SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 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 July 31, 1996:
11,336,401 shares
3D SYSTEMS CORPORATION
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION Number
------
ITEM 1. Financial Statements
Consolidated Balance Sheets,
December 31, 1995 and June 28, 1996 . . . . . . . . . . . . . . . .3
Consolidated Statements of Operations
For the Three and Six Month Periods Ended
June 30, 1995 and June 28, 1996 . . . . . . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows
for the Six Month Periods Ended
June 30, 1995 and June 28, 1996 . . . . . . . . . . . . . . . . . .5
Notes to Consolidated Financial Statements,
December 31, 1995 and June 28, 1996 . . . . . . . . . . . . . . . .6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . .9
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders . . . . . 15
ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . .15
3D SYSTEMS CORPORATION
Consolidated Balance Sheets
(Unaudited)
ASSETS December 31, 1995 June 28, 1996
----------------- -------------
Current assets:
Cash and cash equivalents $ 38,258,927 $ 27,440,393
Restricted cash 766,000 722,000
Accounts receivable, less allowances for
doubtful accounts of $343,321 at December 31, 1995 and
$ 379,583 at June 28, 1996 14,439,863 16,341,084
Inventories (Note 2) 6,627,317 11,727,284
Deferred tax assets 5,301,118 3,831,138
Prepaid expenses and other current assets 1,608,203 1,519,078
----------------- -------------
Total current assets 67,001,428 61,580,977
Property and equipment, net (Note 3) 8,940,571 13,625,751
Licenses and patent costs, net 3,520,500 3,370,588
Deferred tax assets 1,029,000 1,029,000
Other assets 1,059,507 1,023,425
----------------- -------------
$ 81,551,006 $ 80,629,741
----------------- -------------
----------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,305,349 $ 3,100,714
Accrued liabilities 6,672,261 5,398,591
Customer deposits 1,233,305 1,092,050
Deferred maintenance revenues 3,768,121 4,219,553
----------------- -------------
Total current liabilities 16,979,036 13,810,908
Other liabilities 1,621,515 1,564,217
----------------- -------------
18,600,551 15,375,125
----------------- -------------
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 11,331,808 at June 28, 1996 11,279 11,332
Capital in excess of par value 71,850,602 72,161,381
Accumulated deficit (8,907,788) (6,985,477)
Cumulative translation adjustment (3,638) 67,380
----------------- -------------
Total stockholders' equity 62,950,455 65,254,616
----------------- -------------
$ 81,551,006 $ 80,629,741
----------------- -------------
----------------- -------------
See accompanying notes to consolidated financial statements.
Page 3 of 16
3D SYSTEMS CORPORATION
Consolidated Statements of Operations
(Unaudited)
Three Month Periods Ended Six Month Periods Ended
---------------------------------- ----------------------------------
June 30, 1995 June 28, 1996 June 30, 1995 June 28, 1996
-------------- -------------- -------------- --------------
Sales:
Products $ 9,745,091 $ 11,923,002 $ 18,820,435 $ 25,599,885
Services 4,912,222 6,632,346 9,455,249 12,122,027
-------------- -------------- -------------- --------------
Total sales 14,657,313 18,555,348 28,275,684 37,721,912
-------------- -------------- -------------- --------------
Cost of sales:
Products 4,330,157 5,419,266 8,161,207 11,583,471
Services 3,107,622 4,177,202 5,768,046 7,667,791
-------------- -------------- -------------- --------------
Total cost of sales 7,437,779 9,596,468 13,929,253 19,251,262
-------------- -------------- -------------- --------------
Gross profit 7,219,534 8,958,880 14,346,431 18,470,650
-------------- -------------- -------------- --------------
Operating expenses:
Selling, general and administrative 4,428,086 6,225,735 8,717,290 12,427,754
Research and development 1,375,971 1,825,757 2,853,425 3,651,507
-------------- -------------- -------------- --------------
Total operating expenses 5,804,057 8,051,492 11,570,715 16,079,261
-------------- -------------- -------------- --------------
Income from operations 1,415,477 907,388 2,775,716 2,391,389
Interest income 107,766 376,777 183,098 832,294
Interest expense (12,710) (5,158) (27,286) (11,498)
-------------- -------------- -------------- --------------
Income before provision for
income taxes 1,510,533 1,279,007 2,931,528 3,212,185
Provision for income taxes (100,000) (477,939) (190,000) (1,289,874)
-------------- -------------- -------------- --------------
Net income $ 1,410,533 $ 801,068 $ 2,741,528 $ 1,922,311
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Net income per share $ 0.14 $ 0.07 $ 0.28 $ 0.16
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted average number of shares
outstanding during the period 9,756,348 11,814,114 9,658,578 11,795,599
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
See accompanying notes to consolidated financial statements.
