UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

OR

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

For the transition period from                      to                     

Commission File No. 001-34220

3D SYSTEMS CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE		95-4431352
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
333 THREE D SYSTEMS CIRCLE
ROCK HILL, SOUTH CAROLINA		29730
(Address of Principal Executive Offices)		(Zip Code)

(803) 326-3900
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No þ

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Shares of Common Stock, par value $0.001, outstanding as of October 21, 2010: 23,266,727

 

 

3D SYSTEMS CORPORATION

Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2010

TABLE OF CONTENTS

PART I. — FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			31
PART II. — OTHER INFORMATION			32
Item 1. Legal Proceedings			32
Item 1A. Risk Factors			32
Item 6. Exhibits			32
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. — FINANCIAL INFORMATION

Item 1. Financial Statements.

3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

		September 30,				December 31,
(in thousands, except par value)		2010				2009
ASSETS
Current assets:
Cash and cash equivalents		$	33,811			$	24,913
Accounts receivable, net of allowance for doubtful accounts of $1,572 (2010) and $1,790 (2009)			26,620				23,759
Inventories, net of reserves of $2,353 (2010) and $2,693 (2009)			20,750				18,378
Prepaid expenses and other current assets			1,684				2,415
Deferred income tax assets			405				634
Restricted cash			54				54
Total current assets			83,324				70,153
Property and equipment, net			26,796				24,789
Intangible assets, net			7,852				3,634
Goodwill			49,961				48,730
Other assets, net			2,916				3,097
Total assets		$	170,849			$	150,403
LIABILITIES AND EQUITY
Current liabilities:
Current portion of capitalized lease obligations		$	226			$	213
Accounts payable			13,998				12,994
Accrued and other liabilities			12,615				11,114
Customer deposits			2,601				627
Deferred revenue			8,792				8,487
Total current liabilities			38,232				33,435
Long-term portion of capitalized lease obligations			8,084				8,254
Other liabilities			3,928				3,944
Total liabilities			50,244				45,633
Commitments and contingencies			—				—
3D Systems stockholders’ equity:
Preferred stock, authorized 5,000 shares, none issued			—				—
Common stock, $0.001 par value, authorized 60,000 shares; 23,261 (2010) and 22,774 (2009) issued			23				23
Additional paid-in capital			182,936				177,682
Treasury stock, at cost; 95 shares (2010) and 74 shares (2009)			(154	)			(134	)
Accumulated deficit			(67,368	)			(77,491	)
Accumulated other comprehensive income			5,168				4,617
Total 3D Systems stockholders’ equity			120,605				104,697
Non-controlling interest			—				73
Total equity			120,605				104,770
Total liabilities and equity		$	170,849			$	150,403

See accompanying notes to condensed consolidated financial statements.

3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		Quarter Ended September 30,								Nine Months Ended September 30,
(in thousands, except per share amounts)		2010				2009				2010				2009
Revenue:
Products		$	28,742			$	19,948			$	75,783			$	53,021
Services			12,761				7,719				32,490				23,382
Total revenue			41,503				27,667				108,273				76,403
Cost of sales:
Products			14,765				11,309				38,381				28,689
Services			7,910				4,039				20,787				14,086
Total cost of sales			22,675				15,348				59,168				42,775
Gross profit			18,828				12,319				49,105				33,628
Operating expenses:
Selling, general and administrative			10,960				8,362				29,894				26,368
Research and development			2,708				2,865				7,979				8,618
Total operating expenses			13,668				11,227				37,873				34,986
Income (loss) from operations			5,160				1,092				11,232				(1,358	)
Interest and other income (expense), net			492				(59	)			(342	)			(546	)
Income (loss) before income taxes			5,652				1,033				10,890				(1,904	)
Provision for income taxes			284				106				767				566
Net income (loss)			5,368				927				10,123				(2,470	)
Less: Net income attributable to non-controlling interest			—				25				—				29
Net income (loss) attributable to 3D Systems		$	5,368			$	902			$	10,123			$	(2,499	)
Earnings (loss) per share — basic		$	0.23			$	0.04			$	0.44			$	(0.11	)
Earnings (loss) per share — diluted		$	0.23			$	0.04			$	0.43			$	(0.11	)

See accompanying notes to condensed consolidated financial statements.

3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Nine Months Ended September 30,
(in thousands)		2010				2009
Cash flows from operating activities:
Net income (loss)		$	10,123			$	(2,470	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Deferred income taxes			212				153
Depreciation and amortization			5,355				4,341
Provision (recovery) for bad debts			(118	)			941
Stock-based compensation			1,057				936
Loss on the disposition of property and equipment			49				151
Changes in operating accounts:
Accounts receivable			(155	)			5,316
Inventories			(2,160	)			744
Prepaid expenses and other current assets			920				(468	)
Accounts payable			(1,308	)			(4,367	)
Accrued liabilities			1,892				(1,041	)
Customer deposits			1,973				(116	)
Deferred revenue			317				(2,180	)
Other operating assets and liabilities			315				295
Net cash provided by operating activities			18,472				2,235
Cash flows used in investing activities:
Purchases of property and equipment			(1,019	)			(634	)
Additions to license and patent costs			(243	)			(149	)
Proceeds from disposition of property and equipment			6				34
Acquisition of businesses, net of cash acquired			(9,086	)			—
Net cash used in investing activities			(10,342	)			(749	)
Cash flows provided by financing activities:
Stock option and restricted stock proceeds			262				242
Repayment of long-term debt			(159	)			(145	)
Repayment of short-term borrowings			—				(3,085	)
Restricted cash			—				3,216
Net cash provided by financing activities			103				228
Effect of exchange rate changes on cash			665				103
Net increase in cash and cash equivalents			8,898				1,817
Cash and cash equivalents at the beginning of the period			24,913				22,164
Cash and cash equivalents at the end of the period		$	33,811			$	23,981
Supplemental Cash Flow Information:
Interest payments		$	442			$	474
Income tax payments (receipts)			274				(208	)
Non-cash items:
Transfer of equipment from inventory to property and equipment, net (a)			1,419				461
Transfer of equipment to inventory from property and equipment, net (b)			392				341
Stock issued for acquisitions of businesses			3,915				—

See accompanying notes to condensed consolidated financial statements.

