SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-22250
3D SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4431352
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) (Identification No.)
26081 AVENUE HALL, VALENCIA, CALIFORNIA 91355
(Address of Principal Executive Offices) (Zip Code)
(805) 295-5600
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Shares of Common Stock, par value $0.001, outstanding as of April 30, 1996:
11,302,402 shares
Page 1 of 13
3D SYSTEMS CORPORATION
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION Number
------
ITEM 1. Financial Statements
Consolidated Balance Sheets,
December 31, 1995 and March 29, 1996. . . . . . . . . . . . . . . 3
Consolidated Statements of Operations
For the Three Month Periods Ended
March 31, 1995 and March 29, 1996 . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
for the Three Month Periods Ended
March 31, 1995 and March 29, 1996 . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements,
December 31, 1995 and March 29, 1996. . . . . . . . . . . . . . . 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 12
Page 2 of 13
3D SYSTEMS CORPORATION
Consolidated Balance Sheets
(Unaudited)
ASSETS December 31, 1995 March 29, 1996
----------------- --------------
Current assets:
Cash and cash equivalents $38,258,927 $33,910,238
Restricted cash 766,000 746,000
Accounts receivable, less allowances for doubtful
accounts of $ 343,321 at December 31, 1995 and
$371,721 at March 29, 1996 14,439,863 13,737,618
Inventories (Note 2) 7,293,077 8,980,034
Deferred tax assets 5,301,118 4,526,659
Prepaid expenses and other current assets 1,608,203 1,633,572
----------- -----------
Total current assets 67,667,188 63,534,121
Property and equipment, net (Note 3) 8,274,811 11,116,177
Licenses and patent costs, net 3,520,500 3,411,813
Deferred tax assets 1,029,000 1,029,000
Other assets 1,059,507 1,097,036
----------- -----------
$81,551,006 $80,188,147
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,305,349 $ 3,514,474
Accured liabilities 6,672,261 5,885,421
Customer deposits 1,233,305 1,035,991
Deferred maintenance revenues 3,768,121 4,087,228
----------- -----------
Total current liabilities 16,979,036 14,523,114
Other liabilities 1,621,515 1,579,270
----------- -----------
18,600,551 16,102,384
----------- -----------
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 5,000,000
shares; none issued --- ---
Common stock, $.001 par value, Authorized 25,000,000
shares; issued and outstanding 11,279,232 at
December 31, 1995 and 11,298,536 at March 29, 1996 11,279 11,299
Capital in excess of par value 71,850,602 71,962,443
Accumulated deficit (8,907,788) (7,786,545)
Cumulative translation adjustment (3,638) (101,434)
----------- -----------
Total stockholders' equity 62,950,455 64,085,763
----------- -----------
$81,551,006 $80,188,147
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
Page 3 of 13
3D SYSTEMS CORPORATION
Consolidated Statements of Operations
(Unaudited)
Three Month Periods Ended
-------------------------
March 31, 1995 March 29, 1996
-------------- --------------
Sales:
Products $ 9,075,344 $13,676,883
Services 4,543,027 5,489,681
----------- -----------
Total sales 13,618,371 19,166,564
----------- -----------
Cost of sales:
Products 3,831,050 6,164,205
Services 2,660,424 3,490,589
----------- -----------
Total cost of sales 6,491,474 9,654,794
----------- -----------
Gross profit 7,126,897 9,511,770
----------- -----------
Operating expenses:
Selling, general and administrative 4,289,204 6,202,019
Research and development 1,477,454 1,825,750
----------- -----------
Total operating expenses 5,766,658 8,027,769
----------- -----------
Income from operations 1,360,239 1,484,001
Interest income 75,332 455,517
Interest expense (14,575) (6,340)
----------- -----------
Income before provision for income taxes 1,420,996 1,933,178
Provision for income taxes (90,000) (811,935)
----------- -----------
Net income $ 1,330,996 $ 1,121,243
----------- -----------
----------- -----------
Net income per share $ .14 $ .10
----------- -----------
----------- -----------
Weighted average number of shares
outstanding during the period 9,559,421 11,776,743
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
Page 4 of 13
3D SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
