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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-22250
3D SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-4431352
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
26081 Avenue Hall
Valencia, California 91355
(Address of principal executive offices and zip code)
(805) 295-5600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Preferred Stock Purchase Rights
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 reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this 10-K or any Amendment to this Form
10-K. [ ]
At February 27, 1998, there were outstanding 11,241,737 shares of the Common
Stock of Registrant, and the aggregate market value of the shares held on that
date by non-affiliates of Registrant, based on the closing price ($7.75 per
share) of the Registrant's Common Stock on the Nasdaq National Market on that
date, was $87,123,462. For purposes of this computation, it has been assumed
that the shares beneficially held by directors and officers of Registrant were
"held by affiliates"; this assumption is not to be deemed to be an admission by
such persons that they are affiliates of Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement with respect to its 1998 Annual Meeting
of Shareholders, currently scheduled to be held May 22, 1998, are incorporated
by reference into Part III of this Report.
Exhibit index is located on page 38.
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3D SYSTEMS CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
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PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . 18
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . 21
Item 6. Selected Consolidated Financial Data. . . . . . . . . . . . . . . . 22
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . . . . . 24
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures. . . . . . . . . . . . . . . . . . . . . 30
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . . . . 31
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . . 31
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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PART I
ITEM 1. BUSINESS
For a discussion of certain material factors which may affect the
Company, see "Cautionary Statements and Risk Factors" commencing on page 13
of this Report.
GENERAL
3D Systems Corporation (the "Company") develops, manufactures and
markets in the United States and internationally Stereolithography Apparatus
("SLA-TM-") systems designed to rapidly produce three-dimensional objects
from computer-aided design and manufacturing ("CAD/CAM")-generated solid or
surface data, and is the exclusive worldwide distributor (except for Japan)
of all Ciba Specialty Chemicals Inc. and its affiliated companies
(collectively "CSC" or Ciba Specialty Chemicals) and its stereolithography
photopolymers. The Company either directly or through its network of
authorized distributors provides a majority of its customers with a variety
of on-site maintenance services. Through its 3D Systems Tooling Centers, the
Company utilizes SLAs to produce models, prototypes, mold patterns and other
parts using CAD/CAM or other data supplied by its customers on a contract
basis.
Stereolithography is a "solid imaging" or "rapid prototyping" process
whereby a laser beam exposes and solidifies successive layers of
photosensitive resin until the desired object is formed to precise
specifications in hard plastic. SLA-produced parts can be used for concept
models, engineering prototypes, patterns and masters for molds and other
applications. This technology can provide users with significant time
savings, cost reductions and improved quality, compared to traditional
modeling, tooling and pattern-making techniques.
The Company has developed an "office system modeler," the Actua
2100-TM-, about the size of an office copier, which is designed for operation
in engineering and design office environments. The Actua 2100 uses
"Multi-Jet Modeling" ("MJM"), a technology completely different from
stereolithography, to build models in successive layers using a special
thermopolymer material. Designers and other users of CAD-CAM systems are able
to incorporate the Actua 2100 in their workstation networks as a shared
resource and are able to rapidly produce, in their offices, models of
products under development.
Solid imaging is a relatively new field embodying the use of computers
and computer automated equipment to rapidly produce prototypes, models and
even low volume production quantities of objects which traditionally have
been produced by machining and other methods. The Company believes that the
stereolithography technology, which it has developed and patented, represents
the first and to date the most significant development in this field. While
alternative technologies exist and while it has been reported that
significant research and development efforts are currently being undertaken
by corporations and universities around the world in an attempt to develop
additional alternative technologies and techniques, on the basis of total
systems installed, the Company believes that it currently remains the leader
in the solid imaging field.
The Company markets directly and through secondary distribution channels
to customers in the United States and Europe and through distributors in
other countries. The Company sold its first SLA system in 1988 and as of
December 31, 1997, had sold 902 systems to customers in 40 countries. Its
customers include major corporations in a broad range of industries including
manufacturers of automotive, aerospace, computer, electronic, consumer and
medical products. The Company also sells SLA systems to independent service
bureaus which, for a fee, provide stereolithographic services to their
customers.
As of December 31, 1997, the Company held approximately 139 patents
related to stereolithography: 65 U.S.; 46 European; 6 Japanese; and 22 other
foreign patents. The Company continues to develop improvements for its line
of products as well as new products to expand the applications of
stereolithography. In conjunction with CSC, the Company continues to develop
resins with different and improved characteristics to expand
stereolithography applications. CSC is a Swiss-based multinational
manufacturer and distributor of specialty
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chemicals, a 15.1% beneficial shareholder of the Company, and the Company's
partner in photopolymer development.
Unless otherwise indicated, all references to "CSC" include Ciba
Specialty Chemicals Inc. and its affiliates, including Ciba Specialty
Chemicals Holding and its wholly-owned subsidiaries in Canada, through which
CSC holds its interest in the Company, and the United States ("CSC US"),
through which CSC conducts its US operations.
CORPORATE STRUCTURE
The Company is a Delaware corporation, and is the sole shareholder in 3D
Systems (Canada) Inc., a British Columbia corporation ("3D Canada"). 3D
Canada is the sole shareholder of 3D Systems, Inc., a California based
corporation ("3D California"), which directly and through its subsidiaries
conducts substantially all of the Company's business.
Unless otherwise indicated, all references in this document to the
Company include 3D Systems Corporation, 3-D Systems Inc., its British
Columbia predecessor, 3D Systems (Canada) Inc. and 3D Systems, Inc. and its
subsidiaries.
STEREOLITHOGRAPHY
Stereolithography is a solid imaging or rapid prototyping process
whereby a laser beam exposes and solidifies successive layers of
photosensitive resin until a three-dimensional object is formed in hard
plastic to precise specifications contained in CAD/CAM programs. The object
may be used as a prototype, model, mold pattern or, in some applications, as
an end product.
The Company's stereolithography products have been developed to address
a key element in the development of new products -- the fabrication of models
and prototype objects, as well as the fabrication of patterns for limited
production of parts. Over the past decade, significant steps have been taken
to utilize computers in the design and development of new products. As a
result, most manufacturers now rely heavily on standard or specialized
CAD/CAM computer software programs to significantly shorten the product
design cycle.
In designing a product or part, stereolithography permits the user to
realize a reduction in design costs, an improvement in design capabilities,
the reduction in the time from design concept to market, and a marked
improvement in the ability of a user to rapidly convert its design ideas to
physical form.
Following the design of a new product or part, it is generally necessary
to construct or fabricate models, prototypes and/or production patterns.
While some progress has been made in automating this process, the fabrication
of parts or models of complex design has remained primarily a manual task.
Working from drawings produced by the CAD/CAM system, a skilled machinist or
model builder can take days or months to build a full size or scale model.
Because many products go through several prototype stages prior to
production, model building, prototype construction and pattern making may
account for a significant portion of the time required for the design and
development of a new product.
Solid imaging can be used to make models or prototype parts, molds, and
metal investment casting patterns directly from computer output generated by
CAD/CAM programs (the Company's products require that the CAD/CAM computer
output contain solid or surface data as opposed to data generated by simpler
two dimensional or three dimensional "wire frame" CAD/CAM programs used by
designers). Parts that take days, weeks or months to model or prototype with
traditional methods can be made in hours with solid imaging (or for large
parts, up to several days). Because the process runs directly from solid or
surface CAD/CAM data, building the tangible object can be started as soon as
the model design is complete. This capability greatly reduces the time
between design and completion of the object.
Fabrication of a model, prototype or other object using solid imaging
is a multiple step process. Upon completion of the CAD/CAM design, the
output is converted to the stereolithography format developed by 3D and
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transferred to and analyzed by the SLA systems computer (current SLA software
is capable of interfacing with more than 30 types of three-dimensional
CAD/CAM solid or surface data systems) which mathematically divides the
computer-generated model into horizontal slices with a thickness of from
0.05mm to 0.25mm (depending upon the degree of resolution required). Under
the technology utilized on all of the Company's currently installed SLA
systems, an elevator platform is precisely positioned below the liquid resin
surface at a distance equal to the desired thickness of the slice to be
formed. Then, starting with the lowest slice, the SLA system's laser,
directed by the scanning system under computer control, projects an
ultraviolet laser beam on the surface of the liquid resin, tracing the full
pattern of the slice and creating an adhesive solid slice of the object on
the surface of the liquid resin. The slice adheres to the elevator platform
and the elevator is then lowered slightly to submerge the cured layer in
liquid resin and then raised precisely so that a thin layer of resin covers
the cured surface. The next slice of the object is created on the liquid
surface by another exposure to the laser beam. The second slice adheres to
the top of the first slice and the process is then repeated with the third
and successive layers of the object. In this manner, the entire solid object
is built on the elevator, slice by slice.
APPLICATIONS AND ADVANTAGES OF STEREOLITHOGRAPHY
Almost all of the Company's customers use stereolithography in the
design, development and refinement of products as a means to significantly
shorten the design cycle as well as to reduce research, development and
tooling costs. Among the most important current applications and advantages
of stereolithography are the following:
DESIGN VERIFICATION AND OPTIMIZATION. The design cycle of the modern
factory in many cases mandates the use of CAD/CAM programs in the initial
design phase. By using the Company's SLA systems, the designer, in a matter
of hours (or, for large parts, up to several days), can produce a full-scale
model of the designed part. With the model in hand, ambiguities which existed
in two-dimensional renderings and other problems are easier to spot,
modifications and improvements are easier to visualize, and new models
incorporating proposed corrections and refinements can rapidly be produced.
BUILDING A PROTOTYPE TO TEST FOR FORM, FIT AND FUNCTION. Once the
design process has advanced sufficiently, it is generally desirable to
construct a full-scale model which can be tested with other parts of an
assembly or system to make certain that the design is functionally suitable.
SLA systems enable users to rapidly model a close-tolerance part, incorporate
the part in a larger prototype assembly or system, and verify its utility and
functionality.
GENERATION OF PROTOTYPE CASTINGS AND TOOLING. Historically, the
generation of metal prototype parts, which are often needed to test a design
in real-life operating environments, was usually the job of model shops and
often required months of manual labor. Through use of the Company's
Quickcast-TM- system, designers can use SLA systems to build patterns for
investment casting, which results in the ability to rapidly build limited-run
prototypes and parts in a variety of metals, including aluminum, stainless
steel, tool steel, copper alloys, and titanium. Using the Company's
recently acquired Keltool-Registered Trademark- process, stereolithography
master patterns can be used to develop short-run prototype tooling ("bridge
tooling") or production tooling ("hard tooling") for the plastic injection
molding industry.
REFINING THE BID PROCESS. Once a design has been finalized, the customer
may desire to subcontract the manufacture of the new product. Because
engineers work better when they can express their ideas by reference to a
tangible embodiment of the product or part under discussion, many of the
Company's customers report that they are now using SLA-produced prototypes
when seeking bids from subcontractors. This often results in a shorter bid
cycle, as well as, in some cases, reductions in bid prices.
PRODUCTS AND SERVICES
For an analysis of revenues attributable to each of the Company's major
product and service groups, see "Item 7. Management's Discussion and
Analysis of Results of Operations and Financial Condition - Results of
Operations."
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SLA SYSTEMS AND RELATED EQUIPMENT. The Company currently is
manufacturing and marketing five different Stereolithographic Apparatus
models -- the SLA-250 Series 30A, Series 40 and Series 50; the SLA-3500; and
the SLA-5000. All models embody the stereolithography technology. The
models differ in their features including the complexity and accuracy of part
building, the maximum size of objects that can be produced, and price.
Each SLA system consists of an ultraviolet laser, an optical scanning
system that controls the laser beam, a resin vat, an elevator assembly and a
computer that controls the exposure and position of the laser beam and the
elevator, all of which are designed to work together.. SLA systems are
capable of making multiple objects at the same time; however, each SLA system
is limited in the size of the objects that it can make and, therefore, can
make only scale models of large objects or, alternatively, portions of large
objects which are then joined together. For example, the maximum size of a
model or other object that can be created using the SLA-250 is 10 inches x 10
inches x 10 inches, while the maximum size of a model or other object which
can be created using the SLA-5000 is 20 inches x 20 inches x 24 inches.
The Company markets ultraviolet ovens ( "PCAs") used in conjunction with
SLA systems. When the SLA system has finished making an object, some of the
plastic has not been fully cured. Full curing requires an additional one to
five hours of exposure to ultraviolet illumination through the use of the
Company's PCAs. The PCA provides uniform long wave ultraviolet illumination.
The Company is currently offering three PCA models, the PCA-250, PCA-350 and
PCA-500. Approximately 70% of all SLA systems sold by the Company have been
purchased with a PCA.
ACTUA 2100. A network-ready system and about the size of an office
copier, the Actua 2100 is the first system to be offered by the Company
which does not utilize photopolymers or lasers. Instead, the Actua 2100,
which is intended for use in the engineering or design office environment,
uses a "Multi-Jet Modeling" technology to print models in successive layers
with a special thermopolymer material called ThermoJet-TM- and a print head
with 96 jets oriented in a linear array. The print head speeds back and
forth as does a printer, printing layer upon layer of material which
solidifies in seconds to form the physical model. The Actua 2100 offers a
part building capacity of 10 inches x 8 inches x 8 inches.
RESINS. Under an agreement between the Company and CSC, the Company is
the exclusive worldwide distributor (other than Japan) to users of
stereolithographic systems of Ciba photopolymers (photosensitive resins) for
stereolithography (see "Marketing and Customers - Photopolymer Distribution
Agreement," below). Currently, the Company markets a total of eight different
resins, which vary in building speed, accuracy, surface finish and strength.
The Company anticipates that it may, from time to time, depending upon
results obtained under its Photopolymer Research Agreement described under
"Research and Development," below, market additional types of resins with
varying properties.
SOFTWARE. The Company develops and markets part preparation software
for personal computers and engineering workstations. The software is
designed to enhance the interface between CAD/CAM systems and the Company's
products. Solid CAD/CAM data is converted to the STL format in the CAD/CAM
system and then transmitted to a computer utilizing the Company's software,
where the object can be viewed, rotated, scaled and a model building
structure added. The software then produces the SLA process instructions.
QUICKCAST-TM-. The Company's QuickCast process consists of special
part building software and epoxy resin, for making precision investment
casting patterns using stereolithography technology. The investment casting
process for manufacturing metal parts is centuries old. In typical
investment casting, a foundry uses wax patterns of the part to generate
molds, into which liquid metal is poured to form the part. The QuickCast
process uses the Company's SLA systems to produce foundry-useable mold
patterns suitable for limited-run investment casting (each mold pattern can
only be used to produce one mold, which in turn can only be used to produce
one part). While not utilizable for high-capacity manufacturing, the ability
to rapidly produce prototypes and short run production quantities of fully
functional complex metal parts, in a wide variety of metals, is a major
technological improvement in stereolithography. Most of the SLA systems sold
by the Company have included the capability to use the QuickCast process.
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MAINTENANCE. All systems sold by the Company include on-site
hardware and software maintenance service, which are provided at no
additional charge up to the first year following installation; the Company
defers a portion of its revenues for these costs at the time of sale. After
the first year, the Company offers these customers optional hardware and
software maintenance contracts, which are available on a monthly and annual
basis. Although purchasers are not required to enter into maintenance
contracts with the Company, a majority of the Company's U.S. and European
customers are parties to these contracts; many others obtain maintenance
services from the Company on a time and material basis. Customers acquiring
systems from the Company's foreign distributors are offered maintenance
contracts by these distributors. During 1995, 1996 and 1997, revenues from
maintenance contracts and maintenance services were approximately $14.3
million, $21.3 million and $25.0 million, respectively. As of December 31,
1997, the Company had a staff of 63 full-time employees who provide on-site
remedial and preventative maintenance services necessary to keep the
equipment in good operating condition. To date, warranty expenses and
product returns have not been significant.
3D SYSTEMS TOOLING CENTER. During January 1992, the Company opened its
first 3D Systems Technology Center at its Valencia, California headquarters
facility. The Company also has an additional Technology Center at its
office located near Frankfurt, Germany. The 3D Systems Technology Centers
utilize their own SLA systems together with CAD/CAM and other data supplied
by their customers to produce models, prototypes, mold patterns and other
parts for customers on a contract basis. The price for services offered by
the Technology Centers varies on the basis of the nature of the services
requested. The Technology Centers currently focus their efforts on the
development of new applications and techniques in stereolithography and the
development of new markets in which they can demonstrate the advantages of
stereolithography. The Technology Centers also enable the Company to keep
abreast of developments in the applications of stereolithography and serve as
a means to introduce prospective buyers to stereolithography. In September
1996, the Company purchased substantially all of the assets and business
operations of Keltool, Inc. of St. Paul, Minnesota, (renamed "3D Keltool"
upon acquisition) a company which produced steel tooling for plastic
injection molding machines based on a patented process using sintered
powdered steel. 3D Keltool utilizes SL file data or master patterns supplied
by its customers to produce highly accurate steel tool core and cavity
inserts for plastic injection molding machines on a contract basis. The price
for services rendered by 3D Keltool varies depending on the size and
complexity of the desired tools.
RECENT PRODUCT INTRODUCTIONS. In order to improve and expand the
capabilities of its systems and related software and materials, as well as
to enhance its portfolio of proprietary intellectual properties, the Company
historically has devoted a significant portion of its resources to research
and development activities. In 1997, product introductions included the
following:
SLA-5000 is a new system providing high throughput, greater ease of
use, lower cost of ownership, and improved part resolution. Building on the
strengths of both the prior SLA-500 and SLA-350 systems, the new SLA-5000
brings the state of the art forward, providing the high throughput and large
part building envelope of the SLA-500 along with the convenience and
ownership costs more commonly found with smaller systems. It also has new
features which distinguish it from all its predecessors. Two examples are
SmartSweep-TM-technology for improved part building throughput, and the new
tooling build style which enables regular production of parts in very thin
layers. Commercial availability was announced in September 1997.
SLA-3500 is a significant improvement over the SLA-350, offering both
higher throughput and improved part building resolution. Including both
SmartSweep technology and the new tooling build style, the SLA-3500 became
commercially available in September of 1997.
SLA-3500 upgrade for the SLA-350 offers the improved throughput and
resolution of the SLA-3500 to our existing SLA-350 customers. Including
SmartSweep and the tooling buildstyle, our SLA-350 customers can upgrade to
the latest system capabilities. This upgrade became commercially available
in September 1997.
SMARTSWEEP upgrade for the SLA-500 offers a significant throughput
improvement for the SLA-500 customer, packaged for rapid installation at the
customer's facility. This upgrade was commercially available in September
1997.
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MAESTRO 1.9 part preparation software was released with the SLA-5000 and
SLA-3500 in September 1997. This software package includes six integrated
modules (Part Manager-TM-, 3dverify-TM-, View-TM-, Vista-TM-, ZSlice-TM-, and
Converge-TM-). Maestro 1.9 builds upon the previous Maestro release, with
improved support editing, improved overall performance in every module, and
support of the new tooling build style.
QUICKCAST-TM-2.0 was also released in conjunction with Maestro 1.9,
offering a substantial improvement in the usefulness of stereolithography
parts for investment casting. The new "helical" style offers improved
drainage of liquid resin, allowing parts to be autoclaved. This results in
better casting yield, and is more consistent with the existing practices of
many foundries.
BUILDSTATION SOFTWARE VERSION 4.1 was released with the SLA-5000 and
SLA-3500 in September 1997. Improved throughput through advanced laser power
management, better system scheduling ability, and increased part start
reliability are all provided, along with support for the new SLA-3500 and
SLA-5000 hardware. This software is not sold separately, but provided with
new systems and for customers with maintenance contracts on supported
machines.
SLA-250/50HR was announced in September 1997. The system offers
one-third the laser spot size of a standard SLA-250, resulting in excellent
reproduction of fine detail on parts built with this machine. Features as
small as 0.004 inch can be built on this system, as well as ultra-thin layers
with the provided 0.0025 inch build parameter set.
SL 5195 RESIN was announced in September 1997 as the companion material
for the SLA-5000. SL 5195 is a multi-role one-component epoxy resin
formulated specifically for use on the solid-state SLA-5000 system. It may
be used for producing concept models, functional prototypes and patterns for
shell investment casting.
SL 5410 RESIN for the SLA-500 was made commercially available in June
1997. Offering the special property of humidity resistance, this material
also provides excellent part accuracy and significant improvement in system
throughput.
RESEARCH AND DEVELOPMENT
The ability of the Company to compete successfully depends, among other
things, on its ability to design and develop new products and to refine
existing products. For the foreseeable future, the Company anticipates that
its research and development efforts will be focused on developing new
methods of solid imaging technology, improving and refining its existing
Multi-Jet Modeling and SLA systems and developing software to facilitate the
interface between SLA systems and CAD/CAM programs. Research and development
expenses increased in 1997 to $11.0 million, up from $7.7 million in 1996.
The increase in research and development expenses in 1997 was primarily a
result of the write-off during the third quarter of 1997 of acquired
in-process technology valued at approximately $2.1 million in connection with
the EOS acquisition (see Note 7 of Notes to Consolidated Financial
Statements) as well as salaries and wages attributable to the additional
employees and consultants retained by the Company in connection with
expanding certain research and 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 ten percent
of sales. This is a forward-looking statement, however, and if total sales
of the Company for any particular year do not meet the anticipated sales of
the Company for that year, research and development expenses as a percentage
of sales may exceed ten percent. As of December 31, 1997, 60 employees or
contractors of the Company were devoting substantially all of their time to
research and development activities, compared to 49 employees at December 31,
1996.
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The Company believes that further refinements in stereolithography will
depend upon improvements not only in the SLA products, but also in the
chemical makeup of the resins used in the fabrication process. To this end,
the Company has dedicated a significant amount of time to the development of
new resins. To pursue this goal, the Company and CSC are parties to a
Research and Development Agreement (as revised, the "Photopolymer Research
Agreement") providing for the development of photopolymers,
photopolymerizable monomers, photoinitiators and other resins for use with
the SLA systems. Subject to certain conditions, the Photopolymer Research
Agreement will remain in effect until either party gives the other six months
advance notice of its determination to terminate the agreement. There can be
no assurance that this agreement will remain in place. The termination of
this agreement could have a material adverse effect on the Company's revenues
results of operations, liquidity, and financial position. Pursuant to the
Photopolymer Research Agreement, the two companies work jointly, with each
company funding its own portion of the research. Ownership of any inventions
or know-how, whether patented or not, will accrue to CSC if they are chemical
in nature and to the Company if they relate to the stereolithographic process.
The foregoing discussion relating to the Company's research and
development activities includes statements that involve risks and
uncertainties. For a discussion of the factors associated with such forward
looking statements which could cause actual results to differ materially from
those projected in the statements, see "Cautionary Statements and Risk
Factors--Rapid Technological Change and New Products" and "New Product
Development."
MARKETING AND CUSTOMERS
The Company's sales and marketing strategy focuses on an internal sales
roganization, which is responsible for overseeing worldwide sales and
value-added resellers, as well as the utilization of knowledgeable
international distributors. The Company employs a direct sales force
consisting of sales persons and application specialists that provide
technical sales support. At December 31, 1997, the Company's worldwide
sales and support staff consisted of 80 employees that were primarily located
in the U.S. and Europe. The Company has offices in the U.S. in California,
Michigan, Pennsylvania, Texas and its European offices are located near
Frankfurt, London, Paris and Milan.
In recent years, the Company's domestic sales strategy has
focused on an internal sales organization as well as the utilization of sales
agents (primarily, independent sales representatives in the machine tools
industry). These sales agents, however, were not producing the level of sales
expected by the Company. 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. During the second
half of 1997 the Company completed the initial staffing of its sales and
support organization.
INTERNATIONAL DISTRIBUTORS. As of December 31, 1997, the Company had
entered into agreements with eight distributors in the Pacific Rim, five in
greater Europe and two in Latin America. International distributors are
responsible for marketing, sales, system installation, service and support to
their customers.
International sales accounted for 35.2%, 33.8% and 41.5% of total
sales in the years ended December 31, 1995, 1996 and 1997, respectively. See
Note 16 of Notes to Consolidated Financial Statements. For a discussion of
risks associated with international operations, see "Cautionary Statements
and Risk Factors -- Factors Affecting International Business."
ACTUA 2100 VALUE-ADDED RESELLERS ("VARS"). The Company has
selected VARs as the primary distribution channel for its Actua 2100 concept
modeler in the U.S. VARs are required to have sufficient technical expertise
as well as a sufficient number of employees devoted to the sale and support
of the Actua 2100. VARs are responsible for software installation, hot-line
support and are prohibited from distributing competing products. As of
December 31, 1997, the Company's VAR network had a combined total of over 70
U.S. locations and four locations in Canada. During 1998, the Company
anticipates expanding both its domestic and international VAR network. VAR's
are also compensated for referrals which result in sales of SLA's.