3D SYSTEMS CORPORATION
Consolidated Statements of Cash flows
For the Six Month Periods Ended June 30, 1995 and June 28, 1996
(Unaudited)
1995 1996
------------- --------------
Cash flows from operating activities:
Net income $ 2,741,528 $ 1,922,311
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Benefit for deferred tax assets (20,000) 1,470,000
Depreciation of property and equipment 764,659 1,025,344
Amortization of licenses and patent costs 251,930 291,364
Amortization of software development costs 211,117 233,116
Changes in operating assets and liabilities:
Accounts receivable (1,254,787) (2,103,376)
Inventories (1,299,744) (5,129,839)
Prepaid expenses and other current assets (99,603) 48,132
Other assets (234,242 (230,358)
Accounts payable 237,726 (1,909,756)
Accrued liabilities 195,671 (1,220,513)
Customer deposits 73,176 (141,623)
Deferred maintenance revenues 948,884 477,292
Other liabilities (56,328) (38,584)
------------- --------------
Net cash provided by (used for) operating activities 2,459,987 (5,306,491)
------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (1,421,037) (6,382,851)
Disposition of property and equipment --- 581,873
Increase in licenses and patent costs (172,133) (142,242)
------------- --------------
Net cash used for investing activities (1,593,170) (5,943,226)
------------- --------------
Cash flows from financing activities:
Net proceeds from stock offering 24,294,691 ---
Exercise of stock options and warrants 224,654 310,832
------------- --------------
Net cash provided by financing activities 24,519,345 310,832
Effect of exchange rate changes on cash 92,764 120,351
------------- --------------
Net increase (decrease) in cash and cash equivalents 25,478,926 (10,818,534)
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 $ 31,902,449 $ 27,440,393
------------- --------------
------------- --------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 17,284 $ 11,134
------------- --------------
------------- --------------
Income taxes $ 90,000 $ 758,460
------------- --------------
------------- --------------
See accompanying notes to consolidated financial statements
Page 5 of 16
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1995 and June 28, 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 six month period ended June 28, 1996 are not
necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.
(2) Inventories.
Inventories at December 31, 1995 and June 28, 1996 are as follows:
December 31, 1995 June 28, 1996
----------------- -------------
Raw materials $ 2,100,269 $ 3,862,286
Work in progress 2,022,565 3,191,590
Finished goods 2,504,483 4,673,408
----------------- -------------
$ 6,627,317 $ 11,727,284
----------------- -------------
----------------- -------------
(3) Property and Equipment.
Property and equipment are summarized as follows:
December 31, 1995 June 28, 1996
----------------- -------------
Land $ 435,600 $ 435,600
Building --- 4,115,734
Machinery and equipment 8,829,827 10,810,362
Office furniture and equipment 1,861,702 2,218,832
Leasehold improvements 1,617,215 1,764,136
Rental equipment 622,483 523,664
Construction in progress 2,133,289 920,879
----------------- -------------
15,500,116 20,789,207
Less accumulated depreciation and
amortization (6,559,545) (7,163,456)
----------------- -------------
$ 8,940,571 $ 13,625,751
----------------- -------------
----------------- -------------
3D SYSTEMS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains trend analysis and other forward looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended and Section 21A of the Securities Act of 1933, as amended.