3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)

		Equity Attributable to 3D Systems’ Stockholders
		Common Stock												Treasury Stock												Accumulated				Total				Equity
						Par				Additional																Other				3D Systems’				Attributable to
						Value				Paid-in												Accumulated				Comprehensive				Stockholders’				Non-controlling				Total
(in thousands, except par value)		Shares				$0.001				Capital				Shares				Amount				Deficit				Income				Equity				Interest				Equity
Balance at December 31, 2009			22,774			$	23			$	177,682				74			$	(134	)		$	(77,491	)		$	4,617			$	104,697			$	73			$	104,770
Exercise of stock options			16				—	(a)			166				—				—				—				—				166				—				166
Issuance (repurchase) of restricted stock, net			116				—	(a)			116				21				(20	)			—				—				96				—				96
Stock-based compensation expense			18				—				1,057				—				—				—				—				1,057				—				1,057
Issuance of stock for acquisitions			337				—	(a)			3,915				—				—				—				—				3,915				—				3,915
Net income			—				—				—				—				—				10,123				—				10,123				—				10,123
Acquisition of non-controlling interest			—				—				—				—				—				—				—				—				(73	)			(73	)
Loss on pension plan – unrealized			—				—				—				—				—				—				(6	)			(6	)			—				(6	)
Foreign currency translation adjustment			—				—				—				—				—				—				557				557				—				557
Balance at September 30, 2010			23,261			$	23			$	182,936				95			$	(154	)		$	(67,368	)		$	5,168			$	120,605			$	—			$	120,605

See accompanying notes to condensed consolidated financial statements.

3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

		Quarter Ended September 30,								Nine Months Ended September 30,
(in thousands)		2010				2009				2010				2009
Net income (loss) attributable to 3D Systems		$	5,368			$	902			$	10,123			$	(2,499	)
Net income attributable to non-controlling interest			—				25				—				29
Net income (loss)			5,368				927				10,123				(2,470	)
Other comprehensive income (loss):
Unrealized gain (loss) on pension obligation			14				9				(6	)			9
Foreign currency translation adjustments			1,831				768				557				217
Comprehensive income (loss), net		$	7,213			$	1,704			$	10,674			$	(2,244	)

See accompanying notes to condensed consolidated financial statements.

3D SYSTEMS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of 3D Systems Corporation and its subsidiaries (collectively, the “Company”). All significant intercompany transactions and balances have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim reports. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements and should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2009.

In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments, consisting of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results of operations for the quarter and nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results may differ from these estimates and assumptions.

Certain prior period amounts presented in the accompanying footnotes have been reclassified to conform to current year presentation.

All amounts presented in the accompanying footnotes are presented in thousands, except for earnings per share information.

The Company has evaluated subsequent events from the date of the condensed consolidated balance sheet through the date the financial statements were issued. During this period, the acquisition of Provel S.r.l. was a significant, non-recognized event. There were no other recognizable subsequent events identified. See Note 15 for a description of subsequent events.

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU” or “Update”) 2009-13, “Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force,” to provide amendments to the criteria in Subtopic 609-24 of the Accounting Standards Codification (“Codification”) for separating consideration into multiple-deliverable revenue arrangements. ASU 2009-13 establishes a selling price hierarchy for determining the selling price of each specific deliverable, which includes vendor-specific objective evidence (“VSOE”) if available, third party evidence if VSOE is not available or estimated selling price if neither VSOE nor third party evidence is available. ASU 2009-13 also eliminates the residual method for allocating revenue between the elements of an arrangement and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the arrangement proportionally to each deliverable on the basis of each deliverable’s selling price. This Update expands the disclosure requirements regarding a vendor’s multiple-deliverable revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after September 15, 2010, with early adoption permitted. The Company is currently evaluating the impact of ASU 2009-13 on its consolidated financial statements.

In October 2009, the FASB issued ASU 2009-14, “Certain Revenue Arrangements That Include Software Elements — a consensus of the FASB Emerging Issues Task Force.” This Update removes tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality from the scope of the software revenue guidance in Subtopic 985-605 of the Codification. Additionally, ASU 2009-14 provides guidance on how a vendor should allocate arrangement consideration to deliverables in an arrangement that includes both tangible products and software that is not essential to the product’s functionality. ASU 2009-14 requires the same expanded disclosures that are included within ASU 2009-13. ASU 2009-14 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after September 15, 2010, with early adoption permitted. A company is required to adopt the amendments in both ASU 2009-13 and ASU 2009-14 in the same period using the same transition method. The Company is currently evaluating the impact of ASU 2009-14 on its consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This Update is intended to provide financial statement users with additional information to assist them in assessing credit risk exposures and the adequacy of the allowance for credit losses. ASU 2010-20 is effective for interim and annual reporting periods ending on and after December 15, 2010. The impact of adoption of ASU 2010-20 by the Company is not expected to have a significant impact on its consolidated financial statements.

No other new accounting pronouncements issued or effective during the first nine months of 2010 have had or are expected to have an impact on the Company’s consolidated financial statements.

(2) Acquisitions

On February 16, 2010, the Company acquired the assets of Moeller Design and Development, Inc. (“Moeller Design”) in Seattle, Washington. Moeller Design is a provider of premium precision investment casting services and prototyping for aerospace and medical device applications. The Company acquired Moeller Design for its premium parts capabilities and to expand the geographic footprint of its 3Dproparts™ service to the West Coast. Moeller Design has been integrated into the Company’s 3Dproparts™ service. The fair value of the consideration paid for this acquisition was $3,600 and was allocated to the assets purchased and liabilities assumed based on their estimated fair values as of the acquisition date. In addition, there was a gain from bargain purchase for $37. Of the $3,600 consideration, $1,000 was paid in shares of the Company’s common stock. These shares were issued in a private transaction exempt from registration under the Securities Act of 1933.