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CUSTOMERS. The Company's customers include major companies in a broad
range of industries including manufacturers of automotive, aerospace,
computer, electronic, consumer and medical products. Purchasers of the
Company's systems include, among others, Allied Signal Inc., AMP, Inc.,
Apple Computer, Inc., Boeing Company, Canstar Sports, Inc., Chrysler Corp.,
Daimler-Benz AG, Eastman Kodak Company, General Electric Company, General
Motors Corporation, GM Hughes Electronics Corporation, International Business
Machines Corporation, Johnson & Johnson, Motorola, Inc., Pratt & Whitney and
Texas Instruments Inc. The Company also sells its products to independent
service bureaus, which for a fee provide stereolithographic services to their
customers.
LEASING AND RENTAL PROGRAMS. As part of its marketing
activities, 3D Capital Corporation ("3D Capital"), a wholly-owned subsidiary
of the Company, was formed in August of 1996 to provide lease financing for
qualified U.S. customers purchasing SLA systems. The leases are accounted for
as sales-type leases where the present value of the minimum payments, net of
costs, are recorded as sales. During 1997, the Company sold and assigned a
portion of their lease receivables and expects to continue to periodically
sell or assign a portion of the lease receivables as a future source of
financing.
In addition to sales-type leases, the Company occasionally
offers selected credit-worthy companies the right to rent an SLA system for
evaluation purposes. Substantially all of the customers who have participated
in the rental program have subsequently purchased an SLA system.
PHOTOPOLYMER DISTRIBUTION AGREEMENT. Pursuant to an agreement with CSC
US, and subject to conditions set forth in the agreement, the Company is the
exclusive worldwide distributor to users of stereolithographic processes of
all Ciba Specialty Chemicals stereolithography photopolymers. At the
Company's request, an affiliate of CSC US currently sells such photopolymers
in Japan to the Company's Japanese distributor. Subject to certain
conditions, so long as CSC US provides adequate supplies, the Company is
required to fill all of its requirements for its photopolymers through
purchases from CSC US. Subject to certain conditions, the agreement will
remain in effect until either party gives the other six months advance
notice of termination. There can be no assurance that this agreement will
remain in place. Though the Company believes it can obtain alternate
agreements from other manufacturers, the termination of this agreement or
interruption of supply could have a material adverse effect on the Company's
revenues, results of operations, liquidity and financial position. (See
"Cautionary Statements and Risk Factors - Dependence on Suppliers).
CUSTOMER SUPPORT AND SERVICE. Before installation of an SLA system, a
new purchaser typically receives training at the Company's facilities.
During the first several days after installation, an applications engineer
remains at the customer location to ensure that the customer is able to
operate the SLA system effectively and to answer any questions that may
arise. The Company also makes available to its customers, for a fee,
additional training courses in SLA system features and applications.
The Company and its distributors offer maintenance contracts to their
customers. See "Products and Services," above. The Company also makes
available in the U.S. a hotline to all of its users with maintenance
contracts. The hotline is staffed with technical representatives who answer
questions and arrange for on-site remedial services if necessary. The
hotline is available Monday through Friday, 8:00 a.m. Eastern time to 5:00
p.m. Pacific time.
The Company co-founded and currently participates in both domestic and
international User Groups which currently include a substantial number of
the Company's customers. The User Groups organize an annual conference in
both the United States and Europe, at which the Company makes presentations
relating to updates in stereolithography, changes the Company has implemented
in its systems and related equipment, resins and software and future ideas
and programs the Company intends to pursue in the upcoming years.
BACKLOG. At December 31, 1997, the Company had orders (with scheduled
delivery dates) for 15 systems aggregating approximately $3.5 million, as
compared to approximately $9.0 million at December 31, 1996 and $10.9 million
at December 31, 1995. It is anticipated that all orders included in the
current backlog will be shipped by March 31, 1998. As a matter of policy, the
Company affords its customers the right to cancel any system order at any
time prior to their scheduled delivery dates. Historically, the number of
system orders
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canceled has not been significant. Nonetheless, no assurance can be given
that all orders in backlog will be shipped. Backlog may not be indicative of
future expected sales.
PRODUCTION AND SUPPLIES
The Company assembles all of its systems at its 67,000 square foot
facility in Grand Junction, Colorado.
The Company purchases the major component parts for its systems from
outside sources and arranges with contract manufacturers for the manufacture
of subassemblies. The Company integrates the subassemblies and effects final
assembly of all systems at its production facility. The Company performs
numerous diagnostic tests and quality control procedures on each system to
assure its operability and reliability.
Although there is more than one potential supplier of material
components parts and subassemblies, several of the critical components,
materials, and subassemblies, including lasers, resins, and certain ink jet
components, are currently provided by a single or limited sources. Resin
distributed by the Company are supplied exclusively by CSC under a long term
agreement subject to certain conditions, and either party has the right to
terminate this agreement subject to six months notice. Pursuant to a
License, Development, and Original Equipment Manufacturing Agreement with
Spectra, Inc., ink jet products used in the assembly of the Actua 2100 are
supplied exclusively by Spectra. The reliance on sole or limited source
vendors by the Company involves risks, including the possibility of shortages
of certain key components, product performance shortfalls, and reduced
control over delivery schedules, manufacturing capability, quality and costs.
Business disruptions, financial difficulties, or any significant change in
condition of relationship of a sole or limited source supplier of any
particular component could have a material and adverse effect on the
Company's revenues, results of operations, liquidity and financial condition
by increasing the cost of goods sold or reducing the availability of such
components. While the Company believes that it could obtain substantially all
necessary components from other manufacturers, an unanticipated change in the
source of supply of these components or unanticipated supply limitations
could adversely affect the Company's ability to meet its product orders.
COMPETITION AND PATENT RIGHTS
Until recently, the Company believes no products technologically similar
to the Company's SLA systems were being sold in the United States; however,
products similar to the Company's SLA systems have been manufactured and sold
by other companies in the Pacific Rim and in Europe. In addition, there are
other companies researching, designing, developing and marketing other types
of solid imaging equipment in the United States and in foreign markets, and
additional companies have announced plans to enter the solid imaging
business, either with equipment similar to that marketed by the Company, or
with other types of equipment. See "Cautionary Statements and Risk Factors
- -- Competition."
Although it is estimated that there are 22 companies currently
manufacturing rapid prototyping equipment, the following is a brief
description of competing products or technologies of the companies that the
Company believes are its current primary competitors. DTM, Inc., in
conjunction with B.F. Goodrich, markets systems based on a technology called
Selective Laser Sintering, which uses a powdered material which is sintered
(solidified by heating) by a laser. Helisys, Inc. markets systems based on a
technology called Laminated Object Manufacturing, which builds parts from
sheets of paper or other material that are laminated together with
cross-sectional patterns being laser cut into each sheet of paper.
Stratasys, Inc. ("Stratasys") markets a fused deposition modeling process
that builds objects by dispensing individual layers of thermoplastic material
through a temperature controlled head.
With respect to the office modeler concept and the Actua 2100, the
Company believes that the following companies are its current primary
competitors. Stratasys markets a desktop-sized version of its modeler.
Sanders Prototyping, Inc. markets a desktop modeler that utilizes double
nozzle ink jet process to build a part.
Products similar to the Company's stereolithography products are being
marketed in Japan by CMET and D-MEC. E.I. du Pont de Nemours and Company
("Du Pont") has licensed certain stereolithography technology to Teijin Seiki
of Japan and Aaroflex of Virginia, USA. The Company believes that other
Japanese companies are
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also developing and marketing products similar to those of the Company.
However, the Company does not have reliable data with respect to these
efforts. During 1996, Aaroflex, Inc. ("Aaroflex"), headquartered in
Virginia, publicly announced the availability and claimed that it has sold in
the U.S., although not delivered, equipment which offers the same functions
as the Company's SLA systems. (See "Item 3 Legal Proceedings").
The Company believes that currently available alternatives to
stereolithography generally are not able to produce models having the
dimensional accuracy or fine surface finish of models provided by the
Company's stereolithography process. However, competitors have successfully
marketed their products to the Company's existing and potential customers.
Furthermore, in many cases, the existence of these competitors extends the
purchasing time while customers investigate alternative systems. The Company
competes primarily on the basis of the quality of its products and the
advanced state of its technology. Although the Company does not rely totally
on its patents to compete, the Company believes that the patents will help
the Company maintain its leading position in the solid imaging field in the
United States and Europe. See "Proprietary Protection," below and "Cautionary
Statements and Risk Factors -- Patents and Proprietary Information."
A number of companies, including Du Pont, are currently selling
stereolithography resins, which either complement or compete with those
distributed by the Company. Within the limits of its obligations under the
Photopolymer Research Agreement (see "Research and Development," above), the
Company encourages chemical companies to develop stereolithography resins
that are compatible with its SLA equipment, but it also works closely with
CSC US to remain competitive in the resin market. The Company believes that
it currently supplies resins to owners of a majority of the SLA systems
currently installed worldwide.
The Company does not believe that it currently has any significant
competition for its maintenance services, although some of the Company's
customers perform their own maintenance in-house. The Company offers
software and hardware maintenance contracts to its customers (see "Products
and Services," above). Maintenance for SLA systems sold internationally is
offered by the Company's distributors (see "Marketing and Customers," above).
The Company's Tooling Centers compete with other service bureaus
providing similar technologies and services. It is the Company's intention
to compete on the basis of service quality and responsiveness. The Company
believes that the demand for rapid prototyping service bureaus is sufficient
to support these competitors without having a material adverse impact on the
demand for the services offered by the Company's Tooling Centers.
Future competition is expected to arise both from the development of new
technologies or techniques not encompassed by the patents held by or
licensed to the Company and through improvements to existing technologies,
such as automated machining. The Company has determined to follow a strategy
of continuing product development and aggressive patent prosecution to
protect itself to the extent possible in these areas.
PROPRIETARY PROTECTION
The stereolithography technology used by the Company in its products was
developed by Charles W. Hull, the Company's Vice Chairman and Chief
Technology Officer while employed by UVP, Inc. This technology was
originally patented by UVP, Inc., subsequently licensed to the Company in
1986 and acquired by the Company in 1990.
At December 31, 1997, the Company had received approximately 139 patents
which includes 65 in the U.S., 46 in Europe, 6 in Japan, 22 other foreign
patents. In addition, 5 utility models had been issued in Germany. At that
date, the Company had 30 pending patents and patent applications with the
United States, 47 in the Pacific Rim, 16 in Europe, 9 in Canada and 2 in
Latin America. As new developments and components to the technology are
discovered, the Company intends to apply for additional patents. In addition
to the above noted six Japanese patents, one other application has been
examined by the Japanese Patent Office and subsequently published for
opposition. One opposition was submitted against this application. The
Company has responded to the opposition. Based on this opposition and 3D's
response, the Japanese Patent Office may require the Company to further
defend or modify this application before granting any patent thereon or may
even finally reject the
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application. Furthermore, one of the six patents has had three invalidation
trials filed against it. These invalidation trials are ongoing. The Company
has responded to two of these trials and it is anticipated that the Company
will respond to the third trial in the coming months. These trials may
result in maintaining the patent with present or modified protection or may
result in revocation of the patent.
During 1993, the Company, through its subsidiaries, filed a patent
infringement lawsuit in Germany against EOS. The lawsuit sought
compensation from EOS for utilizing certain technology which the Company
alleged was incorporated in its European patent and sought other damages and
remedies, which included, among others, barring EOS from marketing equipment
using technology incorporated in the Company's patent and one of the utility
models During 1994, a German subsidiary of the Company filed an
infringement lawsuit against a customer of EOS based on the utility models of
the Company. The lawsuit sought compensation from EOS' customer for damages
and attorney fees as well as an injunction barring the customer from using
the EOS equipment. In August, 1997, these lawsuits were settled as part of
an agreement under which 3D also acquired the stereolithography-related
assets of EOS (see Note 7 of Notes to Consolidated Financial Statements),
with each of the parties bearing their own expenses. The lawsuit against EOS
was officially withdrawn on October 6, 1997. The lawsuit against the EOS
customer was officially dismissed on October 1, 1997. Neither lawsuit may
be reinstituted. (See "Item 3. Legal Proceedings").
During January 1997, 3D filed a patent infringement lawsuit
against Aaroflex. The lawsuit seeks compensation from Aaroflex for utilizing
certain stereolithography technology which the Company alleges is
incorporated in six of its U.S. patents and seeks other damages and attorneys
fees as well as an injunction barring Aaroflex from marketing its products
using technology incorporated in the Company's patents (see "Item 3. Legal
Proceedings").
During March 1997, 3D also filed a patent infringement lawsuit in Japan
against Teijin Seiki Co. Ltd. under one of its Japanese patents, seeking
damages and an injunction barring Teijin Seiki from manufacturing and
marketing its infringing products. (See "Item 3 Legal Proceedings").
Application for a patent offers no assurance that a patent will be
issued as applied for. Issuance of a patent offers no assurance that the
patent can be protected against any claims of invalidation or that the patent
can be enforced against any infringement. In addition, litigation of patent
issues can be costly and time-consuming. See "Cautionary Statements and Risk
Factors -- Patents and Proprietary Protection."
EMPLOYEES
At December 31, 1997, the Company had 440 full-time employees. In
addition, at that same date the Company had 36 independent contractors. None
of these employees or independent contractors are covered by labor
agreements. The Company considers its relations with its employees and its
independent contractors to be satisfactory.
CAUTIONARY STATEMENTS AND RISK FACTORS
Several of the matters discussed in this document contain forward
looking statements that involve risks and uncertainties. Factors associated
with the forward looking statements which could cause actual results to
differ materially from those projected in the statements appear below. In
addition to the other information contained in this document, readers should
carefully consider the following cautionary statements and risk factors.
FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced quarterly fluctuations in revenues and
profitability. There can be no assurance that the Company will achieve or
sustain profitability on a quarterly or annual basis in the future. The
Company's future results are affected by a number of factors including the
acceptance and reliability of new products in the market, the status of world
economic conditions, fluctuations in foreign currency exchange rates,
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impact of changing technologies, and the timing of product shipments. The
Company's results can fluctuate significantly due to the acceleration or
delay of only a few system shipments.
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's products has emerged only recently, and as
such is characterized by rapid technological advances, changes in customer
requirements, and frequent new product introductions and enhancements.
Accordingly, the Company's future success will depend upon its ability to
enhance its current products and develop and successfully introduce new
products that anticipate and respond to the changes in technology and
customer requirements. Any failure by the Company to anticipate or respond
adequately to technological developments or customer requirements, or any
significant delays in product development, enhancement or introduction,
could have an adverse effect on the Company's competitive position and on
its revenues, results of operations, liquidity and financial position. In
addition, advances in technologies and the introduction of new products can
render the Company's products, components, and materials obsolete, and can
have an adverse effect on the Company's results of operations, liquidity, and
financial position. There can be no assurance that the Company will be
successful in developing and marketing new products or enhancing existing
products, on a timely basis; failure to do so could have a material adverse
effect on the Company's business and operations.
Certain components used in the Company's products require an order of 3
months or longer. Other components that currently are readily available may
become more difficult to obtain in the future, and there can be no assurance
that the Company will not experience delays in the receipt of certain key
components. To meet forecasted production levels, the Company may be
required to commit to certain long lead time items prior to order receipt. If
forecasted orders exceed actual orders, the Company may hold large
inventories of slow moving or unusable parts, which could have an adverse
affect on the Company's cash flow and results of operations.
DEPENDENCE ON SUPPLIERS
Although there is more than one potential supplier of material
components parts and subassemblies, several of the critical components,
materials, and subassemblies, including lasers, resins, and certain ink jet
components, are currently provided by a single or limited sources. Resins
distributed by the Company are supplied exclusively by CSC under a long term
agreement subject to certain conditions, and either party has the right to
terminate this agreement subject to six months notice. Pursuant to a
License, Development, and Original Equipment Manufacturing Agreement with
Spectra, Inc., ink jet products used in the assembly of the Actua 2100 are
supplied exclusively by Spectra. The reliance on sole or limited source
vendors by the Company involves risks, including the possibility of shortages
of certain key components, product performance shortfalls, and reduced
control over delivery schedules, manufacturing capability, quality and costs.
Business disruptions, financial difficulties, or any significant change in
condition of relationship of a sole or limited source supplier of any
particular component could have a material and adverse effect on the
Company's revenues, results of operations, liquidity and financial condition
by increasing the cost of goods sold or reducing the availability of such
components. While the Company believes that it could obtain substantially all
necessary components from other manufacturers, an unanticipated change in the
source of supply of these components or unanticipated supply limitations
could adversely affect the Company's ability to meet its product orders.
PATENTS AND PROPRIETARY INFORMATION
The Company relies on a combination of patents, copyrights, trade
secrets, trademarks, and proprietary know how to maintain and enhance its
competitive position. At December 31, 1997, the Company had received
approximately 139 patents which includes 65 in the U.S., 46 in Europe, 6 in
Japan, 22 other foreign patents. In addition, 5 utility models had been
issued in Germany. At that date, the Company had 30 pending patents and
patent applications with the United States, 47 in the Pacific Rim, 16 in
Europe, 9 in Canada and 2 in Latin America. As new developments and
components to the technology are discovered, the Company intends to apply for
additional patents. There can be no assurance that the pending patent
applications will be granted, that the Company's patents or copyrights will
provide adequate protection, that the Company's competitors will not
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independently develop or initiate technologies that are substantially
equivalent or superior to the Company's, or that the Company will be able to
maintain a meaningful technological advantage. Insofar as the Company
relies on trade secrets and proprietary know how to maintain its competitive
position, there can be no assurance that others may not independently develop
similar or superior technologies or gain access to the Company's trade
secrets or know how.
To maintain its competitive position, the Company intends to pursue
enforcement and defense of its patents. The Company could incur substantial
costs in seeking enforcement of its patent rights against infringement or the
unauthorized use of its proprietary technology by others or in defending
itself against similar claims. These costs could have an adverse effect on
the Company's results of operations, liquidity and financial condition, and
could cause significant fluctuations in results from quarter to quarter. The
Company is currently pursuing a patent infringement action in the Central
District of California against Aarotech Laboratories Inc., and Albert C.
Young and against Teijin Seiki Co. Ltd. (See "Item 3. Legal Proceedings.")
FACTORS AFFECTING INTERNATIONAL BUSINESS
Revenues from international customers accounted for approximately 41.5%
of total revenues in 1997, 33.8% of total revenues in 1996 and 35.2% of total
revenues in 1995. The Company's international business is subject to special
risks including unexpected changes in regulatory requirements, export
controls, fluctuations in currency exchange rates, tariffs or other barriers,
political risks, difficulties in staffing and managing foreign operations,
uncertainty on patent enhancement and potentially negative tax consequences.
These factors could have an adverse impact on the Company's operating
results. The Company is subject to U.S. export control laws and regulations
with respect to all of the Company's products and technologies exported from
the United States. Any imposition of more stringent export control
requirements on product classes that include products exported by the
Company could result in additional compliance burdens on the Company which
could have an adverse effect on its operations In addition, the laws of
certain foreign countries, including developing nations in Asia, South
America, Africa and Eastern Europe, may not protect the Company's
intellectual property rights or ensure the enforceability of its contract
rights to the same extent as do the laws of the United States.
PRODUCT MIX AND MARGINS
The Company continuously expands its product offerings, reaches into
an increasing number of geographic markets, and develops additional
distribution channels as needed to reach the various markets and customers.
This variety of products, channels, and markets results in a significantly
increasing range of gross margins and operating incomes which can cause
substantial quarterly fluctuations depending on the mix of shipments quarter
to quarter. There can be no assurance that the Company will not experience
significant quarterly fluctuations in gross margins or net income due to the
impact of product mix, or that a changing mix over time will not result in
lower average gross margins and returns.
COMPETITION
The rapid prototyping industry is highly competitive and subject to
technological change, innovation, and new product introductions. Certain of
the Company's existing and potential competitors are researching, designing,
developing, and marketing other types of rapid prototyping equipment. Certain
of these competitors have financial, marketing, manufacturing, distribution
and other resources substantially greater than those of the Company. There
can be no assurance that the Company's competitors will not devote a
significantly greater amount of their financial, marketing and other
resources to aggressively market competitive products and technologies, and
that such efforts will not have a material adverse effect on the Company's
results of operations, liquidity or financial position in the future. In many
cases, the existence of these competitors extends the purchase decision time
as customers investigate the alternative products and solutions. Also, these
competitors have been able to market these products successfully to the
Company's existing and potential customers. In addition, a number of
companies currently sell stereolithography resins, which both complement and
compete with those distributed by the Company.
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Future competition is expected to arise from the development of allied
or related techniques not encompassed by the patents held by or licensed to
the Company, the issuance of patents to other companies which may inhibit the
Company's ability to develop certain products encompassed by such patents and
improvement to existing technologies. Increased competition has and may
continue to result in price reductions, reduced margins and loss of market
share, all of which could materially adversely affect the Company. The
Company has determined to follow a strategy of continuing product development
and aggressive patent prosecution to protect its competitive position to the
extent practicable. There can be no assurance that the Company will be able
to maintain its leading position in the field of rapid prototyping or
continue to compete successfully against current and future sources of
competition or that the competitive pressures faced by the Company will not
adversely affect its profitability or financial performance. See "Business
- -- Competition."
NEW PRODUCT DEVELOPMENT
During the last 15 months, the Company has developed and introduced a
significant number of new products to the market, including equipment,
software, and materials. While these products undergo thorough quality
assurance testing, problems may arise in connection with the use of a new
product following its introduction into the marketplace and no assurance can
be given that the Company will be able to remedy these problems timely, or at
all. Moreover, there can be no assurance that any new products developed by
the Company will be accepted in the marketplace. Any material deficiencies
in the performance of the Company's products, or if the products are not
accepted by the marketplace for any reason, could have a material adverse
effect on the Company's results of operations and financial condition.
EFFECT OF ANTI-TAKEOVER PROVISIONS
The Board of Directors of the Company has the authority to issue up to
5,000,000 shares of preferred stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action
by the Company's stockholders. The rights of the holders of the Company's
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of preferred stock. While the Company has no present
intention to issue shares of preferred stock, such issuance, while providing
desirable flexibility in connection with the possible acquisitions and other
corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of the Company and entrenching existing
management. In addition, such preferred stock may have other rights,
including economic rights senior to the Company's Common Stock, and, as a
result, the issuance thereof could have a material adverse effect on the
market value of the Company's Common Stock.
A number of provisions of the Company's Certificate of Incorporation and
By-Laws and the Delaware General Corporation Law and regulations relating to
matters of corporate governance, certain rights of Directors and the issuance
of preferred stock without stockholder approval, may be deemed to have and
may have the effect of making more difficult, and thereby discouraging, a
merger, tender offer, proxy contest or assumption of control and change of
incumbent management, even when stockholders other than the Company's
principal stockholders consider such a transaction to be their best interest.
In addition, the Company has adopted a Stockholder Rights Plan (the
"Rights Agreement"). (See Note 12(d) of Notes to Consolidated Financial
Statements). Pursuant to the Rights Agreement each outstanding share of the
Company's Common Stock has received one right entitling the holder to
purchase 1/100th of a share of Series A Preferred Stock of the Company for
each share of Common Stock then held by such holder. Each right becomes
exercisable upon certain triggering events related to an unsolicited takeover
attempt of the Company.
VOLATILITY OF STOCK PRICE
Historically, the Company's stock price has been volatile. The prices
of its Common Stock have ranged from $5 3/4 to $10 3/4 during the 52-week
period ended February 27, 1998. See "Item 5. Market for Registrants' Common
Stock and Related Stockholders Matters." Future announcements concerning the
Company or its competitors, including the receipt of substantial orders for
products, quality deficiencies in
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services or products, results of technological innovations, new commercial
products, changes in recommendations of securities analysts, proprietary
rights or product or patent litigation, may have a significant impact on the
market price of the Company's Common Stock. Any shortfalls in revenues or
earnings from the levels expected by securities analysts could have an
immediate and significant adverse effect on the trading price of the
Company's Common Stock in any given period. Consequently, the Company's
future earnings and stock price may be subject to significant volatility,
particularly on a quarterly basis.
ITEM 2. PROPERTIES
The Company's principal administrative, sales and marketing, product
development, Technology Center and training facilities are located in a
78,320 square foot building in Valencia, California under a lease which
expires on December 31, 2002. The Company also leases sales and service
offices in four other states (California, Michigan, Pennsylvania and Texas)
and in four countries in the European Community (France, Germany, the United
Kingdom and Italy).
The Company's manufacturing and customer support operations are located
in a 67,000 square foot facility located in Grand Junction, Colorado (the
"Colorado Facility"). The Company constructed the Colorado Facility pursuant
to an agreement with the Mesa County Economic Development Council, Inc.
executed in October 1995. Following the completion of the Colorado Facility
in June 1996, the Company relocated its manufacturing and customer support
operations from its Valencia facility to the Colorado Facility during the
third quarter of 1996. During the fourth quarter of 1996, all of the
Company's manufacturing activities were performed at the Colorado Facility.
During August 1996, the Company completed a $4.9 million variable rate
industrial development bond financing of the Colorado Facility.