Actual results could differ from those projected in the forward looking
statements as a result of the cautionary statements and risk factors set forth
below and in Item 1 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
RESULTS OF OPERATIONS
The Company's revenues are generated by product and services 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 Six Month Periods Ended
June 30, 1995 June 28, 1996 June 30, 1995 June 28, 1996
------------- ------------- ------------- -------------
(in thousands except percent data)
Sales:
Products $ 9,745 $ 11,923 $ 18,821 $ 25,600
Services 4,912 6,632 9,455 12,122
------------- ------------- ------------- -------------
Total sales 14,657 18,555 28,276 37,722
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Cost of sales:
Products 4,330 5,419 8,161 11,583
Services 3,108 4,177 5,768 7,668
------------- ------------- ------------- -------------
Total cost of sales 7,438 9,596 13,929 19,251
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total gross profit 7,220 8,959 14,347 18,471
% of total sales 49.3% 48.3% 50.7% 49.0%
Gross profit - products 5,415 6,504 10,660 14,017
% of total product sales 55.6% 54.6% 56.6% 54.8%
Gross profit - services 1,805 2,455 3,687 4,454
% of total service sales 36.7% 37.0% 39.0% 36.7%
Selling, general and administrative expenses 4,428 6,226 8,717 12,428
% of total sales 30.2% 33.6% 30.8% 33.0%
Research and development expenses 1,376 1,826 2,854 3,651
% of total sales 9.4% 9.8% 10.1% 9.7%
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Income from operations 1,416 907 2,776 2,391
% of total sales 9.7% 4.9% 9.8% 6.3%
Interest income, net 95 372 156 821
% of total sales .6% 2.0% .6% 2.2%
Provision for income taxes (100) (478) (190) (1,290)
% of total sales (.7%) (2.6%) (.7%) (3.4%)
------------- ------------- ------------- -------------
Net income 1,411 801 2,742 1,922
% of total sales 9.6% 4.3% 9.7% 5.1%
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 Six Month Periods Ended
-------------------------------- --------------------------------
June 30, 1995 June 28, 1996 June 30, 1995 June 28, 1996
-------------- -------------- -------------- --------------
Products: (in thousands)
SLA systems and related equipment $ 6,734 $ 8,487 $ 13,012 $ 17,920
Resins 1,774 2,453 3,566 5,078
Software, other components parts
and rentals 1,237 983 2,243 2,602
-------------- -------------- -------------- --------------
Total products 9,745 11,923 18,821 25,600
-------------- -------------- -------------- --------------
Services:
Maintenance 3,863 5,522 7,255 9,674
Technology Centers 976 932 2,029 2,060
Training 73 178 171 388
-------------- -------------- -------------- --------------
Total services 4,912 6,632 9,455 12,122
-------------- -------------- -------------- --------------
Total sales $ 14,657 $ 18,555 $ 28,276 $ 37,722
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Products:
SLA systems and related equipment 45.9% 45.7% 46.0% 47.5%
Resins 12.1 13.2 12.6 13.5
Software, other components parts
and rentals 8.5 5.3 8.0 6.9
-------------- -------------- -------------- --------------
Total products 66.5 64.3 66.6 67.9
-------------- -------------- -------------- --------------
Services:
Maintenance 26.4 29.8 25.6 25.6
Technology 6.6 5.0 7.2 5.5
Training 0.5 1.0 0.6 1.0
-------------- -------------- -------------- --------------
Total services 33.5 35.7 33.4 32.1
-------------- -------------- -------------- --------------
Total sales 100.0% 100.0% 100.0% 100.0%
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Page 8 of 16
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
THREE MONTH PERIOD ENDED JUNE 28, 1996 COMPARED TO THE THREE MONTH PERIOD ENDED
JUNE 30, 1995.
