<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-22250
3D SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4431352
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) (Identification No.)
26081 AVENUE HALL, VALENCIA, CALIFORNIA 91355
(Address of Principal Executive Offices) (Zip Code)
(805) 295-5600
(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 for such shorter period that the Registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------------------------
Shares of Common Stock, par value $0.001, outstanding as of July 31, 1997:
11,390,022 shares
Page 1 of 18
<PAGE>
3D SYSTEMS CORPORATION
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION Number
--------
ITEM 1. Financial Statements
Consolidated Balance Sheets,
December 31, 1996 and June 27, 1997. . . . . . . . . . . . . . . 3
Consolidated Statements of Operations
For the Three and Six Month Periods Ended
June 28, 1996 and June 27, 1997. . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
for the Three and Six Month Periods Ended
June 28, 1996 and June 27, 1997. . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 17
Page 2 of 18
<PAGE>
3D SYSTEMS CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS December 31, 1996 June 27, 1997
------------------ ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,356,441 $ 18,630,098
Restricted cash 722,000 632,000
Short-term investments 3,759,492 ---
Accounts receivable, less allowances for
doubtful accounts of $406,178 (1996) and $275,232 (1997) 19,601,383 21,234,194
Current portion of lease receivables 987,362 2,019,335
Inventories 12,309,588 15,684,449
Deferred tax assets 2,958,227 2,569,282
Prepaid expenses and other current assets 2,332,337 2,710,539
------------------ ---------------
Total current assets 67,026,830 63,479,897
Property and equipment, net 14,452,504 17,364,914
Licenses and patent costs, net 3,660,568 3,695,647
Deferred tax assets 1,821,000 1,821,000
Lease receivables, less current portion and allowance for
doubtful accounts of $100,000 (1997) 3,773,573 6,360,431
Other assets 1,504,382 1,243,776
------------------ ---------------
$ 92,238,857 $ 93,965,665
------------------ ---------------
------------------ ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,805,930 $ 5,719,077
Accrued liabilities 6,890,343 6,690,884
Current portion of long-term debt 100,000 100,000
Customer deposits 894,111 945,867
Deferred revenues 5,572,892 6,891,816
------------------ ---------------
Total current liabilities 17,263,276 20,347,644
Other liabilities 1,472,991 1,421,918
Long-term debt, less current portion 4,800,000 4,745,000
------------------ ---------------
23,536,267 26,514,562
------------------ ---------------
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 5,000,000
shares; none issued
Common stock, $.001 par value. Authorized 25,000,000
shares; issued and outstanding 11,358,892 (1996)
and issued 11,398,357 (1997) 11,359 11,398
Capital in excess of par value 72,527,768 72,727,613
Retained earnings (deficit) (4,308,471) (4,200,606)
Cumulative translation adjustment 471,934 (922,364)
Treasury stock, at cost, 25,000 shares --- (164,938)
------------------ ---------------
Total stockholders' equity 68,702,590 67,451,103
------------------ ---------------
$ 92,238,857 $ 93,965,665
------------------ ---------------
------------------ ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 18
<PAGE>
3D SYSTEMS CORPORATION
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Month Periods Ended Six Month Periods Ended
------------------------------------ --------------------------------
June 28,1996 June 27, 1997 June 28,1996 June 27, 1997
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales:
Products $ 11,923,002 $ 14,111,466 $ 25,599,885 $ 27,709,322
Services 6,632,346 7,691,979 12,122,027 15,552,935
------------- ---------------- ---------------- ----------------
Total sales 18,555,348 21,803,445 37,721,912 43,262,257
------------- ---------------- ---------------- ----------------
Cost of sales:
Products 5,419,266 7,711,852 11,583,471 14,999,244
Services 4,177,202 5,636,094 7,667,791 11,138,683
------------- ---------------- ---------------- ----------------
Total cost of sales 9,596,468 13,347,946 19,251,262 26,137,927
------------- ---------------- ---------------- ----------------
Gross profit 8,958,880 8,455,499 18,470,650 17,124,330
------------- ---------------- ---------------- ----------------
Operating expenses:
Selling, general and administrative 6,225,735 7,170,603 12,427,754 13,561,294
Research and development 1,825,757 2,011,893 3,651,507 3,941,727
------------- ---------------- ---------------- ----------------
Total operating expenses 8,051,492 9,182,496 16,079,261 17,503,021
------------- ---------------- ---------------- ----------------
