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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

                   

/x/

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

                         2000
/ /
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-22250
3D SYSTEMS CORPORATION
             (Exact
(Exact name of registrantRegistrant as specified in its charter)

               Delaware                                95-4431352
      (State or other jurisdiction                  (I.R.S. Employer
   of incorporation or organization)               Identification No.)

                                
Delaware
(State or other jurisdiction of incorporation)
95-4431352
(I.R.S. Employer of incorporation or organization Identification No.)



26081 Avenue Hall
Valencia, California 91355
              (Address
(Address of principal executive offices and zip code)
(661) 295-5600
              (Registrant's
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Preferred Stock Purchase Rights
    Indicate by check mark whether the registrant: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 twelve months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X|/x/  No |_|./ /
    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this 10-K or any Amendment to this Form 10-K. |_|[ ]
    At February 29, 2000,28, 2001, there were outstanding 11,602,63312,303,197 shares of the Common Stock of Registrant, and the aggregate market value of the shares held on that date by non-affiliates of Registrant, based on the closing price ($11.656212.625 per share) of the Registrant's Common Stock on the Nasdaq National Market on that date, was $90,806,356.$98,254,126. For purposes of this computation, it has been assumed that the shares beneficially held by directors and officers of Registrant were "held by affiliates";affiliates;" this assumption is not to be deemed to be an admission by such persons that they are affiliates of Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
    Portions of Registrant's Proxy Statement with respect to its 2000 Annual Meeting of Shareholders, currently scheduled to be held May 2, 2000,9, 2001, are incorporated by reference into Part III of this Report.
    Exhibit index is located on page 28.


Page 7

                             31.
3D SYSTEMS CORPORATION
Annual Report on Form 10-K for the
Year Ended December 31, 1999

2000
PART I....................................................................................................3

  I
3

Item 1.   Business......................................................................................3
  


Business


3
Item 2.   Properties...................................................................................15
  
Properties
17
Item 3.
Legal Proceedings............................................................................15
  Proceedings
18
Item 4.
Submission of Matters to a Vote of Security Holders..........................................16
  Holders
19
Item 4a.  4a
Executive Officers of the Registrant.........................................................16

Registrant
19

PART II..................................................................................................18

  II


20

Item 5.


Market for Registrant's Common Equity and Related Stockholder Matters........................18
  Matters.


20
Item 6.
Selected Financial Data......................................................................19
  Data
20
Item 7.
Management's Discussion and Analysis of Results of Operations and Financial Condition........20
  Condition
22
Item 7a.  7a
Quantitative and Qualitative Disclosures About Market Risk...................................26
  Risk
29
Item 8.
Financial Statements and Supplementary Data..................................................26
  Data
30
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures........26

Disclosures
30

PART III.................................................................................................27

  III


30

Item 10.


Directors and Executive Officers of the Registrant...........................................27
  Registrant


30
Item 11.
Executive Compensation.......................................................................27
  Compensation
30
Item 12.
Security Ownership of Certain Beneficial Owners and Management...............................27
  Management
30
Item 13.
Certain Relationships and Related Transactions...............................................27

Transactions
30

PART IV..................................................................................................28

  IV


31

Item 14.


Exhibits, Financial Statement Schedule, and Reports on Form 8-K..............................28
8-K


31



                                     Page 
2

PART I
Item 1. Business
- - ----------------
    For a discussion of certain material factors which may affect the Company, see "Cautionary Statements and Risk Factors" commencing on page 109 of this Report.
General
    3D Systems Corporation (the "Company," "We," or "Us") develops manufactures
and markets worldwidemanufactures solid imaging systems.systems that it markets to a worldwide customer base. Solid imaging systems are designed to rapidly produce three-dimensional physical objects rapidly from digital data using computer aided design and manufacturing ("CAD/CAM") software utilities and related computer applications. Our hardware products include SLA-Registered
Trademark-SLA® industrial systems and ThermoJet(TM)ThermoJet® solid object printers. In
addition, weWe market and distribute consumable materials used in these systems.systems, and, in the case of the ThermoJet printers, we also produce the materials. Our growing installed base of systems requires an ongoing supply of materials as well as service support. ThermoJet printers use proprietary materials developed, manufactured and sold exclusively by us. For SLA systems, we are the exclusive worldwide distributor (except for Japan) of Ciba Specialty Chemicals, Inc.Vantico International S.A.'s ("CSC"Vantico") stereolithography photopolymer liquid resins ("resins"), which we developeddevelop in conjunction with CSC.Vantico. Unless otherwise indicated, all references to "Vantico" include Vantico Holding S.A. and its affiliates, including Vantico Group S.A. and Vantico International S.A. Vantico acquired the assets of the Performance Polymer Division of Ciba Specialty Chemicals, Inc. ("CSC"), with which we formerly had the same distributor and development relationship with respect to resins.
    SLA industrial systems use our proprietary stereolithography ("SL") technology, a solid imaging process whichthat uses a laser beam to expose and solidify successive layers of a photosensitive epoxy resinliquid until the desired object is formed to precise specifications in epoxy or acrylic resin. SL-produced parts can be used for concept models, engineering prototypes, patterns and masters for molds, consumable tooling or short-run manufacturing of final product, among other applications. SL technology can provide users with significant product development time savings,time-savings, cost reductions and improved quality, compared to traditional modeling, tooling and pattern-making techniques. In addition, with appropriate material functionality, SL technology can produce more durable parts which can be used for rapid manufacturing. We provide, either directly or through our network of
authorized distributors, a variety of on-site maintenance services and
processing materials.
    ThermoJet solid object printers, employ hot melt ink jet technology to build
models in successive layers using our proprietary thermoplastic material. These
printers,which are about the size of an office copier,copiers and are designed for operation in engineering and design office environments.environments, employ hot-melt ink jet technology to build 3-dimensional models in successive layers using our proprietary thermoplastic materials ("3D printing"). Designers, engineers, and other users of CAD/CAM utilities can incorporate theour printers into office networks as a shared resource, to rapidly produce models of products under development for design concept communication and validation. In addition, the ThermoJet solid
object printer outputobjects produced by 3D printing can be used as patterns and molds and, when combined with other secondary processes, such as investment casting, can produce parts with representative end useend-use properties.
    We provide, either directly or through our network of authorized distributors, a variety of processing materials and on-site maintenance services.services for both SLA systems and ThermoJet printers.
    We market directly and through secondary distribution channels to customers in the United States, Europe and Asia, and through distributors and sales agents in other countries.
We sold our first SLA system in 1988, our first solid object printer in the
fourth quarter of 1996, and as of December 31, 1999, had sold 1,546 machines to
customers in over 80 countries. Our customers include major corporations throughout the world in a broad range of industries including manufacturers of automotive, aerospace, computer, electronic, consumer and medical products. We also sell SLA systems and ThermoJet printers to government agencies, universities and to independent service bureaus which,that, for a fee, provide stereolithographicSL and 3D printing services to their customers.
    As of December 31, 1999,2000, we held 197232 patents related to solid imaging: 93114 United States; 6164 European; 812 Japanese; and 3542 other foreign patents. We continue to develop improvements in our product lines as well as new products and
3
processes to expand the applications of solid imaging.imaging, and to develop improvements to our existing product lines. In conjunction with CSC,Vantico, we continue to develop materials for our SLA systems with different and improved characteristics to expand SL applications. CSCVantico is a Swiss-basedLuxembourg-based multinational manufacturer and distributor of specialty chemicals, and is a 14.9%14% beneficial shareholder of the Company andat February 28, 2001, as well as a distributor of our partnerSLA products in photopolymer resin development.Japan.
    Solid imaging is a relatively new field embodying the use of computers and computer automated equipment to rapidly produce prototypes, models and even low-volume production quantities of physical objects that traditionally have been produced by machining and other methods. We believe that stereolithography and solid imaging hot melt ink jet ("multi-jet modeling" or "MJM") technologies, which we have developed and patented, represent the most significant developments in this field. While alternative technologies exist and significant research and development efforts are currently being undertaken by corporations and universities around the world in an attempt to develop additional alternative technologies and techniques, we remain the leader in the solid imaging field on the basis of total revenue and systems installed.

Unless otherwise indicated, all references to "CSC" include Ciba Specialty
Chemicals, Inc. and its affiliates, including Ciba Specialty Chemicals Holding
and its wholly-owned subsidiaries in Canada, through which CSC holds its
interest in the Company, and the United States ("CSC US"), through which CSC
conducts its United States operations. On December 14, 1999, CSC announced it
would sell its Performance Polymer Division, the division with which we
primarily


                                     Page 3


do business, to Morgan Grenfell Private Equity ("MGPE"). The announcement stated
that the transaction is expected to close in the first quarter of 2000. On
February 7, 2000, CSC advised us that the operations of the division will be run
by the present management in a newly created Swiss company headquartered in
Basel, Switzerland and that CSC will assign to the new company its rights and
obligations under all contracts related to the Performance Polymers Division.
MGPE is ultimately owned by Deutsch Bank AG.

Corporate Structure
    The Company is a Delaware corporation, and is the sole shareholder of 3D Canada Company, a Nova Scotia unlimited liability company ("3D Canada") (formerly 3D Systems (Canada) Inc., a British Columbia corporation) ("3D Canada"). The Company and 3D Canada jointly own 3D Holdings LLC, which is the sole shareholder of 3D Systems, Inc., a California corporation ("3D California"), which directly and through its direct and indirect subsidiaries conducts substantially all of the Company's business. 3D California's direct subsidiaries include 3D Systems Europe Ltd., a United Kingdom company, which beginning January 1, 2000, serves as the headquarters for the Company's European operations.
    Unless otherwise indicated, all references in this document to the Company, we, or us include 3D Systems Corporation, 3-D Systems Inc., its British Columbia predecessor ("3-D Canada"), 3D Canada Company and its predecessor, 3D Systems (Canada), Inc. and 3D Systems, Inc. and its subsidiaries.
Products and Services
    For an analysis of revenues attributable to our product and service groups, see "Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition - Condition—Results of Operations" beginning on page 21.22 of this report.
    SLA Systems and Related Equipment. We currently manufacture and market  As of December 31, 2000, our SLA product line included five SLA industrial systems--systems: the SLA 250 Series 50; the SLA 250/50 HR ("High Resolution"); the SLA 3500; the SLA 5000; and the SLA 7000. All models use SL technology. The models vary in their capabilities including the resolution and accuracy of part building, the maximum size of objects that can be produced, object building speed, and system price. EachBeginning March 5, 2001, as more fully described below underRecent Product Introductions, we added a new SLA system, consists ofthe Viper si2™.
    SLA systems use an ultraviolet laser an optical scanning system
that controlsto convert liquid photosensitive polymers into solid cross-sections, layer by layer, until the position of the laser beam, a vat of photosensitive epoxy
resin, an elevator assembly and a central controller, which work together to
control the exposure of the resin to ultraviolet radiation, thereby curing it in
a defined pattern to create solid objects.desired 3-dimensional objects are complete. SLA systems are capable of making multiple objects at the same time; however, each SLA system is limited in the size of the objects that it can make during a single build session. Therefore, the system can make only scale models of very large objects or, alternatively, full-scale portions of large objects which are then joined together. The SLA 250 system, for example, can create a model, section of a model or other object with maximum size of 10 inches x× 10 inches x× 10 inches (250 mm x× 250 mm x× 250 mm). On the other hand, the maximum size model, section of a model or other object that can be created using the SLA 7000 system is 20 inches x× 20 inches x× 24 inches (500 mm x× 500 mm x× 600 mm).
    SLA systems are installed in many of the largest manufacturing organizations in the world and are used in a wide variety of applications, varying from prototypingshort production runs of end-use products to producing automobile prototype parts to creating new designs for testing in consumer focus groups.
4
SLA systems are generally designed to build communication models to enable users to share ideas and evaluate concepts; perform form, fit and function testing on working prototypes; build master patterns for investment casting; or quickly produce parts for direct use in working prototypes. In addition, our products have been customized to produce thousands of tools and end-use parts in specialized industry situations ("niche customization"), including certain medical device/dental applications. As we work to improve process and material functionality, we anticipate increasing our sales into niche customization applications. This is a forward-looking statement, however, and, as with any such statement, is subject to risk. For instance, we may not experience commercial acceptance of such applications, development or operational issues may arise, and our technologies and products may not be suitable for all customization applications.
We also market ultraviolet curing devices ("PCAs") used in conjunction with SLA systems. The PCA provides uniform long wave ultraviolet illumination. When thean SLA system has completed a typical object, a small amount of the resin has not been fully cured."cured" or hardened. Full curing requires an additional one to two hours of exposure to ultraviolet illumination, which can be accomplished most effectively through the use of our PCAs. The Company is
currently offering three PCA models, the PCA 250, PCA 350 and PCA 500.
Approximately 70%64% of all SLA systems sold by us have been purchased with a PCA.
    Solid object printers.  The ThermoJet printer is a network-ready system, about the size of an office copier, that uses a hot melt ink jet technology to print models by accumulating material in successive layers using a proprietary thermoplastic solid imaging materialmaterials ("SIM") and a print head with hundreds of jets oriented in a linear array. The print head scans back and forth, similar to desktop ink jet printers, depositing layer upon layer of material to form the physical model. The printers offer a part buildingpart-building capacity of 10 inches x× 7.8 inches x× 8 inches (250 mm x× 195 mm x× 200 mm).
    The ThermoJet printer creates concept models used for design reviews, form and fit checking, styling, ergonomics evaluation and CAD-model verification. By3D printing provides a three-dimensional object, designscommunication tool that appear complex on a
two-dimensional presentation areis more easily understood by both technical and non-technical people.


                                     Page 4
people than complex two-dimensional presentation drawings. Because SIM is substantially similar to investment casting waxes, ThermoJet printer models can be readily used in the foundry environment for the production of investment casting patterns.
    Materials.  We develop and manufacture the SIM used by the ThermoJet printer. Currently we market threefour types of SIM, in several shades. We anticipate, based upon our research and development efforts, that we will market additional SIM types with differing material properties. We are the exclusive worldwide distributor (other than Japan), to users of stereolithographicSL systems, of CSC
photopolymers (photosensitive resins)Vantico photosensitive liquid resins for stereolithography (see "Marketing and Customers - Customers—Photopolymer Distribution Agreement," onAgreement" see page 7, below)9). Currently, we market a total of 1415 different resins, which vary in building speed, accuracy, surface finish and mechanical properties. Depending upon results obtained under our Photopolymer Research Agreement (described under "Research and Development," on page 6, below)7), we anticipate that we will market additional types of resins with varying properties. Most of our customers purchase materialmaterials from us at the time of initial purchase of equipment (SLA system or ThermoJet printer). We also sell materialmaterials necessary for ongoing operation of the machines. DuringFor the years ended December 31, 2000, 1999 1998 and 19971998, revenues from materials sales were $15.6$25.3 million, $18.6 million and $13.5$15.6 million, respectively. Approximately three-quarters of our materialmaterials revenue is from ongoing operation of the machines.
    Software.  We develop and market part preparation software for personal computers and engineering workstations. The softwareworkstations that is designed to enhance the interface between CAD/CAM utilities and our solid imaging products. Solid CAD/CAM data is converted to the STL format within the CAD/CAM utility. Dependingutility; then, depending on the specific software package, the object is typicallycan be viewed, rotated, scaled, and model structures added. The software then generates the information that will be used by the SLA system or ThermoJet machineprinter for creation of the solid images.

QuickCast(TM)
5
    QuickCast™ Technology.  Our QuickCast build style consists of a special process for making precision investment casting patterns using SL technology. Investment casting is a process whereby a foundry uses wax patterns to generate molds into which liquid metal is poured to form the part. Each wax pattern can be used only once to produce a mold. Similarly, the QuickCast process uses our SLA systems to produce foundry-useable mold patterns suitable for limited-run investment casting. While not cost-competitive for high-capacity manufacturing, the ability to rapidly produce prototypes and short runshort-run production quantities of fully functional complex metal parts, in a wide variety of metals, is a major technological improvement inadvantage of SL. All of the SLA systems we sell include the software capability to use the QuickCast process.
    Maintenance.  All of the SLA systems we sell include on-site hardware and software maintenance service, during a warranty period (typically one year) at no additional charge. All ThermoJet printers include at least a 90-day warranty period at no additional charge. After the warranty period, we offer customers optional maintenance contracts, which are available on a monthly and annual basis. Approximately three-quarters of the services we provide are for post-warranty maintenance contracts. Although purchasers are not required to enter into maintenance contracts with us, a majority of our United States, Asia Pacific and European SLA system customers are parties to these contracts, and many others obtain our maintenance services on a time and materialmaterials basis. Customers acquiring systems from some of our overseas distributors are offered maintenance contracts by the distributors. DuringFor the years ended December 31, 2000, 1999 1998 and 1997,1998, revenues from maintenance contracts and maintenance services were approximately $26.1 million, $26.7 million $28.1 million, and $25.0$28.1 million, respectively. As of December 31, 1999,2000, we had a staff of 98122 full-time employees who provide on-site remedial and preventive maintenance services necessary to keep the equipment in good operating condition. To date, warranty expenses and product returns have not been significant.
    3D Systems Technology Centers.  The Company provides services from its Technology Centers at its Valencia, California headquarters and at its office located near Frankfurt, Germany. The 3D Systems Technology Centers utilize SLA systems together with CAD/CAM and other data supplied by customers to produce models, prototypes, mold patterns and other parts on a contract basis. The price for services offered by the Technology Centers varies on the basis of the nature of the services requested. The Technology Centers also focus their efforts on the development of new applications and techniques in SL and the development of new markets in which the advantages of SL can be demonstrated. The Technology Centers also enable us to keep abreast of developments in the applications of rapid prototyping and serve as a means to introduce prospective buyers to our technology.
    3D Keltool(R)Keltool® Process.  The 3D Keltool process uses master patterns to produce highly accurate steel tool core and cavity inserts for use in plastic injection molding machines. In 1998, we began licensing this technology to our customers for their direct use. Since acquiring the 3D Keltool assets and operations in
September 1996 and through 1998, we produced 3D Keltool inserts for our
customers, using the 3D Keltool process, out of our St. Paul, Minnesota
facility. In the first quarter of 1999, we sold the St. Paul operations to Rapid
Tooling Technologies ("RTT"). As part of the agreement to purchase the St. Paul
operations, RTT obtained a license for the use of the 3D Keltool process.
    Recent Product Introductions.  In order to improve and expand the capabilities of our systems and related software and materials, as well as to enhance our portfolio of proprietary intellectual properties, we have historically devoted a significant portion of our resources to research and development activities. Recent product introductions include:

SL5530HT resin was announced in December 1998. Designed specifically for use
with the SLA 350, 3500, 5000 and 7000 systems, SL5530HT resin is a breakthrough
in materials development. Depending on the hardware platform, SL5530HT


                                     Page 5


can resist temperatures in excess of 200(degree) C/392(degree) F - twice the
heat resistance of any other resin today. It also possesses optical clarity
useful for flow visualization and build accuracy that mirrors the dimensions of
the part design.

•
3D Lightyear(TM) Lightyear™ 1.1  part preparation software was released in the secondfirst quarter of 1999.2000. A major feature of the release was the introduction of Finepoint™ supports, which enables a new method of supporting SL parts, resulting in better part surface finish and better part building yield. 3D Lightyear 1.1 software fully exploits the power of the Windows NT operating system, delivering functionality that extends beyond the capabilities of its
predecessor, Unix-based Maestro. Ansystem. The accompanying release of control software, Buildstation 5.1, for the SLA 350/3500/500/5000/7000 systems also incorporatedincorporates new functions for customers who ownedown these large-frame SLA machines.

SLA 7000 system, the Company's new SLA machine introduced in the first quarter
of 1999, is faster (depending upon part geometry and layer thickness) than our
next fastest solid imaging system. The SLA 7000 system gains its speed advantage
from a dual-spot high power laser, high speed scanning software and a new high
photosensitivity material. In addition to its speed, the SLA 7000 system can
produce parts at 0.001 inch (0.025 mm) layers thickness (depending on part size
and geometry).

SL 7510 high photosensitivity material was initially released for the SLA 7000
machine. It was also released during 1999 for the SLA 3500 and SLA 5000 systems.
Final material properties are machine-dependent, but generally the SL 7510
material offers excellent durability, fast build speed, accuracy and humidity
resistance.

•
SL 5430  material for the SLA 500 system was released in January 2000. It combines excellent productivity and clarity, with high temperature resistance -
resistance—up to 250(degree)250° C/482(degree)482° F.
6
•
SL 7540  material was released in March 2000 onfor all three solid-state platforms (the SLA 3500/5000/7000 systems). It is a leap ahead inhas superior material properties, offering exceptional durability and surface quality. Alongquality and, in many cases, provides material properties suitable for functional testing of thermoplastic designs. This material was released in conjunction with this material,
we releasedthe new versions of our Lightyear and Buildstation software (1.1 and 5.1, respectively)respectively, discussed above). The software releases enable a new method of supporting SL
parts, which result in better part surface finish and better part building
yield. In combination, the software and material are an important step ahead in part building and part versatility.

ThermoJet solid object printer is the successor to the Actua(TM) 2100 office
modeler, offering a significant improvement in speed and reliability. It is up
to 300% faster than its predecessor. In addition,
•
TJ 2000  material for the ThermoJet printer introducedwas released in June 2000. It is stronger than its predecessors and creates models that are more robust than any prior SIM produced by 3D Systems.
•
SL 7520  material was released in June 2000 for the SLA 7000 system. Its higher initial green strength provides greater part-building yield for certain applications and part geometries. It provides faster throughput for QuickCast build style part building and has replaced other materials where fast production is vital.
•
SL 5240  material for the SLA 250 system was released in the firstfourth quarter of 1999, uses a new2000 and is comparable to SL 7540 material. It was formulated for the laser wavelength of the SLA 250 system. Like SL 7540 material, TJ-88, with
improved part durability. Alongit offers exceptional durability and surface quality and, in many cases, provides material properties suitable for functional testing of thermoplastic designs.
•
Viper si2 SLA system  was announced in March 2001. This system combines the versatility of the high-end SLA systems with the hardwareaffordability of our entry-level industrial systems. The Viper si2 system is our first system to offer standard and materials release,high-resolution build modes in one package. The new machine builds parts as large as 10 inches × 10 inches × 10 inches (250 mm × 250 mm × 250 mm) and runs on a new
version of part preparation and controlWindows NT-based operating system with Buildstation software was introduced, which further
improved theenabling maximum ease of use of the ThermoJet software.

use.
Research and Development
    Our ability to compete successfully depends, among other things, on our ability to design and develop new machines, materials and applications, and to refine existing products. For the foreseeable future, we anticipate that our research and development efforts will be focused on system design and material functionality improvements for the ThermoJet solid object printer3D printers and SLASL systems, and developing software to facilitate the interface between our solid imaging systems and CAD/CAM programs. Research and development expenses decreased in 19992000 to $7.8 million from $8.9 million down from $9.4 million in 1998.1999. The decrease in research and development expenses in 19992000 was primarily a result of significant investmentmore focused engineering efforts on specific development projects and the introduction of new products in 1998 in new product introduction (ThermoJet solid
object printer and SLA 7000 system).early 1999. Based on our historical expenditures related to research and development and our current development goals, we anticipate, for the foreseeable future, research and development expenses will be equal to approximately 8% of sales. This is a forward-looking statement, however, and, as with any such statement, is subject to risk. For example, if our total sales for any particular period do not meet our anticipated sales for that period, research and development expenses as a percentage of sales may exceed 8%. As of December 31, 1999, 502000, 47 employees or contractors were devoting substantially all of their time to research and development activities, for the
Company, compared to 6650 employees at December 31, 1998.1999.
    We believe that further refinements in stereolithography will depend upon improvements not only in our SLASL products, but also in the chemical makeup and types of the resins used in the fabrication process.materials available to customers. To this end, we have dedicated a significant amount of time to the development of new resins. To pursue this
goal, wematerials. We are a party to a Research and Development Agreement with CSCVantico (the "Photopolymer Research Agreement") providing for the development of liquid photopolymers, photopolymerizable monomers, photoinitiators and other resins for use with our SLA systems. Subject to certain conditions, the Photopolymer Research Agreement will remain in effect until either party gives the other six months notice of intent to terminate the agreement. Pursuant to the Photopolymer Research Agreement, the two companies work jointly, with each company funding its own portion of the research. Ownership of
7
any inventions or know-how, whether patented or not, will accrue to CSCVantico if they are chemical in nature, and to us if they relate to the stereolithographic process. CSC has announced that
it will sell its Performance Polymer Division, the division that engages in
photopolymer research with us. We believe that the Photopolymer Research
Agreement will be transferred to the new company, and we have consented to the
assignment. This is a forward-looking statement and, as such, is subject to
risk. For example, management of the acquiring company may decide not to assume
the obligations under the contract or may decide to negotiate a new contract


                                     Page 6


with less favorable terms. If the Photopolymer Research Agreement is not assigned, or if it is otherwise terminated,continued in its current form, we may be unable to develop, or be delayed in the development of, improvements in the chemical makeup and functionality of the resins used in the SL fabrication process, which could result in a material adverse effect on our revenues, results of operations, liquidity and financial position.
    In February 2001 we acquired the stock and intellectual property of OptoForm SARL, a start-up company that has developed SL machines that are capable of using non-liquid materials. To meet the requirements of a broad number and type of rapid manufacturing and niche customization applications, significant advancements in materials will be required. We anticipate that these materials will have different properties than our current products, including, for example, much higher viscosity. The purchase of OptoForm SARL provided us with independently-developed hardware, processing techniques, and materials which enhance our ability to offer complete solutions for short-to-medium run direct manufacturing and rapid tooling applications.
    We believe that further refinements in solid object printing will come as a result of investment in the areas of material development, solid imaging processes and the printing mechanism. In 1999, 3D Systems began an aggressive
material development program with an outside consulting firm to develop SIM
ingredients and chemical compounds with properties optimized for the ink jet
solid imaging process. We believe these synthetic specialty chemicals will allow future SIM formulations to demonstrate significant improvement in the material durability and other mechanical properties, and that investment in the solid imaging build processes will result in improvements in the quality of the model output from the build process. We believe these improvements will include faster model build times, higher resolution and smaller layer steps, more accurate geometry representation and smoother and more uniform surface finish on all surfaces of the finished model. Investment in the printer system design and mechanism is expected to result in substantial cost savings, an increase in reliability, portability and improvements in ease of use. In 2000, we continued our research into new MJM materials, devoting a large portion of the year to the development of improved materials directed at addressing the top customer-identified requirements, including part durability, down-facing surface quality and post-processing effort. By combining our knowledge of both MJM and SLA material technology, we anticipate that, when commercialized, the new materials will more appropriately meet the needs of the expanding design communication market.
The foregoing discussion relating to the Company'sour research and development activities includes statements that involve risks and uncertainties. For a discussion of the factors associated with suchthese forward-looking statements which could cause actual results to differ materially from those projected in the statements, see "Cautionary Statements and Risk Factors--WeFactors—We Must Keep Pace with
Rapid Technological Change and Introduce New Products to Remain Competitive" on
page 11 and "Our New Products May Not Be Commercially Accepted" on page 11.

pages 13 and 14.
Marketing and Customers
    Our sales and marketing strategy focuses on an internal sales organization, which is responsible for overseeing worldwide sales and value-added resellers, as well as the utilization of knowledgeable international distributors. We employ a direct sales force consisting of sales persons and application specialists that provide technical sales support. At December 31, 1999,2000, our worldwide sales and support staff consisted of 6185 employees that wereare primarily located in the United States and Europe. We have sales offices in the United States in California Michigan, Minnesota, Indiana, Ohio, North Carolina, South
Carolina and Massachusetts;Michigan; our European offices are located near Frankfurt, London, Paris, Barcelona and Milan, and our Hong Kong office serves the Asia Pacific region.
8
    International Sales.  International sales, the majority of which are toin Europe and Asia, accounted for 47.5%46.1%, 44.1%47.5% and 41.5%44.1% of total sales in the years ended December 31, 2000, 1999 1998, and 1997,1998, respectively. (See "Note 16 of Notes to Consolidated Financial Statements" on page F-8.Statements.") On September 17, 1999, we announced the
formation of a new management team for our European operations, which will have
a pan-European vision, rather than a fragmented country-by-country focus. Our
European operations finished 1999 with a 17.8% growth over 1998. Platform sales to automotive and Formula One customers are still the strongest,remain high, but sales to the consumer electronics industry also showed a large percentage of growth year over year. As of December 31, 1999, we had entered into agreements with three independent
distributors in the Pacific Rim, five in greater Europe and one in Latin
America. International distributors are responsible for marketing, sales, system
installation, service and support to their customers. For a discussion of risks associated with international operations, see "Cautionary Statements and Risk Factors - Factors—There are Many Risks Associated with International Business" on page 12.15.
    Customers.  Our customers include major companies in a broad range of industries throughout the world, including manufacturers of automotive, aerospace, computer, electronic, consumer and medical products. Purchasers of our systems include original equipment manufacturers ("OEMs") such as AMP, Inc., Apple Computer, Inc., Audi AG, Benetton F1, Boeing Company, BMW Group, Canstar Sports, Inc., DaimlerChrysler Corp., Eastman Kodak Company, The Electrolux Group, General Electric Company, General Motors Corporation, Delphi Automotive Systems, Hasbro, Inc., Jordan Grand Prix, International Business Machines Corporation, Johnson & Johnson, Motorola, Inc., Navistar International Corporation, Nike, Inc., Pratt & Whitney, Raytheon Company and Texas Instruments, Inc. We also sell our products to government agencies and universities, which generally use our machines for research activities, and to independent service bureaus, including Arrk Creative Network, the largest rapid prototype manufacturer in the world, General Pattern, Moehler Design and INCS, Inc., which for a fee provide stereolithographic services to their customers. Our primary niche customization customer is Align Technology, Inc.
Photopolymer Distribution Agreement.  Pursuant to an agreement with CSC US,Vantico and subject to conditions set forth in the agreement, we are the exclusive worldwide distributor to users of SL processes of all Ciba Specialty ChemicalsVantico liquid SL photopolymers. At our request, an affiliate of CSC USVantico currently sells such photopolymers in Japan to our Japanese distributor. Subject to certain conditions, so long as CSC USVantico provides adequate supplies, we are required to fill all of our requirements for our liquid photopolymers through purchases from CSC
US.Vantico. Subject to certain conditions, the agreement will remain in effect until either party gives the other six months advance notice of termination. There can be no assurance that this agreement will remain in place. Though we believe we can obtain alternate agreements from other manufacturers, the Page 7
termination of this agreement or interruption of supply couldwould have a material adverse effect on our revenues, results of operations, liquidity and financial position.position, at least in the short term. (See "Cautionary Statements and Risk Factors - Factors—We Depend on a Single or Limited Suppliers for Certain of our Components" on page 11). CSC has
announced that it will sell its Performance Polymer Division, the division with
which we have the agreement. We believe that the Photopolymer Distribution
Agreement will be transferred to the new company, and we have consented to the
assignment. This is a forward-looking statement and, as such, is subject to
risk. For example, management of the acquiring company may decide not to assume
the obligations under the contract or may decide to negotiate a new contract
with less favorable terms.14.)
    Customer Support and Service.  Before installation of an SLA system, a new purchaser typically receives training at our facilities. During the first several days after installation, an applications engineer remains at the customer location to ensure that the customer is able to operate the SLA system effectively and to answer any questions that may arise. We also make available to our customers, for a fee, additional training courses in SLA system features and applications.
    No training is necessary in connection with the purchase of a ThermoJet printer.
    We offer maintenance contracts to our customers, which generate recurring revenue. (See "Products and Services," on page 4,3, above.) We also make available, in the United States, a hotline to all of our users with maintenance contracts. The hotline is staffed with technical representatives who answer questions and arrange for on-site remedial services if necessary. The hotline is available Monday through Friday, local holidays excepted, 5:00 a.m. to 5:00 p.m. Pacific time. In addition, customer service, troubleshooting and answers to frequently asked questions ("FAQs") are available through our website,
www.3dsystems.com.www.3dsystems.com. Customers may also reach us through e-mail, 24 hours a day.
    We co-founded and currently participate in both domestic and international SL User Groups, which currently include a substantial number of our customers. The User Groups organize annual conferences in both the United States and Europe, at which we make presentations relating to updates
9
in stereolithography, changes we have implemented in our systems and related equipment, materials and software and future ideas and programs we intend to pursue in the upcoming years.