In connection with the acquisition, the Company entered into a lease agreement with an entity whose managing member is the former owner of Moeller Design, pursuant to which the Company agreed to lease the facilities at which Moeller Design’s operations are conducted. The lease provides for an initial term of five years with renewal options for two successive five-year terms. The lease agreement includes an option for the Company to purchase the facility.

On April 6, 2010, the Company acquired the assets of Design Prototyping Technologies, Inc. (“DPT”) in Syracuse, New York. DPT is a provider of fast turnaround functional parts and prototypes. The Company acquired DPT to enhance its online offerings for its 3Dproparts™ service. DPT has been integrated into the Company’s 3Dproparts™ service. The fair value of the consideration paid for this acquisition was $3,600 and was allocated to the assets purchased and liabilities assumed based on their estimated fair values as of the acquisition date. Of the $3,600 consideration, $600 was paid in shares of the Company’s common stock. These shares were issued in a private transaction exempt from registration under the Securities Act of 1933.

In connection with the DPT acquisition, the Company entered into a lease agreement with an entity whose managing members are the former owners of DPT, pursuant to which the Company agreed to lease the facilities at which DPT’s operations are conducted. The lease provides for an initial term of approximately two years with renewal options for two-year and one-year successive terms, respectively. The lease agreement includes a right of first refusal with respect to the sale of the building.

On July 7, 2010, the Company acquired the assets of CEP S.A. and its affiliate, Protometal S.A. (collectively “CEP”), rapid prototyping and rapid manufacturing services providers located in Joué l’Abbé, France. The Company acquired CEP to augment and expand its 3Dproparts™ business in Europe. CEP has been integrated into the Company’s 3Dproparts™ service. The fair value of the consideration paid for this acquisition, net of cash acquired, was $3,465 and was allocated to the assets purchased and liabilities assumed based on their estimated fair values as of the acquisition date. Of the $3,465 consideration, $2,086 was paid in cash, $1,064 was paid in shares of the Company’s common stock, and the remaining amount of $315 is due at a future date. These shares were issued in a private transaction exempt from registration under the Securities Act of 1933.

In connection with the CEP acquisition, the Company entered into lease agreements, pursuant to which the Company agreed to lease the facilities at which CEP’s operations are conducted. The leases current terms extend until December 31, 2011, at which point the Company has renewal options extending until 2020.

On September 16, 2010, the Company acquired the assets of Express Pattern, Inc. (“Express Pattern”) in Vernon Hills, Illinois. Express Pattern is a provider of rapid prototyping, direct patterns for investment casting and manufacturing services. The Company acquired Express Pattern as part of the Company’s continued expansion of its 3Dproparts™ service. Express Pattern serves defense, transportation, recreation and healthcare customers by delivering a comprehensive menu of the most advanced rapid casting, tooling and parts solutions. The fair value of the consideration paid for this acquisition was $1,650 and was allocated to the assets purchased and liabilities assumed based on their estimated fair values as of the acquisition date. Of the $1,650 consideration, $250 was paid in shares of the Company’s common stock. These shares were issued in a private transaction exempt from registration under the Securities Act of 1933.

Amounts related to the above acquisitions included in the Company’s unaudited condensed consolidated balance sheet at September 30, 2010 were as follows:

(in thousands)		2010
Property and equipment		$	4,435
Intangible assets			5,747
Other assets, net of cash acquired and liabilities assumed			2,170
Gain from bargain purchase			(37	)
Net assets acquired		$	12,315

Subsequent Acquisitions

On October 5, 2010, the Company acquired the shares of Bits From Bytes Limited, a United Kingdom producer of 3D printers and printer kits located near Bristol, England. The Company is in the process of integrating Bits From Bytes. Based on the exchange rate at the date of acquisition, the fair value of the consideration paid for this acquisition was $2,383, of which $596 was paid in shares of the Company’s common stock. These shares were issued in a private transaction exempt from registration under the Securities Act of 1933. Due to the timing of this acquisition, at the time of this filing the Company is in the process of allocating the fair value of assets purchased, liabilities assumed and other intangibles identified as of the acquisition date, with any excess to be recorded as goodwill. This transaction will be recorded in the fourth quarter of 2010.

Subject to the terms and conditions of the acquisition agreement, the sellers have the right to earn an additional amount of up to a maximum of approximately $16,651, based on the exchange rate at the date of acquisition, pursuant to an earn-out formula set forth in the acquisition agreement for a period of three years which commenced on October 1, 2010.

On October 12, 2010, the Company acquired the shares of Provel, S.r.l., an Italian provider of rapid protypting, tooling and manufacturing services located near Turin, Italy. The Company acquired Provel as part of its continued expansion of its 3Dproparts™ service in Europe. The Company is in the process of integrating Provel into its 3Dproparts™ service. Based on the exchange rate at the date of acquisition, the fair value of the consideration paid for this acquisition, net of cash acquired, was $13,252, of which $7,894 was paid in cash and $1,392 was paid in shares at closing, with a future installment of $3,966 due October 2011. The shares were issued in a private transaction exempt from registration under the Securities Act of 1933.

Subject to the terms and conditions of the acquisition agreement, the sellers have the right to earn an additional amount up to approximately $1,392, based on the exchange rate at the date of acquisition, pursuant to an earn-out formula set forth in the acquisition agreement, for a period of twelve months, which is expected to commence on February 1, 2011.

The fair value of consideration was allocated to the assets purchased and liabilities assumed based on their estimated fair values as of June 30, 2010 and is preliminary. The Company expects to finalize the purchase price allocation in the fourth quarter of 2010 and at that time the final allocation may differ from the information presented in these unaudited condensed consolidated financial statements.

The table below represents a preliminary allocation of the total consideration to tangible and intangible assets and liabilities of Provel S.r.l., based upon the preliminary estimate of their respective values as of June 30, 2010:

(in thousands)		June 30, 2010
Property and equipment		$	946
Intangible assets			9,291
Other assets, net of cash acquired and liabilities assumed			4,035
Net assets acquired		$	14,272

This transaction will be recorded in the fourth quarter of 2010.

