<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-22250
3D SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4431352
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
26081 AVENUE HALL, VALENCIA, CALIFORNIA 91355
(Address of Principal Executive Offices) (Zip Code)
(661) 295-5600
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
report(s), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
------------ -------------
Shares of Common Stock, par value $0.001, outstanding as of July 31,
1999: 11,412,065
Page 1 of 20
<PAGE>
3D SYSTEMS CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
<S> <C> <C>
ITEM 1. Financial Statements
Financial and Accounting Developments ............................................ 3
Consolidated Balance Sheets as of
December 31, 1998 and July 2, 1999 ............................................ 4
Consolidated Statements of Operations
for the Three and Six Month Periods Ended
June 26, 1998 and July 2, 1999 ............................................ 5
Consolidated Statements of Cash Flows
for the Six Month Periods Ended
June 26, 1998 and July 2, 1999 ............................................ 6
Consolidated Statements of Comprehensive Income
for the Six Month Periods Ended
June 26, 1998 and July 2, 1999 ............................................ 7
Notes to Consolidated Financial Statements
December 31, 1998 and July 2, 1999 ............................................ 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................................. 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ............................................. 23
ITEM 4. Submission of Matters to a Vote
of Security Holders ............................................. 23
ITEM 6. Exhibits and Reports on Form 8-K ............................................. 23
</TABLE>
Page 2 of 24
<PAGE>
3D SYSTEMS CORPORATION
ITEM 1. FINANCIAL AND ACCOUNTING DEVELOPMENTS
Following a review by the Company's management of its results of operations
and certain transactions for the quarter ended July 2, 1999, the Company
concluded that it would restate its second quarter 1999 Form 10-Q. The purpose
of this Form 10-Q/A is to restate the Company's second quarter 1999 financial
statements to reflect the following changes:
- The impact of a transaction recorded by the Company's German operating
subsidiary which did not fully meet all of the criteria required for
revenue recognition under United States Generally Accepted Accounting
Principles ("GAAP").
- The impact of losses on three leased systems associated with a single
customer which was not properly recorded.
- The impaired value associated with discontinued products returned by
customers as part of an established exchange program and other
inventory impairment.
- A change in the restructuring reserve related to the Company's European
operations to amounts which are consistent with those allowed under GAAP.
- Certain amounts in the Consolidated Statements of Cash Flows relating to
accounts receivable and the effect of exchange rate changes on cash
have been reclassified; however, the cash and cash equivalents at the
end of the period has not changed.
The principal effects of these changes on the accompanying financial
statements are presented in Note 1 to the Consolidated Financial Statements.
For purposes of this Form 10-Q/A, and in accordance with Rule 12b-15 under
the Securities and Exchange Act of 1934, as amended, the Company has amended and
restated in its entirety each item of the 1999 second quarter From 10-Q which
has been affected by the Restatement. In order to preserve the nature and
character of the disclosures originally set forth in the 1999 second quarter
Form 10-Q filed on August 16, 1999, this form 10-Q/A does not reflect events
occurring after the filing of the original Form 10-Q, or modify or update those
disclosures in any way, except as required to reflect the effects of the
Restatement. The Company will file its 1999 Form 10-K on or before March 30,
2000.
Page 3 of 20
<PAGE>
3D SYSTEMS CORPORATION
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
As Restated
ASSETS December 31, 1998 July 2, 1999
---------------------- ---------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,911,793 $ 8,831,686
Short-term investments 3,484,641 2,000,000
Accounts receivable, less allowances for
doubtful accounts of $944,144 (1998) and $1,376,883 (1999) 24,486,730 25,420,066
Current portion of lease receivables 2,069,126 711,287
Inventories 10,829,346 13,029,808
Deferred tax assets 2,063,163 2,063,163
Prepaid expenses and other current assets 1,916,149 2,450,285
------------------- -----------------
Total current assets 60,760,948 54,506,295
Property and equipment, net 16,327,078 15,133,764
Licenses and patent costs, net 5,120,672 9,423,057
Deferred tax assets 5,069,796 6,511,858
Lease receivables, less current portion 5,801,788 2,072,229
Other assets 2,022,316 1,760,251
------------------- -----------------
$ 95,102,598 $ 89,407,454
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,849,905 $ 5,245,722
Accrued liabilities 8,161,684 8,905,057
Current portion of long-term debt 100,000 105,000
Customer deposits 330,162 471,563
Deferred revenues 9,013,559 7,465,215
------------------- -----------------
Total current liabilities 22,455,310 22,192,557
Other liabilities 1,485,378 3,976,925
Long-term debt, less current portion 4,605,000 4,550,000
------------------- -----------------
28,545,688 30,719,482
------------------- -----------------
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 5,000,000
shares; none issued
Common stock, $.001 par value. Authorized 25,000,000
shares; issued 11,614,317 and outstanding 11,389,317 (1998)
and issued 11,637,065 and outstanding 11,412,065 (1999) 11,614 11,637
Capital in excess of par value 74,834,225 74,932,464
Notes receivable from officers (360,000) (300,000)
Accumulated deficit (6,765,447) (12,994,754)
Accumulated other comprehensive income (loss) 376,459 (1,421,434)
Treasury stock, at cost, 225,000 shares (1998) and 225,000 shares (1999) (1,539,941) (1,539,941)
------------------- -----------------
Total stockholders' equity 66,556,910 58,687,972
------------------- -----------------
$ 95,102,598 $ 89,407,454
=================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 20
<PAGE>
<TABLE>
<CAPTION>
3D SYSTEMS CORPORATION
Consolidated Statements of Operations
(Unaudited)
Three Month Periods Ended Six Month Periods Ended
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
As Restated As Restated
Sales: June 26, 1998 July 2, 1999 June 26, 1998 July 2, 1999
---------------- ---------------- ----------------- ----------------
Products $ 16,715,008 $ 14,206,558 $ 31,242,357 $ 29,484,594
Services 7,957,544 7,255,901 16,266,552 14,661,557
---------------- ---------------- ----------------- ----------------
Total sales 24,672,552 21,462,459 47,508,909 44,146,151
---------------- ---------------- ----------------- ----------------
Cost of sales:
Products 8,436,977 8,595,267 16,328,577 17,130,247
Services 5,484,087 5,019,259 11,039,896 9,974,289
---------------- ---------------- ----------------- ----------------