Backlog. At December 31, 1999, the Company had orders (with scheduled delivery
dates) for 12 systems aggregating approximately $4.4 million, as compared to
systems aggregating approximately $8.9 million at December 31, 1998 and $3.5
million at December 31, 1997. It is anticipated that all orders included in the
current backlog will be shipped by June 30, 2000. As a matter of policy, we
afford our customers the right to cancel any system order at any time prior to
its scheduled delivery date. Historically, the number of system orders canceled
has not been significant. Nonetheless, no assurance can be given that all orders
in backlog will be shipped. Backlog may not be indicative of future expected
sales.

Production and Supplies
    All of our systems are assembled and SIM is produced at our 67,000 square foot facility in Grand Junction, Colorado. We purchase the major component parts for our systems and materials for SIM from outside sources and arrange with contract manufacturers for the manufacture of subassemblies. We integrate the subassemblies and effect final assembly of all systems at our production facility. We perform numerous diagnostic tests and quality control procedures on each system to assure its operability and reliability.
    Although there is more than one potential supplier for many material components parts, subassemblies and materials, several of the critical components, materials, and subassemblies, including lasers, materials, and certain ink jet components, are currently provided by a single or limited sources. ResinsLiquid resins for
the Company's SLA systems are supplied exclusively by CSCVantico under the Photopolymer Distribution Agreement, described above, and either party has the right to terminate this agreement with six months notice. Our reliance on sole or limited source vendors involves risks, including the possibility of shortages of certain key components, product performance shortfalls, and reduced control over delivery schedules, manufacturing capability, quality and costs. Business disruptions, financial difficulties, or any significant change in the condition of or our relationship with a sole or limited source supplier of any particular component could have a material and adverse effect on our revenues, results of operations, liquidity and financial condition by increasing the cost of goods sold or reducing the availability of such components. An unanticipated change in the source of supply of these components or unanticipated supply limitations could adversely affect our short-term ability to meet our product orders. (See "Cautionary Statements and Risk Factors - Factors—We Depend on a Single or Limited Suppliers for Certain of our Components" on page 11.14.)


                                     Page 8
Competition and Patent Rights
    We believe there are no products technologically similar to our SLA systems being sold in significant quantities in the United States; however, products similar to our SLA systems are manufactured and sold by other companies in the Pacific Rim. In addition, we believe that there are other companies researching, designing, developing and marketing other types of solid imaging equipment in the United States and in foreign markets, and additional companies may announce plans to enter the solid imaging business, either with equipment similar to ours, or with other types of equipment. (See "Cautionary Statements and Risk Factors -- Factors—We are Subject to Intense Competition" on page 14.16.)
    Although it is estimated that there are approximately 1920 companies currently manufacturing rapid prototyping equipment, the following is a brief description of competing products or technologies of the companies that we believe are our current primary competitors in the SL area. DTM, Inc. markets systems based on a technology called Selective Laser Sintering, which uses a powdered material that is sintered (solidified by heating) by energy supplied by a laser. Helisys, Inc.
markets systems based on a technology called Laminated Object Manufacturing,
which builds parts from sheets of paper or other material that are laminated
together with cross-sectional patterns being laser cut into each sheet of paper.
Stratasys, Inc. ("Stratasys") markets a Fused Deposition Modeling process that builds objects by dispensing individual layers of thermoplastic material through a temperature controlled head.
    Teijin Seiki, which acquired NTT Data CMET, and D-MEC market products similar to our SL products in Japan. During 1998, we signed patent cross-license agreements with NTT Data Corporation and NTT Data CMET (marketed by NTT Data)Teijin Seiki) and with Sony Corporation (marketed by D-MEC). Under these agreements, Sony and NTT Data each obtained a non-exclusive license to produce and sell SL systems in the Asia Pacific area. In addition, E.I. du Pont de Nemours and Company ("DuPont") has licensed certain SL technology to Teijin Seiki of Japan and Aaroflex of the United States. We believe that other Japanese companies are also may be developing and marketing products
10
similar to ours; however,
we do not have reliable data with respect to these efforts. During 1996,ours. Aaroflex, Inc. ("Aaroflex"), headquartered in Virginia, publicly announced the
availabilityhas sold and claimed that it has solddelivered at least one machine in the United States although not
delivered, equipment that offers the same functions as our SLA systems. (See "Item 3. Legal Proceedings" on page 15.18.)
    We believe that currently available alternatives to SL generally are not able to produce models having the dimensional accuracy and fine surface finish of models provided by our SL process. However, competitors have successfully marketed their products to our existing and potential customers. Furthermore, in many cases, the existence of these competitors extends the purchasing time while customers investigate alternative systems. We compete primarily on the basis of the quality of our products and the advanced state of our technology. Although we do not rely totally on our patents to compete, we believe that our patents will help us maintain our leading position in the SL field in the United States and Europe. During 2000, we entered into a patent license agreement with Rockwell Science Center for rights relating to direct metal fabrication technology, and we received an exclusive license, with the right to revert to a non-exclusive license, under patents relating to the use of polysiloxanes in stereolithography. (See "Proprietary Protection," on page 10, below12, and "Cautionary Statements and Risk Factors -- Factors—Patents and Proprietary Information are Critical to our Success" on page 13.16.)
    A number of companies, including DSM Desotech Inc. ("DSM"), which acquired the SOMOS solid imaging business of DuPont in April 1999, are currently selling SL resins, which either complement or compete with those we distribute. We believe that we currently supply resins to owners of a majority of the SLA systems currently installed worldwide.
    With respect to our solid object printers, we believe that the following companies are our current primary competitors. Stratasys, described above, is also a competitor in the 3D-printer area. Sanders Prototyping markets ModelMaker, a technology that deposits wax material using an ink jet print head. Z Corporation makes a printer that produces models using a starch-based powder material and a water-based liquid binder. A potential new competitor, Objet Geometries of Israel ("Objet") has been marketing its product at trade shows within the industry. Objet has committed to, but has not yet, to our knowledge, delivered any commercial systems to the market. Its system is based on an ultraviolet curable chemistry and liquid inkjet application. Another new competitor, Solid Dimensions, produces a system loosely based on Laminated Object Manufacturing ("LOM") technology. Again, to our knowledge, Solid Dimensions has not yet delivered a commercial product to the market.
    We believe that currently available alternatives to our solid object printers generally are not able to produce models having the dimensional accuracy, fine detail or smooth surface finish of models provided by our printers. We do not have the level of patent protection for the solid object printers that we have for our SL technology; however, during 1999 we acquired two patents for dot-on-dot printing technology from Dataproducts Corporation in order to help us maintain our position in this field.
    We believe that we do not currently have any significant competition for our maintenance services, although somecertain of our customers perform their own maintenance in-house and some use other providers of service contracts and time and materials arrangements. We offer software and hardware maintenance contracts to our customers (see "Products and Services," on page 4, above)4). Maintenance for some SLA systems sold internationally is offered by our distributors (see "Marketing and Customers," on page 7, above)8).
    Future competition is expected to arise both from the development of new technologies or techniques not encompassed by the patents held by or licensed to us, and through improvements to existing technologies, such as automated machining. We have determined to follow a strategy of continuing product development and aggressive patent prosecution to protect ourselves to the extent possible in these areas.


                                     Page 9
11
Proprietary Protection
    Charles W. Hull, the Company's founder and Chief Technology Officer developed the stereolithography technology used in our SLA products, while employed by UVP, Inc. This technology was originally patented by UVP, Inc. and subsequently licensed to us in 1986. We acquired the patent in 1990.
    In the case of our ThermoJet printers, the ink jet technology employed by the printers has been primarily developed elsewhere and is subject to license agreements. The thermoplastic material used in and the application of the ink jet technology to solid imaging have been developed by us. During 1999, we acquired two patents from Dataproducts Corporation for dot-on-dot printing technology in order to increase our patent protection in this area.
    At December 31, 1999,2000, we had 197232 patents which include 93114 in the United States, 6164 in Europe, 812 in Japan and 3542 in other foreign countries. At that date, we had 5436 pending patent applications with the United States, 4951 in the Pacific Rim, 1529 in Europe, 86 in Canada and 21 in Latin America. As new developments and components to the technology are discovered, we intend to apply for additional patents.
    In 1997, we filed patent infringement lawsuits against Aaroflex, Inc. and Teijin Seiki. The Aaroflex lawsuit seeks compensation from Aaroflex for utilizing certain SL technology which we allege is incorporated in sixseven of our United States patents, and we seek other damages and attorneys' fees as well as an injunction barring Aaroflex from marketing its products using technology incorporated in our patents. The Teijin Seiki lawsuit, which is in the early
stages of prosecution, alleges infringement of our Japanese patents, and seeks
damages and injunctive relief. Teijin Seiki has filed an invalidation action against one of our patents, an unfavorable decision was appealed, and we have appealed an unfavorablethat decision to the highest court in thatJapan. The Teijin Seiki lawsuit, which alleges infringement of our Japanese patents, and seeks damages and injunctive relief, has been suspended pending final determination of the invalidation action. (See "Item 3. Legal Proceedings" on page 15.18.)
    Application for a patent offers no assurance that a patent will be issued as applied for. Issuance of a patent offers no assurance that the patent can be protected against any claims of invalidation or that the patent can be enforced against any infringement. In addition, litigation of patent issues can be costly and time-consuming. (See "Cautionary Statements and Risk Factors -- Factors—Patents and Proprietary ProtectionRights are Critical to our Success" on page 13.16.)
Employees
    At December 31, 1999,2000, we had 422441 full-time employees, including 5 members of executive management supplied pursuant to an agreement with Regent Pacific Management Corporation ("Regent Pacific") (see "Item 13. Certain Relationships and Related Transactions" on page 2730 for further information on the Regent Pacific Agreement). In addition, at that same date we utilized the services of 1426 independent contractors. None of these employees or independent contractors is covered by labor agreements. We consider our relations with our employees and independent contractors to be satisfactory.
CAUTIONARY STATEMENTS AND RISK FACTORS
    The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business, results of operations and financial condition could suffer. In that event the trading price of our common stock could decline, and our stockholders may lose all or part of their investment in our common stock. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements.
12
Fluctuations in Quarterly Results - Results—Our Operating Results Vary From Quarter to Quarter Which Could Impact Our Stock Price
    Our operating results fluctuate from quarter to quarter and may continue to fluctuate in the future. We believe that quarter to quarter or annual
comparisons of our operating results are not a good indication of our future
performance. In some quarters it is possible that results could be below expectations of analysts and investors. If so, the price of our common stock may fall.decline.
    Many factors, some of which are beyond our control, may cause these fluctuations in operating results. These factors include:
Acceptance and reliability of new products in the market
Size and timing of product shipments


                                    Page 10
General world economic conditions
Changes in the mix of products and services sold
Currency and economic fluctuations in foreign markets and other factors affecting international sales
Delays in the introduction of new services/products
Price competition
Impact of changing technologies
    In addition, certain of our components we use require an order lead time of three months or longer. Other components that currently are readily available may become more difficult to obtain in the future. We cannot assure you that we will not experience delays in the receipt of certain key components. To meet forecasted production levels, we may be required to commit to certain long lead time items prior to receiving orders for our products. If our forecasts exceed actual orders, we may hold large inventories of slow moving or unusable parts, which could have an adverse effect on our cash flows and results of operations.
    Because of all of these and other factors, we cannot assure you that we will achieve or sustain quarterly or annual profitability in the future.
The Mix of Products Sold Affects Our Overall Profit Margins
    We continuously expand our product offerings and work to increase the number of geographic markets in which we operate and the distribution channels we use in order to reach the various markets and customers. This variety of products, markets and channels results in a range of gross margins and operating income which can cause substantial quarterly fluctuations depending on the mix of product shipments quarter to quarter. We may experience significant quarterly fluctuations in gross margins or net income due to the impact of the mix of products, channels, or geographic markets utilized from period to period. Also, the changing mix of products sold over time may result in lower average gross margins and returns.
We Must Keep Pace with Technological Change and Introduce New Products to Remain Competitive
    To remain competitive, we must continue to enhance and improve the functionality and features of our products, services and technologies. The solid imaging industry is characterized by rapid technological change, changes in user and customer requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new industry standards and practices. These developments could render our existing products and proprietary technology and systems obsolete. Our success will depend, in part, on our ability to:
Obtain leading technologies useful in our business
13
Enhance our existing products
Develop new products and technology that address the increasingly sophisticated and varied needs of prospective customers, particularly in the area of material functionality
Respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis
Retain key technology employees
    Also, our competitors may develop new technologies or materials that render our existing products and services obsolete. We believe that our future success will depend on our ability to deliver products that meet changing technology and customer needs. As part of our strategy of continuous development, we acquired the stock and intellectual property of OptoForm SARL in February 2001. We anticipate that the technology available through this acquisition will assist us in meeting customer needs and competitive threats; however, we cannot assure you that the development of this technology will be successful or lead to commercially viable products.
Our New Products May Not Be Commercially Accepted
    During 1999,2000, we introduced a significant number ofseveral new products to the market, including equipment,primarily software and materials. In addition, in March 2001 we announced the introduction of our newest SLA system. These products undergo thorough quality assurance testing. However,testing; however, problems have arisen in connection with the use of certainprior new products, which we have worked to
rectify. We believe that the problems have been addressed, butproduct introductions, and we cannot assure you that we will be able to fix any new problems that arise in a timely manner, or at all. Also, we cannot assure you that any new products we develop will be commercially accepted. If there are many problems with our new products, or if the marketplace does not accept these products, our results of operations and financial condition could be materially and adversely affected.

                                    Page 11
We Depend on a Single or Limited Suppliers for Certain of our Components
    There are several potential suppliers of the material components, parts and subassemblies for our products. However, we currently use only one or a limited number of suppliers for several of the critical components, parts and subassemblies, including our lasers, materials and certain ink jet components. CSCVantico supplies us with the resins we distribute pursuant to the Photopolymer Distribution Agreement, which either party has the right to terminate with six months advance notice. CSC has announced that it will sell
its Performance Polymer Division,If the division with which we have the
Agreement. We believe that the Agreement willagreement were to be transferred to the new
company, and we have consented to the assignment. If our Photopolymer
Distribution Agreement is not assigned, or if it is otherwise terminated, we maywould be unable to locate an alternateimmediate alternative source of the full range of resins, which would result in a material adverse effect on our revenues, results of operations, liquidity and financial position. Our reliance on a limited number of vendors involves many risks including:
Shortages of certain key components
Product performance shortfalls
Reduced control over delivery schedules, manufacturing capabilities, quality and costs
    If any of our suppliers suffers business disruptions, financial difficulties, or if there is any significant change in the condition of our relationship with the supplier, our costs of goods sold may increase or we may be unable to obtain these key components for our products. In either event, our revenues, results of operations, liquidity and financial condition would be adversely affected. While we believe that we can obtain most of the components necessary for our products from other manufacturers, any unanticipated change in the source of our supplies, or unanticipated supply limitations, could adversely affect our ability to meet our product orders.

The Downturn in the Service Bureau Industry Affects the Market for Our Product

The service bureau market has become highly competitive, which has lead to
the demise of some service bureaus that have, historically, been a large part
of our customer base. The demise of a number of large service bureaus has
lead to the introduction of used machines into the market at prices lower
than the price of a new machine. Competition has lead to lower part prices,
which may impact our marketing efforts in two ways. First, lower margins may
cause existing service bureaus to reduce their expenditures for new machines.
Second, lower prices offered by services bureaus may influence a potential
purchaser of our machines to buy parts from a service bureau rather than
purchase a machine for its own use. While we believe that the service bureau
market has stabilized, our results of operations and financial condition may
be adversely impacted by additional changes in the industry and continued
dependence on the service bureau market. We believe that our future success
depends, in part, on developing additional customers outside of the service
bureau market segment, thus diminishing our reliance on service bureaus.

14
We Rely on Regent Pacific Management Corporation for our Executive Management
    Regent Pacific Management Corporation ("Regent Pacific") provides management services for us. The management services provided under our agreement with Regent Pacific include the services of Brian K. Service as President and Chief Executive Officer, and four other Regent Pacific personnel as part of our management team. ThisOn September 9, 2000, we extended our agreement is duewith Regent Pacific from 12 months to expire24 months, with the potential for additional extensions beyond that period. The extended agreement also provides for the availability of up to two additional executives to provide management services on September 8, 2000, but may
be canceled any time after March 17, 2000 at the optionan as needed basis. All other terms of the Board of
Directors.agreement remain substantially unchanged. If the agreement with Regent Pacific were canceled or not renewed, the loss of the Regent Pacific personnel could have a material adverse effect on our operations, especially during any transition phase to new management after sucha cancellation or non-renewal. Similarly, if any adverse change in our relationship with Regent Pacific occurs, it could hinder management's ability to direct our business and materially and adversely affect our results of operations and financial condition. (See "Item 13. Certain Relationships and
Related Transactions" on page 27 for further information on the Regent Pacific
Agreement.)

There are Many Risks Associated with International Business
    A material portion of our sales is to customers in foreign countries. Revenues from international customers accounted for approximately 46.1% of total revenues in 2000, 47.5% of total revenues in 1999 and 44.1% of total revenues in 1998 and 41.5% of total revenues in 1997.1998. There are many risks inherent in our international business activities. Our foreign operations could be adversely affected by:
Unexpected changes in regulatory requirements
Export controls, tariffs and other barriers
Social and political risks
Fluctuations in currency exchange rates
Seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe


                                    Page 12
Reduced protection for intellectual property rights in some countries
Difficulties in staffing and managing foreign operations
Taxation
Other factors, depending on the country in which an opportunity arises

Although we are exposed
    In order to manage our exposure to risks associated with fluctuations in foreign currency exchange rates, we have not entered into hedging transactions to
protect against such risks. Given our growing export base, we are evaluating the
possibility of entering into protectivetransactions. These hedging transactions include purchases of options or forward contracts to minimize the risk associated with cash payments from foreign subsidiaries to 3D California. However, we cannot assure you that our hedging transactions will provide us adequate protection in the future.
Adverse fluctuations in currency exchange rates could have a material adverse
effect on our foreign operations, and consequently our overall revenues and results of operations liquidity and financial position.

In addition to the general risks associated with our international sales and
operations, we are subject to risks specific to the individual countries in
which we do business. In recognition of our exposure to such risks in Europe,
which represents the vast majority of our international operations, we have
adopted a new European organizational structure, headquartered in the United
Kingdom. This organization is expected to have a pan-European rather than an
individual-country focus. We have created a new executive-management level
position, which reports directly to the Company's Chief Executive Officer, and
appointed a United States vice president to this position to oversee our
European operations. The management team reporting to this vice president
consists of European managers representing the countries in which we do the
majority of our business: Germany, United Kingdom, France, Italy and Spain. We
believe that this new emphasis on our ties to Europe will serve us in handling
the identified risks; however, there canmay be no assurance that this plan will be
successful. For example, the new structure may result in cross-cultural conflict
or lack of acceptance from non-headquarter country customers.

There have been significant financial problems in Asia which have impacted the
international markets. The continuing effects of the economic downturn and
ongoing competition in the Asian markets could have a substantial adverse impact
on our ability to sell our high-margin products in the Pacific Rim.

adversely affected.
The Adoption of the Euro Presents Uncertainties
    In January 1999, the Newnew "Euro" currency was introduced in certain European countries that are part of the European Monetary Union, ("EMU").or EMU. Beginning in 2003, all EMU countries are expected to be operating with the Euro as their single currency. A significant amount of uncertainty exists as to the effect the Euro will have on the marketplace generally. Some of the rules and regulations relating to the governance of the currency have not yet been defined and finalized.
    We believe that our internal systems and financial institution vendors can
handlewill not be materially affected by the Euro conversion, and we are examining current marketing and pricing policies and strategies that we may put in place upon conversion to the Euro. The cost of our effort is not expected
15
to materially affect our results of operations or financial condition. However, we cannot assure you that we have identified all issues related to the Euro conversion and that any additional issues would not materially hurtaffect our results of operations or financial condition. For example, the conversion to the Euro may have competitive implications on our pricing and marketing strategies, and we may be at risk to the extent our principal European customers are unable to dealrespond effectively withto the impact of the Euro conversion.

We Face Year 2000 Risks

We believe that our current products are Year 2000 compliant. We evaluated all
products sold since inception for Year 2000 readiness, and provided necessary
software and hardware upgrade pathways to our customers. Based upon responses to
date, we believe that all of our products meet basic functionality requirements;
however, since we cannot anticipate all possible specific customer situations
and uses, we may see an increase in warranty and other claims as a result of the
Year 2000 transition. Any increase in customer claims could have a material
adverse impact on our results of operations and financial condition.

Patents and Proprietary Rights are Critical to Our Success
    We regard our copyrights, service marks, trademarks, trade secrets, patents and similar intellectual property as critical to our success. AtAs of December 31, 1999,2000, we have 197held 232 patents, which includes 93include 114 in the United States, 6164 in Europe, 812 in Japan, and 3542 in other foreign jurisdictions. At that date, we had 5436 pending patent applications with the United States, 4951 in the Pacific Rim, 1529 in Europe, 86 in Canada and 21 in Latin America. As we discover new developments and components to the technology, we intend to apply for additional patents. Effective trademark, service mark, copyright, patent and trade secret protection may not be available in every country in which our products and services are made available. We cannot be certain that the pending patent applications will be granted or that we have taken adequate steps to protect our proprietary rights, especially in countries where the laws may not protect our rights as fully as in the United States. Moreover, our Page 13
competitors may independently develop or initiate technologies that are substantially similar or superior to ours. We cannot be certain that we will be able to maintain a meaningful technological advantage over our competitors.
    Third parties may infringe or misappropriate our proprietary rights, and we intend to pursue enforcement and defense of our patents and other proprietary rights. We could incur significant expenses in preserving our proprietary rights and these costs could have a material adverse effect on our results of operations, liquidity and financial condition and could cause significant fluctuations in results from quarter to quarter. We are currently pursuing patent infringement actions in the centralCentral District of California against Aaroflex, Inc., and in Japan against Teijin Seiki Co. Ltd. (See "Item 3. Legal
Proceedings" on page 15.)

We are Subject to Intense Competition
    The solid imaging industry is highly competitive and subject to technological change, innovation, and new product introductions. Certain of our existing and potential competitors are researching, designing, developing and marketing other types of equipment. A few of these competitors have financial, marketing, manufacturing, distribution and other resources substantially greater than ours. In many cases, the existence of these competitors extends the purchase decision time as customers investigate the alternative products and solutions. Also, these competitors have marketed these products successfully to our existing and potential customers. In addition, a number of companies currently sell stereolithography materials, which both complement and compete with the materials we distribute.
    We expect future competition may arise from the development of allied or related techniques that are not encompassed by our patents, the issuance of patents to other companies that inhibit our ability to develop certain products, and the improvement to existing technologies. Increased competition could result in price reductions for our products, reduced margins, and loss of market share, any of which could adversely impact our business. We have determined to follow a strategy of continuing product development and aggressive patent prosecution to protect out competitive position to the extent practicable. We cannot assure you that we will be able to maintain our leading position in the field of rapid prototyping or continue to compete successfully against current and future sources of competition. These competitive pressures may adversely affect our profitability and financial performance. (See "Business - Competition and Patent
Rights" on page 9.)

16
Volatility of Stock Price
    Historically, our stock price has been volatile. The prices of the common stock have ranged from $4.25$7.50 to $11.9375$21.69 during the 52-week period ended February 29,December 31, 2000. (See "Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters" on page 18.)
    Factors that may have a significant impact on the market price of our common stock include:
Future announcements concerning our developments or those of our competitors, including the receipt of substantial orders for products
Quality deficiencies in services or products
Results of technological innovations
New commercial products
Changes in recommendations of securities analysts
Proprietary rights or product or patent litigation
Sales or purchase of substantial blocks of stock
    Our future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. Shortfalls in our revenues or earnings in any given period relative to the levels expected by securities analysts could immediately, significantly and adversely affect the trading price of our common stock.
We are Subject to Anti-Takeover Provisions
    The Board of Directors is authorized to issue up to 5 million shares of preferred stock. The Board also is authorized to determine the price, rights, preferences and privileges of those shares without any further vote or action by the stockholders. The rights of the holders of any preferred stock may adversely affect the rights of holders of common stock. Our ability to issue preferred stock gives us flexibility concerning possible acquisitions and financings,financing, but it could make it more difficult for a third party to acquire a majority of our outstanding voting stock. In addition, any preferred stock to be issued may have other rights, including economic rights, senior to the common stock, which could have a material adverse effect on the market value of the common stock.


                                    Page 14
    We are subject to Delaware laws that could have the effect of delaying, deterring or preventing a change in control of the Company. One of these laws prohibits us from engaging in a business combination with any interested stockholder for a period of three years from the date that the person became an interested stockholder, unless somecertain conditions are met. In addition, provisions of our Certificate of Incorporation and Bylaws could have the effect of discouraging potential takeover attempts or making it more difficult for stockholders to change management.
    In addition, we have adopted a Shareholders Rights Plan (see "Note 12(b) of
Notes to Consolidated Financial Statements" on page F-15).Plan. Under the Rights Plan, we distributed a dividend of one right for each outstanding share of our common stock. These rights will cause substantial dilution to the ownership of a person or group that attempts to acquire us on terms not approved by our Board of Directors and may have the effect of deterring hostile takeover attempts.
Item 2. Properties
    Our principal administrative functions, sales and marketing, product development, Technology Center and training facilities are located in a 78,320 square foot building in Valencia, California under a lease that expires on December 31, 2002. We also lease sales and service offices in seven other states
(North Carolina, South Carolina, Ohio, Massachusetts, Minnesota, Indiana, and
Michigan).Michigan. The space leased for sales and service offices is generally for one or two occupants and for terms of a year or less. Three other lease obligations, all of which are sublet, are for properties whose use has been discontinued in California, Georgia, and Texas. Sales and service offices are also located in five countries in the European Community (France, Spain, Germany, the United Kingdom and Italy).
17
    All of our manufacturing and United States customer support operations are located in a 67,000 square foot facility located in Grand Junction, Colorado (the "Colorado Facility"). The construction cost of the Colorado Facility has been financed through a $4.9 million variable rate industrial development bond.
    In connection with the asset acquisition of Keltool, Inc. in September 1996, we assumed Keltool'sits obligations under an existing lease for approximately 6,000 square feet located in St. Paul, Minnesota. In the first quarter of 1999, we completed the sale of our St. Paul operations and assigned this lease to the acquirer. In addition, we leased approximately 21,000 square feet in Valencia, California for the 3D Keltool operations. The lease for this facility was terminated in 1999, with the Company acting as a guarantor for the new tenant until the lease expiration on June 30, 2000.
    For information concerning obligations of the Company under its leases, see "Note 18(a)17(a) of Notes to Consolidated Financial Statements" on page F-23. For information concerning our Colorado Facility, see Note 1110 on page F-15.
    We believe that the facilities described above will be adequate to meet our needs for the immediate future.
Item 3. Legal Proceedings
3D Systems, Inc. v. Aaroflex, et al. On January 13, 1997, we filed a complaint in the United States District Court, Central District of California, against Aarotech Laboratories, Inc. ("Aarotech"), Aaroflex, Inc. ("Aaroflex") and Albert C. Young ("Young"). Aaroflex is the parent corporation of Aarotech. Young is the Chairman of the Board and Chief Executive Officer of both Aarotech and Aaroflex. The original complaint allegesalleged that stereolithography equipment manufactured by Aaroflex infringes on six of our patents. In August 2000, two additional patents were added to the complaint. We seek damages and injunctive relief from the defendants, who have threatened to sue us for trade libel. To date, the defendants have not filed such a suit.

The defendants filed a motion to dismiss
    Following decisions by the complaint or transferDistrict Court and the case to
their home district in Virginia. The Court granted the motion to dismiss for
lack of personal jurisdiction. The Federal Circuit Court of Appeals reversedon jurisdictional issues, Aarotech and Albert C. Young were dismissed from the District Court's decision insofar as it relates to Aaroflexsuit, and thean action against Aaroflex is proceeding in the District Court. Motions for summary judgment by Aaroflex on multiple counts contained in our complaint and on Aaroflex's counterclaims have been dismissed, andfact discovery in the case has been completed, and we have filed motions for summary judgment for patent infringement. A decision on these motions is pending. Trial on any remaining undecided issues is scheduled to occur in discovery.

2001.
3D Systems, Inc. v. Teijin Seiki Co. Ltd. On March 21, 1997, we filed a patent infringement action in District Court in Osaka, Japan under one of our Japanese patents, alleging infringement, and seeking damages from the defendant and injunctive relief.relief (the "Teijin Seiki Lawsuit"). The action is in the early stages of prosecution. As described below, Teijin Seiki has filed an invalidation action against one of our patents, and we have appealed an unfavorable decision in that action. Centuri Corp., dba Estes Indus., Cox Acquisition Corp., dba Cox v. 3D Systems
Corp., Rogers Tool & Die (the "Centuri Litigation"). In January 1997, we entered
into two contracts with Centuri Corp., dba Estes Indus., Cox Acquisition Corp.,
dba Cox ("Centuri") under which we were to create certain tooling for Centuri.
On September 16, 1997, Centuri initiatedAs a lawsuit against us in Los Angeles
Superior Court for Breach of Oral Contract, Fraud, Negligent Misrepresentation,
Conversion, Money Had and Received, and an Accounting. At a settlement hearing
on July 1, 1999result, the parties agreed to


                                    Page 15


settle the case pursuant to an agreement which provides for the confidentialityTeijin Seiki Lawsuit has been suspended pending final determination of the settlement terms. No liability of any party was admitted.

invalidation action.
Patent Opposition and Invalidation Proceedings.Proceedings. We have received eightbeen granted twelve patents in Japan. OneAn opposition was submitted against one of these patents, had an opposition submitted against it, but the opposition was dismissed, and the patent has been maintained as originally issued. Furthermore, one of the eighttwelve patents has had three invalidation trials filed against it. These invalidation trials were decided against us. We have responded by appealing the decision in the third trial. Based on this oppositionThe decision in the appeal was unfavorable and our response,has been appealed to the trialhighest court in Japan. The final decision may result in maintaining the patentconclude with present or modified protection, or may result in revocation of the patent.
18
Item 4. Submission of Matters to a Vote of Security Holders
    No matters were submitted to a vote by security holders during the fourth quarter of fiscal 1999.

