<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 OCTOBER 1, 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 November 5, 1999:
11,639,374
Page 1 of 25
<PAGE>
3D SYSTEMS CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page Number
-----------
<S> <C>
ITEM 1. Financial Statements
Financial and Accounting Developments .............................. 3
Consolidated Balance Sheets as of
December 31, 1998 and October 1, 1999 .............................. 4
Consolidated Statements of Operations
for the Three and Nine Month Periods Ended
September 25, 1998 and October 1, 1999 .............................. 5
Consolidated Statements of Cash Flows
for the Nine Month Periods Ended
September 25, 1998 and October 1, 1999 .............................. 6
Consolidated Statements of Comprehensive Income
for the Nine Month Periods Ended
September 25, 1998 and October 1, 1999 .............................. 7
Notes to Consolidated Financial Statements
December 31, 1998 and October 1, 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 .............................. 24
ITEM 4. Submission of Matters to a Vote
of Security Holders .............................. 24
ITEM 6. Exhibits and Reports on Form 8-K .............................. 24
</TABLE>
Page 2 of 25
<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 which
are included in the year to date results at October 1, 1999, the Company
concluded that it would restate its third quarter 1999 Form 10-Q. The purpose
of this Form 10-Q/A is to restate the Company's third quarter 1999 financial
statements to reflect the following changes which impacted the Company's
results for the nine months ended October 1, 1999:
- - 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 asset impairment.
- - The impact of the 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 third quarter Form 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 third quarter Form 10-Q
filed on November 15, 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 25
<PAGE>
3D SYSTEMS CORPORATION
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
As Restated
ASSETS December 31, 1998 October 1, 1999
----------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,911,793 $ 10,714,719
Short-term investments 3,484,641 -
Accounts receivable, less allowances for
doubtful accounts of $944,144 (1998) and $1,547,440 (1999) 24,486,730 26,561,620
Current portion of lease receivables 2,069,126 826,626
Inventories 10,829,346 12,760,362
Deferred tax assets 2,063,163 2,063,163
Prepaid expenses and other current assets 1,916,149 2,055,113
----------------- ---------------
Total current assets 60,760,948 54,981,603
Property and equipment, net 16,327,078 15,487,445
Licenses and patent costs, net 5,120,672 9,450,453
Deferred tax assets 5,069,796 6,905,840
Lease receivables, less current portion 5,801,788 2,156,496
Other assets 2,022,316 1,733,327
----------------- ---------------
$ 95,102,598 $ 90,715,164
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,849,905 $ 6,471,878
Accrued liabilities 8,161,684 8,974,247
Current portion of long-term debt 100,000 110,000
Customer deposits 330,162 515,484
Deferred revenues 9,013,559 7,236,513
----------------- ---------------
Total current liabilities 22,455,310 23,308,122
Other liabilities 1,485,378 4,033,348
Long-term debt, less current portion 4,605,000 4,495,000
----------------- ---------------
28,545,688 31,836,470
----------------- ---------------
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 11,648,993 and outstanding 11,422,993 (1999) 11,614 11,649
Capital in excess of par value 74,834,225 74,979,474
Notes receivable from officers (360,000) (300,000)
Accumulated deficit (6,765,447) (14,007,847)
Accumulated other comprehensive income (loss) 376,459 (264,641)
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 58,878,694
----------------- ---------------
$ 95,102,598 $ 90,715,164
================= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 25
<PAGE>
<TABLE>
<CAPTION>
3D SYSTEMS CORPORATION
Consolidated Statements of Operations
(Unaudited)
Three Month Periods Ended Nine Month Periods Ended
-------------------------------------- -------------------------------------
As Restated
Sales: September 25, 1998 October 1, 1999 September 25, 1998 October 1, 1999
------------------ --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Products $ 14,665,015 $ 16,264,271 $ 45,907,372 $ 45,748,865
Services 8,676,773 7,633,281 24,943,325 22,294,838
------------------ --------------- ------------------ ---------------
Total sales 23,341,788 23,897,552 70,850,697 68,043,703
------------------ --------------- ------------------ ---------------
Cost of sales:
Products 7,628,473 8,452,602 23,957,050 25,582,849
Services 5,631,317 5,336,624 16,671,213 15,310,913
------------------ --------------- ------------------ ---------------
Total cost of sales 13,259,790 13,789,226 40,628,263 40,893,762
------------------ --------------- ------------------ ---------------
Gross profit 10,081,998 10,108,326 30,222,434 27,149,941
------------------ --------------- ------------------ ---------------
Operating expenses:
Selling, general and administrative 7,559,076 8,367,842 21,677,645 27,311,238
Research and development 1,946,984 2,015,712 6,827,029 6,891,099
Other - 1,196,000 - 3,384,000