The Company recorded net income of $801,068 or $.07 per share on total sales of
$18,555,348 for the three month period ended June 28, 1996 (the "second quarter
of 1996") compared to net income of $1,410,533 or $.14 per share on total sales
of $14,657,313 during the three month period ended June 30, 1995 (the "second
quarter of 1995").
Product sales during the second quarter of 1996 increased $2.2 million to $11.9
million, compared to $9.7 million during the second quarter of 1995, an increase
of 22%. The increase was primarily the result of increased shipments of SLA
systems in both the U.S. and Europe which management believes is the result of
increased acceptance by industry of rapid prototyping equipment and technology.
The Company sold a total of 33 SLA systems in the second quarter of 1996 which
was comprised of 1 SLA-190, 11 SLA-250's, 11 SLA-500's and 10 SLA-350's, the
Company's newest SLA system which features the new Zephyr -TM- recoater, a
solid state laser and automatic resin re-filling system. During the second
quarter of 1995, the Company sold 26 SLAs which included 14 SLA-250's and 12
SLA-500's, the Company's largest and highest priced system. Orders for the
Company's SLA systems increased 55% in the second quarter of 1996 compared to
the second quarter of 1995 and SLA systems backlog at the end of the second
quarter was 126% greater than the end of the second quarter of 1995. Shipments
of SLA systems were adversely impacted by the timing of orders, however, with a
higher portion of customers specifying deliveries beyond the second quarter of
1996. 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 January 1996, the Company announced two new products -- the SLA-350
Series 10, a new, advanced SLA system and the low-priced Actua 2100 office
modeler (which uses a technology completely different from stereolithography),
designed for operation in engineering and design offices. During May, the
Company began commercial shipments of the SLA-350, and is presently continuing
its development efforts in connection with the Actua 2100 and shipments of the
Actua will be delayed until certain technical issues have been resolved. While
shipments are currently scheduled to commence prior to the end to the current
fiscal year, the possibility exists that first shipments may be further delayed.
Additionally, the possibility exists that the introduction of these new products
may have caused, and may impact in the future, 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 actual
use. In addition, during June, the Company began the relocation of its
manufacturing and customer support operations to Colorado. While the Company
has not experienced any material problems to date, 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 second quarter of 1996 increased $1.7 million or 35%
compared to the second 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 second quarter of 1996 compared to 44% during the second 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
second quarter of 1995. This increase was partially offset by the increase in
SLA system sales and increased manufacturing efficiencies due to the higher
level of production of SLA systems in 1996. Profit
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
margins on SLA systems and related software are typically greater than margins
achieved on other product sales (related hardware, parts and polymers). The
Company's gross profit margins on product sales are affected by several factors
including, among others, sales mix, distribution channels and fluctuations in
foreign currency exchange rates and, therefore, may vary in future periods from
those experienced during the second quarter of 1996. Additionally, the Company
anticipates that the gross margins related to the Actua 2100 system (which are
not currently expected to constitute a material portion of the Company's sales
in the current fiscal year) 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. The
Company also anticipates that gross margins related to the Actua 2100 will be
lower during the initial phases of production as a result of certain
inefficiencies and anticipates, in the event of increased production, that Actua
2100 gross margins could increase as a result of lower per unit material costs
(due to greater purchasing economies) and increased manufacturing efficiencies.
Service cost of sales as a percentage of service sales was 63% for both the
second quarter of 1996 and 1995. Although service margins were equal, the
Company did experience improved margins from field service operations which was
the result of the more profitable Zephyr upgrades delivered in 1996 compared to
those upgrades offered in the second quarter of 1995. The improved margins from
field service operations were completely offset, however, by lower margins from
the Company's U.S. Technology Center due to the Technology Center's testing of
both new hardware and software products as well as increased staffing levels in
1996 and the increased use of outside vendors for certain rapid prototyping
applications.