2000.
Item 4a. Executive Officers of the Registrant
    The following table sets forth certain information concerning the executive officers of the Company:

                            Age at             Position
Name                   February 29, 2000   with the Company
- - ----                   -----------------   ----------------

Brian K. Service              52           President and Chief Executive Officer

Charles W. Hull               60           Vice President, Chief Technology
                                           Officer

H. Michael Hogan III          37           Vice President, Chief Financial
                                           Officer

A. Sidney Alpert              61           Vice President, General Counsel and
                                           Secretary

Clark A. Hardesty             50           Vice President, Sales & Marketing

Martin E. McGough             50           Vice President & World Wide
                                           Operations Manager

Grant R. Flaharty             38           Vice President & General Manager,
                                           Europe
Name
Age at
February 28, 2001
Position
With the Company

Brian K. Service


53


President and Chief Executive Officer

Charles W. Hull


61


Executive VP, Chief Technology Officer

E. James Selzer


37


Chief Financial Officer & VP, Finance

Martin E. McGough


51


Sr. VP of Development & Operations

Grant R. Flaharty


39


Sr. VP of Worldwide Sales & Marketing
    The principal occupations of our executive officers are as follows:
Brian K. Service:  Mr. Service has served as President and Chief Executive Officer of the Company since September 1999 and, since October 1999, has also served as President and Chief Executive Officer of 3D California. Mr. Service is a Principal of Regent Pacific Management Corporation ("Regent Pacific"), and he provides services to the Company pursuant to an agreement between the Company and Regent Pacific. (See "Item 13. Certain Relationships and Related Transactions" on page 27.24.) Prior to Regent Pacific, Mr. Service served as Chief Executive Officer of Salmond Smith Biolab, Ltd. Prior to Salmond, he was Chief Executive Officer of Milk Products, Inc. Mr. Service holds a Bachelor's degree in Chemical Engineering from Canterbury University of New Zealand and has completed the Stanford Executive Program from Stanford University Business School.
Charles W. Hull:  Mr. Hull has served as Vice President, Chief Technology Officer since April 1997, from August 19931997. Prior to April 1997that, Mr. Hull has served as Chief Operating Officer and President of the Company (from August 1993 to April 1997), and fromas President of 3D California (from March 1986 to October 1999 as President of 3D
California; prior thereto, he1999). He was Vice President of UVP, Inc., a systems manufacturing company, from January 1980 to March 1986. Mr. Hull1986 where he developed the Company's stereolithography technology
while employed by UVP, Inc., a systems manufacturing company. As of February 28,
1999,technology.
E. James Selzer:  Mr. Hull had retired from the Company and he served as Vice Chairman and a
member of the Board of Directors and as a consultant to the Company from March
1999 through May 1999. In June 1999, Mr. Hull rejoined the Company as Vice
President, Chief Technology Officer.

H. Michael Hogan III: Mr. Hogan hasSelzer served as Vice President, Chief Financial
Officer since September 1999Finance from April 2000, when he joined the Company, to November 2000, at which time he was promoted to Chief Financial Officer and Vice President, Finance, and continues to serve as partsuch. From January 1999 to March 2000, he was a partner in the financial consulting firm of the
management team provided by Regent Pacific. (See "Item 13. Certain Relationships


                                    Page 16


and Related Transactions").White Wolf Partners, LLP where he served as a consultant to several companies, including 3D Systems Corporation. From January 1998 to January 1999, he served as Chief Financial Officer of Pico Products, Inc. Prior thereto, from May 1994 to January 1998, Mr. Hogan isSelzer was a Principal of Regent Pacific. Prior
to Regent Pacific, Mr. Hogan wassenior associate with theJay Alix & Associates, a turnaround management firmfirm. Mr. Selzer holds an MBA from the University of Jay
AlixMichigan and Associates. Mr. Hogan holds a Bachelor's degreeDegree in Accounting and Business from Colgatethe University andof Kansas. Mr. Selzer is a Certified Insolvency Reorganization Accountant and a
Certified Turnaround Professional.

A. Sidney Alpert:Public Accountant.
Martin E. McGough:  Mr. Alpert became Vice President, General Counsel of the
Company in January 1996 after serving on the Board from 1993 to 1996, andMcGough has served as SecretarySenior Vice President of the CompanyDevelopment and Operations since May 1996. Effective June 1, 1999,2000. Mr. Alpert and the Company agreed to amend his employment agreement, whereby
he became a part-time employee, devoting approximately 40% of his time to the
Company. Prior thereto, from January 1994 through December 1995, Mr. Alpert
was an intellectual property consultant. From July 1988 through December
1993, Mr. Alpert served as Chairman of the Board and Chief Executive Officer
of University Patents, Inc. (currently known as Competitive Technologies,
Inc.), a corporation listed on the American Stock Exchange which handles
patent management and technology transfer activities primarily for
universities and colleges.

Clark A. Hardesty: Mr. Hardesty has served as Vice President, Sales & Marketing
since September 1999 when he joined 3D Systems as part of the management team
provided to the Company by Regent Pacific. (See "Certain Relationships and
Related Transactions"). Mr. Hardesty is a Principal of Regent Pacific. Prior to
Regent Pacific, Mr. Hardesty was the owner of White Hawk Holding Company, a
manufacturing company serving the aerospace industry. Mr. Hardesty holds a
Bachelor's degree from Northeastern University, a Master's degree from Harvard
University, and an MBA from Case Western Reserve University.

Martin E. McGough: Mr. McGough has served as Vice President and Worldwide Operations Manager sincefrom September 1997 to May 2000, after joining the Company in January of 1997, and iswas responsible for manufacturing and operations, as well as worldwide field service. He was formerly with Maxtor Corporation where he held the position of Senior Director of Strategic Commodities. Prior to Maxtor, he held management positions in Operations, Marketing, Program Management and other
19
manufacturing and materials positions. Mr. McGough received his Bachelor's degree from California State University, Northridge in Business Administration and earned his Master's in Business Management also from CSUN.

California State University, Northridge.
Grant R. Flaharty:  Mr. Flaharty has served as Senior Vice President of Worldwide Sales & Marketing since May 2000 and is responsible for European operations. Effective January 2001, Mr. Flaharty's duties include worldwide field service as well. Mr. Flaharty served as VP, General Manager, 3D Systems Europe, sincefrom September 1999 to May 2000 after joining the Company as Worldwide Controller in April of 1998 and is responsible for European operations.1998. He was formerly with Qualcomm, Inc., a developer of wireless communications products, as Director of Manufacturing Finance. Prior to Qualcomm, he was with Motorola, Inc. as Operations Controller. Mr. Flaharty received his Bachelor's degree in Accounting from Regis College in Accounting and is also a Certified Public Accountant.
    Subject to the Agreement between the Company and Regent Pacific, all officers serve at the pleasure of the Board of Directors of the Company.


                                    Page 17

PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
    The following table sets forth, for the periods indicated, the high and low closing sales prices of our common stock (symbol: TDSC) on the Nasdaq National Market.

                                                             Historic Prices
                                                             ---------------
            Year   Period                                  High          Low
            --------------------------------------------------------------------
            2000   First Quarter (through February 29)     11-15/16      7-1/2
            1999   First Quarter                           7-15/16       5-15/16
                   Second Quarter                          6-1/4         5
                   Third Quarter                           5-11/16       4-1/4
                   Fourth Quarter                          8-23/32       4-1/2
            1998   First Quarter                           11-7/8        5-3/4
                   Second Quarter                          11-11/16      9
                   Third Quarter                           10-1/4        5-1/2
                   Fourth Quarter                          8-1/2         5-1/2
            1997   First Quarter                           16-1/4        9-3/8
                   Second Quarter                          9-3/4         6
                   Third Quarter                           10-1/4        8
                   Fourth Quarter                          10-3/4        6
 
 
 
 
Historic Prices
Year
 
Period
 
High
 
Low
1998
 
First Quarter
 
$
11.875
 
$
5.750
 
 
Second Quarter
 
 
11.688
 
 
9.000
 
 
Third Quarter
 
 
10.250
 
 
5.500
 
 
Fourth Quarter
 
 
8.500
 
 
5.500
1999
 
First Quarter
 
 
7.938
 
 
5.938
 
 
Second Quarter
 
 
6.250
 
 
5.000
 
 
Third Quarter
 
 
5.688
 
 
4.250
 
 
Fourth Quarter
 
 
8.719
 
 
4.500
2000
 
First Quarter
 
 
12.719
 
 
7.500
 
 
Second Quarter
 
 
18.969
 
 
8.500
 
 
Third Quarter
 
 
21.094
 
 
14.000
 
 
Fourth Quarter
 
 
19.375
 
 
11.445
2001
 
First Quarter (through February 28)
 
$
14.000
 
$
10.500
    As of February 29, 2000,28, 2001, the outstanding common stock was held of record by 553447 stockholders.
Dividends
    We have not paid any dividends on our common stock and currently intend to retain any future earnings for use in our business. Therefore, you should not expect that any dividends will be declared on the common stock in the foreseeable future. Any dividend payment will be at the discretion of our Board of Directors and will be dependent upon our earnings, operating and financial condition and capital requirements, as well as general business conditions.


                                    Page 18
Item 6. Selected Financial Data
    The following summary of selected financial data for the periods set forth below has been derived from the Consolidated Financial Statements of 3D Systems Corporation. SuchThe information with respect tofor the fiscal years ended December 31, 2000, 1999 to 1997and 1998 should be read in conjunction with Management's
20
Discussion and Analysis of Results of Operations and Financial Condition and with the Consolidated Financial Statements appearing elsewhere in this Form 10-K.

                                                              Years Ended December 31,
                                              --------------------------------------------------------
                                                1999        1998        1997        1996        1995
                                              --------    --------    --------    --------    --------
Statements of Operations Data:                          (in thousands except per share amounts)

Sales:
     Products(1)                              $ 66,806    $ 65,434    $ 59,149    $ 53,229    $ 43,544
     Services(2)                                30,143      32,683      31,108      26,403      19,038
                                              --------    --------    --------    --------    --------
         Total sales                            96,949      98,117      90,257      79,632      62,582
                                              --------    --------    --------    --------    --------
Cost of sales:
     Products(1)                                35,938      33,477      35,463      24,893      19,328
     Services(2)                                20,975      22,062      21,745      16,906      11,936
                                              --------    --------    --------    --------    --------
         Total cost of sales                    56,913      55,539      57,208      41,799      31,264
                                              --------    --------    --------    --------    --------
Gross profit                                    40,036      42,578      33,049      37,833      31,318
Operating expenses:
     Selling, general and administrative        35,273      30,448      29,653      24,748      20,302
     Research and development                    8,931       9,425      10,991       7,665       6,109
     Other                                       3,384          --          --          --          --
                                              --------    --------    --------    --------    --------
         Total operating expenses               47,588      39,873      40,644      32,413      26,411
                                              --------    --------    --------    --------    --------
Income (loss) from operations                   (7,552)      2,705      (7,595)      5,420       4,907
Interest income                                    415         949       1,202       1,541       1,257
Interest and other expense                        (404)       (467)       (356)       (129)        (42)
                                              --------    --------    --------    --------    --------
Income (loss) before income taxes               (7,541)      3,187      (6,749)      6,832       6,122
Income tax expense (benefit) (3)                (2,240)      1,055      (2,160)      2,233      (2,795)
                                              --------    --------    --------    --------    --------
Net income (loss)                               (5,301)   $  2,132    $ (4,589)   $  4,599    $  8,917
                                              ========    ========    ========    ========    ========
Shares used to calculate basic net income
     (loss) per share                           11,376      11,348      11,398      11,323      10,246
Basic net income (loss) per share             $   (.47)   $    .19    $   (.40)   $    .41    $    .87
                                              ========    ========    ========    ========    ========
Shares used to calculate diluted net income
     (loss) per share                           11,376      11,594      11,398      11,742      10,708
Diluted net income (loss) per share           $   (.47)   $    .18    $   (.40)   $    .39    $    .83
                                              ========    ========    ========    ========    ========

System Data:
Systems shipped (unaudited)                        303         222         274         157         120
Cumulative number of systems
       shipped (unaudited)                       1,546       1,243       1,021         747         590

                                                        At December 31,
                                         -----------------------------------------------
                                           1999      1998      1997      1996      1995
                                         -------   -------   -------   -------   -------

Balance Sheet Data:
         Working capital                 $31,219   $38,305   $38,310   $49,764   $50,022
         Total assets                     90,658    95,103    91,340    92,239    81,551
         Current portion of long-term
             debt                            110       100        95       100        --
         Long-term liabilities,
             excluding current portion     9,168     6,090     6,197     6,273     1,622
         Stockholders' equity             59,608    66,557    64,595    68,703    62,950
 
 
Years Ended December 31,
 
 
 
2000
 
1999
 
1998
 
1997
 
1996
 
 
 
(in thousands, except per share amounts)

 
Statements of Operations Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Products(1)
 
$
80,246
 
$
66,806
 
$
65,434
 
$
59,149
 
$
53,229
 
 
Services(2)
 
 
29,429
 
 
30,143
 
 
32,683
 
 
31,108
 
 
26,403
 
 
 
 
 
 
 
 
 
 
Total sales
 
 
109,675
 
 
96,949
 
 
98,117
 
 
90,257
 
 
79,632
 
 
 
 
 
 
 
 
Cost of sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Products(1)
 
 
35,084
 
 
35,938
 
 
33,477
 
 
35,463
 
 
24,893
 
 
Services(2)
 
 
21,729
 
 
20,975
 
 
22,062
 
 
21,745
 
 
16,906
 
 
 
 
 
 
 
 
 
 
Total cost of sales
 
 
56,813
 
 
56,913
 
 
55,539
 
 
57,208
 
 
41,799
 
 
 
 
 
 
 
 
Gross profit
 
 
52,862
 
 
40,036
 
 
42,578
 
 
33,049
 
 
37,833
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
 
 
32,710
 
 
35,273
 
 
30,448
 
 
29,653
 
 
24,748
 
 
Research and development
 
 
7,814
 
 
8,931
 
 
9,425
 
 
10,991
 
 
7,665
 
 
Other
 
 
—
 
 
3,384
 
 
—
 
 
—
 
 
—
 
 
 
 
 
 
 
 
 
 
Total operating expenses
 
 
40,524
 
 
47,588
 
 
39,873
 
 
40,644
 
 
32,413
 
 
 
 
 
 
 
 
Income (loss) from operations
 
 
12,338
 
 
(7,552
)
 
2,705
 
 
(7,595
)
 
5,420
 
Interest income
 
 
632
 
 
415
 
 
949
 
 
1,202
 
 
1,541
 
Interest and other expense
 
 
(517
)
 
(404
)
 
(467
)
 
(356
)
 
(129
)
 
 
 
 
 
 
 
Income (loss) before income taxes
 
 
12,453
 
 
(7,541
)
 
3,187
 
 
(6,749
)
 
6,832
 
Income tax expense (benefit)
 
 
4,309
 
 
(2,240
)
 
1,055
 
 
(2,160
)
 
2,233
 
 
 
 
 
 
 
 
Net income (loss)
 
$
8,144
 
$
(5,301
)
$
2,132
 
$
(4,589
)
$
4,599
 
 
 
 
 
 
 
 
Shares used to calculate basic net income per share
 
 
11,851
 
 
11,376
 
 
11,348
 
 
11,398
 
 
11,323
 
Basic net income (loss) per share
 
$
.69
 
 
(.47
)
 
.19
 
$
(.40
)
$
.41
 
 
 
 
 
 
 
 
Shares used to calculate diluted net income (loss) per share
 
 
12,889
 
 
11,376
 
 
11,594
 
 
11,398
 
 
11,742
 
Diluted net income (loss) per share
 
$
.63
 
$
(.47
)
$
.18
 
$
(.40
)
$
.39
 
 
 
 
 
 
 
 
System Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Systems shipped (unaudited)
 
 
387
 
 
303
 
 
222
 
 
274
 
 
157
 
Cumulative number of systems shipped (unaudited)
 
 
1,933
 
 
1,546
 
 
1,243
 
 
1,021
 
 
747
 

 
 
At December 31,
 
 
2000
 
1999
 
1998
 
1997
 
1996
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Working capital
 
$
44,549
 
$
31,219
 
$
38,305
 
$
38,310
 
$
49,764
 
Total assets
 
 
109,897
 
 
90,658
 
 
95,103
 
 
91,340
 
 
92,239
 
Current portion of long-term debt
 
 
120
 
 
110
 
 
100
 
 
95
 
 
100
 
Long-term liabilities, Excluding current portion
 
 
7,585
 
 
9,168
 
 
6,090
 
 
6,197
 
 
6,273
 
Stockholders' equity
 
$
71,796
 
$
59,608
 
$
66,557
 
$
64,595
 
$
68,703
(1)
Includes systems and related equipment, material, software and other component parts as well as rentals of equipment.
(2)
Includes maintenance services provided by the Company's Technology Centers and training services.
(3)   Includes the recognition of deferred tax assets, in accordance with SFAS
      No. 109, of $3.0 million in 1995.


                                    Page 19
21
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition
    Except for historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed here. Factors that could cause or contribute to suchthese 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; our ability to successfully manufacturecontain costs, increase recurring revenue, maintain gross revenues at a level necessary to maintain gross profit margins, the availability and sell significant quantitiesacceptance of equipmentproducts, the impact of competitive products and pricing, dependence on a
timely basis; as well as thekey personnel and suppliers, industry-wide domestic and international economic conditions and other risks detailed in this section and in the sections entitled Results of Operations, Liquidity and Capital Resources and Cautionary Statements and Risk Factors.
Overview
    We develop, manufacture and market 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. Our systems include SLA(TM) stereolithography apparatus
equipmentSLA® systems and ThermoJet(TM)ThermoJet solid object printers.
    SLA industrial systems use our proprietary stereolithography ("SL") technology, a solid imaging process which uses a laser beam to expose and solidify successive layers of photosensitive epoxy resin until the desired object is formed to precise specifications in epoxy or acrylic resin. SL-produced parts can be used for concept models, engineering prototypes, patterns and masters for molds, consumable tooling, orand short-run manufacturing of final product, among other applications. SL technology can provide users with significant product
development time savings, cost reductions and improved quality, compared to
traditional modeling, tooling and pattern-making techniques. In addition,
material functionality can produce more durable parts, which can be used for
rapid manufacturing. We provide a majority of our SLA system customers, either
directly or through our network of authorized distributors, with a variety of
on-site maintenance services and processing materials. ThermoJet solid object printers employ hot melt ink jet technology to build models in successive layers using our proprietary thermoplastic material. These printers, about the size of an office copier, are network-ready and are designed for operation in engineering and design office environments. Designers, engineers, and other
users of CAD/CAM utilities can incorporate the printers into office networks as
a shared resource, to rapidly produce models of products under development for
design concept communication and validation. In addition, theThe ThermoJet solid
object printer output can be used as patterns and molds, and when combined with other secondary processes such as investment casting, can produce parts with representative end useend-use properties. We provide a majority of our ThermoJet printer customers, either
directly or through our network of authorized distributors, with on-site
maintenance services.

We have sold 1,546 systems since 1988 and our
    Our customers include major corporations in a broad range of industries including service bureaus and manufacturers of automotive, aerospace, computer, electronic, consumer and medical products. Our revenues are generated by product and service sales. Product sales are comprised of the salesales of systems and related equipment, materials, software and other component parts, as well as rentals of systems. Service sales include revenues from a variety of on-site maintenance services, customer training, services provided by our Technology Centers and licensing of 3D Keltool (R)Keltool® process and support services.

Recent Developments

During 1999,
    For the year ended December 31, 2000 we introducedcontinued to show improvements in several new products to expandareas from the use and
applications of our solid imaging systems. At the top of the product line, we
launched the SLA 7000 system in early 1999, a premium priced high performance
SLA industrial system. This system increases the speed of producing solid images
and provides for high quality resolution. The ThermoJet solid object printer was
also introduced late in the first quarter, as a replacement for the Actua(TM)
2100. The ThermoJet printer 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, we launched a series of new materials to support our
new and existing systems (see "Part I, Item 1. Business, Products and Services,
Recent Product Introductions" on page 5). As part of our strategy to expand the
use of solid object printing and to improve the returns from recurring revenue
streams from materials, we commenced manufacturing of our own proprietary
materials for the ThermoJet printer at our facility in Grand Junction, Colorado.

During the first two quarters of 1999, we incurred substantial net losses and
our revenue did not increase compared to the same period in 1998. During this
period, our President also resigned. In addition, difficulties were encountered
in the launch of the SLA 7000 system along with other operational issues which
led to certain actions by management late in the second quarter of
1999. These actions included realignment of several management positions,
exiting facilities and legal structure reorganization. (See "Note 19 of Notes to
Consolidated Financial Statements" on page F-25.) In August 1999, we retained an
outside firm, Regent Pacific Management Corporation ("Regent Pacific"), to
review our operations and strategic direction. Also during the third quarter,
our Chief Executive Officer and Chief Financial Officer


                                    Page 20


resigned. Upon completion of the review by Regent Pacific, we undertook certain
operational changes and replaced certain key executives (see "Note 14 of Notes
to Consolidated Financial Statements" on page F-19). In conjunction with this
program, executives of Regent Pacific filled certain key executive
positions including Chief Executive Officer, Chief Financial Officer, and Vice
President of Sales and Marketing (see "Part III, Item 13. Certain Relationships
and Related Transactions" on page 27). Additionally, Regent Pacific took
additional steps to assist us in further developing and implementing an operating plan to improve our overall performance. Implementation of major
components of this operating plan, including measures designed to resultput in margin improvements, operating savings and workforce reductions were initiatedplace in the fourth quarter of 1999,1999. As a result of increased recurring revenues, particularly materials, and increased unit sales, overall revenue improved considerably from the prior year. We also continued to realize the benefit from contracts for multi-unit sales of SLA and ThermoJet systems. These sales and marketing efforts, as well as strict cost controls, have resulted in overall increased revenue, significantly improved gross profits, reduced operating expenses and increased profitability.
    On September 9, 2000, the Company extended its agreement with Regent Pacific from 12 months to 24 months, with the initial impactpotential for additional extensions beyond that period. All other terms of these reductions
occurringthe agreement remain substantially unchanged. The Board of Directors took this action based on the results achieved by Regent Pacific over the last year and the Board's confidence in their ability to continue to achieve improved results in the first quarterfuture.
    In 2001, we will continue to focus on multi-unit sales of 2000. This isour higher-end SLA systems, selling and marketing efforts related to the rapid manufacturing and niche customization market segments, and continued cost containment efforts. We expect that our continued emphasis on developing new materials and applications for our products will result in revenues from materials continuing to increase
22
in total as well as a percent of our total revenue, all of which will provide continued opportunities for increased profitability. These are forward-looking statementstatements and, isas with other such statements, are subject to uncertainties. For example, the planexact timing of customer requirements, competitive selling and pricing issues, requirements for continued developments of systems and materials, commercial acceptance of new materials, and any ineffectiveness of cost containment efforts may not be completely
implemented in the expected timeframe, or may not be as effective as
anticipated.

negatively impact our revenue and profitability objectives.
23
Results of Operations
    The following table sets forth the percentage relationship of certain items from the Company's Statements of Operations to Total Revenues:

                                                    Percent of Total Revenues
                                                     Years Ended December 31,
                                                   1999       1998       1997
                                                  ------     ------     ------
Sales:
      Products                                      68.9%      66.7%      65.5%
      Services                                      31.1%      33.3%      34.5%
                                                  ------     ------     ------
            Total sales                            100.0%     100.0%     100.0%
                                                  ------     ------     ------
Cost oftotal sales:
      Products                                      37.1%      34.1%      39.3%
      Services                                      21.6%      22.5%      24.1%
                                                  ------     ------     ------
            Total cost of sales                     58.7%      56.6%      63.4%
                                                  ------     ------     ------
Total gross profit                                  41.3%      43.4%      36.6%
      Gross profit - products                       46.2%      48.8%      40.0%
      Gross profit - services                       30.4%      32.5%      30.1%
Selling, general and
  administrative expenses                           36.4%      31.0%      32.8%
Research and development expenses                    9.2%       9.6%      12.2%
Other                                                3.5%         -          -
                                                  ------     ------     ------
Income (loss) from operations                       (7.8%)      2.8%      (8.4%)
Other income and expense                             0.0%       0.5%       0.9%
Income tax benefit (expense)                         2.3%      (1.1%)      2.4%
                                                  ------     ------     ------
Net income (loss)                                   (5.5%)      2.2%      (5.1%)
                                                  ======     ======     ======
 
 
Percentage of Total Sales
Years Ended December 31,
 
 
 
2000
 
1999
 
1998
 
Sales:
 
 
 
 
 
 
 
 
Products
 
73.2
%
68.9
%
66.7
%
 
Services
 
26.8
%
31.1
%
33.3
%
 
 
 
 
 
 
 
Total sales
 
100.0
%
100.0
%
100.0
%
 
 
 
 
 
Cost of sales:
 
 
 
 
 
 
 
 
Products
 
32.0
%
37.1
%
34.1
%
 
Services
 
19.8
%
21.6
%
22.5
%
 
 
 
 
 
 
 
Total cost of sales
 
51.8
%
58.7
%
56.6
%
 
 
 
 
 
Gross profit
 
48.2
%
41.3
%
43.4
%
Selling, general and administrative expenses
 
29.8
%
36.4
%
31.0
%
Research and development expenses
 
7.1
%
9.2
%
9.6
%
Other expenses
 
—
 
3.5
%
—
 
 
 
 
 
 
Income (loss) from operations
 
11.3
%
(7.8
)%
2.8
%
Interest income and interest and other expense, net
 
0.1
%
0.0
%
0.5
%
Provision for (benefit from) income taxes
 
4.0
%
(2.3
)%
1.1
%
 
 
 
 
 
Net income (loss)
 
7.4
%
(5.5
)%
2.2
%
 
 
 
 
 
24
    The following table sets forth, for the periods indicated, total revenuessales attributable to each of the Company's major products and services groups:groups, and those sales as a percentage of total sales (in thousands, except for percentages):
 
 
2000
 
1999
 
1998
 
Products:
 
 
 
 
 
 
 
 
 
 
SLA systems and related equipment
 
$
45,192
 
$
40,068
 
$
41,786
 
Solid object printers
 
 
6,520
 
 
5,157
 
 
2,794
 
Materials
 
 
25,267
 
 
18,560
 
 
15,614
 
Other
 
 
3,267
 
 
3,021
 
 
5,240
 
 
 
 
 
 
 
Total products
 
 
80,246
 
 
66,806
 
 
65,434
 
 
 
 
 
 
Services:
 
 
 
 
 
 
 
 
 
 
Maintenance
 
 
26,079
 
 
26,655
 
 
28,140
 
Other
 
 
3,350
 
 
3,488
 
 
4,543
 
 
 
 
 
 
 
Total services
 
 
29,429
 
 
30,143
 
 
32,683
 
 
 
 
 
 
Total sales
 
$
109,675
 
$
96,949
 
$
98,117
 
 
 
 
 
 
Products:
 
 
 
 
 
 
 
 
 
 
SLA Systems and related equipment
 
 
41.2
%
 
41.4
%
 
42.6
%
Solid object printers
 
 
5.9
%
 
5.3
%
 
2.9
%
Material
 
 
23.1
%
 
19.1
%
 
15.9
%
Other
 
 
3.0
%
 
3.1
%
 
5.3
%
 
 
 
 
 
 
Total products
 
 
73.2
%
 
68.9
%
 
66.7
%
 
 
 
 
 
Services:
 
 
 
 
 
 
 
 
 
 
Maintenance
 
 
23.8
%
 
27.5
%
 
28.7
%
Other
 
 
3.0
%
 
3.6
%
 
4.6
%
 
 
 
 
 
 
Total services
 
 
26.8
%
 
31.1
%
 
33.3
%
 
 
 
 
 
Total sales
 
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
25
2000 Compared to 1999         1998         1997
                                            ---------    ---------    ---------
                                                      (in thousands)
Products:
      Systems
    Sales.  Sales in 2000 were $109.7 million, an increase of 13.1% from the $96.9 million recorded in 1999.
    Product sales in 2000 of $80.2 million increased 20.1% from $66.8 million in 1999. The increase in product sales over the prior year is due primarily to increased sales of SLA systems and related equipment $  45,225    $  44,580    $  40,859
      Materials                                18,560       15,614       13,548
      Other                                     3,021        5,240        4,742
                                            ---------    ---------    ---------
            Totalof $5.1 million or 12.8% and an increase in material revenue of $6.7 million or 36.1%. The increase in machine sales results from increased sales of the higher-end SLA industrial systems, especially the SLA 7000. In 2000, we sold a total of 57 SLA 7000 systems compared to 29 in 1999. We expect sales of large frame machines to increase in 2001. Additionally, we recently have introduced the Viper si2 SLA system which we expect to favorably impact our overall system revenue. This is a forward-looking statement and, as with other such statements, is subject to uncertainties. For example, new products 66,806       65,434       59,149
                                            ---------    ---------    ---------
Services:
      Maintenance                              26,655       28,140       25,010
      Other                                     3,488        4,543        6,098
                                            ---------    ---------    ---------
            Total services                     30,143       32,683       31,108
                                            ---------    ---------    ---------
Total sales                                 $  96,949    $  98,117    $  90,257
                                            =========    =========    =========

Products:
      Systemsmay not be commercially accepted or may suffer technological difficulties. Additionally, the introduction and related equipment              46.7%        46.0%        45.3%
      Material                                   19.1%        15.9%        15.0%pricing of competitive systems may negatively impact the growth rate of recurring revenue.
    The increase in material revenue is primarily due to an increase in the installed base of machines and a stronger sales and marketing emphasis on recurring revenue related to the sale of materials derived from post-installation sales. We expect both of these trends to continue in 2001. This is a forward-looking statement and, as with other such statements, is subject to uncertainties. For example, the introduction and related pricing of competitive systems and materials may negatively impact the growth rate of recurring revenue.
    Service sales in 2000 totaled $29.4 million, a decrease of 2.4% or $0.7 million from $30.1 million in 1999. The decrease in service revenue is a result of the net impact of a reduction in revenue from maintenance contracts partially offset by an increase related to time and material revenues. We expect to achieve increases in service revenue in 2001 due to the wider variety of maintenance contracts we are offering to our customers and enhanced selling efforts in this area. This is a forward-looking statement and, as with other such statements, is subject to uncertainties. For example, competitive pricing pressures by third parties supplying maintenance services and the increased reliability of our systems may limit our ability to increase overall service revenues.
    Cost of sales.  Cost of sales decreased to $56.8 million or 51.8% of sales in 2000 from $56.9 million or 58.7% of sales in 1999.
    Product cost of sales as a percentage of product sales decreased to 43.7% in 2000 compared to 53.8% in 1999. This decrease as a percent of product sales is due primarily to reduced component costs, increased manufacturing activity relative to our level of fixed overhead expenses, and a shift in the sales mix to higher-end SLA systems in 2000 as compared to 1999, all of which positively impacted the overall product cost of sales as a percent of product revenue.
    Service cost of sales as a percentage of service sales increased to 73.8% in 2000 from 69.6% in 1999. This is attributable to a decrease in service revenue over the prior year and a change in the mix of service revenues in 2000 from maintenance contracts to time and material revenues.
    Selling, general and administrative expenses.  Selling, general and administrative ("SG&A") expenses decreased $2.6 million or 7.3% to $32.7 million in 2000 compared to $35.3 million in 1999. The decrease was primarily the result of cost reduction benefits associated with the operating plan adopted in late 1999, more focused selling and marketing efforts and high costs associated with the launch of new products in 1999.
    Research and development expenses.  Research and development expenses in 2000 decreased $1.1 million or 12.5% to $7.8 million compared to $8.9 million in 1999. This is a result of more focused engineering efforts on specific development projects and the introduction of new products in early
26
1999. Research and development expenses as a percentage of total revenue were 7.1% in 2000 compared to 9.2% in 1999. In the future, we expect research and development expenses as a percent of total revenue to be maintained at approximately 8% of total revenue. This is a forward-looking statement and, as with other such statements, is subject to uncertainties. For example, if our overall revenue level increases more rapidly than our expenditures on research and development, these costs as a percent of our total revenue may fall below our expected levels.
    Other 3.1%         4.8%         5.2%
                                            ---------    ---------    ---------
            Total products                       68.9%        66.7%        65.5%
                                            ---------    ---------    ---------
Services:
      Maintenance                                27.5%        28.7%        27.7%expenses.  Other 3.6%         4.6%         6.8%
                                            ---------    ---------    ---------
            Total services                       31.1%        33.3%        34.5%
                                            ---------    ---------    ---------
Total sales                                     100.0%       100.0%       100.0%
                                            =========    =========    =========


                                    Page 21
expenses totaled $3.4 million in 1999. No such costs were incurred in 2000. The cost incurred in 1999 related to litigation, settlement costs and non-recurring charges associated with certain employee and exit plan costs.
    Income (loss) from operations.  Operating income in 2000 was $12.3 million or 11.3% of total revenue versus an operating loss of $7.6 million or 7.8% of total revenue in 1999. The improvement is primarily attributable to increased revenue, improved gross margins and reduced operating expenses.
    Provision for (benefit from) income taxes.  For 2000, our tax provision was $4.3 million or 34.6% of the pre-tax income, compared to a tax benefit of $2.2 million on pre-tax loss of $7.5 million in 1999.
1999 Compared to 1998
    Sales.  Sales in 1999 were $96.9 million, a decrease of 1.2% from the $98.1 million recorded in 1998. Sales consist of SLA systems and ThermoJet printers,
related equipment, software, related component parts, system rentals, materials,
and the ongoing servicing of systems.
    System sales in 1999 increased $0.6 million or 1.4% to $45.2 million compared to $44.6 million in 1998. The increase in sales relates primarily to a higher level of ThermoJet printers sold. The sales of SLA machines showed a nominal increase in 1999 due to problems associated with the introduction of the SLA 7000 system early in the year which initially created some confusion in the marketplace relative to customers' needs and whether the SLA 7000 system or other systems would better suit our customers' requirements. These issues were addressed in the latter half of the year and resulted in a higher number of SLA units being sold relative to the first half of the year. The issues relating to the
introduction of the SLA 7000 system have been reduced, and we believe that
continued improvements in hardware, software and materials will support market
acceptance of this product in the future at a level consistent with that
experienced in the latter half of 1999. This is a forward-looking statement and
is subject to uncertainties. For instance, demand for competitors' products may
negatively impact sales of our systems. We sold a total of 303 systems in 1999
versus 222 systems in 1998.
    In 1999, our total revenue from Europe increased to $40.3 million from $35.4 million in 1998. This represents 41.6% and 36.0% of our total revenue for 1999 and 1998, respectively. We attribute this higher rate of growth relative to the rest of the world to a less mature market for our systems in Europe versus the United States and the benefit realized from the acquisition of a major competitor in 1997. It is expected that this higher growth level in
Europe versus the United States will continue into 2000. This is a
forward-looking statement and as with other such statements is subject to
uncertainties. For instance, economic or competitive conditions in Europe
could negatively impact our prospects for future growth in the region.

