<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
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
incorporation or organization) Identification No.)
1611 Headway Circle, Building 2, Austin, Texas 78754
(Address of principal executive offices) (Zip Code)
(512) 339-2922
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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 .
---
As of April 12, 2000, the latest practicable date, the Registrant had 7,027,631
outstanding shares of Common Stock.
================================================================================
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DTM Corporation
Consolidated Statement of Income Three Months Ended
(Unaudited) March 31,
2000 1999
-----------------------------------
(In thousands, except per
share amounts)
<S> <C> <C>
Revenues
Products $6,799 $6,991
Service and support 1,354 981
-----------------------------------
8,153 7,972
Cost of sales:
Products 3,125 3,114
Service and support 913 580
-----------------------------------
4,038 3,694
-----------------------------------
Gross profit 4,115 4,278
Operating expenses:
Selling, general and administrative 2,696 3,278
Research and development 874 662
-----------------------------------
3,570 3,940
-----------------------------------
Operating income 545 338
Other income (expense):
Interest expense, net (19) (7)
Gain on sale of assets - 50
-----------------------------------
(19) 43
-----------------------------------
Income before income taxes 526 381
Income tax expense 164 107
-----------------------------------
Net income $ 362 $ 274
===================================
Earnings per share:
Basic earnings per share $ 0.05 $ 0.04
Diluted earnings per share $ 0.05 $ 0.04
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
DTM Corporation
Consolidated Balance Sheets
(Unaudited) March 31, December 31,
2000 1999
-------------------------------------
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash $ 815 $ 1,505
Accounts receivable, net 7,237 6,377
Inventories 2,903 2,652
Prepaid expenses and other 794 589
-------------------------------------
Total current assets 11,749 11,123
Property, net 1,461 1,406
Capitalized software development costs, net 401 418
Patent and license fees, net 672 734
-------------------------------------
Total assets $ 14,283 $ 13,681
=====================================
Liabilities and shareholders' equity
Current liabilities:
Bank line of credit $ 1,323 $ -
Accounts payable 2,011 2,219
Deferred revenues and customer deposits 2,242 2,128
Employee and agent compensation 852 1,502
Income taxes 120 509
-------------------------------------
Total current liabilities 6,548 6,358
Shareholders' equity:
Common stock 1 1
Additional paid-in capital 54,136 54,016
Accumulated deficit (46,254) (46,616)
Accumulated other comprehensive loss (148) (78)
-------------------------------------
Total shareholders' equity 7,735 7,323
-------------------------------------
Total liabilities and shareholders' equity $ 14,283 $ 13,681
=====================================
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
DTM Corporation
Consolidated Statements of Cash Flows Three Months Ended
(Unaudited) March 31,
---------------------------------------
2000 1999
---------------------------------------
(In thousands)
<S> <C> <C>
Operating activities
Net income $ 362 $ 274
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 383 354
Provision for doubtful accounts 44
Provision for obsolescence 30 24
Gain on disposal of equipment (50)
Changes in assets and liabilities:
Accounts receivable (860) (202)
Inventory (281) 763
Prepaid expenses and other assets (205) 71
Accounts payable and accrued expenses (208) (985)
Deferred service revenues 114 (135)
Income taxes (389) 107
Employee and agent compensation (650) (72)
---------------------------------------
Net cash (used in) provided by operating activities (1,704) 193
Investing activities
Purchases of machinery and equipment (302) (14)
Capitalized software development costs (43) (21)
Patent and license expenditures (14) (18)
Proceeds from sale of machinery and equipment - 137
---------------------------------------
Net cash (used in) provided by investing activities (359) 84
Financing activities
Proceeds from exercise of stock options 120 -
Draws on line of credit from financial institutions 1,323 -
---------------------------------------
Net cash provided by financing activities 1,443 -
Effect of foreign exchange rate changes (70) (54)
---------------------------------------
Net change in cash (690) 223
Cash at beginning of year 1,505 429
---------------------------------------
Cash at end of year $ 815 $ 652
=======================================
Non-cash items:
Issuance of common stock in settlement $ - $ 400
</TABLE>
See accompanying notes.