------------------ --------------- ------------------ ---------------
Total operating expenses 9,506,060 11,579,554 28,504,674 37,586,337
------------------ --------------- ------------------ ---------------
Income (loss) from operations 575,938 (1,471,228) 1,717,760 (10,436,396)
Interest income 264,969 141,401 649,611 404,578
Interest and other expense (139,553) (77,248) (312,136) (210,981)
------------------ --------------- ------------------ ---------------
Income before provision for income taxes 701,354 (1,407,075) 2,055,235 (10,242,799)
Provision for (benefit from) income taxes 224,433 (393,982) 698,291 (3,000,399)
------------------ --------------- ------------------ ---------------
Net income (loss) $ 476,921 $ (1,013,093) $ 1,356,944 $ (7,242,400)
================== =============== ================== ===============
Weighted average shares outstanding 11,362,729 11,287,842 11,333,189 11,319,951
================== =============== ================== ===============
Net income (loss) per common share $ 0.04 $ (0.09) $ 0.12 $ (0.64)
================== =============== ================== ===============
Weighted average shares outstanding
and dilutive shares 11,565,468 11,287,842 11,535,928 11,319,951
================== =============== ================== ===============
Net income (loss) per common share
assuming dilution $ 0.04 $ (0.09) $ 0.12 $ (0.64)
================== =============== ================== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 25
<PAGE>
3D SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Periods Ended
-------------------------------------
As Restated
September 25,1998 October 1, 1999
----------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,356,944 $ (7,242,400)
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Deferred income taxes 829,913 (1,836,044)
Depreciation and amortization 4,009,019 4,270,469
Increase (decrease) in cash resulting from changes in:
Accounts receivable (2,125,875) (3,219,851)
Lease receivables (1,907,014) 4,887,792
Inventories 99,091 (3,142,598)
Prepaid expenses and other current assets (1,027,795) (138,964)
Other assets (433,691) 76,745
Accounts payable (12,842) 1,768,136
Accrued liabilities (142,855) 812,566
Customer deposits 317,154 185,322
Deferred revenues 1,613,377 (1,777,047)
Other liabilities 456,653 2,547,970
-------------- ---------------
Net cash provided by (used for) operating activities 3,032,079 (2,807,904)
INVESTING ACTIVITIES:
Purchase of property and equipment (3,806,882) (5,002,522)
Disposition of property and equipment 1,841,918 2,401,303
Purchase of licenses and patents (580,520) (4,947,157)
Purchase of short-term investments (6,647,458) (497,598)
Proceeds from short-term investments 5,646,882 3,982,239
-------------- ---------------
Net cash used for investing activities (3,546,060) (4,063,735)
FINANCING ACTIVITIES:
Exercise of stock options and warrants 513,721 205,284
Repayments of note payable (95,000) (100,000)
Purchase of treasury stock (1,375,003) -
-------------- ---------------
Net cash (used for) provided by financing activities (956,282) 105,284
Effect of exchange rate changes on cash 659,792 1,569,281
-------------- ---------------
Net decrease in cash and cash equivalents (810,471) (5,197,074)
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 $ 11,884,360 $ 10,714,719
================= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6 of 25
<PAGE>
3D SYSTEMS CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Periods Ended
-------------------------------------
As Restated
September 25,1998 October 1, 1999
----------------- ---------------
<S> <C> <C>
Net income (loss) $ 1,356,944 $ (7,242,400)
Foreign currency translation 459,124 (641,099)
----------------- ---------------
Comprehensive income (loss) $ 1,816,068 $ (7,883,499)
================= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 7 of 25
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998 and October 1, 1999
(Unaudited)
(1) Restatement
As a result of the factors discussed in Financial and Accounting Developments
above, the Company's balance sheet at October 1, 1999 and results of operations
and cash flows for the nine months ended October 1, 1999 have been restated from
the amounts previously recorded as follows:
Balance sheet as previously recorded and restated at October 1, 1999:
<TABLE>
<CAPTION>
At October 1, 1999
-------------------------------------
Previously
ASSETS Recorded As Restated
-------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,714,719 $ 10,714,719
Accounts receivable, less allowances for
doubtful accounts of $944,144 (1998) and $1,547,440 (1999) 27,123,541 26,561,620
Current portion of lease receivables 1,205,649 826,626
Inventories 12,739,539 12,760,362
Deferred tax assets 2,063,163 2,063,163
Prepaid expenses and other current assets 2,055,113 2,055,113
----------------- ----------------
Total current assets 55,901,724 54,981,603
Property and equipment, net 15,487,445 15,487,445
Licenses and patent costs, net 9,450,453 9,450,453
Deferred tax assets 6,763,777 6,905,840
Lease receivables, less current portion 2,242,328 2,156,496
Other assets 1,733,327 1,733,327
----------------- ----------------
$ 91,579,054 $ 90,715,164
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,471,878 $ 6,471,878
Accrued liabilities 8,842,318 8,974,247