System sales may also fluctuate on a quarterly basis as a result of a number of
other factors, including the acceptance and reliability of new products in the
market, status of world economic conditions, fluctuations in foreign currency
exchange rates, impact of changing technology, and the timing of product
shipments. Due to the high price and gross margin of certain systems, the
acceleration or delay of a small number of shipments from one quarter to another
can significantly affect the results of operations for the quarters involved.
    Material sales in 1999 increased $3.0 million to $18.6 million versus $15.6 in 1998. This iswas due primarily to higher material sales for both the SLA systems and ThermoJet printers. Approximately three-quarters of our revenue from sales
of material is derived from post-installation sales. As the overall installed
base of our machines increases for both types of products and as new and
improved materials are developed for both machines, we expect that the revenue
growth rate associated with materials will exceed that of machine sales on a
percentage basis. This is a forward-looking statement and as with other such
statements is subject to uncertainties. For instance, the total number of
systems sold may decrease, leading to a decrease in the total materials sold in
the future. Also, continued competitive pricing pressure or negative customer
acceptance of our products may impact the total revenue level.
    Service sales in 1999 decreased $2.5 million, or 7.8%, compared to 1998, primarily due to increased competition from other providers of service contracts and time and material arrangements, and due to the introduction of tiered pricing plans offered to our customers. Technology Center revenues remained at lower levels throughout the year relative to 1998 due to a strategic shift in focus to sales support. Also, we soldthe sale of the St. Paul, Minnesota 3D Keltool inserts business causingcaused a decline in insert revenues in 1999 versus 1998. In the
future, we expect service revenue to increase, due to the growing installed
customer base. However, we believe that competitive forces will continue to
limit service revenue growth in the future. This is a forward-looking statement
and as with other such statements is subject to uncertainties. For instance,
increased competition may cause our service revenue to decrease further, even
though we are servicing a larger number of systems but at a lower level of
revenue per system.
    Cost of sales.  Cost of sales increased to $56.9 million or 58.7% of sales in 1999 compared to $55.5 million or 56.6% of sales in 1998.
    Product cost of sales (including systems and materials) as a percentage of product sales increased from 51.2% in 1998 to 53.8% in 1999. This increase was the result of a change in sales mix resulting from selling a higher number of ThermoJet printers which have a lower gross margin than SLA systems. This was mitigated slightly by a higher overall level of sales in Europe which has historically had a higher average selling price for SLA systems than elsewhere and a higher level of material sales, some of which have a relatively high gross margin relative to other products.


                                    Page 22


Though we continue to strive to reduce manufacturing costs and expect costs per
unit to decrease as our volume increases, these cost improvements may be offset
by continued pricing pressure from competitors. These are forward-looking
statements, and as such, are subject to risks and uncertainties. For example,
the acceptance and reliability of new products in the market may result in
inventory adjustments and increased factory costs, and the impact of competition
on changing economic conditions in the United States and Europe may dramatically
impact average selling prices. In addition, we cannot assure you that we will
not experience significant quarterly fluctuations due to the impact of mix of
products, channels, and markets, or that a changing mix over time will not
result in a higher average percentage of cost of sales to product sales.
27
    Service cost of sales as a percentage of service sales increased slightly to 69.6% in 1999 from 67.5% in 1998 primarily due to continued competitive pricing pressure relating to longer term maintenance contracts and time and materials services. In addition, field service revenue is decreasingdecreased as a result of increased reliability of our systems. While we continue to contain costs related
to field service operations and operate with improved efficiency, we cannot
assure you that service cost of sales as a percentage of service revenue will
not increase further. This is a forward-looking statement, however, and as such
includes certain risks. For example, the reliability of new products in the
market or a further decline in the demand or continued competitive pricing
pressures could cause an increase in service costs of sales.
    Selling, general and administrative expenses.  Selling, general and administrative ("SG&A") expenses increased by $4.8 million or 15.8% to $35.3 million in 1999 versus $30.4 million in 1998. This iswas primarily due to an increase of $1.5 million in marketing expenses in 1999 over 1998 resulting from the marketing and communication programs undertaken for the introduction of the SLA 7000 system and the ThermoJet printer in early 1999. This was in addition to an overall buildup of the sales and marketing department that occurred during late 1998 and continued into early 1999. General and administrative expenses increased $2.4 million to $12.7 million in 1999 versus $10.3 million in 1998. Higher costs were incurred relating to general and administrative expenses as a result of management changes during the year1999 and the lack of strict policies and procedures governing expenditures, which subsequently have beenwere established in connection with the new operating plan implemented during the fourth quarter of 1999, as well as costs associated with the sale of the 3D Keltool insert operations and legal expenses associated with the protection of certain of our patents. As part of the new operating plan which was implemented in the fourth
quarter of 1999, it is expected that costs associated with SG&A will decrease in
2000 in both dollar amounts and as a percentage of sales. However, this is a
forward-looking statement and, as such, includes certain risks. For example, the
acceptance and reliability of new products, or changing economic conditions in
the United States and Europe may dramatically impact total sales for any
particular period, and result in an increase in SG&A expenses as a percentage of
sales. Additionally, we may not realize the benefits of the new operating plan
in the expected timeframe, or the plan may not be completely implemented in the
expected timeframe, or may not be as effective as anticipated.
    Research and development expenses.  Research and development expenses decreased in 1999 to $8.9 million down from $9.4 million in 1998. The decrease in research and development expenses in 1999 was primarily a result of significant investment in 1998 in new product introduction (SLA 7000 system and ThermoJet solid object printer). Based on our historical expenditures related to research
and development and our current development goals, we anticipate for the
foreseeable future, research and development expenses will be equal to
approximately 8% of sales. This is a forward-looking statement, however, and, as
with any such statement, is subject to risk. For example, if our total sales for
any particular period do not meet our anticipated sales for that year, research
and development expenses as a percentage of sales may exceed 8%.
    Other operating expenses.  During 1999, we incurred $3.4 million relating to non-recurring charges associated with actions taken by management involving certain employee related costs and costs associated with the litigation and settlement costs for theCenturi Litigation (see "Note 18(e) of Notes to
Consolidated Financial Statements" on page F-23).

Operating income Litigation.
    Income (loss). from operations.  The operating loss in 1999 was $7.6 million or 7.8% of revenue versus operating income of $2.7 million or 2.8% of revenue in 1998. The 1999 loss relates to lower average gross margins, additional operating expenses associated with realigning our operations, and higher marketing costs incurred relative to 1998.

Interest and other income and expense. Interest and other income and expense
decreased by $0.7 million in 1999 compared to 1998. This decrease is primarily
due to lower interest income as a result of lower investment levels in 1999.
    Provision for (benefit from) income taxes.  For 1999, our tax benefit was $2.2 million or 29.7% of the pre-tax loss, compared to a tax expense of $1.1 million on pre-tax income of $3.2 million in 1998. Our effective tax rate was favorably impacted primarily by research credits and the effects of foreign operations.

1998 Compared to 1997

Sales. Sales in 1998 were $98.1 million, an increase of 8.7% over the $90.3
million recorded during 1997.


                                    Page 23


Product sales in 1998 increased $6.3 million or 10.6% to $65.4 million compared
to $59.1 million in 1997. The dollar increase was primarily due to improved
average selling prices in Europe as a result of the EOS acquisition, and an
improved product mix as the demand for our SLA 3500 and 5000 systems, launched
in late 1997, caused a shift to high end stereolithography systems. A total of
222 systems were sold in 1998 compared to 274 systems in 1997. Orders for our
systems in 1998 compared to 1997 increased significantly in Europe and were up
in the United States, while orders were down slightly in Asia Pacific.

In 1997, the United States market was impacted by inefficiencies caused by the
changes in our domestic sales organization.

Service sales in 1998 increased $1.6 million, or 5.1%, compared to 1997,
primarily as a result of increased maintenance revenues due to the larger
installed base of SLA systems in the United States and Europe. This increase was
offset, in part, by a decline in revenues from our Technology Centers.

Cost of sales. Cost of sales decreased to $55.5 million or 56.6% of sales in
1998 compared to $57.2 million or 63.4% of sales in 1997.

Product cost of sales as a percentage of product sales improved in 1998,
decreasing from 60.0% in 1997 to 51.2% in 1998. This improvement was the result
of increased average selling prices in Europe, improved product mix to higher
end SLA systems, continued reductions in overall cost of factory operations, and
revenues related to certain royalty agreements. In addition, 1997 cost of sales
included inventory adjustments totaling approximately $1.8 million that were
primarily associated with the transition to new products, the EOS acquisition,
and field service inventories.

Service cost of sales as a percentage of service sales decreased to 67.5% in
1998 from 69.9% in 1997 primarily due to the fact that 1997 included certain
hardware upgrade costs associated with our NT version system software. In
addition, field service costs improved as a result of increased reliability of
our systems. This was offset, in part, by declining revenues in our Technology
Center, increasing costs of sales as a percentage of sales.

Selling, general and administrative expenses. Selling, general and
administrative expenses improved, as a percentage of sales, to 31.0% of total
sales in 1998 from 32.9% in 1997. SG&A expense increased $0.8 million or 2.7%
from 1998 to 1997, due primarily to increased commissions and sales bonuses
resulting from higher sales and profits, costs associated with selling and
distributor incentive programs in 1998, and costs related to expanded marketing
and communications programs.

Research and development expenses. Research and development ("R&D") expenses in
1998 decreased approximately $1.6 million or 14.2% compared to 1997. The
decrease in R&D expenses in 1998 was due primarily to the fact that 1997
included a write-off of acquired in-process technology valued at approximately
$2.1 million in connection with the EOS acquisition (see "Note 7 of Notes to
Consolidated Financial Statements" on page F-13), offset in part by increased
personnel and experimental material costs related to certain development
projects.

Operating income (loss). Operating income in 1998 was 2.8% of total sales
compared to operating loss of (8.4%) of total sales in 1997. The improvement in
1998 is primarily attributable to inventory write-offs and costs associated with
the EOS acquisition included in 1997, improved average selling prices and
product mix, and improving product and service cost of sales, as described
above.

Interest and other income and expense. Interest and other income and expense
decreased by $0.1 million in 1998 compared to 1997. This decrease is primarily
due to lower interest income. Other expense increased by $0.2 million in 1998
compared to 1997 due to various non-operating expenses.

Provision for (benefit from) income taxes. For 1998 our provision for income
taxes was $1.1 million or 33.1% of pre-tax income, compared to a tax benefit of
$2.2 million in 1997. The effective tax rate was favorably impacted primarily as
a result of research credits and the effects of foreign operations.

Foreign Operations
    International sales, primarily from Europe, accounted for 47.5%46.1%, 44.1%,47.5% and 41.5%44.1% of total sales in 2000, 1999 1998 and 1997,1998, respectively. For information with respect to allocation of sales among the Company's foreign operations, see "Note 1716 of Notes to Consolidated Financial Statements" on page F-22.

During 1999, our European operations continued to grow and are expected to
provide an increasing percentage of our total revenue. However, this is a
forward-looking statement and, as with any such statement, is subject to
uncertainties. For example, we may be negatively impacted by foreign currency
movements which would limit our growth prospects or put


                                    Page 24


us at a disadvantage relative to other competitors in the European market. We
also receive a limited portion of our total revenue from Asia through
distributors and an established sales office. Due to continued economic problems
in Asia and competitive pressures, we expect our sales to these areas to
continue to be limited.

To date, we have not entered into hedging transactions to protect against
changes in foreign currency exchange rates, but we are considering doing so
for transactions in the future. However, this is a forward-looking statement
and, as with any such statement, is subject to uncertainties. For example, we
may determine that it is not appropriate for us to enter into hedging
transactions or develop alternative methods to limit our foreign currency
exposure.

Liquidity and Capital Resources

                                                     As of and for the Years Ended
                                                             December 31
                                                   --------------------------------
                                                     1999        1998        1997
                                                   --------    --------    --------
                                                            (in thousands)

Cash and cash equivalents                          $ 12,553    $ 15,912    $ 12,695
Short-term investments                               ------       3,485       3,498
Working capital                                      31,219      38,306      38,310
Cash provided by (used for) operating activities      1,589       7,563      (4,978)
Cash used for investing activities                   (5,999)     (4,234)     (8,202)
Cash provided by (used for) financing activities        250        (853)      1,059
 
 
As of and for the Years
Ended December 31
 
 
 
2000
 
1999
 
1998
 
 
 
(in thousands)

 
Cash and cash equivalents
 
$
18,999
 
$
12,553
 
$
15,912
 
Short-term investments
 
 
—
 
 
—
 
 
3,485
 
Working capital
 
 
44,549
 
 
31,219
 
 
38,305
 
Cash provided by operating activities
 
 
5,126
 
 
1,589
 
 
7,563
 
Cash used for investing activities
 
 
(2,644
)
 
(5,999
)
 
(4,234
)
Cash provided by (used for) financing activities
 
 
4,159
 
 
250
 
 
(853
)
28
    Net cash provided by (used for) operating activities in 2000, 1999 and 1998 and 1997 was $5.1 million, $1.6 million $7.6 million, and $(5.0)$7.6 million, respectively. The cash flow from operations in 19992000 was comprised primarily of a net lossincome of $5.3$8.1 million,
adjusted for non-cash items including depreciation and amortization expense of $6.1$6.2 million, tax benefit related to stock option exercises of $2.0 million, increases in accounts payable of $2.5 million and deferred revenues of $4.8 million. In the first quarterThis is partially offset by increases in accounts receivable of 1999, we sold a portion of our lease portfolio,
resulting in a reduction in our$6.3 million, lease receivables of $4.8$2.0 million, inventory of $7.0 million, prepaid and other assets of $4.0 million and a decrease in deferred income taxes of $2.0 million other liabilities of $1.4 million.
    Net cash used for investing activities in 19992000 totaled $6.0$2.6 million primarily for property and equipment relating particularly to demonstration equipment for new products, computers and manufacturing equipment required for expansion, license and patentpatents costs, and software development costs.
    Net cash provided by financing activities in 19992000 totaling $0.3$4.2 million was the result of cash provided from the exercise of stock options net of long-term debt repayments.

In August 1999, we allowed our credit facility with Silicon Valley Bank
("SVB") (the "Credit Facility") to expire. The credit facility was not
utilized during 1999 and no amounts were due under the facility at the time
of its expiration. Currently, we are in the process of establishing a new
facility to provide for working capital requirements in 2000 and beyond. We
expect that the new facility will finance future sales growth and be
collateralized by a percentage of inventory and accounts receivable. This is
a forward-looking statement and is subject to uncertainties. For example,
significant changes in interest rates could have an adverse impact on our
ability to secure our primary choice of credit facility alternatives.
    We believe that funds generated from operations and existing working capital will be sufficient to satisfy our anticipated operating requirements for at least the next 12 months. From time to time, we consider the acquisition of businesses, products or technologies complementary to our current business,
althoughbusiness. In February 2001, we have no current commitments or agreements with respectacquired the stock and intellectual property of OptoForm SARL (see Note 19 of "Notes to any
such transactions.Consolidated Financial Statements" on page F-25). Should we decide to pursue such a transaction,additional transactions, we may need to borrow additional funds.

On May 6, 1997, we announced that our Board of Directors had authorized the
purchase of up to 1.5 million shares of our own common stock in the open
market and through private transactions. During 1997, we purchased 25,000
shares for approximately $165,000. During the first quarter of 1998, we
purchased 200,000 shares for approximately $1.4 million. Currently, it is not
anticipated that the Company will acquire any additional shares under this
program.
    There were no significant inflationary trends that affected us in 1999.

We assigned a team to address the issues raised by the introduction of the
Single European Currency ("Euro") for initial implementation as of January 1,
1999 and the transition period through to January 1, 2002. We have substantially
completed the modifications to our internal systems that will be affected by the
initial introduction of the Euro during 1999. We do not expect that the
introduction and use of the Euro will materially affect our foreign exchange
position nor result in any material increase in cost to us.


                                    Page 25


Year 2000 Compliance. We took several steps to ensure that our computer-based
systems that require date/time calculations were not negatively impacted by
miscalculations and system failures on and after the year 2000. We evaluated all
products sold since inception for Year 2000 readiness, and provided the results
of the analysis and potential impacts and resolutions to our customers. The
necessary upgrade pathways to our customers were completed, and we believe that
all products meet basic functionality requirements. No significant issues have
been encountered relating to our products, our internal operating systems, or
with any of our suppliers. There have been no known increases in warranty or
other claims by customers as a result of the Year 2000 transition. There was no
additional impact on prior cost estimates or significant additional costs
incurred subsequent to December 31, 1999 relating to this matter and no impact
on results of operations, deferred spending, third party relationships,
remaining contingencies or legal proceedings. Our cost incurred to prepare for
Y2K issues totaled approximately $1.3 million.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk
    We are exposed to the impact of interest rate changes and foreign currency fluctuations.
    Interest Rate Risk.  Our exposure to market rate risk for changes in interest rates relates primarily to our cash investments and long-term debt. We invest our excess cash in debt instruments with companies with high quality investment
ratingsmoney market funds or other high quality investments. We protect and preserve our invested funds by limiting default, market and reinvestment risk.
    Investments in both fixed rate and floating rate interest-earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted due to a rise in interest rates, while floatingFloating rate securities may produce less income than expected if interest rates fall. Due in part to these factors,this factor, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in
principal if forced to sell securities that have declined in market value due to
changes in interest rates.
    We are exposed to interest rate risk on the industrial development bond for our Colorado facility, which has a variable interest rate. The bond has an outstanding balance of $4.4 million at December 31, 2000, and changes in interest rates would have an immaterial impact on the Company's operations. We have not entered into any hedging instruments to protect ourselves against future increases in interest rates, which would negatively impact the amount of interest we are required to pay. However, we do not feel that this risk is significant and we do not plan to attempt to hedge to mitigate this risk in the foreseeable future.
    Foreign Currency Risk.  International revenues accounted for 47.5%46.1% of our total revenue in 1999.2000. International sales are made primarily from our foreign sales subsidiaries in their respective countries and are denominated in United States dollars or the local currency of each country. These subsidiaries also incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency.
    Our international business is subject to risks typical of an international business, including, but not limited to differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors.
29
    Our exposure to foreign exchange rate fluctuations arises in part from inter-company accounts in which costs incurred in the United States are charged to our foreign sales subsidiaries. These inter-company accounts are typically denominated in the local currency of the foreign subsidiary.United States dollars. We are also exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into United States dollars in consolidation. As exchange rates vary, these results, when translated, may vary from expectations and adversely impact overall expected profitability. The realized effect of foreign exchange rate fluctuations in 19992000 resulted in a $342,000 loss.

$162,000 gain.
    As of December 31, 2000, we had investments in foreign operations that are sensitive to foreign currency exchange rates, including non-functional currency denominated receivables and payables. The net amount that is exposed in foreign currency when subjected to a 10% change in the value of the functional currency versus the non-functional currency produces an immaterial change in our balance sheet as of December 31, 2000.
Item 8. Financial Statements and Supplementary Data
    Consolidated financial statements as of December 31, 19992000 and 19981999 and for each of the three years in the period ended December 31, 19992000 and the reportreports of Independent Accountants are included on pages F-1 to F-27F-28 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
    None.


                                    Page 26

PART III
Item 10. Directors and Executive Officers of the Registrant
    Information with respect to executive officers of the Registrant required by Item 401(b) of Regulation S-K is presented at the end of Part I of this Form 10-K. Information regarding Directors of the Registrant required by Item 401 of Regulation S-K and information regarding Directors and Executive Officers of Registrant required by Item 405 of Regulation S-K will be presented under the caption "Election of Directors" in the definitive Proxy Statement for the Company's 20002001 Annual Meeting of Shareholders, and is incorporated herein by reference.
Item 11. Executive Compensation
    The information required by Item 402 of Regulation S-K will be presented under the captions "Election of Directors" and "Executive Compensation" in the definitive Proxy Statement for the Company's 20002001 Annual Meeting of Shareholders, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
    The information required by Item 403 of Regulation S-K will be presented under the caption "Principal Shareholders" in the definitive Proxy Statement for the Company's 20002001 Annual Meeting of Shareholders, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
    The information required by Item 404 of Regulation S-K will be presented under the caption "Transactions with Executive Officers and Directors" in the definitive Proxy Statement for the Company's 20002001 Annual Meeting of Shareholders, and is incorporated herein by reference.


                                    Page 27
30

PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
a
The following Consolidated Financial Statements, Financial Statement Schedule and Exhibits are filed as part of this Annual Report on Form 10-K as listed on page F1F-1 of this document.

b
Reports on Form 8-K
None.
c
Exhibits
The following exhibits are included as part of this Annual Report on Form 10-K and incorporated herein by this reference:

1.1      Arrangement Agreement (and related exhibits) among Registrant, 3-D
         Canada and Avenue Hall Holding Corporation, dated as of May 19, 1993.
         Incorporated by reference to Exhibit 1.1 to Form 8-B filed August 16,
         1993 and the amendment thereto filed on Form 8-B/A filed on February 4,
         1994.

1.2      Exchange Agreement among Registrant, 3-D Canada, Avenue Hall Holding
         Corporation and Montreal Trust Company of Canada, dated as of May 19,
         1993. Incorporated by reference to Exhibit 1.2 to Form 8-B filed August
         16, 1993 and the amendment thereto filed on Form 8-B/A filed February
         4, 1994.

2.1      Material captioned "United States Domestication of the Company" set
         forth in the Information Circular (Proxy Statement) dated May 21, 1993,
         for the Annual Meeting of Shareholders of 3-D Canada, held on June 25,
         1993, filed with the Securities and Exchange Commission on May 24,
         1993.

2.2      
1.1
Arrangement Agreement (and related exhibits) among Registrant, 3-D Canada and Avenue Hall Holding Corporation, dated as of May 19, 1993. Incorporated by reference to Exhibit 1.1 to Form 8-B filed August  16, 1993 and the amendment thereto, filed on Form 8-B/A filed on February 4, 1994.

1.2


Exchange Agreement among Registrant, 3-D Canada, Avenue Hall Holding Corporation and Montreal Trust Company of Canada, dated as of May 19, 1993. Incorporated by reference to Exhibit 1.2 to Form 8-B filed August 16, 1993 and the amendment thereto, filed on Form 8-B/A filed February 4, 1994.

2.1


Material captioned "United States Domestication of the Company" set forth in the Information Circular (Proxy Statement) dated May 21, 1993, for the Annual Meeting of Shareholders of 3-D Canada, held on June 25, 1993, filed with the Securities and Exchange Commission on May 24, 1993, incorporated herein by reference.

2.2


Asset Purchase Agreement entered into as of December 31, 1990 by and between Spectra-Physics GmbH and 3D Systems GmbH. Incorporated by reference to Exhibit 2.1 to 3-D Canada's Current Report on Form 8-K, filed January 14, 1991, and the amendments thereto.

2.3


Agreement for transfer of a business entered into as of December 31, 1990 by and between Spectra-Physics (France) and 3D Systems France. Incorporated by reference to Exhibit 2.2 to 3-D Canada's Current Report on Form 8-K, filed January  14, 1991, and the amendments thereto.

2.4


Asset Purchase Agreement entered into as of December 31, 1990 by and between Spectra-Physics Limited and 3D Systems, Inc. Limited (England). Incorporated by reference to Exhibit 2.3 to 3-D Canada's Current Report on Form 8-K, filed January 14, 1991, and the amendments thereto.

2.5


Amendment dated August 28, 1991 to Asset Purchase Agreement between 3D Systems GmbH and Spectra-Physics GmbH dated December 29, 1990. Incorporated by reference to Exhibit 2.4 to 3-D Canada's Current Report on Form 8-K, filed September 11, 1991.

3.1


Certificate of Incorporation of Registrant. Incorporated by reference to Exhibit 3.1 to Form 8-B filed August 16, 1993 and the amendment thereto, filed on Form 8-B/A on February 4, 1994.

3.2


Bylaws of Registrant. Incorporated by reference to Exhibit 3.2 to Form 8-B filed August 16, 1993, and the amendment thereto, filed on Form 8-B/A on February 4, 1994.



31 1990 by and
         between Spectra-Physics GmbH and 3D Systems GmbH. Incorporated by
         reference to Exhibit 2.1 to 3-D Canada's Current Report on Form 8-K
         filed January 14, 1991 and the amendments thereto.

2.3      Agreement for transfer of a business entered into as of December 31,
         1990 by and between Spectra-Physics (France) and 3D Systems France.
         Incorporated by reference to Exhibit 2.2 to 3-D Canada's Current Report
         on Form 8-K filed January 14, 1991 and the amendments thereto.

2.4      Asset Purchase Agreement entered into as of December 31, 1990 by and
         between Spectra-Physics Limited and 3D Systems, Inc. Limited (England).
         Incorporated by reference to Exhibit 2.3 to 3-D Canada's Current Report
         on Form 8-K filed January 14, 1991 and the amendments thereto.

2.5      Amendment dated August 28, 1991 to Asset Purchase Agreement between 3D
         Systems GmbH and Spectra-Physics GmbH dated December 29, 1990.
         Incorporated by reference to Exhibit 2.4 to 3-D Canada's Current Report
         on Form 8-K filed September 11, 1991.

3.1      Certificate of Incorporation of Registrant. Incorporated by reference
         to Exhibit 3.1 to Form 8-B filed August 16, 1993 and the amendment
         thereto filed on Form 8-B/A filed on February 4, 1994.

3.2      Bylaws of Registrant. Incorporated by reference to Exhibit 3.2 to Form
         8-B filed August 16, 1993 and the amendment thereto filed on Form 8-B/A
         filed on February 4, 1994.

4.1*     1989 Employee and Director Incentive Plan. Incorporated by reference to
         Exhibit 4.1 to Form 8-B filed August 16, 1993 and the amendment thereto
         filed on Form 8-B/A filed on February 4, 1994.

4.2*     Form of Director Option Contract pursuant to the 1989 Employee and
         Director Incentive Plan. Incorporated by reference to Exhibit 4.2 to
         Form 8-B filed August 16, 1993 and the amendment thereto filed on Form
         8-B/A filed on February 4, 1994.

- - --------

4.1*


1989 Employee and Director Incentive Plan. Incorporated by reference to Exhibit 4.1 to Form 8-B filed August 16, 1993 and the amendment thereto filed on Form 8-B/A on February 4, 1994.

4.2*


Form of Director Option Contract pursuant to the 1989 Employee and Director Incentive Plan. Incorporated by reference to Exhibit 4.2 to Form 8-B filed August 16, 1993 and the amendment thereto, filed on Form 8-B/A on February  4, 1994.

4.3*


Form of Officer Option Contract pursuant to the 1989 Employee and Director Incentive Plan. Incorporated by reference to Exhibit 4.3 to Form 8-B filed August 16, 1993 and the amendment thereto filed on Form 8-B/A on February 4, 1994.

4.4*


Form of Employee Option Contract pursuant to the 1989 Employee and Director Incentive Plan. Incorporated by reference to Exhibit 4.4 to Form 8-B filed August 16, 1993 and the amendment thereto filed on Form 8-B/A on February  4, 1994.

4.5*


Form of Director Option Contract pursuant to the 1996 Non-Employee Director Stock Option Plan. Incorporated by reference to Exhibit 4.5 of Registrant's Form 10-K for the year ended December 31, 1999.

4.6*


Form of Incentive Stock Option Contract for Executives pursuant to the 1996 Stock Incentive Plan.

4.7*


Form of Non-statutory Stock Option Contract for Executives pursuant to the 1996 Stock Incentive Plan.

4.8*


Form of Employee Incentive Stock Option Contract pursuant to the 1996 Stock Incentive Plan. Incorporated by reference to Exhibit 4.8 of Registrant's Form 10-K for the year ended December 31, 1999.

4.9*


Form of Employee Non-statutory Stock Option Contract pursuant to the 1996 Stock Incentive Plan. Incorporated by reference to Exhibit 4.9 of Registrant's Form 10-K for the year ended December 31, 1999.

10.1


Lease with respect to Valencia property dated as of July 12, 1988, by and between 3D California and Valencia Tech Associates. Incorporated by reference to Exhibit 3.1 to 3-D Canada's annual Report on Form 20-F for the year ended December 31, 1987 (Reg. No. 0-16333).

10.2


Amendment No. 1 to Lease Agreement between 3D California and Katell Valencia Associates, a California limited partnership, dated May 28, 1993. Incorporated by reference to Exhibit 10.2 to Form 8-B filed August 16, 1993 and the amendment thereto, filed on Form 8-B/A on February 4, 1994.