In connection with the asset acquisition of Keltool, Inc. in September
1996, the Company assumed Keltool's obligations under an existing lease for
approximately 6,000 square feet located in St. Paul, Minnesota and continues
in effect until either party gives the other 60 days advance notice. As a
result of the anticipated growth of its operations relating to the Keltool
business, the Company executed a lease for approximately 21,000 square feet
in Valencia, California which expires on June 30, 2000. The Company's
occupancy of this facility commenced in February 1997.
For information concerning obligations of the Company under its leases,
see Note 17(a) of Notes to Consolidated Financial Statements. For
information concerning the Company's Colorado Facility, see Notes 11 and 18
of Notes to Consolidated Financial Statements.
The Company believes that the facilities described above will be
adequate to meet its needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
On May 24, 1993, 3D Systems, Inc. and its wholly-owned German
subsidiary, 3D Systems GmbH (both referred to as "3D") filed a patent
infringement lawsuit against EOS, a European competitor, seeking compensation
from EOS for infringing patents owned by 3D. On November 2, 1994, 3D GmbH
filed a patent infringement lawsuit against Leopold Kostal GmbH & Co., a
German customer of EOS, seeking compensation from Kostal for infringing
patents owned by 3D, as well as an injunction barring Kostal from using the
EOS equipment. In August, 1997, these lawsuits were settled as part of an
agreement under which 3D also acquired the stereolithography-related assets
of EOS (see Note 7 of Notes to Consolidated Financial Statements), with each
of the parties bearing their own expenses. The lawsuit against EOS was
officially withdrawn on October 6, 1997. The lawsuit against Kostal was
officially withdrawn on October 1, 1997. Neither lawsuit may be reinstituted.
3D SYSTEMS, INC. V. AAROFLEX ET AL. On January 13, 1997, The Company
filed a complaint ("Complaint") in the United States District Court, Central
District of California, against Aarotech Laboratories, Inc. ("Aarotech"),
Aaroflex, Inc. ("Aaroflex") and Albert C. Young ("Young"). Aaroflex is the
parent corporation of Aarotech. Young
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is the Chairman of the Board and Chief Executive Officer of both
Aarotech and Aaroflex. The Complaint alleges that stereolithography
equipment manufactured by Aaroflex infringes on six of the Company's patents.
The Company seeks damages and injunctive relief from the defendants. The
defendants have threatened to sue the Company for trade libel. To date, the
defendants have not filed such a suit.
The defendants filed a motion to dismiss the complaint or transfer the
case to their home district in Virginia. The Court granted this motion to
dismiss on the grounds of lack of personal jurisdiction. The Company has
filed an appeal of this ruling to the Federal Court of Appeals, where an oral
hearing was held on March 2, 1998 and is awaiting judicial ruling. In
October 1997, defendants asserted that since they prevailed on their motion
to dismiss, they were entitled to Rule 11 sanctions in the amount of
$137,138.83 to be paid by Loeb & Loeb LLP and/or 3D. Defendants served
discovery requests directed to these Rule 11 sanctions issues. Subsequently,
the trial court ruled that the question of whether defendants may conduct
Rule 11 discovery must await the outcome of the pending appeal. A Rule 11
sanctions motion has not yet been served or filed.
3D SYSTEMS, INC. V. TEIJIN SEIKI CO. LTD On March 21, 1997, the Company
filed a patent infringement action in District Court in Osaka, Japan under
one of its Japanese patents, alleging infringement, and seeking damages and
injunctive relief from the defendant. The action is in the early stages of
prosecution.
CENTURI CORP., DBA ESTES INDUS., COX ACQUISITION CORP., DBA COX V. 3D
SYSTEMS CORP., ROGERS TOOL & DIE. In January 1997, 3D Systems, Inc. entered
into two contracts with Centuri Corp., dba Estes Indus., Cox Acquisition
Corp., dba Cox ("Cox") under which 3D was to create certain tooling for Cox.
Cox purported to terminate the contracts in or about August 1997.
On September 16, 1997, Cox initiated a lawsuit against 3D in Los Angeles
Superior Court for Breach of Oral Contract, Fraud, Negligent
Misrepresentation, Conversion, Money Had and Received, and Accounting. The
suit also named Rogers Tool & Die, a contractor hired by Cox to work with 3D
in creating the tooling. Cox contended that it was damaged by 3D's and
Rogers' alleged inability to timely complete the contracts. On October 31,
1997, 3D demurred to Cox's Verified Complaint. Rogers joined in 3D's
demurrer. 3D's demurrer contended that written, not oral, contracts governed
the relationship of the parties, that the Complaint did not adequately plead
the required elements of fraud, that the Complaint failed to state a claim
for Negligent Misrepresentation, Conversion, and Money Had and Received, and
that Accounting was not actually a cognizable cause of action, but an
equitable remedy.
After a hearing on December 2, 1997, the Court sustained 3D's demurrer,
ordering Cox to file an amended complaint. On January 29, 1998, Cox filed a
Verified Amended Complaint, asserting causes of action for Breach of Written
Contract, Fraud, and Negligent Misrepresentation. The Verified Amended
Complaint also stated identical claims against Rogers. 3D's current response
date is March 16, 1998.
The Company believes that the case has no merit and intends to
vigorously defend this action.
PATENT OPPOSITION AND INVALIDATION PROCEEDINGS. The Company has
received 6 patents in Japan and one other application has been examined by
the Japanese Patent Office and subsequently published for opposition. One
opposition was submitted against this application. The Company has responded
to the opposition. Based on this opposition and 3D's response, the Japanese
Patent Office may require the Company to further defend or modify this
application before granting any patent thereon or may even finally reject the
application. Furthermore, one of the six patents has had three invalidation
trials filed against it. These invalidation trials are ongoing. The Company
has responded to two of these trials and it is anticipated that the Company
will respond to the third trial in the coming months. These trials may
result in maintaining the patent with present or modified protection or may
result in revocation of the patent.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Page 18
<PAGE>
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the executive
officers of the Company:
<TABLE>
<CAPTION>
AGE AT POSITION
NAME FEBRUARY 27, 1998 WITH THE COMPANY
<S> <C> <C>
Arthur B. Sims 60 Chief Executive Officer and Chairman of
the Board of Directors
Charles W. Hull 58 Chief Technical Officer and Vice
Chairman of the Board of Directors
Richard D. Balanson 48 Chief Operating Officer, President and
Director
Frank J. Spina 43 Vice President, Finance and Chief
Financial Officer
A. Sidney Alpert 59 Vice President,
General Counsel and Secretary
Mark R. Bell 44 Vice President, Sales
The Americas
Marty E. McGough 48 Vice President & World Wide Operations
Manager
</TABLE>
The principal occupations of the executive officers of the Company are as
follows:
ARTHUR B. SIMS: Mr. Sims has served as Chief Executive Officer of the
Company since August 1993 and, since September 1991, has also served as Chief
Executive Officer of 3D Systems, Inc. From September 1990 to September 1991,
Mr. Sims was an independent management consultant. From 1989 until September
1990, Mr. Sims was President of Quadratron Systems Incorporated, a developer and
marketer of office automation software. From 1988 to 1989, Mr. Sims served as
President and Chief Executive Officer of CPT Corporation. Prior to that, he
served four years as Corporate Vice President and President of Computer Sciences
Corp.'s Industry Services Group and for one year as President and Chief
Executive Officer of United Information Services. Previously he was associated
with IBM and General Electric Company.
CHARLES W. HULL: Mr. Hull has served as Chief Technical Officer and Vice
Chairman of the Company since April 1997, since August 1993 as Chief Operating
Officer and President of the Company and since March 1986 as President of 3D
Systems, Inc.; prior thereto, he was Vice-President of UVP, Inc. from January
1980 to March 1986. The stereolithography technology was developed by Mr. Hull
while employed by UVP, Inc., a systems manufacturing company.
RICHARD D. BALANSON: Mr. Balanson has served as President and Chief
Operating Officer since April 1997 and since October 1996 was Executive Vice
President, Development and Manufacturing. From August 1994 to September 1996,
Mr. Balanson was General Manager, Executive Vice President and Member of the
Board of Maxtor Corporation, a major supplier of computer disk drives, where he
was in charge of engineering, manufacturing, materials, sales and marketing.
From October 1992 to June 1994, Mr. Balanson was President and Chief Operating
Officer of Applied Magnetics Corporation, an OEM components supplier to
manufacturers of disk and tape drives. From 1975 to 1992, he held several
management and technical positions with International Business Machines
Corporation including IBM Research Division, where he had responsibility for
research and development in many areas, including xerography, optics, lasers and
computer storage media.
Page 19
<PAGE>
FRANK J. SPINA: Mr. Spina joined 3D in November of 1997, having spent his
previous three years as Vice President and Corporate Controller at Qualcomm
Inc., a $2 billion developer and manufacturer of wireless communications
products. Prior to Qualcomm, he worked for nine years at Motorola Inc. serving
his last four years as their Group Operations Controller. Mr. Spina is a
Certified Public Accountant, and a graduate of Baldwin Wallace College in Ohio.
A. SIDNEY ALPERT: Mr. Alpert became Vice President, General Counsel of the
Company in January 1996 and has served as Secretary of the Company since May
1996. Prior thereto, from January 1994 through December 1995, Mr. Alpert was an
intellectual property consultant. From July 1988 through December 1993, Mr.
Alpert served as Chairman of the Board and Chief Executive Officer of University
Patents, Inc. (currently known as Competitive Technologies, Inc.), a corporation
listed on the American Stock Exchange which handles patent management and
technology transfer activities primarily for universities and colleges.
MARK R. BELL: Mr. Bell has served as Vice President, Sales, The Americas
since April 1996 and is responsible for sales in the United States, Canada,
Mexico and Latin America. Mr. Bell previously had been Eastern Region Sales
Director - U.S. since joining the Company in August 1990. From September 1987
to August 1990, Mr. Bell was Eastern Area Manager for Cimlinc, Inc., a provider
of CIM software solutions and services. From February 1987 to August 1987, Mr.
Bell was Eastern Area Manager for Manufacturing & Consulting Services, Inc.
(MCS), a software developer in the mechanical design and manufacturing (CAD/CAM)
industry. From October 1986 to January 1987, Mr. Bell was Eastern Region
Manager for Infodetics, a supplier of records management systems and microfilm
duplication equipment. Prior to 1986, Mr. Bell has been employed in various
sales management positions with McDonnell Douglas Corporation, Auto-Trol
Technology Corporation, Tektronix, Inc, and Burroughs Corporation.
MARTY E. MCGOUGH: Mr. McGough has served as Vice President and Worldwide
Operations Manager since September 1997 after joining 3D Systems in January
of 1997 and is responsible for manufacturing and operations, as well as world
wide field service. He was formally with Maxtor Corporation where he held
the position of Senior Director of Strategic Commodities. Prior to Maxtor,
he held management positions in Operations, Marketing, Program Management and
other manufacturing and materials positions. Mr. McGough received his B.S.
degree from California State University, Northridge in business
administration and earned his Masters in Business Management also from CSUN.
Subject to the employment agreements between the Company and each of
Messrs. Sims, Balanson, and Hull, all officers serve at the pleasure of the
Board of Directors of the Company.
Page 20
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The following table sets forth for the periods indicated the high and low
closing sales prices of the Company's Common Stock (symbol: TDSC) on the Nasdaq
National Market. The Company effected a one-for-three reverse stock split on
May 23, 1995. Also shown are prices prior to the effective date of the reverse
stock split which have been adjusted by a factor of three to reflect the effect
of the reverse stock split.
<TABLE>
<CAPTION>
AS ADJUSTED FOR 1-FOR-3
HISTORIC PRICES REVERSE STOCK SPLIT
Year Period High Low High Low
<S> <C> <C> <C> <C> <C>
1995 First Quarter 4-11/16 3-5/16 14-1/16 9-15/16
Second Quarter
(through 5-7/8 4-5/16 17-5/8 12-15/16
May 23)
Second Quarter
(from May 24 - 17-7/8 15-7/16
June 30)
Third Quarter 21-7/8 15-3/8
Fourth Quarter 24 14-1/4
1996 First Quarter 24-1/8 18-7/8
Second Quarter 24-7/8 20
Third Quarter 21-3/4 12
Fourth Quarter 14-47/64 9-3/4
1997 First Quarter 16-1/4 9-3/8
Second Quarter 9-3/4 6
Third Quarter 10-1/4 8
Fourth Quarter 10-3/4 6
1998 First Quarter
(through February 8 5-3/4
27)
As of February 27, 1998, the outstanding Common Stock was held of record by
637 stockholders.
</TABLE>
DIVIDENDS
The Company has not paid any dividends on its Common Stock and currently
intends to retain any future earnings for use in its business. Therefore, it
should not be expected that any dividends will be declared on the Common Stock
in the foreseeable future. Any dividend payment will be at the discretion of
the Company's Board of Directors and will require the consent of Silicon Valley
Bank (see "Item 7. Management's Discussion and Analysis of Results of Operation
and Financial Condition -- Liquidity and Capital Resources) and will be
dependent upon the Company's earnings, operating and financial condition and
capital requirements, as well as general business conditions.
Page 21
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following summary of selected consolidated financial data for the
periods set forth below has been derived from the Consolidated Financial
Statements of 3D Systems Corporation. Such information should be read in
conjunction with Management's Discussion and Analysis of Results of Operation
and Financial Condition and with the Consolidated Financial Statements appearing
elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ----------- ------------ -------------
STATEMENTS OF OPERATIONS DATA: (In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Sales:
Products(1). . . . . . . . . . . . . . . . . . . $ 20,951 $ 28,848 $ 43,544 $ 53,229 $ 59,149
Services(2). . . . . . . . . . . . . . . . . . . 10,130 14,489 19,038 26,403 31,108
---------- ---------- ----------- ------------ -------------
Total Sales. . . . . . . . . . . . . . . . . 31,081 43,337 62,582 79,632 90,257
---------- ---------- ----------- ------------ -------------
Cost of sales:
Products(1). . . . . . . . . . . . . . . . . . . 10,191 13,928 19,328 24,893 35,463
Services(2). . . . . . . . . . . . . . . . . . . 6,097 8,734 11,936 16,906 21,745
---------- ---------- ----------- ------------ -------------
Total cost of sales. . . . . . . . . . . . . 16,288 22,662 31,264 41,799 57,208
---------- ---------- ----------- ------------ -------------
Gross profit . . . . . . . . . . . . . . . . . . . 14,793 20,675 31,318 37,833 33,049
Operating expenses:
Selling, general and administrative. . . . . . . 11,570 14,359 20,302 24,748 29,653
Research and development . . . . . . . . . . . . 2,590 3,207 6,109 7,665 10,991
---------- ---------- ----------- ------------ -------------
Total operating expenses . . . . . . . . . . 14,160 17,566 26,411 32,413 40,644
---------- ---------- ----------- ------------ -------------
633 3,109 4,907 5,420 (7,595)
Interest income. . . . . . . . . . . . . . . . . . 61 151 1,257 1,541 1,202
Interest expense . . . . . . . . . . . . . . . . . (89) (71) (42) (129) (356)
---------- ---------- ----------- ------------ -------------
Income (loss) before income tax expense
(benefit) . . . . . . . . . . . . . . . . . . . 605 3,189 6,122 6,832 (6,749)
Income tax expense (benefit) . . . . . . . . . . . 74 (1,313)(3) (2,795)(3) 2,233 (2,160)
---------- ---------- ----------- ------------ -------------
Net income (loss). . . . . . . . . . . . . . . . . $ 531 $ 4,502 $ 8,917 $ 4,599 $ (4,589)
---------- ---------- ----------- ------------ -------------
---------- ---------- ----------- ------------ -------------
Weighted average number of shares
outstanding. . . . . . . . . . . . . . . . . . . 9,154 9,155 10,246 11,323 11,398
Net income (loss) per common share(4). . . . . . . $ 0.06 $ 0.49 $ .87 $ .41 $ (.40)
---------- ---------- ----------- ------------ -------------
---------- ---------- ----------- ------------ -------------
Weighted average number of shares
outstanding and dilutive shares. . . . . . . . . . 9,165 9,365 10,708 11,742 11,398
Net income (loss) per common share assuming
dilution(4). . . . . . . . . . . . . . . . . . . $ 0.06 $ 0.48 $ .83 $ .39 $ (.40)
---------- ---------- ----------- ------------ -------------
---------- ---------- ----------- ------------ -------------
SYSTEM DATA:
SLA systems shipped (unaudited). . . . . . . . . . 59 73 120 151 161
Actua Systems shipped (unaudited). . . . . . . . . --- --- --- 6 113
Cumulative number of SLA systems shipped
(unaudited). . . . . . . . . . . . . . . . . . . 397 470 590 741 902
Cumulative number of Actua systems shipped
(unaudited). . . . . . . . . . . . . . . . . . . --- --- --- 6 119
</TABLE>
Page 22
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(5) . . . . . . . . . . . . $ 7,197 $ 11,722 $ 50,022 $ 49,764 38,310
Total assets(5) . . . . . . . . . . . . . 24,594 30,465 81,551 92,239 91,340
Current portion of long-term debt . . . . 200 -- -- 100 95
Long-term liabilities, excluding current
portion . . . . . . . . . . . . . . . . . 1,288 1,474 1,622 6,273 6,197
Stockholders' equity . . . . . . . . . . . 14,685 19,985 62,950 68,703 64,595
- ---------------------
(1) Includes systems and related equipment, material, software and other
component parts as well as rentals of equipment.
(2) Includes maintenance services provided by the Company's Tooling Centers and
training services.
(3) Includes the recognition of deferred tax assets, in accordance with SFAS
No. 109, of $1.5 million in 1994 and $3.0 million in 1995. See
"Management's Discussion and Analysis of Results of Operations and
Financial Condition - Results of Operations."
(4) All periods presented have been adjusted to reflect the one-for-three
reverse stock split effected on May 23, 1995. Per share data for 1993
through 1995 reflect the issuance of approximately 3.2 million shares
(post-split) in connection with the Company's rights offering in June 1992.
(5) Includes $766,000 and $722,000 of restricted cash at December 31, 1995 and
1996, respectively. See Note 17(c) of Notes to Consolidated Financial
Statements
</TABLE>
Page 23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's future results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not specifically limited to: the ability to develop and
introduce cost effective new products in a timely manner; developments in
current or future litigation; the Company's ability to successfully manufacture
and sell significant quantities of equipment on a timely basis; as well as the
other risks detailed in this section and in the sections entitled Results of
Operations and Liquidity and Capital Resources.
OVERVIEW
The Company develops, manufactures and markets in the United States and
internationally both its stereolithography apparatus (SLA) and its Actua 2100
systems designed to rapidly produce three-dimensional objects from
computer-aided design and manufacturing generated solid or surface data.
Stereolithography is a solid imaging process whereby a laser beam exposes and
solidifies successive layers of photosensitive resin until the desired object is
formed to precise specifications in hard plastic. The Actua 2100 utilizes
Multi-Jet Modeling technology to print models in successive layers with a
special thermopolymer material. These objects can be used for concept models,
engineering prototypes, patterns and masters for molds and other appreciations.
The Company has sold over 900 systems since 1988 and its customers include
major corporations in a broad range of industries including manufacturers of
automotive, aerospace, computer, electronic, consumer and medical products. The
Company's revenues are generated by product and service sales. Product sales
are comprised of the sale of systems and related equipment, materials, software,
and other component parts, as well as rentals of systems. Service sales
include revenues from a variety of on-site maintenance services, services
provided by the Company's Tooling Centers and customer training.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain
items from the Company's Statement of Operations to and Total Revenues:
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUES
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
----------- ---------- ----------
<S> <C> <C> <C>
Sales:
Products . . . . . . . . . . . 69.6% 66.8% 65.5%
Services . . . . . . . . . . . 30.4% 33.2% 34.5%
----------- ---------- ----------
Total sales . . . . . . . 100.0% 100.0% 100.0%
----------- ---------- ----------
Cost of sales:
Products . . . . . . . . . . . 30.9% 31.3% 39.3%
Services . . . . . . . . . . . 19.1% 21.2% 24.1%
----------- ---------- ----------
Total cost of sales . . . 50.0% 52.5% 63.4%
----------- ---------- ----------
Total gross profit . . . . . . . . 50.0% 47.5% 36.6%
Gross profit - products . . . 55.6% 53.2% 40.0%
Gross profit - services . . . 37.3% 36.0% 30.1%
Selling, general and administrative
expenses . . . . . . . . . . . . 32.4% 31.1% 32.8%
Research and development expenses . 9.8% 9.6% 12.2%
----------- ---------- ----------
Income from operations . . . . . . 7.8% 6.8% (8.4%)
Interest income (expense), net . . 1.9% 1.8% .9%
Income tax benefit (expense) . . . 4.5% (2.8%) 2.4%
----------- ---------- ----------
Net income . . . . . . . . . . . 14.2% 5.8% (5.1%)
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
Page 24
<PAGE>
The following table sets forth for the periods indicated total revenues
attributable to each of the Company's major products and services groups:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1996 1997
---------- ---------- ----------
(In thousands except percent data)
<S> <C> <C> <C>
Products:
Systems and related equipment . $ 29,931 $ 38,230 $ 40,859
Materials . . . . . . . . . . . 8,168 10,563 13,548
Other . . . . . . . . . . . . . 5,445 4,436 4,742
----------- ---------- ----------
Total products . . . . . . 43,544 53,229 59,149
----------- ---------- ----------
Services:
Maintenance . . . . . . . . . . 14,323 21,341 25,010
Other . . . . . . . . . . . . . 4,715 5,062 6,098
----------- ---------- ----------
Total services . . . . . . 19,038 26,403 31,108
----------- ---------- ----------
Total sales . . . . . . . . . . . . . $ 62,582 $ 79,632 $ 90,257
----------- ---------- ----------
----------- ---------- ----------
Products:
Systems and related equipment . 47.8% 48.0% 45.3%
Material . . . . . . . . . . . . 13.1 13.3 15.0
Other . . . . . . . . . . . . . 8.7 5.6 5.2
----------- ---------- ----------
Total products . . . . . . 69.6 66.9 65.5
----------- ---------- ----------
Services:
Maintenance . . . . . . . . . . 22.9 26.8 27.7
Other . . . . . . . . . . . . . 7.5 6.3 6.8
----------- ---------- ----------
Total services . . . . . . 30.4 33.1 34.5
----------- ---------- ----------
Total sales . . . . . . . . . . . . . 100.0% 100.0% 100.0%
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
1997 COMPARED TO 1996
SALES. Sales in 1997 were $90.3 million, an increase of 13% over the $79.6
million recorded during 1996.
Product sales in 1997 increased $5.9 million or 11% to $59.1 million compared
to $53.2 million in 1996. The dollar increase was primarily the result of
increased shipments of SLAs in both the U.S. and Europe. The Company sold a
total of 161 SLA systems and a total of 113 Actua 2100 systems in 1997. In
1996, the Company sold 151 SLAs and 6 Actua 2100's. Orders for the Company's
systems in 1997 (compared to 1996) increased in both Europe and Asia Pacific
but declined in the U.S. market and total systems backlog at the end of 1997
was lower than the end of 1996.
The Company believes that the decline in the U.S. orders in 1997 (when
compared to 1996) was due primarily to the inefficiencies caused by the
recent changes in the domestic sales organization from a strategy of
utilizing independent sales representatives (primarily in the machine tool
industry) to a direct sales force. The Company completed its staffing of its
domestic sales organization during the second half of 1997. While
historically there has not always been an accurate correlation between orders
and ending backlog in one year and revenues in the next year, the decline in
U.S. orders in 1997, coupled with potential inefficiencies caused by the
recent changes in the Company's domestic sales organization, could negatively
impact domestic revenues during the first half of 1998. The Company
anticipates that total orders should increase in 1998 as compared to 1997
primarily as a result of an increased sales force and the assimilation of the
EOS acquisition. However, this is a forward-looking statement and as with
other such statements are subject to uncertainties. As a result of
competitive pricing pressures or other market conditions, total orders may
Page 25
<PAGE>
not increase in 1998.
The Company believes that system sales may also fluctuate on a quarterly
basis as a result of a number of other factors, including the status of world
economic conditions, fluctuations in foreign currency exchange rates and the
timing of product shipments. Due to the high price of certain systems, 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.
Service sales in 1997 increased $4.7 million, or 18%, compared to 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 $57.2 million or 63% of sales in
1997 compared to $41.8 million or 52% of sales in 1996.
Product cost of sales as a percentage of product sales increased to 60% in
1997 compared to 47% in 1996. The increase in 1997 was primarily the result
of greater discounting of system sales in 1997 due to competition, the sales
mix of the Company's products as well as the channels and markets in which
the Company distributes its products. In addition, the Company recorded
inventory adjustments totaling approximately $1.8 million, or 5 percentage
points of the increase, that were primarily associated with the transition to
our new generation of products announced in the third quarter of 1997, the
EOS acquisition and filed service inventories.