Current portion of long-term debt 110,000 110,000
Customer deposits 515,484 515,484
Deferred revenues 7,345,934 7,236,513
----------------- ----------------
Total current liabilities 23,285,614 23,308,122
Other liabilities 4,619,348 4,033,348
Long-term debt, less current portion 4,495,000 4,495,000
----------------- ----------------
32,399,962 31,836,470
----------------- ----------------
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 11,648,993 and outstanding 11,423,993 (1999) 11,649 11,649
Capital in excess of par value 74,979,474 74,979,474
Notes receivable from officers (300,000) (300,000)
Accumulated deficit (13,717,437) (14,007,847)
Accumulated other comprehensive income (loss) (254,653) (264,641)
Treasury stock, at cost, 225,000 shares (1998) and 225,000 shares (1999) (1,539,941) (1,539,941)
----------------- ----------------
Total stockholders' equity 59,179,092 58,878,694
----------------- ----------------
$ 91,579,054 $ 90,715,164
================= ================
</TABLE>
Page 8 of 25
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998 and October 1, 1999
(Unaudited)
(1) Restatement (continued)
Income statement as previously recorded and restated for the nine months ended
October 1, 1999:
<TABLE>
<CAPTION>
Nine Month Periods Ended
October 1, 1999
-------------------------------------
Previously
Sales: Recorded As Restated
<S> <C> <C>
Products $ 46,299,386 $ 45,748,865
Services 22,294,838 22,294,838
----------------- ----------------
Total sales 68,594,224 68,043,703
----------------- ----------------
Cost of sales:
Products 25,602,259 25,582,849
Services 15,310,913 15,310,913
----------------- ----------------
Total cost of sales 40,913,172 40,893,762
----------------- ----------------
Gross profit 27,681,052 27,149,941
----------------- ----------------
Operating expenses:
Selling, general and administrative 26,929,476 27,311,238
Research and development 6,891,099 6,891,099
Other 3,895,875 3,384,000
----------------- ----------------
Total operating expenses 37,716,450 37,586,337
----------------- ----------------
Income (loss) from operations (10,035,398) (10,436,396)
Interest income 404,578 404,578
Interest and other expense (210,981) (210,981)
----------------- ----------------
Income before provision for income taxes (9,841,801) (10,242,799)
----------------- ----------------
Provision for (benefit from) income taxes (2,889,811) (3,000,399)
----------------- ----------------
Net income (loss) $ (6,951,990) $ (7,242,400)
================= ================
Weighted average shares outstanding 11,319,951 11,319,951
================= ================
Net income (loss) per common share $ (0.61) $ (0.64)
================= ================
Weighted average shares outstanding
and dilutive shares 11,319,951 11,319,951
================= ================
Net income (loss) per common share
assuming dilution $ (0.61) $ (0.64)
================= ================
</TABLE>
Page 9 of 25
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998 and October 1, 1999
(Unaudited)
(1) Restatement (continued)
Statement of Cash Flows as previously recorded and restated for the nine months
ended October 1, 1999:
<TABLE>
<CAPTION>
Nine Month Periods Ended October 1, 1999
----------------------------------------
Previously
Recorded As Restated
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (6,951,990) $ (7,242,400)
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Deferred income taxes (1,693,981) (1,836,044)
Depreciation and amortization 4,270,469 4,270,469
Increase (decrease) in cash resulting from changes in:
Accounts receivable (4,424,721) (3,219,851)
Lease receivables 4,422,936 4,887,792
Inventories (3,074,348) (3,142,598)
Prepaid expenses and other current assets (138,964) (138,964)
Other assets 76,745 76,745
Accounts payable 1,768,136 1,768,136
Accrued liabilities 680,638 812,566
Customer deposits 185,322 185,322
Deferred revenues (1,667,626) (1,777,047)
Other liabilities 3,133,970 2,547,970
---------------- ----------------
Net cash provided by (used for) operating activities (3,413,414) (2,807,904)
INVESTING ACTIVITIES:
Purchase of property and equipment (5,002,522) (5,002,522)
Disposition of property and equipment 2,401,303 2,401,303
Purchase of licenses and patents (4,947,157) (4,947,157)
Purchase of short-term investments (497,598) (497,598)
Proceeds from short-term investments 3,982,239 3,982,239
---------------- ----------------
Net cash used for investing activities (4,063,735) (4,063,735)
FINANCING ACTIVITIES:
Exercise of stock options and warrants 205,284 205,284
Repayments of note payable (100,000) (100,000)
---------------- ----------------
Net cash (used for) provided by financing activities 105,284 105,284
Effect of exchange rate changes on cash 2,174,791 1,569,281
---------------- ----------------
Net decrease in cash and cash equivalents (5,197,074) (5,197,074)
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 $ 10,714,719 $ 10,714,719
================ ================
</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 10 of 25
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998 and October 1, 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 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 nine month period ended
October 1, 1999 are not necessarily indicative of the results to be
expected for the full year.
