agreement.

8. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS AND AS APPLICABLE, THE LAWS OF THE UNITED STATES OF
AMERICA.

THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN
AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE,
AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY

<PAGE>

EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
effective as of its Effective Date.

BORROWER: DTM CORPORATION BANK: CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION

By: /s/John S. Murchison, III____
Name: John S. Murchison, III By: /s/ Donna Tanner Day
President & CEO Name: Donna Tanner-Day,
Address: 1611 Headway Circle Vice President
Building 2 Address: P. O. Box 550,
Austin, Texas 78754 Austin, Texas 78789

<PAGE>

EXHIBIT 10.20

February 23, 1998

Chase Bank of Texas, National Association
700 Lavaca
Austin, Texas 78789
Attn: Donna Tanner Day

Re: GUARANTY

Dear Sirs:

We understand that Chase Bank of Texas, National Association (formerly
known as Texas Commerce Bank National Association and hereinafter referred to as
the "Bank") has extended credit facilities for a total amount of $6,000,000 to
DTM Corporation (the "Borrower") under a Credit Agreement dated August 6, 1997
and amended by the First Amendment to Credit Agreement and Note dated October 1,
1997, and related agreements (the "Credit Facility").

This being premised, we THE B.F.GOODRICH COMPANY (the "Guarantor"), in
order to induce the Bank to waive certain provisions of and to lend up to
$2,000,000 under the Credit Facility, hereby unconditionally guarantee to the
Bank the prompt payment and performance of the obligations of the Borrower
described in Section 1 hereof (the "Secured Obligations") except as limited by
Section 2 of this Guaranty. This Guaranty is being given in substitution for
that certain Guaranty given by the Guarantor and dated October 1, 1997, which
shall be deemed terminated by mutual agreement on execution of this superceding
Guaranty.

The Guarantor further agrees as follows:

Section 1. Guaranty of Secured Obligations. The Guarantor unconditionally
-------------------------------
and absolutely guarantees the full and timely payment by the Borrower of up to
$2,000,000 of principal, together with interest thereon, penalties, fees, costs
and expenses, including but not limited to reasonable attorney's fees, to the
Bank under the Credit Facility, as and when due, except as limited by Section 2
of this Guaranty and provided that any loan by the Borrower under the Credit
Facility to be covered hereby must be approved in writing by The B.F.Goodrich
Company.

Section 2. Scope of Liability.
------------------

2.1. Guaranty of Payment. This is a guaranty of payment and not of
-------------------
collection. The liability of the Guarantor under this Guaranty shall not be
conditional or contingent upon pursuit of any remedies by the Bank against the
Borrower.

2.2. Increases in Amount; Other Borrowings. The Secured Obligations
-------------------------------------
are limited to the amounts referenced above in Section 1 payable by the Borrower
under the Credit Facility and do not include any obligations of the Borrower to
the Bank either: (a) not included in the Credit Facility as of the date of this
Guaranty, unless the loan has been approved by the Guarantor and is either (1)
used to pay an overdraft on the Borrower's depository accounts with the Bank or
(2) is deposited to the Borrower's account to prevent an overdraft or drawing on
uncollected funds; or (b) in excess of the amounts specified above.

2.3. Application of Payments. The Guarantor agrees that any payment
-----------------------
made by the Guarantor hereunder shall first be applied to any interest, costs or
expenses which become or remain due and payable to the Bank as a result of the
failure of the Borrower to make payment when due of the Secured Obligations and
then to the payment of principal.

<PAGE>

2.4. Term, Continuation and Reinstatement of Guaranty. This Guaranty
------------------------------------------------
shall remain effective for all loans made subject to the terms hereof on or
prior to April 1, 1999. Thereafter, it shall continue in effect until notice of
the withdrawal thereof is delivered in writing to the Bank, provided that such
termination shall apply only to loans made after the effective date of
termination. However, if any petition or other action is filed by or against
Borrower under the Bankruptcy Code or any other law relating to liquidation,
insolvency or reorganization of debtors, or any other proceeding is instituted
involving the estate or assets of the Guarantor, this Guaranty will remain
effective or be reinstated, as the case may be, (even if the Secured Obligations
have been paid in full) with respect to any payments or transfers of assets with
respect to the Secured Obligations, to the extent such payment or transfers are
voided or subject to rescission or return as a preferential transfer, fraudulent
conveyance or otherwise as a result of such petition or proceeding.