Product pricing will continue to be a function of competitive pressures and
the Company will continue to experience fluctuations due to the mix of
product, channel and markets. Nonetheless, the Company does not currently
anticipate that it will be required to recognize any material inventory
adjustments during the current fiscal year, and thus expects that product
cost of sales as a percentage of product sales for 1998 should improve from
1997. This is, of course, a forward-looking statement, and as such is subject
to risks and uncertainties. For example, if the new products introduced last
year are not commercially successful, the Company may be required to record
inventory adjustments; and the consequences of competitive pricing issues can
never be accurately predicted.
Service cost of sales as a percentage of service sales increased to 70% in
1997 compared to 64% in 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
the Company's field maintenance contracts 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 $5.0 million or 20% in 1997
compared to 1996, primarily as a result of approximately $2.0 million of
non-recurring expenses for severance benefits and other costs related to
restructuring plans designed to reduce costs and improve operating results
and the the expanded sales and marketing program in Europe and the U.S.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development ("R&D") expenses
in 1997 increased approximately $3.3 million of 43% compared to 1996. The
increase in R&D expenses in 1997 was primarily the result of the write-off
during the third quarter of 1997 of acquired in-process technology valued at
approximately $2,100,000 in connection with the EOS acquisition (see Note 7
of Notes to Consolidated Financial Statements) and 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 approximately ten percent
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 10 percent level.
OPERATING INCOME (LOSS). Operating loss in 1997 was (8.4%) of total sales
compared to operating income of 6.8% of total sales in 1996. The decrease in
percentage of operating income to total sales in 1997 was primarily
attributable to increases in cost of sales (both products and services) in
1997 and the increased S,G&A and R&D expenses, as described above.
OTHER INCOME AND EXPENSES. Interest income decreased to $1.2 million in 1997
from $1.5 million in 1996, primarily as a result of the lower investment
balances due to cash used for operating activities and investment activities
partially offset by interest income from lease receivables.
Interest expense increased to $356,203 in 1997 from $128,860 in 1996
primarily as a result of the Company's financing of its Colorado facility
which was effected August 20, 1996.
PROVISION FOR INCOME TAXES (BENEFITS). For 1997 the Company's tax benefit
was $2.2 million or 32% of pre-tax income (loss), compared to a tax expense
of $2.2 million in 1996.
Page 26
<PAGE>
1996 COMPARED TO 1995
SALES. Sales in 1996 were $79.6 million, an increase of 27% over the $62.6
million recorded during 1995.
Product sales in 1996 increased $9.7 million or 22% to $53.2 million compared
to $43.5 million in 1995. The increase was primarily the result of increased
shipments of SLAs in both the U.S and Europe. The Company sold a total of 151
SLA systems in 1996, comprised of 5 SLA-190's, 56 SLA-250's, 40 SLA-350's
(the Company's newest SLA system which features the new Zephyr-TM- recoater,
a solid state laser and an automatic resin re-filling system) and 50
SLA-500's (the Company's largest and highest priced system). In 1995, the
Company sold 120 SLAs, comprised of 5 SLA-190's, 63 SLA-250's and 52
SLA-500's. Orders for the Company's SLA systems in 1996 (compared to 1995)
increased in Europe but declined in both the U.S. and Asia-Pacific markets
and total SLA systems backlog at the end of 1996 was lower than the end of
1995.
The Company believes that the decline in the U.S. orders in 1996 (when
compared to 1995) was due primarily to the performance, and termination, of a
number of the Company's independent domestic sales representatives
("agents"), and, to a lesser extent, to competitive pressures. The Company's
domestic marketing strategy has focused on a strong internal sales
organization, as well as the utilization of agents (primarily, independent
sales representatives in the machine tools industry). During 1996, these
sales agents however were not producing the level of sales expected by the
Company. 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. Although the Company offered its agents the opportunity to enter
into new arrangements with the Company, at lower commission rates than under
the prior agreements, to date no agents have entered into new agreements.
Because of the long cycle for SLA systems sales, the Company does not
anticipate that these additions to its internal sales organization will
significantly increase domestic sales in the first half of 1997. While
historically there has not always been an accurate correlation between orders
and ending backlog in one year and revenues in the next year, the decline in
U.S. orders in 1996, coupled with potential inefficiencies caused by the
recent changes in the Company's domestic sales organization, could negatively
impact domestic revenues during the first half of 1997. The Company
anticipates that European orders should increase in 1997 as compared to 1996
primarily as a result of an increased sales force. However, this is a
forward-looking statement and as with other such statements are subject to
uncertainties. As a result of competitive pricing pressures or other market
conditions, European orders may not increase in 1997.
The Company believes that SLA system sales may also fluctuate on a quarterly
basis as a result of a number of other 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).
During 1997, there are several additional factors which may impact quarterly
sales. During 1996, the Company introduced two new products, the SLA-350
Series 10, a new, advanced SLA system and the low-priced Actua 2100 office
modeler (which uses a technology completely different from
stereolithography), designed for operation in engineering and design offices.
During May 1996, the Company began commercial shipments of the SLA-350. As a
result of certain technical issues, which the Company believes to be
resolved, commercial shipments of the Company's Actua 2100 were delayed until
late December, 1996 (the Company shipped a total of six commercial units in
December 1996). The possibility exists that the announcement and introduction
of these new products may have caused, and may cause in the future,
potential customers of the Company who were considering the purchase of one
of the Company's other models to defer their purchase decision until further
information is available as to the performance and reliability of the new
products. Further delays in shipments of new products may also occur as a
result of unexpected problems encountered in actual use.
Service sales in 1996 increased $7.4 million, or 39%, compared to 1995,
primarily as a result of increased maintenance revenues due to the larger
installed base of SLA systems in the U.S. and Europe as well as from greater
sales (approximately $648,000) of SLA upgrades (primarily Zephyr upgrades) to
existing SLA customers. The Company anticipates that sales of Zephyr upgrades
in 1997 will be significantly lower compared to 1996.
COST OF SALES. Cost of sales increased to $41.8 million or 52% of sales in
1996 compared to $31.3 million or 50% of sales in 1995.
Page 27
<PAGE>
Product cost of sales as a percentage of product sales increased to 47% in
1996 compared to 44% in 1995. The increase in 1996 was primarily the result
of the stronger dollar in 1996, as compared to 1995; greater discounting of
European SLA system sales in 1996 due to competition; and increased
manufacturing expenses as a result of the Company's new and larger
manufacturing facility in Grand Junction, Colorado. 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 1996. 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. The Company also anticipates that gross margins
related to the Actua 2100 will be lower during the initial phases of
production as a result of certain inefficiencies and anticipates, in the
event of increased production, that Actua 2100 gross margins could increase
as a result of lower per unit material costs (due to greater purchasing
economies) and increased manufacturing efficiencies. Additionally, the
Company anticipates that gross margins relating to the SLA 250 may be lower
than historical margins due to the introduction in January 1997 of the
SLA-250 Series 30A (an entry level SLA priced at $99,000 with a lower profit
margin than other SLA systems) and the approximately 20% price reduction of
the SLA-250 Series 40 and Series 50 effected by the Company in January 1997.
Service cost of sales as a percentage of service sales increased to 64% in
1996 compared to 63% in 1995, primarily as a result of lower margins from the
Company's U.S. Technology Center due to the Technology Center's testing of
both new hardware and software products as well as the increased use of
outside vendors for certain rapid prototyping applications in 1996. The
decreased margins from the U.S. Technology Centers were partially offset,
however, by improved margins from field service operations due to the more
profitable Zephyr upgrades delivered in 1996 compared to those upgrades
offered in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("S,G&A") expenses increased $4.4 million or 22% in 1996
compared to 1995, primarily as a result of expanded sales and marketing
programs in both Europe and the U.S. The Company currently anticipates that
S,G&A expenses will be higher in 1997 compared to 1996 due primarily to the
expansion of the Company's U.S. direct sales distribution channel. 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.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development ("R&D") expenses
in 1996 increased approximately $1.6 million or 25% compared to 1995. The
increase in R&D expenses in 1996 was primarily the result of the write-off
during the third quarter of 1996 of acquired in-process technology valued at
$430,000 in connection with the Keltool acquisition (see Note 7 of Notes to
Consolidated Financial Statements) as well as the Company's efforts towards
the development of the Actua 2100 and certain other 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 ten percent of sales. However, this is a forward-looking
statements 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 10%.
OPERATING INCOME. Operating income in 1996 was 6.8% of total sales compared
to 7.8% of total sales in 1995. The decrease in the percentage of operating
income to total sales in 1996 was primarily attributable to increases in cost
of sales (both products and services) in 1996, as described above.
OTHER INCOME AND EXPENSES. Interest income increased to $1.5 million in 1996
from $1.3 million in 1995, primarily as a result of the investment of funds
from the Company's stock offering which was completed in June 1995.
Interest expense increased to $128,860 in 1996 from $41,967 in 1995
primarily as a result of the Company's financing of its Colorado facility
which was effected August 20, 1996 (see Note 11 of Notes to Consolidated
Financial Statements).
PROVISION FOR INCOME TAXES (BENEFITS). The Company's tax expense in 1996 was
$2.2 million or 33% of pre-tax income, compared to a tax benefit of $2.8
million in 1995. During the third quarter of 1995, the Company realized a net
income tax benefit of $2.9 million which included a deferred tax benefit
resulting from the recognition of deferred tax assets of $3.0 million
(related primarily to net operating loss carryforwards attributable to the
Company's domestic operations).
Page 28
<PAGE>
FOREIGN OPERATIONS
International sales accounted for 35.2%, 33.8% and 41.5% of total sales
in 1995, 1996 and 1997, respectively. For information with respect to
allocation of sales among the Company's foreign operations, see Note 16 of
Notes to Consolidated Financial Statements.
The cost of sales of the Company's foreign operations has been
significantly higher than domestic costs of sales, primarily due to the
structure of transfer pricing by the Company to its foreign subsidiaries,
which are above the Company's cost.
Operating results of foreign operations have been substantially lower
than domestic operating results due to the structure of transfer pricing,
discussed above, the Company's determination to utilize other advantageous
tax planning strategies, and, to a lesser extent, the inefficiencies of size
inherent in maintaining four separate operations (one each in England,
France, Germany and Italy).
To date, the Company has not entered into hedging transactions to
protect against changes in foreign currency exchange rates.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
1995 1996 1997
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents(1) . . . . $ 39,025 $ 25,078 $ 12,695
Short-term investments --- 3,759 3,498
Working capital(1) . . . . . . . . . 50,022 49,764 38,310
Cash provided by (used for) operating
activities . . . . . . . . . . . . . 3,619 (7,016) (4,979)
Cash used for investing activities . (5,386) (12,497) (8,202)
Cash provided by financing activities 33,837 5,384 1,059
</TABLE>
- ----------------------
(1) Includes $766,000 and $722,000 of restricted cash at December 31, 1995 and
1996, respectively. See Note 17(c) of Notes to Consolidated Financial
Statements.
Net cash provided by (used for) operating activities in 1995, 1996 and 1997
was $3.6 million, $(7.0) million and $(5.0) million, respectively. The negative
cash flow from operations in 1997 was comprised primarily of an increase in
accounts receivables ($4.9 million), primarily as a result of the increased
sales during the forth quarter of 1997 compared to the comparable prior year
period and a greater percentage of European orders which generally have longer
payment terms, the net loss ($4.6 million) and an increase in deferred taxes
($2.5 million). These decreases were partially offset by non-cash depreciation
and amortization ($5.1 million) and an increase in accrued liabilities ($2.1
million).
Net cash used for investing activities in 1997 totaled $8.2 million and was
primarily the result of an increase in property and equipment relating primarily
to increased demo equipment due to new products, the purchase of computers and
manufacturing equipment required for expansion, and an increase in license and
patent costs.
Net cash provided by financing activities in 1997 was the result of the
release of restricted cash due to the settlement of the EOS lawsuit and by the
exercise of stock options by employees.
In August 1997, the Company extended its credit facility with Silicon
Valley Bank ("SVB") (the "Credit Facility"). Under the terms of the
agreement, which remains in effect through August 18, 1998, the Company can
borrow from SVB up to $10,000,000, at prime. The Credit Facility, which is
unsecured, contains certain financial covenants including the maintenance of
certain financial ratios, working capital, tangible net worth as well as
covenants limiting mergers, acquisitions, recapitalizations, dividends, loans
to others, and hypothecation of assets or corporate guarantees. Since
inception of the Credit Facility (June 1993) and at all times through
December 31, 1997, the Company has been in compliance with all financial
covenants then in effect and has not utilized the facility.
Page 29
<PAGE>
On June 26, 1995, the Company issued and sold 1,583,334 shares of common
stock pursuant to a public offering of its common stock at $16.75 per share
(the "Offering"). On June 29, 1995, the underwriters exercised their option
to purchase an additional 465,000 shares to cover over allotments related to
the Offering (the "Overallotment"). Net proceeds from the Offering
(including the Overallotment), after deducting underwriting discounts,
commissions and related cash expenses, was approximately $31,500,000.
Concurrent with the Offering, the Company's bank exercised its warrant to
purchase 16,666 shares of common stock at a price of $4.32 per share ($71,997
in the aggregate).
On May 6, 1997, the Company announced that its board of directors had
authorized the Company to buy up to 1.5 million of its shares in the open market
and through private transactions. During 1997, the Company purchased 25,000 of
its own shares for approximately $165,000. During January 1998, the Company
purchased 200,000 of its own shares at approximately $1,375,000. The Company
will continue to acquire additional shares from time to time at prevailing
market prices, at a rate consistent with the combination of corporate cash flow
and market conditions.
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.
There were no significant inflationary trends that impacted the Company
in 1997.
Many computer systems experience problems handling dates beyond the year
1999. Therefore, some computer hardware and software will need to be
modified prior to the year 2000 in order to remain functional. The Company
is assessing both the internal readiness of its computer systems and the
compliance of its computer products and software sold to customers for
handling the year 2000. The Company expects to implement successfully the
systems programming changes necessary to address year 2000 issues, and does
not believe that the cost of such actions will have a material effect on the
Company's results of operations or financial condition. There can be no
assurance, however, that there will not be a delay in, or increased costs
associated with, the implementation of such changes, and the inability to
implement such changes could have an adverse effect on future results of
operations.
RECENT ACCOUNTING PRONOUNCEMENTS. On June 30, 1997, the Financial
Accounting Standards Board issued 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 will require additional disclosures for all periods
presented but will not impact reported amounts of net income (loss) of the
Company.
On June 30, 1997, the Financial Accounting Standards Board issued 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements as of December 31, 1996 and 1997 and for
each of the three years in the period ended December 31, 1997 and the report
of Independent Public Accountants are included on pages F-1 to F-23 of this
Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
Page 30
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to executive officers of the Registrant
required by Item 401(b) of Regulation S-K is presented at the end of Part I
of this Form 10-K. Information regarding directors of the Registrant
required by Item 401 of Regulation S-K and information regarding Directors
and Executive Officers of Registrant required by Item 405 of Regulation S-K
will be presented under the caption "Election of Directors" in the definitive
Proxy Statement for the Company's 1998 Annual Meeting of Shareholders, and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K will be presented
under the captions "Election of Directors" and "Executive Compensation" in
the definitive Proxy Statement for the Company's 1998 Annual Meeting of
Shareholders, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K will be presented
under the caption "Principal Shareholders" in the definitive Proxy Statement
for the Company's 1998 Annual Meeting of Shareholders, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K will be presented
under the caption "Transactions with Executive Officers and Directors" in the
definitive Proxy Statement for the Company's 1998 Annual Meeting of
Shareholders, and is incorporated herein by reference.
Page 31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
a The following Consolidated Financial Statements, Financial Statement
Schedule and Exhibits are filed as part of this Annual Report on Form
10-K as listed on page F1 of this document.
b REPORTS ON FORM 8-K
Current report on Form 8-K dated October 22, 1997 containing item 5
disclosure.
c EXHIBITS
The following exhibits are included as part of this Annual Report on
Form 10-K and incorporated herein by this reference:
1.1 Arrangement Agreement (and related exhibits) among Registrant, 3-D
Canada and Avenue Hall Holding Corporation, dated as of May 19, 1993.
Incorporated by reference to Exhibit 1.1 to Form 8-B filed August 16,
1993 and the amendment thereto filed on Form 8-B/A filed on February
4, 1994.
1.2 Exchange Agreement among Registrant, 3-D Canada, Avenue Hall Holding
Corporation and Montreal Trust Company of Canada, dated as of May 19,
1993. Incorporated by reference to Exhibit 1.2 to Form 8-B filed
August 16, 1993 and the amendment thereto filed on Form 8-B/A filed
February 4, 1994.
2.1 Material captioned "United States Domestication of the Company" set
forth in the Information Circular (Proxy Statement) dated May 21,
1993, for the Annual Meeting of Shareholders of 3-D Canada, held on
June 25, 1993, filed with the Securities and Exchange Commission on
May 24, 1993.
2.2 Asset Purchase Agreement entered into as of December 31, 1990 by and
between Spectra-Physics GmbH and 3D Systems GmbH. Incorporated herein
by reference to Exhibit 2.1 to 3-D Canada's Current Report on Form 8-K
filed January 14, 1991 and the amendments thereto.
2.3 Agreement for transfer of a business entered into as of December 31,
1990 by and between Spectra-Physics (France) and 3D Systems France.
Incorporated herein by reference to Exhibit 2.2 to 3-D Canada's
Current Report on Form 8-K filed January 14, 1991 and the amendments
thereto.
2.4 Asset Purchase Agreement entered into as of December 31, 1990 by and
between Spectra-Physics Limited and 3D Systems, Inc. Limited
(England). Incorporated herein by reference to Exhibit 2.3 to 3-D
Canada's Current Report on Form 8-K filed January 14, 1991 and the
amendments thereto.
2.5 Amendment dated August 28, 1991 to Asset Purchase Agreement between 3D
Systems GmbH and Spectra-Physics GmbH dated December 29, 1990.
Incorporated herein by reference to Exhibit 2.4 to 3-D Canada's
Current Report on Form 8-K filed September 11, 1991.
3.1 Certificate of Incorporation of Registrant. Incorporated by reference
to Exhibit 3.1 to Form 8-B filed August 16, 1993 and the amendment
thereto filed on Form 8-B/A filed on February 4, 1994.
3.2 Bylaws of Registrant. Incorporated by reference to Exhibit 3.2 to
Form 8-B filed August 16, 1993 and the amendment thereto filed on Form
8-B/A filed on February 4, 1994.
4.1* 1989 Employee and Director Incentive Plan. Incorporated by reference
to Exhibit 4.1 to Form 8-B filed August 16, 1993 and the amendment
thereto filed on Form 8-B/A filed on February 4, 1994.
- -------------------------------------------
* Management contract or compensatory plan or arrangement.
Page 32
<PAGE>
4.2* Form of Director Option Contract to be entered into pursuant to the
1989 Employee and Director Incentive Plan. Incorporated by reference
to Exhibit 4.2 to Form 8-B filed August 16, 1993 and the amendment
thereto filed on Form 8-B/A filed on February 4, 1994.
4.3* Form of Officer Option Contract to be entered into pursuant to the
1989 Employee and Director Incentive Plan. Incorporated by reference
to Exhibit 4.3 to Form 8-B filed August 16, 1993 and the amendment
thereto filed on Form 8-B/A filed on February 4, 1994.
4.4* Form of Employee Option Contract to be entered into pursuant to the
1989 Employee and Director Incentive Plan. Incorporated by reference
to Exhibit 4.4 to Form 8-B filed August 16, 1993 and the amendment
thereto filed on Form 8-B/A filed on February 4, 1994.
10.1 Lease with respect to Valencia property dated as of July 12, 1988,
by and between 3D California and Valencia Tech Associates.
Incorporated herein by reference to Exhibit 3.1 to 3-D Canada's
annual Report on Form 20-F for the year ended December 31, 1987
(Reg. No. 0-16333).
10.2 Amendment No. 1 to Lease Agreement between 3D California and Katell
Valencia Associates, a California limited partnership, dated
May 28, 1993. Incorporated by reference to Exhibit 10.2 to Form 8-B
filed August 16, 1993 and the amendment thereto filed on Form 8-B/A
filed on February 4, 1994.
10.3 Agreement dated as of July 19, 1988, by and among 3D California, UVP,
Cubital, Ltd. and Scitex Corporation Ltd. Incorporated herein by
reference Exhibit 3.10 to 3-D Canada's Annual Report on Form 20-F
for the year ended December 31, 1987 (Reg. No. 0-16333).
10.4 Exclusive License Agreement dated as of May 16, 1986, by and
California and UVP. Incorporated herein by reference to Exhibit
5 to 3-D Canada's Registration Statement on Form 20-F
(Reg. No. 0-16333).
10.5 Form of Subscription Agreement made as of the 18th day of April,
1989 between 3-D Canada and places pursuant to the private placement
of special warrants completed on April 27, 1989, together with all
Schedules thereto, and form of Confirmation of Agreement.
Incorporated herein by reference to Exhibit 2.6 to 3-D Canada's
Annual Report on Form 20-F for the year ended December 31, 1988.
10.6 Patent Purchase Agreement dated January 5, 1990 by and between 3D
California and UVP. Incorporated herein by reference to Exhibit
3-D Canada's Registration Statement on Form S-1 (Reg. No. 33-31789).
10.7 Security Agreement dated as of the 5th day of January, 1990 by and
between UVP and 3D California relating to security interest on UVP
Patent. Incorporated herein by reference to Exhibit 10.29 to 3-D
Canada's Registration Statement on Form S-1 (Reg. No. 33-31789).
10.8 Assignment of UVP Patent dated January 12, 1990 by UVP to 3D
California. Incorporated herein by Reference to Exhibit 10.30 to
3-D Canada's Registration Statement on Form S-1 (Reg. No. 33-31789).
10.9 Exchange Agreement dated July 23, 1990 by and among 3-D Canada, 3D
California, CIBA-GEIGY Capital Corporation, Raymond S. Freed,
Charles W. Hull, Bethany Griffiths, Virginia Hiramatsu, Paul B. Warren
and Edwin J. Kaftal, together with all Exhibits thereto. Incorporated
herein by reference to Exhibit 10.30 to 3-D Canada's Registration
Statement on Form S-1 (Reg. No. 33-31789).
10.10 Research and Development Agreement entered into as of August 15, 1990
by and between 3D California and Ciba-Geigy Limited. Incorporated herein
by reference to Exhibit 10.32 to 3-D Canada's Current Report on Form 8-K
filed August 21, 1990 and the amendments hereto.
- -------------------------------------------
* Management contract or compensatory plan or arrangement.
Page 33
<PAGE>
10.11 Distribution Agreement entered into as of July 1, 1990 by and
between 3D California and Ciba-Geigy Limited. Incorporated herein by
reference to Exhibit 10.33 to 3-D Canada's Current Report on Form 8-K
filed August 21, 1990 and the amendments thereto.
10.12 Severance agreements: 10.12(a) Severance Agreement dated
April 5, 1991 by and between 3-D Canada and Mr. Raymond S. Freed;
and 10.12(b) Severance Agreement dated May 15, 1991 by and between
3-D Canada and Mr. Edwin J. Kaftal. Incorporated by reference to
3-D Canada's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1991, and the amendments thereto.
10.13* Employment Agreement dated of as September 4, 1991, between 3D
California and Arthur B. Sims. Incorporated herein by reference to
Exhibit 10.14 to 3-D Canada's Annual Report on Form 10-K for the year
ended December 31, 1992, and the amendments thereto.
10.14* Employment Agreement dated as of September 6, 1991, between 3D
California and Gordon L. Almquist. Incorporated herein by reference
to Exhibit 10.15 to 3-D Canada's Annual Report on Form 10-K for the
year ended December 31, 1992, and the amendments thereto.
10.15* Employment Agreement dated as of October 31, 1991, between 3D
California and Edward M. Gloyne. Incorporated herein by reference to
Exhibit 10.16 to 3-D Canada's Annual Report on Form 10-K for the year
ended December 31, 1992, and the amendments thereto.
10.16* Employment Agreement dated as of June 29, 1992 between 3D
California and Richard P. Fedchenko. Incorporated herein by
reference to Exhibit 10.18 to 3-D Canada's Annual Report on Form 10-K
for the year ended December 31, 1992, and the amendments thereto.
10.17 Form of Indemnification Agreement between Registrant and certain
of its executive officers and directors. Incorporated by reference
to Exhibit 10.18 to Form 8-B filed August 16, 1993 and the amendment
thereto filed on Form 8-B/A filed on February 4, 1994.
10.18 Amendment No.1 to a Shareholders' Agreement, such Shareholders'
Agreement being dated as of April 10, 1991, among 1726 Holdings Ltd.,
a British Columbia corporation ("1726"), Lionheart Capital Corp., a
British Columbia corporation ("Lionheart"), 3-D Canada, and
Raymond S. Freed, Charles W. Hull, Bethany Griffiths, Virginia
Hiramatsu, Paul B. Warren and Edwin J. Kaftal (Freed, Hull,
Griffiths, Hiramatsu, Warren and Kaftal are collectively referred to
as the "Founders"), dated as of May 5, 1993, by and among 1726,
Lionheart, 3-D Canada, the Founders and Registrant. Incorporated by
reference to Exhibit 10.19 to Form 8-B filed August 16, 1993 and the
amendment thereto filed on Form 8-B/A filed on February 4, 1994.