Selling, general and administrative ("S,G&A") expenses for the second quarter of
1996 were 33.6% of sales compared to 30.2% in the second quarter of 1995. S,G&A
expenses increased $1.8 million or 41% in 1996 compared to the second quarter of
1995, primarily as a result of expanded sales and marketing programs in both the
U.S. and Europe. The Company currently anticipates that S,G&A expenses for the
remainder of 1996 will not be significantly different from the levels
experienced during the second quarter of 1996. 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, these are forward looking statements and as with
other such statements is subject to uncertainties. For example, if sales do not
continue to grow over the period, it is less likely that S,G&A expenses as a
percentage of total sales would decline.
Research and development ("R&D") expenses during the second quarter of 1996
increased approximately $450,000 or 33% compared to the second 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. 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%.
Operating income for the second quarter of 1996 was 4.9% of total sales compared
to 9.7% of total sales in the second quarter of 1995. The decrease in the
percentage of operating income to total sales in 1996 was primarily attributable
to the increase in S,G&A expenses described above.
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Interest income increased to $376,777 during the second quarter of 1996 compared
to $107,766 during the second 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 $5,158 during the second quarter of 1996 from
$12,710 in the second 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 second quarter of 1995.
For the second quarter of 1996, the Company's tax rate was 37% of pre-tax income
compared to 7% for the second quarter of 1995. The low tax rate in the second
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 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 40%.
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
SIX MONTH PERIOD ENDED JUNE 28, 1996 COMPARED TO THE SIX MONTH PERIOD ENDED JUNE
30, 1995.
The Company recorded net income of $1,922,311 or $.16 per share on total sales
of $37,721,912 for the six month period ended June 28, 1996 (the "first half of
1996") compared to net income of $2,741,528 or $.28 per share on total sales of
$28,275,684 during the six month period ended June 30, 1995 (the "first half of
1995").
Product sales during the first half of 1996 increased $6.8 million to $25.6
million, compared to $18.8 million during the first half of 1995, an increase of
36%. The increase was primarily the result of increased shipments of SLA
systems in both the U.S. and Europe which management believes is the result of
increased acceptance by industry of rapid prototyping equipment and technology.
The Company sold a total of 73 SLA systems in the first half of 1996 which was
comprised of 4 SLA-190's, 29 SLA-250's, 30 SLA-500's and 10 SLA-350's, the
Company's newest SLA system. During the first half of 1995, the Company sold 51
SLAs which included 1 SLA-190, 31 SLA-250's and 19 SLA-500's, the Company's
largest and highest priced system.
Service sales during the first half of 1996 increased $2.7 million or 28%
compared to the first half 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 half of 1996 compared to 43% during the first half of 1995. The
increase in 1996 was primarily the result of an increase in commission payments
to independent sales agents in 1996 compared to the first half of 1995. This
increase was partially offset by the increase in SLA system sales and increased
manufacturing efficiencies due to the higher level of production of SLA systems
in 1996.
Service cost of sales as a percentage of service sales increased to 63% during
the first half of 1996 compared to 61% for the first half of 1995, primarily as
a result of lower margins from the Company's U.S. Technology Center as a result
of the Technology Center's testing of both new hardware and software products as
well as increased staffing levels in 1996 and the increased use of outside
vendors for certain rapid prototyping applications in 1996. The lower margins
from the U.S. Technology Center were partially offset by improved margins from
field service operations which was the result of the more profitable Zephyr
upgrades delivered in 1996 compared to those upgrades offered in 1995.
S,G&A expenses for the first half of 1996 were 33% of sales compared to 31% in
the first half of 1995. S,G&A expenses increased $3.7 million or 43% in 1996
compared to the first half of 1995, primarily as a result of expanded sales and
marketing programs in both the U.S. and Europe.
R&D expenses during the first half of 1996 increased approximately $798,000 or
28% compared to the first half 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.
Operating income for the first half of 1996 was 6.3% of total sales compared to
9.8% of total sales in the first half of 1995. The decrease in the percentage
of operating income to total sales in 1996 was primarily attributable to the
lower gross profit margins (both products and services) and increased S,G&A
expenses, as described above.