Income (loss) from operations 907,388 (726,997) 2,391,389 (378,691)
Interest income 376,777 334,622 832,294 685,670
Interest expense (5,158) (68,420) (11,498) (127,203)
------------- ---------------- ---------------- ----------------
Income (loss) before provision for income taxes 1,279,007 (460,795) 3,212,185 179,776
Provision for income taxes (benefit) 477,939 (181,114) 1,289,874 71,911
------------- ---------------- ---------------- ----------------
Net income (loss) $ 801,068 $ (279,681) $ 1,922,311 $ 107,865
------------- ---------------- ---------------- ----------------
------------- ---------------- ---------------- ----------------
Net income (loss) per share $ .07 $ (.02) $ .16 $ .01
------------- ---------------- ---------------- ----------------
------------- ---------------- ---------------- ----------------
Weighted average number of common and common
equivalent shares outstanding during the period 11,814,114 11,376,199 11,795,599 11,643,948
------------- ---------------- ---------------- ----------------
------------- ---------------- ---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 18
<PAGE>
3D SYSTEMS CORPORATION
Consolidated Statements of Cash flows
For the Six Month Periods Ended June 28,1996 and June 27, 1997
Unaudited
<TABLE>
<CAPTION>
1996 1997
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,922,311 $ 107,865
Adjustments to reconcile net income to net cash
used for operating activities:
Deferred income taxes 1,470,000 389,275
Depreciation of property and equipment 1,025,344 1,820,313
Amortization of licenses and patent costs 291,364 325,702
Amortization of software development costs 233,116 250,114
Changes in operating assets and liabilities:
Accounts receivables (2,103,376) (2,369,282)
Lease receivables --- (3,618,831)
Inventories (5,129,839) (3,503,713)
Prepaid expenses and other current assets 48,132 (426,589)
Other assets (230,358) (11,381)
Accounts payable (1,909,756) 2,041,074
Accrued liabilities (1,220,513) (14,976)
Customer deposits (141,623) 51,756
Deferred revenues 477,292 1,400,841
Other liabilities (38,584) (12,747)
------------ ----------
Net cash used for operating activities (5,306,491) (3,570,579)
------------ ----------
Cash flows from investing activities:
Purchase of property and equipment (6,382,851) (5,231,578)
Disposition of property and equipment 581,873 519,643
Increase in licenses and patent costs (142,242) (350,448)
Proceeds of short term investment --- 3,759,492
------------ ----------
Net cash used for investing activities (5,943,226) (1,302,891)
------------ ----------
Cash flows from financing activities:
Exercise of stock options and warrants 310,832 199,884
Payment of long term debt --- (55,000)
Purchase of treasury shares --- (164,938)
------------ ----------
Net cash provided by (used for) financing activities 310,832 (20,054)
Effect of exchange rate changes on cash 120,351 (832,819)
------------ ----------
Net decrease in cash and cash equivalents (10,818,534) (5,726,343)
Cash and cash equivalents at the beginning of the period 38,258,927 24,356,441
------------ ----------
Cash and cash equivalents at the end of the period $ 27,440,393 $ 18,630,098
------------ ----------
------------ ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 11,134 $ 101,026
------------ ----------
------------ ----------
Income taxes $ 758,460 $ 128,303
------------ ----------
------------ ----------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 18
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and June 27, 1997
(Unaudited)
(1) Basis of Presentation.
The accompanying unaudited consolidated financial statements of 3D Systems
Corporation and subsidiaries (the "Company") are prepared in accordance
with instructions to Form 10-Q and, in the opinion of management include
all material adjustments (consisting only of normal recurring accruals)
which are necessary for the fair presentation of results for the interim
periods. The Company reports its interim financial information on a 13 week
basis ending the last Friday of each quarter, and reports its annual
financial information through the calendar year ended December 31. These
unaudited consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996. The results of the six month period ended June 27, 1997 are not
necessarily indicative of the results to be expected for the full year.
(2) Inventories.
<TABLE>
<CAPTION>
December 31, 1996 June 27, 1997
------------------ ----------------
<S> <C> <C>
Raw materials $ 4,517,981 $ 4,848,882
Work in progress 1,226,627 1,713,047
Finished goods 6,564,980 9,122,520
------------------ ----------------
$ 12,309,588 $ 15,684,449
------------------ ----------------
------------------ ----------------
(3) Property and Equipment.