4
<PAGE>
DTM Corporation
Notes to Consolidated Financial
Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
DTM Corporation ("DTM" or the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. For further information, refer to the consolidated financial statements
and related footnotes of the Company for the year ended December 31, 1999 as
disclosed in the Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 30, 2000.
2. Earnings per share
Basic earnings per share is computed on the basis of the weighted average
number of common shares outstanding. Diluted earnings per share presented herein
is computed on the basis of the weighted average number of common shares
outstanding plus the effect of outstanding stock options using the "treasury
stock" method.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
-------------------------------------
<S> <C> <C>
Net income (A) $ 362,000 $ 274,000
Average shares of common stock outstanding (B) 7,005,276 6,493,555
Dilutive effect of employee and director stock options 264,851 -
-------------------------------------
Common stock and common stock equivalents (C) 7,270,127 6,493,555
=====================================
Earnings per share:
Basic (A/B) $ 0.05 $ 0.04
Diluted (A/C) $ 0.05 $ 0.04
</TABLE>
3. Inventory
Inventory consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------------------------------
(In thousands)
<S> <C> <C>
Raw materials and purchased parts $2,298 $2,050
Finished goods 856 834
---------------------------------------
3,154 2,884
Reserve for inventory obsolescence (251) (232)
---------------------------------------
$2,903 $2,652
=======================================
</TABLE>
5
<PAGE>
4. Comprehensive Income
Comprehensive income for the interim periods was as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---------------------------------------
(In thousands)
<S> <C> <C>
Net income $ 362 $ 274
Foreign currency translation (70) (54)
---------------------------------------
Comprehensive Income $ 292 $ 220
=======================================
</TABLE>
5. Contingencies
Beginning in 1996, the Company initiated patent infringement litigation in
France, Germany and Italy against a competitor and against one of that
competitor's customers. In 1997, the Company also initiated patent infringement
litigation in Japan against the competitor's distributor in the Pacific Rim. The
Company seeks injunctive relief plus damages. Hearings have begun in each of
these lawsuits. In September 1999, the Japanese court issued a preliminary
injunction barring sale of the competitor's infringing product in Japan. It is
not possible at this time to predict the final outcome of the proceedings in
Japan or the proceedings throughout Europe.
In January 2000, the Company initiated litigation in the U.S. courts
seeking a declaratory judgment against this competitor that the Company does not
infringe any valid claims of the U.S patents as asserted by the competitor. It
is not possible at this time to predict the outcome of this proceeding. However,
an adverse ruling could have a material adverse effect on the Company's business
and financial performance.
6. New Accounting Standards
Effective January 1, 2000, the Company adopted Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities". This Statement requires
derivatives that are not hedges to be adjusted to fair value through income. If
the derivative is a hedge, depending on the nature of the hedge, changes in the
fair market value of the derivative will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of the derivative's change in
fair value will be immediately recognized in earnings. The adoption of this
Statement had no effect on reported results of operations at this time.
7. Common Stock
In the three months ended March 31, 2000 activity in the Company's common
stock was as follows:
<TABLE>
<CAPTION>
Shares
Outstanding
---------------
<S> <C>
Balance at December 31, 1999 6,973,503
Shares issued under stock plans 54,128
---------------
Balance at March 31, 2000 7,027,631
===============
</TABLE>
6
<PAGE>
At March 31, 2000, the Company had reserved 1,204,073 shares of common
stock for issuance in connection with the 1999 Stock Option Plan (904,516
shares) and for exercise of outstanding options issued in connection with the
IPO in May 1997 under a prior plan (299,557 shares).
Beginning in April 1999, the Company has retained an affiliate of its
majority shareholder to perform certain financial advisory services. These
related party fees are included in selling, general and administrative expenses
and amounted to $36,000 in the three months ended March 31, 2000.