Interest income increased to $832,294 during the first half of 1996 compared to
$183,098 during the first half of 1995, primarily as a result of the investment
of funds from the Company's stock offering which was completed in June 1995.
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Interest expense decreased to $11,498 during the first half of 1996 from $27,286
in the first half 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 1995.
For the first half of 1996, the Company's tax rate was 40% of pre-tax income
compared to 6% for the first half of 1995. The low tax rate in the first half
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 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 40%.
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
December 31, 1995 June 28, 1996
----------------- -------------
Cash and cash equivalents (1) $ 39,024,927 $ 28,162,393
Working capital (1) 50,022,392 47,770,069
Six Month Periods Ended
--------------------------------
June 30, 1995 June 28, 1996
------------- -------------
Cash provided by (used for) operating
activities $ 2,459,987 $ (5,306,491)
Cash used for investing activities (1,593,170) (5,943,226)
Cash provided by financing
activities 24,519,345 310,832
- -----------------------
(1) Includes $766,000 and $722,000 of restricted cash at December 31, 1995 and
June 28, 1996, respectively.
Net cash used for operating activities during the first half of 1996 was $5.3
million. The negative cash flow from operations during the first half of 1996,
comprised primarily of an increase in inventory ($5.1 million) as a result of a
build-up of finished goods and other inventory items in anticipation of the
Company's move of its manufacturing operations to Colorado and to a lesser
extent the timing of orders received during the second quarter of 1996 (see
"Results of Operations"), an increase in accounts receivable ($2.1 million) as a
result of the increase in sales during the second quarter of 1996 and a decrease
in accounts payable ($1.9 million) and accrued liabilities ($1.2 million), was
partially offset by net income ($1.9 million), non cash depreciation and
amortization ($1.5 million), and a decrease in deferred tax assets ($1.5
million).
Net cash used for investing activities during the first half of 1996 totalled
$5.9 million and was primarily the result of construction expenditures related
to the Company's Grand Junction, Colorado facility ($4.1 million) and SLA
equipment manufactured for use as demonstration equipment ($1.2 million). The
Company is currently in the process of obtaining tax-exempt Industrial
Development Bond financing of its Colorado facility in the amount of
approximately $4.9 million. The Company anticipates the completion of this
financing transaction by the end of August, 1996. No assurances can be given,
however, that the Company will complete this debt financing transaction.
Net cash provided by financing activities during the first half of 1996 of
$310,832 was the result of the exercise of stock options by employees.
During June, 1996, the Company received a non-binding commitment from Silicon
Valley Bank ("SVB") to amend its $4,000,000 revolving line of credit ("New
Credit Facility"). The New Credit Facility is subject to, among other things,
the completion and execution of final documentation.
Under the terms of the New Credit Facility, which would remain in effect through
July 5, 1997, the Company would be able to borrow from SVB, up to $4,000,000, at
prime. The New Credit Facility, which is unsecured, will contain certain
financial covenants including the maintenance of certain financial ratios,
working capital, tangible net worth as well as covenants limiting mergers,
acquisitions, recapitalizations, dividends, loans to others, and hypothecation
of assets or corporate guarantees.
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.
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) On May 23, 1996, the Company held its Annual Meeting of Stockholders.
(b) At the meeting, two Class III Directors were elected for a term of
three years. The following table sets forth the identity of the
directors elected and the voting results:
Director With Authority Without Authority
---------------------------------------------------------
John D. Beadsmoore 9,378,039 580,971
Charles W. Hull 9,380,872 578,138
(c) At the meeting, stockholders approved the 1996 Stock Incentive Plan:
For Against Abstain Broker Non Votes
--------------------------------------------------------------
5,957,348 1,748,002 35,832 2,079,961
(d) At the meeting, stockholders approved the 1996 Non-Employee Director Stock
Option Plan:
For Against Abstain Broker Non Votes
--------------------------------------------------------------
7,492,794 369,719 39,401 1,919,229
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Computation of per share earnings.
(b) Reports on Form 8-K
None
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 8/8/96
- ------------------------------------- -----------------
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)