Total cost of sales 13,921,064 13,614,526 27,368,473 27,104,536
---------------- ---------------- ----------------- ----------------
Gross profit 10,751,488 7,847,933 20,140,436 17,041,615
---------------- ---------------- ----------------- ----------------
Operating expenses:
Selling, general and administrative 7,480,037 8,713,327 14,118,569 18,943,396
Research and development 2,568,411 2,432,463 4,880,045 4,875,387
Other 2,188,000 2,188,000
---------------- ---------------- ----------------- ----------------
Total operating expenses 10,048,448 13,333,790 18,998,614 26,006,783
---------------- ---------------- ----------------- ----------------
Income (loss) from operations 703,040 (5,485,857) 1,141,822 (8,965,168)
Interest income 205,757 85,819 384,642 263,177
Interest and other expense (100,128) (82,925) (172,583) (133,733)
---------------- ---------------- ----------------- ----------------
Income before provision for income taxes 808,669 (5,482,963) 1,353,881 (8,835,724)
Provision for (benefit from) income taxes 283,034 (1,533,537) 473,858 (2,606,417)
---------------- ---------------- ----------------- ----------------
Net income (loss) $ 525,635 $ (3,949,426) $ 880,023 $ (6,229,307)
================ ================ ================= ================
Weighted average shares outstanding 11,347,277 11,405,789 11,318,001 11,397,775
================ ================ ================= ================
Net income (loss) per common share $ 0.05 $ (0.35) $ 0.08 $ (0.55)
================ ================ ================= ================
Weighted average shares outstanding
and dilutive shares 11,756,144 11,405,789 11,726,868 11,397,775
================ ================ ================= ================
Net income (loss) per common share
assuming dilution $ 0.04 $ (0.35) $ 0.08 $ (0.55)
================ ================ ================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 24
<PAGE>
<TABLE>
<CAPTION>
3D SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Six Month Periods Ended
----------------------------------
As Restated
June 26, 1998 July 2, 1999
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 880,023 $ (6,229,307)
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Deferred income taxes 829,913 (1,442,062)
Depreciation and amortization 2,812,885 2,697,270
Increase (decrease) in cash resulting from changes in:
Accounts receivable (35,474) (2,811,131)
Lease receivables (634,746) 5,087,398
Inventories 1,774,783 (3,106,502)
Prepaid expenses and other current assets (197,023) (534,137)
Other assets (197,064) 188,168
Accounts payable (1,153,058) 612,182
Accrued liabilities (1,043,827) 743,373
Customer deposits 55,611 141,401
Deferred revenues 2,457,251 (1,548,344)
Other liabilities 235,958 2,491,547
-------------- -------------
Net cash provided by (used for) operating activities 5,785,232 (3,710,144)
INVESTING ACTIVITIES:
Purchase of property and equipment (1,998,851) (3,265,418)
Disposition of property and equipment 1,334,154 2,168,618
Purchase of licenses and patents (448,331) (4,635,644)
Purchase of short-term investments (6,647,458) (497,598)
Proceeds from short-term investments 3,498,265 1,982,239
-------------- -------------
Net cash used for investing activities (4,262,221) (4,247,803)
FINANCING ACTIVITIES:
Exercise of stock options and warrants 255,114 158,262
Repayments of note payable (50,000) (50,000)
Purchase of treasury stock (1,375,003) -
-------------- -------------
Net cash (used for) provided by financing activities (1,169,889) 108,262
Effect of exchange rate changes on cash (523,652) 769,578
-------------- -------------
Net decrease in cash and cash equivalents (170,530) (7,080,107)
Cash and cash equivalents at the beginning of the period 12,694,831 15,911,793
-------------- -------------
Cash and cash equivalents at the end of the period $ 12,524,301 $ 8,831,686
============== =============
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
In July, 1999, the Company acquired 9,619 shares of common stock owned by a
former officer of the Company. The Company forgave a Promissory Note in the
amount of $60,000 that had been used by the former officer to purchase
those shares of stock.
See accompanying notes to consolidated financial statements.
Page 6 of 24
<PAGE>
3D SYSTEMS CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Six Month Periods Ended
----------------------------------
Restated
June 26, 1998 July 2, 1999
--------------- ---------------
<S> <C> <C>
Net income (loss) $ 880,023 $ (6,229,307)
Foreign currency translation (487,305) (1,797,893)
--------------- ---------------
Comprehensive income (loss) $ 392,718 $ (8,027,200)
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 7 of 24
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998 and July 2, 1999
(Unaudited)
(1) Restatement
As a result of the factors discussed in Financial and Accounting Developments
above, the Company's balance sheet at July 2, 1999 and results of operations
for the three and six months ended July 2, 1999 and its statement of cash
flows for the six months ended July 2, 1999 have been restated from the
amounts previously recorded as follows:
Balance sheet as originally reported and restated at July 2, 1999:
<TABLE>
<CAPTION>
At July 2, 1999
-------------------------------
Previously
Recorded As Restated
-------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,831,686 $ 8,831,686
Short-term investments 2,000,000 2,000,000
Accounts receivable, less allowances for
doubtful accounts of $944,144 (1998) and $1,376,883 (1999) 25,956,575 25,420,066
Current portion of lease receivables 1,090,310 711,287
Inventories 13,012,133 13,029,808
Deferred tax assets 2,063,163 2,063,163
Prepaid expenses and other current assets 2,450,285 2,450,285
-------------- --------------
Total current assets 55,404,152 54,506,295
Property and equipment, net 15,133,764 15,133,764
Licenses and patent costs, net 9,423,057 9,423,057
Deferred tax assets 6,369,796 6,511,858
Lease receivables, less current portion 2,158,062 2,072,229
Other assets 1,760,251 1,760,251
-------------- --------------
$ 90,249,082 $ 89,407,454
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,245,722 $ 5,245,722
Accrued liabilities 8,773,130 8,105,057
Current portion of long-term debt 105,000 105,000
Customer deposits 471,563 471,563
Deferred revenues 7,574,636 7,465,215
-------------- --------------
Total current liabilities 22,170,051 21,392,557
Other liabilities 4,562,925 4,776,925
Long-term debt, less current portion 4,550,000 4,550,000
-------------- --------------
31,282,976 30,719,482
-------------- --------------
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 5,000,000
shares; none issued
Common stock, $.001 par value. Authorized 25,000,000
shares; issued 11,614,317 and outstanding 11,389,317 (1998)
and issued 11,637,065 and outstanding 11,412,065 (1999) 11,637 11,637
Capital in excess of par value 74,932,464 74,932,464
Notes receivable from officers (300,000) (300,000)
Accumulated deficit (12,704,344) (12,988,710)
Accumulated other comprehensive income (loss) (1,433,710) (1,427,478)