8. Stock Options
A summary of the Company's stock option activity, and related information
for the interim period ended March 31, 2000 is as follows:
<TABLE>
2000
-----------------------------------
Weighted
Average Exercise
Stock Options Price
-----------------------------------
<S> <C> <C>
Outstanding at beginning of year 937,064 $2.39
Granted at fair market value 59,700 2.13
Exercised (54,128) 2.22
Canceled (19,729) 2.47
-----------------------------------
Outstanding at end of interim
period 922,907 $2.52
===================================
</TABLE>
A summary of information about stock options outstanding and exercisable at
March 31, 2000 is as follows:
<TABLE>
<CAPTION>
Weighted-Average Weighted-Average
Exercise Options Remaining Options
Price Outstanding Contractual Life Exercisable
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1.25 310,800 9.0 108,782
$ 1.47 54,000 9.1 -
$ 1.75 47,600 9.8 -
$ 2.00 92,500 7.8 64,750
$ 2.0625 55,350 8.1 19,398
$ 2.23 279,561 7.1 279,561
$ 3.625 12,100 9.9 -
$ 8.03 51,000 7.1 35,700
$13.53 16,856 7.1 16,856
$14.67 3,140 7.1 3,140
----------------- ----------------
922,907 528,187
================= ================
</TABLE>
7
<PAGE>
9. Geographic and Customer Information
The Company and its subsidiaries operate in one industry segment: the
development, manufacturing and service of selective laser sintering systems and
related products. Operations outside of the United States consist principally of
sales, marketing and customer support. Revenues are attributed to geographic
areas based upon the location of the customers. The following is a summary of
geographic area data for the for the interim periods:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
--------------------------------------
(In thousands)
<S> <C> <C>
Revenues from external customers:
North America $4,176 $4,008
Europe 2,917 2,829
Pacific Rim 1,060 1,135
--------------------------------------
$8,153 $7,972
======================================
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANNALYSIS 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 the Company's Unaudited Condensed 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. All
statements, trends and other information contained in this Quarterly Report on
Form 10-Q relative to markets for the Company's products and trends in revenue,
gross margin and anticipated expense levels constitute forward-looking
statements. These forward-looking statements generally can be identified by the
use of words such as "anticipate", "believe", "plan", "estimate", "expect",
"intend", "may", and "should" and other similar terminology. 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 develops, manufactures, and markets advanced rapid prototyping and
manufacturing systems that include a Sinterstation 2500plus. All Sinterstation
systems utilize a process called SLS selective laser sintering and any of
several plastic or metal SLS materials to create three-dimensional objects from
CAD designs. Leading manufacturers throughout the world, in a range of
industries, use Sinterstation systems to rapidly create production-quality
parts, functional prototypes, and tooling for their products. Sinterstation
users can realize numerous benefits as they develop and manufacture products:
. Ability to efficiently produce low-volume/high-value products or to
even customize every product to the customer's exact needs;
. Time savings;
. Lower development costs, more efficient testing;
. Capability to prototype and test more design options; and
. The competitive advantage associated with bringing new products to
market faster.
Additionally, product designers can design complex part shapes that could
not be fabricated under conventional methods. Unlike competing technologies and
systems that are used primarily to create visualization models, DTM's systems
address industry's growing need for rapidly produced, durable, testable
prototypes and end-use parts.
Today, DTM's Sinterstation Systems are primarily used to create functional
plastic prototypes. We believe that SLS selective laser sintering is currently
the leading rapid-prototyping technology in the world for the functional plastic
prototype application. In 1999, DTM licensed metal sintering powder technology
developed by Rockwell Science Center, a key customer. DTM intends to begin to
introduce a
9
<PAGE>
range of metal sintering materials in late 2000. We believe that the metals-
based functional prototype market could ultimately be as large for DTM as its
current plastics-based functional prototype market.
A significant and growing use of Sinterstation systems is for manufacturing
low-volume/high-value parts either directly in the Sinterstation or in
conjunction with traditional casting and molding processes.
An Expanding Base of Selective Laser Sintering Capacity
The ultimate users of Sinterstation capacity are, primarily, manufacturing
companies either directly owned or contracted through service providers. So far
in 2000, 29% of Sinterstation sales were directly to manufacturing companies and
they now represent 35% of cumulative system sales. The other system sales have
been to the service providers and, to a lesser extent, to universities for
research and education. Approximately 71%, 66% and 69% of the systems sold in so
far in 2000, 1999 and 1998, respectively, were to new customer sites.
Approximately 25% of our customer sites now have multiple DTM Sinterstation
systems in operation.