For the Three Month Periods Ended March 31, 1995 and March 29, 1996
(Unaudited)
1995 1996
----------- -----------
Cash flows from operating activities:
Net income $ 1,330,996 $ 1,121,243
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Benefit for deferred tax assets (10,000) 775,000
Depreciation of property and equipment 400,502 442,348
Amortization of licenses and patent costs 103,654 157,915
Amortization of software development costs 104,369 115,506
Changes in operating assets and liabilities:
Accounts receivable (2,247,102) 570,901
Inventories (959,489) (1,716,695)
Prepaid expenses and other current assets 111,170 (45,649)
Other assets (143,324) (177,395)
Accounts payable 199,246 (1,667,733)
Accrued liabilities (13,753) (759,549)
Customer deposits 439,330 (196,801)
Deferred maintenance revenues 718,922 341,422
Other liabilities (28,810) (34,278)
----------- -----------
Net cash provided by (used for) operating activities 5,711 (1,073,765)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (617,396) (3,447,462)
Disposition of property and equipment --- 215,541
Increase in licenses and patent costs (41,430) (50,000)
----------- -----------
Net cash used for investing activities (658,826) (3,281,921)
----------- -----------
Cash flows from financing activities:
Exercise of stock options 16,819 111,861
----------- -----------
Net cash provided by financing activities 16,819 111,861
----------- -----------
Effect of exchange rate changes on cash (25,882) (104,864)
----------- -----------
Net decrease in cash and cash equivalents (662,178) (4,348,689)
Cash and cash equivalents at the beginning of the period 6,423,523 38,258,927
----------- -----------
Cash and cash equivalents at the end of the period $ 5,761,345 $33,910,238
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 9,571 $ 3,067
----------- -----------
----------- -----------
Income taxes $ 80,480 $ 387,423
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements
Page 5 of 13
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1995 and March 29, 1996
(Unaudited)
(1) Basis of Presentation.
The accompanying unaudited consolidated financial statements of 3D
Systems Corporation and subsidiaries (the "Company") are prepared in
accordance with instructions to Form 10-Q and, in the opinion of
management, include all material adjustments (consisting only of normal
recurring accruals) which are necessary for the fair presentation of
results for the interim periods. The Company reports its interim
financial information on a 13 week basis ending the last Friday of each
quarter, and reports its annual financial information through the
calendar year ended December 31. These unaudited consolidated
financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1995. The results of the three month period ended March 29, 1996 are
not necessarily indicative of the results to be expected for the full
year.
(2) Inventories.
Inventories at December 31, 1995 and March 29, 1996 are as follows:
December 31, 1995 March 29, 1996
------------ --------------
Raw materials $ 2,100,269 $ 3,128,891
Work in progress 2,022,565 2,676,433
Finished goods 3,170,243 3,174,710
------------- -------------
$ 7,293,077 $ 8,980,034
------------- -------------
------------- -------------
(3) Property and Equipment.
Property and equipment are summarized as follows:
December 31, 1995 March 29, 1996
----------------- --------------
Land $ 435,600 $ 435,600
Machinery and equipment 7,956,082 9,131,964
Office furniture and equipment 1,861,702 1,913,969
Leasehold improvements 1,617,215 1,784,377
Rental equipment 622,483 464,329
Construction in progress 2,133,289 4,105,057
----------- ------------
14,626,371 17,835,296
Less accumulated depreciation
and amortizaton (6,351,560) (6,719,119)
----------- ------------
$ 8,274,811 $ 11,116,177
----------- ------------
----------- ------------
Page 6 of 13
3D SYSTEMS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's revenues are generated by product and service sales. Product
sales are comprised of the sale of Stereolithography Apparatus ("SLA") systems
and related equipment, resins, software, and other component parts, as well as
rentals of SLA systems. Service sales include revenues from maintenance,
services provided by the Company's Technology Centers, and customer training.