10.3


Agreement dated as of July 19, 1988, by and among 3D California, UVP, Cubital, Ltd. and Scitex Corporation Ltd. Incorporated by reference to Exhibit 3.10 to 3-D Canada's Annual Report on Form 20-F for the year ended December  31, 1987 (Reg. No. 0-16333).

10.4


Form of Subscription Agreement made as of the 18th day of April, 1989 between 3-D Canada and placees pursuant to the private placement of special warrants completed on April 27, 1989, together with all Schedules thereto, and form of Confirmation of Agreement. Incorporated by reference to Exhibit 2.6 to 3-D Canada's Annual Report on Form 20-F for the year ended December 31, 1988.

10.5


Patent Purchase Agreement dated January 5, 1990 by and between 3D California and UVP. Incorporated by reference to Exhibit 10.28 to 3-D Canada's Registration Statement on Form S-1 (Reg. No. 33-31789).



32

10.6


Security Agreement dated as of the 5th day of January, 1990 by and between UVP and 3D California relating to security interest in UVP Patent. Incorporated by reference to Exhibit 10.29 to 3-D Canada's Registration Statement on Form S-1 (Reg. No. 33-31789).

10.7


Assignment of UVP Patent dated January 12, 1990 by UVP to 3D California. Incorporated by reference to Exhibit 10.30 to 3-D Canada's Registration Statement on Form S-1 (Reg. No. 33-31789).

10.8


Exchange Agreement dated July 23, 1990 by and among 3-D Canada, 3D California, Ciba-Geigy Capital Corporation, Raymond S. Freed, Charles W. Hull, Bethany Griffiths, Virginia Hiramatsu, Paul B. Warren and Edwin J. Kaftal, together with all Exhibits thereto. Incorporated by reference to Exhibit 10.30 to 3-D Canada's Registration Statement on Form S-1 (Reg. No. 33-31789).

10.9


Research and Development Agreement entered into as of August 15, 1990 by and between 3D California and Ciba-Geigy Limited. Incorporated by reference to Exhibit 10.32 to 3-D Canada's Current Report on Form 8-K filed August 21, 1990 and the amendments thereto.

10.10


Distribution Agreement entered into as of July 1, 1990 by and between 3D California and Ciba-Geigy Limited. Incorporated by reference to Exhibit 10.33 to 3-D Canada's Current Report on Form 8-K filed August 21, 1990, and the amendments thereto.

10.11


Form of Indemnification Agreement between Registrant and certain of its executive officers and directors. Incorporated by reference to Exhibit 10.18 to Form 8-B filed August 16, 1993 and the amendment thereto filed on Form 8-B/A filed on February 4, 1994.

10.12


Amendment No. 1 to a Shareholders' Agreement, such Shareholders' Agreement being dated as of April 10, 1991, among 1726 Holdings Ltd., a British Columbia corporation ("1726"), Lionheart Capital Corp., a British Columbia corporation ("Lionheart"), 3-D Canada, and Raymond S. Freed, Charles W. Hull, Bethany Griffiths, Virginia Hiramatsu, Paul B. Warren and Edwin J. Kaftal (Freed, Hull, Griffiths, Hiramatsu, Warren and Kaftal are collectively referred to as the "Founders"), dated as of May 5, 1993, by and among 1726, Lionheart, 3-D Canada, the Founders and Registrant. Incorporated by reference to Exhibit 10.19 to Form 8-B filed August 16, 1993, and the amendment thereto, filed on Form 8-B/A on February 4, 1994.

10.13


Standby Share Purchase Agreement dated as of May 26, 1992, by and among 3-D Canada and Invesco MIM, C&S Investment Management, Ltd., Noland Carter, Prudential Portfolio Managers Limited, Fred C. Goad, Jr., The Clark Estates, Inc., and Foreign & Colonial Smaller Companies PLC. Incorporated by reference to Exhibit 1.2 to 3-D Canada's Registration Statement on Form S-2 (Reg. No. 33-46823).

10.14


Stock Purchase Agreement, as amended, dated as of September 30, 1986, by and among 3D California, Lionheart Resources Corporation, a British Columbia corporation, and 3-D Canada. Incorporated by reference to Exhibit 4 to 3-D Canada's annual report on Form 20-F for the year ended December 31, 1987 (Reg. No. 0-16333).

10.15*


Employment Agreement dated March 1, 1994, by and among Registrant, 3D Systems, Inc., a California corporation and Charles W. Hull. Incorporated by reference to Exhibit 10.1 to Registrant's Form 10-Q for the quarterly period ended July 1, 1994, filed on August 9, 1994.

10.16


Amendment to Loan Agreement dated as of August 3, 1994, by and between 3D Systems, Inc., 3D Systems Inc. Limited, 3D Systems France SARL, 3D Systems GmbH and Silicon Valley Bank. Incorporated by reference to Exhibit 10.36 to Registrant's Form 10-Q for the quarterly period ended September 30, 1994, filed on November 4, 1994.



33

10.17


Letter of Intent dated March 7, 1995 by and between 3D Systems, Inc., a California corporation and Ciba-Geigy Corporation, a New York corporation. Incorporated by reference to Exhibit 10.40 to Form 10-K for the year ended December  31, 1994.

10.18


Agreement dated October 4, 1995 between Registrant and Mesa County Economic Development Council, Inc., a Colorado non-profit corporation. Incorporated by reference to Exhibit 10.1 to Registrant's Form 10-Q for the quarterly period ended September 29, 1995, filed on November 13, 1995.

10.19


Amendment No. 1 to Distribution Agreement dated May 5, 1995 between Ciba Specialty Chemicals and Registrant. Incorporated by reference to Exhibit 10.40 to Amendment No. 1 to Registration Statement on Form S-2, filed on May  25, 1995.

10.20


Registration and Indemnification Agreement dated June 1995 between Registrant and 1726 Holdings Canada, Inc. Incorporated by reference to Exhibit 10.41 to Amendment No. 2 to Registration Statement of Form S-2, filed on June  13, 1995.

10.21*


Employment Agreement dated as of December 27, 1995 between Registrant and A. Sidney Alpert. Incorporated by reference to Exhibit 10.43 to Registrant's 10-K for the year ended December 31, 1995, filed on April 1, 1996.

10.22


License, Development, and OEM Agreement dated March 31, 1995 between Spectra, Inc. and 3D Systems, Inc. Incorporated by reference to Exhibit 10.45 to Registrant's 10-K for the year ended December 31, 1995 filed on April  1, 1996. [Portions of the exhibit have been omitted and filed separately with the SEC pursuant to a grant of confidential treatment.]

10.23*


Asset Purchase Agreement dated as of August 30, 1996 by and between 3D Systems, Inc., a California corporation, Keltool, Inc. a Minnesota corporation and Wayne Duescher. Incorporated by reference to Exhibit 10.1 to Registrant's 10-Q for the quarterly period ended September 27, 1996, filed on November 12, 1996.

10.24


Non-Competition Agreement dated September 9, 1996 by and between 3D Systems, Inc., a California corporation and Wayne O. Duescher. Incorporated by reference to Exhibit 10.3 to Registrant's 10-Q for the quarterly period ended September  27, 1996, filed on November 12, 1996.

10.25*


Employment Agreement dated October 28, 1996 between Registrant and Mr. Richard D. Balanson. Incorporated by reference to Exhibit 10.51 to Form 10-K for the year ended December 31, 1996.

10.26*


Employment letter effective January 7, 1997 between Registrant and Mr. Martin E. McGough. Incorporated by reference to Exhibit 10.55 to Form 10-K for the year ended December 31, 1997.

10.27*


Employment letter effective September 17, 1999 between Registrant and Mr. Grant R. Flaharty. Incorporated by reference to Exhibit 10.48 to Form 10-K for the year ended December 31, 1999.

10.28*


Agreement effective September 9, 1999 between Registrant and Regent Pacific Management Corporation. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K, filed February 17, 2000.

10.29*


Employment Agreement effective May 1, 1999 between Registrant and Mr. G. Walter Loewenbaum II. Incorporated by reference to Exhibit 10.50 to Form 10-K for the year ended December 31, 1999.



34

10.30*


Employment Agreement effective September 9, 1999 between Registrant and Mr. Gary J. Sbona. Incorporated by reference to Exhibit 10.51 to Form 10-K for the year ended December 31, 1999.

10.31


Patent License Agreement dated December 16, 1998 by and between 3D Systems, Inc., NTT Data CMET, Inc. and NTT Data Corporation. Incorporated by reference to Exhibit 10.56 to Form 10-K for the year ended December 31, 1998. [Confidential Treatment Requested.]

10.32*


Employment Agreement dated September 9, 1999 between Registrant and Mr. Arthur B. Sims. Incorporated by reference to Exhibit 10.53 to Form 10-K for the year ended December 31, 1999.

10.33*


Stock Option Agreement dated May 20, 1999 between Registrant and Mr. Arthur B. Sims. Incorporated by reference to Exhibit 10.54 to Form 10-K for the year ended December 31, 1999.

10.34*


Letter dated October 19, 1999 from Registrant to Mr. Arthur B. Sims. Incorporated by reference to Exhibit 10.55 to Form 10-K for the year ended December 31, 1999.

10.35*


Agreement effective August 8, 2000 between Registrant and Regent Pacific Management Corporation. Incorporated by reference to Exhibit 10.1 to Registrant's Form 10-Q for the third quarter of 2000.

10.36


Revolving Line of Credit Agreement dated August 8, 2000 between Registrant and CIT. Incorporated by reference to Exhibit 10.2 to Registrant's Form 10-Q for the third quarter of 2000.

10.37*


Amendment to Employment Agreement effective August 8, 2000 between Registrant and Mr. Gary J. Sbona.

10.38*


Employment letter effective May 10, 2000 between Registrant and Mr. Martin E. McGough.

10.39*


Employment letter effective May 10, 2000 between Registrant and Mr. Grant R. Flaharty.

10.40


Amendment dated August 6, 1993 to R&D Agreement of July 1, 1990 between Registrant and Ciba-Geigy Limited.

10.41


Amendment dated August 27, 1998 to R&D Agreement of July 1, 1990 between Registrant and Ciba-Geigy Limited.

10.42


Termination Agreement dated July 21, 2000, between 3D Systems Corporation, a California Corporation, Charles W. Hull ("Hull"), as Founders' Agent pursuant to the Shareholders Agreement and Ciba Specialty Chemicals Canada Inc., a Canadian corporation ("Ciba Canada"), terminating the Shareholders' Agreement, dated April 10, 1991, among 1726 Holdings Ltd., a British Columbia corporation ("1726"), Lionheart Capital Corp., a British Columbia corporation ("Lionheart"), 3-D Canada, and Raymond S. Freed, Charles W. Hull, Bethany Griffiths, Virginia Hiramatsu, Paul B. Warren and Edwin J. Kaftal (Freed, Hull, Griffiths, Hiramatsu, Warren and Kaftal are collectively referred to as the "Founders"), dated as of May 5, 1993, by and among 1726, Lionheart, 3-D Canada, the Founders and Registrant.

21.1


Subsidiaries of Registrant.

23.1


Consent of Independent Accountants—Deloitte & Touche LLP.

23.2


Consent of Independent Accountants—PricewaterhouseCoopers LLP.
*
Management contract or compensatory plan or arrangement.


                                    Page 28


4.3*     Form of Officer Option Contract pursuant to the 1989 Employee and
         Director Incentive Plan. Incorporated by reference to Exhibit 4.3 to
         Form 8-B filed August 16, 1993 and the amendment thereto filed on Form
         8-B/A filed on February 4, 1994.

4.4*     Form of Employee Option Contract pursuant to the 1989 Employee and
         Director Incentive Plan. Incorporated by reference to Exhibit 4.4 to
         Form 8-B filed August 16, 1993 and the amendment thereto filed on Form
         8-B/A filed on February 4, 1994.

4.5*     Form of Director Option Contract pursuant to the 1996 Non-Employee
         Director Stock Option Plan.

4.6*     Form of Incentive Stock Option Contract for Executives pursuant to the
         1996 Stock Incentive Plan.

4.7*     Form of Non-statutory Stock Option Contract for Executives pursuant to
         the 1996 Stock Incentive Plan.

4.8*     Form of Employee Incentive Stock Option Contract pursuant to the 1996
         Stock Incentive Plan.

4.9*     Form of Employee Non-statutory Stock Option Contract pursuant to the
         1996 Stock Incentive Plan.

10.1     Lease with respect to Valencia property dated as of July 12, 1988, by
         and between 3D California and Valencia Tech Associates. Incorporated by
         reference to Exhibit 3.1 to 3-D Canada's annual Report on Form 20-F for
         the year ended December 31, 1987 (Reg. No. 0-16333).

10.2     Amendment No. 1 to Lease Agreement between 3D California and Katell
         Valencia Associates, a California limited partnership, dated May 28,
         1993. Incorporated by reference to Exhibit 10.2 to Form 8-B filed
         August 16, 1993 and the amendment thereto filed on Form 8-B/A filed on
         February 4, 1994.

10.3     Agreement dated as of July 19, 1988, by and among 3D California, UVP,
         Cubital, Ltd. and Scitex Corporation Ltd. Incorporated by reference to
         Exhibit 3.10 to 3-D Canada's Annual Report on Form 20-F for the year
         ended December 31, 1987 (Reg. No. 0-16333).

10.4     Exclusive License Agreement dated as of May 16, 1986, by and between 3D
         California and UVP. Incorporated by reference to Exhibit 5 to 3-D
         Canada's Registration Statement on Form 20-F (Reg. No. 0-16333).

10.5     Form of Subscription Agreement made as of the 18th day of April, 1989
         between 3-D Canada and placees pursuant to the private placement of
         special warrants completed on April 27, 1989, together with all
         Schedules thereto, and form of Confirmation of Agreement. Incorporated
         by reference to Exhibit 2.6 to 3-D Canada's Annual Report on Form 20-F
         for the year ended December 31, 1988.

10.6     Patent Purchase Agreement dated January 5, 1990 by and between 3D
         California and UVP. Incorporated by reference to Exhibit 10.28 to 3-D
         Canada's Registration Statement on Form S-1 (Reg. No. 33-31789).

10.7     Security Agreement dated as of the 5th day of January, 1990 by and
         between UVP and 3D California relating to security interest in UVP
         Patent. Incorporated by reference to Exhibit 10.29 to 3-D Canada's
         Registration Statement on Form S-1 (Reg. No. 33-31789).

10.8     Assignment of UVP Patent dated January 12, 1990 by UVP to 3D
         California. Incorporated by Reference to Exhibit 10.30 to 3-D Canada's
         Registration Statement on Form S-1 (Reg. No. 33-31789).

10.9     Exchange Agreement dated July 23, 1990 by and among 3-D Canada, 3D
         California, CIBA-GEIGY Capital Corporation, Raymond S. Freed, Charles
         W. Hull, Bethany Griffiths, Virginia Hiramatsu, Paul B. Warren and
         Edwin J. Kaftal, together with all Exhibits thereto. Incorporated
         herein by reference to Exhibit 10.30 to 3-D Canada's Registration
         Statement on Form S-1 (Reg. No. 33-31789).

10.10    Research and Development Agreement entered into as of August 15, 1990
         by and between 3D California and Ciba-Geigy Limited. Incorporated
         herein by reference to Exhibit 10.32 to 3-D Canada's Current Report on
         Form 8-K filed August 21, 1990 and the amendments thereto.

10.11    Distribution Agreement entered into as of July 1, 1990 by and between
         3D California and Ciba-Geigy Limited. Incorporated herein by reference
         to Exhibit 10.33 to 3-D Canada's Current Report on Form 8-K filed
         August 21, 1990 and the amendments thereto.


                                    Page 29


10.12    Severance agreements: 10.12(a) Severance Agreement dated April 5, 1991
         by and between 3-D Canada and Mr. Raymond S. Freed; and 10.12(b)
         Severance Agreement dated May 15, 1991 by and between 3-D Canada and
         Mr. Edwin J. Kaftal. Incorporated by reference to 3-D Canada's
         Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, and
         the amendments thereto.

10.13*   Employment Agreement dated of as September 4, 1991, between 3D
         California and Arthur B. Sims. Incorporated herein by reference to
         Exhibit 10.14 to 3-D Canada's Annual Report on Form 10-K for the year
         ended December 31, 1992, and the amendments thereto.

10.14    Form of Indemnification Agreement between Registrant and certain of its
         executive officers and directors. Incorporated by reference to Exhibit
         10.18 to Form 8-B filed August 16, 1993 and the amendment thereto filed
         on Form 8-B/A filed on February 4, 1994.

10.15    Amendment No.1 to a Shareholders' Agreement, such Shareholders'
         Agreement being dated as of April 10, 1991, among 1726 Holdings Ltd., a
         British Columbia corporation ("1726"), Lionheart Capital Corp., a
         British Columbia corporation ("Lionheart"), 3-D Canada, and Raymond S.
         Freed, Charles W. Hull, Bethany Griffiths, Virginia Hiramatsu, Paul B.
         Warren and Edwin J. Kaftal (Freed, Hull, Griffiths, Hiramatsu, Warren
         and Kaftal are collectively referred to as the "Founders"), dated as of
         May 5, 1993, by and among 1726, Lionheart, 3-D Canada, the Founders and
         Registrant. Incorporated by reference to Exhibit 10.19 to Form 8-B
         filed August 16, 1993 and the amendment thereto filed on Form 8-B/A
         filed on February 4, 1994.

10.16    Loan and Security Agreement, as amended, dated as of June 2, 1993, by
         and between 3D California, 3D Systems Inc. Limited (England), 3D
         Systems France SARL, 3D Systems GmbH, 3D Systems Japan, Ltd. and
         Silicon Valley Bank. Incorporated by reference to Exhibit 10.20 to Form
         8-B filed August 16, 1993 and the amendment thereto filed on Form 8-B/A
         filed on February 4, 1994.

10.17    Cross-Corporate Continuing Guaranty dated as of August 12, 1993,
         executed by Registrant, 3D Systems Inc. Limited (England), 3D Systems
         France SARL, 3D Systems GmbH, 3D Systems Japan, Ltd. and 3D California
         in favor of Silicon Valley Bank. Incorporated by reference to Exhibit
         10.21 to Form 8-B filed August 16, 1993 and the amendment thereto filed
         on Form 8-B/A filed on February 4, 1994.

10.18    Antidilution Agreement dated as of August 12, 1993, by and between
         Registrant and Silicon Valley Bank. Incorporated by reference to
         Exhibit 10.23 to Form 8-B filed August 16, 1993 and the amendment
         thereto filed on Form 8-B/A filed on February 4, 1994.

10.19    Assumption Agreement dated as of August 12, 1993, by and between 3D
         Systems (Canada) Inc. and Silicon Valley Bank. Incorporated by
         reference to Exhibit 10.25 to Form 8-B filed August 16, 1993 and the
         amendment thereto filed on Form 8-B/A filed on February 4, 1994.

10.20    Letter Agreement dated July 31, 1993 by and among 3D California,
         Silicon Valley Bank, and UVP, Inc. Incorporated by reference to Exhibit
         10.26 to Form 8-B filed August 16, 1993 and the amendment thereto filed
         on Form 8-B/A filed on February 4, 1994.

10.21    Standby Share Purchase Agreement dated as of May 26, 1992, by and among
         3-D Canada and Invesco MIM, C&S Investment Management, Ltd., Noland
         Carter, Prudential Portfolio Managers Limited, Fred C. Goad, Jr., The
         Clark Estates, Inc., Foreign & Colonial Smaller Companies PLC.
         Incorporated by reference to Exhibit 1.2 to 3-D Canada's Registration
         Statement on Form S-2 (Reg. No. 33-46823).

10.22    Stock Purchase Agreement, as amended, dated as of September 30, 1986,
         by and among 3D California, Lionheart Resources Corporation, a British
         Columbia corporation, and 3-D Canada. Incorporated by reference to
         Exhibit 4 to 3-D Canada's annual report on Form 20-F for the year ended
         December 31, 1987 (Reg. No. 0-16333).

10.23    Security Agreement dated as of August 12, 1993, by and between
         Registrant and Silicon Valley Bank. Incorporated by reference to
         Exhibit 10.29 to Form 8-B filed August 16, 1993 and the amendment
         thereto filed on Form 8-B/A filed on February 4, 1994.

10.24    Letter of Understanding with respect to Loan and Security Agreement, as
         amended, dated August 12, 1993, by and between 3D California, 3D
         Systems Inc. Limited (England), 3D Systems France SARL, 3D Systems

- - --------
* Management contract or compensatory plan or arrangement.


                                    Page 30


         GmbH, 3D Systems Japan, Ltd. and Silicon Valley Bank. Incorporated by
         reference to Exhibit 10.30 to Form 8-B filed August 16, 1993 and the
         amendment thereto filed on Form 8-B/A filed on February 4, 1994.

10.25    Termination Agreement entered into as of January 1, 1990 by and among
         3D California, The Japan Steel Works, Ltd. and 3D Systems Japan, Ltd.
         Incorporated by reference to Exhibit 10.27 to Registrant's Annual
         Report on Form 10-K for the year ended December 31, 1989.

10.26    Amendment to Termination Agreement dated April 13, 1993 by and among 3D
         California, The Japan Steel Works, Ltd. and 3D Systems Japan, Ltd.
         Incorporated by reference to Exhibit 10.33 to Form 8-B filed August 16,
         1993 and the amendment thereto filed on Form 8-B/A filed on February 4,
         1994.

10.27*   Employment Agreement dated March 1, 1994, by and among Registrant, 3D
         Systems, Inc., a California corporation and Charles W. Hull.
         Incorporated by reference to Exhibit 10.1 to Registrant's Form 10-Q for
         the quarterly period ended July 1, 1994 filed on August 9, 1994.

10.28    Amendment to Loan Agreement dated as of August 3, 1994, by and between
         3D Systems, Inc., 3D Systems Inc. Limited, 3D Systems France SARL, 3D
         Systems GmbH and Silicon Valley Bank. Incorporated by reference to
         Exhibit 10.36 to Registrant's Form 10-Q for the quarterly period ended
         September 30, 1994 filed on November 4, 1994.

10.29    Amended Schedule to Loan and Security Agreement dated as of August 3,
         1994, by and between 3D Systems, Inc., 3D Systems Inc. Limited, 3D
         Systems France SARL, 3D Systems GmbH and Silicon Valley Bank.
         Incorporated by reference to Exhibit 10.37 to Registrant's Form 10-Q
         for the quarterly period ended September 31, 1994 filed on November 4,
         1994.

10.30    Collateral Assignment, Patent Mortgage and Security Agreement dated as
         of August 3, 1991, by and between 3D Systems, Inc., 3D Systems Inc.
         Limited, 3D Systems France SARL, 3D Systems GmbH, 3D Systems
         Corporation, 3D Systems (Canada) Inc. and Silicon Valley Bank.
         Incorporated by reference to Exhibit 10.38 to Registrant's Form 10-Q
         for the quarterly period ended September 30, 1994 filed on November 4,
         1994.

10.31*   Employment Agreement dated October 31, 1994, by and among Registrant,
         3D Systems, Inc., a California corporation and Arthur B. Sims.
         Incorporated by reference to Exhibit 10.39 to Form 10-K for the year
         ended December 31, 1994.

10.32    Letter of intent dated March 7, 1995 by and between 3D Systems, Inc., a
         California corporation and CIBA-GEIGY Corporation, a New York
         corporation. Incorporated by reference to Exhibit 10.40 to Form 10-K
         for the year ended December 31, 1994.

10.33    Agreement dated October 4, 1995 between Registrant and Mesa County
         Economic Development Council, inc., a Colorado non-profit Corporation.
         Incorporated by reference to Exhibit 10.1 to Registrant's Form 10-Q for
         the quarterly period ended September 29, 1995 filed November 13, 1995.

10.34    Amendment No. 1 to Distribution Agreement dated May 5, 1995 between
         Ciba Specialty Chemicals and Registrant. Incorporated by reference to
         Exhibit 10.40 to Amendment No. 1 to Registration Statement on
         Form S-2 filed on May 25, 1995.

10.35    Registration and Indemnification Agreement dated June 1995 between
         Registrant and 1726 Holdings Canada, Inc. Incorporated by reference to
         Exhibit 10.41 to Amendment No. 2 to Registration Statement of Form S-2
         filed on June 13, 1995.

10.36*   Employment Agreement dated as of December 27, 1995 between Registrant
         and A. Sidney Alpert. Incorporated by reference to Exhibit 10.43 to
         Registrant's 10-K for the year ended December 31, 1995 filed on April
         1, 1996.

10.37    Amendment dated July 5, 1995 to Loan and Security Agreement dated June
         2, 1993, as previously amended, by and between Registrant, 3D
         California, 3D Systems, Inc. Limited, 3D Systems France SARL, 3D
         Systems GmbH and Silicon Valley Bank. Incorporated by reference to
         Exhibit 10.44 to Form 10-K for the year ended December 31, 1995.

10.38    License, Development, and OEM Agreement dated March 31, 1995 between
         Spectra, Inc. and 3D Systems, Inc. Incorporated by reference to Exhibit
         10.45 to Registrant's 10-K for the year ended December 31, 1995

- - --------
* Management contract or compensatory plan or arrangement.


                                    Page 31


         filed on April 1, 1996. [Portions of the exhibit have been omitted and
         filed separately with the SEC pursuant to a grant of confidential
         treatment].

10.39*   Employment letter dated April 11, 1996 between Registrant and Mark R.
         Bell. Incorporated by reference to exhibit 10.1 to Registrant's 10-Q
         for the quarterly period ended March 29, 1996 filed on May 7, 1996.

10.40    Asset Purchase Agreement dated as of August 30, 1996 by and between 3D
         Systems, Inc., a California corporation, Keltool, Inc. a Minnesota
         corporation and Wayne Duescher. Incorporated by reference to Exhibit
         10.1 to Registrant's 10-Q for the quarterly period ended September 27,
         1996 filed on November 12, 1996.

10.41    Non-Competition Agreement dated September 9, 1996 by and between 3D
         Systems, Inc., a California corporation and Wayne O. Duescher.
         Incorporated by reference to Exhibit 10.3 to Registrant's 10-Q for the
         quarterly period ended September 27, 1996 filed on November 12, 1996.

10.42*   Employment Agreement dated as of February 6, 1996 between Registrant
         and Eugen J. Geyer. Incorporated by reference to Exhibit 10.50 to
         Form 10-K for the year ended December 31, 1996.

10.43*   Employment Agreement dated October 28, 1996 between Registrant and
         Richard D. Balanson. Incorporated by reference to Exhibit 10.51 to
         Form 10-K for the year ended December 31, 1996.

10.44    Amendment dated July 5, 1996 to Loan and Security Agreement dated June
         2, 1993, as previously amended, by and between Registrant and Silicon
         Valley Bank. Incorporated by reference to Exhibit 10.52 to
         Form 10-K for the year ended December 31, 1996.

10.45    Amendment, dated August 18, 1997, to Loan Agreement and Amended
         Schedule to Loan and Security Agreement dated June 2, 1993 between
         Silicon Valley Bank and 3D Systems, Inc., 3D Systems Inc. Limited, 3D
         Systems France SARL and 3D Systems GmbH. Incorporated by reference
         to Exhibit 10.53 to Form 10-K for the year ended December 31, 1997.

10.46*   Employment Agreement effective November 17, 1997 between Registrant and
         Mr. Frank J. Spina. Incorporated by reference to Exhibit 10.54 to
         Form 10-K for the year ended December 31, 1997.

10.47*   Employment letter effective January 7, 1997 between Registrant and Mr.
         Martin E. McGough. Incorporated by reference to Exhibit 10.55 for
         the year ended December 31, 1997.

10.48*   Employment letter effective September 17, 1999 between Registrant and
         Mr. Grant R. Flaharty.

10.49*   Agreement effective September 9, 1999, between Registrant and Regent
         Pacific Management Corporation. Incorporated by reference to Exhibit
         10.1 to Registrant's Current Report on Form 8-K filed February 17,
         2000.

10.50*   Employment Agreement effective May 1, 1999 between Registrant and Mr.
         G. Walter Loewenbaum II.

10.51*   Employment Agreement effective September 9, 1999 between Registrant and
         Mr. Gary J. Sbona.

10.52    Patent License Agreement dated December 16, 1998 by and between 3D
         Systems, Inc., NTT Data CMET, Inc. and NTT Data Corporation.
         [Confidential Treatment Requested].

10.53*   Employment Agreement dated September 9, 1999 between Registrant and Mr.
         Arthur B. Sims.

10.54*   Stock Option Agreement dated May 20, 1999 between Registrant and Mr.
         Arthur B. Sims.

10.55*   Letter dated October 19, 1999 from Registrant to Mr. Arthur B. Sims.

22.1     Subsidiaries of Registrant.

23.1     Consent of Independent Accountants - PricewaterhouseCoopers LLP.

27.1     Financial Data Schedule.

- - --------
* Management contract or compensatory plan or arrangement.