Treasury stock, at cost, 225,000 shares (1998) and 225,000 shares (1999) (1,539,941) (1,539,941)
-------------- --------------
Total stockholders' equity 58,966,106 58,687,972
-------------- --------------
$ 90,249,082 $ 89,407,454
============== ==============
</TABLE>
Page 8 of 24
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998 and July 2, 1999
(Unaudited)
(1) Restatement (continued)
Income statement as previously recorded and restated for the three and six
months ended July 2, 1999:
<TABLE>
<CAPTION>
Three Month Periods Ended Six Month Periods Ended
July 2, 1999 July 2, 1999
---------------------------- ------------------------------
Previously Previously
Sales: Recorded As Restated Recorded As Restated
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Products $14,757,079 $ 14,206,558 $ 30,035,115 $ 29,484,594
Services 7,255,901 7,255,901 14,661,557 14,661,557
------------ ------------- ------------- -------------
Total sales 22,012,980 21,462,459 44,696,672 44,146,151
------------ ------------- ------------- -------------
Cost of sales:
Products 8,614,677 8,595,267 17,149,657 17,130,247
Services 5,019,259 5,019,259 9,974,289 9,974,289
------------ ------------- ------------- -------------
Total cost of sales 13,633,936 13,614,526 27,123,946 27,104,536
------------ ------------- ------------- -------------
Gross profit 8,379,044 7,847,933 17,572,726 17,041,615
------------ ------------- ------------- -------------
Operating expenses:
Selling, general and administrative 8,331,440 8,713,327 18,561,509 18,943,396
Research and development 2,432,463 2,432,463 4,875,387 4,875,387
Other 2,700,000 2,188,000 2,700,000 2,188,000
------------ ------------- ------------- -------------
Total operating expenses 13,463,903 13,333,790 26,136,896 26,006,783
------------ ------------- ------------- -------------
Income (loss) from operations (5,084,859) (5,485,857) (8,564,170) (8,965,168)
Interest income 85,819 85,819 263,177 263,177
Interest and other expense (82,925) (82,925) (133,733) (133,733)
------------ ------------- ------------- -------------
Income before provision for income taxes (5,081,965) (5,482,963) (8,434,726) (8,835,724)
Provision for (benefit from) income taxes (1,422,949) (1,533,537) (2,495,829) (2,606,417)
------------ ------------- ------------- -------------
Net income (loss) $(3,659,016) $ (3,949,426) $ (5,938,897) $ (6,229,307)
============ ============= ============= =============
Weighted average shares outstanding 11,405,789 11,405,789 11,397,775 11,397,775
============ ============= ============= =============
Net income (loss) per common share $ 0.32 $ (0.35) $ (0.52) $ (0.55)
============ ============= ============= =============
Weighted average shares outstanding
and dilutive shares 11,405,789 11,405,789 11,397,775 11,397,775
============ ============= ============= =============
Net income (loss) per common share
assuming dilution $ (0.32) $ (0.35) $ (0.52) $ (0.55)
============ ============= ============= =============
</TABLE>
Page 9 of 24
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998 and July 2, 1999
(Unaudited)
(1) Restatement (continued)
Statement of Cash Flows as previously recorded and restated for the six months
ended July 2, 1999:
<TABLE>
<CAPTION>
Six Month Periods Ended July 2,
1999
-------------------------------
Previously
Recorded As Restated
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (5,938,897) $ (6,229,307)
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Deferred income taxes (1,300,000) (1,442,062)
Depreciation and amortization 2,697,270 2,697,270
Increase (decrease) in cash resulting from changes in:
Accounts receivable (4,392,652) (2,811,131)
Lease receivables 4,622,542 5,087,398
Inventories (3,039,146) (3,106,502)
Prepaid expenses and other current assets (534,136) (534,137)
Other assets 188,168 188,168
Accounts payable 612,182 612,182
Accrued liabilities 611,446 743,373
Customer deposits 141,401 141,401
Deferred revenues (1,438,923) (1,548,344)
Other liabilities 3,077,547 2,491,547
-------------- --------------
Net cash provided by (used for) operating activities (4,693,198) (3,710,144)
INVESTING ACTIVITIES:
Purchase of property and equipment (3,265,418) (3,265,418)
Disposition of property and equipment 2,168,618 2,168,618
Purchase of licenses and patents (4,635,644) (4,635,644)
Purchase of short-term investments (497,598) (497,598)
Proceeds from short-term investments 1,982,239 1,982,239
-------------- --------------
Net cash used for investing activities (4,247,803) (4,247,803)
FINANCING ACTIVITIES:
Exercise of stock options and warrants 158,262 158,262
Repayments of note payable (50,000) (50,000)
-------------- --------------
Net cash (used for) provided by financing activities 108,262 108,262
Effect of exchange rate changes on cash 1,752,632 769,578
-------------- --------------
Net decrease in cash and cash equivalents (7,080,107) (7,080,107)
Cash and cash equivalents at the beginning of the period 15,911,793 15,911,793
-------------- --------------
Cash and cash equivalents at the end of the period $ 8,831,686 $ 8,831,686
============== ==============
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION.
In July, 1999, the Company acquired 9,619 share of common stock owned by a
former officer of the Company. The Company forgave a Promissory Note in the
amount of $60,000 that had been used by the former officer to purchase those
share of stock.
Page 10 of 24
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998 and July 2, 1999
(Unaudited)
(2) Basis of Presentation
The accompanying unaudited consolidated financial statements of 3D Systems
Corporation and its subsidiaries (the "Company") are prepared in
accordance with instructions to Form 10-Q/A and, in the opinion of
management, include all material adjustments (consisting only of normal
recurring accruals) which are necessary for the fair presentation of
results for the interim periods. The Company reports its interim financial
information on a 13 week basis ending the last Friday of each quarter, and
reports its annual financial information through the calendar year ended
December 31. These unaudited consolidated financial statements should be
read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998. The results of the six month period ended
July 2, 1999 are not necessarily indicative of the results to be expected
for the full year.
(3) Inventories
<TABLE>
<CAPTION>
As Restated
December 31, 1998 July 2, 1999
------------------------ -----------------------
<S> <C> <C>
Raw materials $ 1,138,415 $ 2,681,406
Work in progress 818,839 1,235,850
Finished goods 8,872,092 9,112,552
------------------------ -----------------------
$ 10,829,346 $ 13,029,808
======================== =======================
</TABLE>
(4) Treasury Stock
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 the first quarter of 1998,
the Company purchased 200,000 of its own shares for approximately
$1,375,000. The Company may continue to acquire additional shares from
time to time at the prevailing market price, at a rate consistent with the
combination of corporate cash and market conditions.