By the end of March 2000, cumulative sales of DTM Sinterstation systems
reached 322 systems at 239 customer sites located in manufacturing centers
worldwide. One rapid-prototyping service bureau deploys six Sinterstation
Systems at one site. One of the world's largest aircraft manufacturers deploys
nine Sinterstation Systems in total at multiple facilities and plants. Many of
the world's automobile manufacturers deploy from one to six Sinterstation
Systems each in total at their design centers and plants.
Machine and Accessories Revenues
Revenues derived from machines and accessories were $4.0 million in the
three months ended March 31, 2000, a decrease of 19% from the comparable period
of 1999, which represented an increase of 32% from 1998.
In the three months ended March 31, 2000, DTM shipped 17 Sinterstation
Systems, including used and demonstration units. This represents the same number
of production units and a decrease by one used unit from the number of units
shipped in the comparable period of 1999, which represented a 50% increase over
the number of units shipped in the comparable period of 1998.
Machine and accessories revenues per unit sold, both production and
previously owned, averaged approximately $237,200 and $291,800 in the three
months ended March 31, 2000 and 1999, respectively, which do not include
sintering powders or services included in the system packages.
Machine and accessories cost of goods sold per unit, both production and
previously owned, averaged approximately $132,500 and $154,800 for the three
months ended March 31, 2000 and 1999, respectively. With these costs the average
gross margins on machines and accessories were 44.2% and 47.0% for the three
months ended March 31, 2000 and 1999, respectively.
Continuing Business
The continuing business revenues are becoming more significant to the
Company. The percentage of revenues derived from sales of powdered sintering
materials and services represented 50%, 40% and 35% of total revenues so far in
2000 and in fiscal 1999 and 1998, respectively.
For the three months ended March 31, 2000, the average installed base of
Sinterstation Systems had grown to 315 systems in the field, an increase of 29%
from the comparable period of 1999, which represented a 31% increase from the
comparable period of 1998. The market for powdered sintering materials and
services is the installed base of Sinterstation Systems. We calculate DTM's
installed base to be the cumulative number of Sinterstation sales less trade-ins
and other re-acquired systems. Sales and service records indicate that
substantially all of these machines are still in use. Over 84% of the installed
base of units has been in the field less than five years.
10
<PAGE>
Revenues derived from the sale of sintering materials were $2.8 million in
the first three months of 2000, an increase of 36% from the first three months
of 1999, which was represented a 66% increase from the first three months of
1998. Sintering materials revenues averaged $8,800 over the average installed
base in the first three months of 2000, which represented a 6.0% increase from
the average in the first three months of 1999, which represented a 26% increase
from the average in the first three months of 1998. DuraForm was introduced in
1997 as a premium high-performance material, which, due to its enhanced
recycling properties, requires lower quantities to operate than the previous
products. DuraForm and the nylon products that it completely replaced in 1999
accounted for over 75% of materials shipments in each year in the three years
ended December 31, 1999. As the changeover to the DuraForm products was
virtually complete in early 1999, growth in revenues in the coming year from
sintering materials should tend to follow the growth in the average installed
base and for this reason average sintering materials per unit in the field may
be more constant.
Revenues derived from services were $1.4 million in the first three months
of 2000, an increase of 38% from the first three months of 1999, which was a 14%
increase from the first three months of 1998. Services and support revenues
averaged $4,300 over the average installed base in the first three months of
2000, which represented a 7.5% increase from the average in the first three
months of 1999, which represented a 13% decrease from the average amount in the
first three months of 1998. In late 1999, the Company entered into an
arrangement with one of its sales representatives in a Pacific Rim country to
share responsibility and revenues for front-line support in that country. The
Company may make other such arrangements. Future growth in the Company's
services and support revenues may continue to trail the growth in the installed
base and, correspondingly, average service and support revenues for DTM may
again decline.
Revenue Recognition Policies Summary
The Company recognizes revenue only when finished products are shipped,
title and risks of ownership have transferred to the buyer, the Company's
remaining obligations are insignificant and collection of the related receivable
is probable. The Company recognizes service and support revenues when performed
or in the case of service contracts over the contract period. Deferred revenue
equal to the estimated cost of warranty is recorded on each system sale and
recognized as service and support revenue over the warranty period.