December 31, 1996 June 27, 1997
------------------ ----------------
Land and building $ 4,613,051 $ 4,613,051
Machinery and equipment 12,477,147 15,387,685
Office furniture and equipment 2,302,613 2,416,572
Leasehold improvements 1,809,169 2,103,459
Rental equipment 676,669 834,000
Construction in progress 461,010 895,068
------------------ ----------------
22,339,659 26,249,835
Less accumulated depreciation and
amortization (7,887,155) (8,884,921)
------------------ ----------------
$ 14,452,504 $ 17,364,914
------------------ ----------------
------------------ ----------------
</TABLE>
Page 6 of 18
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and June 27, 1997
(Unaudited)
(4) Share Buy-Back Plan
On May 6, 1997, the Company announced that its board of directors
authorized the Company to buy up to 1.5 million of its shares in the open
market and through private transactions. The actual number of shares
repurchased, and the timing of the proceeds, will be based on 3D's stock
price, general conditions and other factors. During the second quarter
of 1997, the Company repurchased 25,000 shares of its stock.
(5) Statement of Financial Accounting Standards Not Yet Adopted.
(a) In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
per Share." This statement requires dual presentation of newly defined
basic and diluted earnings per share ("EPS") on the face of the income
statement for all entities with complex capital structures. The
accounting standard is effective for both interim and annual periods
ending after December 15, 1997 and requires restatement of all prior
period EPS data presented. Earlier application is not permitted.
However, disclosure of pro forma EPS amounts computed using SFAS No. 128
in the notes to the financial statements is permitted in the periods
prior to required adoption. Accordingly the pro forma EPS data for the
three and six month periods ended June 28, 1996 and June 27, 1997 are as
follows (shares in thousands):
Three Month Periods Ended
June 28, 1996 June 27, 1997
--------------- ---------------
Shares EPS Shares EPS
--------------- ---------------
Basic EPS 11,317 $ .07 11,376 $ (.02)
Diluted EPS 11,814 .07 11,376 (.02)
Six Month Periods Ended
June 28, 1996 June 27, 1997
--------------- ---------------
Shares EPS Shares EPS
--------------- ---------------
Basic EPS 11,302 $ .17 11,368 $ .01
Diluted EPS 11,796 .16 11,644 .01
(b) On June 30, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income." This statement establishes standards for
the reporting and display of comprehensive income and its components in
a full set of general purpose financial statements. SFAS 130 is effective
for fiscal years beginning after December 15, 1997 and requires restatement
of earlier periods presented. Management is currently evaluating the
SFAS 130.
Page 7 of 18
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and June 27, 1997
(Unaudited)
(c) On June 30, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
establishes standards for the way that a public enterprise reports
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. SFAS 131 is
effective for fiscal years beginning after December 15, 1997 and requires
restatement of earlier periods presented. Management is currently
evaluating the requirements of SFAS 131.
(6) Subsequent Event.
On July 9, 1997, the Company signed a definitive agreement with Carl
Zeiss Jena GmbH of Germany, a member of the Carl Zeiss Group to acquire
a majority (75.1%) interest in a Zeiss subsidiary, EOS GmbH. However,
the agreement is subject to the minority investor's pre-emptive right to
acquire the majority interest. On August 6, 1997 the minority
shareholder exercised his pre-emptive right to acquire the 75.1% of EOS'
stock not currently owned. On the assumption that the minority
shareholder would acquire the 75.1% interest, the Company entered into
a non-binding letter of intent to acquire EOS' stereolithography rapid
prototyping business, subject to negotiation of a definitive agreement.
No assurance can be given that this transaction will close. If it does,
3D will grant to EOS a worldwide license to patents held by 3D,
applicable to the field of laser sintering, and all pending litigation
between the companies would be settled.
Page 8 of 18
<PAGE>
3D SYSTEMS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains trend analysis and other forward looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended and Section 21A of the Securities Act of 1933, as amended.
Actual results could differ from those projected in the forward looking
statements as a result of the cautionary statements and risk factors set forth
below and in Item 1 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
RESULTS OF OPERATIONS
The Company's revenues are generated by product and service sales.