(5) Other income and other expense
Other income and expense primarily consists of interest income, interest
expense and other expenses related to investment and leasing activities.
Page 11 of 24
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998 and July 2, 1999
(Unaudited)
(6) Computation of Earnings Per Share
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", the following is a reconciliation of the numerator
and denominator of the basic and diluted earnings per share (EPS)
computations for the six month periods ended June 26, 1998 and July 2,
1999:
<TABLE>
<CAPTION>
As Restated
1998 1999
------------- --------------
<S> <C> <C>
NET INCOME (LOSS): numerator for net income (loss) per common share and
net income (loss) per common share assuming dilution $ 880,023 $ (6,229,307)
WEIGHTED AVERAGE SHARES: denominator for net income (loss) per common
share-weighted average shares 11,318,001 11,397,775
EFFECT OF DILUTIVE SECURITIES FROM STOCK OPTIONS: assumed conversions 408,867 ---
ADJUSTED WEIGHTED AVERAGE SHARES AND ASSUMED CONVERSIONS:
Denominator for net income (loss) per common share, assuming dilution 11,726,868 11,397,775
</TABLE>
Common shares related to stock options and stock warrants that are
antidilutive amounted to approximately 562,967 shares and 2,212,611
shares for the six months ended June 26, 1998 and July 2, 1999,
respectively.
(7) Geographic Segment Information
All of the Company's assets are devoted to the manufacture and sale of
Company systems, together with related supplies and services. The
Company attributes revenues to geographic areas based on shipment in the
country of origination.
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 period ended June 26, 1998:
Sales to unaffiliated customers 14,039 5,576 3,965 1,093 --- 24,673
Inter-area sales (1,393) (115) --- --- 1,508 -
Income (loss) from operations (1,089) 50 704 --- 1,038 703
For the period ended July 2, 1999: -
Sales to unaffiliated customers 9,988 5,413 4,807 1,254 21,462
Inter-area sales (6,162) (795) --- --- 6,957 -
Income (loss) from operations (5,465) (54) 187 --- (154) (5,486)
Long lived assets at July 2, 1999 22,922 1,801 991 232 370 26,316
</TABLE>
Inter-area sales to the Company's foreign subsidiaries are recorded at
amounts consistent with prices charged to distributors, which are above
cost.
Page 12 of 24
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements (Continued)
December 31, 1998 and July 2, 1999
(Unaudited)
(8) Other Operating Expenses
Other operating expenses are comprised of the following nonrecurring
charges:
<TABLE>
<CAPTION>
Activity to Date
-------------------------------------------------------------------------
<S> <C> <C> <C>
Provision Costs Accrual as of
Recorded Incurred July 2, 1999
---------------- --------------- ------------------
Litigation and Settlement Costs $ 407,000 $ 112,000 $ 295,000
Employee Related Costs 573,000 95,000 478,000
Exit Plan Costs 1,208,000 193,000 1,015,000
---------------- --------------- ------------------
Total $ 2,188,000 $ 400,000 $ 1,788,000
================ =============== ==================
</TABLE>
The litigation and settlement costs of $407,000 relates to a complaint
filed against the Company by Centuri Corp. and Cox Acquisition Corp. (the
"Centuri Litigation") on September 16, 1997. At a settlement hearing on
July 1, 1999 the parties to the Centuri Litigation agreed to settle the
case pursuant to an agreement which provides for the confidentiality of
the settlement terms. The settlement agreement is subject to the court's
approval of its terms. No liability of any party was admitted.
During May 1999, the Company completed a review of its operations to
identify opportunities to improve operating effectiveness. As a result
of this review, management initiated certain actions, including
restructuring various management positions and domestic and foreign
operations. With the concurrence of the Board of Directors, the Company
recorded a pretax charge to operations of $1.8 million. The employees
related costs reflect the costs associated with the restructuring of
several management positions totaling $573,000. Other costs include
$650,000 of asset impairment (noncash charge associated with the write
off of certain noncurrent assets), $281,000 of legal structure exit
costs, and $277,000 of estimated net losses on sublease or lease
cancellation penalties. Management's plans specifically identified
five facilities to be closed, including one operations facility and
four sales operations worldwide.
Page 13 of 24
<PAGE>
3D SYSTEMS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESTATEMENT
Following a review by the Company's management of its results of operations and
certain transactions for the quarter ended July 2, 1999, the Company concluded
that it would restate its second quarter 1999 Form 10-Q (the "Restatement"). For
additional information concerning the Restatement refer to "Significant
Financial and Accounting Developments" contained elsewhere in this Form 10-Q/A.
This discussion should be read in conjunction with the condensed consolidated
financial statements and notes thereto included in Item 1 of this Quarterly
Report and the audited consolidated financial statements and notes thereto,
Management's Discussion and Analysis of Results of Operations and Financial
Condition, and Cautionary Statements and Risk Factors for the year ended
December 31, 1998 contained in the Company's 1998 Form 10-K.
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 report
and in the Company's 1998 Form 10-K under the section entitled "Cautionary
Statements and Risk Factors."
OVERVIEW
The Company develops, manufactures and markets worldwide solid imaging
systems designed to rapidly produce physical objects from the digital output
of solid or surface data from computer aided design and manufacturing
("CAD/CAM") and related computer systems. The Company's solid imaging systems
include SLA-TM-industrial systems ("SLA") and solid object printers. The SLA
industrial systems use the Company's proprietary stereolithography
technology, 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 solid object
printers, sold as the Actua-TM-2100 and ThermoJet-TM-, utilize hot melt ink
jetting 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 applications.
The Company has sold nearly 1,400 solid imaging 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 sales of systems and related equipment,
materials, software, and other component parts, as well as rentals of systems
and royalties received from the licensing of the Company's technology. Service
sales include revenues from a variety of on-site maintenance services, customer
training, services provided by the Company's Technology Centers and 3D Keltool
licensing and support services.