11
<PAGE>
Results Of Operations
Key operating results for the first quarter versus the comparable periods
in 1999 are summarized as follows:
<TABLE>
<CAPTION>
First Quarter Ended March 31,
(In thousands, except per share amounts)
----------------------------------------------------------
2000 1999 2000 vs. 1999
------ ------ ---------------
<S> <C> <C> <C> <C>
Revenues $8,153 $7,972 Up $181 Up 2.3%
Operating income $ 545 $ 338 Up $207 Up 61.2%
Net income $ 362 $ 274 Up $88 Up 32.1%
Diluted earnings per share $ 0.05 $ 0.04 Up $0.01 Up 25.0%
</TABLE>
Revenues. Revenues increased 2.3% to $8.2 million in first quarter of 2000,
compared to $8.0 million in the first quarter of 1999. Machine and accessories
revenues decreased due to reduced sales prices on level unit volume. Sales of
powdered sintering materials and services and support revenues increased
somewhat faster than the rise in average installed base.
Revenues in past periods may not be indicative of revenues in the future,
which may be affected by other business environment and risk factors discussed
below, as well as other factors included elsewhere herein.
Gross Profit. Gross profit was $4.1 million, or 50.5% of revenue, in the
first quarter of 2000, compared to $4.3 million, or 53.7% of total revenue, in
the first quarter of 1999. Machine and accessories price reductions were the
principal factor in the decrease in both gross profits and gross margins.
The Company believes there is a risk that gross margin percentages may
decline in the face of the strong U.S. dollar. Other factors, including pricing
pressures internationally and 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. Currency changes, changes in mix and changes
in material and labor costs, may have an adverse effect on gross margins
Selling, General and Administrative Expense. Selling, general and
administrative expense was $2.7 million, or 33.1% of revenues, in the first
quarter of 2000, compared to $3.3 million, or 41.1% of revenues, in the first
quarter of 1999. The decrease in percentage of revenues spent was primarily
attributable to cost containment programs and to more efficient utilization of
the overhead infrastructure. Selling, general and administrative expense may
vary as a percentage of revenues in the future.
Research and Development Expense. Research and development expense was
$874,000, or 10.7% of revenues, in the first quarter of 2000, compared to
$662,000, or 8.3% of revenues, in the first quarter of 1999. In 2000, the
Company is focusing on specific development initiatives directed at
manufacturing applications and direct metal parts. The Company planned spending
on research and development in 2000 is approximately $3.7 million. This planned
$800,000 increase over 1999, of which $212,000 was incurred in the first quarter
of 2000, in spending is primarily related to increased outsourcing costs and to
one-time prototype costs. Should the planned increase in revenues not support
the planned increase in research and development planned at a level below 10% of
revenues, attempts will be made to delay the planned investments. 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.
Interest Expense. Net interest expense for the first quarter of 2000 was
$19,000, compared to interest expense of $7,000 for the first quarter of 1999.
12
<PAGE>
Gain on Sale of Assets. The Company recognized a net gain of $50,000 in the
first quarter of 1999 from the sale of an internally used Sinterstation System.
Income Taxes. The estimated effective tax rate for the three months ended
March 31, 2000 was 31.2%, compared to 28.1% in the three months ended March 31,
1999.
As a result of the February 1999 change in control of DTM, utilization of
net operating loss carry forwards will be subject to additional annual limits of
approximately $500,000. At December 31, 1999, DTM had approximately $8.7 million
of federal net operating loss carry forwards. These net operating loss carry
forwards begin to expire in 2002. DTM has not recognized any benefit from the
future use of loss carry forwards for these periods due to uncertainties
regarding the realization of deferred tax assets based upon the taxable earnings
history. At December 31, 1999, DTM also had other deferred tax assets totaling
$2.2 million that also are fully reserved.
Net Income (Loss). The Company had net income of $362,000 in the first
quarter of 2000, compared to net income of $274,000 in the first quarter of
1999. This $88,000 increase was primarily due to increased revenues from
sintering materials and services and support, both driven by a larger installed
base of systems owned by customers, and control of general and administrative
expenses. These trends overcame system price reductions that were greater than
planned and the as planned increase in research and development expenses.
Liquidity and Capital Resources
At March 31, 2000, DTM had cash balances of $815,000 and had $1.2 million
in availability under credit lines.