Product sales are comprised of the sale of Stereolithography Apparatus
("SLA") systems and related equipment, Actua 2100's, resins, software, and
other component parts, as well as rentals of SLA systems. Service sales
include revenues from maintenance, services provided by the Company's Tooling
Centers, and customer training.
The following table sets forth certain operating amounts and ratios as a
percentage of total sales except as otherwise indicated:
<TABLE>
<CAPTION>
Three Month Periods Ended Six Month Periods Ended
--------------------------------- ----------------------------------
June 28, 1996 June 27, 1997 June 28, 1996 June 27, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales: (in thousands)
Products $ 11,923 $ 14,111 $ 25,600 $ 27,709
Services 6,632 7,692 12,122 15,553
------------- ------------- ------------- -------------
Total sales 18,555 21,803 37,722 43,262
------------- ------------- ------------- -------------
Cost of sales:
Products 5,419 7,712 11,583 14,999
Services 4,177 5,636 7,668 11,139
------------- ------------- ------------- -------------
Total cost of sales 9,596 13,348 19,251 26,138
------------- ------------- ------------- -------------
Total gross profit 8,959 8,455 18,471 17,124
% of total sales 48.3% 38.8% 49.0% 39.6%
Gross profit - products 6,504 6,399 14,017 12,710
% of total product sales 54.6% 45.3% 54.8% 45.9%
Gross profit - services 2,455 2,056 4,454 4,414
% of total service sales 37.0% 26.7% 36.7% 28.4%
Selling, general and administrative
expenses 6,226 7,171 12,428 13,561
% of total sales 33.6% 32.9% 33.0% 31.4%
Research and development expenses 1,826 2,011 3,652 3,942
% of total sales 9.8% 9.2% 9.7% 9.1%
------------- ------------- ------------- -------------
Income (loss) from operations 907 (727) 2,391 (379)
% of total sales 4.9% (3.3%) 6.3% (.9%)
Interest income, net 372 266 821 559
% of total sales 2.0% 1.2% 2.2% 1.3%
Provision for income taxes (benefit) 478 (181) 1,290 72
% of total sales 2.6% (.8%) 3.4% .2%
------------- ------------- ------------- -------------
Net income (loss) 801 (280) 1,922 108
% of total sales 4.3% (1.3%) 5.1% .2%
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Page 9 of 18
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
The following table sets forth for the periods indicated total revenues
attributable to each of the Company's major products and services groups, and
those revenues as a percentage of total sales:
<TABLE>
<CAPTION>
Three Month Periods Ended Six Month Periods Ended
--------------------------------- ---------------------------------
June 28, 1996 June 27, 1997 June 28, 1996 June 27, 1997
------------- ------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Products:
SLA and Actua systems, and related
equipment $ 8,487 $ 9,698 $ 17,920 $ 19,512
Resins 2,453 3,113 5,078 5,932
Software, other components parts and rentals 983 1,300 2,602 2,265
------------- ------------- ------------- -------------
Total products 11,923 14,111 25,600 27,709
------------- ------------- ------------- -------------
Services:
Maintenance 5,522 6,246 9,674 12,513
Tooling Centers 932 1,122 2,060 2,464
Training 178 324 388 576
------------- ------------- ------------- -------------
Total services 6,632 7,692 12,122 15,553
------------- ------------- ------------- -------------
Total sales $ 18,555 $ 21,803 $ 37,722 $ 43,262
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Products:
SLA and Actua systems, and related
equipment 45.7% 44.4% 47.5% 45.1%
Resins 13.2 14.3 13.5 13.7
Software, other components parts
and rentals 5.3 6.0 6.9 5.2
------------- ------------- ------------- -------------
Total products 64.3 64.7 67.9 64.0
------------- ------------- ------------- -------------
Services:
Maintenance 29.8 28.7 25.6 29.0
Tooling Centers 5.0 5.1 5.5 5.7
Training 1.0 1.5 1.0 1.3
------------- ------------- ------------- -------------
Total services 35.7 35.3 32.1 36.0
------------- ------------- ------------- -------------
Total sales 100.0% 100.0% 100.0% 100.0%
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Page 10 of 18
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
THREE MONTH PERIOD ENDED JUNE 27, 1997 COMPARED TO THE THREE MONTH PERIOD ENDED
JUNE 28, 1996.