(3) Inventories
<TABLE>
<CAPTION>
As Restated
December 31, 1998 October 1, 1999
----------------- ---------------
<S> <C> <C> <C>
Raw materials $ 1,138,415 $ 3,914,552
Work in progress 818,839 930,030
Finished goods 8,872,092 7,915,780
----------------- ---------------
$ 10,829,346 $ 12,760,362
================= ===============
</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 25
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998 and October 1, 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 nine month periods ended September 25, 1998 and
October 1, 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 $ 1,356,944 $ (7,242,400)
WEIGHTED AVERAGE SHARES: denominator for net income (loss) per common
share-weighted average shares 11,333,189 11,319,951
EFFECT OF DILUTIVE SECURITIES FROM STOCK OPTIONS: assumed conversions 202,739 ---
ADJUSTED WEIGHTED AVERAGE SHARES AND ASSUMED CONVERSIONS:
Denominator for net income (loss) per common share, assuming dilution 11,535,928 11,319,951
</TABLE>
Common shares related to stock options and stock warrants that are
antidilutive amounted to approximately 980,354 shares and 2,205,986
shares for the nine months ended September 25, 1998 and October 1, 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 three months ended September 25, 1998:
Sales to unaffiliated customers 13,409 4,325 3,596 2,012 --- 23,342
Inter-area sales (5,950) (350) --- --- 6,300 ---
Income (loss) from operations (314) 557 496 --- (163) 576
For the three months ended October 1, 1999:
Sales to unaffiliated customers 14,983 4,803 3,072 1,040 --- 23,898
Inter-area sales (4,585) (336) --- --- 4,921 ---
Income (loss) from operations (1,186) 125 180 --- (590) (1,471)
</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 25
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements (Continued)
December 31, 1998 and October 1, 1999
(Unaudited)
(8) Other Operating Expenses
Other operating expenses are comprised of the following nonrecurring
charges:
<TABLE>
<CAPTION>
1999 Activity to Date
-----------------------------------------------------------------
Provision Costs Accrual as of
Recorded Incurred October 1, 1999
--------------- -------------- ---------------
<S> <C> <C> <C>
Litigation and Settlement Costs $ 407,000 $ 407,000 $ -
Employee Related Costs 1,769,000 292,000 1,477,000
Exit Plan Costs 1,208,000 334,000 874,000
--------------- -------------- ---------------
Total $ 3,384,000 $ 1,033,000 $ 2,351,000
=============== ============== ===============
</TABLE>
The litigation and settlement costs of $407,000 relate 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. 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 employee
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.
In September 1999, the Company recorded an additional $1,196,000 of
non-recurring expense associated with the restructuring of another
management position. The costs are reflected in the Employee Related Costs
noted above. Payments to the former executive will be made over a five
year period ending in 2004 as the result of an underlying employment
agreement.
Page 13 of 25
<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 which impact the year to
date results presented herein, the Company concluded that it would restate its
second quarter 1999 Form 10-Q and its third quarter 1999 Form 10-Q (the
"Restatement"). For additional information concerning the Restatement refer to
"Financial and Accounting Developments" contained elsewhere in the Form10-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 over 1,450 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-Registered Trademark- licensing and support services.
RECENT DEVELOPMENTS
During the first half of 1999, the Company introduced several new products to
expand the use of and applications of the its solid imaging systems. At the top
of the product line, the Company launched the SLA 7000, a premium priced high
performance SLA industrial system. This system dramatically increases the speed
of producing solid images and provides for even higher quality resolution. The
ThermoJet solid object printer was also announced late in the first quarter, as
a replacement for the Company's Actua 2100. The ThermoJet produces solid images
significantly faster than its predecessor, with improved reliability, and has a
list price 20% below that of the former model. In addition, the Company has
launched a series of new materials in support of its new and existing systems.