During the second quarter of 1999, the Company expanded its global customer
support program. The new and expanded array of service programs are key elements
of far-reaching global support initiatives intended to provide current and
prospective customers with new ways to maximize the value, productivity and
flexibility of the Company's solid imaging products. These new programs are the
initial foundation of a comprehensive Customer Support Strategy developed by the
Company.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain items from
the Company's Statement of Operations and Total Revenues:
<TABLE>
<CAPTION>
Percentage of Total Revenues
Three Month Periods Ended Six Month Periods Ended
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
As Restated As Restated
Sales: June 26, 1998 July 2, 1999 June 26, 1998 July 2, 1999
---------------- ---------------- ---------------- ----------------
Products 67.8% 66.2% 65.8% 66.8%
Services 32.2% 33.8% 34.2% 33.2%
---------------- ---------------- ---------------- ----------------
Total sales 100.0% 100.0% 100.0% 100.0%
---------------- ---------------- ---------------- ----------------
Cost of Sales:
Products 34.2% 40.0% 34.4% 38.8%
Services 22.2% 23.4% 23.2% 22.6%
---------------- ---------------- ---------------- ----------------
Total cost of sales 56.4% 63.4% 57.6% 61.4%
---------------- ---------------- ---------------- ----------------
Total gross profit 43.6% 36.6% 42.4% 38.6%
Gross profit - products 49.6% 39.5% 47.7% 41.9%
Gross profit - services 31.1% 30.8% 32.1% 32.0%
Selling, general and administrative expenses 30.3% 40.6% 29.7% 42.9%
Research and development expenses 10.4% 11.3% 10.3% 11.0%
Other --- 10.2% --- 5.0%
Income (loss) from operations 2.8% (25.6%) 2.4% (20.3%)
Interest income and interest and other expenses 0.4% 0.0% 0.4% 0.3%
Provision for (benefit from) income taxes 1.1% (7.1%) 1.0% (5.9%)
Net income (loss) 2.1% (18.4%) 1.9% (14.1%)
</TABLE>
Page 14 of 24
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
The following table sets forth for the periods indicated total revenues
attributable to each of the Company's major products and services groups, and
those revenues as a percentage of total sales:
<TABLE>
<CAPTION>
Three Month Periods Ended Six Month Periods Ended
----------------------------------- -----------------------------------
As Restated As Restated
June 26, 1998 July 2, 1999 June 26, 1998 July 2, 1999
---------------- ---------------- ---------------- ----------------
(in thousands except percentages)
<S> <C> <C> <C> <C>
Products:
Systems and related equipment $ 11,843 $ 8,787 $ 21,639 $ 19,842
Materials 4,144 4,524 7,437 8,445
Other 728 895 2,166 1,197
---------------- ---------------- ---------------- ----------------
Total products 16,715 14,206 31,242 29,484
---------------- ---------------- ---------------- ----------------
Services:
Maintenance 6,898 6,348 13,809 12,836
Other 1,060 908 2,458 1,826
---------------- ---------------- ---------------- ----------------
Total services 7,958 7,256 16,267 14,662
---------------- ---------------- ---------------- ----------------
Total sales $ 24,673 $ 21,462 $ 47,509 $ 44,146
================ ================ ================ ================
Products:
Systems, and related equipment 48.0% 40.9% 45.6% 45.0%
Materials 16.8% 21.1% 15.7% 19.1%
Other 3.0% 4.2% 4.5% 2.7%
---------------- ---------------- ---------------- ----------------
Total products 67.8% 66.2% 65.8% 66.8%
---------------- ---------------- ---------------- ----------------
Services:
Maintenance 28.0% 29.6% 29.0% 29.1%
Other 4.2% 4.2% 5.2% 4.1%
---------------- ---------------- ---------------- ----------------
Total services 32.2% 33.8% 34.2% 33.2%
---------------- ---------------- ---------------- ----------------
Total sales 100.0% 100.0% 100.0% 100.0%
================ ================ ================ ================
</TABLE>
Page 15 of 24
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
THREE MONTH PERIOD ENDED JULY 2, 1999 COMPARED TO THE THREE MONTH PERIOD ENDED
JUNE 26, 1998.
SALES. Sales during the three month period ended July 2, 1999 (the "second
quarter of 1999") were $21.5 million, a decrease of 13% from the $24.7 million
recorded during the three month period ended June 26, 1998 (the "second quarter
of 1998").
Product sales during the second quarter of 1999 ($14.2 million) decreased
approximately 15% compared to the second quarter of 1998 ($16.7 million). The
Company sold a total of 70 systems in the second quarter of 1999 and compared to
62 systems in the second quarter of 1998. The increase in total systems sold is
attributable to growth in sales of small size solid imaging systems, while sales
of large frame SLA industrial systems decreased in the second quarter of 1999 as
compared to the same period a year ago. The Company believes this decrease was
due, in part, to the continued delay in orders as customers evaluate the new SLA
7000 launched in the first quarter of 1999. System sales fluctuate quarter to
quarter and the Company does not believe that the increased total system sales
or the decline in large frame SLA industrial systems is necessarily indicative
of sales in any future quarter. These are forward looking statements, however,
and are subject to uncertainties. For example, the exact timing of customer
requirements and the extended procurement cycle of large dollar capital
procurements in certain companies may significantly impact product sales in the
future.
The dollar value of orders for the Company's systems in the second quarter of
1999 declined approximately 17% from the second quarter of 1998, due to the
reduction in orders of large frame SLA industrial systems as noted above. The
decline in the dollar value of orders was primarily due to a significant
reduction in the U.S., while Europe was off slightly, and in Asia/ Pacific,
which represents less than 10% of the Company's overall business, orders were up
substantially. Resulting dollar value backlog was up 20% from a year ago quarter
and up slightly from the prior quarter. The Company expects the order rate in
the U.S. to increase while Europe may experience normal seasonal softening. This
is a forward looking statement and, as with other such statements, is subject to
uncertainties. For example, a change in U.S. economic conditions or a shift in
European economic and political conditions could cause delays in customer orders
which could lead to a lower order level.
In addition, the Company believes that system sales may fluctuate on a quarterly
basis as a result of a number of factors, including world economic conditions,
fluctuations in foreign currency exchange rates and the timing of product
shipments. Due to the price of certain systems, along with overall low shipment
volumes, 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. Other factors which may impact quarterly sales during 1999
are the sales mix of the Company's products as well as the channels and markets
in which the Company distributes its products.
Service sales during the second quarter of 1999 ($7.3 million) decreased
approximately 9% compared to the second quarter of 1998 ($8.0 million),
primarily as a result of decreased maintenance revenues due to the shift in mix
to sales of small size solid imaging systems. Service sales during the quarter
also experienced a decrease in time and material revenues due to a reduction in
sales of solid state laser replacements for the Company's large frame SLA
industrial systems.
The Company expects service revenues to remain at second quarter of 1999 levels
in the third quarter, and return to the modest growth rates experienced in 1998
in the fourth quarter of 1999. This is a forward looking statement and, as with
other such statements, is subject to uncertainties. For example, the exact
timing of field maintenance work and contract renewal, a continued decline in
large frame SLA sales, or the fluctuations in use of the Company's Technology
and Training centers can significantly impact the results on a quarter to
quarter basis.