Section 3. Absolute and Unconditional Obligation of the Guarantor. The
------------------------------------------------------
obligations of the Guarantor under this Guaranty shall be absolute and
unconditional, except as specified herein, and shall remain in full force and
effect until all of the Secured Obligations shall have been paid and discharged
in full. The obligations of the Guarantor shall not be released, discharged,
affected, modified or impaired by reason of any invalidity, irregularity or
unenforceability of the Secured Obligations or the happening from time to time
of any event, including, without limitation, any one or more of the following:

3.1. Waiver. The waiver of the payment, performance or observance by
------
the Borrower of any of its obligations or agreements contained in the Credit
Facility;

3.2. Extension. The extension of the time for payment of any of the
---------
Secured Obligations or of the time for performance of any other obligation,
covenant or agreement under or arising out of the Credit Facility;

3.3. Action or Inaction. The taking of or omission to take any
------------------
action by the Bank under the Credit Facility;

3.4. Delay. Any failure, omission or delay on the part of the Bank
-----
to enforce, assert or exercise any right, power or remedy conferred in the
Credit Facility;

3.5. Bankruptcy. The voluntary or involuntary liquidation,
----------
dissolution, sale or other disposition of all or substantially all of the
assets, marshaling of assets and liabilities, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, arrangement, composition
with creditors or readjustment of, or other similar proceedings affecting the
Borrower, or its assets, or any allegation of invalidity or contest of the
validity of this Guaranty in any such proceedings; and

3.6. Default by the Guarantor. The default or failure of the
------------------------
Guarantor to fully perform any of its obligations set forth in this Guaranty.

Section 4. Enforcement. The Guarantor agrees that this Guaranty may be
-----------
enforced by the Bank without first resorting to or exhausting any other remedy
available under the Credit Facility; provided, however, that nothing herein
contained shall prevent the Bank from resorting to any right or remedy available
to it.

Section 5. Benefit. The Guarantor agrees that this Guaranty will inure to
-------
the benefit of and may be enforced by the Bank, its successors and assigns, any
duly authorized agent of the Bank, and any subsequent holder of the promissory
note issued under the Credit Facility.

-2-
<PAGE>

Section 6. Right to Subrogation. To the extent that the Guarantor shall
--------------------
make any payments required of the Borrower under the Credit Facility or shall
perform any obligation required of the Borrower thereunder, and after (but only
after) all Secured Obligations have been satisfied, the Guarantor shall be
subrogated to the rights of the Bank against the Borrower, as appropriate, with
respect to such payments or such performance.

Section 7. Waiver of Notice of Acceptance. The Guarantor hereby expressly
------------------------------
waives notice from the Bank of its acceptance of this Guaranty and any and every
Secured Obligation shall conclusively be presumed to have been created,
contracted or incurred in reliance upon this Guaranty.

Section 8. Representations and Warranties. The Guarantor represents and
------------------------------
warrants to the Bank that:

8.1. Organization and Authority. The Guarantor is a corporation duly
--------------------------
organized, validly existing, and in good standing under the laws of its state of
incorporation; it has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on its
business as now conducted in each jurisdiction where it currently conducts any
material portion of its business; the execution and delivery of this Guaranty
are within the corporate powers of the Guarantor and have been duly authorized
by proper corporate action on the part of the Guarantor.

8.2. No Breach. Neither the execution or delivery of this Guaranty
---------
nor the consummation of any transaction herein referred to or contemplated
hereby nor the compliance with or fulfillment of the terms hereof has
constituted or resulted in or will result in a material breach of the provisions
of any contractual obligation of the Guarantor material to its business or
financial condition or the violation of any material requirement of law
applicable to it, or will result in the creation under any agreement or
instrument of any lien upon any of its assets.

Section 9. Miscellaneous.
-------------

9.1. Notices. All notices, certificates, requests or other
-------
communications under this Guaranty will be deemed to have been properly given
when deposited in the United States mail, registered or certified, postage
prepaid, return receipt requested, addressed as follows:

To the Guarantor:

THE B.F.GOODRICH COMPANY
4020 Kinross Lakes Parkway
Richfield, Ohio 44286-9368
Attn: Treasurer

To the Bank:

Chase Bank of Texas, National Association
700 Lavaca
Austin, Texas 78789
Attn: Donna Tanner Day

Either Party may, by notice given under this Section 9.1, designate a different
address for it than the one specified above.

-3-
<PAGE>

9.2. Waiver. No delay on the part of the Bank in exercising any of
------
its respective option, powers or rights under this Guaranty, or any partial or
single exercise thereof, shall constitute a waiver thereof. No waiver of any of
the respective rights or obligations of the Bank under this Guaranty, and no
modification or amendment of this Guaranty, will be deemed to be effective
unless the same shall be in writing, duly signed on behalf of the Bank and the
Guarantor. Each waiver, if any, will apply only with respect to the specific
instance and for the specific purpose given, and will in no way impair the
rights of the Bank or the obligations of the Guarantor to the Bank in any
respect at any other time. No notice to or demand on the Guarantor in any case
will entitle the Guarantor to any other or further notice or demand in similar
or other circumstances.