As part of the Company's strategy to expand the use of solid object printing,
and to improve the returns from recurring revenue streams from materials, the
Company took a number of actions during the first half of 1999 to initiate the
manufacturing of its own proprietary materials for the ThermoJet at its facility
in Grand Junction, Colorado.
Late in the first half of 1999, the Company experienced a number of key
management changes, including the resignation of its President and COO. This,
coupled with the Company's results in the first half, led to the initiation
of certain actions by management late in the second quarter of 1999 and a
review of the Company's operations. These actions included certain operational
changes and replacement of certain key executives (See Note 8 - Notes to
Consolidated Financial Statements). In conjunction with these actions, the
Company hired Regent Pacific Management Corp. ("Regent Pacific") to fill
certain key executive positions for the next year, including CEO, CFO and
Vice President of Sales and Marketing, and to assist the Company in further
developing and implementing a plan to improve operational and financial
performance. Implementation of major components of this operating plan,
including margin improvements, operating savings and workforce reductions are
expected to begin in the fourth quarter of 1999, with the expectation of
seeing the initial impact of these reductions in the first quarter of 2000.
In addition, the Board elected a new Chairman, G. Walter Loewenbaum.
Page 14 of 25
<PAGE>
3D SYSTEMS CORPORATION
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 Nine Month Periods Ended
-------------------------------------- -------------------------------------
As Restated
Sales: September 25, 1998 October 1, 1999 September 25, 1998 October 1, 1999
------------------- ---------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Products 62.8% 68.1% 64.8% 67.2%
Services 37.2% 31.9% 35.2% 32.8%
------------------- ---------------- ------------------- ---------------
Total sales 100.0% 100.0% 100.0% 100.0%
------------------- ---------------- ------------------- ---------------
Cost of Sales:
Products 32.7% 35.4% 33.8% 37.6%
Services 24.1% 22.3% 23.5% 22.5%
------------------- ---------------- ------------------- ---------------
Total cost of sales 56.8% 57.7% 57.3% 60.1%
------------------- ---------------- ------------------- ---------------
Total gross profit 43.2% 42.3% 42.7% 39.9%
Gross profit - products 48.0% 48.0% 47.8% 44.1%
Gross profit - services 35.1% 30.1% 33.2% 31.3%
Selling, general and administrative expenses 32.4% 35.0% 30.6% 40.1%
Other --- 5.0% --- 5.0%
Research and development expenses 8.3% 8.4% 9.6% 10.1%
Income (loss) from operations 2.5% (6.2%) 2.4% (15.3%)
Interest income, net 0.5% 0.3% 0.5% 0.3%
Provision for (benefit from) income taxes 1.0% (1.6%) 1.0% (4.4%)
Net income (loss) 2.0% (4.2%) 1.9% (10.6%)
</TABLE>
Page 15 of 25
<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 Nine Month Periods Ended
---------------------------------------- ----------------------------------------
As Restated
September 25, 1998 October 1, 1999 September 25, 1998 October 1, 1999
------------------ --------------- ------------------ ---------------
Products: (in thousands except percentages)
<S> <C> <C> <C> <C>
Systems and related equipment $ 10,407 $ 11,371 $ 32,046 $ 31,221
Materials 3,582 4,428 11,019 12,872
Other 676 459 2,842 1,656
------------------ --------------- ------------------ ---------------
Total products 14,665 16,258 45,907 45,749
------------------ --------------- ------------------ ---------------
Services:
Maintenance 7,599 6,937 21,408 19,772
Other 1,078 696 3,536 2,523
------------------ --------------- ------------------ ---------------
Total services 8,677 7,633 24,944 22,295
------------------ --------------- ------------------ ---------------
Total sales $ 23,342 $ 23,891 $ 70,851 $ 68,044
================== =============== ================== ===============
Products:
Systems, and related equipment 44.6% 47.6% 45.2% 45.9%
Materials 15.3% 18.5% 15.6% 18.9%
Other 2.9% 1.9% 4.0% 2.4%
------------------ --------------- ------------------ ---------------
Total products 62.8% 68.0% 64.8% 67.2%
================== =============== ================== ===============
Services:
Maintenance 32.6% 29.1% 30.2% 29.1%
Other 4.6% 2.9% 5.0% 3.7%
================== =============== ================== ===============
Total services 37.2% 32.0% 35.2% 32.8%
------------------ --------------- ------------------ ---------------
Total sales 100.0% 100.0% 100.0% 100.0%
================== =============== ================== ===============
</TABLE>
Page 16 of 25
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
THREE MONTH PERIOD ENDED OCTOBER 1, 1999 COMPARED TO THE THREE MONTH PERIOD
ENDED SEPTEMBER 25, 1998.