Page 16 of 24
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
COST OF SALES. Cost of sales decreased to $13.6 million (63% of sales) in the
second quarter of 1999 from $13.9 million (56% of sales) in the second quarter
of 1998 as the service cost of sales decrease of $.5 million was offset by an
increase in product cost of sales.
Product cost of sales as a percentage of product sales increased to
approximately 61% in the second quarter 1999 from from approximately 50% in the
second quarter of 1998. This increase in the percentage of product costs to
product sales was due primarily to a change in mix, as shipments of the
Company's small size solid imaging systems increased and large frame SLA
industrial systems declined. The Company does not believe this shift in product
mix is indicative of the mix of products to be sold in future periods. The
Company's costs of product sales and corresponding gross profit margins are
affected by several factors, including but not limited to sales mix,
distribution channels, and fluctuations in foreign currency exchange rates and,
therefore, may vary in future periods from those experienced during the second
quarter of 1999.
Service cost of sales as a percentage of service sales remained at approximately
69% for both the second quarter of 1999 and the second quarter of 1998, as
service costs were reduced in line with the reduction in service revenues. The
Company expects service cost of sales to increase due to the increasing
installed base of the Company's systems.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("S,G&A") expenses increased approximately $1.2 million or 16% in
the second quarter of 1999 compared to the second quarter of 1998. The increase
was primarily the result of costs associated with the growth of the sales and
marketing department that occurred in the fourth quarter of 1998, and additional
legal expenses for an ongoing matter related to the infringement of the
Company's patented SLA technologies, and losses on three systems associated with
a single customer. The Company expects S,G&A expenses to remain at current
spending levels. However, this is a forward looking statement and is subject to
uncertainties. For example, a significant increase in unit shipments could cause
a further increase in commissions or the acceleration of litigation costs
associated with the protection of the Company's patents could result in a
substantial increase in S,G&A expenses.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development ("R&D") expenses
during the second quarter of 1999 decreased approximately $.1 million or 5%
compared to the second quarter of 1998. Expenditures for the 1999 and 1998
periods were approximately 11 percent and 10 percent of revenues, respectively.
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 10% of sales. However, this is a forward looking statement and, as
with any such statement, is subject to uncertainties. For example, if total
sales of the Company for any particular period do not meet the anticipated sales
of the Company for that period, research and development expenses as a
percentage of sales may exceed 10%.
OTHER. Other expenses increased $2.2 million during the second quarter of
1999 compared to second quarter of 1998. These costs are litigation and
settlement costs related to the Centuri Litigation and non-recurring charges
associated with certain actions taken by management involving certain
employee related costs and exit plan costs. (See note 8 - Notes to
Consolidated Financial Statements.)
OPERATING INCOME. Operating loss for the second quarter of 1999 was 26% of total
sales compared to operating income of 3% of total sales in the second quarter of
1998. This is primarily attributable to lower sales of large frame SLA
industrial systems, the non-recurring charge to operations of $2.2 million, and
the increased sales and marketing expenses.
Page 17 of 24
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
INTEREST INCOME AND INTEREST AND OTHER EXPENSES. Net other income decreased
approximately 97% in the second quarter of 1999 ($3,000) compared to the second
quarter 1998 ($106,000) due primarily to a decrease in interest income. This
decrease is the result of the lower investment balances and a smaller equipment
lease portfolio in 1999 as compared to 1998, as the Company sold off $2.2
million of its lease portfolio in May of 1999.
Page 18 of 24
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
SIX MONTH PERIOD ENDED JULY 2, 1999 COMPARED TO THE SIX MONTH PERIOD ENDED JUNE
26, 1998.
SALES. Sales during the six month period ended July 2, 1999 (the "first half of
1999") were $44.1 million, a decrease of approximately 7% from the $47.5 million
recorded during the six month period ended June 26, 1998 (the "first half of
1998").
Product sales during the first half of 1999 ($29.5 million) decreased
approximately 6% from the $31.2 million in product sales in the first half of
1998. The Company sold a total of 130 systems in the first half of 1999,
compared to 111 systems in the first half of 1998. The decrease in the dollar
value of product sales was due primarily to growth in sales of small size solid
imaging systems, while large frame SLA industrial systems decreased in the first
half of 1999 compared to the same period a year ago. System sales fluctuate
period to period and the Company does not believe that the increased total
system sales or decline in large frame SLA industrial systems is necessarily
indicative of sales in any future quarter. These are forward looking statements
however and are subject to uncertainties. For example, the exact timing of
customer requirements and the extended procurement cycle of large dollar capital
procurements in certain companies may significantly impact product sales in the
future.
Orders, on a dollar value basis, for the Company's systems in the first half of
1999 as compared to the first half of 1998 decreased substantially due to the
reduction in orders of large frame SLA industrial systems. The Company expects
the order rate in to increase in the U.S. and Europe during the second half of
1999. This is a forward looking statement and, as with other such statements, is
subject to uncertainties. For example, a change in U.S. economic conditions or a
shift in European economic and political conditions could cause delays in
customer orders which could lead to a lower order level.
Service sales during the first half of 1999 decreased $1.6 million, or
approximately 10% compared to the first half of 1998, primarily as a result of a
delay in service contract renewals as the Company launched a new tiered pricing
program for annual maintenance contracts and the shift in product mix to the
small size solid imaging systems. In addition, Technology Center revenues
remained at the low levels experienced in the second half of 1998 and, in the
first half of 1999, the Company sold the St. Paul, Minnesota 3D Keltool inserts
operation to Rapid Tooling Technologies, a subsidiary of Rapid Design
Technologies, causing a decline in insert revenues in the period. The Company
expects service sales to grow modestly in the second half of 1999. However, this
is a forward looking statement and is subject to uncertainties. For example, the
exact timing of field maintenance work and contract renewal, a continued decline
in large frame SLA sales, or the fluctuations in use of the Company's Technology
and Training centers can significantly impact the results on a quarter to
quarter basis.
COST OF SALES. Cost of sales decreased slightly to $27.1 million or 61% of sales
in the first half of 1999 from $27.4 million or 58% of sales in the first half
of 1998.
Product cost of sales as a percentage of product sales increased to 58% in the
first half of 1999 compared to 52% in the first half of 1998. The increase in
the percentage of product costs to product sales was due primarily to a change
in mix, as shipments of the Company's small size solid imaging systems increased
and large frame SLA industrial systems declined. The Company does not believe
this shift in product mix is indicative of the mix of products to be sold in
future periods. The Company's costs of product sales and corresponding gross
profit margins are affected by several factors, including but not limited to
sales mix, distribution channels, and fluctuations in foreign currency exchange
rates and, therefore, may vary in future periods from those experienced during
the first half of 1999.
