3D Systems Reports Results for Second Quarter and First Half of 2008

R&D expenses increased to $3.6 million in the second quarter of 2008 from $3.5 million in the second quarter of 2007. For the first six months of 2008, R&D expenses increased by 8% to $7.2 million from $6.6 million in the first six months of 2007. R&D costs in the first six months of 2008 included costs associated with the V-Flash® Desktop Modeler as well as other new product development activities. We are continuing the development of additional new products, and accordingly we expect to incur from $7 million to $8 million of R&D expenses in the second half of 2008, continued Reichental.

Operating Loss and Net Loss

The companys operating loss in the 2008 second quarter declined by 43% to $2.8 million from $4.9 million in the 2007 quarter, and for the first six months of 2008 declined by 14% to $6.0 million from $7.0 million in the 2007 period.

After giving effect to the relatively minor effect of other expenses and taxes reflected on the companys consolidated statements of operations, net loss for the second quarter of 2008 declined by 37% to $3.3 million ($0.15 per share) from $5.3 million ($0.27 per share) in the second quarter of 2007. Similarly, net loss for the first six months of 2008 declined by 17% to $7.0 million ($0.31 per share) from $8.4 million ($0.44 per share) in the 2007 period.

Notwithstanding the modest improvement in operating results in the second quarter, I am not pleased with the slower than expected rate of progress we have been able to make during 2008 toward our goal of achieving and improving our historical gross profit and operating expense levels as a percent of revenue, commented Reichental.

We believe, however, that our materials strategy, which is at the heart of our longer-term target business model and painful business transformation that we have undergone, is beginning to gain positive momentum and traction both in terms of its increased contribution to total revenue and, more importantly, the growing importance and traction of new materials sales through our newer integrated systems, continued Reichental.

While we are not at all satisfied with our progress to date, we remain confident in our current direction and expect to continue to regain lost ground from earlier periods in the coming quarters, continued Reichental.

Cash and Working Capital

For the first six months of 2008, cash declined to $19.1 million from $29.7 million at December 31, 2007. Approximately $7.8 million of this decrease was attributable to the first quarter of 2008. The remaining $2.8 million decrease in cash arose in the second quarter of 2008.

This $10.6 million decrease resulted primarily from $8.4 million of cash used in operating activities and $3.5 million of cash used in investing activities in the first six months of 2008. These uses of cash were partially offset by cash derived from financing activities and the effect of changes in foreign exchange rates.

This net use of cash included, in the first-quarter, the $5.3 million purchase of equipment from Tangible Express and, in the first six months, materials and systems inventory purchases that we undertook to support future growth. Specifically, the inventory increase in the second quarter was driven by $3.7 million of purchases of direct metals systems, 3-D Printers, including V-Flash® systems, and certain key components to support future production of 3-D Printers. Excluding Tangible Express equipment that the company sold to customers or decided to retain for its own use, these inventory investments aggregated $6.0 million for the first six months of 2008. Except for the second-quarter inventory investments noted above, inventory would have declined by approximately $2.0 million from March 31, 2008 to June 30, 2008.

Accounts receivable, net decreased to $28.5 million at June 30, 2008 compared to $31.1 million at the end of 2007. The changes are reflective of the respective quarterly revenue level as well as an increase in days sales outstanding.

At June 30, 2008, inventories increased to $26.1 million compared to $20.0 million at the end of 2007, reflecting primarily the increases in finished goods inventory discussed above.

In view of the short-term inventory investments in support of our expanding 3-D Printing and Direct Metal systems portfolio, we have had to take a backward step against our previously stated inventory reduction goals, continued Reichental. Based on our current go-to-market strategy, we still expect inventories to decline to between $20 million to $22 million by the end of 2008.

We continue to focus on improving our working capital management, in order to pursue our near-term growth opportunities vigorously, concluded Reichental.

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