During the three months ended March 31, 2000, operating activities used
$1.7 million in net cash, compared to $193,000 of net cash provided by operating
activities in the comparable period of 1999. The use of cash in operations
during the three months ended March 31, 2000 was due to investments in working
capital caused by a disproportionate number of system sales occurring at the end
of the quarter and, to a lesser extent, by unsold system production at the end
of the quarter.
Accounts receivable, less allowance, represented approximately 80 days of
quarter sales at March 31, 2000, compared to 58 days at December 31, 1999.
Inventory, less allowance, represented approximately 65 days on hand at March
31, 2000, compared to 51 days at December 31, 1999.
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. For
2000, the Company has planned for approximately $1.2 million in capital
expenditures, of which $359,000 was incurred in the three months ended March 31,
2000. This includes additions to internally used demonstration systems to
replace units coming off operating leases in 2000 and expansion of our
demonstration part capacity to support growth. The Company intends to fund this
additional investment from operations.
DTM has a $2.5 million credit facility with Silicon Valley Bank. The terms
of this credit facility are interest at prime plus 2% per annum on the
outstanding loan balance and the application of all customer remittances against
any outstanding loans. The corporate assets of DTM collateralize this agreement.
At March 31, 2000, the borrowing base exceeded the loan limit of $2.5 million
and there was $1.3 million in loans outstanding. The $1.3 million increase in
borrowings was used to fund the investments in working capital and capital
expenditures during the first quarter of 2000.
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 and equipment through December 31, 2000. However, there can be no
assurance that this will be the case.
13
<PAGE>
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND SAFE HARBOR STATEMENT
Investors are cautioned that this Quarterly Report on Form 10-Q 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;
and (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.
Emerging Rapid Prototyping and Rapid Manufacturing Markets
The market for rapid prototyping products and services, such as those
marketed by the Company, remains 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 three-dimensional CAD file describe a design and organizations
who are not currently using three-dimensional CAD are not, generally, potential
customers for rapid prototyping products and services. Significant education of
the end user in both three-dimensional 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.
The markets for rapid manufacturing products and rapid tooling products,
such as those marketed by the Company, are in an even earlier stage of
development than rapid prototyping. Participants in these markets, including the
Company, are moving to address new applications, many of which may not yet be
known or accepted by potential users. The companies who use traditional casting
methods for metal parts and traditional-machining methods to make injection-
molding tooling have made large capital investments in traditional equipment and
have mature infrastructures for doing so. They may be highly resistant both on
financial and cultural bases to adopting new technologies. There can be no
assurance that rapid manufacturing technologies and rapid tooling technologies
will evolve to the point that the perceived value will overcome those obstacles.
Competition
The market for rapid prototyping systems is 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. The design and manufacturing applications that the Company's products
address applications are currently primarily accomplished using machining,
milling and grinding equipment. The suppliers of such traditional equipment are
large and numerous. Large amounts of capital have already been expended on such
traditional equipment and there exists a cultural bias to its use in many
manufacturing organizations. The principal worldwide competitors in rapid
prototyping are 3D Systems Corporation and Stratasys, Inc. EOS GmbH Electro
Optical Systems is an additional significant competitor outside of North
America. Competition has increased as a result of the introduction of new
products or product enhancements by these competitors and the entry into the
industry by other companies. Increased competition has in the past resulted, and
may in the future continue to result, in price reductions, reduced margins and
loss of market share, all of which have materially adversely affected the
Company's business and financial results.
The Company believes that it may eventually face competition in the supply
of powdered sintering materials and services to Sinterstation users and that
this competition will likely be based upon suitability and upon price. The
Company already experiences competition for technical services to its installed
base as many of its customers have technical skills and resources to effectively
support the equipment without factory assistance. The Company may also face
external competition for such technical services from other service
organizations and such competition for services will likely be based upon
suitability and price.
14
<PAGE>
Quarterly Fluctuations in Operating Results
In prior years, the Company's revenues and operating results have varied at
times substantially from quarter to quarter and may continue to do so. DTM
typically experiences a relatively long lead-time, often from six to 24 months,
to complete a Sinterstation System sale. The Company's combined procurement and
manufacturing cycle is currently three months. Furthermore, new product
introductions, seasonality of customer buying patterns and other factors can
cause fluctuations in quarterly results. In prior years, these fluctuations have
precluded, and may preclude again, the Company from managing its inventories
effectively from quarter to quarter.