Service cost of sales as a percentage of service sales remained at 68% for both
the first half of 1999 and the first half of 1998, as service costs were reduced
in line with the reduction in service revenues. The Company expects service cost
of sales to increase due to the increasing installed base of the Company's
systems. However, this is a forward looking statement and is subject to
uncertainties. For example, the reliability of new products in the market or a
change in the demand or market pricing of Technology Center services, could
cause a resulting change in the service costs of sales.
Page 19 of 24
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
("S,G&A") expenses increased approximately $4.8 million or 34% in the first half
of 1999 compared to the first half of 1998, primarily as a result of costs
associated with the launch of new products along with the overall growth of the
sales and marketing department that occurred during fourth quarter of 1998. In
addition, the Company incurred S,G&A costs associated with the sale of its St.
Paul, Minnesota 3D Keltool insert operations and legal expenses associated with
the protection of certain patents owned by the Company. The Company expects
S,G&A expenses to remain at levels experienced in the second quarter of 1999.
However, this is a forward looking statement and is subject to uncertainties.
For example, a significant increase in unit shipments could cause a further
increase in commissions or the acceleration of litigation costs associated with
the protection of the Company's patents could result in a substantial increase
in S,G&A expenses.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses ($4.9
million) remained at the same level for the first half of 1999 as compared to
the first half of 1998, however, increased to 11% of revenue in the 1999 period
versus 10 percent of revenue in the 1998 period. 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 10% of sales. However,
this is a forward looking statement and, as with any such statement, is subject
to uncertainties. For example, if total sales of the Company for any particular
period do not meet the anticipated sales of the Company for that period,
research and development expenses as a percentage of sales may exceed 10%.
OTHER. Other expenses increased $2.2 million during the second half of 1999
compared to second half of 1998. These costs are litigation and settlement
costs related to the Centuri Litigation and non-recurring charges associated
with actions taken by management involving certain employee related costs and
exit plan costs. (See Note 8 - Notes to Consolidated Financial Statements.)
OPERATING INCOME (LOSS). Operating loss for the first half of 1999 was 20% of
total sales compared to operating income of 2% of total sales in the first half
of 1998. This is primarily attributable to increased sales and marketing
expenses related to new product launches, lower sales of large frame, high-end
SLA Industrial Systems, an increased mix of lower-end solid imaging systems, and
the non-recurring charge to operations of $2.2 million
INTEREST INCOME AND INTEREST AND OTHER EXPENSES. Net other income decreased
approximately 39% in the first half of 1999 ($.1 million) compared to the first
half of 1998 ($.2 million) due primarily to a decrease in interest income. This
decrease is the result of the lower investment balances and a smaller equipment
lease portfolio in the first half of 1999 as compared to the first half of 1998,
as the Company sold off $2.2 million of its lease portfolio in May of 1999.
Page 20 of 24
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
As Restated
December 31, 1998 July 2, 1999
---------------------- -------------------
<S> <C> <C>
Cash and cash equivalents $ 15,911,793 $ 8,831,686
Short-term investments 3,484,641 2,000,000
Working capital 38,305,638 32,313,738
Six Month Periods Ended
-------------------------------------------------
As Restated
June 26, 1998 July 2, 1999
----------------------- ----------------------
Cash provided by (used for) operating activities $ 5,785,232 $ (3,710,144)
Cash (used for) investing activities (4,262,221) (4,247,803)
Cash provided by (used for) financing activities (1,169,889) 108,262
</TABLE>
Operating activities in the first half of 1999 had a net use of cash of $3.7
million compared to net cash provided of $5.8 million in the same period a year
ago. The change in cash flow for the first half of 1999 as compared to the first
half of 1998 is primarily the result of the net loss ($7.1 million), increased
inventories and a reduction in deferred revenues ($8.9 million, net change) due
to lower shipments of large frame SLA industrial systems, partially offset by a
decrease in lease receivables ($5.7 million) primarily due to the sale of $2.2
million of the Company's lease portfolio.
Net cash used for investing activities during the second quarter of 1999 totaled
$4.2 million and was primarily the result of net additions to property and
equipment ($1.1 million) and license and patent costs ($4.6 million) partially
offset by the liquidation of short term investments ($1.5 million).
Net cash provided by financing activities during the second quarter of 1999 was
primarily the result of the exercise of stock options and warrants.
In August 1998, 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, 1999, the Company can borrow from SVB up to
$10,000,000, at the bank's prime interest rate. The Credit Facility contains
certain financial covenants including the maintenance of certain financial
ratios, working capital, tangible net worth as well as covenants limiting
mergers, acquisitions, recapitalization, dividends, loans to others, and
hypothecation of assets or corporate guarantees.
As of July 2, 1999, the Company has yet to utilize the Credit Facility.
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. From
time to time the Company considers the acquisition of businesses, products or
technologies complementary to the Company's current business although it has no
current commitments or agreements with respect to any such transactions. Should
the Company decide to pursue such a transaction, the Company may require
additional funds.
3D Systems has established a team to address issues raised by the introduction
of the Single European Currency ("Euro") for initial implementation as of
January 1, 1999 and during the transition period through to January 1, 2002. The
Company expects that its internal systems that will be affected by the initial
introduction of the Euro will be Euro capable by third quarter 1999 and does not
expect the costs of system modifications to be material. The Company does not
presently expect that the introduction and use of the Euro will materially
affect the Company's foreign exchange position nor result in any material
increase in costs to the Company. While the Company will
Page 21 of 24
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
continue to evaluate the impact of the Euro introduction over time, based on
currently available information, management does not believe that the
introduction of the Euro currency will have a material adverse impact on the
Company's financial condition or overall trends in results of operations.
YEAR 2000 COMPLIANCE. Computer-based systems that require date/time calculations
to operate correctly are subject to miscalculations and system failures on and
after the year 2000. This is known as the Y2K problem. The Y2K problem affects
systems that were developed to accept two digit entries for the year in the date
code field. After midnight on December 31, 1999, these systems may recognize a
date using '00' as the year 1900 rather than the year 2000. Another known issue
is that many systems will not recognize the year 2000 as a leap year. The Y2K
problem is pervasive in that it goes beyond internal systems to involve supply
and distribution chains and extends to both public and private infrastructure
services including water, gas, electricity, transportation and communication.