                                    Page 32
35

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Consolidated Financial Statements

Independent Auditors' Report—Deloitte & Touche LLP


F-2
Report of Independent Accountants..........................................................................F-2
Accountants—PricewaterhouseCoopers LLP
F-3
Consolidated Balance Sheets as of December 31, 19992000 and 1998...............................................F-3
1999
F-4
Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 1998 and 1997.................F-4
1998
F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 1998 and 1997.......F-5
1998
F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 1998 and 1997.................F-6
1998
F-7
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2000, 1999 1998 and 1997.......F-7
1998
F-8
Notes to Consolidated Financial Statements for the Years Ended December 31, 2000, 1999 1998 and 1997............F-8

1998
F-9

Consolidated Financial Statement Schedule



Independent Auditors' Report


F-27
Report of Independent Accountants on Financial Statement Schedule.........................................F-27
Schedule
F-28
Schedule II - II—Valuation and Qualifying Accounts...........................................................F-28
Accounts
F-29
F-1

REPORT OF 

INDEPENDENT ACCOUNTANTS


AUDITORS' REPORT
To the Stockholders and Board of Directors of
3D Systems Corporation
Valencia, California
    We have audited the accompanying consolidated balance sheet of 3D Systems Corporation and its subsidiaries (the "Company") as of December 31, 2000, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
    We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
    In our opinion, such 2000 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2000, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Los Angeles, California
March 5, 2001
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
3D Systems Corporation
    In our opinion, the accompanying consolidated balance sheetssheet as of December 31, 1999 and the related consolidated statements of operations, stockholders' equity, cash flows and comprehensive income for each of the two years in the period ended December 31, 1999 (appearing on pages F-4 through F-25 of the 3D Systems Corporation 2000 Annual Report to Shareholders which has been incorporated by reference in this Form 10-K) present fairly, in all material respects, the financial position, results of operations and cash flows of 3D Systems Corporation and its subsidiaries (the "Company") at December 31, 1999 and 1998, and the consolidated results of their operations and
their cash flows for each of the threetwo years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. We have not audited the opinion expressed above.


consolidated financial statements of 3D Systems Corporation for any period subsequent to December 31, 1999.
PricewaterhouseCoopers LLP
Woodland Hills, California
February 14, 2000


                                      F-2
F-3
3D SYSTEMS CORPORATION
Consolidated Balance Sheets
At December 31, 19992000 and 1998
                                 (in thousands)


                    ASSETS                                      1999        1998
                                                              --------    --------

Current assets:
  Cash and cash equivalents                                   $ 12,553    $ 15,912
  Short-term investments                                            --       3,485
  Accounts receivable, less allowances for
  Doubtful accounts of $2,912 (1999) and $944 (1998)            26,772      24,487
  Current portion of lease receivables                             607       2,069
  Inventories                                                    8,786      10,829
  Deferred tax assets                                            2,355       2,063
  Prepaid expenses and other current assets                      2,028       1,916
                                                              --------    --------
       Total current assets                                     53,101      60,761

Property and equipment, net                                     16,245      16,327
Licenses and patent costs, net                                   9,135       5,121
Deferred tax assets                                              7,658       5,070
Lease receivables                                                2,436       5,802
Other assets                                                     2,083       2,022
                                                              --------    --------
                                                              $ 90,658    $ 95,103
                                                              ========    ========
     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                            $  5,838    $  4,850
  Accrued liabilities                                            8,741       8,162
  Current portion of long-term debt                                110         100
  Customer deposits                                                345         330
  Deferred revenues                                              6,848       9,014
                                                              --------    --------
       Total current liabilities                                21,882      22,456

Other liabilities                                                4,673       1,485
Long-term debt, less current portion                             4,495       4,605
                                                              --------    --------
                                                                31,050      28,546
                                                              --------    --------

Commitments and contingencies (Note 18)                             --          --

Stockholders' equity:
  Preferred stock, authorized 5,000 shares; none issued
  Common stock, authorized 25,000 shares; issued 11,658 and
    Outstanding 11,433 (1999); and issued 11,614 and
    Outstanding 11,389 (1998)                                       12          12
  Capital in excess of par value                                75,064      74,834
  Notes receivable from officers                                  (240)       (360)
  Accumulated deficit                                          (12,066)     (6,765)
  Accumulated other comprehensive income (loss)                 (1,622)        376
  Treasury stock, at cost, 225 shares                           (1,540)     (1,540)
                                                              --------    --------
        Total stockholders' equity                              59,608      66,557
                                                              --------    --------
                                                              $ 90,658    $ 95,103
                                                              ========    ========
1999
(in thousands, except per share amounts)
 
 
2000
 
1999
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
18,999
 
$
12,553
 
 
Accounts receivable, net of allowance for
doubtful accounts of $1,599 (2000) and $2,912 (1999)
 
 
33,304
 
 
26,772
 
 
Current portion of lease receivables
 
 
1,497
 
 
607
 
 
Inventories
 
 
14,945
 
 
8,786
 
 
Deferred income taxes
 
 
2,824
 
 
2,355
 
 
Prepaid expenses and other current assets
 
 
3,496
 
 
2,028
 
 
 
 
 
 
 
Total current assets
 
 
75,065
 
 
53,101
 

Property and equipment, net

 

 

13,141

 

 

16,245

 
Licenses and patent costs, net
 
 
8,417
 
 
9,135
 
Deferred income taxes
 
 
5,210
 
 
7,658
 
Lease receivables, less current portion
 
 
3,629
 
 
2,436
 
Other assets, net
 
 
4,435
 
 
2,083
 
 
 
 
 
 
 
$
109,897
 
$
90,658
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
Accounts payable
 
$
8,264
 
$
5,838
 
 
Accrued liabilities
 
 
9,574
 
 
8,741
 
 
Current portion of long-term debt
 
 
120
 
 
110
 
 
Customer deposits
 
 
1,087
 
 
345
 
 
Deferred revenues
 
 
11,471
 
 
6,848
 
 
 
 
 
 
 
Total current liabilities
 
 
30,516
 
 
21,882
 
Other liabilities
 
 
3,210
 
 
4,673
 
Long-term debt, less current portion
 
 
4,375
 
 
4,495
 
 
 
 
 
 
 
 
38,101
 
 
31,050
 
 
 
 
 

Stockholders' equity:

 

 

 

 

 

 

 
 
Preferred stock, authorized 5,000 shares; none issued
 
 
—
 
 
—
 
 
Common stock, $.001 par value, authorized 25,000 shares; issued 12,423 and outstanding 12,198 (2000); and issued 11,658 and outstanding 11,433 (1999)
 
 
12
 
 
12
 
 
Capital in excess of par value
 
 
81,568
 
 
75,064
 
 
Notes receivable from officers and employees
 
 
(330
)
 
(240
)
 
Accumulated deficit
 
 
(3,922
)
 
(12,066
)
 
Accumulated other comprehensive loss
 
 
(3,992
)
 
(1,622
)
 
Treasury stock, at cost, 225 shares (2000 and 1999)
 
 
(1,540
)
 
(1,540
)
 
 
 
 
 
 
Total stockholders' equity
 
 
71,796
 
 
59,608
 
 
 
 
 
 
 
$
109,897
 
$
90,658
 
 
 
 
 
See accompanying notes to consolidated financial statements.


                                      F-3
F-4
3D SYSTEMS CORPORATION
Consolidated Statements of Operations
Years ended December 31, 2000, 1999 1998 and 1997
                     (in1998
(in thousands, except per share amounts)

                                                 1999        1998        1997
                                               --------    --------    --------
Sales:
  Products                                     $ 66,806    $ 65,434    $ 59,149
  Services                                       30,143      32,683      31,108
                                               --------    --------    --------
     Total sales                                 96,949      98,117      90,257
                                               --------    --------    --------

Cost of sales:
  Products                                       35,938      33,477      35,463
  Services                                       20,975      22,062      21,745
                                               --------    --------    --------
     Total cost of sales                         56,913      55,539      57,208
                                               --------    --------    --------
  Gross profit                                   40,036      42,578      33,049
                                               --------    --------    --------

Operating expenses:
  Selling, general and administrative            35,273      30,448      29,653
  Research and development                        8,931       9,425      10,991
  Other                                           3,384          --          --
                                               --------    --------    --------
     Total operating expenses                    47,588      39,873      40,644
                                               --------    --------    --------

Income (loss) from operations                    (7,552)      2,705      (7,595)

Interest income                                     415         949       1,202
Interest and other expense                         (404)       (467)       (356)
                                               --------    --------    --------
Income (loss) before income taxes                (7,541)      3,187      (6,749)

Provision for (benefit from) income taxes        (2,240)      1,055      (2,160)
                                               --------    --------    --------

Net income (loss)                              $ (5,301)   $  2,132    $ (4,589)
                                               ========    ========    ========

Shares used to calculate basic net income
  (loss) per share                               11,376      11,348      11,398
                                               ========    ========    ========

Basic net income (loss) per share              $   (.47)   $    .19    $   (.40)
                                               ========    ========    ========

Shares used to calculate diluted net income
  (loss) per share                               11,376      11,594      11,398
                                               ========    ========    ========

Diluted net income (loss) per share            $   (.47)   $    .18    $   (.40)
                                               ========    ========    ========

          
 
 
2000
 
1999
 
1998
 
Sales:
 
 
 
 
 
 
 
 
 
 
 
Products
 
$
80,246
 
$
66,806
 
$
65,434
 
 
Services
 
 
29,429
 
 
30,143
 
 
32,683
 
 
 
 
 
 
 
 
Total sales
 
 
109,675
 
 
96,949
 
 
98,117
 
 
 
 
 
 
Cost of sales:
 
 
 
 
 
 
 
 
 
 
 
Products
 
 
35,084
 
 
35,938
 
 
33,477
 
 
Services
 
 
21,729
 
 
20,975
 
 
22,062
 
 
 
 
 
 
 
 
Total cost of sales
 
 
56,813
 
 
56,913
 
 
55,539
 
 
 
 
 
 
Gross profit
 
 
52,862
 
 
40,036
 
 
42,578
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
 
 
32,710
 
 
35,273
 
 
30,448
 
 
Research and development
 
 
7,814
 
 
8,931
 
 
9,425
 
 
Other
 
 
—
 
 
3,384
 
 
—
 
 
 
 
 
 
 
 
Total operating expenses
 
 
40,524
 
 
47,588
 
 
39,873
 
 
 
 
 
 
Income (loss) from operations
 
 
12,338
 
 
(7,552
)
 
2,705
 
Interest income
 
 
632
 
 
415
 
 
949
 
Interest and other expense
 
 
(517
)
 
(404
)
 
(467
)
 
 
 
 
 
Income (loss) before income taxes
 
 
12,453
 
 
(7,541
)
 
3,187
 

Provision for (benefit from) income taxes

 

 

4,309

 

 

(2,240

)

 

1,055

 
 
 
 
 
 

Net income (loss)

 

$

8,144

 

$

(5,301

)

$

2,132

 
 
 
 
 
 

Shares used to calculate basic net income (loss) per share

 

 

11,851

 

 

11,376

 

 

11,348

 
 
 
 
 
 

Basic net income (loss) per share

 

$

0.69

 

$

(.47

)

$

.19

 
 
 
 
 
 

Shares used to calculate diluted net income (loss) per share

 

 

12,889

 

 

11,376

 

 

11,594

 

Diluted net income (loss) per share

 

$

0.63

 

$

(.47

)

$

.18

 
 
 
 
 
 
See accompanying notes to consolidated financial statements.


                                      F-4
F-5
3D SYSTEMS CORPORATION
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2000, 1999 1998 and 1997
                                                 (in1998
(in thousands)

                                              Common                    Notes
                                              Stock     Capital in    Receivable               Cumulative                Total
                                            Par Value  Excess of Par     From    Accumulated  Translation  Treasury  Stockholders'
                                   Shares     $0.001       Value       Officers    Deficit     Adjustment    Stock      Equity
                                   -----------------------------------------------------------------------------------------------

Balance at December 31, 1996       11,359    $     11    $ 72,528          --     $ (4,308)    $    472          --      68,703
Exercise of stock options              91          (a)        418          --           --           --          --         418
Tax benefit related to non-
    qualified stock options            --          --         184          --           --           --          --         184
Issuance of warrants related to
    EOS acquisition                    --          --         727          --           --           --          --         727
Net loss                               --          --          --          --       (4,589)          --          --      (4,589)
Cumulative translation
    adjustment                         --          --          --          --           --         (683)         --        (683)
Purchase of treasury stock            (25)         --          --          --           --           --        (165)       (165)
                                   -----------------------------------------------------------------------------------------------
Balance at December 31, 1997       11,425          11      73,857          --       (8,897)        (211)       (165)     64,595
Exercise of stock options              59          (a)        366          --           --           --          --         366
Employee stock purchase plan           38          --         192          --           --           (a)         --         192
Officer loans                          67           1         419        (420)          --
Repayment of officer loans             --          --          --          60           --           --          --          60
Net income                             --          --          --          --        2,132           --          --       2,132
Cumulative translation
    adjustment                         --          --          --          --           --          587          --         587
Purchase of treasury stock           (200)         --          --          --           --           --      (1,375)     (1,375)
                                   -----------------------------------------------------------------------------------------------
Balance at December 31, 1998       11,389          12      74,834        (360)      (6,765)         376      (1,540)     66,557
Exercise of stock options               6          (a)         32          --           --           --          --          32
Employee stock purchase plan           57          (a)        256          --           --           --          --         256
Cancellation of officer loans         (19)         (a)       (120)        120           --           --          --          --
Stock based compensation               --          --          62          --           --           --          --          62
Net loss                               --          --          --          --       (5,301)          --          --      (5,301)
Cumulative translation
    adjustment                         --          --          --          --           --       (1,998)         --      (1,998)
                                   -----------------------------------------------------------------------------------------------
Balance at December 31, 1999       11,433    $     12    $ 75,064    $   (240)    $(12,066)    $ (1,622)   $ (1,540)   $ 59,608
                                   ===============================================================================================
 
 
 
 
 
 
 
 
Notes
Receivable
From
Officers and Employees
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital in
Excess of Par
Value
 
 
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
 
 
 
 
Shares
 
Par Value
$0.001
 
Accumulated
Deficit
 
Treasury
Stock
 
Total
Stockholders'
Equity
 
Balance at January 1, 1998
 
11,425
 
$
11
 
$
73,857
 
$
—
 
$
(8,897
)
$
(211
)
$
(165
)
$
64,595
 
Exercise of stock options
 
59
 
 
(a
)
 
366
 
 
—
 
 
—
 
 
—
 
 
—
 
 
366
 
Employee stock purchase plan
 
38
 
 
(a
)
 
192
 
 
—
 
 
—
 
 
(a
)
 
—
 
 
192
 
Officer loans
 
67
 
 
1
 
 
419
 
 
(420
)
 
—
 
 
—
 
 
—
 
 
—
 
Repayment of officer loans
 
—
 
 
—
 
 
—
 
 
60
 
 
—
 
 
—
 
 
—
 
 
60
 
Net income
 
—
 
 
—
 
 
—
 
 
—
 
 
2,132
 
 
—
 
 
—
 
 
2,132
 
Cumulative translation adjustment
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
587
 
 
—
 
 
587
 
Purchase of treasury stock
 
(200
)
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
(1,375
)
 
(1,375
)
 
Balance at December 31, 1998
 
11,389
 
 
12
 
 
74,834
 
 
(360
)
 
(6,765
)
 
376
 
 
(1,540
)
 
66,557
 
Exercise of stock options
 
6
 
 
(a
)
 
32
 
 
—
 
 
—
 
 
—
 
 
—
 
 
32
 
Employee stock purchase plan
 
57
 
 
(a
)
 
256
 
 
—
 
 
—
 
 
—
 
 
—
 
 
256
 
Cancellation of officer loans
 
(19
)
 
(a
)
 
(120
)
 
120
 
 
—
 
 
—
 
 
—
 
 
—
 
Stock based compensation
 
—
 
 
—
 
 
62
 
 
—
 
 
—
 
 
—
 
 
—
 
 
62
 
Net loss
 
—
 
 
—
 
 
—
 
 
—
 
 
(5,301
)
 
—
 
 
—
 
 
(5,301
)
Cumulative translation adjustment
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
(1,998
)
 
—
 
 
(1,998
)
 
Balance at December 31, 1999
 
11,433
 
 
12
 
 
75,064
 
 
(240
)
 
(12,066
)
 
(1,622
)
 
(1,540
)
 
59,608
 
Exercise of stock options
 
779
 
 
(a
)
 
4,848
 
 
—
 
 
—
 
 
—
 
 
—
 
 
4,848
 
Shares exchanged in option exercise
 
(39
)
 
(a
)
 
(669
)
 
—
 
 
—
 
 
—
 
 
—
 
 
(669
)
Exercise of stock warrants
 
5
 
 
(a
)
 
29
 
 
—
 
 
—
 
 
—
 
 
—
 
 
29
 
Employee stock purchase plan
 
20
 
 
(a
)
 
191
 
 
—
 
 
—
 
 
—
 
 
—
 
 
191
 
Forgiveness of officer loans
 
—
 
 
—
 
 
7
 
 
40
 
 
—
 
 
—
 
 
—
 
 
47
 
Employee stock loans
 
—
 
 
—
 
 
—
 
 
(250
)
 
—
 
 
—
 
 
—
 
 
(250
)
Repayment of officer loans
 
—
 
 
—
 
 
—
 
 
120
 
 
—
 
 
—
 
 
—
 
 
120
 
Tax benefit related to stock option exercises
 
—
 
 
—
 
 
2,046
 
 
—
 
 
—
 
 
—
 
 
—
 
 
2,046
 
Stock based compensation
 
—
 
 
—
 
 
52
 
 
—
 
 
—
 
 
—
 
 
—
 
 
52
 
Net income
 
—
 
 
—
 
 
—
 
 
—
 
 
8,144
 
 
—
 
 
—
 
 
8,144
 
Cumulative translation adjustment
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
(2,370
)
 
—
 
 
(2,370
)
 
Balance at December 31, 2000
 
12,198
 
$
12
 
$
81,568
 
$
(330
)
$
(3,922
)
$
(3,992
)
$
(1,540
)
$
71,796
 
 
(a)
Amounts not shown due to rounding
See accompanying notes to consolidated financial statements.
F-6
3D SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
(in thousands)
 
 
2000
 
1999
 
1998
 
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
8,144
 
$
(5,301
)
$
2,132
 
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Deferred income taxes
 
 
1,979
 
 
(2,881
)
 
158
 
 
 
Depreciation and amortization
 
 
6,245
 
 
6,068
 
 
5,813
 
 
 
Forgiveness of officer loan
 
 
47
 
 
—
 
 
—
 
 
 
Tax benefit related to stock option exercises
 
 
2,046
 
 
—
 
 
—
 
 
 
Stock based compensation
 
 
52
 
 
—
 
 
—
 
 
 
Allowance for doubtful accounts
 
 
(1,221
)
 
2,062
 
 
339
 
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable
 
 
(6,274
)
 
(6,338
)
 
(909
)
 
 
Lease receivables
 
 
(2,083
)
 
4,828
 
 
(2,733
)
 
 
Inventories
 
 
(6,963
)
 
995
 
 
1,160
 
 
 
Prepaid expenses and other current assets
 
 
(1,520
)
 
(112
)
 
389
 
 
 
Other assets
 
 
(2,523
)
 
(576
)
 
(542
)
 
 
Accounts payable
 
 
2,536
 
 
1,229
 
 
(176
)
 
 
Accrued liabilities
 
 
548
 
 
579
 
 
158
 
 
 
Customer deposits
 
 
745
 
 
14
 
 
92
 
 
 
Deferred revenues
 
 
4,799
 
 
(2,165
)
 
1,688
 
 
 
Other liabilities
 
 
(1,431
)
 
3,187
 
 
(6
)
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
 
5,126
 
 
1,589
 
 
7,563
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
Purchase of property and equipment
 
 
(4,893
)
 
(7,719
)
 
(5,822
)
 
Disposition of property and equipment
 
 
2,958
 
 
3,241
 
 
2,234
 
 
Increase in licenses and patent costs
 
 
(368
)
 
(5,005
)
 
(659
)
 
Disposition of licenses and patents
 
 
101
 
 
—
 
 
—
 
 
Costs to develop software
 
 
(442
)
 
—
 
 
—
 
 
Purchase of short-term investments
 
 
—
 
 
(498
)
 
(6,648
)
 
Proceeds from short-term investments
 
 
—
 
 
3,982
 
 
6,661
 
 
 
 
 
 
 
 
 
Net cash used for investing activities
 
 
(2,644
)
 
(5,999
)
 
(4,234
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options
 
 
4,399
 
 
350
 
 
557
 
 
Employee loans for stock option exercises
 
 
(250
)
 
—
 
 
—
 
 
Repayment of note payable
 
 
(110
)
 
(100
)
 
(95
)
 
Repayment of officer loans
 
 
120
 
 
—
 
 
60
 
 
Purchase of treasury stock
 
 
—
 
 
—
 
 
(1,375
)
 
 
 
 
 
 
 
 
Net cash provided by (used for) financing activities
 
 
4,159
 
 
250
 
 
(853
)
 
 
 
 
 
 
Effect of exchange rate changes on cash
 
 
(195
)
 
801
 
 
741
 
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
 
6,446
 
 
(3,359
)
 
3,217
 
Cash and cash equivalents at the beginning of the period
 
 
12,553
 
 
15,912
 
 
12,695
 
 
 
 
 
 
Cash and cash equivalents at the end of the period
 
$
18,999
 
$
12,553
 
$
15,912
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
 
 
 
 
 
 
 
 
Cash paid (received) during the year for:
 
 
 
 
 
 
 
 
 
 
 
 
Interest
 
$
180
 
$
212
 
$
249
 
 
 
 
 
 
 
 
Income taxes
 
$
97
 
$
(137
)
$
(410
)
 
 
 
 
 
See accompanying notes to consolidated financial statements.


                                      F-5
F-7
3D SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
                  Comprehensive Income (Loss)
Years ended December 31, 2000, 1999, 1998 and 1997
                                 (in1998
(in thousands)

Cash flows from operating activities:                               1999        1998        1997
                                                                  --------    --------    --------

  Net income (loss)                                               $ (5,301)   $  2,132    $ (4,589)
  Adjustments to reconcile net income (loss) to net cash
   provided by (used for) operating activities:
     Deferred income taxes                                          (2,881)        158      (2,511)
     Depreciation of property and equipment                          4,561       4,083       3,756
     Provision for doubtful accounts                                 2,062         339          35
     Amortization of licenses and patent costs                         991       1,003         733
     Amortization of software development costs                        436         504         495
     Amortization of intangibles                                        80         223         162
     Changes in operating assets and liabilities:
       Accounts receivable                                          (6,338)       (909)     (4,973)
       Lease receivables                                             4,828      (2,733)       (440)
       Inventories                                                     995       1,160         (60)
       Prepaid expenses and other current assets                      (112)        389         (38)
       Other assets                                                   (576)       (542)     (1,404)
       Accounts payable                                              1,229        (176)      1,266
       Accrued liabilities                                             579         158       1,318
       Customer deposits                                                14          92        (656)
       Deferred revenues                                            (2,165)      1,688       1,858
       Other liabilities                                             3,187          (6)         70
                                                                  --------    --------    --------
           Net cash provided by (used for) operating activities      1,589       7,563      (4,978)
                                                                  --------    --------    --------
Cash flows from investing activities:
  Purchase of property and equipment                                (7,719)     (5,822)     (8,356)
  Disposition of property and equipment                              3,241       2,234       2,382
  Increase in licenses and patent costs                             (5,005)       (659)     (2,489)
  Purchase of short term investments                                  (498)     (6,648)     (3,498)
  Proceeds from short term investments                               3,982       6,661       3,759
                                                                  --------    --------    --------
           Net cash used for investing activities                   (5,999)     (4,234)     (8,202)
                                                                  --------    --------    --------
Cash flows from financing activities:
  Exercise of stock options                                            350         557         418
  Repayment of note payable                                           (100)        (95)       (100)
  Repayment of officer loans                                            --          60          --
  Tax benefit related to non-qualified stock options                    --          --         184
  Restricted cash                                                       --          --         722
  Purchase of treasury stock                                            --      (1,375)       (165)
                                                                  --------    --------    --------
           Net cash provided by (used for) financing activities        250        (853)      1,059
                                                                  --------    --------    --------
  Effect of exchange rate changes on cash                              801         741         460
                                                                  --------    --------    --------
Net increase (decrease) in cash and cash equivalents                (3,359)      3,217     (11,661)
Cash and cash equivalents at the beginning of the period            15,912      12,695      24,356
                                                                  --------    --------    --------
Cash and cash equivalents at the end of the period                $ 12,553    $ 15,912    $ 12,695
                                                                  ========    ========    ========
Supplemental disclosures of cash flow information:
     Cash paid (received) during the year for:
         Interest                                                 $    212    $    249    $    346
                                                                  ========    ========    ========
         Income taxes                                             $   (137)   $   (410)   $    275
                                                                  ========    ========    ========

 
 
2000
 
1999
 
1998
Net income (loss)
 
$
8,144
 
$
(5,301
)
$
2,132
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
(2,370
)
 
(1,998
)
 
587
 
 
 
 
Comprehensive income (loss)
 
$
5,774
 
$
(7,299
)
$
2,719
 
 
 
 
See accompanying notes to consolidated financial statements.


                                      F-6
F-8

3D SYSTEMS CORPORATION
             Consolidated Statements of Comprehensive Income (Loss)
                  Years ended December 31, 1999, 1998 and 1997
                                 (in thousands)

                                                     1999       1998      1997
                                                   -------    -------   -------
Net income (loss)                                  $(5,301)   $ 2,132   $(4,589)
Other comprehensive income (loss):
     Foreign currency translation adjustments       (1,998)       587      (683)
                                                   -------    -------   -------

Comprehensive income (loss)                        $(7,299)   $ 2,719   $(5,272)
                                                   =======    =======   =======

          See accompanying notes to consolidated financial statements.


                                      F-7


                             3D SYSTEMS CORPORATION
                   
Notes to Consolidated Financial Statements
Years ended December 31, 2000, 1999, 1998 and 1997

1998
(1)  Organization and Business
3D Systems Corporation, a Delaware corporation (the "Company"), develops, produces and markets SLA(TM)SLA industrial systems and ThermoJet(TM)ThermoJet solid object printers and related materials, parts and services. 3D Systems, Inc., a California corporation ("3D California"), an indirect wholly-owned subsidiary of the Company, directly and through its subsidiaries, conducts substantially all of the Company's business.
(2)  Significant Accounting Policies
(a)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.
Certain reclassifications have been made to the prior year consolidated financial statements to conform to the current year presentation.
(b)
Sales and Concentration of Credit Risk
Revenues from the sale of the Company's systems and related products are recognized upon shipment. The Company provides end users with up to one year of maintenance and warranty services, and defers a portion of its revenues at the time of sale based on the relative fair value of such services. After the initial maintenance period, the Company offers these customers optional maintenance contracts; revenue related to these contracts is deferred and recognized ratably over the period of the contract. To date, the Company has not experienced any significant warranty claims or product returns. In December 1999 the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101"), which provides additional guidance in applying generally accepted accounting principles to revenue recognition in the financial statements. The Company has implemented the provisions of SAB 101 and its impact on our revenue recognition policy is immaterial.
Credit is extended based on an evaluation of each customer's financial condition. To reduce credit risk in connection with sales of SLA systems, the Company may, depending upon the circumstances, require significant deposits prior to shipment and may retain a security interest in the SLA systems until fully paid. The Company often requires international customers to furnish letters of credit.
The Company invests its excess cash in interest bearing deposits with major banks, commercial paper and money market funds. Although a majority of the cash accounts exceed the federally insured deposit amount, management does not anticipate non-performance by the financial institutions. Management reviews the stability of these institutions on a periodic basis.
(c)
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an original maturity at the time of purchase of three months or less to be cash equivalents. The carrying value of these instruments approximates market value because of their short maturity.
F-9
(d)   Investments

            The Company's short-term investments are classified as held to
            maturity and recorded at amortized cost under the provisions of
            Statement of Financial Accounting Standards (SFAS) No. 115.


                                      F-8


                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998 and 1997

      (e)   
Leases
At the inception of a lease, the gross lease receivable, the reserve for potential losses, the estimated residual value of the leased equipment and the unearned lease income are recorded. The unearned lease income represents the excess of the gross lease receivable plus the estimated residual value over the cost of the equipment leased and is recorded as deferred revenue.

      (f)   revenues.
(e)
Inventories
Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market value.

      (g)   
(f)
Property and Equipment
Property and equipment is carried at cost and depreciated on a straight-line basis over the estimated useful lives of the related assets, generally three to thirty years. Leasehold improvements are amortized on a straight-line basis over their estimated economic useful lives, or the lives of the leases, whichever is shorter. Realized gains and losses are recognized upon disposal or retirement of the related assets and are reflected in results of operations. Repair and maintenance charges are expensed as incurred.

      (h)   
(g)
Licenses and Patent Costs
Licenses and patent costs are being amortized on a straight-line basis over their estimated useful lives, which are approximately eight to eighteen years, or on a units of production basis, depending on the nature of the license or patent.

      (i)   Long Term
(h)
Long-Term Assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of long term assets is periodically reviewed by
            management,an asset may not be recoverable. If the estimated future cash flows (undiscounted and impairment losses, if any,without interest charges) from the use of an asset are recognized when the
            expected nondiscounted future operating cash flow derived from such
            assets is less than their carrying value. Impairment losses are
            recorded at an amount equal to the excess of the assets carrying value, overa write-down would be recorded to reduce the related asset to its estimated fair value.

      (j)   
(i)
Capitalized Software Costs
Certain software development and production costs are capitalized upon a product's reaching technological feasibility. As of December 31, 19992000 and 1998,1999, the Company had cumulatively capitalized software development costs of $4.3$4.8 million and $3.8$4.3 million, respectively. Costs capitalized in 2000 and 1999 were $442,000 and 1998 were $483,000, and $420,000, respectively. Amortization of software development costs begins when the related products are available for market. Amortization expense amounted to $457,000 $436,000 and $504,000 for 2000, 1999 and $495,000 for 1999, 1998, and 1997, respectively, based on the straight-line method using estimated useful lives of two years. Net capitalized costs aggregated $494,000$480,000 and $447,000$494,000 at December 31, 19992000 and 1998,1999, respectively, and are included in other assets in the accompanying consolidated balance sheets.

      (k)   
(j)
Foreign Currency Translation
International sales are made primarily from our foreign sales subsidiaries in their respective countries and are denominated in United States dollars or the local currency of each country. Our exposure to foreign exchange rate fluctuations arises in part from inter-company accounts in which costs incurred in the United States are charged to our foreign sales subsidiaries. These inter-company accounts are denominated in United States dollars. The assetsduration of these exposures is minimized through our use of an inter-company netting and liabilitiessettlement system that settles all of our inter-company trading obligations monthly. In addition, selected
F-10
exposures are managed by financial market transactions in the form of forward foreign exchange and put option contracts. We do not enter into derivative contracts for speculative purposes. We do not hedge our foreign currency exposure in a manner that would entirely eliminate the effects of changes in foreign exchange rates on our consolidated net income (loss).
At December 31, 2000, the amount covered by all of our put option contracts was $5.8 million related to transactions denominated in Euros and pounds sterling, with settlement dates in January, February and March 2001. The carrying value of the Company'sput options was $20,000 and the market value was approximately $2,000 at December 31, 2000. There were no open forward foreign operations are
            translated at the endexchange contracts or put options as of the comparable period exchange rates; revenues and
            expenses are translated at the average exchange rates prevailing
            during the period. in 1999.
The effect of the unrealized exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars is accumulated as a separate component of stockholders' equity. Gains and losses resulting from foreign currency transactions are included in current operations. The aggregate foreign exchange gains (losses) included in operations were $(342,000)$162,000, ($342,000) and $276,000 for 2000, 1999 and 1998, respectively.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", $276,000 and $(479,000)amended it with SFAS No. 138 in June 2000. It establishes accounting and reporting standards for 1999, 1998derivative instruments and 1997,
            respectively. To date,hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company will adopt Statement No. 133 as required for its first quarterly filing of fiscal year 2001. If the Company has not entered into hedging
            transactions to protect against changes in foreign currency
            exchange rates.


                                      F-9


                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years endedhad adopted Statement No. 133 as of December 31, 1999, 1998 and 1997

      (l)   2000, the impact on the Company's operations would be immaterial.
(k)
Research and Development Costs
Research and development costs are expensed as incurred.

      (m)   
(l)
Earnings Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued. Potential common shares related to stock options and stock warrants are excluded from the computation when their effect is antidilutive.

      (n)   anti-dilutive.
(m)
Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses were approximately $1.7 million, $3.0 million $2.3 million, and $2.9$2.3 million for the years ended 2000, 1999 and 1998, and 1997, respectively.

      (o)
(n)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

      (p)   
F-11
(o)
Stock-Based Compensation
The Company grants stock options for shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APBthe provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."

      (q)   
(p)
Income Taxes
The Company accounts for income taxes using the liability method as required by SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income taxes are determined based on the differences between the financial statement and tax basis of assets and liabilities, using enacted tax rates in effect for the year. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.

      (r)   Comprehensive Income

            In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
            Income," and accordingly has included separate Statements
(q)
Fair Value of Comprehensive Income (Loss). Comprehensive income generally
            represents all changes in shareholders' equity during the period
            except those resulting from investments by, or distributions to,
            shareholders.


                                      F-10


                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998 and 1997

      (s)   Segment Information

            In 1998, the Company adopted SFAS No. 131, "Disclosures about
            Segments of a Business Enterprise and Related Information." SFAS No.
            131 supersedes SFAS No. 14, "Financial Reporting for Segments of a
            Business Enterprise," replacing the "industry segment" approach with
            the "management" approach. The management approach designates the
            internal organization that is used by management for making
            operating decisions and assessing performance as the source of the
            Company's reportable segments. SFAS No. 131 also requires
            disclosures about products and services, geographic areas, and major
            customers. The adoption of SFAS No. 131 did not affect results of
            operations or financial position but did affect the disclosure of
            segment information (Note 17).