10.19 Loan and Security Agreement, as amended, dated as of June 2,
1993, by and between 3-D California, 3D Systems Inc. Limited
(England), 3D Systems France SARL, 3D Systems GmbH, 3D Systems
Japan, Ltd. and Silicon Valley Bank. Incorporated by reference
to Exhibit 10.20 to Form 8-B filed August 16, 1993 and the
amendment thereto filed on Form 8-B/A filed on February 4, 1994.
10.20 Cross-Corporate Continuing Guaranty dated as of August 12, 1993,
executed by Registrant, 3D Systems Inc. Limited (England), 3D Systems
France SARL, 3D Systems GmbH, 3D Systems Japan, Ltd. and 3D California
in favor of Silicon Valley Bank. Incorporated by reference to Exhibit
10.21 to Form 8-B filed August 16, 1993 and the amendment thereto
filed on Form 8-B/A filed on February 4, 1994.
10.22 Antidilution Agreement dated as of August 12, 1993, by and
between Registrant and Silicon Valley Bank. Incorporated by
reference to Exhibit 10.23 to Form 8-B filed August 16, 1993 and
the amendment thereto filed on Form 8-B/A filed on February 4, 1994.
10.23 Registration Rights Agreement dated as of August 12, 1993, by and
between Registrant and Silicon Valley Bank. Incorporated by reference
to Exhibit 10.24 to Form 8-B filed August 16, 1993 and the amendment
thereto filed on Form 8-B/A filed on February 4, 1994.
- -------------------------------------------
* Management contract of compensatory plan or arrangement.
Page 34
<PAGE>
10.24 Assumption Agreement dated as of August 12, 1993, by and between
3D Systems (Canada) Inc. and Silicon Valley Bank. Incorporated by
reference to Exhibit 10.25 to Form 8-B filed August 16, 1993 and the
amendment thereto filed on Form 8-B/A filed on February 4, 1994.
10.25 Letter Agreement dated July 31, 1993 by and among 3D California,
Silicon Valley Bank, and UVP, Inc. Incorporated by reference to
Exhibit 10.26 to Form 8-B filed August 16, 1993 and the amendment
thereto filed on Form 8-B/A filed on February 4, 1994.
10.26 Standby Share Purchase Agreement dated as of May 26, 1992, by and
among 3-D Canada and Invesco MIM, C&S Investment Management, Ltd.,
Noland Carter, Prudential Portfolio Managers Limited, Fred C. Goad,
Jr., The Clark Estates, Inc., Foreign & Colonial Smaller Companies
PLC. Incorporated herein by reference to Exhibit 1.2 to 3-D Canada's
Registration Statement on Form S-2 (Reg. No. 33-46823).
10.27 Stock Purchase Agreement, as amended, dated as of September
30, 1986, by and among 3D California, Lionheart Resources
Corporation, a British Columbia corporation, and 3-D Canada.
Incorporated herein by reference to Exhibit 4 to 3-D Canada's
annual report on Form 20-F for the year ended December 31, 1987
(Reg. No. 0-16333).
10.28 Security Agreement dated as of August 12, 1993, by and between
Registrant and Silicon Valley Bank. Incorporated by reference to
Exhibit 10.29 to Form 8-B filed August 16, 1993 and the amendment
thereto filed on Form 8-B/A filed on February 4, 1994.
10.29 Letter of Understanding with respect to Loan and Security
Agreement, as amended, dated August 12, 1993, by and between
3-D California, 3D Systems Inc. Limited (England), 3D Systems France
SARL, 3D Systems GmbH, 3D Systems Japan, Ltd. and Silicon Valley Bank.
Incorporated by reference to Exhibit 10.30 to Form 8-B filed August 16,
1993 and the amendment thereto filed on Form 8-B/A filed on February 4,
1994.
10.31 Termination Agreement entered into as of January 1, 1990 by and
among 3D California, The Japan Steel Works, Ltd. and 3D Systems
Japan, Ltd. Incorporated herein by reference to Exhibit 10.27 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989.
10.32 Amendment to Termination Agreement dated April 13, 1993 by and
among 3D California, The Japan Steel Works, Ltd. and 3D Systems
Japan, Ltd. Incorporated by reference to Exhibit 10.33 to Form 8-B
filed August 16, 1993 and the amendment thereto filed on Form 8-B/A
filed on February 4, 1994.
10.33* Employment Agreement dated March 1, 1994, by and among the
Registrant, 3D Systems, Inc., a California corporation and Charles
W. Hull. Incorporated herein by reference to Exhibit 10.1 to the
Registrant's Form 10-Q for the quarterly period ended July 1, 1994
filed on August 9, 1994.
10.35 Amendment to Loan Agreement dated as of August 3, 1994, by and
between 3D Systems, Inc., 3D Systems Inc. Limited, 3D Systems
France SARL, 3D Systems GmbH and Silicon Valley Bank. Incorporated
herein by reference to Exhibit 10.36 to the Registrant's Form 10-Q
for the quarterly period ended September 30, 1994 filed on
November 4, 1994.
10.36 Amended Schedule to Loan and Security Agreement dated as of
August 3, 1994, by and between 3D Systems, Inc., 3D Systems Inc.
Limited, 3D Systems France SARL, 3D Systems GmbH and Silicon Valley
Bank. Incorporated herein by reference to Exhibit 10.37 to the
Registrant's Form 10-Q for the quarterly period ended September 31,
1994 filed on November 4, 1994.
10.37 Collateral Assignment, Patent Mortgage and Security Agreement
dated as of August 3, 1991, by and between 3D Systems, Inc.,
3D Systems Inc. Limited, 3D Systems France SARL, 3D Systems GmbH,
3D Systems Corporation, 3D Systems (Canada) Inc. and Silicon Valley
Bank. Incorporated herein by reference to Exhibit 10.38 to the
Registrant's Form 10-Q for the quarterly period ended September 30,
1994 filed on November 4, 1994.
- -------------------------------------------
* Management contract of compensatory plan or arrangement.
Page 35
<PAGE>
10.38* Employment Agreement dated October 31, 1994, by and among the
Registrant, 3D Systems, Inc., a California corporation and Arthur B.
Sims. Incorporated by reference to Exhibit 10.39 to Form 10-K for
the year ended December 31, 1994.
10.39 Letter of intent dated March 7, 1995 by and between 3D Systems,
Inc., a California corporation and CIBA-GEIGY Corporation, a New York
corporation. Incorporated by reference to Exhibit 10.40 to Form 10-K
for the year ended December 31, 1994.
10.40 Agreement dated October 4, 1995 between the Registrant and Mesa
County Economic Development Council, inc., a Colorado non-profit
Corporation. Incorporated herein by reference to Exhibit 10.1 to the
Registrant's Form 10-Q for the quarterly period ended September 29,
1995 filed November 13, 1995.
10.41 Amendment No. 1 to Distribution Agreement dated May 5, 1995
between Ciba Chemicals and the Registrant. Incorporated herein by
reference to Exhibit 10.40 to Amendment No. 1 to Registration
Statement on Form S-2 filed on May 25, 1995.
10.42 Registration and Indemnification Agreement dated June 1995
between the Registrant and 1726 Holdings Canada, Inc. Incorporated
herein by reference to Exhibit 10.41 to Amendment No. 2 to Registration
Statement of Form S-2 filed on June 13, 1995.
10.43* Employment Agreement dated as of December 27, 1995 between the
Registrant and A. Sidney Alpert. Incorporated herein by reference to
Exhibit 10.43 to the Registrant's 10-K for the year ended December 31,
1995 filed on April 1, 1996.
10.44 Amendment dated July 5, 1995 to Loan and Security Agreement
dated June 2, 1993, as previously amended, by and between the
Registrant, 3D California, 3D Systems, Inc. Limited, 3D Systems
France SARL, 3D Systems GmbH and Silicon Valley Bank.
10.45 License, Development, and OEM Agreement dated March 31, 1995
between Spectra, Inc. and 3D Systems, Inc. Incorporated herein by
reference to Exhibit 10.45 to the Registrant's 10-K for the year ended
December 31, 1995 filed on April 1, 1996. [Portions of the exhibit have
been omitted and filed separately with the SEC pursuant to a grant of
confidential treatment].
10.46* Employment letter dated April 11, 1996 between the Registrant
and Mark R. Bell. Incorporated herein by reference to exhibit 10.1
to the Registrant's 10-Q for the quarterly period ended March 29,
1996 filed on May 7, 1996.
10.47 Asset Purchase Agreement dated as of August 30, 1996 by and
between 3D Systems, Inc., a California corporation, Keltool, Inc.
a Minnesota corporation and Wayne Duescher. Incorporated herein by
reference to Exhibit 10.1 to the Registrant's 10-Q for the quarterly
period ended September 27, 1996 filed on November 12, 1996.
10.48 Warrant Agreement dated September 9, 1996 by and between 3D
Systems, Inc., a California corporation and Keltool, Inc. a
Minnesota corporation. Incorporated herein by reference to Exhibit
10.2 to the Registrant's 10-Q for the quarterly period ended
September 27, 1996 filed on November 12, 1996.
10.49 Non-Competition Agreement dated September 9, 1996 by and between
3D Systems, Inc., a California corporation and Wayne O. Duescher.
Incorporated herein by reference to Exhibit 10.3 to the Registrant's
10-Q for the quarterly period ended September 27, 1996 filed on
November 12, 1996.
10.50* Employment Agreement dated as of February 6, 1996 between the
Registrant and Eugen J. Geyer.
10.51* Employment Agreement dated October 28, 1996 between the
Registrant and Richard D. Balanson.
10.52 Amendment dated July 5, 1996 to Loan and Security Agreement
dated June 2, 1993, as previously amended, by and between the
Registrant and Silicon Valley Bank. Incorporated herein by reference
to Exhibit 10.52 to the Registrant's 10-K for the year ended December
31, 1996.
- -------------------------------------------
* Management contract of compensatory plan or arrangement.
Page 36
<PAGE>
10.53 Amendment, dated August 18, 1997, to Loan Agreement and Amended
Schedule to Loan and Security Agreement dated June 2, 1993 between
Silicon Valley Bank and 3D Systems, Inc., 3D Systems Inc. Limited, 3D
Systems France SARL and 3D Systems GmbH.
10.54* Employment Agreement effective November 17, 1997 between the
Registrant and Mr. Frank J. Spina.
10.55* Employment letter effective January 7, 1997 between the
Registrant and Mr. Martin E. McGough.
22.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Public Accountants - Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
- -------------------------------------------
* Management contract or compensatory plan or arrangement.
Page 37
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- -------------
<S> <C> <C>
10.53 Amendment, dated August 18, 1997, to Loan Agreement and 66
Amended Schedule to Loan and Security Agreement dated June 2,
1993 between Silicon Valley Bank and 3D Systems, Inc., 3D
Systems Inc. Limited, 3D Systems France SARL and 3D Systems
GmbH.
10.54 Employment Agreement effective November 17, 1997 between 76
the registrant and Mr. Frank J. Spina
10.55 Employment letter effective January 7, 1997 between the registrant 79
and Mr. Martin E. McGough
22.1 Subsidiaries of the Registrant. 81
23.1 Consent of Independent Public Accountants - Coopers & Lybrand L.L.P. 82
27.1 Financial Data Schedule 83
27.2 Financial Data Schedule 88
27.3 Financial Data Schedule 91
</TABLE>
Page 38
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS PAGE
- --------------------------------- ----
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 . . . . . . . . . F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997. . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997. . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997. . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1995, 1996 and 1997. . . . . . . . . . . . . . . . . . . . . F-7
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
- -----------------------------------------
Report of Independent Public Accountants on Financial Statement Schedule . . . F-24
Schedule II - Valuation and Qualifying Accounts. . . . . . . . . . . . . . . . F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
3D Systems Corporation
We have audited the accompanying consolidated balance sheets of 3D Systems
Corporation and Subsidiaries as of December 31, 1996 and 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of 3D Systems
Corporation and Subsidiaries as of December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
- -------------------------------
Coopers & Lybrand L.L.P.
Los Angeles, California
February 24, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
3D SYSTEMS CORPORATION
Consolidated Balance Sheets
ASSETS December 31, 1996 December 31, 1997
----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,356,441 $ 12,694,831
Restricted cash (Note 17(c)) 722,000 ---
Short-term investments (Note (2d)) 3,759,492 3,498,265
Accounts receivable, less allowances for
doubtful accounts of $406,178 (1996) and
$441,399 (1997) 19,601,383 23,618,237
Current portion of lease receivables (Note 3) 987,362 1,257,006
Inventories (Note 4) 12,309,588 12,164,633
Deferred tax assets (Note 14) 2,958,227 3,319,651
Prepaid expenses and other current assets 2,332,337 2,305,163
----------------- -----------------
Total current assets 67,026,830 58,857,786
Property and equipment, net (Notes 5 and 18) 14,452,504 16,895,011
Licenses and patent costs, net (Note 6 ) 3,660,568 5,464,351
Deferred tax assets (Note 14 ) 1,821,000 3,971,000
Lease receivables, less current portion (Note 3) 3,773,573 3,944,462
Other assets 1,504,382 2,207,109
----------------- -----------------
$ 92,238,857 $ 91,339,719
----------------- -----------------
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,805,930 $ 4,885,831
Accrued liabilities (Note 9) 6,890,343 8,814,193
Current portion of long-term debt (Note 11) 100,000 95,000
Customer deposits 894,111 238,248
Deferred revenues 5,572,892 6,514,868
----------------- -----------------
Total current liabilities 17,263,276 20,548,140
Other liabilities (Note 10) 1,472,991 1,491,534
Long-term debt, less current portion (Note 11) 4,800,000 4,705,000
----------------- -----------------
23,536,267 26,744,674
----------------- -----------------
Commitments and Contingencies (Note 17):
Stockholders' equity (Note 12):
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 11,450,071 and outstanding 11,425,071 (1997) 11,359 11,450
Capital in excess of par value 72,527,768 73,856,965
Accumulated deficit (4,308,471) (8,897,605)
Cumulative translation adjustment 471,934 (210,827)
Treasury stock, at cost, 25,000 shares --- (164,938)
----------------- -----------------
Total stockholders' equity 68,702,590 64,595,046
----------------- -----------------
$ 92,238,857 $ 91,339,719
----------------- -----------------
----------------- -----------------
</TABLE>
F-3
<PAGE>
3D SYSTEMS CORPORATION
Consolidated Statements of Operations
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Sales:
Products $ 43,543,618 $ 53,228,089 $ 59,148,861
Services 19,038,323 26,403,414 31,107,812
-------------- -------------- --------------
Total sales 62,581,941 79,631,503 90,256,673
-------------- -------------- --------------
Cost of sales:
Products 19,328,055 24,893,210 35,462,442
Services 11,935,564 16,905,678 21,744,779
-------------- -------------- --------------
Total cost of sales 31,263,619 41,798,888 57,207,221
-------------- -------------- --------------
Gross profit 31,318,322 37,832,615 33,049,452
-------------- -------------- --------------
Operating expenses:
Selling, general and administrative (Note 18 ) 20,302,494 24,747,871 29,653,342
Research and development (Note 7) 6,108,799 7,665,092 10,990,809
-------------- -------------- --------------
Total operating expenses 26,411,293 32,412,963 40,644,151
-------------- -------------- --------------
Income (loss) from operations 4,907,029 5,419,652 (7,594,699)
Interest income 1,256,597 1,541,229 1,202,176
Interest expense (41,967) (128,860) (356,203)
-------------- -------------- --------------
Income (loss) before income taxes 6,121,659 6,832,021 (6,748,726)
Provision for income taxes (benefit) (Note 14 ) (2,795,663) 2,232,704 (2,159,592)
-------------- -------------- --------------
Net income (loss) $ 8,917,322 $ 4,599,317 $ (4,589,134)
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average shares outstanding 10,246,002 11,322,973 11,397,529
-------------- -------------- --------------
-------------- -------------- --------------
Net income (loss) per common share $ .87 $ .41 $ (.40)
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average shares outstanding
and dilutive shares 10,707,825 11,741,635 11,397,529
-------------- -------------- --------------
-------------- -------------- --------------
Net income (loss) per common share
assuming dilution $ .83 $ .39 $ (.40)
-------------- -------------- --------------
-------------- -------------- --------------
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
3D SYSTEMS CORPORATION
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Common
Stock Capital in Cumulative Total
Par Value Excess of Par Accumulated Translation Treasury Stockholders'
Shares $.001 Value Deficit Adjustment Stock Equity
--------- ---------- ------------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 9,156,050 $ 9,156 $ 37,580,028 $(17,825,110) $ 220,943 $ --- $19,985,017
Issuances of common stock
(Note12) 2,064,842 2,065 31,587,103 --- --- --- 31,589,168
Exercise of stock options
(Note 12 ) 58,340 58 412,871 --- --- --- 412,929
Tax benefit related to non-
qualified stock options --- --- 1,835,000 --- --- --- 1,835,000
Contributed land (Note 18) --- --- 435,600 --- --- --- 435,600
Net income --- --- --- 8,917,322 --- --- 8,917,322
Cumulative translation
adjustment --- --- --- --- (224,581) --- (224,581)
--------- ---------- ------------- ------------- ----------- -------- -----------
Balance at December 31, 1995 11,279,232 11,279 71,850,602 (8,907,788) (3,638) -0- 62,950,455
Exercise of stock options
(Note 12) 79,660 80 484,141 --- --- --- 484,221
Issuance of warrants related to
Keltool acquisition (Note 7) --- --- 193,025 --- --- --- 193,025
Net income --- --- --- 4,599,317 --- --- 4,599,317
Cumulative translation
adjustment --- --- --- --- 475,572 --- 475,572
--------- ---------- ------------- ------------- ----------- --------- -----------
Balance at December 31, 1996 11,358,892 11,359 72,527,768 (4,308,471) 471,934 -0- 68,702,590
Exercise of stock options
(Note 12) 91,179 91 418,361 --- --- --- 418,452
Tax benefit related to non-
qualified stock options --- --- 183,836 --- --- --- 183,836
Issuance of warrants related to
EOS acquisition (Note 7) --- --- 727,000 --- --- --- 727,000
Net income --- --- --- (4,589,134) --- --- (4,589,134)
Cumulative translation
adjustment --- --- --- --- (682,761) --- (682,761)
Purchase of treasury stock (25,000) --- --- --- --- (164,938) (164,938)
--------- ---------- ------------- ------------- ----------- --------- -----------
Balance at December 31, 1997 11,425,071 $ 11,450 $ 73,856,965 $ (8,897,605) $ (210,827) $(164,938) $64,595,045
--------- ---------- ------------- ------------- ----------- --------- -----------
--------- ---------- ------------- ------------- ----------- --------- -----------
</TABLE>
See accompanying notes
to consolidated financial
statements
F-5
<PAGE>
3D SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Cash flows from operating activities: 1995 1996 1997
------------- ------------- ---------------
<S> <C> <C> <C>
Net income $ 8,917,322 $ 4,599,317 $ (4,589,134)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Deferred income taxes (4,846,600) 1,549,717 (2,511,000)
Depreciation of property and equipment 1,801,278 2,506,044 3,755,758
Amortization of licenses and patent costs 515,811 586,243 732,386
Amortization of software development costs 435,758 509,327 495,127
Amortization of intangibles --- --- 162,153
Changes in operating assets and liabilities:
Accounts receivable (7,355,901) (5,104,652) (4,938,252)
Lease receivables --- (4,760,935) (440,533)
Inventories (2,046,571) (5,673,675) (60,641)
Prepaid expenses and other current assets (938,842) (763,492) (38,022)
Other assets (637,799) (986,547) (1,403,621)
Accounts payable 2,599,705 (1,002,793) 1,266,286
Accrued liabilities 2,936,785 232,641 2,128,654
Customer deposits 767,964 (339,194) (655,863)
Deferred revenues 1,334,208 1,758,444 1,047,674
Other liabilities 136,113 (126,681) 70,295
------------- ------------- ---------------
Net cash provided by (used for) operating activities 3,619,231 (7,016,236) (4,978,733)
------------- ------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (5,753,722) (9,431,540) (8,356,351)
Disposition of property and equipment 613,885 1,413,563 2,382,104
Increase in licenses and patent costs (246,275) (719,994) (2,488,947)
Purchase of short term investments --- (8,444,148) (3,498,265)
Proceeds from short term investments --- 4,684,656 3,759,492
------------- ------------- ---------------
Net cash used for investing activities (5,386,112) (12,497,463) (8,201,967)
------------- ------------- ---------------
Cash flows from financing activities:
Net proceeds from stock offering 31,589,168 --- ---
Exercise of stock options and warrants 412,929 484,221 418,452
Repayments of note payable --- --- (100,000)
Tax benefit related to non-qualified stock options 1,835,000 --- 183,836
Restricted cash --- --- 722,000
Proceeds from long term debt --- 4,900,000 ---
Purchase of treasury stock --- --- (164,938)
------------- ------------- ---------------
Net cash provided by financing activities 33,837,097 5,384,221 1,059,350
------------- ------------- ---------------
Effect of exchange rate changes on cash (234,812) 226,992 459,740
------------- ------------- ---------------
Net increase (decrease) in cash and cash equivalents 31,835,404 (13,902,486) (11,661,610)
Cash and cash equivalents at the beginning of the period 6,423,523 38,258,927 24,356,441
------------- ------------- ---------------
Cash and cash equivalents at the end of the period $ 38,258,927 $ 24,356,441 $ 12,694,831
------------- ------------- ---------------
------------- ------------- ---------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 31,556 $ 103,667 $ 346,383
------------- ------------- ---------------
------------- ------------- ---------------
Income taxes $ 461,010 $ 1,708,808 $ 274,509
------------- ------------- ---------------
------------- ------------- ---------------
</TABLE>
See accompanying notes
to consolidated financial
statements
F-6
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1995, 1996 and 1997
(1) ORGANIZATION AND BUSINESS
3D Systems Corporation (the "Company") develops, produces and markets
Stereolithography Apparatus ("SLA") and Actua 2100 systems and related
materials, parts and services. 3D Systems, Inc., a California based
corporation ("3D California"), an indirect wholly-owned subsidiary of the
Company, directly and through its subsidiaries, conducts substantially all
of the Company's business.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany accounts
and transactions have been eliminated in consolidation.
Certain reclassifications have been made to the prior year
consolidated financial statements to conform to the current year
presentation.
(b) SALES AND CONCENTRATION OF CREDIT RISK
Revenues from the sale of the Company's systems and related
products is recognized upon shipment and satisfaction of
significant vendor obligations, if any. The Company provides end
users with up to one year of free maintenance and warranty
services, and defers a portion of its revenues for these costs at
the time of sale. After the initial period, the Company offers
these customers optional maintenance contracts; revenue related to
these contracts is deferred and recognized ratably over the period
of the contract. To date, the Company has not experienced any
significant warranty claims or product returns.
Credit is extended based on an evaluation of each customer's financial
condition. To reduce credit risk in connection with sales of SLA
systems, the Company may, depending upon the circumstances, require
significant deposits prior to shipment and may retain a security
interest in the SLA systems until fully paid. The Company often
requires international customers to furnish letters of credit. To
date, the Company has not incurred any significant credit related
losses.
The Company invests its excess cash in interest bearing deposits with
major banks, commercial paper and money market funds. Although a
majority of the cash accounts exceed the federally insured deposit
amount, management does not anticipate non-performance by the
financial institutions. Management reviews the stability of these
institutions on a periodic basis.
(c) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash
equivalents. The carrying value of these instruments approximates
market value because of their short maturity.
(d) INVESTMENTS
The Company's short-term investments are classified as held to
maturity and recorded at amortized cost under the provisions of SFAS
No. 115.
(e) LEASES
At the inception of a lease, the gross lease receivable, the reserve
for potential losses, the estimated residual value of the leased
equipment and the unearned lease income are recorded. The unearned
lease income represents the excess
F-7
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements, Continued
of the gross lease receivable plus the estimated residual value over the cost
of the equipment leased and is recorded in deferred revenue.
(f) INVENTORIES
Inventories are stated at the lower of cost (determined by the
first-in, first-out method) or market value.
(g) PROPERTY AND EQUIPMENT
Property and equipment is carried at cost and depreciated on a
straight-line basis over the estimated useful lives of the related
assets, generally five years. Leasehold improvements are amortized on
a straight-line basis over their estimated economic useful lives, or
the lives of the leases, whichever is shorter. Realized gains and
losses are recognized upon disposal or retirement of the related
assets and are reflected in results of operations. Repair and
maintenance charges are expensed as incurred.
(h) LICENSES AND PATENT COSTS
Licenses and patent costs are being amortized on a straight-line basis
over their estimated useful lives, which are approximately eight to
seventeen years.
(i) LONG TERM ASSETS
The carrying value of long term assets is periodically reviewed by
management, and impairment losses, if any, are recognized when the
expected nondiscounted future operating cash flow derived from such
assets are less than their carrying value.