(3) Inventories

Components of inventories, net at September 30, 2010 and December 31, 2009 were as follows:

(in thousands)		2010				2009
Raw materials		$	2,729			$	2,294
Work in process			163				253
Finished goods and parts			20,211				18,524
Total cost			23,103				21,071
Less: reserves			(2,353	)			(2,693	)
Inventories, net		$	20,750			$	18,378

(4) Property and Equipment

Property and equipment at September 30, 2010 and December 31, 2009 were as follows:

										Useful Life
(in thousands, except years)		2010				2009				(in years)
Land		$	152			$	152			N/A
Building			9,574				9,454			25
Machinery and equipment			28,327				23,418			3-7
Capitalized software — ERP			3,120				3,096			5
Office furniture and equipment			2,965				3,358			5
Leasehold improvements			5,434				4,941			Life of lease
Rental equipment			480				1,079			5
Construction in progress			1,088				1,243			N/A
Total property and equipment			51,140				46,741
Less: accumulated depreciation and amortization			(24,344	)			(21,952	)
Total property and equipment, net		$	26,796			$	24,789

Depreciation and software amortization expense on property and equipment for the quarter and nine months ended September 30, 2010 were $1,644 and $4,511, respectively, compared to $1,148 and $3,657 for the quarter and nine months ended September 30, 2009.

(5) Intangible Assets

Intangible assets other than goodwill at September 30, 2010 and December 31, 2009 were as follows:

		2010												2009
						Accumulated												Accumulated
(in thousands)		Cost				Amortization				Net				Cost				Amortization				Net
Licenses		$	5,875			$	(5,875	)		$	—			$	5,875			$	(5,586	)		$	289
Patent costs			16,251				(13,578	)			2,673				16,069				(13,450	)			2,619
Internally developed software			9,984				(8,883	)			1,101				8,968				(8,968	)			—
Customer relationships			2,668				(138	)			2,530				561				(10	)			551
Non-compete agreements			1,807				(700	)			1,107				803				(652	)			151
Trade names			477				(56	)			421				30				(6	)			24
Other			883				(863	)			20				806				(806	)			—
Total		$	37,945			$	(30,093	)		$	7,852			$	33,112			$	(29,478	)		$	3,634

Amortization expense for intangible assets for the quarter and nine months ended September 30, 2010 were $282 and $844, respectively, compared to $174 and $684 for the quarter and nine months ended September 30, 2009. Annual amortization expense for intangible assets for 2010, 2011, 2012, 2013 and 2014 is expected to be $2,025, $3,901, $3,264, $2,594 and $2,149, respectively.

For the nine months ended September 30, 2010 and 2009, the Company capitalized $243 and $149, respectively, of costs incurred to acquire, develop and extend patents in the United States and various other countries.

(6) Accrued and Other Liabilities

Accrued liabilities at September 30, 2010 and December 31, 2009 were as follows:

(in thousands)		2010				2009
Compensation and benefits		$	5,841			$	3,680
Vendor accruals			1,091				1,197
Accrued professional fees			419				642
Accrued taxes			2,753				2,400
Royalties payable			252				244
Accrued interest			48				50
Contractual obligations due to acquisitions			1,669				2,224
Accrued other			542				677
Total		$	12,615			$	11,114

Other liabilities at September 30, 2010 and December 31, 2009 were as follows:

(in thousands)		2010				2009
Defined benefit pension obligation		$	3,149			$	3,237
Other long-term liabilities			779				707
Total		$	3,928			$	3,944

(7) Hedging Activities and Financial Instruments

The Company conducts business in various countries using both the functional currencies of those countries and other currencies to effect cross border transactions. As a result, the Company is subject to the risk that fluctuations in foreign exchange rates between the dates that those transactions are entered into and their respective settlement dates will result in a foreign exchange gain or loss. When practicable, the Company endeavors to match assets and liabilities in the same currency on its balance sheet and those of its subsidiaries in order to reduce these risks. When appropriate, the Company enters into foreign currency contracts to hedge exposures arising from those transactions. The Company has elected not to prepare and maintain the documentation to qualify for hedge accounting treatment under ASC 815, “Derivatives and Hedging,” and therefore, all gains and losses (realized or unrealized) are recognized in “Interest and other expense, net” in the condensed consolidated statements of operations. Depending on their fair value at the end of the reporting period, derivatives are recorded either in prepaid expenses and other current assets or in accrued liabilities on the condensed consolidated balance sheet.

There were no foreign currency contracts outstanding at September 30, 2010. The foreign currency contracts outstanding at December 31, 2009 expired at various times between January 6, 2010 and February 3, 2010.

At December 31, 2009, these contracts included contracts for the purchase of currencies other than the U.S. dollar. The dollar equivalents of the foreign currency contracts and the related fair values as of September 30, 2010 and December 31, 2009 were as follows:

		Foreign Currency
		Purchase Contracts
(in thousands)		2010				2009
Notional amount		$	—			$	1,587
Fair value			—				1,563
Net unrealized gain (loss)		$	—			$	(24	)

The total impact of foreign currency items on the condensed consolidated statements of operations for the quarter and nine months ended September 30, 2010 were gains of $681 and $140, respectively, compared to gains of $285 and $119, respectively, for the quarter and nine months ended September 30, 2009.