The Company believes its current products are Year 2000 compliant. In addition,
the Company has evaluated all products sold since inception for Year 2000
readiness and has provided the results of the analysis and potential impacts and
resolutions to its customers. Current information on the Company's Y2K status
can be found on the Internet at http://www.3dsystems.com. In the fourth quarter
of 1998, the Company completed the evaluation of substantially all its products,
and the necessary upgrade pathways to its customers was completed during the
first quarter of 1999. The Company plans to have the actual software patches
that may be required available for customers by the third quarter 1999. The
Company believes that all products will meet basic functionality requirements.
Since all specific customer situations and uses cannot be anticipated, the
Company may see an increase in warranty and other claims as a result of the Year
2000 transition. For these reasons, the impact of customer claims could have a
material adverse impact on the Company's results Company's results of operations
and financial condition.
The Company is continuing the comprehensive evaluation of its internal business
systems. Certain critical infrastructure and information systems are being
upgraded to meet Year 2000 requirements. These upgrades will also have the
benefit of meeting the Euro currency requirements and expanding the capability
of the Company. At the completion of these current projects, the Company will be
conducting transaction testing to evaluate compliance of the overall system
infrastructure. To date, the Company has completed the risk analysis on all
U.S.-based systems and has substantially completed all infrastructure upgrades
in the U.S. In the first quarter 1999, the Company completed the implementation
of the Year 2000 compliance upgrades for its core enterprise wide systems, has
substantially completed the risk analysis of foreign operations, began
implementation of infrastructure upgrades in Europe and Asia/Pacific, and
launched software upgrade projects for its European sites that will be Year 2000
and Euro compliant. In the first quarter of 1999, the Company substantially
completed the majority of offshore infrastructure upgrades and began testing on
the European software implementation which the Company expects to complete in
the third quarter of 1999. The Company believes that the vast majority of
Y2K-related issues with respect to internal business systems will be
inventoried, analyzed, and resolved by the third quarter 1999 and that
certification and/or testing will be completed by the end of the third quarter
1999.
Since the majority of the efforts related to Year 2000 compliance are being
performed by internal resources, and are part of an overall plan to upgrade the
overall capability of the Company and meet Euro currency requirements, there is
no exact program budget or cost associated exclusively with Year 2000 efforts.
The Company believes costs related to Year 2000 compliance are less than $1.1
million, and estimates that costs for the worldwide program will not exceed $1.5
million. The Company believes that funds generated from operations will be
sufficient to satisfy Year 2000 compliance costs.
The Company is continuing to review its critical suppliers to determine that the
suppliers' operations and the products and services they provide are Year 2000
compliant. The Company has completed a survey of key suppliers and evaluated
their individual risk potential as well as the risk potential of their
suppliers. In addition, the Company has conducted site surveys of certain
critical or sole source suppliers. The Company began evaluating next tier
suppliers in the first quarter of 1999, and will complete these reviews by the
third quarter of 1999. Currently, the Company's contingency strategies include
seeking alternative sources of supplies or acquiring sufficient material to
support the Company's operations for the second half of 2000. Though the Company
believes it has sufficient alternatives and liquidity to meet this contingency
strategy, such failures of suppliers remain a possibility and could have a
material adverse impact on the Company's results of operations or financial
condition.
Year 2000 compliance is an issue for virtually all businesses whose computer
systems and applications may require significant hardware and software upgrades
or modifications. Companies owning and operating such systems may plan to devote
a substantial portion of their capital spending to fund such upgrades and
modifications and divert spending away from capital manufacturing equipment
spending. Such changes in customers' spending patterns could have a material
adverse impact on the Company's sales, operating results or financial condition.
Page 22 of 24
<PAGE>
3D SYSTEMS CORPORATION
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company was served with a complaint filed September 16, 1997
in the Centuri Litigation. At a settlement hearing on July 1, 1999
the parties to the Centuri Litigation agreed to settle the case
pursuant to an agreement which provides for the confidentiality of
the settlement terms. The settlement agreement is subject to the
court's approval of its terms. No liability of any party was
admitted.
ITEM 4. Submission of Matters to a Vote of Security Holders
On May 20, 1999, the Company held its Annual Meeting of
Stockholders. The following sets forth the identity of the
directors elected as Class III Directors to hold office for three
years and until their respective successors have been elected, the
voting results of the approval to amend the Company's 1996 Stock
Incentive Plan, and the voting results of the rejected proposal to
amend the Executive Incentive Compensation Plan.
1. Election of Class II Directors
<TABLE>
<CAPTION>
Yes No Abstain Broker Non
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Charles W. Hull 8,408,214 0 746,871 0
Ian L. White-Thomson 8,402,904 0 752,091 0
2. The approval to amend the 1996 Stock Incentive Plan
Yes No Abstain Broker Non
----------------- ----------------- ----------------- ----------------
3,055,760 1,089,116 31,611 0
3. The rejection of the proposal to amend the Executive Incentive Compensation Plan
Yes No Abstain Broker Non
----------------- ----------------- ----------------- ----------------
339,035 3,775,359 62,093 0
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial data schedule.
(b) Report on Form 8-K dated April 20, 1999 to announce First Quarter 1999
results.
(c) Report on Form 8-K dated June 22, 1999 to announce Management changes.
Page 23 of 24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ H. Michael Hogan III 3/29/00
- ------------------------------------------------- -----------------------
H. Michael Hogan III Date
Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
(Duly authorized to sign on behalf of Registrant)
Page 24 of 24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-02-1999
<CASH> 8,831,686
<SECURITIES> 2,000,000
<RECEIVABLES> 26,796,949
<ALLOWANCES> (1,376,883)
<INVENTORY> 13,029,808
<CURRENT-ASSETS> 54,506,295
<PP&E> 30,029,685
<DEPRECIATION> (14,895,921)
<TOTAL-ASSETS> 89,407,454
<CURRENT-LIABILITIES> 22,192,557
<BONDS> 4,550,000
0
0
<COMMON> 11,637
<OTHER-SE> 58,676,335
<TOTAL-LIABILITY-AND-EQUITY> 89,407,454
<SALES> 29,484,594
<TOTAL-REVENUES> 44,146,151
<CGS> 17,130,247
<TOTAL-COSTS> 27,104,536
<OTHER-EXPENSES> 26,006,783
<LOSS-PROVISION> 571,500
<INTEREST-EXPENSE> 133,733
<INCOME-PRETAX> (8,835,724)
<INCOME-TAX> (2,606,417)
<INCOME-CONTINUING> (6,229,307)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,229,307)
<EPS-BASIC> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