(j) CAPITALIZED SOFTWARE COSTS
Certain software development and production costs are capitalized
upon a product's reaching technological feasibility. As of
December 31, 1996 and 1997, the Company had cumulatively capitalized
software development costs of $2,916,664 and $3,418,058,
respectively. Costs capitalized in 1996 and 1997 were $341,082 and
$501,394, respectively. Amortization of software development costs
begins when the related products are available for market.
Amortization expense amounted to $435,758, $509,327 and $495,127 for
1995, 1996 and 1997, respectively, based on the straight-line method
using estimated useful lives of two years. Net capitalized costs
aggregated $524,724 and $530,991 at December 31, 1996 and 1997,
respectively, and are included in other assets in the accompanying
consolidated balance sheets.
(k) FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign operations are
translated at the end of the period exchange rates; revenues and
expenses are translated at the average exchange rates
prevailing during the period. The effect of the unrealized
exchange rate fluctuations on translating foreign currency assets
and liabilities into U.S. dollars are accumulated as a separate
component of stockholders' equity. Gains and losses resulting from
foreign currency transactions are included in operations during the
period realized. The aggregate foreign exchange gains (losses)
included in operations were $143,108, $8,773 and ($478,643) for
1995, 1996 and 1997, respectively. To date, the Company has not
entered into hedging transactions to protect against changes in
foreign currency exchange rates.
(l) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
F-8
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements, Continued
(m) COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
The Company adopted SFAS No. 128, "Earnings Per Share" for the year
ended December 31, 1997, and has restated earnings per common share
for all periods presented in accordance with the new standard . Net
income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of common stock
outstanding during the period. Net income (loss) per common share
assuming dilution is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding plus the
number of additional common shares that would have been outstanding if
all dilutive potential common shares had been issued. Potential
common shares related to stock options and stock warrants and are
excluded from the computation when their effect is antidilutive.
The following is a reconciliation of the numerator and denominator of
the basic and diluted earnings per share (EPS) computations for the
years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
--------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income (loss) - numerator for net income (loss) per
common share and net income (loss) per common share
assuming dilution $ 8,917,322 $ 4,599,317 $(4,589,134)
Denominator:
Denominator for net income (loss) per common share -
weighted average shares 10,246,002 11,322,973 11,397,529
Effect of dilutive securities:
Stock options 461,823 418,662 ---
Denominator for net income (loss) per common share,
assuming dilution
Adjusted weighted average shares and assumed conversions 10,707,825 11,741,635 11,397,529
</TABLE>
Common shares related to stock options and stock warrants that are
antidilutive amounted to approximately 0, 731,666 and 1,872,592
for the years ended December 31, 1995, 1996, and 1997 respectively.
(n) ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expenses
were approximately $1,407,000, and $1,955,000 and $2,946,000 for the
years ended 1995, 1996 and 1997, respectively.
(o) ESTIMATES
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those
estimates.
F-9
<PAGE>
Notes to Consolidated Financial Statements, Continued
(p) STOCK - BASED COMPENSATION
In 1996 the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". This standard establishes a fair value method for
accounting for stock-based compensation plans either through
recognition or disclosures. The Company adopted this standard by
choosing the disclosure option rather than expense recognition. See
Note 12.
(q) RECENT ACCOUNTING PRONOUNCEMENTS
On June 30, 1997, the Financial Accounting Standards Board issued
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 will require additional disclosures for all
periods presented but will not impact reported amounts of net income
(loss) of the Company.
On June 30, 1997, the Financial Accounting Standards Board issued
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.
(3) LEASES
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Total minimum lease payment receivable $ 4,402,152 $ 4,588,034
Estimated unguaranteed residual value 358,783 613,434
------------- -------------
Gross investment in leases 4,760,935 5,201,468
Unearned income (848,228) (979,144)
------------- -------------
Total investment in leases $ 3,912,707 $ 4,222,324
------------- -------------
------------- -------------
Short-term interest in leases $ 691,920 $ 888,510
Long-term interest in leases $ 3,220,787 $ 3,333,814
</TABLE>
Future minimum lease payments to be received as of December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 1,257,006
1999 1,196,619
2000 1,196,619
2001 793,485
2002 144,305
</TABLE>
(4) INVENTORIES
Components of inventories at December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C>
Raw materials $ 4,517,981 $ 2,259,504
Work in process 1,226,627 1,141,702
Finished goods 6,564,980 8,763,427
------------- -------------
$ 12,309,588 $ 12,164,633
------------- -------------
------------- -------------
</TABLE>
F-10
<PAGE>
Notes to Consolidated Financial Statements, Continued
(5) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Land and building $ 4,613,051 $ 4,613,051
Machinery and equipment 12,477,147 15,704,394
Office furniture and equipment 2,302,613 2,713,906
Leasehold improvements 1,809,169 2,100,530
Rented equipment 676,669 906,098
Construction in progress 461,010 1,119,065
------------- -------------
22,339,659 27,157,044
Less accumulated depreciation and
amortization (7,887,155) (10,262,033)
------------- -------------
$ 14,452,504 $ 16,895,011
------------- -------------
------------- -------------
</TABLE>
(6) LICENSES AND PATENT COSTS
Licenses and patent costs, at December 31, 1996 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Licenses, at cost $ 2,582,862 $ 3,607,862
Patent costs 4,852,087 6,274,271
------------- -------------
7,434,949 9,882,133
Less accumulated amortization (3,774,381) (4,417,782)
------------- -------------
$ 3,660,568 $ 5,464,351
------------- -------------
------------- -------------
</TABLE>
(a) In 1996 and 1997, the Company incurred and capitalized $469,995 and
$330,561, respectively, of costs to develop and extend patents in the
United States, Japan, Europe and certain other countries and expensed
previously developed capitalized patent costs of $341,302 and
$392,862, respectively.
(b) Effective January 5, 1990, 3D California acquired the patents for
stereolithography technology from UVP, Inc. ("UVP") in exchange for
$9,075,000, $500,000 of which was paid in cash and $350,000 in
offsets of costs incurred by the Company on behalf of UVP. The
initial payment and offsets ($850,000) have been capitalized and are
being amortized over the remaining life of patents (approximately 5
years at December 31, 1997). The agreement further provided for
payment deferrals during 1990 through 1992 aggregating $950,000. The
Company accrues royalty expense based upon the sales levels of SLA
machines under the agreement, up to a maximum of $8,225,000. In
1995, 1996 and 1997, royalty expense aggregated $567,916, $674,182
and $667,904, respectively, and is included in cost of sales-products
in the accompanying consolidated statements of operations. Royalty
obligations at December 31, 1996 and 1997 are $1,624,182 and
$1,612,450 respectively, and are included in the accompanying
consolidated balance sheets (see Notes 9 and 10). In the event the
Company licenses the acquired technology to a third party, the
Company is required to pay UVP 50% of the royalties it receives up
to an aggregate maximum of $8,225,000, including the Company's
payments based on sales levels of its SLA machines. UVP has retained
a security interest in the purchased technology until the purchase
price is fully paid.
F-11
<PAGE>
Notes to Consolidated Financial Statements, Continued
(c) The excess of the cost of the Company's investment in 3D California
over the related underlying equity in the net assets of the subsidiary
at the date of acquisition ($2,011,707) has been attributed to the
licenses and patents of 3D California and is being amortized on the
same basis as the underlying licenses and patents.
(7) ACQUISITION
a) On September 9, 1996, 3D California, purchased substantially all of the
assets and business operations of Keltool, Inc. ("Keltool"), of St. Paul,
Minnesota, a Company which produces steel tooling for plastic injection
molding machines based on a patented process using sintered powdered
steel. Acquired in-process technology valued at $430,000 was expensed
immediately. The purchase price paid by the Company included $1,740,000
payable in cash (of which $875,000 was paid on September 9, 1996 and
$865,000 paid on October 10, 1996), the assumption of certain liabilities
($13,000) and the value of warrants to purchase 50,000 shares of the
Company's common stock at an exercise price of $14.75 per share
($193,000). The warrants were issued at fair market value and expire on
September 9, 1999.
The allocation of the purchase consideration for Keltool was as follows:
<TABLE>
<CAPTION>
<S> <C>
Trade receivables $ 72,000
Inventory 46,000
Equipment 505,000
In process research and development projects 430,000
Intangible assets 893,000
-------------
$ 1,946,000
-------------
-------------
</TABLE>
The results of operations relating to Keltool from September 9, 1996
through December 31, 1996 are included with those of the Company and were not
significant.
b) On September 22, 1997, the Company completed the acquisition of the rapid
prototyping "Stereos" product line assets and business from EOS GmbH of
Germany, formerly 3D's major European competitor. The acquisition is expected
to enhance the Company's competitive global market position, particularly in
Europe. Under the terms of the agreement, 3D is obligated to pay $3.25
million, subject to certain adjustments based on final determination of the
value of the assets acquired, issued a warrant to buy 150,000 of 3D's common
shares at $8.00 per share exercisable within the three year period following
the closing (valued at $727,000), and granted EOS exclusive licenses to 3D
patents related to laser sintering. Additionally, the Company agreed to settle
all pending patent infringement and unfair competition lawsuits brought against
EOS and an EOS customer.
In accordance with the purchase method of accounting, the purchase price has
been allocated to the underlying assets and liabilities based on their
respective fair values at the date of acquisition. The in-process research
and development was expensed in the quarter ended September 26, 1997 as a
nonrecurring cost after determining that it had not reached technological
feasibility and for which there is no alternative future use.
The total purchase price was allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
In process research and development projects $ 2,045,000
Inventory 360,000
Intangible assets 1,670,000
-------------
$ 4,075,000
-------------
-------------
</TABLE>
F-12
<PAGE>
(8) NOTE PAYABLE
In August 1997 , the Company extended its credit facility with Silicon Valley
Bank ("SVB") (the "Credit Facility"). Under the terms of the agreement, which
remains in effect through August 18, 1998, the Company can borrow from SVB up to
$10,000,000, at prime. The Credit Facility, which is unsecured, contains
certain financial covenants including the maintenance of certain financial
ratios, working capital, tangible net worth as well as covenants limiting
mergers, acquisitions, recapitalizations, dividends, loans to others, and
hypothecation of assets or corporate guarantees. Since inception of the Credit
Facility (June 1993) and at all times through December 31, 1997, the Company has
not utilized the facility.
(9) ACCRUED LIABILITIES
Accrued liabilities at December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Employee related benefits $ 1,948,296 $ 1,853,617
Payroll and related taxes 926,645 1,352,106
Rent 368,575 361,531
Commissions 839,251 708,161
Restructuring --- 771,344
Warranty 397,671 810,244
UVP royalties 674,182 662,450
Sales tax 414,660 400,830
EOS acquisition costs --- 486,484
Other 1,321,063 1,407,426
------------- -------------
$ 6,890,343 $ 8,814,193
------------- -------------
------------- -------------
</TABLE>
(10) OTHER LIABILITIES
Other liabilities at December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Royalty payable $ 950,000 $ 950,000
Retirement plan 329,039 398,676
Other 193,952 142,858
----------- -----------
$ 1,472,991 $ 1,491,534
----------- -----------
----------- -----------
</TABLE>
F-13
<PAGE>
(11) LONG-TERM DEBT
On August 20, 1996, the Company completed a $4.9 million variable rate
industrial development bond financing of its Colorado facility. Interest on
the bonds are payable monthly (the interest rate at December 31, 1997 was
4.05%). Principal payments are payable in semi-annual installments beginning
in February 1997 through August 2016. The bonds are collateralized by an
irrevocable standby letter of credit issued by Norwest Bank Minnesota, N.A.
which is further collateralized by the building and related machinery and
equipment as well as a standby letter of credit issued by SVB in the amount
of approximately $1.3 million. The terms of the letters of credit require
the Company to maintain specific levels of minimum tangible net worth, debt
to equity ratio and quick ratio. Annual maturities of long-term debt are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 95,000
1999 100,000
2000 110,000
2001 120,000
2002 135,000
thereafter 4,240,000
-------------
Total 4,800,000
Less current portion 95,000
-------------
Long-term debt $ 4,705,000
-------------
-------------
</TABLE>
(12) STOCKHOLDERS' EQUITY AND STOCKHOLDERS' RIGHTS PLAN
(a) On March 21, 1995, the Board of Directors approved a one-for-three
reverse stock split of the Company's common stock which was effected
on May 23, 1995. All references in these consolidated financial
statements to the number of shares of common stock and per share
amounts have been retroactively adjusted to reflect the reverse stock
split.
(b) On May 23, 1996, the Company's stockholders approved the 1996 Stock
Incentive Plan (the "1996 Plan") and the 1996 Stock Option Plan for
Non-Employee Directors (the "Director Plan"). The maximum number of
shares of Common Stock that may be issued pursuant to options granted
under the 1996 Plan and Director Plan is 1,300,000 and 200,000,
respectively. Granting of options under both plans expire on March
21, 2006. The 1996 Plan also provides for "reload options", which are
options to purchase additional shares if a grantee uses already-owned
shares to pay for an option exercise. The Company also has a 1989
Plan in which options for substantially all common shares have been
issued as of December 31, 1996. The 1989 Plan expires in 1999 unless
terminated earlier by the Board of Directors. The option price per
share under all plans is equal to the fair market value on the date of
grant. The vesting periods and exercise periods for all plans, except
the Director Plan, are determined at the discretion of the
Compensation Committee of the Board of Directors. The majority of
options issued under the 1996 Plan and the 1989 Plan vest 25%
annually, commencing one year from the date of grant and expire
between six and ten years from date of grant. Under the Director
Plan, each non-employee director ("outside director") of the Company
will automatically be granted annually non-statutory stock options to
purchase 7,500 shares of Common Stock. Each option issued under the
Director Plan vests in equal annual installments over a three year
period beginning on the first anniversary and expires ten years from
the date of grant. Prior to the adoption of the Director Plan, each
outside director was automatically granted annually non-statutory
stock options to purchase 3,333 shares of Common Stock under the 1989
Plan, as amended, beginning in 1993.
F-14
<PAGE>
A summary of the status of the Company's stock options is summarized
below:
<TABLE>
<CAPTION>
1995 1996 1997
-----------------------------------------------------------------------
Wgtd. Wgtd. Wgtd.
Avg. Avg. Avg.
Exer. Exer. Exer.
Shares Price Shares Price Shares Price
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 735,686 $ 5.89 688,990 $ 6.12 1,549,419 $11.91
Granted 25,600 16.55 961,401 15.51 524,633 8.86
Exercised (58,340) 7.08 (87,091) 6.52 (97,849) 4.85
Lapsed or canceled (13,956) 9.44 (13,881) 7.21 (303,618) 17.48
---------- ----------- ----------
Outstanding at year end 688,990 6.12 1,549,419 11.91 1,672,585 10.30
---------- ----------- ----------
---------- ----------- ----------
Options exercisable at year end 525,383 472,135 649,657
Options available for future grant 164,655 717,114 496,120
Weighted average fair value of
options granted during the year:
$ 7.99 $ 10.50 $ 4.75
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- ----------------------------
Wgtd. Avg.
Number Remaining Wgtd. Avg. Number Wgtd. Avg.
Outstanding Contractual Exercise Outstanding Exercise
Range of Exercise Price: at 12/31/97 Life Price at 12/31/97 Price
------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
$3.00 to 4.99 243,251 2.62 $ 4.82 243,251 $ 4.82
5.00 to 9.99 593,199 7.98 7.38 161,067 5.39
10.00 to 14.99 603,835 8.50 10.54 180,097 10.68
15.00 to 19.99 11,999 5.41 17.26 7,667 12.11
20.00 to 24.50 220,301 8.08 23.19 57,575 23.24
--------- -------
1,672,585 7.38 10.30 649,657 8.31
--------- -------
--------- -------
</TABLE>
As of December 31, 1997, options for 320,200 shares, 140,000 shares
and 35,920 shares of Common Stock were available for grant under the
1996 Plan, Director Plan and 1989 Plan, respectively (496,120 shares
in the aggregate).
The 1996 Plan and 1989 Plan also provide for the issuance of Stock
Appreciation Rights (SARs) and Limited Stock Appreciation Rights
(LSARs). As of December 31, 1996, no SARs or LSARs have been issued.
(c) On June 26, 1995, the Company issued 1,583,334 shares of common
stock pursuant to a public offering of its common stock at $16.75
per share (the "Offering"). On June 29, 1995, the underwriters
exercised their option to purchase an additional 465,000 shares to
cover overallotments related to the Offering (the "Overallotment").
Net proceeds from the Offering (including the Overallotment),
after deducting underwriting discounts, commissions and related
cash expenses was approximately $31,500,000. Concurrent with the
Offering, the Company's bank exercised its warrant to purchase
16,666 shares of common stock at a price of $4.32 per share
($71,997 in the aggregate).
(d) In December 1995, the Company's Board of Directors adopted a
Shareholders Rights Plan (the "Plan"). Under the provisions of the
Plan, the Company distributed to its stockholders, rights entitling
the holders to purchase one-
F-15
<PAGE>
hundredth of a share of Series A Preferred Stock for each share of
Common Stock then held at an exercise price of $75. Upon the
occurrence of certain "triggering events," each right entitles its
holder to purchase, at the rights then-current exercise price, a
number of shares of common stock of the Company having a market value
equal to twice the exercise price. A triggering event occurs ten
days following the date a person or group (other than an "Exempt
Person"), without the consent of the Company's Board of Directors,
acquires 15% or more of the Company's common stock or upon the
announcement of a tender offer or an exchange offer, the consummation
of which would result in the ownership by a person or group of 15%
or more of the Company's common stock. An Exempt Person includes
Ciba Specialty Chemicals Holding, Inc. (formerly Ciba-Geigy Limited)
("CSC Holding"), which beneficially owned approximately 15.1% of the
issued and outstanding common stock of the Company at December
31, 1996. The Plan permits CSC Holding to increase its ownership
position in the Company up to 28.7% of the issued and outstanding
common stock of the Company without losing its status as an Exempt
Person. The rights will expire on December 3, 2005.
(e) On May 6, 1997, the Company announced that its board of directors had
authorized the Company to buy up to 1.5 million of its shares in the
open market and through private transactions. During 1997 the
Company purchased 25,000 of its own shares for approximately $165,000.
The Company will continue to acquire additional shares from time to
time at prevailing market prices, at a rate consistent with the
combination of corporate cash flow and market conditions.
(f) The Company has adopted the disclosure-only option under SFAS No.
123, "Accounting for Stock Based Compensation," as of December 31,
1996. Pro forma information regarding net income and earnings per
share is required by SFAS No. 123, and has been determined as if the
Company had accounted for the Plans under the fair value method of
the Statement. The fair value of options issued under the Plans was
estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions: no dividend
yield, volatility factor of the expected market price of the Company's
common stock of .60 for 1995 and 1996 and .58 for 1997, a forfeiture
rate of .05 for 1995 and 1996 and zero for 1997, a weighted-average
expected life of the options of 3.5 years, 4.0 years and 3.9 years
for 1995, 1996 and 1997, respectively and a risk-free interest rate
of 6.28%, 6.24% and 6.28% for 1995, 1996 and 1997, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma net income (loss), net income (loss) per common
share and net income (loss) per common share assuming dilution would
approximate the following:
<TABLE>
<CAPTION>
As Reported Pro Forma
--------------- --------------
<S> <C> <C>
Year Ended December 31, 1997:
Net income (loss) $ (4,589,134) $ (6,943,277)
Net income (loss) per share (.40) (.61)
Net income (loss) per share assuming dilution (.40) (.61)
Year Ended December 31, 1996:
Net income $ 4,599,317 $ 3,473,417
Net income per share .41 .31
Net income (loss) per share assuming dilution .39 .30
Year Ended December 31, 1995:
Net income $ 8,917,322 $ 8,888,952
Net income per share .87 .87
Net income (loss) per share assuming dilution .83 .83
</TABLE>
The effects of applying SFAS No. 123 in this proforma disclosure are
not indicative of future amounts. SFAS No. 123 does not apply to
awards prior to 1995, and additional awards in future years are
anticipated.
F-16
<PAGE>
(13) RELATED PARTY TRANSACTIONS
During 1995, 1996 and 1997, the Company purchased materials from an
indirect wholly-owned subsidiary of CSC Holding (a 15.1% beneficial
stockholder of the Company) aggregating approximately $5,984,000,
$6,457,000 and $8,831,000, respectively. Sales in 1995, 1996 and 1997
amounted to approximately $772,000, $253,000 and $131,000. Approximately
$441,000 of net accounts receivable and $68,000 of net accounts payable are
included in the accompanying consolidated balance sheet at December 31,
1996 and December 31, 1997, respectively.
(14) INCOME TAXES
The components of the Company's pretax income are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- ---------------
<S> <C> <C> <C>
Domestic $ 6,417,867 $ 9,126,264 $ (5,692,955)
Foreign (296,208) (2,294,243) (1,055,771)
------------- ------------- ---------------
Total $ 6,121,659 $ 6,832,021 $ (6,748,726)
------------- ------------- ---------------
------------- ------------- ---------------
</TABLE>
The components of the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Research tax credits $ 1,985,000 $ 2,274,000
Alternative minimum tax credits 360,000 369,000
California manufacturer credit 62,000 202,000
Net operating loss carryforwards 2,800,000 5,252,000
Inventory reserves 707,000 614,000
Accrued liabilities 1,228,000 1,486,000
Allowance for doubtful accounts 158,000 194,000
Patents and licenses 469,000 748,000
Property and equipment (excess tax
basis over book basis) 304,227 ---
Deferred compensation 57,000 7,000
Other --- 65,000
----------------- -----------------
Total deferred tax assets 8,130,227 11,211,000
Valuation allowance (1,763,000) (2,114,000)
----------------- -----------------
Net deferred tax assets 6,367,227 9,097,000
----------------- -----------------
Deferred tax liabilities:
Deferred lease revenue 1,328,000 1,369,000
Software development 250,000 212,000
Property and equipment (excess book
basis over tax basis) --- 214,000
Other 10,000 11,349
----------------- -----------------
Total deferred tax liabilities 1,588,000 1,806,349
----------------- -----------------
Net deferred tax assets $ 4,779,227 $ 7,290,651
----------------- -----------------
----------------- -----------------
</TABLE>
F-17
<PAGE>
The valuation allowance for deferred taxes was increased by $351,000 during
1997 primarily due to foreign net operating losses. Recognition of deferred
tax assets of $3,012,118 or $.28 per share of common stock in 1995 was based
on the Company's recent positive income trend and estimates of future taxable
income. Although realization is not assured, management believes it is more
likely than not that the Company will realize the benefit of the net deferred
tax assets. The amount of the net deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced. Additionally, the
valuation allowance at December 31, 1996 and 1997 relates exclusively to
foreign deferred tax assets.
The components of income tax expense (benefit) for the years ended December
31, 1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
Current: 1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
U.S. federal $ 159,860 $ 417,733 $ 292,056
State 32,657 244,080 29,673
Foreign 23,938 20,000 60,890
----------- ----------- -----------
Total current 216,455 681,813 382,619
----------- ----------- -----------
Deferred:
U.S. federal (2,760,000) 1,037,000 (2,120,593)
State (283,000) 533,000 (421,194)
Foreign 30,882 (19,109) (424)
----------- ----------- -----------
Total deferred (3,012,118) 1,550,891 (2,542,211)
----------- ----------- -----------
Total income tax expense (benefit) $ (2,795,663) $ 2,232,704 $ (2,159,592)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The overall effective tax rate differs from the statutory federal tax rate
for the years ended December 31, 1995, 1996 and 1997, as follows:
<TABLE>
<CAPTION>
% of Pretax Income (Loss)
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Tax provision based on the federal statutory rate 34.0% 34.0% (34.0)%
Alternative minimum taxes 2.6 1.8 ---
State taxes, net of federal benefit (2.7) 7.5 (3.9)
Utilization of net operating losses (34.0) (17.8) ---
Foreign net operating losses with no benefit
recognition 2.3 16.9 6.1
Research tax credits --- (11.7) ---
Foreign taxes .9 --- .9
Recognition of deferred tax assets (48.8) --- ---
Foreign sales corporation benefit --- (2.1) (1.4)
Other --- 4.1 .3
----------- ------------ -----------
(45.7)% 32.7% (32.0)%
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
F-18
<PAGE>
As of December 31, 1997, the Company has net operating loss carryforwards
for United States federal income taxes and foreign income tax purposes of
approximately $9,847,000 and $5,011,000 respectively. The United States
federal net operating loss carryforwards expire through 2017, and the
foreign net operating loss carryforwards expire through 2002, except for
certain operating losses which do not expire. Ultimate utilization of
these loss carryforwards is dependent on future taxable earnings of the
Company.
Approximately $4,813,000 of the United States federal and $1,586,000 of
state net operating loss carryforwards at December 31, 1994 related to tax
benefits available to the Company as a result of stock options exercised.
The tax benefit was credited to capital in excess of par value in 1995.
The Company has research and experimentation tax credit carryforwards for
United States federal and state income tax purposes of $1,504,000 and
$770,000 respectively, which are available through December 31, 2007 and
2008, respectively.