(8) Stock-based Compensation Plans

The Company records stock-based compensation expense in selling, general and administrative expenses in the condensed consolidated statements of operations. Stock-based compensation expense for the quarter and nine months ended September 30, 2010 and 2009 was as follows:

		Quarter Ended September 30,								Nine Months Ended September 30,
(in thousands)		2010				2009				2010				2009
Restricted stock awards		$	268			$	205			$	1,057			$	936

The number of shares of restricted common stock awarded and the weighted average fair value per share during the quarter and nine months ended September 30, 2010 and 2009 were as follows:

		Quarter Ended September 30,
		2010								2009
						Weighted Average								Weighted Average
(in thousands, except per share amounts)		Shares Awarded				Fair Value				Shares Awarded				Fair Value
Restricted stock awards:
Granted under the 2004 Incentive Stock Plan			20			$	13.15				41			$	8.43
Granted under the 2004 Restricted Stock Plan for Non-Employee Directors			—				—				—				—
Total restricted stock awards			20			$	13.15				41			$	8.43

		Nine Months Ended September 30,
		2010								2009
						Weighted Average								Weighted Average
(in thousands, except per share amounts)		Shares Awarded				Fair Value				Shares Awarded				Fair Value
Restricted stock awards:
Granted under the 2004 Incentive Stock Plan			72			$	13.70				219			$	7.11
Granted under the 2004 Restricted Stock Plan for Non-Employee Directors			18				14.29				21				6.97
Total restricted stock awards			90			$	13.81				240			$	7.10

Of the 72 shares of restricted stock awards granted in the nine months ended September 30, 2010 pursuant to the Company’s 2004 Incentive Stock Plan, none were awarded to executive officers of the Company. Additionally, of the 20 shares granted in the third quarter of 2010 under the 2004 Incentive Stock Plan, 10 remained subject to acceptance at September 30, 2010. In the first nine months of 2009, the Company granted restricted stock awards covering 219 shares of common stock pursuant to the Company’s 2004 Incentive Stock Plan, including 110 shares awarded to executive officers of the Company.

In the third quarter of 2010 the Company did not issue any shares of common stock pursuant to the Company’s 2004 Restricted Stock Plan for Non-Employee Directors. Stock compensation expense for directors totaled $0 and $257, for the quarter and nine months ended September 30, 2010, respectively, compared to $0 and $146, for the quarter and nine months ended September 30, 2009, respectively.

(9) International Retirement Plan

The following table shows the components of net periodic benefit costs and other amounts recognized in the condensed consolidated statements of operations for the quarter and nine months ended September 30, 2010 and 2009:

		Quarter Ended September 30,								Nine Months Ended September 30,
(in thousands)		2010				2009				2010				2009
Service cost		$	24			$	22			$	74			$	68
Interest cost			22				21				70				65
Total		$	46			$	43			$	144			$	133

(10) Earnings Per Share

The Company presents basic and diluted earnings (loss) per share (“EPS”) amounts. Basic EPS is calculated by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the applicable period. Diluted EPS is calculated by dividing 3D Systems net income (loss) by the weighted average number of common and common equivalent shares outstanding during the applicable period. The following table reconciles basic weighted average outstanding shares to diluted weighted average outstanding shares for the quarters and nine months ended September 30, 2010 and 2009:

		Quarter Ended September 30,								Nine Months Ended September 30,
(in thousands, except per share amounts)		2010				2009				2010				2009
Numerator:
3D Systems net income (loss) – numerator for basic net earnings (loss) per share		$	5,368			$	902			$	10,123			$	(2,499	)
Add: Effect of dilutive securities
Stock options and other equity compensation			—				—				—				—
Numerator for dilutive earnings (loss) per share		$	5,368			$	902			$	10,123			$	(2,499	)
Denominator:
Weighted average shares – denominator for basic net earnings (loss) per share			23,147				22,627				23,010				22,504
Add: Effect of dilutive securities
Stock options and other equity compensation			294				67				292				—
Denominator for dilutive earnings (loss) per share			23,441				22,694				23,302				22,504
Earnings (loss) per share
Basic		$	0.23			$	0.04			$	0.44			$	(0.11	)
Diluted		$	0.23			$	0.04			$	0.43			$	(0.11	)
Unexercised employee stock options excluded from diluted earnings per share (1)			140				354				133				870

For the nine months ended September 30, 2010, average common shares for basic and diluted earnings per share were 23,010  and 23,302, respectively, and basic and diluted earnings per share were $0.44 and $0.43, respectively.

For the nine months ended September 30, 2009, average common shares for basic and diluted earnings per share were 22,504, and basic and diluted earnings per share were ($0.11).

(11) Fair Value Measurements

ASC 820, “Fair Value Measurements,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

For the Company, the above standard applies to cash equivalents and foreign exchange contracts. The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Assets and liabilities measured at fair value on a recurring basis are summarized below:

		Fair Value Measurements as of September 30, 2010
(in thousands)		Level 1				Level 2				Level 3				Total
Cash equivalents (1)		$	17,339			$	—			$	—			$	17,339

The Company did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during the quarter or nine months ended September 30, 2010.

In addition to the financial assets and liabilities included in the above table, certain of our non-financial assets and liabilities are to be measured at fair value on a non-recurring basis. This includes items such as non-financial assets and liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent periods) and non-financial, long-lived assets measured at fair value for an impairment assessment. In general, non-financial assets including goodwill, other intangible assets and property and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value only when an impairment is recognized. The Company has not recorded any impairments related to such assets and has had no other significant non-financial assets or non-financial liabilities requiring adjustments or write-downs to fair value as of September 30, 2010 or December 31, 2009.

(12) Income Taxes

The Company’s effective tax rates were 5.0% and 7.0% for the quarter and nine months ended September 30, 2010, respectively, compared to 10.3% and (29.7%) for the quarter and nine months ended September 30, 2009, respectively. Tax expense relates primarily to income from non-U.S. operations.

Tax years 2006 to 2009 remain subject to examination by the U.S. Internal Revenue Service. Should the Company utilize any of its remaining U.S. loss carry-forwards, which date from 1997, these would be subject to examination. The Company files income tax returns (which are open to examination beginning in the year shown in parentheses) in France (2004), Germany (2006), Japan (2004), Italy (2004), Switzerland (2004) and the United Kingdom (2006).

(13) Segment Information

The Company operates in one reportable business segment in which it develops, manufactures and markets worldwide 3-D printing, rapid prototyping and manufacturing systems and related products and services designed to reduce the time it takes to produce three-dimensional objects and operates 3Dproparts™, a comprehensive service bureau that offers rapid prototyping and manufacturing services. The Company conducts its business through subsidiaries in the United States, a subsidiary in Switzerland that operates a research and production facility, sales and service offices operated by subsidiaries in the European Community (France, Germany, the United Kingdom and Italy) and Japan, and a branch office in Hong Kong. The Company has historically disclosed summarized financial information for the geographic areas of operations as if they were segments, in accordance with ASC 280, “Segment Reporting.”