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 Company's Common
Stock trades. The tendency for a large number of the Company's sales made during
a quarter to be completed at or near the end of the quarter also hinders the
Company's ability to predict sales, control sales prices and enforce its
standard terms.
Future Capital Needs; Uncertainty of Additional Financing; Possibility of
Significant Dilution
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. The Company
currently plans to fund its self through operations.
Future operating results will depend, in part, on the Company's ability to
obtain and manage capital sufficient to finance its business. To the extent that
funds expected to be generated from the Company's operations are not sufficient
to meet current or planned operating requirements, the Company will seek to
obtain additional funds through bank credit facilities, equity or debt
financing, collaborative or other arrangements with corporate partners and
others from other sources. Additional funding may not be available when needed
or on terms acceptable to the Company, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
If adequate funds are not available, the Company may be required to delay or to
eliminate certain expenditures or to license to third parties the rights to
commercialize technologies that the Company would otherwise seek to develop
itself. In addition, in the event that the Company obtains any additional
funding, such financing may have a substantially dilutive effect on the holders
of the Company's securities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources".
Limited Product Company
The Company currently offers one model of Sinterstation Systems for sale.
The sale of Sinterstation Systems comprised the majority of annual revenues for
the Company. The Company's Sinterstation Systems are priced in excess of
$250,000 and a new purchaser must also consider the on going operating expense
commitment associated with the acquisition of such a system. In a downturn or a
soft market, the Company's dependence 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 and may do so again.
Intellectual Property And Proprietary Rights
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 aggressively seeks patent protection for its
selective laser sintering technology. 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.
15
<PAGE>
The Company is currently involved in significant litigation with EOS GmbH
Electro Optical Systems in Germany, France, Italy and Japan, with regard to the
Company's proprietary rights. If DTM is unsuccessful in their litigation, its
competitive position may be further harmed in those countries.
In addition, 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. A European competitor, EOS, currently does and others also may
practice technology believed by DTM to be covered by DTM's patents or other
legal or contractual protections regardless of the fact that it may be legally
protected. Any litigation to enforce the Company's intellectual property rights
would be expensive and time-consuming or adequate to protect the Company's
business. While DTM defends its intellectual property vigorously, there can be
no assurance that it will be successful in its various litigation 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.
Furthermore, 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 European
competitor, EOS, and the Company has filed suit against EOS seeking a
declaratory judgment that it does not infringe any valid claims of the patents
being asserted.
The University of Texas System licenses certain key intellectual property
used in the selective laser sintering process to the Company. 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.
Dependence on Key Personnel
The Company's success depends to a substantial extent on a relatively few
key management 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. The Company has put in place
incentive compensation plans intended to provide motivation for continued
employment of key employees. 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,
financial performance and results of operations.
During 1999 and into 2000, customer demand for DuraForm, the Company's most
popular powdered sintering materials, came close to exceeding the supply. The
Company has worked with its supplier to modify the suppliers manufacturing
process to increase the amounts available to DTM's customers for 2000. However
demand may increase again to use up the increased supply.
16
<PAGE>
International Operations
Revenues from customers located outside the U.S. represented the majority
of the Company's total revenues in the recent three years. The Company believes
that continued growth and profitability would require expansion of its sales in
international markets. This expansion may be costly and time-consuming and may
not generate returns for a significant period of time, if at all.
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 against a foreign
competitor of DTM's products and services in the international markets. A
significant and increasing portion of international sales are denominated in
currencies other than U.S. dollars, thereby exposing the Company to gains and
losses on non-U.S. currency transactions. There can be no assurance that any
hedging activity by the Company to limit currency exchange risk will be
successful in avoiding exchange-related losses. Nor can there be assurance that
the Company's exposure to risks associated with international operations will
not continue to 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.
Control of the Company
Proactive Finance Group, LLC and its affiliates ("Proactive") currently
controls approximately 49.9% of the outstanding Common Stock. At this
percentage, Proactive could control elections of the Company's Board of
Directors and could control or substantially affect the outcome of most matters
submitted to the Company's shareholders for their vote or consent. Proactive
could also cause, prevent or delay a change in control of the Company.