SALES. Sales during the three month period ended June 27, 1997 (the "second
quarter of 1997") were $21.8 million, an increase of 18% over the $18.6 million
recorded during the three month period ended June 28, 1996 (the "second quarter
of 1996").
Product sales during the second quarter of 1997 ($14.1 million) increased $2.2
million, compared to $11.9 million in the second quarter of 1996. The Company
sold a total of 41 SLA systems in the second quarter of 1997. During the second
quarter of 1996, the Company sold 33 SLAs. In addition, the Company sold a
total of 27 Actua 2100's, the Company's low-priced office modeler (which uses a
different technology than stereolithography), designed for operation in
engineering and design offices.
Orders for the Company's SLA systems in the second quarter of 1997 (compared
to the second quarter of 1996) increased in both Europe and the Asia-Pacific
markets but declined in the U.S. market and total SLA backlog at the end of
the second quarter of 1997 was substantially lower than the end of the second
quarter of 1996. The Company believes that the decline in U.S. orders in the
second quarter of 1997 (when compared to the second quarter of 1996) was due
primarily to the performance and termination of a number of the Company's
independent domestic sales representatives ("agents") and competitive
pressures. The Company's domestic marketing strategy had previously focused
on a strong internal sales organization, as well as the utilization of agents
(primarily, independent sales representatives in the machine tool industry).
These sales agents however did not produce the level of sales expected by the
Company during 1996. Additionally, the Company believed it could obtain
better visibility and contact with its customers by utilizing a direct sales
force. Accordingly, in August 1996, the Company terminated its arrangements
with all of its sales agents and began recruiting additional personnel to
strengthen its internal sales and support organization. Between September 1,
1996 and December 31, 1996, the Company completed the hiring of ten
additional sales persons. Because of the long cycle for SLA system sales, the
Company believes that the additions to its internal sales organization will
not significantly increase domestic sales until the second half of 1997.
While historically there has not always been an accurate correlation between
orders and ending backlog in one quarter and revenues in the next quarter,
the decline in U.S. SLA orders during the second quarter of 1997, coupled
with potential inefficiencies caused by the recent changes in the domestic
sales organization, may negatively impact domestic revenues during the second
half of 1997.
The Company believes that SLA system sales may fluctuate on a quarterly
basis as a result of a number of factors, including the status of world economic
conditions, fluctuations in foreign currency exchange rates and the timing of
product shipments (the current U.S. list price of an SLA-500, for example, is
$490,000; thus the acceleration or delay of a small number of shipments from one
quarter to another can significantly affect the results of operations for the
quarters involved).
Page 11 of 18
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Service sales during the second quarter of 1997 increased $1.1 million or 16%
compared to the second quarter of 1996, primarily as a result of increased
maintenance revenues due to the larger installed base of SLA systems in the U.S.
and Europe.
COST OF SALES. Cost of sales increased to $13.3 million or 61% of sales in the
second quarter of 1997 from $9.6 million or 52% of sales in the second quarter
of 1996.
Product cost of sales as a percentage of product sales increased to 55% during
the second quarter of 1997 compared to 45% during the second quarter of 1996.
The increase in 1997 was primarily the result of greater discounting of European
SLA system sales in 1997 due to competition; sales of the lower margin SLA
250/30A and Actua 2100 office modeler; greater domestic discounting due to
competitive pricing pressures; price reductions to the SLA-250 Series 40 and
Series 50 effected by the Company in January 1997; increased manufacturing
overhead as a result of the transition of the Company's manufacturing
activities from Valencia, California to a new and larger manufacturing facility
in Grand Junction, Colorado; and the stronger U.S. dollar in the second quarter
of 1997, as compared to the second quarter of 1996. These factors were partially
offset by substantially reduced commission payments to agents as a result of the
termination of domestic sales agents described above. The Company's gross profit
margins on product sales are affected by several factors including, among
others, sales mix, distribution channels and fluctuations in foreign currency
exchange rates and, therefore, may vary in future periods from those experienced
during the second quarter of 1997. Additionally, the Company anticipates that
the gross margins related to the Actua 2100 system will be lower than margins on
its SLA systems, and, if revenues from the sales of Actua 2100 represent a
material portion of the Company's product sales, gross margins from product
sales would be reduced.