9.3. Amendment. This Guaranty shall not be or be deemed to be
---------
amended, modified or limited orally or by any course of conduct or dealing or
any manner other than by a writing signed by the party against which such
amendment, modification or limitation is sought to be charged. This Guaranty is
made in the State of Texas and is to be construed in accordance with and the
rights of the parties hereunder are to be governed by Texas law. The invalidity
or unenforceability of any provision of this Guaranty shall not be deemed to
affect the validity or enforceability or any other provision.

9.4. No Release. The provisions of this Guaranty notwithstanding,
----------
any rights or privileges of the Bank under the Credit Facility, shall not in any
way be diminished or released by this Guaranty.

9.5. Severability. In case any clause, provision or section of this
------------
Guaranty, or any covenant, stipulation, obligation agreement, act, or action, or
part thereof, made, assumed, entered into, or taken under this Guaranty, or any
application thereof, is for any reason held to be illegal, invalid or
inoperable, such illegality, invalidity, or inoperability shall not affect the
remainder thereof or any other clause, provision or section or any other
covenant, stipulation, obligation, agreement, act or action or part thereof,
made, assumed, entered into, or taken thereunder, which shall at the time be
construed and enforced as if such illegal or invalid or inoperable portion were
not contained therein, nor shall such illegality or invalidity or inoperability
or any application thereof affect any legal and valid and operable application
thereof, from time to time, and each such clause, provision or section,
covenant, stipulation, obligation, agreement, act, or action, or part thereof
shall be deemed to be effective, operative, made, entered into or taken in the
manner and to the full extent from time to time permitted by law.

9.6. Captions. The captions or headings in this Guaranty are for
--------
convenience only and in no way define, limit or describe the scope or intent of
any provision or section of this Guaranty.

9.7. Entire Agreement. This Guaranty sets forth the entire
----------------
understanding of the parties and supersedes any and all prior agreements,
arrangements, and understandings relating to the subject matter of this
Guaranty. No representation, promise, inducement, or statement of intent has
been made by any party which is not embodied in the Credit Facility, this
Guaranty, and the other agreements and instruments contemplated by the Credit
Facility or by this Guaranty and no party shall be bound by or liable for any
alleged representation, promise, inducement, or statement of intention not
embodied in the Credit Facility or this Guaranty.

9.8. Jurisdiction. The Guarantor irrevocably submits to the non-
------------
exclusive jurisdiction of any Texas State or Federal court sitting in Texas in
any action or proceeding arising out or in relation to this Guaranty.

-4-
<PAGE>

IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the day
and year first above written.

THE B.F.GOODRICH COMPANY

/s/Nicholas J. Calise

Name: Nicholas J. Calise
Title: Secretary

/s/ Les C. Vinney

Name: Les C. Vinney
Title: Treasurer

STATE OF OHIO )
) SS:
COUNTY OF SUMMIT )
------------

On this 20th day of February, 1998, before me, a notary public, within
and for said County, personally appeared Nicholas J. Calise and Les C. Vinney,
to me known to be the persons described in, and who executed the foregoing
instrument, and each acknowledged that he executed the same as his free act and
deed.

/s/ LINDA S. BAKER
Notary Public

My commission expires on 10-28-02 .
------------

-5-

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-26765 and 333-26985) pertaining to the Equity Appreciation
Plan and 1996 Stock Option Plan of DTM Corporation of our report dated February
20, 1998, with respect to the consolidated financial statements of DTM
Corporation included in the Annual Report (Form 10-K) for the year ended
December 31, 1997.

Ernst & Young LLP
Austin, Texas
March 26, 1998

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS OF THIS FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,050
<SECURITIES> 0
<RECEIVABLES> 5,476
<ALLOWANCES> 495
<INVENTORY> 5,839
<CURRENT-ASSETS> 13,274
<PP&E> 9,338
<DEPRECIATION> 7,039
<TOTAL-ASSETS> 17,548
<CURRENT-LIABILITIES> 8,310
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 52,994
<TOTAL-LIABILITY-AND-EQUITY> 17,548
<SALES> 22,530
<TOTAL-REVENUES> 25,308
<CGS> 12,809
<TOTAL-COSTS> 14,721
<OTHER-EXPENSES> 18,377
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 325
<INCOME-PRETAX> (8,115)
<INCOME-TAX> (827)
<INCOME-CONTINUING> (7,288)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,288)
<EPS-PRIMARY> (1.45)
<EPS-DILUTED> (1.45)