The following table sets forth certain operating amounts and ratios as a
percentage of total sales except as otherwise indicated:
Three Month Periods Ended
---------------------------------------
March 31, 1995 March 29, 1996
-------------- --------------
Sales:
Products $ 9,075,344 $ 13,676,883
Services 4,543,027 5,489,681
------------ -------------
Total sales 13,618,371 19,166,564
------------ -------------
Cost of sales:
Products 3,831,050 6,164,205
Services 2,660,424 3,490,589
------------ -------------
Total cost of sales 6,491,474 9,654,794
------------ -------------
Total gross profit 7,126,897 9,511,770
% of total sales 52.3% 49.6%
Gross profit - products 5,244,294 7,512,678
% of total product sales 57.8% 54.9%
Gross profit - services 1,882,603 1,999,092
% of total service sales 41.4% 36.4%
Selling, general and administrative
expenses 4,289,204 6,202,019
% of total sales 31.5% 32.4%
Research and development expenses 1,477,454 1,825,750
% of total sales 10.8% 9.5%
------------ -------------
Income from operations 1,360,239 1,484,001
% of total sales 10.0% 7.7%
Interest income, net 60,757 449,177
% of total sales .4% 2.3%
Provision for income taxes (90,000) (811,935)
% of total sales (.7%) (4.2)%
------------ --------------
Net income 1,330,996 1,121,243
% of total sales 9.8% 5.8%
------------ --------------
------------ --------------
Page 7 of 13
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:
Three Month Periods Ended
--------------------------------------------
March 31, 1995 March 29, 1996
-------------- --------------
Products:
SLA systems and related equipment $ 6,278,191 $ 9,432,616
Resins 1,791,750 2,625,276
Software, other components parts and rentals 1,005,403 1,618,991
-------------- --------------
Total products 9,075,344 13,676,883
-------------- --------------
Services:
Maintenance 3,391,310 4,151,792
Technology Centers 1,053,478 1,128,082
Training 98,239 209,807
-------------- --------------
Total services 4,543,027 5,489,681
-------------- --------------
Total sales $ 13,618,371 $ 19,166,564
-------------- --------------
-------------- --------------
Three Month Periods Ended
--------------------------------------------
March 31, 1995 March 29, 1996
-------------- --------------
Products:
SLA systems and related equipment 46.1% 49.2%
Resins 13.2 13.7
Software, other components parts
and rentals 7.4 8.4
------------- -------------
Total products 66.7 71.3
------------- -------------
Services:
Maintenance 24.9 21.7
Technology Centers 7.7 5.9
Training .7 1.1
------------- -------------
Total services 33.3 28.7
------------- -------------
Total sales 100.0% 100.0%
------------- -------------
------------- -------------
Page 8 of 13
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
THREE MONTH PERIOD ENDED MARCH 29, 1996 COMPARED TO THE THREE MONTH PERIOD ENDED
MARCH 31, 1995.
The Company recorded net income of $ 1,121,243 or $.10 per share on total sales
of $19,166,564 for the three month period ended March 29, 1996 (the "first
quarter of 1996") compared to net income of $1,330,996 or $.14 per share on
total sales of $13,618,371 during the three month period ended March 31, 1995
(the "first quarter of 1995").
Product sales during the first quarter of 1996 increased $4.6 million to $13.7
million, compared to $9.1 million during the first quarter of 1995, an increase
of 51%. The increase was primarily the result of increased shipments of SLA
systems in the U.S., which management believes is the result of increased
participation by independent sales agents in domestic sales of SLA systems as
well as increased acceptance by industry of rapid prototyping equipment and
technology. The Company sold a total of 40 SLA systems in the first quarter of
1996 compared to 26 in the first quarter of 1995. Of the 14 additional systems
shipped in the first quarter of 1996, 12 were SLA-500's, the Company's largest
and highest priced system. The Company believes that SLA system sales may
fluctuate on a quarterly basis as a result of a number of factors, including the
status of world economic conditions, fluctuations in foreign currency exchange
rates and the timing of product shipments (the U.S. list price of an SLA-500,
for example, exceeds $400,000; thus the acceleration or delay of a small number
of shipments from one quarter to another can significantly affect the results of
operations for the quarters involved).