SALES. Sales during the three month period ended October 1, 1999 (the "third
quarter of 1999") were $23.9 million, an increase of 2% from the $23.3 million
recorded during the three month period ended September 25, 1998 (the "third
quarter of 1998").
Product sales during the third quarter of 1999 ($16.3 million) increased
approximately 11% compared to the third quarter of 1998 ($14.7 million). The
Company sold a total of 73 systems in the third quarter of 1999 as compared to
50 systems in the third quarter of 1998. The increase in the dollar value was
due to an improved mix, as the Company sold an increased number of Solid Object
Printers, and the sale of large frame, high end SLA Industrial systems returned
to traditional levels as seen in the same period a year ago. The Company expects
this trend to continue in the coming quarters. In addition, the Company also
recorded an increase in material sales revenue for both large and small frame
systems from third quarter 1998 levels, due in part to the significant increase
in materials sold to the growing installed base for the Solid Object Printer and
continuing growth in SLA materials. While system sales do fluctuate quarter to
quarter, the Company believes that the increase in total system and material
sales is indicative of sales trends for the coming year. These are forward
looking statements however and are subject to uncertainties. For example, the
exact timing of customer requirements and the extended cycle of large dollar
capital procurements in certain companies may significantly impact product sales
in future quarters.
The dollar value of orders for the Company's systems in the third quarter of
1999 declined approximately 21% from the third quarter of 1998, due to a
reduction in orders of SLA industrial systems. The decline in the dollar value
of orders was primarily due to a significant reduction in Europe and
Asia/Pacific while the U.S order level was approximately 10% above the the prior
year. The Company expects the order rate in Europe and Asia/Pacific to return to
historic levels, while the U.S.order rate should be higher in the fourth quarter
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.
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 third quarter of 1999 ($7.6 million) decreased
approximately 12% compared to the third quarter of 1998 ($8.7 million),
primarily as a result of a spike above historic levels which occurred in the
third quarter of 1998, caused by an increase in "out of warranty" field
maintenance work provided on a "time and materials" basis in the third
quarter of 1998. In addition, the Company experienced lower levels of
activity in customer training and the Techology Center. The Company expects
service revenues to remain at current levels given strong large frame SLA
sales in the late third quarter, which had been weaker in the first half of
1999, along with the continued growth in small size solid imaging systems.
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 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 17 of 25
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
COST OF SALES. Cost of sales increased to $13.8 million (58% of sales) in the
third quarter of 1999 from $13.3 million (57% of sales) in the third quarter of
1998 as the service margins decreased from historic highs in the third quarter
of 1998.
Product cost of sales as a percentage of product sales decreased marginally
to approximately 51.9% for the third quarter 1999 compared to approximately
52.0% in the third quarter of 1998. While the Company saw a change in product
mix to lower margin small size solid object printers, this was offset by
increases in SLA system margins. 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, volume and fluctuations
in foreign currency exchange rates and, therefore, may vary in future periods
from those experienced during the third quarter of 1999.
Service cost of sales as a percentage of service sales increased to
approximately 70% in the third quarter of 1999 from approximately 65% in the
third quarter of 1998. The increase is the result of a spike in "time and
materials" billings related to increased "out of warranty" field maintenance
work in third quarter of 1998 as these billings represented a higher margin
activity. As the Company's installed base increases, the Company expects
service cost of sales to increase on this segment of service work since this
activity produces lower margins than new service.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("S,G&A") expenses increased approximately $.8 million or 11%
in the third quarter of 1999 as compared to the third quarter of 1998. The
increase was primarily the result of increased administrative costs in the
Company's European operations and additional professional fees related to the
Company's ongoing operations. The Company expects S,G&A expenses to remain at
current levels in the fourth quarter of 1999, but should decline in future
quarters as a result of the Company's new operating plan. 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
theprotection 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 third quarter of 1999 decreased approximately $.1 million or 4%
compared to the third quarter of 1998, and expenditures for both periods were
approximately 8% of revenues. Based on the Company's new operating plan to
better focus its current development goals on near term results, versus
historical expenditures related to research and development, the Company
anticipates for the foreseeable future, research and development expenses
will be below historic level of 10% and range between 6% and 8% 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 8%.
OTHER. The Company incurred approximately $1.2 million of other non-recurring
expense during the third quarter of 1999 associated with a restructuring plan
involving certain employee related costs. (See Note 8 - Notes to Consolidated
Financial Statements.)