</TABLE>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS OF
PREVIOUSLY FILED FORM 10-Q AND FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. THE RESTATEMENT IS REQUIRED DUE TO THE
ADOPTION OF FASB STATEMENT 123, EARNINGS PER SHARE, AND SEC:SAB 98, EARNINGS PER
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 APR-01-1997 JUL-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1996
<CASH> 631 4,957 2,006 329
<SECURITIES> 0 0 0 0
<RECEIVABLES> 7,168 6,905 4,122 7,845
<ALLOWANCES> 640 668 728 640
<INVENTORY> 4,757 6,811 7,900 4,835
<CURRENT-ASSETS> 12,417 18,272 13,587 12,964
<PP&E> 9,175 8,793 9,323 9,159
<DEPRECIATION> 6,265 6,341 6,754 6,102
<TOTAL-ASSETS> 17,357 22,639 18,162 17,897
<CURRENT-LIABILITIES> 10,779 11,089 8,872 11,342
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 1 1 1 1
<OTHER-SE> 28,019 50,225 50,225 28,019
<TOTAL-LIABILITY-AND-EQUITY> 17,357 22,639 18,162 17,897
<SALES> 7,357 6,076 2,214 22,070
<TOTAL-REVENUES> 8,023 6,799 2,852 24,379
<CGS> 4,054 3,507 1,139 13,021
<TOTAL-COSTS> 4,542 4,051 1,714 14,445
<OTHER-EXPENSES> 4,091 7,253 3,469 14,272
<LOSS-PROVISION> 0 0 40 752
<INTEREST-EXPENSE> 299 113 17 1,066
<INCOME-PRETAX> (909) (4,566) (2,292) (6,156)
<INCOME-TAX> (197) (310) 29 (1,667)
<INCOME-CONTINUING> (712) (4,256) (2,321) (4,489)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (712) (4,256) (2,321) (4,489)
<EPS-PRIMARY> (.22) (.82) (.37) (1.38)
<EPS-DILUTED> (.22) (.82) (.37) (1.38)

</TABLE>

<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 APR-01-1996 JUL-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1995
<CASH> 329 329 329 756
<SECURITIES> 0 0 0 0
<RECEIVABLES> 7,845 7,845 7,845 3,204
<ALLOWANCES> 640 640 640 263
<INVENTORY> 4,835 4,835 4,835 2,143
<CURRENT-ASSETS> 12,964 12,964 12,964 6,593
<PP&E> 9,159 9,159 9,159 7,613
<DEPRECIATION> 6,102 6,102 6,102 4,966
<TOTAL-ASSETS> 17,897 17,897 17,897 10,639
<CURRENT-LIABILITIES> 11,342 11,342 11,342 6,157
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 1 1 1 1
<OTHER-SE> 28,019 28,019 28,019 28,019
<TOTAL-LIABILITY-AND-EQUITY> 17,897 17,897 17,897 10,639
<SALES> 5,329 5,049 3,040 12,632
<TOTAL-REVENUES> 5,790 5,556 3,776 14,221
<CGS> 3,169 3,022 1,757 8,803
<TOTAL-COSTS> 3,469 3,342 2,185 9,676
<OTHER-EXPENSES> 2,990 3,219 3,724 10,141
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 219 253 262 530
<INCOME-PRETAX> (888) (1,253) (2,390) (6,136)
<INCOME-TAX> (319) (354) (781) (2,138)
<INCOME-CONTINUING> (569) (899) (1,609) (3,998)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (569) (899) (1,609) (3,998)
<EPS-PRIMARY> (.18) (.28) (.50) (1.23)
<EPS-DILUTED> (.18) (.28) (.50) (1.23)

</TABLE>

<PAGE>

EXHIBIT 99.1

NO. 97CI-16633
JOHN J. DANIELSON IN THE DISTRICT COURT
and THOMAS E. HARDING,
Plaintiffs,
v. 225/TH/ JUDICIAL COURT
DTM CORPORATION,
Defendant. BEXAR COUNTY, TEXAS

PLAINTIFF'S ORIGINAL PETITION

Plaintiffs, JOHN J. DANIELSON and THOMAS E. HARDING, on behalf of themselves and
the class of persons described below, file this Original Petition against
Defendant, DTM CORPORATION.
Parties

1. Plaintiff JOHN J. DANIELSON in an individual who resides in San Antonio,
Bexar County, Texas.

2. Plaintiff THOMAS E. HARDING is an individual who resides in Edwards County
near Del Rio, Texas.

3. Defendant, DTM Corporation ("DTM"), is a corporation organized under the
laws of Texas, with its principal place of business in Austin, Texas. DTM
should be served with a Citation and a copy of this Petition by certified
mail, return receipt requested, to its registered agent for service of
process, DTM Corporation System, 350 N. St. Paul Street, Dallas, Texas
75201.