In addition, the Company has alternative minimum tax credit carryforwards
for United States federal and state income tax purposes at December 31,
1997 of $340,000 and $29,000, respectively.
(15) EMPLOYEE BENEFIT PLAN
In 1989, 3D California adopted a defined contribution 401(k) plan (the
"Plan") for its employees. Employees must be at least 21 years of age and
must have at least 6 consecutive months of service with the Company to be
eligible for the Plan. Participants may contribute between 1% and 15% of
their compensation to the Plan. The Company may make discretionary
matching contributions limited to 50% of the employee contribution up to a
maximum of 3-1/2% of the employee's compensation or discretionary profit
sharing contributions. Participants are fully and immediately vested in
employee contributions and vest in employer contributions over a four year
period. For the years ended December 31, 1995 and 1996 the Company
accrued profit sharing contributions of $200,000 and $229,966,
respectively, which were funded on March 12, 1996 and March 5, 1997,
respectively. No profit sharing was accrued for the year ended
December 31, 1997.
F-19
<PAGE>
(16) GEOGRAPHIC SALES INFORMATION
All of the Company's assets are devoted to the manufacture and sale of
Company systems , together with related supplies and services.
Summarized data for the Company's operations are as follows:
<TABLE>
<CAPTION>
Rest of
USA Germany Europe Asia Eliminations Total
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
For the year ended December 31, 1995:
Sales to unaffiliated customers $ 40,554 $ 10,219 $ 6,429 $ 5,380 $ --- $ 62,582
Inter-area sales 9,648 --- --- --- (9,648) ---
Income (loss) from operations 6,168 (380) 24 --- (905) 4,907
Identifiable assets at December 31, 1995 70,363 8,405 4,680 --- (1,897) 81,551
For the year ended December 31, 1996:
Sales to unaffiliated customers 52,727 10,694 10,948 5,263 --- 79,632
Inter-area sales 12,577 102 --- --- (12,679) ---
Income (loss) from operations 7,166 (2,276) (148) --- 678 5,420
Identifiable assets at December 31, 1996 76,432 7,682 8,333 --- (208) 92,239
For the year ended December 31, 1997:
Sales to unaffiliated customers 52,830 16,132 12,685 8,610 --- 90,257
Inter-area sales 17,671 510 377 --- (18,558) ---
Income (loss) from operations (6,481) (64) (810) --- (240) (7,595)
Identifiable assets at December 31, 1997 69,657 12,964 8,788 183 (252) 91,340
</TABLE>
Inter-area sales to the Company's foreign subsidiaries are recorded at
amounts consistent with prices charged to distributors, which are above
cost.
(17) COMMITMENTS AND CONTINGENCIES
(a) The Company leases its facilities under noncancelable operating leases
expiring through December 2002. The leases are generally on a
net-rent basis, whereby the Company pays taxes, maintenance and
insurance. Leases that expire are expected to be renewed or replaced
by leases on other properties. Rental expense for the years ended
December 31, 1995, 1996 and 1997 aggregated approximately
$1,192,000, $1,642,000 and $2,575,000 respectively.
Minimum annual rental commitments under the leases at December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1998 $ 2,412,800
1999 2,180,000
2000 2,019,300
2001 1,569,300
2002 1,299,300
thereafter 1,630,100
---------------
$ 11,110,800
---------------
---------------
</TABLE>
F-20
<PAGE>
(b) 3D California is a party to an agreement with Ciba Specialty Chemicals
Inc. ("CSC") and certain of its subsidiaries (the "Photopolymer
Research Agreement"), dated August 15, 1990, relating to the research
and development of photopolymers, photopolymerizable monomers and
photoinitiators for use with stereolithography technology. The
agreement obligates each of the parties to cooperate in the
development of photopolymers, photopolymerizable monomers and
photoinitiators. The agreement provides that the parties shall deal
exclusively with each other in the development of stereolithographic
products except that: (a) 3D California may recommend to its
customers products produced by suppliers other than CSC in the event
that another supplier produces products suitable for stereolithography
and CSC cannot produce a product with similar performance parameters,
(b) 3D California may pursue the development of certain products
developed pursuant to the agreement if CSC determines it has no
capabilities or interest in such products, (c) CSC may cooperate in
developing competing products if such products involve new fields of
technology in which 3D California does not have and is not able within
a reasonable time to develop expertise.
As part of the Photopolymer Research Agreement, the parties have
agreed that if a change in control of the Company or 3D California
should occur, then at the option of CSC, 3D California will be
required to pay CSC an amount equal to CSC's "deferred research and
development costs", up to $10 million. A "change in control" is
defined to have occurred only if a person, or group of related
persons, becomes the beneficial owner of in excess of 31.4% of the
Company's outstanding voting securities (such percentage to be ratably
increased in the event of any sale by a CSC affiliate of any of its
shares of the Company's shares of common stock), unless approved by
CSC, or its indirect nominees to the Board of Directors of the
Company. "Deferred Research and Development Costs" means all costs
incurred by CSC during the five full fiscal years immediately
preceding the occurrence of a change in control, multiplied by two.
The existence of this provision may deter potential acquirers from
seeking to acquire the Company, or a significant interest in the
equity securities of the Company.
In connection with the Photopolymer Research Agreement, 3D
California entered into a Photopolymer Distribution Agreement with
a subsidiary of CSC, dated as of July 1, 1990, pursuant to which 3D
California is the exclusive worldwide distributor of photopolymers
manufactured by CSC. At the request of 3D California, an affiliate
of CSC currently sells such photopolymers in Japan to 3D
California's Japanese distributor. Subject to certain conditions,
so long as CSC provides adequate supplies, 3D California is
required to fill all of its requirements for its photopolymers
through purchases from CSC. In order to maintain its exclusive
distribution rights, 3D California must meet certain quotas based
on the dollar value of products purchased from CSC on an annual
basis as set forth in the agreement. 3D California has in the past
failed to meet quotas established under the agreement and, in May
1995, 3D California and CSC mutually agreed to reduce the quotas to
levels which 3D California believes should be commercially
obtainable. Subject to certain conditions, the agreement will
remain in effect until June 30, 1997 and will continue thereafter
until either party gives the other six months advance notice of
termination.
(c) On May 24, 1993, 3D Systems, Inc. and its wholly-owned German
subsidiary, 3D Systems GmbH (both referred to as "3D") filed a patent
infringement lawsuit against EOS, a European competitor, seeking
compensation from EOS for infringing patents owned by 3D.
On November 2, 1994, 3D GmbH filed a patent infringement lawsuit
against Leopold Kostal GmbH & Co., a German customer of EOS, seeking
compensation from Kostal for infringing patents owned by 3D, as well
as an injunction barring Kostal from using the EOS equipment.
In August, 1997, these lawsuits were settled as part of an agreement
under which 3D also acquired the stereolithography-related assets of
EOS, with each of the parties bearing their own expenses. The lawsuit
against EOS was officially withdrawn on October 6, 1997. The lawsuit
against Kostal was officially withdrawn on October 1, 1997. Neither
lawsuit may be reinstituted. Accordingly, the court order which
required 3D to post a performance bond in the amount of 1.1 million
Deutchmarks to cover certain potential legal fees in the event of an
unfavorable outcome to 3D was also withdrawn and the restriction on
cash eliminated.
(d) On January 13, 1997, 3D Systems, Inc. (the "Company") filed a
complaint ("Complaint") in the United States District Court, Central
District of California, against Aarotech Laboratories, Inc.
("Aarotech"), Aaroflex, Inc. ("Aaroflex") and Albert C. Young
("Young"). Aaroflex is the parent corporation of Aarotech. Young is
the Chairman of the Board and
F-21
<PAGE>
Chief Executive Officer of boh Aarotech and Aaroflex. The Complaint
alleges that stereolithography equipment manufactured by Aaroflex
infringes on six of the Company's patents. The Company seeks damages
and injunctive relief from the defendants. The defendants have
threatened to sue the Company for trade libel. To date, the
defendants have not filed such a suit.
The defendants filed a motion to dismiss the complaint or transfer the
case to their home district in Virginia. The Court granted this
motion to dismiss on the grounds of lack of personal jurisdiction.
The Company has filed an appeal of this ruling to the Federal Court of
Appeals, where it is currently pending, with a date for oral hearing
set for March 2, 1998. In October 1997, defendants asserted that
since they prevailed on their motion to dismiss, they were entitled to
Rule 11 sanctions in the amount of $137,139 to be paid by Loeb & Loeb
LLP and/or 3D. Defendants served discovery requests directed to these
Rule 11 sanctions issues. Subsequently, the trial court ruled that
the question of whether defendants may conduct Rule 11 discovery must
await the outcome of the pending appeal. A Rule 11 sanctions motion
has not yet been served or filed.
(e) CENTURI CORP., DBA ESTES INDUS., COX ACQUISITION CORP., DBA COX V. 3D
SYSTEMS CORP., ROGERS TOOL & DIE, L.A.S.C. Case No. BC 177962 (filed
September 16, 1997) (FDH/RSC).
In January 1997, 3D Systems, Inc. entered into two contracts with
Centuri Corp., dba Estes Indus., Cox Acquisition Corp., dba Cox
("Cox") under which 3D was to create certain tooling for Cox. Cox
purported to terminate the contracts in or about August 1997.
On September 16, 1997, Cox initiated a lawsuit against 3D for Breach
of Oral Contract, Fraud, Negligent Misrepresentation, Conversion,
Money Had and Received, and Accounting. The suit also named Rogers
Tool & Die, another contractor hired by Cox to work with 3D in
creating the tooling. Cox contended that it was damaged by 3D's and
Rogers' alleged inability to timely complete the contracts. On
October 31, 1997, 3D demurred to Cox's Verified Complaint. Rogers
joined in 3D's demurrer. 3D's demurrer contended that written, not
oral, contracts governed the relationship of the parties, that the
Complaint did not adequately plead the required elements of fraud,
that the Complaint failed to state a claim for Negligent
Misrepresentation, Conversion, and Money Had and Received, and that
Accounting was not actually a cognizable cause of action, but an
equitable remedy.
After a hearing on December 2, 1997, the Court sustained 3D's
demurrer, ordering Cox to file an amended complaint. On January 29,
1998, Cox filed a Verified Amended Complaint, asserting causes of
action for Breach of Written Contract, Fraud, and Negligent
Misrepresentation. The Verified Amended Complaint also stated
identical claims against Rogers. 3D's current response date is March
16, 1998.
The Company believes that the case has no merit and intends to
vigorously defend this action.
(f) Many computer systems experience problems handling dates beyond the
year 1999. Therefore, some computer hardware and software will need
to be modified prior to the year 2000 in order to remain functional.
The Company is assessing both the internal readiness of its computer
systems and the compliance of its computer products and software sold
to customers for handling the year 2000. The Company expects to
implement successfully the systems programming changes necessary to
address year 2000 issues, and does not believe that the cost of such
actions will have a material effect on the Company's results of
operations or financial condition. There can be no assurance,
however, that there will not be a delay in, or increased costs
associated with, the implementation of such changes, and the inability
to implement such changes could have an adverse effect on future
results of operations.
(18) COLORADO FACILITY
On October 30, 1995, the Company executed an agreement with the Mesa County
Economic Development Council, Inc. ("MCEDC") in connection with the
Company's relocation of its manufacturing and customer support operations
from Valencia, California to Grand Junction, Colorado (the "Relocation").
The Relocation provided for the Company's construction of a 67,000 square
foot facility in Grand Junction (the "Facility") at a cost of approximately
$4 million. During the fourth quarter of 1995, the Company recognized
$850,000 of expenses associated with the Relocation (consisting primarily
of employee moving allowances and travel expenses and severance of an
estimated 28 manufacturing employees) and is included in selling, general
and administrative expenses in the accompanying consolidated statement of
operations for the year ended December 31, 1995.
F-22
<PAGE>
In consideration for the Company's construction of its Facility along with
certain other intentions by the Company including the employment of at
least 100 people (including 70 local new hires), the payment of certain
minimum wage rates at the Facility, and the maintenance of the Facility for
a period of at least seven years, MCEDC granted to the Company certain
economic incentives, including ten acres of land. The value of the
incentives, estimated to worth approximately $775,000, vest
(subject to certain limitations and conditions) to the Company equally over
a seven year period beginning July 1, 1996. As of December 31, 1995, the
Company recorded the value of ten acres of land ($435,600) provided to the
Company under the MCEDC agreement and credited capital in excess of par
value.
(19) SUBSEQUENT EVENTS
In connection with the Company Stock Buy Back Plan during January 1998, the
Company purchased 200,000 of its own shares at an approximate aggregate
amount of $1,375,000. The Company will continue to acquire additional
shares from time to time at prevailing market prices, at a rate consistent
with the combination of corporate cash and market conditions.
(20) SELECTED QUARTERLY FINANCIAL DATA (unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------
Mar. 29, June 28, Sept. 27, Dec. 31, Mar. 28, June 27, Sept. 26, Dec. 31,
1996 1996 1996(a) 1996(b) 1997 1997 1997(c) 1997(d)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total sales $19,167 $18,555 $19,790 $22,120 $21,459 $21,803 $22,294 $24,701
Gross profit 9,512 8,959 9,498 9,864 8,669 8,455 8,425 7,500
Total operating expenses 8,028 8,051 8,299 8,035 8,321 9,182 11,979 11,162
Income (loss) from operations 1,484 908 1,199 1,829 348 (726) (3,554) (3,663)
Income tax expense (benefit) 812 478 511 432 253 (181) (1,212) (1,020)
Net income (loss) 1,121 801 1,015 1,662 388 (279) (2,135) (2,563)
Net income(loss) per common share .10 .07 .09 .15 .03 (.02) (.19) (.22)
Net income (loss) per common share
assuming dilution .10 .07 .09 .14 .03 (.02) (.19) (.22)
</TABLE>
(a) Includes write off of $430,000 of in-process technology relative to
the Keltool acquisition. See Note 7.
(b) Includes the recognition of $798,000 of additional research tax
credits. See Note 14.
(c) Includes write off of approximately $2.1 million of in-process
technology relative to the EOS acquisition. See Note 7.
(d) Includes write off of approximately $2.1 million primarily related to
inventory adjustments and European restructuring.
Per share amounts for each of the quarterly periods presented do not
necessarily add up to the total presented for the year since each amount is
independently calculated.
The Company presents its quarterly results 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.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors
3D Systems Corporation
Our report on the consolidated financial statements of 3D Systems Corporation
and Subsidiaries is included on page F-2 of this Form 10-K. In connection
with our audits of such financial statements, we have audited the related
financial statement schedule as of December 31, 1995, 1996 and 1997 and for
each of the three years in the period ended December 31, 1997, as listed on
the index on page F-1 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND L.L.P.
- ------------------------------
Coopers & Lybrand L.L.P.
Los Angeles, California
February 24, 1998
F-24
<PAGE>
SCHEDULE II
3D SYSTEMS CORPORATION
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
YEAR ENDED ITEM OF YEAR EXPENSES DEDUCTIONS YEAR
- ---------------- ---------------------------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
1995 Inventory obsolescence reserve $ 705,928 $ 851,472 $ (360,917) $ 1,196,483
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
1996 Inventory obsolescence reserve $ 1,196,483 $ 47,596 $ (992,746) $ 251,333
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
1997 Inventory obsolescence reserve $ 251,333 $ 981,335 $ (683,847) $ 548,821
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
1995 Allowance for doubtful accounts $ 343,321 $ 144,373 $ (119,295) $ 368,399
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
1996 Allowance for doubtful accounts $ 368,399 $ 119,412 $ (81,633) $ 406,178
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
1997 Allowance for doubtful accounts $ 406,178 $ 351,179 $ (315, 958) $ 441,399
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
1995 Deferred tax valuation allowance $ 7,118,012 $ --- $ (6,281,012) $ 837,000
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
1996 Deferred tax valuation allowance $ 837,000 $ 926,000 $ --- $ 1,763,000
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
1997 Deferred tax valuation allowance $ 1,763,000 $ 351,000 $ --- $ 2,114,000
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
</TABLE>
F-25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
3D SYSTEMS CORPORATION
By: /s/ FRANK J. SPINA
--------------------------------------------------
Frank J. Spina
Vice President, Finance and Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)
Date: MARCH 26, 1998
-------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Date Title
- --------- ---- -----
/s/ ARTHUR B. SIMS March 26, 1998 Chief Executive Officer and
- ----------------------- Chairman of the Board of Directors
(Principal Executive Officer)
/s/ FRANK J. SPINA March 26, 1998 Chief Financial Officer and Vice
- ----------------------- President, Finance (Principal Financial
Officer and Principal Accounting
Officer)
/s/ CHARLES W. HULL March 26, 1998 Vice Chairman, Chief Technical Officer
- ----------------------- and Director
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Date Title
- --------- ---- -----
/s/ RICHARD D. BALANSON March 26, 1998 President, Chief Operating Officer
- ----------------------- and Director
/s/ DONALD S. BATES March 26, 1998 Director
- -----------------------
/s/ MIRIAM V. GOLD March 26, 1998 Director
- -----------------------
/s/ JIM D. KEVER March 26, 1998 Director
- -----------------------
</TABLE>
F-27
<PAGE>
[LOGO] SILICON VALLEY BANK
AMENDMENT TO LOAN AGREEMENT
BORROWER: 3D SYSTEMS, INC.
ADDRESS: 26081 AVENUE HALL
VALENCIA, CALIFORNIA 91355
BORROWER: 3D SYSTEMS, INC.
ADDRESS: 26081 AVENUE HALL
VALENCIA, CALIFORNIA 91355
BORROWER: 3D SYSTEMS INC. LIMITED
ADDRESS: UNIT 7, PROGRESSION CENTRE
MARK ROAD, HEMEL HEMPSTEAD
HERTS HP2 7DW
ENGLAND
BORROWER: 3D SYSTEMS FRANCE SARL
ADDRESS: PARK CLUB UNIVERSITE,
RUE JEAN ROSTAND #26
BLDG. R
ORSAY CEDEX F-91893
FRANCE
BORROWER: 3D SYSTEMS GmbH
ADDRESS: RONTGENSTRASSE 41, DARMSTADT-
ARHEILGEN 63291
GERMANY
DATE: AUGUST 18, 1997
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrowers named above (jointly and severally, the
"Borrower").
The Parties agree to amend the Loan and Security Agreement between them,
dated June 2, 1993, as amended by that Amendment to Loan Agreement dated
August 3, 1994, as amended by that Amendment to Loan Agreement dated July 5,
1995, as amended by that Amendment to Loan Documents dated July 5, 1996 (as
so amended and as otherwise amended from time to time, the "Loan Agreement"),
as follows, effective as of the date hereof. (Capitalized terms used but not
defined in this Amendment, shall have the meanings set forth in the Loan
Agreement.)
-1-
<PAGE>
1. AMENDMENT TO SCHEDULE. The Schedule to the Loan and Security
Agreement is amended effective on the date hereof, to read as set forth on the
Schedule hereto.
2. FEE. Borrower shall pay to Silicon a fee in the amount of $10,000 in
connection herewith, which shall be in addition to interest and all other
amounts payable hereunder, and which is not refundable.
3. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
4. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
BORROWER: BORROWER:
3D SYSTEMS, INC. 3D SYSTEMS INC. LIMITED
BY_______________________________ BY_______________________________
PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT
BY_______________________________ BY_______________________________
SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY
BORROWER: BORROWER:
3D SYSTEMS FRANCE SARL 3D SYSTEMS GmbH
BY_______________________________ BY_______________________________
PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT
BY_______________________________ BY_______________________________
SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY_______________________________
TITLE____________________________
-2-
<PAGE>
GUARANTORS' CONSENT
The undersigned, guarantors, acknowledge that their consent to the
foregoing Amendment is not required, but the undersigned nevertheless do hereby
consent to the foregoing Amendment and to the documents and agreements referred
to therein and to all future modifications and amendments thereto, and to any
and all other present and future documents and agreements between or among the
foregoing parties. Nothing herein shall in any way limit any of the terms or
provisions of the Cross-Corporate Continuing Guaranty executed by the
undersigned in favor of Silicon, which is hereby ratified and affirmed and shall
continue in full force and effect.
3D SYSTEMS, INC. 3D SYSTEMS FRANCE SARL
By:__________________________________ By:__________________________________
Title:_______________________________ Title:_______________________________
3D SYSTEMS INC. LIMITED 3D SYSTEMS GmbH
By:__________________________________ By:__________________________________
Title:_______________________________ Title:_______________________________
3D SYSTEMS CORPORATION 3D SYSTEMS (CANADA) INC.
By:___________________________________ By:_________________________________
Title:________________________________ Title:_______________________________
-3-
<PAGE>
[LOGO] SILICON VALLEY BANK
AMENDED SCHEDULE
TO
LOAN AND SECURITY AGREEMENT
BORROWER: 3D SYSTEMS, INC.
ADDRESS: 26081 AVENUE HALL
VALENCIA, CALIFORNIA 91355
BORROWER: 3D SYSTEMS INC. LIMITED
ADDRESS: UNIT 7, PROGRESSION CENTRE
MARK ROAD, HEMEL HEMPSTEAD
HERTS HP2 7DW
ENGLAND
BORROWER: 3D SYSTEMS FRANCE SARL
ADDRESS: PARK CLUB UNIVERSITE,
RUE JEAN ROSTAND #26
BLDG. R.
ORSAY CEDEX F-91893
FRANCE
BORROWER: 3D SYSTEMS GmbH
ADDRESS: RONTGENSTRASSE 41, DARMSTADT-
ARHEILGEN 63291
GERMANY
DATE: AUGUST 18, 1997
CREDIT LIMIT
(Section 1.1): An amount not to exceed $10,000,000 on a joint and
aggregate basis for 3D Systems, Inc., 3D Systems Inc.
Limited, 3D Systems France SARL, and 3D Systems GmbH,
at any one time outstanding.
BORROWER LETTER OF
CREDIT SUBLIMIT Silicon, in its reasonable discretion, will from
time to time during the term of this Agreement issue
letters of credit (in addition to the IRB Letter of
Credit) for the account of the Borrower ("Letters of
Credit"), in an aggregate amount at any one time
outstanding not to exceed $2,500,000 *, upon the
request of the Borrower, provided that, on the date
the Letters of Credit are to be issued,
Borrower has available to it Accounts Loans in
an amount equal to or greater than the face
amount of the Letters of Credit to be issued.
Prior to the issuance of any Letters of Credit,
Borrower shall execute and deliver to Silicon
Applications for Letters of Credit and such
other documentation as Silicon shall specify
(the "Letter of Credit Documentation"). Fees
for the Letters of Credit shall be as provided
in the Letter of Credit
-1-
<PAGE>
Documentation. Letters of Credit may have a
maturity date up to twelve months beyond the
Maturity Date in effect from time to time,
provided that if on the Maturity Date, or on
any earlier effective date of termination,
there are any outstanding letters of credit
issued by Silicon or issued by another
institution based upon an application,
guarantee, indemnity or similar agreement on
the part of Silicon, then on such date Borrower
shall provide to Silicon cash collateral in an
amount equal to the face amount of all such
letters of credit plus all interest, fees and
cost due or to become due in connection
therewith, to secure all of the Obligations
relating to said letters of credit, pursuant to
Silicon's then standard form cash pledge agreement.
*ON A JOINT AND AGGREGATE BASIS FOR 3D SYSTEMS,
INC., 3D SYSTEMS INC. LIMITED, 3D SYSTEMS
FRANCE SARL, AND 3D SYSTEMS GmbH
LETTERS OF CREDIT SHALL INCLUDE, WITHOUT
LIMITATION, THAT CERTAIN STANDBY LETTER OF
CREDIT NO. SVB96IS0386 (THE "IRB LETTER OF
CREDIT") ISSUED BY SILICON IN CONNECTION WITH
THOSE CERTAIN $4,900,000 VARIABLE RATE DEMAND
INDUSTRIAL DEVELOPMENT REVENUE BONDS SERIES
1996 (3D SYSTEMS CORPORATION PROJECT) (THE
"INDUSTRIAL REVENUE BONDS").
The Credit Limit set forth above and the Loans
available under this Agreement at any time
shall be reduced by the face amount of Letters
of Credit from time to time outstanding.
FOREIGN EXCHANGE
CONTRACT SUBLIMIT Up to $500,000* (the "Contract Limit") of the
Credit Limit may be utilized for spot and
future foreign exchange contracts (the
"Exchange Contracts"). The Credit Limit
available at any time shall be reduced by the
following amounts (the "Foreign Exchange
Reserve") on each day (the "Determination
Date"): (i) on all outstanding Exchange
Contracts on which delivery is to be effected
or settlement allowed more than two business
days from the Determination Date, 20% of the
gross amount of the Exchange Contracts; plus
(ii) on all outstanding Exchange Contracts on
which delivery is to be effected or settlement
allowed within two business days after the
Determination Date, 100% of the gross amount of
the Exchange Contracts. In lieu of the Foreign
Exchange Reserve for 100% of the gross amount
of any Exchange Contract, the Borrower may
request that Silicon debit the Borrower's bank
account with Silicon for such amount, provided
Borrower has immediately available funds in
such amount in its bank account.