During 1996, there are several other factors which may impact quarterly sales.
During 1996, the Company will commence shipments of two new products -- the
low-priced Actua 2100 office modeler (which uses a technology completely
different from stereolithography), designed for operation in engineering and
design offices, and the SLA-350 Series 10, a new, advanced SLA system. The
possibility exists that the introduction of these new products may cause
potential customers of the Company who were considering the purchase of
one of the Company's current models to defer their purchase decision until
further information is available as to the performance and reliability of
the new products. Delays in shipments of new products may also occur as a
result of unexpected problems encountered in development, production or actual
use. In addition, the Company will be relocating its manufacturing operations
to Colorado during the summer of 1996. If the Company experiences problems in
connection with this relocation (including difficulties in the timely hiring
and training of new employees), shipment of certain of the Company's
products may be delayed.
Service sales during the first quarter of 1996 increased $946,654 or 21%
compared to the first quarter of 1995, primarily as a result of increased
maintenance revenues due to the larger installed base of SLA systems in the U.S.
and Europe.
Product cost of sales as a percentage of product sales increased to 45% during
the first quarter of 1996 compared to 42% during the first quarter of 1995. The
increase in 1996 was primarily the result of an increase in commission payments
to independent sales agents as a result of a greater portion of domestic SLA
system sales occurring through agents in 1996 compared to the first quarter of
1995. This increase was partially offset by increased manufacturing
efficiencies due to the higher level of production of SLA systems in 1996. The
Company's gross profit margins on product sales are affected by several factors
including, among others, sales mix, distribution channels and fluctuations in
foreign currency exchange rates and, therefore, may vary in future periods from
those experienced in the first quarter of 1996. In particular, the Company
anticipates that the gross margins related to its newly-introduced Actua 2100
system will be lower than margins on its SLA systems, and, if revenues from the
sales of Actua 2100s represent a material portion of the Company's product
sales, gross margins from product sales would be reduced. Additionally, the
Company anticipates that gross margins related to the Actua 2100 will be lower
during the initial phases of production as a result of certain inefficiencies
and anticipates, in the event of increased production, that Actua 2100 gross
margins could increase as a result of lower per unit material costs (due to
greater purchasing economies) and increased manufacturing efficiencies.
Page 9 of 13
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Service cost of sales as a percentage of service sales increased to 64% during
the first quarter of 1996 from 59% during the first quarter of 1995, primarily
as a result of lower sales of SLA system upgrades in 1996 as well as lower
margins on those SLA upgrades offered in the first quarter of 1996 compared to
those sold in the first quarter of 1995. Additionally, various other expenses
related to field service operations were generally higher in 1996. Margins from
the Company's U.S. Technology Center in the first quarter of 1996 were also
lower due to the increased use of outside vendors.
Selling, general and administrative ("S,G&A") expenses for the first quarter of
1996 were 32.4% of sales compared to 31.5% in the first quarter of 1995. S,G&A
expenses increased $1.9 million or 45% in 1996 compared to the first quarter of
1995, primarily as a result of expanded sales and marketing programs in both the
U.S. and Europe and a build up of sales and marketing support personnel in
Europe which occurred during the second half of 1995. The Company currently
anticipates that if its revenues continue to grow, S,G&A expenses as a
percentage of total sales in the current year should begin to decline, primarily
as a result of economies of scale. However, this is a forward looking statement
and as with other such statements is subject to uncertainties. For example, if
sales do not continue to grow over the period, or if the Company determines that
it is appropriate to expand its sales and marketing efforts relating to its
Actua 2100 over planned levels, it is less likely that S,G&A expenses as a
percentage of total sales would significantly decline.