JURISDICTION AND VENUE

4. The Court has jurisdiction over the subject of this case because it involves
an amount in dispute exceeding the minimum jurisdictional limit of the
Court.

5. The Court has jurisdiction over all named parties because all parties reside
in or do business in Texas.

6. Venue is proper in this Court because, as stated in the facts below (and
incorporated here), a substantial part of the events giving rise to this
case occurred in Bexar County as the purchases of securities on which this
case is based occurred in Bexar County.

FACTS

7. DTM is an issuer and/or seller of securities, i.e., its common stock which
was issued to the public in an initial public offering on or near May 2,
1997. DTM registered those securities under the U.S. Securities Act of 1933.
Plaintiffs currently do not claim any right under the U.S. Securities Act of
1933, and currently do not seek any relief or recovery under that Act.
Plaintiffs refer to that Act only to the extent that registration of
securities by DTM under that Act is an element of their claim below under
Article 581-33 of the Revised Civil Statues of Texas.

8. The prospectus and other documents required in connection with that
registration omitted material facts which were necessary to make the
statements made in the prospectus not misleading in light of the
circumstances in which they were made. The prospectus failed to state the
true financial condition of DTM as of May 2, 1997, because it failed to
state that DTM would suffered substantial losses in the near term. The
prospectus also failed to state that there was an ongoing weakness in the
demand for DTM products or services in its North American markets; or that a
previously anticipated change in the product mix of DTM would cause it to
suffer significant losses.

9. The stock of DTM was initially made available to the public on or near May
2, 1997. The opening price was $8.00 per share. The stock traded in a range
from approximately $8.00 to $8.50 per share from may 2, 1997, until after
the close of trading on June 18, 1997,

<PAGE>

when DTM issued a press release announcing its substantial losses, the
softness in demand for its products, and a "change" in its product mix. On
June 19, 1997, immediately after the press release, the price of DTM stock
suddenly dropped to approximately $5.25 per share, and has continued to drop
since then to less than $4.00 per share, causing Plaintiffs substantial loss
and/or actual damages in an amount exceeding the minimum jurisdictional
limit of the Court.

CLAIM

10. DTM, thus, violated Article 581-33 for that violation, either in equity to
rescind their purchase or for damages.

11. Mr. Danielson and Dr. Harding bought the registered securities in San
Antonio, Texas. Plaintiffs now sue DTM under Article 581-33 for that
violation, either in equity to rescind their purchase or for damages

CLASS

12. Plaintiffs bring this case on their own behalf and on behalf of the class of
persons who purchased stock in DTM between may 2, 1997, and June 18, 1997.
Those persons are so numerous that joinder of all them is impractical. The
claims of each of those persons have common questions of law and/or fact.
The claims by Plaintiffs are typical of those of the class, and Plaintiffs,
as representatives of the class, will fairly and adequately protect the
interests of the class.

REQUEST FOR RELIEF

13. Plaintiffs request that the Clerk issue a citation for service on DTM as
stated above. Plaintiffs further request that the Court set this case for
trial on the merits before a jury, and pay the jury fee with filing this
petition.

14. Plaintiffs request rescission and/or damages as provided under Article
581-33(C).

2
<PAGE>

15. Plaintiffs also request recovery of interest, costs and reasonable
attorneys' fees as permitted under Article 581-33 or other Texas law.

16. Plaintiffs also request all other relief to which they are entitled.

Respectfully submitted,

BINGHAM & LEA, P.C.
333 Covent Street
San Antonio, Texas 78205-1348
210-224-1819 Telephone
210-224-0141 Facsimilie

BY: /s/ Royal B. Lea, III
ROYAL B. LEA, III
State Bar No. 12069680

CACHEAUX, CAVAZOX, NEWTON, MARTIN & CUKJATI, L.L.P.
333 Covent Street
San Antono, Texas 78205-1348
210-224-2627 Telephone
210-223-5052 Facsimile

BY: /s/ Troy S. Martin, III
TROY ("TREY") S. MARTIN, III
State Bar No. 1310880

COUNSEL FOR PLAINTIFFS, on behalf of themselves and the class of persons
described above.