Summarized financial information concerning the Company’s geographical operations is shown in the following tables:

		Quarter Ended September 30,								Nine Months Ended September 30,
(in thousands)		2010				2009				2010				2009
Revenue from unaffiliated customers:
United States		$	18,146			$	12,215			$	49,690			$	34,425
Germany			5,773				5,528				17,091				16,519
Other Europe			11,037				5,399				25,860				15,148
Asia Pacific			6,547				4,525				15,632				10,311
Total		$	41,503			$	27,667			$	108,273			$	76,403

The Company’s revenues from unaffiliated customers by type are as follows:

		Quarter Ended September 30,								Nine Months Ended September 30,
(in thousands)		2010				2009				2010				2009
Systems and other products		$	14,506			$	6,825			$	33,961			$	17,566
Materials			14,236				13,123				41,822				35,455
Services			12,761				7,719				32,490				23,382
Total		$	41,503			$	27,667			$	108,273			$	76,403

Intercompany sales are as follows:

		Quarter Ended September 30, 2010
		Intercompany Sales to
		United								Other				Asia
(in thousands)		States				Germany				Europe				Pacific				Total
United States		$	—			$	2,526			$	3,917			$	598			$	7,041
Germany			29				—				540				—				569
Other Europe			2,079				(169	)			(26	)			—				1,884
Asia Pacific			—				—				—				—				—
Total		$	2,108			$	2,357			$	4,431			$	598			$	9,494

		Quarter Ended September 30, 2009
		Intercompany Sales to
		United								Other				Asia
(in thousands)		States				Germany				Europe				Pacific				Total
United States		$	—			$	2,606			$	1,547			$	421			$	4,574
Germany			12				—				621				—				633
Other Europe			1,974				70				—				—				2,044
Asia Pacific			—				—				—				—				—
Total		$	1,986			$	2,676			$	2,168			$	421			$	7,251

		Nine Months Ended September 30, 2010
		Intercompany Sales to
		United								Other				Asia
(in thousands)		States				Germany				Europe				Pacific				Total
United States		$	—			$	9,671			$	8,296			$	1,982			$	19,949
Germany			263				—				2,777				—				3,040
Other Europe			6,243				52				1				—				6,296
Asia Pacific			34				—				—				—				34
Total		$	6,540			$	9,723			$	11,074			$	1,982			$	29,319

		Nine Months Ended September 30, 2009
		Intercompany Sales to
		United								Other				Asia
(in thousands)		States				Germany				Europe				Pacific				Total
United States		$	—			$	8,357			$	4,930			$	1,987			$	15,274
Germany			15				—				2,393				—				2,408
Other Europe			5,187				516				—				—				5,703
Asia Pacific			—				—				—				—				—
Total		$	5,202			$	8,873			$	7,323			$	1,987			$	23,385

All revenue between geographic areas is recorded at prices that provide for an allocation of profit (loss) between entities. Income (loss) from operations and assets for each geographic area are as follows:

		Quarter Ended September 30,								Nine Months Ended September 30,
(in thousands)		2010				2009				2010				2009
Income (loss) from operations:
United States		$	2,295			$	(584	)		$	4,413			$	(5,665	)
Germany			190				159				691				615
Other Europe			378				281				1,280				927
Asia Pacific			2,101				1,395				4,481				2,528
Subtotal			4,964				1,251				10,864				(1,595	)
Inter-segment elimination			196				(159	)			367				237
Total		$	5,160			$	1,092			$	11,232			$	(1,358	)

		September 30,				December 31,
(in thousands)		2010				2009
Assets:
United States		$	98,418			$	93,595
Germany			22,540				16,690
Other Europe			38,249				28,383
Asia Pacific			11,642				11,735
Total		$	170,849			$	150,403

(14) Commitments and Contingencies

The Company leased office space and certain furniture and fixtures under various non-cancelable operating leases. Rent expense under operating leases was $203 and $309 for the three months ended September 30, 2010 and 2009, respectively. For the nine months ended September 30, 2010, rent expense under operating leases was $584 compared to $838 for the nine months ended September 30, 2009.

The Company has deferred purchase price obligations due to acquisitions. See Note 2 for details of acquisitions and related commitments.

On March 14, 2008, DSM Desotech Inc. filed a complaint, in an action titled DSM Desotech Inc. v. 3D Systems Corporation in the United States District Court for the Northern District of Illinois (Eastern Division) asserting that the Company engaged in anticompetitive behavior with respect to resins used in large-frame stereolithography machines. The complaint further asserted that the Company is infringing on two of DSM Desotech’s patents relating to stereolithography machines. The Company understands that DSM Desotech estimates the damages associated with its claims to be in excess of $40,000.

Following a decision of the Court on the Company’s motion to dismiss the non-patent causes of the action, DSM Desotech filed a second amended complaint on March 2, 2009 in which it reasserted causes of action previously dismissed by the Court. The Company filed an answer to the second amended complaint on March 19, 2009 in which, among other things, it denied the material allegations of the second amended complaint. On July 20, 2010, the Court issued a decision relating to the construction of the claims of the patents-in-suit following the Markman hearing held on September 16, 2009. In that decision, the Court generally adopted the claim constructions proposed by the Company. Discovery is proceeding on the claims pending in this case.

The Company intends to continue vigorously contesting all the claims asserted by DSM Desotech.

The Company has been pursuing patent infringement litigation against EnvisionTEC, Inc. and certain of its affiliated companies since 2005. In this litigation, the Company asserted that EnvisionTEC infringed the Company’s patents covering various three-dimensional solid imaging products and methods for creating physical three-dimensional models of an object and has sought injunctive relief and damages.  EnvisionTEC’s Perfactory machine and Vanquish machine (the Vanquish is now marketed as the PerfactoryXede and PerfactoryXtreme) are the two products accused of patent infringement.  On February 6, 2008 the Court issued Markman claim constructions that generally adopted the claim constructions proposed by the Company.  