      (t)   Instruments
The Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and notes payable are carried at cost, which approximates their fair market
            value because of the short termshort-term maturity of these instruments and interest on long-term borrowings vary with the relatively stable interest rate environment.

market.
(3)  Leases
The Company provides lease financing for qualified customers. The leases are accounted for as sales-type leases where the present value of minimum lease payments, net of costs, are recorded as sales. The components of lease receivables at December 31, 2000 and 1999 are as follows (in thousands):

                                                        1999        1998
                                                      -------     -------
      Total minimum lease payment receivable          $ 2,377     $ 7,086
      Estimated unguaranteed residual value               666         785
                                                      -------     -------
      Gross investment in leases                        3,043       7,871
      Unearned income                                    (317)     (1,220)
                                                      -------     -------
          Total investment in leases                  $ 2,726     $ 6,651
                                                      =======     =======

      Short-term interest in leases                   $    53     $ 1,547
      Long-term interest in leases                    $ 2,673     $ 5,104
 
 
2000
 
1999
 
Total minimum lease payment receivable
 
$
4,261
 
$
2,377
 
Estimated unguaranteed residual value
 
 
865
 
 
666
 
 
 
 
 
Gross investment in leases
 
 
5,126
 
 
3,043
 
Unearned income
 
 
(713
)
 
(317
)
 
 
 
 
 
Total investment in leases
 
$
4,413
 
$
2,726
 
 
 
 
 
Short-term interest in leases
 
$
822
 
$
53
 
Long-term interest in leases
 
$
3,591
 
$
2,673
 
    Future minimum lease payments to be received as of December 31, 1999:

                            2000 $  891
                            2001                   784
                            2002                   535
                            2003                   120
                            2004                    47
                                                ------
                                                $2,377
                                                ======are as follows (in thousands):
2001
 
$
1,099
2002
 
 
1,363
2003
 
 
1,014
2004
 
 
513
2005
 
 
272
 
 
 
 
$
4,261
 
 
    In March 1999 leaseslease receivables totallingtotaling $2.8 million were sold to an outside party. No gain or loss was recognized on the transaction.
F-12
(4)  Inventories
    Components of inventories at December 31, 19992000 and 19981999 are as follows (in thousands):

                                                    1999             1998
                                                  -------          -------
      Raw materials                               $ 1,633          $ 1,138
      Work in process                                 778              819
      Finished goods                                6,375            8,872
                                                  -------          -------
                                                  $ 8,786          $10,829
                                                  =======          =======


                                      F-11


                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998 and 1997

 
 
2000
 
1999
Raw materials
 
$
1,502
 
$
1,633
Work in process
 
 
536
 
 
778
Finished goods
 
 
12,907
 
 
6,375
 
 
 
 
 
$
14,945
 
$
8,786
 
 
 
(5)  Property and Equipment
    Property and equipment at December 31, 19992000 and 19981999 are summarized as follows (in thousands):

                                                     1999          1998
                                                   --------      --------
      Land and building                            $  4,637      $  4,637
      Machinery and equipment                        20,420        18,416
      Office furniture and equipment                  3,083         2,889
      Leasehold improvements                          2,836         2,517
      Rental equipment                                1,014           452
      Construction in progress                           97         1,186
                                                   --------      --------
                                                     32,087        30,097

      Less accumulated depreciation and
        Amortization                                (15,842)      (13,770)
                                                   --------      --------
                                                   $ 16,245      $ 16,327
                                                   ========      ========

 
 
2000
 
1999
 
Useful Life
(in years)
Land and building
 
$
4,637
 
$
4,637
 
30
Machinery and equipment
 
 
18,438
 
 
20,420
 
3-5
Office furniture and equipment
 
 
2,998
 
 
3,083
 
5
Leasehold improvements
 
 
2,766
 
 
2,836
 
Life of Lease
Rental equipment
 
 
1,487
 
 
1,014
 
5
Construction in progress
 
 
572
 
 
97
 
N/A
 
 
 
 
 
 
 
 
30,898
 
 
32,087
 
 
Less: Accumulated depreciation
 
 
(17,757
)
 
(15,842
)
 
 
 
 
 
 
 
 
$
13,141
 
$
16,245
 
 
 
 
 
 
 
(6)  Licenses and Patent Costs
    Licenses and patent costs at December 31, 19992000 and 19981999 are summarized as follows (in thousands):
 
 
2000
 
1999
 
Licenses, at cost
 
$
2,333
 
$
2,333
 
Patent costs
 
 
13,221
 
 
13,214
 
 
 
 
 
 
 
 
15,554
 
 
15,547
 
Less: Accumulated amortization
 
 
(7,137
)
 
(6,412
)
 
 
 
 
 
 
$
8,417
 
$
9,135
 
(a)
In 2000 and 1999,           1998
                                                  --------       --------
      Licenses, at cost                           $  2,333       $  3,608
      Patent costs                                  13,214          6,934
                                                  --------       --------
                                                    15,547         10,542
      Less accumulated amortization                 (6,412)        (5,421)
                                                  --------       --------
                                                  $  9,135       $  5,121
                                                  ========       ========

      (a)   In 1999 and 1998, the Company incurred and capitalized $5,005,000$7,000 (net of additions of $368,000 and $643,000,retirements for $361,000) and $5,005,000, respectively, of costs to acquire, develop and extend patents in the United States, Japan, Europe and certain other countries, and expensed previously developed capitalized patent costs of $621,000$985,000 and $365,000,$991,000, respectively. F-12


                             3D SYSTEMS CORPORATION
              NotesAt December 31, 2000, $1,081,000 in legal costs related to Aaroflex, Inc. (see Note 17(c) of "Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998Statements" on page F-24) were capitalized and 1997

      are included in other assets on the balance sheet.

(b)
Effective January 5, 1990, 3D California acquired from UVP, Inc. ("UVP"), UVP's patents for stereolithography technology in exchange for $9,075,000, $500,000 of which was paid in cash and $350,000 in offsets of costs incurred by the Company on behalf of UVP. The initial payment and offsets ($850,000) have been capitalized and are being amortized over the remaining life of the patents (approximately threetwo years at December 31, 1999)2000). The agreement further provided for
F-13
payment deferrals during 1990 through 1992 aggregating $950,000 and annual payments based upon the sales levels of SLA machines up to a maximum of $8,225,000. The Company records the annual payments as royalty expense. In 2000, 1999 1998 and 1997,1998, royalty expense aggregated $843,000, $678,000 $711,000 and $668,000,$711,000, respectively, and is included in Cost of Sales: Products in the accompanying consolidated statements of operations. Royalty obligations at December 31, 2000 and 1999, are $1,702,000 and 1998 are $1,742,000, and
            $1,745,000, respectively, and are included in accrued liabilities in the accompanying consolidated balance sheets. In the event the Company licenses the acquired technology to a third party, the Company is required to make additional accelerated payments to UVP of 50% of the royalties it receives up to an aggregate maximum of $8,225,000 including the Company's payments based on sales levels of its SLA machines. In 2000 and 1999, the Company made additional accelerated payments totaling $603,000.$146,000 and $603,000, respectively. UVP has retained a security interest in the purchased technology until the purchase price is fully paid. At December 31, 2000 and 1999, $3.4 and $4.2 million, respectively, remained to be paid to UVP under this agreement.
(c)
The excess of the cost of the Company's investment in 3D California over the related underlying equity in the net assets of the subsidiary at the date of acquisition ($2.0 million) has been attributed to the licenses and patents of 3D California and is being amortized on the same basis as the underlying licenses and patents.
(7)  Acquisitions

      a)Credit Facility
    On September 22, 1997,August 8, 2000, 3D Systems, Inc., a subsidiary of 3D Systems Corporation, entered into a Revolving Line of Credit agreement ("Line of Credit") which allows 3D Systems, Inc. to borrow up to $10.0 million, subject to limits based on a percentage of eligible (as defined) accounts receivable and inventory held by 3D Systems, Inc. The interest on borrowings under the Company completedLine of Credit is at variable rates which float with the acquisitionChase Manhattan Bank Prime Rate ("Chase Bank Rate") or the London Interbank Offered Rates ("LIBOR"), plus an applicable margin ranging from 0.25% to 2.25% over the stated rates. Commencing with the first quarter of 2001, the margins will be based on 3D Systems, Inc.'s EBITDA and will range from 1.75% to 2.50% for LIBOR and 0% to 0.5% for the Chase Bank Rate. As of December 31, 2000, there were no material balances outstanding. 3D Systems, Inc. also pays a fee of 0.25% per annum on the unused amount of the rapid prototyping "Stereos" product lineLine of Credit. The Line of Credit has an initial term of three years with automatic annual renewals thereafter and is collateralized by the accounts receivable, inventory, property and equipment and other assets and business from
            EOS GmbH of Germany, formerly the Company's major European
            competitor. Under the terms of the agreement, the Company paid $3.25
            million, issued a warrant to buy 150,000 of the Company's common
            shares at $8.00 per share, exercisable within the three-year period
            following the closing (valued at $727,000), and granted EOS
            exclusive licenses to the Company's patents related to laser
            sintering. Additionally, the Company agreed to settle all pending
            patent infringement and unfair competition lawsuits brought against
            EOS and an EOS customer.

            In accordance with the purchase method of accounting, the purchase
            price has been allocated to the underlying assets and liabilities
            based on their respective fair values at the date of acquisition.
            The in-process research and development was expensed in the quarter
            ended September 26, 1997 as a nonrecurring cost after determining
            that it had not reached technological feasibility and that it had no
            alternative future use.

            The total purchase price was $4,075,000 and was allocated as follows
            (in thousands):

            In-process research and development projects      $2,045
            Inventory                                            360
            Patents                                              395
            Intangible assets                                  1,275
                                                              ------
                                                              $4,075
                                                              ======


                                      F-13
held by 3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998 and 1997

Systems, Inc.
(8)   Credit Facility

      In August 1999, the Company's credit facility expired. The credit facility
      was not utilized during 1999 and no amounts were due under the facility at
      the time of its expiration. The Company is currently evaluating its
      options with regard to establishing a new credit facility.

(9)  Accrued Liabilities
    Accrued liabilities at December 31, 19992000 and 19981999 are as follows (in thousands):

                                                    1999       1998
                                                   ------     ------
            Employee related benefits              $2,393     $2,090
            Payroll and related taxes                 995        931
            Rent                                      256        329
            Commissions                               381        464
            Product royalties                       1,654        825
            Sales tax                               1,248        577
            EOS acquisition costs                      --        443
 
 
2000
 
1999
Employee related benefits
 
$
2,865
 
$
2,393
Payroll and related taxes
 
 
992
 
 
995
Rent
 
 
205
 
 
256
Commissions
 
 
1,080
 
 
381
Product royalties
 
 
1,702
 
 
1,654
Sales tax
 
 
1,140
 
 
1,248
Other
 
 
1,590
 
 
1,814
 
 
 
 
 
$
9,574
 
$
8,741
 
 
 
F-14
(9)  Other 1,814      2,503
                                                   ------     ------
                                                   $8,741     $8,162
                                                   ======     ======

(10)  Other Liabilities
    Other liabilities at December 31, 19992000 and 19981999 are as follows (in thousands):

                                                    1999       1998
                                                   ------     ------
            Royalty payable                        $1,150     $  950
            Amounts due under licensing
              agreement                             1,600         --
            Retirement plan                           548        535
            Employee termination costs                995         --
            Other                                     380         --
                                                   ------     ------
                                                   $4,673     $1,485
                                                   ======     ======


                                      F-14


                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998 and 1997

(11)
 
 
2000
 
1999
Royalty payable
 
$
950
 
$
1,150
Amounts due under assignment agreement
 
 
1,000
 
 
1,600
Retirement plan
 
 
652
 
 
548
Employee termination costs
 
 
608
 
 
995
Other
 
 
—
 
 
380
 
 
 
 
 
$
3,210
 
$
4,673
 
 
 
(10)  Long-Term Debt
    On August 20, 1996, the Company completed a $4.9 million variable rate industrial development bond financing of its Colorado facility. Interest on the bonds is payable monthly (the interest rate at December 31, 19992000 was 5.65%4.53%). Principal payments are payable in semi-annual installments beginning in February 1997 through August 2016. The bonds are collateralized by an irrevocable standby letter of credit issued by Norwest Bank Minnesota, N.A. which is further collateralized by the building and related machinery and equipment as well as a standby letter of credit issued by Silicon Valley BankThe CIT Group/Business Credit, Inc. in the amount of approximately $1.4$1.5 million. The terms of the letters of credit require the Company to maintain specific levels of minimum tangible net worth, debt to equity ratio and quick ratio. Annual maturities of long-term debt are as follows (in thousands):

                      2000                     $   110
                      2001                         120
                      2002                         135
                      2003                         150
                      2004                         165
                      Later years                3,925
                                               -------
                      Total                      4,605
                      Less current portion         110
                                               -------
                          Long-term debt       $ 4,495
                                               =======

(12)
2001
 
$
120
2002
 
 
135
2003
 
 
150
2004
 
 
165
2005
 
 
180
Later years
 
 
3,745
 
 
Total
 
$
4,495
Less current portion
 
 
120
 
 
 
Long-term debt
 
$
4,375
 
 
(11)  Stockholders' Equity and Stockholders' Rights Plan
    On May 23, 1996, the Company's stockholders approved the 1996 Stock Incentive Plan (the "1996 Plan") and the 1996 Stock Option Plan for Non-Employee Directors (the "Director Plan"). The maximum number of shares of common stock that may be issued pursuant to options granted under the 1996 Plan and the Director Plan is 2.1 million and 200,000, respectively. Both the 1996 Plan and the Director Plan expire on March 21, 2006, and no further options will be granted after that date. The 1996 Plan also provides for "reload options," which are options to purchase additional shares if a grantee uses already-owned shares to pay for an option exercise. To date the "reload option" provision has not been utilized. The Company also had a 1989 Employee and Director Incentive Plan (the "1989 Plan") in which options for substantially all common shares had been previously issued. The 1989 Plan expired in 1999. The option price per share under all plans is equal to the fair market value on the date of grant. The vesting and exercise periods for all plans, except the Director Plan, are determined at the discretion of the Compensation Committee of the Board of Directors. The majority of options issued under the 1996 Plan and the 1989 Plan vest 25% annually, commencing one year from the date of grant and expiring between six and ten years from the date of grant. Under the Director Plan, each
F-15
non-employee director ("outside director") of the Company will automatically be granted annually non-statutory stock options to purchase 7,500 shares of common stock. Each option issued under the Director Plan vests in equal annual installments over a three-year period beginning on the first anniversary, and expires ten years from the date of grant. Prior to the adoption of the Director Plan, each outside director was
automatically granted annually non-statutory stock options to purchase 3,333
shares of common stock under the 1989 Plan, as amended, beginning in 1993.


                                      F-15


                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998 and 1997
    A summary of the status of the Company's stock options is summarized below (shares in thousands):

                                         1999                 1998                 1997
                                  ------------------------------------------------------------
                                              Wgtd.                Wgtd.                Wgtd.
                                             Average              Average              Average
                                             Exercise             Exercise             Exercise
                                   Shares     Price     Shares     Price     Shares     Price
                                  ------------------------------------------------------------

Outstanding at beginning of year    1,867    $  9.18     1,673    $ 10.30     1,549    $ 11.91
  Granted                           1,390       5.94       517       7.01       525       8.86
  Exercised                            (6)      6.38       (59)      6.17       (98)      4.85
  Lapsed or canceled                 (844)      8.84      (264)     13.33      (303)     17.48
                                  -------              -------              -------
Outstanding at year end             2,407       7.33     1,867       9.18     1,673      10.30
                                  =======              =======              =======

Options exercisable at year end       765                  842                  650
Options available for future grant    926                  238                  496

Weighted average fair value of
Options granted during the year:  $  2.23              $  3.77              $  4.75
 
 
2000
 
1999
 
1998
 
 
Shares
 
Wgtd.
Average
Exercise
Price
 
Shares
 
Wgtd.
Average
Exercise
Price
 
Shares
 
Wgtd.
Average
Exercise
Price
Outstanding at beginning of year
 
 
2,400
 
7.33
 
 
1,860
 
$
9.18
 
 
1,673
 
$
10.30
 
Granted
 
 
701
 
14.20
 
 
1,390
 
 
5.94
 
 
517
 
 
7.01
 
Exercised
 
 
(779
)
6.23
 
 
(6
)
 
5.25
 
 
(59
)
 
6.17
 
Lapsed or canceled
 
 
(162
)
8.78
 
 
(844
)
 
8.84
 
 
(271
)
 
13.33
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at year end
 
 
2,160
 
9.68
 
 
2,400
 
 
7.33
 
 
1,860
 
 
9.18
 
 
 
 
 
 
 
 
 
 
 
 
Options exercisable at year end
 
 
719
 
 
 
 
765
 
 
 
 
 
842
 
 
 
Options available for future grant
 
 
266
 
 
 
 
926
 
 
 
 
 
238
 
 
 

Weighted average fair value of Options granted during the year:

 

$

2.80

 

 

 

$

2.23

 

 

 

 

$

3.77

 

 

 
    The following table summarizes information about stock options outstanding at December 31, 19992000 (shares in thousands):

                                   Options Outstanding                        Options Exercisable
                       ---------------------------------------------    -------------------------------
                                       Wgtd. Avg.       Weighted                          Weighted
                          Number        Remaining       Average            Number          Average
                        Outstanding    Contractual      Exercise         Outstanding      Exercise
Range:                  At 12/31/99       Life           Price           At 12/31/99        Price
                       ---------------------------------------------    -------------------------------

$3.00 to 4.99                    275           3.27          $ 4.87               200           $ 4.87
5.00 to 9.99                   1,796           7.20            6.24               299             6.44
10.00 to 14.99                   218           6.53           10.52               172            10.59
15.00 to 19.99                     7           5.39           17.63                 7            17.63
20.00 to 24.50                   111           4.16           24.18                87            24.18
                       -------------                                    -------------
                               2,407                                              765
                       =============                                    =============
 
 
Options Outstanding
 
 
 
 
 
 
Options Exercisable
 
 
 
 
Wgtd. Avg.
Remaining
Contractual
Life
 
 
Range:
 
Number
Outstanding
At 12/31/00
 
Weighted
Average
Exercise
Price
 
Number
Outstanding
At 12/31/00
 
Weighted
Average
Exercise
Price
$3.00 to 4.99
 
75
 
8.71
 
$
4.87
 
25
 
$
4.87
5.00 to 9.99
 
1,295
 
7.22
 
 
6.62
 
456
 
 
6.79
10.00 to 14.99
 
312
 
8.66
 
 
10.56
 
149
 
 
10.26
15.00 to 19.99
 
392
 
8.57
 
 
17.51
 
3
 
 
17.63
20.00 to 24.50
 
86
 
4.20
 
 
24.19
 
86
 
 
24.19
 
 
 
 
 
 
 
 
 
 
 
 
 
2,160
 
 
 
 
 
 
719
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
As of December 31, 1999,2000, options for 804,101152,076 shares and 121,856114,356 shares of common stock were available for grant under the 1996 Plan and 1996the Director Plan, respectively (925,957(258,932 shares in the aggregate). The 1996 Plan and 1989 Plan also provide for the issuance of Stock Appreciation Rights (SARs) and Limited Stock Appreciation Rights (LSARs). As of December 31, 1999,2000, no SARs or LSARs have been issued.


                                      F-16


                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998 and 1997

      

(b)
In December 1995, the Company's Board of Directors adopted a Shareholders Rights Plan (the "Plan"). Under the provisions of the Plan, the Company distributed to its stockholders, rights entitling the holders to purchase one-hundredth of a share of Series A Preferred Stock for each share of Common Stock then held at an exercise price of $75. Upon the occurrence of certain "triggering events," each right entitles its holder to purchase, at the rights then-current exercise price, a number of shares of common stock of the Company having a market value equal to twice the exercise price. A triggering event occurs ten days following the date a person or group (other than an "Exempt Person"), without the consent of the Company's Board of Directors, acquires 15% or more of the Company's common stock or upon the announcement of a tender offer or an
F-16
exchange offer, the consummation of which would result in the ownership by a person or group of 15.1% or more of the Company's common stock. An Exempt Person includes Ciba Specialty Chemicals
            Holdings, Inc. (formerly Ciba-Geigy Limited) ("CSC Holdings"), which
            beneficially owned approximately 15.1% of the issued and outstanding
            common stock of the Company at December 31, 1999. The Plan permits
            CSC Holdings to increase its ownership position in the Company up to
            28.7% of the issued and outstanding common stock of the Company
            without losing its status as an Exempt Person. The rights will expire on December 3, 2005.
(c)
On May 6, 1997, the Company announced that its Board of Directors had authorized the Company to buy up to 1.5 million of its shares in the open market and through private transactions. During 1997 and 1998 the Company purchased 25,000 and 200,000 of its own shares for approximately $165,000 and $1.4 million, respectively. Currently, it is not anticipated that the Company will acquire any additional shares under this program.

(d)
In the second quarter 1998, the Company established the 1998 Employee Stock Purchase Plan ("ESPP") to provide eligible employees the opportunity to acquire limited amounts of the Company's common stock. The exercise price of each option will be the lesser of (i) 85% of the fair market value of the shares on the date the option is granted or (ii) 85% of the fair market value of the shares on the last day of the period during which the option is outstanding. An aggregate of 600,000 shares of common stock has been reserved for issuance under the plan.

            During 1999, 57,367 shares were
Shares purchased under the Company's ESPP were 19,895, 57,367 and 37,687, at a weighted average priceprices of $4.47. At December 31,$9.57, $4.47 and $5.11 in 2000, 1999 there
            were 504,946 shares available for future grants.and 1998, respectively. The weighted average fair valuevalues of ESPP shares issued in 2000, 1999 was $2.15.

      and 1998 were $4.51, $2.15 and $0.96, respectively.
(e)
In November 1999, the exercise prices of selected stock options to purchase 147,000 shares were adjusted to reflect the then lower market value of the Company's common stock.

(f)
Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for the Plans under the fair value method of the Statement. The fair value of options issued under the Plans was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions: no dividend yield; volatility factor of the expected market price of the Company's common stock of 0.70, 0.59 and 0.60, for 2000, 1999 and 0.58 for 1999, 1998, and
            1997, respectively; a forfeiture rate of zero, 0.05, and zero for
            1999, 1998 and 1997, respectively; a weighted-average expected life of the options of 3.8, 3.93.8 and 3.9 for 2000, 1999 1998 and 1997,1998, respectively; and a risk-free interest rate of 5.50%5%, 5.95%,5.50% and 6.28%5.95% for 2000, 1999 1998, and 1997,1998, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma net income (loss), net income (loss) per common share and diluted net income (loss) per common share assuming dilution would approximate the following (in thousands except per share amounts):
 
 
As Reported
 
Pro Forma
 
Year Ended December 31, 2000:
 
 
 
 
 
 
 
Net income
 
$
8,144
 
 
7,498
 
Basic net income per share
 
 
.69
 
 
.63
 
Diluted net income per share
 
 
.63
 
 
.58
 
Year Ended December 31, 1999:
 
 
 
 
 
 
 
Net loss
 
$
(5,301
)
$
(7,853
)
Basic net loss per share
 
 
(.47
)
 
(.69
)
Diluted net loss per share
 
 
(.47
)
 
(.69
)
Year Ended December 31, 1998:
 
 
 
 
 
 
 
Net income (loss)
 
$
2,132
 
$
(368
)
Basic net income (loss) per share
 
 
.19
 
 
(.03
)
Diluted net income (loss) per share
 
 
.18
 
 
(.03
)
F-17

                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998 and 1997


                                                          As Reported    Pro Forma
                                                          -----------    ---------
           
           Year Ended December 31, 1999:
           Net loss                                        $  (5,301)    $  (7,853)
           Basic net loss per share                             (.47)         (.69)
           Diluted net loss per share                           (.47)         (.69)

           Year Ended December 31, 1998:
           Net income (loss)                               $   2,132     $    (368)
           Basic net income (loss) per share                     .19          (.03)
           Diluted net income (loss) per share                   .18          (.03)

           Year Ended December 31, 1997:
           Net loss                                        $  (4,589)    $  (6,943)
           Basic net loss per share                             (.40)         (.61)
           Diluted net loss per share                           (.40)         (.61)

      The effects of applying SFAS No. 123 in this pro forma disclosure are not
      indicative of future amounts. SFAS No. 123 does not apply to awards prior
      to 1995, and additional awards in future years are anticipated.

(13)
(12)  Computation of 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 years ended December 31, 2000, 1999 1998 and 19971998 (in thousands):

                                                        1999        1998       1997
                                                      --------    --------   --------

Numerator:

 Net income (loss) - numerator for basic net income
    (loss) per share and dilutive net income
    (loss) per share                                  $ (5,301)   $  2,132   $ (4,589)

Denominator:

 Denominator for basic net income (loss) per
    Share -weighted average shares                      11,376      11,348     11,398

 Effect of dilutive securities:
    Stock options and warrants                              --         246         --
                                                      --------    --------   --------

 Denominator for dilutive net income (loss) per
    Share                                               11,376      11,594     11,398
                                                      ========    ========   ========
 
 
2000
 
1999
 
1998
Numerator:
 
 
 
 
 
 
 
 
 
 
Net income (loss)—numerator for basic net
 
$
8,144
 
$
(5,301
)
$
2,132
 
income (loss) per share and diluted net
 
 
 
 
 
 
 
 
 
 
income (loss) per share
 
 
 
 
 
 
 
 
 

Denominator:

 

 

 

 

 

 

 

 

 
 
Denominator for basic net income (loss) per share—weighted average shares
 
 
11,851
 
 
11,376
 
 
11,348
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
Stock options and warrants
 
 
1,038
 
 
—
 
 
246
 
 
 
 
Denominator for diluted net income (loss) per share
 
$
12,889
 
$
11,376
 
$
11,594
 
 
 
 
    Common shares related to stock options and stock warrants that are antidilutive amounted to approximately 459,000, 2,574,000 1,437,000 and 1,873,0001,437,000 for the years ended December 31, 2000, 1999 and 1998, and 1997, respectively.


                                      F-18


                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998 and 1997

(14)
(13)  Related Party Transactions
(a)
Pursuant to an agreement dated December 14, 1999, the Performance Polymer Division of Ciba Specialty Chemicals, Inc. ("CSC") was acquired by Vantico, S.A. ("Vantico"). The Company purchased materials from an indirect wholly-owned
            subsidiary of CSC Holdings, Inc.and Vantico (a 15.1%14.2% beneficial stockholder of the Company) aggregating $10.1$13.9 million, $8.8$10.1 million and $8.8 million in 2000, 1999 1998 and 1997,1998, respectively. Sales to the
            subsidiaryCSC and Vantico amounted to $392,000, $542,000 and $87,000 in 2000, 1999 and $131,000 in 1999, 1998,
            and 1997, respectively. Net accounts payable of $1.8 million and $1.1 million and
            $403,000 due to the subsidiaryVantico are included in the accompanying consolidated balance sheet at December 31, 2000 and 1999, and 1998,
            respectively.

(b)
At December 31, 1999,2000, the Company has remaining notes receivable totaling $240,000$80,000 from certain executive officers of the Company pursuant to the Executive"Executive Long-Term Stock Incentive PlanPlan" (which was adopted under the 1996 Stock Incentive Plan). The original amount of the loans ofwas $420,000, of which $40,000 were forgiven in 2000, $120,000 have beenwere canceled (and shares returned and canceled) in 1999, and $120,000 and $60,000 have beenwere repaid in 2000 and 1998, respectively. The loans were used to purchase an aggregate of 67,333 shares of the Company's common stock at the fair market value on the date of offer. These notes bear an interest rate of 6% per annum and mature in the year 2003. The plan calls for the loans to be forgiven, in part or whole, if certain profitability targets are met. The notes receivable are shown on the balance sheet as a reduction of stockholders' equity.

(c)
In 1999, the Company issued to the Chairman of the Board 150,000 options to purchase common stock of the Company. These options have an exercise price of $6.61 per share, which exceeded fair value at date of grant, vest six months from the date of grant, and expire ten years from the date of issue. No stock options were granted or exercised in 2000.

(d)
In September 1999, the Company entered into an agreement with Regent Pacific Management Corporation ("Regent Pacific"), to provide management services to the Company for a period of one year. Five principals of Regent Pacific are currently employees of the Company
F-18
including its Chief Executive Officer and Chief Financial Officer. The agreement has a one-year term and can be extended by mutual agreement of the parties. The agreement requires that the Company cover Regent Pacific under its directors and officers' insurance coverage for certain liabilities arising out of the performance of services under the agreement. Under the terms of the agreement, Regent Pacific provides services to the Company at a fee of $50,000 per week. On September 9, 2000, the Company extended its agreement with Regent Pacific from 12 months to 24 months, with the potential for additional extensions beyond that period. All other terms of the agreement remain substantially unchanged.
(e)
In connection with his services as an employee of the Company, the Company's Board granted to Mr. Gary J. Sbona, the PresidentChairman and Chief Executive Officer of Regent Pacific, options to purchase 325,000 and 350,000, shares of the Company's common stock, at an exercise price of $6.00$17.39 and $16.00 per share in 2000 and 1999, which exceedsexceeded fair value at date of grant.grant for 1999 only. These options will vest over a three-year period or sooner upon certain change in control transactions or upon the termination of Regent Pacific's management agreement. (15)In 2000, 116,666 options were exercised at a per share price of $16.00.
(14)  Income Taxes
    The components of the Company's pretax income (loss) are as follows (in thousands):

                                     1999            1998           1997
                                   -------         -------        -------
      Domestic                     $(8,870)        $   552        $(5,693)
      Foreign                        1,329           2,635         (1,056)
                                   -------         -------        -------
         Total                     $(7,541)        $ 3,187        $(6,749)
                                   =======         =======        =======


                                      
 
 
2000
 
1999
 
1998
Domestic
 
$
10,783
 
$
(8,870
)
$
552
Foreign
 
 
1,670
 
 
1,329
 
 
2,635
 
 
 
 
Total
 
$
12,453
 
$
(7,541
)
$
3,187
 
 
 
 
F-19

                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998 and 1997
     The components of the Company's net deferred tax assets at December 31 are as follows (in thousands):

                                                      1999         1998
                                                    --------     --------
      Deferred tax assets:
         Research tax credits                       $  3,148     $  2,968
         Alternative minimum tax credits                 340          340
         California manufacturer credit                  226          226
         Net operating loss carryforwards              6,061        4,556
         Inventory reserves                              295          152
         Accrued liabilities                           1,616        1,550
         Allowance for doubtful accounts                 360          182
         Patents and licenses                            834          818
         Other reserves                                  575           --
                                                    --------     --------
         Total deferred tax assets                    13,455       10,792
         Valuation allowance                          (1,603)      (1,163)
                                                    --------     --------
         Net deferred tax assets                      11,852        9,629
                                                    --------     --------
      Deferred tax liabilities:
         Deferred lease revenue                        1,263        1,606
         Software development                            327          309
         Property and equipment (excess book
              basis over tax basis)                      249          581
                                                    --------     --------
         Total deferred tax liabilities                1,839        2,496
                                                    --------     --------
      Net deferred tax assets                       $ 10,013     $  7,133
                                                    ========     ========
 
 
2000
 
1999
 
Deferred tax assets:
 
 
 
 
 
 
 
 
Research tax credits
 
$
3,693
 
$
3,148
 
 
Alternative minimum tax credits
 
 
436
 
 
340
 
 
California manufacturer credit
 
 
226
 
 
226
 
 
Net operating loss carryforwards
 
 
3,380
 
 
6,061
 
 
Inventory reserves
 
 
373
 
 
295
 
 
Accrued liabilities
 
 
1,233
 
 
1,616
 
 
Allowance for doubtful accounts
 
 
376
 
 
360
 
 
Property and equipment (excess book basis over tax basis)
 
 
235
 
 
—
 
 
Patents and licenses
 
 
682
 
 
834
 
 
Other reserves
 
 
303
 
 
575
 
 
 
 
 
 
Total deferred tax assets
 
 
10,937
 
 
13,455
 
 
Valuation allowance
 
 
(1,270
)
 
(1,603
)
 
 
 
 
 
Net deferred tax assets
 
 
9,667
 
 
11,852
 
 
 
 
 
Deferred tax liabilities:
 
 
 
 
 
 
 
 
Deferred lease revenue
 
 
1,312
 
 
1,263
 
 
Software development
 
 
321
 
 
327
 
 
Property and equipment (excess book basis over tax basis)
 
 
—
 
 
249
 
 
 
 
 
 
Total deferred tax liabilities
 
 
1,633
 
 
1,839
 
 
 
 
 
Net deferred tax assets
 
$
8,034
 
$
10,013
 
 
 
 
 
    The valuation allowance for deferred taxes relates primarily to realizability of foreign deferred tax assetsnet operating losses and was increaseddecreased by $440,000$333,000 during 19992000 primarily due to the continuing loss position of the Company.adjustment in foreign net operating losses. Although realization is not assured, management believes it is more likely than not that the Company will realize the benefit of the net deferred tax assets. The amount of the net deferred tax assetassets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.