Service cost of sales as a percentage of service sales increased to 73% during
the second quarter of 1997 compared to 63% during the second quarter of 1996,
primarily as a result of increased parts costs under our field maintenance
contracts, lower revenue in our Tooling Centers and the effect of certain
inefficiencies attributable to the Company's Keltool operations which were
acquired in September 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("S,G&A") expenses increased approximately $945,000 or 15% in the
second quarter of 1997 compared to the second quarter of 1996, primarily as a
result of a $500,000 non-recurring expense for severance benefits related to a
restructuring plan designed to reduce costs and improve operating results and
to the expanded sales and marketing programs in Europe. The Company currently
anticipates that if its revenues continue to grow, S,G&A expenses as a
percentage of total sales in future quarters should begin to decline, primarily
as a result of economies of scale. However, these are forward looking
statements and, as with other such statements, are subject to uncertainties.
For example, if sales do not continue to grow over the period, it is less likely
that S,G&A expenses as a percentage of total sales would decline.
Page 12 of 18
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
RESEARCH AND DEVELOPMENT EXPENSES. Research and development ("R&D") expenses
during the second quarter of 1997 increased approximately $186,000 or 10%
compared to the second quarter of 1996. The increase in R&D expenses in 1997
was primarily the result of increased personnel costs and experimental
material related to certain development projects. Based on the Company's
historical expenditures related to research and development and its current
development goals, the Company anticipates for the foreseeable future,
research and development expenses will be equal to approximately 8% to 10% of
sales. However, this is a forward-looking statement and, as with any such
statement, is subject to uncertainties. For example, if total sales of the
Company for any particular period do not meet the anticipated sales of the
Company for that period, research and development expenses as a percentage of
sales may exceed the 8% to 10% level.
OPERATING INCOME(LOSS). Operating loss for the second quarter of 1997 was 3.3%
of total sales compared to operating income of 4.9% of total sales in the second
quarter of 1996. The decrease in the percentage of operating income to total
sales in 1997 was primarily attributable to the increases in cost of sales (both
products and services) in 1997 and the non-recurring expense relating to
severance benefits, described above.
OTHER INCOME AND EXPENSES. Interest income decreased to $334,622 during the
second quarter of 1997 from $376,777 during the second quarter of 1996,
primarily as a result of the lower investment balances due to cash used for
operating activities and investment activities since the second quarter of
1996 partially offset by interest income from lease receivables.
Interest expense increased to $68,420 during the second quarter of 1997 from
$5,158 in the second quarter of 1996 primarily as a result of the Company's
financing of its Colorado facility which was effected in August 1996.
PROVISION FOR INCOME TAXES(BENEFIT). For the second quarter of 1997, the
Company's tax benefit was ($181,114) or 39% of pre-tax loss compared to tax
expense of $477,939 or 37% of pre-tax income for the second quarter of 1996.
The Company's anticipated tax rate for the remainder of 1997 is expected to
approximate 40%.
Page 13 of 18
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
SIX MONTH PERIOD ENDED JUNE 27, 1997 COMPARED TO THE SIX MONTH PERIOD ENDED JUNE
28, 1996.
SALES. Sales during the six month period ended June 27, 1997 (the "first half
of 1997") were $43.3 million, an increase of 15% over the $37.7 million recorded
during the six month period ended June 28, 1996 (the "first half of 1996").
Product sales during the first half of 1997 ($27.7 million) increased $2.1
million or 8%, compared to $25.6 million in the first half of 1996. The
Company sold a total of 74 SLA systems and a total of 59 Actua 2100's in the
first half of 1997. During the first half of 1996, the Company sold 73 SLAs.
Orders for the Company's SLA systems in the first half of 1997 (compared to the
first half of 1996) increased in both Europe and the Asia-Pacific markets but
declined in the U.S. market. The Company believes that the decline in U.S.
orders in the first half of 1997 (when compared to the first half of 1996)
was due primarily to the potential inefficiencies caused by the recent changes
in the domestic sales organization as described above.
Service sales during the first half of 1997 increased $3.4 million or 28%
compared to the first half of 1996, primarily as a result of increased
maintenance revenues due to the larger installed base of SLA systems in the U.S.
and Europe.
COST OF SALES. Cost of sales increased to $26.1 million or 60% of sales in the
first half of 1997 from $19.3 million or 51% of sales in the first half of 1996.