* ON A JOINT AND AGGREGATE BASIS FOR 3D
SYSTEMS, INC., 3D SYSTEMS INC. LIMITED, 3D
SYSTEMS FRANCE SARL, AND 3D SYSTEMS GmbH
Silicon may, in its discretion, terminate the
Exchange Contracts at any time (a) that an
Event of Default occurs or (b) that there is
not sufficient availability under the Credit
Limit and Borrower does not have available
funds in its bank account to satisfy the
Foreign Exchange Reserve. If either Silicon or
Borrower terminates the Exchange Contracts, and
without limitation of the FX Indemnity
Provisions (as referred to below), Borrower
agrees to reimburse Silicon for any and all
fees, costs and expenses relating thereto or
arising in connection therewith.
Borrower shall not permit the total gross
amount of all Exchange Contracts on which
delivery is to be effected and settlement
allowed in
-2-
<PAGE>
any two business day period to be more than
$250,000* (the "Settlement Limit"), nor shall
Borrower permit the total gross amount of all
Exchange Contracts to which Borrower is a
party, outstanding at any one time, to exceed
the Contract Limit.
* ON A JOINT AND AGGREGATE BASIS FOR 3D
SYSTEMS, INC., 3D SYSTEMS INC. LIMITED, 3D
SYSTEMS FRANCE SARL, AND 3D SYSTEMS GMBH
Notwithstanding the above, however, the amount
which may be settled in any two (2) business
day period may, in Silicon's sole discretion,
be increased above the Settlement Limit up to,
but in no event to exceed, the amount of the
Contract Limit (the "Discretionary Settlement
Amount") under either of the following
circumstances (the "Discretionary Settlement
Circumstances"):
(i) if there is sufficient availability under
the Credit Limit in the amount of the Foreign
Exchange Reserve as of each Determination Date,
provided that Silicon in advance shall reserve
the full amount of the Foreign Exchange Reserve
against the Credit Limit; or
(ii) if there is insufficient availability
under the Credit Limit as to settlements within
any two (2) business day period if Silicon is
able to: (A) verify good funds overseas prior
to crediting Borrower's deposit account with
Silicon (in the case of Borrower's sale of
foreign currency); or (B) debit Borrower's
deposit account with Silicon prior to
delivering foreign currency overseas (in the
case of Borrower's purchase of foreign
currency);
PROVIDED that it is expressly understood that
Silicon's willingness adopt the Discretionary
Settlement Amount is a matter of Silicon's sole
discretion and the existence of the
Discretionary Settlement Circumstances in no
way means or implies that Silicon shall be
obligated to permit the Borrower to exceed the
Settlement Limit in any two business day
period.
In the case of Borrower's purchase of foreign
currency, Borrower in advance shall instruct
Silicon upon settlement either to treat the
settlement amount as an advance under the
Credit Limit, or to debit Borrower's account
for the amount settled.
The Borrower shall execute all standard form
applications and agreements of Silicon in
connection with the Exchange Contracts, and
without limiting any of the terms of such
applications and agreements, the Borrower will
pay all standard fees and charges of Silicon in
connection with the Exchange Contracts.
Without limiting any of the other terms of this
Loan Agreement or any such standard form
applications and agreements of Silicon,
Borrower agrees to indemnify Silicon and hold
it harmless, from and against any and all
claims, debts, liabilities, demands,
obligations, actions, costs and expenses
(including, without limitation, attorneys' fees
of counsel of Silicon's choice), of every
nature and description, which it may sustain or
incur, based upon, arising out of, or in any
way relating to any of the Exchange Contracts
or any transactions relating thereto or
contemplated thereby (collectively referred to
as the "FX Indemnity Provisions").
-3-
<PAGE>
The Exchange Contracts shall have maturity
dates no later than the Maturity Date.
INTEREST RATE (Section 1.2): A rate equal to the "Prime Rate" in effect from
time to time (except that the interest
rate on any obligations outstanding under
the IRB Letter of Credit shall be as set
forth therein). Interest shall be
calculated on the basis of a 360-day year
for the actual number of days elapsed.
"Prime Rate" means the rate announced from
time to time by Silicon as its "prime
rate;" it is a base rate upon which other
rates charged by Silicon are based, and it
is not necessarily the best rate available
at Silicon. The interest rate applicable
to the Obligations shall change on each
date there is a change in the Prime Rate.
LOAN FEE
(Section 1.3): SEE AMENDMENT OF EVEN DATE HEREWITH.
MATURITY DATE
(Section 5.1): JULY 5, 1998 (except that the Maturity Date of
the IRB Letter of Credit shall be as set forth
therein).
PRIOR NAMES OF BORROWER
(Section 3.2): NONE
TRADE NAMES OF BORROWER
(Section 3.2): NONE
OTHER LOCATIONS AND ADDRESSES
(Section 3.3): FOR 3D SYSTEMS, INC.
6230 N. BELTLINE RD., SUITE 300, IRVING, TX 75063
27280 HAGGERTY ROAD, TECHNOLOGY PARK, SUITE C-7,
FARMINGTON HILLS, MICHIGAN 48331
PLYMOUTH CROSSING, 4110 BUTLER PIKE, SUITE A102,
PLYMOUTH MEETING, PA 19462
1350 REMINGTON RD., SUITE K, SCHAUMBURG, IL
60173
MATERIAL ADVERSE LITIGATION
(Section 3.10): NONE
NEGATIVE COVENANTS-EXCEPTIONS
(Section 4.6): Without Silicon's prior written consent, Borrower
may do the following, provided that,
after giving effect thereto, no Event of
Default has occurred and no event has
occurred which, with notice or passage of
time or both, would constitute an Event of
Default, and provided that the following
are done in compliance with all applicable
laws, rules and regulations: (i) pay or
lend to the Parent Company whether by
dividend, advance or otherwise, such
amounts to enable the Parent Company to
pay when due all federal, state, and local
taxes; reasonable operating expenses; and
legal, accounting and filing fees; in each
of the foregoing cases, however, payments
shall only be made in such amounts as are
attributable to the ownership of Borrower
(collectively referred to as the "Upstream
Payments"), including, without limitation,
directors' fees, legal and accounting
expenses and filing fees attributable to
the ownership of Borrower, PROVIDED,
HOWEVER, Borrower may pay or lend to the
Parent Company funds not to exceed
$10,000,000 to allow the Parent Company to
repurchase up to 1,500,000 shares of
Parent Company's stock; and (ii) make
-4-
<PAGE>
scheduled payments of principal and
interest on Silicon approved subordinated
indebtedness owing to the Borrower's
shareholders and related parties.
FINANCIAL COVENANTS
(Section 4.1): Borrower shall cause Parent Company to
comply with all of the following covenants
on a consolidated basis. Compliance shall
be determined as of the end of each
quarter, except as otherwise specifically
provided below:
QUICK ASSET RATIO: Parent Company shall maintain a ratio of "Quick
Assets" to current liabilities of not less than
2.50 to 1.
TANGIBLE NET WORTH: Parent Company shall maintain a tangible net
worth of not less than $52,000,000.
DEBT TO TANGIBLE
NET WORTH RATIO: Parent Company shall maintain a ratio of total
liabilities to tangible net worth of not more
than 0.75 to 1.
DEFINITIONS: "Current liabilities" shall have the meaning
ascribed thereto in accordance with generally
accepted accounting principles, except that
"current liabilities":
(i) shall include the IRB Letter of Credit;
(ii) shall not include any current portion of
the indebtedness represented by the
Industrial Revenue Bonds.
"Tangible net worth" means the excess of
total assets over total liabilities,
determined in accordance with generally
accepted accounting principles, excluding
however all assets which would be
classified as intangible assets under
generally accepted accounting principles,
including without limitation goodwill,
licenses, patents, trademarks, trade
names, copyrights, and franchises.
"Quick Assets" means cash on hand or on
deposit in banks, readily marketable
securities issued by the United States,
readily marketable commercial paper rated
"A-1" by Standard & Poor's Corporation (or
a similar rating by a similar rating
organization), certificates of deposit and
banker's acceptances, and accounts
receivable (net of allowance for doubtful
accounts).
DEFERRED REVENUES: For purposes of the above quick asset ratio,
deferred revenues shall not be counted as
current liabilities. For purposes of the
above debt to tangible net worth ratio,
deferred revenues shall not be counted in
determining total liabilities and shall
not be counted in determining tangible net
worth for purposes of such ratio. For all
other purposes deferred revenues shall be
counted as liabilities in accordance with
generally accepted accounting principles.
SUBORDINATED DEBT: "Liabilities" for purposes of the foregoing
covenants do not include indebtedness
which is subordinated to the indebtedness
to Silicon under a subordination agreement
in form specified by Silicon or by
language in the instrument evidencing the
indebtedness which is acceptable to
Silicon.
OTHER COVENANTS
(Section 4.1): Borrower shall at all times comply with all
of the following additional covenants:
-5-
<PAGE>
1. BANKING RELATIONSHIP. Borrower shall
at all times maintain its primary banking
relationship with Silicon.
2. INDEBTEDNESS. Without limiting any of
the foregoing terms or provisions of this
Agreement, Borrower shall not in the future
incur indebtedness for borrowed money, except
for indebtedness to Silicon, and Borrower shall
cause Parent Company, on a consolidated basis,
not to incur indebtedness in the future except
for indebtedness in connection with: (i) the
purchase or lease of equipment, which shall not
exceed $2,500,000 in the aggregate at any time
outstanding; or (ii) the Industrial Revenue Bonds.
3. UVP INTERCREDITOR. The Borrower shall cause
UVP, Inc. to maintain in effect the intercreditor
agreement with Silicon.
4. CROSS CORPORATE GUARANTY. Each Borrower
shall maintain in effect, and Borrower shall
cause Parent Company to maintain in effect,
the respective Cross Corporate Continuing
Guaranty that each delivered to Silicon in
connection with the original Loan Agreement.
5. NEGATIVE PLEDGE. Borrower shall not grant
a security interest in any of its Collateral,
whether presently owned or hereafter acquired,
PROVIDED, HOWEVER, Borrower may incur liens on
capital equipment relating to indebtedness
incurred pursuant to Paragraph 2 set forth above
entitled "Indebtedness".
6. ADDITIONAL EVENTS OF DEFAULT; UVP LETTER,
MATERIAL ADVERSE CHANGE. Without limiting the
Events of Default as set forth in the Loan
Agreement, each of the following shall constitute
an Event of Default: (a) a default or event of
default under the Letter Agreement dated
January 5, 1990 between Borrower and UVP, Inc.
or under the Security Agreement dated
January 5, 1990 between Borrower and UVP, Inc.;
and (b) a material adverse change in the
business, assets or prospects of Borrower or
any guarantor after the date hereof.
7. NORWEST BANK INTERCREDITOR. The Borrower
shall cause Norwest Bank Colorado, National
Association, a national banking association
("Norwest"), to execute and maintain in effect
for so long as the IRB Letter of Credit is
outstanding an intercreditor agreement with
Silicon in form and substance acceptable to
Silicon in its discretion.
8. ADDITIONAL EVENT OF DEFAULT: REIMBURSEMENT
AGREEMENT BY PARENT. Without limiting the Events
of Default as set forth in the Loan Agreement,
any default or event of default under that certain
Reimbursement Agreement dated as of
August 1, 1996, by and between the Parent Company
and Norwest, shall constitute an Event of Default.
9. CASH COLLATERALIZATION OF IRB LETTER OF
CREDIT. Notwithstanding any other term of this
Agreement, if upon (a) the Maturity Date, or
(b) the date of any earlier termination of this
Agreement, or (c) the date of occurrence of any
Event of Default, the IRB Letter of Credit is
outstanding, then on such date Borrower shall
provide to Silicon cash collateral in an amount
equal to 105% of the face amount of the IRB
Letter of Credit plus all interest, fees and
costs due or to become due in connection
therewith, to secure all of the Obligations
relating to the IRB Letter of Credit, pursuant
to Silicon's then standard form cash pledge
agreement.
-6-
<PAGE>
BORROWER: BORROWER:
3D SYSTEMS, INC. 3D SYSTEMS INC. LIMITED
BY BY
------------------------------- -------------------------------
PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT
BY BY
------------------------------- -------------------------------
SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY
BORROWER: BORROWER:
3D SYSTEMS FRANCE SARL 3D SYSTEMS GMBH
BY BY
------------------------------- -------------------------------
PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT
BY BY
------------------------------- -------------------------------
SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY
-------------------------------
TITLE
----------------------------
-7-
<PAGE>
EXHIBIT 10.54
Arthur B. Sims
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
September 26, 1997
Mr. Frank J. Spina
14913 Huntington Gate Dr.
Poway, CA 92064
Dear Frank:
We are pleased to offer you the position of Vice President, Chief Financial
Officer of 3D Systems Corporation effective no later than November 17, 1997,
reporting to the Chairman and Chief Executive Officer. The following lists the
specifics of this offer:
1. Your base annual salary will initially be $175,000. Our
payroll is based on 26 pay periods per year; therefore, your
base salary per pay period will be $6,730.77.
2. You will also qualify for the 1998 Executive Incentive
Compensation Plan, which will provide for a potential bonus
of up to $87,500. The amount of the actual award will depend
on the performance of the company and your achievement
against personal objectives.
3. Subject to approval of the Board of Directors, you will be
issued an option to purchase 75,000 shares of common stock
under our 1996 Stock Incentive Plan. The option will vest
over a four-year period, 25% on each anniversary of the date
of grant, with an exercise price equal to the market price
on your first day of employment.
4. You will receive a sign-on bonus of $30,000, refundable
should you voluntarily resign within the first year of
employment.
5. Your work location will be the corporate headquarters in
Valencia, California. You will be offered assistance in
moving your family and household effects to the Valencia
area. A description of the relocation assistance package is
enclosed.
<PAGE>
Mr. Frank J. Spina
September 26, 1997
Page 2
6. Your employment will be on an "at-will" basis. Should the
company terminate your employment without just cause, you
will be entitled to a severance benefit equal to six-months'
base salary, provided that you execute a release agreement
acceptable to the company. Of course, your employment may be
terminated with just cause at any time without severance
benefit.
7. We will require your execution of the enclosed Employee
Agreement Regarding Confidentiality, Noncompetition,
Inventions and Trade Secrets.
Frank, on behalf of the directors and officers of the Company, I welcome you to
the executive team and look forward to your contributions to maximizing 3D's
prosperity over the coming years. If this offer is agreeable to you, please
accept in the space provided below and return a copy to me by October 3. Our
offer and your acceptance will, of course, be a confidential matter between us
until the date of your actual employment.
Sincerely,
/s/ Art
Arthur B. Sims
Copy: Richard D. Balanson
ACCEPTED:
/s/ Frank J. Spina 10/1/97
- ---------------------------------------
Frank J. Spina Date
<PAGE>
3D SYSTEMS CORPORATION
Relocation Assistance
Frank J. Spina
1. Commission expense of up to 6% relating to selling home in
Poway, CA, plus selling costs such as escrow fees, title
policy, documentary stamps, and recording fees, not to
exceed $2,500. Selling costs not included are mortgage
interest and property tax prorations.
2. Transportation and temporary living costs of lodging and
meals in the Valencia area, not to exceed $10,000, plus
storage of household effects for up to 2 months.
3. Usual and customary closing costs (excluding mortgage
interest and property tax prorations, repairs and the like)
related to the purchase of a home. 3D will pay loan fees up
to 2% of the mortgage value.
4. Moving and packing and unpacking of all household effects
including fragile packaging using special material, plus the
cost of insurance coverage.
5. Miscellaneous out-of-pocket expenses, up to a maximum of
$5,000.
6. Taxable relocation reimbursements will be grossed-up to
offset your state and federal income tax liabilities. The
gross-up will be limited to three "bumps" and will be
subject to review of your tax returns for 1997 and/or 1998.
7. Any expenses incurred in excess of the above will be your
responsibility. Please be aware that the amounts paid to
you by 3D will be included in your gross wages and subject
to state and federal income taxes. (See paragraph 6, above.)
8. Should you resign from the company or be discharged for
cause within one year from the date of receipt of the
Relocation Assistance, the moneys received thereunder would
be refundable to the company and you agree to repay 3D in
full.
<PAGE>
November 19, 1996
Marty McGough
Address
Dear Mr. McGough:
3D Systems, Inc. ("3D") is pleased to offer you a position as Vice President,
Plant Manager, Grand Junction, starting January 1, 1997. In this position you
will report to the Executive Vice President, Engineering and Manufacturing.
The compensation package includes a bi-weekly base salary of $5,769.24. In
addition, management will recommend that the Compensation Committee of the Board
of Directors grant you a stock option of 50,000 common shares at the fair market
value on the date of grant. The stock option, if approved, would vest equally
over a period of four years, 25% vesting on each anniversary of your employment.
In addition you will receive a signing bonus and a relocation assistance program
as outlined in the attached Signing Bonus and Relocation Assistance Program
agreements. Also, you shall be entitled to participate in 3D's executive bonus
plan in effect in 1997, with a bonus amount of 30% of base salary for
achievement of target goals, and up to 45% of base salary for over achievement.
You also understand and agree that your employment is at will and either you or
3D can terminate the employment relationship at any time for any reason. This
offer is valid until December 6, 1996.
Among the benefits you will enjoy as a 3D employee is a program of group
insurance which includes group health, dental, life insurance, and long term
disability insurance. These group benefits will become effective the first of
the month following one month of continuous employment. Other benefits include
a 401(k) plan, flexible spending accounts and pre-tax premium plan, credit
union, paid sick leave, ten paid holidays per year and two weeks vacation per
year. You will be eligible to participate in these benefits according to the
terms of each program and plan document. Your benefits will be discussed in
more detail during your employee orientation.
Enclosed, please find your copy of our Employee Handbook, the Employee
Confidentiality Agreement, the Code of Employee Conduct, and the INS Form 1-9.
We request that you review and become familiar with the contents of the
handbook, the confidentiality agreement, the code of conduct, and the I-9 Form.
It is a pleasure to make you this offer to join 3D and we are looking forward to
working with you. If the above description agrees with your understanding of
our offer, please sign and return a copy of this letter to us. In addition,
please sign and return the signature page of the Employee Handbook, the entire
Employee Confidentiality Agreement with your signature and address on the last
page and your initials on each page, the Code of Employee Conduct, signed with
your initials on each page and the completed Form 1-9 with the appropriate
document(s).
Sincerely,
3D Systems, Inc.
/s/ Richard D. Balanson
Richard D. Balanson
Executive Vice President,
Engineering and Manufacturing
I accept the above offer and will start to work on Jan 7, 1997
--------------------
Start date
Signed /s/ Marty McGough Date 12/13/96
--------------------------------- ----------------------
<PAGE>
3D SYSTEMS, INC.
Relocation Assistance Program & Agreement
For Marty McGough
Per Offer Letter dated November 19, 1996
Dear Mr. McGough:
Per the attached offer letter to you dated November 19, 1996, 3D Systems,
Inc. ("3D") will provide you with a relocation assistance program (the
"Relocation Assistance") to cover expenses as outlined below:
1. Commission expense of up to 6% related to selling home in Colorado, plus
selling costs such as escrow fees, title policy, documentary stamps, and
recording fees, not to exceed $2,500. Selling costs not included are
mortgage interest and property tax prorations.
2. Transportation and living costs, not to exceed $15,000, covering you and
your family, for the purpose of finding permanent housing in the Grand
Junction, CO area.
3. Temporary living costs in the Grand Junction area for lodging and meals,
not to exceed $15,000.
4. Usual and customary closing costs (excluding mortgage interest and
property tax prorations, repairs and the like) related to the purchase of
a home. 3D will pay loan fees up to 2% of the mortgage value.
5. Moving and packing and unpacking of all household effects including
fragile packaging using special material, plus the cost of insurance
coverage.
6. Miscellaneous actual (out of pocket) expenses, up to a maximum of $5,000,
such as charges incurred to connect and disconnect utilities.
7. Taxable relocation reimbursements will be grossed-up to offset federal
and state income tax liability.
Any expenses incurred in excess of the above will be your responsibility.
Please be aware that the monies paid to you by 3D will be included in your
gross wages and subject to appropriate taxation in 1996.
Should you resign from 3D or be discharged for cause within one year from the
date of receipt of the Relocation Allowance, the Relocation Allowance would be
refundable to the Company and you agree to repay 3D in full.
If you are in agreement with the above, please sign and return a copy of this
letter to me.
Sincerely,
3D Systems, Inc.
/s/ Richard D. Balanson
Richard D. Balanson
Executive Vice President
Agreed and Acknowledged:
/s/ Marty McGough 12/13/96
- ------------------------------------ Date: ------------------------
Marty McGough
<PAGE>
Exhibit 22.1 Subsidiaries of the Company
The Company has the following subsidiaries:
3D Systems (Canada), Inc., a British Columbia
Corporation ("3D Canada"), a wholly-owned
subsidiary of the Company.
and
3D Systems, Inc., a California corporation ("3D California"), a
wholly-owned subsidiary of 3D Canada.
and
3D Systems, Inc. Limited, a U.K. corporation, a wholly-owned
subsidiary of 3D California.
and
3D Systems GmbH, a German corporation, a wholly-owned subsidiary
of 3D California.
and
3D Systems France SARL, a French corporation, a wholly-owned
subsidiary of 3D California.
and
3D Systems Italia Srl, an Italian Corporation, a wholly-owned
subsidiary of 3D California and the Company.
and
3D Capital Corporation, a wholly-owned subsidiary of 3D
California.
and
3D International, Inc., a wholly-owned subsidiary of 3D
California.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTS
We consent to the incorporation by reference in the registration statements
of 3D Systems Corporation on Form S-3 (File No. 33-48640), Form S-8 (File No.
33-34507) and Form S-8 (File No. 333-11865) of our reports dated February 24,
1998 on our audits of the consolidated financial statements and financial
statement schedule of 3D Systems Corporation as of December 31, 1996 and
1997, and for the years ended December 31, 1995, 1996 and 1997, which reports
are included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
- -----------------------------
Coopers & Lybrand L.L.P.
Los Angeles, California
March 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,694,831
<SECURITIES> 3,498,265
<RECEIVABLES> 24,059,636
<ALLOWANCES> (441,399)
<INVENTORY> 12,164,633
<CURRENT-ASSETS> 58,857,786
<PP&E> 27,157,044
<DEPRECIATION> (10,262,033)
<TOTAL-ASSETS> 91,339,719
<CURRENT-LIABILITIES> 20,548,140
<BONDS> 4,705,000
0
0
<COMMON> 11,450
<OTHER-SE> 64,583,595
<TOTAL-LIABILITY-AND-EQUITY> 91,339,719
<SALES> 59,148,861
<TOTAL-REVENUES> 90,256,673
<CGS> 35,462,442
<TOTAL-COSTS> 57,207,221
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 351,179
<INTEREST-EXPENSE> (845,973)
<INCOME-PRETAX> (6,748,726)
<INCOME-TAX> (2,159,592)
<INCOME-CONTINUING> (4,589,134)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,589,134)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 39024727 25078441
<SECURITIES> 0 3759492
<RECEIVABLES> 14808262 20007561
<ALLOWANCES> (368399) (406178)
<INVENTORY> 6627317 12309588
<CURRENT-ASSETS> 67001428 67026830
<PP&E> 15500116 22339659
<DEPRECIATION> (6559545) (7887155)
<TOTAL-ASSETS> 81551006 92238857
<CURRENT-LIABILITIES> 16979036 17263276
<BONDS> 0 4800000
0 0
0 0
<COMMON> 11279 11359
<OTHER-SE> 62939176 68691231
<TOTAL-LIABILITY-AND-EQUITY> 81551006 92238857
<SALES> 43543618 53228089
<TOTAL-REVENUES> 62581941 79631503
<CGS> 19328055 24893210
<TOTAL-COSTS> 31263619 41798888
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 144373 60000
<INTEREST-EXPENSE> (1214630) (1412369)
<INCOME-PRETAX> 6121659 6832021
<INCOME-TAX> (2795663) 2232704
<INCOME-CONTINUING> 8917322 4599317
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8917322 4599317
<EPS-PRIMARY> .87 .41
<EPS-DILUTED> .83 .39
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-29-1996 JUN-28-1996 SEP-27-1996
<CASH> 34656238 28162393 30467559
<SECURITIES> 0 0 0
<RECEIVABLES> 14109339 16341084 18406361
<ALLOWANCES> (371721) (379583) (399376)
<INVENTORY> 8980034 11727284 11763861
<CURRENT-ASSETS> 63534121 61580977 66150747
<PP&E> 17855296 20789207 22210665
<DEPRECIATION> (6719119) (7163456) (7335032)
<TOTAL-ASSETS> 80188147 80629741 88503911
<CURRENT-LIABILITIES> 14523114 13810908 15932009
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 11299 11332 11343
<OTHER-SE> 64074464 65243284 66350966
<TOTAL-LIABILITY-AND-EQUITY> 80188147 80629741 8850391
<SALES> 13676883 25599885 38194461
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