                                      F-20


                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998
    The Company has not provided for the U.S. Federal and 1997State income tax that would be paid on unremitted earnings of foreign subsidiaries as the foreign subsidiaries' financials reflect an accumulated deficit.
F-20
    The components of income tax expense (benefit) for the years ended December 31, 2000, 1999 1998 and 19971998 are as follows (in thousands):

Current:                                           1999        1998       1997
                                                 -------     -------    -------
  U.S. federal                                   $    --     $     4    $   292
  State                                               52          71         30
  Foreign                                            589         822         61
                                                 -------     -------    -------
     Total current                                   641         897        383
                                                 -------     -------    -------
Deferred:
  U.S. federal                                    (2,470)          4     (2,121)
  State                                             (411)        154       (422)
                                                 -------     -------    -------
     Total deferred                               (2,881)        158     (2,543)
                                                 -------     -------    -------
     Total income
 
 
2000
 
1999
 
1998
Current:
 
 
 
 
 
 
 
 
 
 
U.S. Federal
 
$
106
 
$
—
 
$
4
 
State
 
 
124
 
 
52
 
 
71
 
Foreign
 
 
54
 
 
589
 
 
822
 
 
 
 
 
 
Total
 
 
284
 
 
641
 
 
897
 
 
 
 
Deferred:
 
 
 
 
 
 
 
 
 
 
U.S. Federal
 
 
1,478
 
 
(2,470
)
 
4
 
State
 
 
(21
)
 
(411
)
 
154
 
Foreign
 
 
522
 
 
—
 
 
—
 
 
 
 
 
 
Total
 
 
1,979
 
 
(2,881
)
 
158
 
 
 
 
Tax benefit credited to Capital in excess of par:
 
 
 
 
 
 
 
 
 
U.S. Federal
 
 
1,727
 
 
—
 
 
—
 
State
 
 
319
 
 
—
 
 
—
 
 
 
 
 
 
Total
 
 
2,046
 
 
—
 
 
—
 
 
 
 
 
 
Total income tax expense (benefit)
 
$
4,309
 
$
(2,240
)
$
1,055
 
 
 
 
    The tax expense (benefit)          $(2,240)    $ 1,055    $(2,160)
                                                 =======     =======    =======benefit credited to Capital in excess of par, referred to above, reflects stock option exercises.
    The overall effective tax rate differs from the statutory federal tax rate for the years ended December 31, 2000, 1999 1998 and 19971998 as follows:

                                                    % of Pretax Income (Loss)
                                                  ----------------------------
                                                   1999       1998       1997
                                                  ------     ------     ------
Tax provision based on the federal statutory rate  (34.0)%     34.0%     (34.0)%
State taxes, net of federal benefit                 (3.1)       4.7       (3.9)
Utilization of net operating losses                   --       (5.3)        --
Foreign net operating losses with no benefit         0.8         --        6.1
Research tax credits                                (2.4)      (7.1)        --
Foreign taxes                                        4.0        3.0        0.9
Change in valuation reserve                          4.2        2.1         --
Foreign sales corporation benefit                     --         --       (1.4)
Other                                                0.8        1.7        0.3
                                                  ------     ------     ------
                                                   (29.7)%     33.1%     (32.0)%
                                                  ======     ======     ======
 
 
% of Pretax Income (Loss)
 
 
 
2000
 
1999
 
1998
 
Tax provision based on the federal statutory rate
 
34.0
 
(34.0
)%
34.0
%
State taxes, net of federal benefit
 
2.3
 
(3.1
)
4.7
 
Utilization of net operating losses
 
(1.1
)
—
 
(5.3
)
Foreign net operating losses with no benefit
 
—
 
0.8
 
—
 
Research tax credits
 
(1.6
)
(2.4
)
(7.1
)
Foreign taxes
 
1.0
 
4.0
 
3.0
 
Change in valuation reserve
 
(0.9
)
4.2
 
2.1
 
Foreign sales corporation benefit
 
(0.4
)
—
 
—
 
Other
 
1.3
 
0.8
 
1.7
 
 
 
 
 
 
 
 
34.6
%
(29.7
)%
33.1
%
 
 
 
 
 
    As of December 31, 1999,2000, the Company has net operating loss carryforwards for United States federal and foreign income tax purposes of approximately $15.7$9.8 million and $2.0$1.3 million, respectively. The United States federal net operating loss carryforwards begin to expire in 2019,2011, and the foreign net operating loss carryforwards expire through 2003, except for certain operating losses which do not expire. Ultimate utilization of these loss carryforwards is dependent on future taxable earnings of the Company.


                                      F-21


                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998 and 1997
    The Company has research and experimentation tax credit carryforwards for United States federal and state income tax purposes of $2.3$2.7 million and $850,000,$1.5 million, respectively, which are available through 2010.2011. In addition, the Company has alternative minimum tax credit carryforwards for United States federal and state income tax purposes at December 31, 19992000 of $310,000$407,000 and $29,000, respectively.

(16)
F-21
(15)  Employee Benefit Plan
    In 1989, 3D California adopted a defined contribution 401(k) plan (the "Plan") for its employees. Employees must be at least 21 years of age and must have at least six consecutive months of service with the Company to be eligible for the Plan. Participants may contribute between 1% and 15% of their compensation to the Plan. The Company may make discretionary profit sharing contributions or discretionary matching contributions. Matching contributions are limited to 50% of the employee contribution up to a maximum of 3-1/2% of the employee's compensation.$1,500. Participants are fully and immediately vested in employee contributions. Company profit sharing contributions vest over a four-year period. Company matching contributions vest immediately. Because the Company incurred a loss in
      1997, the Company did not make a profit sharing contribution for the year. For the year ended December 31, 1998, the Company accrued profit sharing contributions of $150,000 related to 3D California's profit sharing plan. During 1999, the Company contributed $376,000 to match employee contributions. In 2000, the Company contributed $328,000 to match employee contributions.
The Company's European subsidiaries have adopted employee benefit plans pursuant to the rules and regulations of their country of origin. As of December 31, 19992000 and 1998,1999, the Company had accrued $548,000$652,000 and $535,000,$548,000, primarily related to contributions payable to these plans.

(17)  Geographic
(16)  Segment Information
    All of the Company's assets are devoted to the manufacture and sale of Company systems, together with related supplies and services.services; assets are not identifiable by operating segment. Our two major operating segments are products and services, and segment information is measured by gross profit detail. The Company attributes revenues to geographic areas based on shipment in the country of origination.
    Summarized data for the Company's operating segments is as follows (in thousands):
 
 
2000
 
1999
 
1998
Sales:
 
 
 
 
 
 
 
 
 
Products
 
$
80,246
 
$
66,806
 
$
65,434
Services
 
 
29,429
 
 
30,143
 
 
32,683
 
 
 
 
 
Total sales
 
 
109,675
 
 
96,949
 
 
98,117
 
 
 
 
Cost of sales:
 
 
 
 
 
 
 
 
 
Products
 
 
35,084
 
 
35,938
 
 
33,477
Services
 
 
21,729
 
 
20,975
 
 
22,062
 
 
 
 
 
Total cost of sales
 
 
56,813
 
 
56,913
 
 
55,539
 
 
 
 
Gross profit
 
$
52,862
 
$
40,036
 
$
42,578
 
 
 
 
F-22
    Summarized data for the Company's operations by geographic area is as follows (in thousands):

                                           USA       Europe      Asia     Eliminations   Total
- - -----------------------------------------------------------------------------------------------

For the year ended December 31, 1999:
Sales to unaffiliated customers          $50,935     40,283      5,731            --    $96,949
Inter-area sales                         $21,577      3,057         --       (24,634)        --
Income (loss) from operations            $(8,203)     1,356         --          (705)   $(7,552)
Long-lived assets at December 31, 1999   $21,943      4,730        211           198    $27,082

For the year ended December 31, 1998:
Sales to unaffiliated customers          $54,842     34,202      9,073            --    $98,117
Inter-area sales                         $13,693      1,164         --       (14,857)        --
Income (loss) from operations            $  (429)     2,741         --           393    $ 2,705
Long-lived assets at December 31, 1998   $20,762      2,528        180            --    $23,470

For the year ended December 31, 1997:
Sales to unaffiliated customers          $52,830     28,817      8,610            --    $90,257
Inter-area sales                         $17,671        887         --       (18,558)        --
Income (loss) from operations            $(6,481)      (874)        --          (240)   $(7,595)
Long-lived assets at December 31, 1997   $21,266      3,117        183            --    $24,566
 
 
USA
 
Europe
 
Asia
 
Eliminations
 
Total
 
For the year ended December 31, 2000:
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales to unaffiliated customers
 
$
59,096
 
38,551
 
12,028
 
—
 
$
109,675
 
Inter-area sales
 
$
22,283
 
5,113
 
—
 
(27,396
)
 
—
 
Income (loss) from operations
 
$
11,427
 
978
 
—
 
(67
)
$
12,338
 
Long-lived assets at December 31, 2000
 
$
19,696
 
2,552
 
373
 
—
 
$
22,621
 
For the year ended December 31, 1999:
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales to unaffiliated customers
 
$
50,935
 
40,283
 
5,731
 
—
 
$
96,949
 
Inter-area sales
 
$
21,577
 
3,057
 
—
 
(24,634
)
 
—
 
Income (loss) from operations
 
$
(8,203
)
1,356
 
—
 
(705
)
$
(7,552
)
Long-lived assets at December 31, 1999
 
$
22,141
 
4,730
 
211
 
—
 
$
27,082
 
For the year ended December 31, 1998:
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales to unaffiliated customers
 
$
54,842
 
34,202
 
9,073
 
—
 
$
98,117
 
Inter-area sales
 
$
13,693
 
1,164
 
—
 
(14,857
)
 
—
 
Income (loss) from operations
 
$
(429
)
2,741
 
—
 
393
 
$
2,705
 
Long-lived assets at December 31, 1998
 
$
20,762
 
2,528
 
180
 
—
 
$
23,470
 
    Inter-area sales to the Company's foreign subsidiaries are recorded at amounts consistent with prices charged to distributors, which are above cost.


                                      F-22


                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998 and 1997

(18)
(17)  Commitments and Contingencies
(a)
The Company leases its facilities under noncancelablenon-cancelable operating leases expiring through December 2002.2004. The leases are generally on a net-rent basis, whereby the Company pays taxes, maintenance and insurance. Leases that expire are expected to be renewed or replaced by leases on other properties. Rental expense for the years ended December 31, 2000, 1999 and 1998 and 1997 aggregated $1.9 million, $1.8 million and $2.4, million and $2.6 million, respectively.
Minimum annual rental commitments under the leases at December 31, 19992000 are as follows (in thousands):

                  Year ending December 31:

                       2000            $  1,970
                       2001               1,762
                       2002               1,591
                       2003               1,395
                       2004                 654
                       Later years          417
                                       --------
                                       $  7,789
                                       ========

            These minimum annual rental commitments exclude future rent
            escalations, which may be between three and six percent annually.

      
Year ending December 31:
 
 
 
2001
 
$
1,240
2002
 
 
1,146
2003
 
 
158
2004
 
 
91
2005
 
 
—
Later years
 
 
—
 
 
 
 
$
2,635
 
 
(b)
3D California is a party to an agreement with Ciba Specialty
            Chemicals Inc. ("CSC")Vantico and certain of its subsidiaries (the "Photopolymer Research Agreement"), dated August 15, 1990, relating to the research and development of liquid photopolymers, photopolymerizable monomers and photoinitiators for use with stereolithography technology. The agreement obligates each of the parties to cooperate in the development of liquid photopolymers, photopolymerizable monomers and photoinitiators. The agreement provides that the parties shall deal exclusively with each other in the development of liquid stereolithographic products except that: (a) 3D California may recommend to its customers products produced by suppliers other than CSCVantico in the event that another supplier produces products suitable for stereolithography and CSCVantico cannot produce a product with similar performance parameters, (b) 3D California may pursue the
F-23
development of certain products developed pursuant to the agreement if CSCVantico determines it has no capabilities or interest in such products, (c) CSCVantico may cooperate in developing competing products if such products involve new fields of technology in which 3D California does not have and is not able within a reasonable time to develop expertise.
As part of the Photopolymer Research Agreement, the parties have agreed that if a change in control of the Company or 3D California should occur, then at the option of CSC,Vantico, 3D California will be required to pay CSCVantico an amount equal to CSC'sVantico's "deferred research and development costs," up to $10 million. A "change in control" is defined to have occurred only if a person, or group of related persons, becomes the beneficial owner of in excess of 31.4% of the Company's outstanding voting securities (such percentage to be ratably increased in the event of any sale by a CSCVantico affiliate of any of its shares of the Company's common stock), unless approved by CSC, or its indirect nominees to the Board of Directors of the
            Company.Vantico. "Deferred Research and Development Costs" means all costs incurred by CSCVantico during the five full fiscal years immediately preceding the occurrence of a change in control, multiplied by two. The existence of this provision may deter potential acquirers from seeking to acquire the Company, or a significant interest in the equity securities of the Company.
In connection with the Photopolymer Research Agreement, 3D California entered into a Photopolymer Distribution Agreement with a
            subsidiary of CSC,Vantico, dated as of July 1, 1990, pursuant to which 3D California is the exclusive worldwide distributor (except Japan) of photopolymers manufactured by CSC.Vantico. At the request of 3D California, an affiliate of CSCVantico currently sells such photopolymers in Japan to one of 3D California's Japanese distributor.distributors. Subject to certain conditions, so long as CSCVantico provides adequate supplies, 3D California is required to fill all of its requirements for its liquid photopolymers through purchases from CSC.Vantico. In order to maintain its exclusive distribution rights, 3D California must meet certain quotas F-23
based on the dollar value of products purchased from CSCVantico on an annual basis as set forth in the agreement. 3D California had in the past failed to meet quotas established under the agreement and, in May 1995, 3D California and CSCVantico mutually agreed to reduce the quotas. Subject to certain conditions, the agreement will remain in effect unless terminated by either party upon six months advance notice.

            On December 14, 1999, CSC announced it would sell its Performance
            Polymer Division, the division with which we primarily do business,
            to Morgan Grenfell Private Equity ("MGPE"). On February 7, 2000, CSC
            advised the Company that the operations of the division will be run
            by the present management in a newly created Swiss company
            headquartered in Basel, Switzerland and that CSC will assign to the
            new company its rights and obligations under all contracts related
            to the Performance Polymers Division.

      
(c)
3D Systems, Inc. v. Aaroflex et al. On January 13, 1997, 3D Californiawe filed a complaint in the United States District Court, Central District of California, against Aarotech Laboratories, Inc. ("Aarotech"), Aaroflex, Inc. ("Aaroflex") and Albert C. Young ("Young"). Aaroflex is the parent corporation of Aarotech. Young is the Chairman of the Board and Chief Executive Officer of both Aarotech and Aaroflex. The original complaint allegesalleged that stereolithography equipment manufactured by Aaroflex infringes six of 3D California'sour patents. 3D California seeksIn August 2000, two additional patents were added to the complaint. We seek damages and injunctive relief from the defendants. The defendants, who have threatened to sue 3D Californiaus for trade libel. To date, the defendants have not filed such a suit.

            The defendants filed a motion to dismiss
Following decisions by the complaint or transferDistrict Court and the case to their home district in Virginia. The Court granted this
            motion to dismiss on the agenda of lack of personal jurisdiction.
            The Federal Circuit Court of Appeals has reversed this district
            court's decision insofar as it relates to Aaroflexon jurisdictional issues, Aarotech and Albert C. Young were dismissed from the suit, and an action against Aaroflex is proceeding in the District Court. Motions for summary judgment by Aaroflex on multiple counts contained in the Company'sour complaint and on Aaroflex's counterclaims have been dismissed, andfact discovery in the case has been completed, and we have filed motions for summary judgment for patent infringement. A decision on these motions is pending. Trial on any remaining undecided issues is scheduled to occur in discovery.

      2001.
(d)
3D Systems, Inc. v. Teijin Seiki Co. Ltd. On March 21, 1997, the
            Companywe filed a patent infringement action in District Court in Osaka, Japan under one of itsour Japanese patents, alleging infringement, and seeking damages from the defendant and injunctive relief from the
            defendant.(the "Teijin Seiki Lawsuit"). The action is in the early stages of prosecution. As described below, Teijin Seiki
F-24
has filed an invalidation action against one of the Company'sour patents, and we have appealed an unfavorable decision in that actionaction. As a result, the Teijin Seiki Lawsuit has been appealed by the Company.

      (e)   Centuri Corp., dba Estes Indus., Cox Acquisition Corp., dba Cox v.
            3D Systems Corp., Rogers Tool & Die (the "Centuri Litigation"). In
            January 1997, 3D California entered into two contracts with Centuri
            Corp., dba Estes Indus., Cox Acquisition Corp., dba Cox ("Centuri")
            under which 3D California was to create certain tooling for Centuri.
            On September 16, 1997, Centuri initiated a lawsuit against 3D
            California for Breach of Oral Contract, Fraud, Negligent
            Misrepresentation, Conversion, Money Had and Received, and an
            Accounting. At a settlement hearing on July 1, 1999 the parties
            agreed to settle the case pursuant to an agreement which provides
            for the confidentialitysuspended pending final determination of the settlement terms. No liability of any
            party was admitted.

      invalidation action.
(e)
Patent Opposition and Invalidation Proceedings. The Company has
            received eightWe have been granted twelve patents in Japan. OneAn opposition was submitted against one of these patents, had an
            opposition submitted against the allowed patent, but the opposition was dismissed, and the patent has been maintained as originally issued. Furthermore, one of the eighttwelve patents has had three invalidation trials filed against it. These invalidation trials were decided against the Company. The Company hasus. We have responded by appealing the decision in the third trial. Based on this oppositionThe decision in the appeal was unfavorable and has been appealed to the Company's response, the trialhighest court in Japan. The final decision may result in maintaining the patentconclude with present or modified protection, or may result in revocation of the patent.
(f)
The Company is engaged in certain additional legal actions arising in the ordinary course of business. On the advice of legal counsel, the Company believes it has adequate legal defenses and that the ultimate outcome of these actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.


                                      F-24


                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998 and 1997

(19)
(18)  Other Operating Expenses
    Other operating expenses for the year ended December 31, 1999 are comprised of the following non-recurring charges (in thousands):

                                   Provision      Costs        Accrual asincluding $407,000 of Recorded     Incurred     December 31, 1999
                                   --------     --------     -----------------
     Litigationlitigation and settlement costs, $  407       $  407            $   --
     Employee$1,769,000 of employee related costs, 1,769          466             1,303
     Other costs                     1,208          993               215
                                    ------       ------            ------
     Total                          $3,384       $1,866            $1,518
                                    ======       ======            ======and $1,208,000 of other costs.
    The litigation and settlement costs of $407,000 relate to a complaint filed against the Company by Centuri Corp., (see Note 18(e)).
    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 realigning 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 realignment of several management positions totaling $573,000. Other costs include $650,000 related to the writeoff of 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. The
      Company expects to complete implementation of the plan by the end of 2000.
    In September 1999, the Company recorded an additional $1.2 million of non-recurring expense associated with the realignment 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. (20)As of December 31, 2000 a remaining liability of $912,000 related to the non-recurring charge is included in accrued liabilities and other liabilities on the accompanying balance sheet.
(19)  Subsequent Events (unaudited)
    In February 2000, 9,619 shares2001, we acquired the stock and intellectual property of common stock owned byOptoForm SARL, a former officerstart-up company that has developed stereolithography ("SL") machines that are capable of using non-liquid materials. The aggregate purchase price was $2.4 million, of which $1.2 million was settled in cash and $1.2 million will be due in February 2002. The acquisition will be accounted for using the purchase method of accounting. OptoForm SARL's results of operations are not material to the pro forma combined results of the Company were returned to and canceled by the Company. The Company
      forgave the Promissory Note in the amount of $60,000 that had been used
      by the former officer to purchase those shares of stock.


                                      OptoForm for 2000.
F-25

                             3D SYSTEMS CORPORATION
              Notes to Consolidated Financial Statements, Continued
                  Years ended December 31, 1999, 1998 and 1997

(21)
(20)  Selected Quarterly Financial Data (unaudited) (in thousands, except per share information)

                                                                        Quarter Ended
                                  ----------------------------------------------------------------------------------------
                                  Dec. 31,    Oct. 1,    July 2,      Apr. 2,    Dec. 31,   Sept. 25,  June 26,   Mar. 27,
                                    1999       1999      1999 (1)      1999        1998       1998       1998       1998
                                  --------   --------    --------    --------    --------   --------   --------   --------

Total sales                       $ 28,905   $ 23,898    $ 21,462    $ 22,684    $ 27,266   $ 23,342   $ 24,673   $ 22,836
Gross profit                        12,886     10,108       7,848       9,194      12,355     10,082     10,751      9,389
Total operating expenses            10,002     11,579      13,334      12,673      11,369      9,506     10,048      8,950
Income (loss) from operations        2,884     (1,471)     (5,486)     (3,479)        987        576        703        439
Income tax  expense (benefit)          760       (394)     (1,533)     (1,073)        357        224        283        191
Net income (loss)                    1,941     (1,013)     (3,949)     (2,280)        775        477        526        354
Basic income(loss) per share           .17       (.09)       (.35)       (.20)        .07        .04        .05        .03
Diluted income (loss) per share        .17       (.09)       (.35)       (.20)        .07        .04        .04        .03


      (1) Information previously reported in the Company's 10-Q filings has been
      restated.
 
 
Quarter Ended
 
 
 
Dec. 31,
2000
 
Sep. 29,
2000
 
June 30,
2000
 
Mar. 31,
2000
 
Dec. 31,
1999
 
Oct. 1,
1999
 
July 2,
1999
 
Apr. 2,
1999
 
Total sales
 
$
31,699
 
$
29,548
 
$
25,416
 
$
23,012
 
$
28,905
 
$
23,898
 
$
21,462
 
$
22,684
 
Gross profit
 
 
15,297
 
 
14,588
 
 
12,179
 
 
10,798
 
 
12,886
 
 
10,108
 
 
7,848
 
 
9,194
 
Total operating expenses
 
 
11,632
 
 
10,341
 
 
9,347
 
 
9,204
 
 
10,002
 
 
11,579
 
 
13,334
 
 
12,673
 
Income (loss) from operations
 
 
3,665
 
 
4,247
 
 
2,832
 
 
1,594
 
 
2,884
 
 
(1,471
)
 
(5,486
)
 
(3,479
)
Income tax expense (benefit)
 
 
1,343
 
 
1,427
 
 
983
 
 
556
 
 
760
 
 
(394
)
 
(1,533
)
 
(1,073
)
Net income (loss)
 
 
2,385
 
 
2,771
 
 
1,908
 
 
1,080
 
 
1,941
 
 
(1,013
)
 
(3,949
)
 
(2,280
)
Basic income(loss) per share
 
 
.20
 
 
.23
 
 
.16
 
 
.09
 
 
.17
 
 
(.09
)
 
(.35
)
 
(.20
)
Diluted income (loss) per share
 
 
.18
 
 
.21
 
 
.15
 
 
.09
 
 
.17
 
 
(.09
)
 
(.35
)
 
(.20
)
    Per share amounts for each of the quarterly periods presented do not necessarily add up to the total presented for the year because each amount is independently calculated.
    The Company presents its quarterly results on a 13 week basis ending the last Friday of each quarter and reports its annual financial information through the calendar year ended December 31.
F-26

REPORT OF 

INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE


AUDITORS' REPORT
To the Stockholders and Board of Directors of
3D Systems Corporation
Valencia, California
    We have audited the consolidated financial statements of 3D Systems Corporation and its subsidiaries (the "Company") as of December 31, 2000, and for the year then ended, and have issued our report thereon dated March 5, 2001 (included elsewhere in this Annual Report on Form 10-K). Our audit also included the financial statement schedule of the Company as of December 31, 2000, and for the year then ended, listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such financial statement schedule as of December 31, 2000, and for the year then ended, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Los Angeles, California
March 5, 2001
F-27

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors
3D Systems Corporation
    Our report on the consolidated financial statements of 3D Systems Corporation and its Subsidiaries is included on page F-2F-3 of this Form 10-K. In connection with our audits of such financial statements, we have audited the related financial statement schedule as of December 31, 1999, 1998 and 1997 and for each of the threetwo years in the period ended December 31, 1999, as listed on the index on page F-1 of this Form 10-K.
    In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
PricewaterhouseCoopers LLP
Woodland Hills, California
February
Rebruary 14, 2000


                                      F-27
F-28

SCHEDULE II

3D SYSTEMS CORPORATION
Valuation and Qualifying Accounts
Years ended December 31, 2000, 1999 1998 and 1997
                                 (in1998
(in thousands)

                                                       Balance at     Additions                     Balance at
                                                       beginning     charged to                       end of
  Year Ended                    Item                    of year       expenses      Deductions         year
- - --------------    --------------------------------   ------------   ------------   ------------    ------------

1999              Inventory obsolescence reserve     $        620   $      3,099   $       (826)   $      2,893
                                                     ============   ============   ============    ============
1998              Inventory obsolescence reserve     $        549   $      2,197   $     (2,126)   $        620
                                                     ============   ============   ============    ============
1997              Inventory obsolescence reserve     $        251   $        981   $       (683)   $        549
                                                     ============   ============   ============    ============

1999              Allowance for doubtful accounts    $        944   $      2,596   $       (628)   $      2,912
                                                     ============   ============   ============    ============
1998              Allowance for doubtful accounts    $        441   $      1,450   $       (947)   $        944
                                                     ============   ============   ============    ============
1997              Allowance for doubtful accounts    $        406   $        351   $       (316)   $        441
                                                     ============   ============   ============    ============

1999              Deferred tax valuation allowance   $      1,163   $        440   $         --    $      1,603
                                                     ============   ============   ============    ============
1998              Deferred tax valuation allowance   $      2,114   $         --   $       (951)   $      1,163
                                                     ============   ============   ============    ============
1997              Deferred tax valuation allowance   $      1,763   $        351   $         --    $      2,114
                                                     ============   ============   ============    ============



                                      F-28

Year Ended
 
Item
 
Balance at
beginning
of year
 
Additions
charged to
expenses
 
Deductions
 
Balance at
end of
Year
2000
 
Inventory obsolescence reserve
 
$
1,776
 
$
1,026
 
$
(2,049
)
$
753
 
 
 
 
 
 
 
1999
 
Inventory obsolescence reserve
 
$
620
 
$
1,982
 
$
(826
)
$
1,776
 
 
 
 
 
 
 
1998
 
Inventory obsolescence reserve
 
$
549
 
$
2,197
 
$
(2,126
)
$
620
 
 
 
 
 
 
 

2000

 

Allowance for doubtful accounts

 

$

2,912

 

$

300

 

$

(1,613

)

$

1,599
 
 
 
 
 
 
 
1999
 
Allowance for doubtful accounts
 
$
944
 
$
2,596
 
$
(628
)
$
2,912
 
 
 
 
 
 
 
1998
 
Allowance for doubtful accounts
 
$
441
 
$
1,450
 
$
(947
)
$
944
 
 
 
 
 
 
 

2000

 

Deferred tax valuation allowance

 

$

1,603

 

$

—

 

$

(333

)

$

1,270
 
 
 
 
 
 
 
1999
 
Deferred tax valuation allowance
 
$
1,163
 
$
440
 
$
—
 
$
1,603
 
 
 
 
 
 
 
1998
 
Deferred tax valuation allowance
 
$
2,114
 
$
—
 
$
(951
)
$
1,163
 
 
 
 
 
 
 
F-29

SIGNATURES
    Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

                        3D SYSTEMS CORPORATION


                        By: /s/ H. Michael Hogan III
                            ---------------------------------
                        H. Michael Hogan III
                        Vice President
3D SYSTEMS CORPORATION



By:


/s/ E. JAMES SELZER   
E. James Selzer
Chief Financial Officer and VP, Finance (Principal Financial Officer and Principal Accounting Officer)



Date:


    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and Chief Financial Officer
                        (Principal Financial Officerappoints Brian K. Service and Principal
                        Accounting Officer)

                        Date:E. James Selzer, or any one of them, his attorney-in-fact and agent, with full power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming to all that said attorneys-in-fact, or their substitutes, may do or cause to be done by virtue hereof.
    Pursuant to the requirements of the Securities Exchange Act of 1934, this reportReport has been signed below by the following persons on behalf of the registrantRegistrant and in the capacities and on the dates indicated.
Signature
Date
Title
/s/ 





/s/ BRIAN K. SERVICE  
Brian K. Service
March  30, 2000         , 2001
President and Chief Executive Officer - - ----------------------------    --------------and Director (Principal Executive Officer)


/s/ H. Michael Hogan III        

/s/ E. JAMES SELZER  
E. James Selzer


March  30, 2000         Vice President, , 2001


Chief Financial Officer - - ----------------------------    --------------and VP, Finance (Principal Financial Officer and Principal Accounting Officer)


/s/ 

/s/ CHARLES W. HULL  
Charles W. Hull


March  30, 2000         , 2001


Chief Technology Officer and Director
- - ----------------------------    --------------


/s/ 

/s/ G. WALTER LOEWENBAUM II  
G. Walter Loewenbaum II


March  30, 2000         , 2001


Chairman of the Board of Directors
- - ----------------------------    --------------


/s/ 

/s/ GARY J. SBONA  
Gary J. Sbona


March  30, 2000         , 2001


Director
- - ----------------------------    --------------


/s/ 

/s/ MIRIAM V. GOLD  
Miriam V. Gold


March  30, 2000         , 2001


Director
- - ----------------------------    --------------


/s/ 

/s/ JIM D. KEVER  
Jim D. Kever


March  30, 2000         , 2001


Director
- - ----------------------------    --------------


/s/ 

/s/ KEVIN S. MOORE  
Kevin S. Moore


March  30, 2000         , 2001


Director
- - ----------------------------    --------------

/s/ RICHARD C. SPALDING  
Richard C. Spalding


March  , 2001


Director


                                      F-29