INCOME (LOSS) FROM OPERATIONS. Operating loss for the third quarter of 1999
was 6% of total sales compared to operating income of 2% of total sales in
the third quarter of 1998. This is primarily attributable to the
non-recurring charge to operations of $1.2 million, and the increased
selling, general and administrative expenses.
Page 18 of 25
<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 49% in the third quarter of 1999 ($64,000) compared to the third
quarter 1998 ($125,000) due primarily to a decrease in interest income. This
decrease is the result of the lower investment balances and a decision by the
Company to reduce the equipment lease portfolio in 1999 as compared to 1998, by
selling $2.2 million of its lease portfolio in May of 1999.
Page 19 of 25
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
NINE MONTH PERIOD ENDED OCTOBER 1, 1999 COMPARED TO THE NINE MONTH PERIOD ENDED
SEPTEMBER 25, 1998.
SALES. Sales during the nine month period ended October 1, 1999 (the "first nine
months of 1999") were $68.0 million, a decrease of approximately 4% from the
$70.9 million recorded during the nine month period ended September 25, 1998
(the "first nine months of 1998").
Product sales during the first nine months of 1999 ($45.7 million) decreased
marginally from the $45.9 million in product sales in the first nine months of
1998. The Company sold a total of 203 systems in the first nine months of 1999,
compared to 161 systems in the first nine months of 1998, with the increase
primarily from higher sales of small size solid imaging systems. The increase in
the dollar value of product sales was due primarily to growth in sales of
materials for the first nine months of 1999 compared to the same period a year
ago, as the Company's installed base of large and small machines continues to
grow.
Orders, on a dollar value basis, for the Company's systems in the first nine
months of 1999 as compared to the first nine months of 1998 decreased
substantially due to the reduction in orders of large frame SLA industrial
systems in the first half of 1999. Sales of large frame SLA industrial machines
returned to historic levels in the third quarter of 1999.
Service sales during the first nine months of 1999 decreased $2.6 million, or
approximately 11% compared to the first nine months of 1998. This decrease is
the result of a decline in sales of large frame SLA industrial systems during
the first six months of 1999 as compared to 1998. In addition, Technology
Center revenues remained at the low levels experienced in the first half of
1999 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 remain consistent with current
levels in the fourth quarter 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 increased to $40.9 million or 60% of sales in
the first nine months of 1999 from $40.6 million or 57% of sales in the first
nine months of 1998.
Product cost of sales as a percentage of product sales increased to 56% in
the first nine months of 1999 compared to compared to 52% in the first nine
months of 1998. The increase in the percentage of product costs to product
sales was due primarily to a the change in product mix, as shipments of the
Company's small size solid imaging systems increased and large frame SLA
industrial systems were lower in the first half of 1999. 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 nine months of 1999.
Service cost of sales as a percentage of service sales increased slightly to
69% in the first nine months of 1999 compared to 67% in the first nine months of
1998, as service costs were reduced in line with the reduction in service
revenues.
Page 20 of 25
<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 $5.6 million or 26% in the first nine
months of 1999 compared to the first nine months of 1998, primarily as a result
of costs associated with the launch of new products along with the overall build
up of the sales and marketing department that occurred during fourth quarter of
1998 and first quarter of 1999. 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 current levels in
the fourth quarter of 1999, but should decline in future quarters as a result of
the Company's new operating plan. 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 ($6.9
million) remained at the same level for the first nine months of 1999 as
compared to the first nine months of 1998, which was approximately 10% of
revenues. Based on the Company's new operating plan to better focus its current
development goals on near term results, versus historical expenditures related
to research and development, the Company anticipates for the foreseeable future,
research and development expenses will be below historic level of 10% and range
between 6% and 8% 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 8%.
OTHER. The Company incurred $3.4 million of other expenses during the first
nine months of 1999. 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.)
INCOME (LOSS) FROM OPERATIONS. Operating loss for the first nine months of 1999
was 15% of total sales compared to operating income of 2% of total sales in the
first nine months 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 in the first half, increased sales of lower-end
solid imaging systems, and the non-recurring charge to operations of $3.4
million.
INTEREST INCOME AND INTEREST AND OTHER EXPENSES. Net other income decreased
approximately 43% in the first nine months of 1999 ($.2 million) compared to the
first nine months of 1998 ($.3 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 nine months of 1999 as compared
to the first nine months of 1998, as the Company sold off $2.2 million of its
lease portfolio in May of 1999.