Product cost of sales as a percentage of product sales increased to 54% during
the first half of 1997 compared to 45% during the first half of 1996. The
increase in 1997 was primarily the result of greater discounting of European SLA
system sales in 1997 due to competition; sales of the lower margin SLA 250/30A
and Actua 2100 office modeler; greater domestic discounting due to competitive
pricing pressures; price reductions to the SLA-250 Series 40 and Series 50
effected by the Company in January 1997; increased manufacturing overhead as a
result of the transition of the Company's manufacturing activities from
Valencia, California to a new and larger manufacturing facility in Grand
Junction, Colorado; and the stronger U.S. dollar in the second quarter of 1997,
as compared to the second quarter of 1996. These factors were partially offset
by substantially reduced commission payments to agents as a result of the
termination of domestic sales agents described above.
Service cost of sales as a percentage of service sales increased to 72% during
the first half of 1997 compared to 63% during the first half of 1996, primarily
as a result of certain hardware upgrades afforded SLA-500 customers with
software maintenance contracts due to the Company's new NT version system
software, increased parts costs under our field maintenance contracts, lower
revenue in our Tooling Centers and the effect of certain inefficiencies
attributable to the Company's Keltool operations which were acquired in
September 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("S,G&A") expenses increased approximately $1,134,000 or 9% in
the first half of 1997 compared to the first half of 1996, primarily as a
result of a $500,000 non-recurring expense for severance benefits related to
a restructuring plan designed to reduce costs and improve operating results
and to the expanded sales and marketing programs in Europe.
Page 14 of 18
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
RESEARCH AND DEVELOPMENT EXPENSES. Research and development ("R&D") expenses
during the first half of 1997 increased approximately $290,000 or 8% compared to
the first half of 1996. The increase in R&D expenses in 1997 was primarily the
result of increased personnel costs and experimental material related to certain
development projects.
OPERATING INCOME (LOSS). Operating loss for the first half of 1997 was .9%
of total sales compared to operating income 6.3% of total sales in the first
half of 1996. The decrease in the percentage of operating income to total
sales in 1997 was primarily attributable to the increases in cost of sales
(both products and services) in 1997 and the increase in S,G&A expenses,
described above.
OTHER INCOME AND EXPENSES. Interest income decreased to $685,670 during the
first half of 1997 from $832,294 during the first half of 1996, primarily as a
result of the lower investment balances due to cash used for operating
activities and investment activities since the second quarter of 1996 partially
offset by interest income from lease receivables.
Interest expense increased to $127,203 during the first half of 1997 from
$11,498 in the first half of 1996 primarily as a result of the Company's
financing of its Colorado facility which was effected in August 1996.
PROVISION FOR INCOME TAXES. For the first half of 1997, the Company's tax
expense was 71,911 or 40% of pre-tax income compared to tax expense of
$1,289,874 or 40% of pre-tax income for the first half of 1996. The Company's
anticipated tax rate for the remainder of 1997 is expected to approximate 40%.
Page 15 of 18
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
December 31, 1996 June 27, 1997
----------------- -------------
Cash and cash equivalents (1) $ 25,078,441 $ 19,262,098
Short-term investments 3,759,492 ---
Working capital (1) 49,763,554 43,132,253
Six Month Periods Ended
------------------------------------
June 28, 1996 June 27, 1997
--------------- ----------------
Cash used for operating
activities $ (5,306,491) $ (3,570,579)
Cash used for
investing activities (5,943,226) (1,302,891)
Cash provided by (used for) financing
activities 310,832 (20,054)
- ------------------------
(1) Includes $722,000 and $632,000 of restricted cash at December 31, 1996 and
June 27, 1997, respectively.
Net cash used for operating activities during the first half of 1997 was $3.6
million. The negative cash flow from operations during the first half of 1997,
comprised primarily of an increase in lease receivables ($3.6 million), an
increase in inventory ($3.5 million) as a result of an increase in SLA finished
goods and raw materials (both Actua 2100 and SLA) and an increase in accounts
receivable of $2.4 million was partially offset by non cash depreciation and
amortization ($2.4 million), an increase in accounts payable ($2.0 million), and
an increase in deferred revenues ($1.4 million).