Product Liability
Products as complex as those offered by the Company may contain undetected
defects or errors when first introduced or as enhancements are released that,
despite testing by the Company, are not discovered until after the product has
been installed and used by customers, which could result in delayed market
acceptance of the product or damage to the Company's reputation and business.
The Company attempts to include provisions in its agreements with customers that
are designed to limit the Company's exposure to potential liability for damages
arising out of defects or errors in the Company's products. However, the nature
and extent of such limitations vary from customer to customer and it is possible
that such limitations may not be effective as a result of unfavorable judicial
decisions or laws enacted in the future. The sale and support of the Company's
products entails the risk of product liability claims. Any such claim brought
against the Company, regardless of its merit, could result in material expense
to the Company, diversion of management time and attention, and damage to the
Company's business reputation and its ability to retain existing customers or
attract new customers.
Shares Eligible for Future Sale
Sales of shares of Common Stock into the market by Proactive or employees
exercising options could cause a decline in the price of such stock. Of the
shares of the Common Stock owned by Proactive, approximately 3,157,190 are
tradable, subject to the resale limitations of Rule 144, as promulgated by the
U.S. Securities and Exchange Commission that are applicable to an affiliate of
the Company. In addition, the Company has granted Proactive certain demand
registration rights and if the Company proposes to register any of its
securities under the Securities Act of 1933, whether for its own account, for
the account of other shareholders or for both, Proactive is entitled to notice
of such registration and is entitled to include its shares of the Company's
Common Stock in the registration.
DTM employees hold immediately exercisable options to purchase 528,187
shares of Common Stock. The Company registered the issuance and the sale of the
shares of Common Stock that would be issued upon exercise of options under the
stock option plans on a Form S-8 Registration Statements. As a result, the
Common Stock acquired by employees of DTM upon exercise of options outstanding
under the
17
<PAGE>
stock option plans will be freely tradable (subject to compliance with certain
provisions of Rule 144, in the case of affiliates of the Company).
Market Volatility
The Company's Common Stock is listed on The Nasdaq SmallCap Stock Market.
Historically, the stock market has experienced volatility that has particularly
affected the market price of common stock of technology-related companies. That
volatility sometimes has been unrelated to the operating performance of such
companies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information related to quantitative and qualitative disclosures regarding
market risk is set forth in Management's Discussion and Analysis of Financial
Condition and Results of Operations and the risk factors under Item 2 above.
Such information is incorporated by reference herein.
18
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See notes to financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 27.1 Current Financial Data Schedule for the quarter ended
March 31, 2000
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter
ended March 31, 2000:
REPORT DATED JANUARY 14, 2000 Item 5, Other Events. On January 11,
2000 DTM's common stock will commence trading on the NASDAQ SmallCap
Market.
ITEMS 2, 3, 4 and 5 are not applicable and have been omitted.
19
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Dated: May 12, 2000
DTM CORPORATION
(Registrant)
By: /s/ John S. Murchison, III
-------------------------------------
John S. Murchison, III
President and Chief Executive Officer
By: /s/ Geoffrey W. Kreiger
-------------------------------------
Geoffrey W. Kreiger
Vice President of Finance, Treasurer and Secretary
20
<PAGE>
Index to Exhibits
-----------------
Number Description
- ------ -----------
27.1 Financial Data Schedule for the quarter ended March 31, 2000
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS OF THIS QUARTERLY REPORT
ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 815
<SECURITIES> 0
<RECEIVABLES> 7,654
<ALLOWANCES> 417
<INVENTORY> 2,903
<CURRENT-ASSETS> 11,749
<PP&E> 8,261
<DEPRECIATION> 6,800
<TOTAL-ASSETS> 14,283
<CURRENT-LIABILITIES> 6,548
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 54,136
<TOTAL-LIABILITY-AND-EQUITY> 14,283
<SALES> 6,799
<TOTAL-REVENUES> 8,153
<CGS> 3,125
<TOTAL-COSTS> 4,038
<OTHER-EXPENSES> 3,570
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> 526
<INCOME-TAX> 164
<INCOME-CONTINUING> 362
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 362
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.05
</TABLE>