A jury trial was held from September 21 to September 29, 2010.  Following that trial, the jury issued a verdict to the effect that EnvisionTEC’s Vanquish machine infringes one of 3D Systems’ patents, and the Court entered judgment on that verdict on October 7, 2010.  

The Company has not yet sought to enforce this judgment, but believes that it is entitled to an injunction as a result of the judgment entered by the Court.  The Company also intends to pursue claims for damages against EnvisionTEC.

On July 14, 2010, MSK K.K., a Japanese company, filed a complaint against the Company’s Japanese subsidiary in the Tokyo District Court asserting, among other things, that the Company’s subsidiary failed to satisfy certain alleged performance guarantees associated with the use of certain materials in two systems purchased from the Company in 2007. The plaintiff is seeking damages in excess of $1,600.

The Company intends to vigorously contest the claims asserted by MSK K.K..

The Company is also involved in various other legal matters incidental to its business. The Company’s management believes, after consulting with counsel, that the disposition of these other legal matters will not have a material effect on the Company’s consolidated results of operations or consolidated financial position.

(15) Subsequent Events

On October 5, 2010, the Company acquired Bits From Bytes, Ltd. in a share purchase. Future revenue from this acquisition will be reported in Products revenue. See Note 2.

On October 12, 2010, the Company acquired Provel, S.r.l. in a share purchase. The Provel acquisition is significant to the Company’s financial statements. Future revenue from the this acquisition will be reported in Services revenue. See Note 2.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q (“Form 10-Q”).

We are subject to a number of risks and uncertainties that may affect our future performance that are discussed in greater detail in the sections entitled “Forward-Looking Statements” and “Cautionary Statements and Risk Factors” at the end of this Item 2 and that are discussed or referred to in Item 1A of Part II of this Form 10-Q.

Business Overview

We design, develop, manufacture, market and service 3D printing, rapid manufacturing, and prototyping systems and related products and materials that enable complex three-dimensional objects to be produced directly from computer data without tooling, greatly reducing the time and cost required to produce prototypes or customized production parts. We also operate 3Dproparts™, a comprehensive service bureau that offers our customers rapid prototyping and manufacturing services for the production of precision parts.

Our consolidated revenue is derived primarily from the sale of our systems, the sale of the related materials used by the systems to produce solid objects and the provision of services to our customers.

Recent Developments

We have continued to execute on our strategy to grow our 3Dproparts™ service, through additional strategic acquisitions and by further expanding our distribution channel of 3D printing reseller partners.

In July 2010, we made our first 3Dproparts™ European acquisition, acquiring the assets of CEP S.A. and its affiliate, Protometal S.A. (collectively “CEP”), rapid prototyping and rapid manufacturing services providers located in Joué l’Abbé, France. We acquired CEP to augment and expand our 3Dproparts™ business in Europe.

In September 2010, we acquired the assets of Express Pattern, Inc. in Vernon Hills, Illinois. Express Pattern is a leading prototyper that serves defense, transportation, recreation and healthcare customers by delivering a comprehensive menu of advanced rapid casting, tooling and parts solutions as part of our continued expansion of our 3Dproparts™ service.

In October 2010, we expanded our 3Dproparts™ business in Europe, acquiring the shares of Provel S.r.l. located near Turin, Italy. Provel provides rapid prototyping, tooling and manufacturing services, specializing in stereolithography, selective laser sintering, rapid tooling and urethane casting.

In October 2010, as part of our strategy to accelerate 3D printer penetration and new products and channel expansion, we acquired Bits From Bytes Ltd. located near Bristol, England. Bits From Bytes is a maker of affordable 3D printers and printer kits that print real plastic parts from a variety of materials, including ABS, PLA, polypropylene, and polyethylene for educational, hobbyist, and professional applications.

Results of Operations

Summary of 2010 financial results

Our operating activities generated $18.5 million of cash during the first nine months of 2010, of which we used $10.3 million to fund our strategic investing activities. In total, unrestricted cash increased $8.9 million in the first nine months of 2010, resulting in a balance of $33.8 million of unrestricted cash compared to $24.9 million of unrestricted cash at December 31, 2009.

During the third quarter of 2010 we reported improved revenue and profit as compared to the third quarter of 2009 as our worldwide business continued to expand. Revenue for the nine months ended September 30, 2010 increased 41.7% over 2009. This increase in revenue was led by a $16.4 million, or 93.3%, increase in sales of systems and other products together with a $6.4 million, or 18.0%, increase in materials sales, and a $9.1 million, or 39.0%, increase in services revenue year-over-year. Higher revenue coupled with a focus on continued cost containment, enabled us to achieve net income of $10.1 million for the first nine months of 2010, compared to a net loss of $2.5 million for the same period in 2009.

Materials sales for the third quarter of 2010 rose by $1.1 million from the third quarter of 2009 as revenue from materials was favorably impacted by continued expansion of systems installed over past periods. In addition, the higher production systems sales are typically accompanied by significant initial materials purchases to charge up new systems and commence production. Materials revenue increased compared to the third quarter of 2009 notwithstanding the fact that materials consumed by 3Dproparts™ were not included in our materials revenue line.

Revenue from services increased by $5.1 million to $12.8 million in the third quarter of 2010 from $7.7 million in the third quarter of 2009. Services revenue grew by $2.3 million in the third quarter of 2010 from $10.5 million in the second quarter of 2010.

For the third quarter of 2010 healthcare revenue made up 14%, or $6.0 million of our total revenue compared to 14%, or $4.5 million in the second quarter of 2010 and includes sales of systems, materials and services for the following applications: hearing aid, dental, medical device and other health-related applications.

Although system sales into these marketplaces can fluctuate from period to period, 58% of revenue from healthcare applications was from recurring revenue in the third quarter of 2010 compared to 73% in the second quarter of 2010.

Our higher gross profit in the third quarter and first nine months of 2010 arose primarily from our higher level of revenue coupled with continued cost containment. Our gross profit margin increased to 45.4% in the third quarter of 2010 from 44.5% in the third quarter of 2009 due to product mix and improvements in our cost structure.