Page 21 of 25
<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 October 1, 1999
------------------ -----------------
<S> <C> <C>
Cash and cash equivalents $ 15,911,793 $ 10,714,719
Short-term investments 3,484,641 0
Working capital 38,305,638 31,673,481
<CAPTION>
Nine Month Periods Ended
-----------------------------------------
As Restated
September 25, 1998 October 1, 1999
------------------ -----------------
<S> <C> <C>
Cash provided by (used for) operating activities $ 3,032,079 $ (2,807,904)
Cash (used for) investing activities (3,546,060) (4,063,735)
Cash provided by (used for) financing activities (956,282) 105,284
</TABLE>
Operating activities in the first nine months of 1999 had a net use of cash of
$2.8 million compared to net cash provided of $3.0 million in the same period a
year ago. The change in cash flow for the first nine months of 1999 as compared
to the first nine months of 1998 is primarily the result of the net loss ($7.2
million), increased inventories of finished goods and service parts in Europe,
and a reduction in deferred revenues due to lower shipments of large frame SLA
industrial systems, partially offset by a decrease in lease receivables ($4.9
million) primarily due to Company's decision to sell $2.2 million in its lease
portfolio. By the end of 1999, the Company expects to have implemented a new
operating plan, a component of which should allow the Company to exercise
greater control over cash flow and working capital availability. However, this
is a forward looking statement and is subject to uncertainties. For example, the
new operating plan may not be completely implemented on the expected timeline or
may not be as effective as anticipated.
Net cash used for investing activities during the third quarter of 1999 totaled
$4.1 million and was primarily the result of net additions to property and
equipment ($2.6 million) and license and patent costs ($4.9 million) partially
offset by the liquidation of short term investments ($3.5 million).
Net cash provided by financing activities during the third quarter of 1999 was
primarily the result of the exercise of stock options and warrants.
During the third quarter of 1999, the Company allowed its credit facility with
Silicon Valley Bank to expire. Currently, the Company is evaluating its capital
needs and has begun initial discussions with several institutions to provide
capital funding. The Company expects, if appropriate, to have a credit facility
in place before the end of the fourth quarter. This is a forward looking
statement however and is subject to uncertainties. For example, significant
changes in interest rates could have an adverse impact on the Company's ability
to secure its primary choice of credit facility alternatives.
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 initial
introduction of the Single European Currency ("Euro") on January 1, 1999 and the
potential impacts identified during the transition period through to January 1,
2002. The Company substantially completed the modifications to its internal
systems that will be affected by the initial introduction of the Euro during the
third quarter 1999 and expects all modifications to be complete by the end of
the fourth quarter 1999. 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
Page 22 of 25
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Company will 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 has completed its plan to have the actual
software patches that may be required available for customers in 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 of
operations and financial condition.
The Company is finalizing the comprehensive evaluation of its internal business
systems. Certain critical infrastructure and information systems have been
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
have completed 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,
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. The Company has completed the majority of offshore
infrastructure upgrades and during the third quarter of 1999 substantially
completed the testing on the European software implementation which the Company
expects to finalize in the fourth quarter of 1999. The Company believes that the
vast majority of Y2K- related issues with respect to internal business systems
have been inventoried, analyzed, and were resolved by the end of the third
quarter 1999 and that certification and final testing will becompleted in the
fourth 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 has completed evaluation of its
next tier suppliers and evaluated their risk potential. 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.
Page 23 of 25
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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.
PREVIOUS QUARTER'S NOTES
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.
<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. No liability of any party was admitted.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial data schedule.
(b) Report on Form 8-K, Item 5, dated July 22, 1999.
Page 24 of 25
<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 25 of 25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> OCT-01-1999
<CASH> 10,714,719
<SECURITIES> 0
<RECEIVABLES> 28,109,060
<ALLOWANCES> (1,547,440)
<INVENTORY> 12,760,362
<CURRENT-ASSETS> 54,981,603
<PP&E> 31,466,598
<DEPRECIATION> (15,979,153)
<TOTAL-ASSETS> 90,715,164
<CURRENT-LIABILITIES> 23,308,122
<BONDS> 4,495,000
0
0
<COMMON> 11,649
<OTHER-SE> 58,867,045
<TOTAL-LIABILITY-AND-EQUITY> 90,715,164
<SALES> 45,748,865
<TOTAL-REVENUES> 68,043,703
<CGS> 25,582,849
<TOTAL-COSTS> 40,893,762
<OTHER-EXPENSES> 37,586,337
<LOSS-PROVISION> 654,500
<INTEREST-EXPENSE> 210,981
<INCOME-PRETAX> (10,242,799)
<INCOME-TAX> (3,000,399)
<INCOME-CONTINUING> (7,242,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,242,400)
<EPS-BASIC> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>