Net cash used for investing activities during the first half of 1997 totaled
$1.3 million and was primarily the result of expenditures related to SLA
equipment manufactured for use as demonstration equipment ($2.5 million) and the
purchase of computers and manufacturing equipment ($1.5 million) due to an
increase in personnel and increased production capacity which was substantially
offset by the liquidation of short-term investments ($3.8 million).
Net cash used for financing activities during the first half of 1997 was
primarily the result of the Company's purchase of treasury stock and the
repayment of a portion of the principal related to the $4.9 million tax-exempt
industrial revenue development bond financing effected in August 1996 partially
offset by the exercise of stock options.
The Company believes that funds generated from operations, existing working
capital and its current line of credit will be sufficient to satisfy its
anticipated operating requirements for at least the next twelve months.
Page 16 of 18
<PAGE>
3D SYSTEMS CORPORATION
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held its 1997 Annual Meeting of Stockholders on May 22, 1997. The
only matter submitted to the stockholders was the election of two Class I
directors to hold office for a three year term. The number of votes cast for
and withheld as to each nominee are presented immediately below.
MATTER SUBMITTED TO STOCKHOLDERS FOR WITHHELD
--------- --------
I. Election of Directors
Donald S. Bates 6,328,339 137,043
Jim D. Kever 6,333,738 131,644
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Computation of per share earnings.
27. Financial data schedule.
(b) Reports on Form 8-K
Press release dated May 6, 1997 to announce Share Buy-Back Plan
Press release dated April 24, 1997 to announce first quarter earnings.
Page 17 of 18
<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.
/s/ Edward C. Ferrier 8/11/97
- --------------------------------------------- -----------------
Edward C. Ferrier Date
Corporate Controller and Acting
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
(Duly authorized to sign on behalf of Registrant)
Page 18 of 18
<PAGE>
EXHIBIT 11
3D SYSTEMS CORPORATION
COMPUTATION OF PER SHARE EARNINGS
PRIMARY AND FULLY DILUTED COMPUTATION
<TABLE>
<CAPTION>
Three Month Periods Ended Six Month Periods Ended
------------------------------- ------------------------------
June 28, 1996 June 27, 1997 June 28, 1996 June 27, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Net income $ 801,068 $ (279,681) $ 1,922,311 $ 107,865
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Applicable common and common stock
equivalent shares:
Weighted average number of shares of
common stock outstanding during the period 11,317,456 11,376,199 11,302,352 11,368,116
Incremental number of shares outstanding
during the period resulting from the assumed
exercises of stock options and warrants 496,658 --- 493,247 275,832
------------- ------------- ------------- -------------
Weighted average number of shares of
common stock and common stock
equivalents during the period 11,814,114 11,376,199 11,795,599 11,643,948
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Primary earnings per share $ .07 $ (.02) $ .16 $ .01
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
FULLY DILUTED EARNINGS PER SHARE
Net income $ 801,068 $ (279,681) $ 1,922,311 $ 107,865
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Applicable common and common stock
equivalent shares:
Weighted average number of shares of
common stock outstanding during the period 11,317,456 11,376,199 11,302,352 11,368,116
Incremental number of shares outstanding
during the period resulting from the assumed
exercises of stock options and warrants 498,387 --- 494,159 305,334
------------- ------------- ------------- -------------
Weighted average number of shares of
common stock and common stock equivalents
outstanding during the period 11,815,843 11,376,199 11,796,511 11,673,450
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fully diluted earnings per share $ .07 $ (.02) $ .16 $ .01
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-27-1997
<CASH> 19,262,098
<SECURITIES> 0
<RECEIVABLES> 21,509,426
<ALLOWANCES> (275,232)
<INVENTORY> 15,684,449
<CURRENT-ASSETS> 63,479,897
<PP&E> 26,249,835
<DEPRECIATION> (8,884,921)
<TOTAL-ASSETS> 93,965,665
<CURRENT-LIABILITIES> 20,347,644
<BONDS> 4,745,000
0
0
<COMMON> 11,398
<OTHER-SE> 67,439,705
<TOTAL-LIABILITY-AND-EQUITY> 93,965,665
<SALES> 27,709,322
<TOTAL-REVENUES> 43,262,257
<CGS> 14,999,244
<TOTAL-COSTS> 26,137,927
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 47,000
<INTEREST-EXPENSE> (558,467)
<INCOME-PRETAX> 179,776
<INCOME-TAX> 71,911
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107,865
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