Our operating expenses increased by $2.5 million in the third quarter of 2010 to $13.7 million from $11.2 million in the third quarter of 2009. The increase reflected higher selling, general and administrative expenses primarily related to the integration and operation of the acquisitions, compensation expense related to the sales of our products, as well as higher legal fees associated with the DSM Desotech litigation and the EnvisionTEC trial. We expect our SG&A expenses for the remainder of 2010 to be in the range of $11.0 to $12.0 million, and our research and development expenses to be in the range of $2.5 million to $3.0 million.

Our operating income for the third quarter of 2010 improved to $5.2 million from $1.1 million in the 2009 third quarter. This improvement in operating income arose from higher revenues and gross profit partially offset by higher operating expense, as discussed below.

Results of Operations — Third Quarter Comparisons

Third quarter comparison of revenue by class of product and service

Table 1 sets forth our change in revenue by class of product and service for the third quarter of 2010 compared to the third quarter of 2009:

Table 1

		Systems and
		Other
(Dollars in thousands)		Products								Materials								Services								Totals
Revenue — 3rd quarter 2009		$	6,825				24.7	%		$	13,123				47.4	%		$	7,719				27.9	%		$	27,667				100	%
Change in revenue:
Volume
Core products and services			4,032				59.1				3,157				24.1				4,934				63.9				12,123				43.8
New products and services			7,214				105.7				(471	)			(3.6	)			489				6.3				7,232				26.1
Price/Mix			(3,153	)			(46.2	)			(1,155	)			(8.8	)			—				—				(4,308	)			(15.5	)
Foreign currency translation			(412	)			(6.0	)			(418	)			(3.2	)			(381	)			(4.9	)			(1,211	)			(4.4	)
Net change			7,681				112.6				1,113				8.5				5,042				65.3				13,836				50.0
Revenue — 3rd quarter 2010		$	14,506				35.0	%		$	14,236				34.3	%		$	12,761				30.7	%		$	41,503				100	%

We earn revenues from the sale of systems and other products, materials and services. On a consolidated basis, revenue for the third quarter of 2010 increased in each revenue category.

The increase in revenue from systems and other products that is due to volume for the third quarter of 2010 compared to the same quarter of 2009 was the result of higher sales of production systems and 3D printers. Revenue from systems and other products consisted of:

•

Production systems, which represented $9.0 million, or 62%, of total systems revenue for the third quarter of 2010, compared to $3.7 million, or 54%, for the third quarter of 2009; and

•

3D printers, which made up the remaining $5.5 million, or 38%, in the third quarter of 2010, compared to $3.1 million, or 46%, in the third quarter of 2009, which represents a 74% increase. Compared to the second quarter of 2010, 3D printer revenue increased $1.0 million, or 23%.

Due to the relatively high list price of certain systems, our customers’ purchasing decisions may have a long lead time; combined with the overall low unit volume of systems sales in any particular period, the acceleration or delay of orders and shipments of a small number of systems from one period to another can significantly affect revenue reported for our systems sales for the period involved. Revenue reported for systems sales in any particular period is also affected by revenue recognition rules prescribed by generally accepted accounting principles.

Revenue from materials was also helped by the improvement in production systems sales, which are typically accompanied by significant initial materials purchases to charge up new systems and commence production, and by the continued expansion of systems installed over past periods. Sales of integrated materials represented 32% of total materials revenue in the third quarter of 2010 compared to 30% in the third quarter of 2009. Materials revenue increased compared to the third quarter of 2009 notwithstanding the fact that materials consumed by 3Dproparts™ were not included in our materials revenue line.

The increase in services revenue reflects revenue from 3Dproparts™, which was introduced in the fourth quarter of 2009 to expand our paid parts services. Service revenue from 3Dproparts™ was $5.3 million, or 41.6% of total service revenue.

At September 30, 2010 our backlog was approximately $7.0 million, compared to backlogs of $1.4 million at December 31, 2009 and $1.7 million at September 30, 2009, respectively. Although production and delivery of our systems is generally not characterized by long lead times, the higher backlog at September 30, 2010 includes an order for multiple machines for future delivery. Additionally, 3Dproparts™ lead time and backlog depends on whether 3Dproparts™ orders are for rapid prototyping or longer-range production runs. The backlog at September 30, 2010 included $1.5 million of 3Dproparts™ orders.

In addition to changes in sales volumes, there are two other primary drivers of changes in revenues from one period to another: the combined effect of changes in product mix and average selling prices, sometimes referred to as price and mix effects, and the impact of fluctuations in foreign currencies.

As used in this Management’s Discussion and Analysis, the combined effect of changes in product mix and average selling prices relates to changes in revenue that are not able to be specifically related to changes in unit volume. Among these changes are changes in the product mix of our materials and our systems as the trend toward smaller, more economical systems has continued and the influence of new systems and materials on our operating results has grown. Our reporting systems are not currently configured to produce more quantitative information regarding the effect of price and mix changes on revenue.

Change in third quarter revenue by geographic region

Each geographic region contributed to our higher level of revenue in the third quarter of 2010. Table 2 sets forth the change in revenue by geographic area for the third quarter of 2010 compared to the third quarter of 2009:

Table 2

(Dollars in thousands)		U.S.								Europe								Asia-Pacific								Totals
Revenue — 3rd quarter 2009		$	12,215				44.2	%		$	10,927				39.4	%		$	4,525				16.4	%		$	27,667				100	%
Change in revenue:
Volume			7,595				62.2				10,193				93.2				1,567				34.6				19,355				70.0
Price/Mix			(1,664	)			(13.6	)			(2,853	)			(26.1	)			209				4.7				(4,308	)			(15.6	)
Foreign currency translation			—				—				(1,457	)			(13.3	)			246				5.4				(1,211	)			(4.4	)
Net change			5,931				48.6				5,883				53.8				2,022				44.7				13,836				50.0
Revenue — 3rd quarter 2010		$	18,146				43.7	%		$	16,810				40.5	%		$	6,547				15.8	%		$	41,503				100	%