Research and development ("R&D") expenses during the first quarter of 1996
increased $348,296 or 24% compared to the first quarter of 1995. The increase in
R&D expenses in 1996 was primarily the result of the Company's efforts towards
the development of the Actua 2100 and the SLA-350 Series 10, both of which were
commercially introduced during January 1996 and shipments of which are expected
to commence later this year. Based on the Company's historical expenditures
related to research and development and its current development goals, the
Company anticipates for the foreseeable future, research and development
expenses will be equal to approximately ten percent of sales. However, this is
a forward-looking 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%.
Interest income increased to $455,517 during the first quarter of 1996 compared
to $75,332 during the first quarter of 1995, primarily as a result of the
investment of funds from the Company's stock offering which was completed in
June 1995.
Interest expense decreased to $6,340 during the first quarter of 1996 from
$14,575 in the first quarter of 1995 primarily as a result of the elimination of
commitment fees associated with the Company's bank line of credit in 1996 and
lower imputed interest amortization due to the lower balance of severance
obligations in 1996 compared to the first quarter of 1995.
For the first quarter of 1996, the Company's tax rate was 42% of pre-tax income
compared to 6% for the first quarter of 1995. The low tax rate in the first
quarter of 1995 was primarily due to the utilization of net operating loss
carryforwards. During the third quarter of 1995, the Company realized a net
income tax benefit of $2.9 million which included a deferred tax benefit
resulting from the recognition of deferred tax assets of $3 million (related
primarily to the remainder of net operating loss carryforwards attributable to
the Company's domestic operations). The Company's anticipated tax rate for the
remainder of 1996 is expected to approximate 42%.
Page 10 of 13
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
December 31, 1995 March 29, 1996
----------------- --------------
Cash and cash equivalents (1) $ 39,024,927 $ 34,656,238
Working capital (1) 50,688,152 49,011,007
Three Month Periods Ended
----------------------------------
March 31, 1995 March 29, 1996
-------------- --------------
Cash provided by (used for) operating
activities $ 5,711 $ (1,073,765)
Cash used for investing activities (658,826) (3,281,921)
Cash provided by financing
activities 16,819 111,861
- - ---------------------------
(1) Includes $766,000 and $746,000 of restricted cash at December 31, 1995 and
March 29, 1996, respectively.
Net cash used for operating activities during the first quarter of 1996 was $1.1
million. The negative cash flow from operations during the first quarter of
1996, comprised primarily of an increase in inventory ($1.7 million) (as a
result of increased production) and decreases in accounts payable ($1.7 million)
and accrued liabilities ($.8 million), was partially offset by net income ($1.1
million), non cash depreciation and amortization ($.7 million), a decrease in
accounts receivable ($.6 million) and a decrease in deferred tax assets ($.8
million).
Net cash used for investing activities during the first quarter of 1996 totaled
$3.3 million and was primarily a result of construction expenditures related to
the Company's Grand Junction, Colorado facility ($1.6 million) and SLA equipment
manufactured for use as demonstration equipment ($1 million).
Net cash used for financing activities during the first quarter of 1996
($111,861) was the result of the exercise of stock options by employees.
The Company believes that funds generated from operations, existing working
capital and its current line of credit will be sufficient to satisfy its
anticipated operating requirements for at least the next twelve months.
Page 11 of 13
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Employment Agreement dated as of April 11, 1996 between the
Registrant and Mark R. Bell.
11. Computation of per share earnings.
(b) Reports on Form 8-K
None
Page 12 of 13
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/ Gordon L. Almquist May 6, 1996
- - ----------------------------------------------- ----------------
Gordon L. Almquist Date
Vice President, Finance
Chief Financial Officer and Secretary
(Principal Financial Officer and Principal
Accounting Officer)
(Duly authorized to sign on behalf of Registrant)
Page 13 of 13