• In May 2009, we formed MQast, LLC through a joint venture with an unrelated third party which is a leading Rapid Prototyping and Manufacturing Service Provider. MQast, LLC is an online provider of rapid, high-quality, complex geometry metal parts, which utilizes MQast™ technology. These parts are ideally suited for aerospace, medical and automotive applications for functional testing, design verification and end-use for short-run production.

• Also in May 2009, we launched our sPro™ 60 SLS® Centers. Expanding our line of sPro™ Centers, the sPro™ 60 SLS® family of new cost-saving production systems enables users to rapidly manufacture stable, durable plastic parts for demanding functional testing and end-use applications. sPro™ 60 SLS® Centers feature enhanced productivity within an optimized build volume, new CleanSweep™ IR sensor technology, the ability to process multiple materials and the flexibility to change materials quickly. Optional features include our ProScan™ digital imaging system and the AccuTemp™ thermal control system, which are designed for the most rigorous manufacturing applications. As part of our new sPro™ 60 SLS® product family, we also launched a new, affordable basic sPro™ 60 SLS® production system that offers unmatched value with the flexibility to upgrade to the more advanced sPro™ Production Centers.

• We launched our V-Flash® Desktop Printer in May 2009, the first commercially available 3-D modeler priced under $10,000. The V-Flash® Printer delivers high-quality hard-plastic parts for enhanced design at an affordable price and low total cost of ownership. V-Flash® Printers combine the versatility typically found in more expensive 3-D printers with the convenience of an easy-to-use desktop printer. Its compact size, quiet operation, and network-ready connection makes V-Flash® Printers ideal for virtually any design job at a price virtually any business can afford.

Results of Operations
Summary of 2009 financial results
We generated $1.8 million of net cash in the first six months of 2009 and finished the period with $24.0 million of unrestricted cash compared to $22.2 million of unrestricted cash at December 31, 2008.
As discussed in greater detail below, revenue for the second quarter of 2009 declined by 33% to $24.7 million from $36.7 million for the second quarter of 2008, due to weak global demand, particularly in the automotive and consumer electronics sectors. Revenue was down across all classes of products and services, primarily reflecting the cumulative effect of the decline in large-frame systems sales that began in the first quarter of 2008. Revenue for the six months ended June 30, 2009 declined 29% to $48.7 million from $68.4 million in 2008, for primarily the same reasons.
Materials sales for the second quarter of 2009 declined by $4.5 million from the second quarter of 2008 as revenue from materials was adversely impacted by the significant reduction in large-frame systems sales, which are typically accompanied by significant initial materials purchases to charge up new systems and commence production, and decreased demand due to the downturn in the global economy.
We are encouraged, however, by the improved trend in systems and materials sales during the second quarter of 2009, which increased by $1.0 million (21%) and $1.1 million (10%), respectively, from first quarter 2009 levels.
Revenue from services fell by $1.8 million to $7.1 million in the second quarter of 2009 from $8.9 million in the same quarter of 2008 primarily as a result of a significant drop in maintenance and warranty revenue, which reflects the trailing 12-month cumulative effect of lower large-frame sales that began during the first quarter of 2008. Services revenue declined by $1.4 million in the second quarter of 2009 from $8.5 million in the first quarter of 2009, resulting from the continued effect of lower large-frame sales as well as a reduced volume of systems upgrades as compared with the first quarter of 2009.
Foreign currency translation had a $1.6 million unfavorable impact on revenue in the second quarter of 2009 compared to a $2.2 million favorable impact on revenue in the second quarter of 2008 as the U.S. dollar strengthened in 2009 against most major currencies, with the exception of the Japanese Yen. Through our cost saving initiatives, in the aggregate, we were able to improve gross margin, reduce operating expenses and narrow our operating loss by $1.7 million.
Our gross profit improved modestly to $10.8 million in the second quarter of 2009 from $10.5 million in the first quarter of 2009, although it was down by $5.0 million compared to the first six months of 2008 primarily due to our lower level of revenue. Our cost of sales also fell due to a combination of lower sales and the initiatives undertaken in 2008 and the first and second quarters of 2009 to lower our cost of sales. Our gross profit margin increased to 43.8% in the second quarter of 2009 from 37.1% in the second quarter of 2008 as increased supply chain efficiencies, the elimination of certain third-party logistics costs in the U.S. and cost reductions in our field service organization more than offset lower overhead absorption over lower sales. These changes reflect the reclassifications of foreign exchange effects from cost of sales to interest and other expense (income), which are more fully described below under our discussions of "Gross profit and gross profit margins." Our operating expenses declined by $4.4 million in the second quarter of 2009 to $11.7 million from $16.1 million in the 2008 quarter. The decrease reflected lower selling, general and administrative expenses and lower research and development expenses consistent with our cost reduction initiatives. We expect our SG&A expenses for the remainder of 2009 to be in the range of $17 to $19 million, and our research and development expenses to be in the range of $5 million to $6 million.

Results of Operations - Second Quarter Comparisons Second 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 second quarter of 2009 compared to the second quarter of 2008:

Table 1

                                       Systems and
                                          Other
(Dollars in thousands)                   Products                Materials                 Services                  Totals
Revenue - 2nd quarter 2008         $ 11,487        31.3 %   $ 16,226        44.3 %   $  8,943        24.4 %   $  36,656         100 %

Change in revenue:
Volume
Core products and services           (3,304 )     (28.8 )       (590 )      (3.6 )       (604 )      (6.8 )      (4,498 )     (12.3 )
New products and services            (1,939 )     (16.9 )     (2,644 )     (16.3 )       (695 )      (7.8 )      (5,278 )     (14.4 )
Price/Mix                              (119 )      (1.0 )       (453 )      (2.8 )          -           -          (572 )      (1.5 )
Foreign currency translation           (243 )      (2.1 )       (837 )      (5.2 )       (523 )      (5.8 )      (1,603 )      (4.4 )

Net change                           (5,605 )     (48.8 )     (4,524 )     (27.9 )     (1,822 )     (20.4 )     (11,951 )     (32.6 )

Revenue - 2nd quarter 2009         $  5,882        23.8 %   $ 11,702        47.4 %   $  7,121        28.8 %   $  24,705       100.0 %

On a consolidated basis, revenue for the second quarter of 2009 declined by 32.6% to $24.7 million from $36.7 million for the second quarter of 2008. The principal factors leading to this $12.0 million decrease in consolidated revenue were the $9.8 million decrease in product unit volume, the $1.6 million unfavorable effect of foreign currency translation, and the $0.6 million combined unfavorable effect of price and mix.
Revenue from systems and other products decreased by $5.6 million or 48.8% to $5.9 million for the quarter ended June 30, 2009 from $11.5 million for the second quarter of 2008. Systems revenue fell to 23.8% of consolidated revenue in the 2009 quarter from 31.3% in the 2008 period. The decrease from the 2008 quarter arose from a $5.2 million net decrease in unit volume of core and new products, a $0.2 million unfavorable impact from foreign currency translation, and a $0.1 million combined unfavorable effect of price and mix. The decrease in volume from systems sales was due to lower sales of large-frame systems that were only partially offset by an increase in unit volume of 3-D printers. Large-frame systems represented 15% of total systems revenue for the second quarter of 2009 compared to 25% for the second quarter of 2008, while sales of small-frame systems and 3-D printers accounted for the remaining 85%, increasing from 75% for the second quarter of 2008.
Systems orders and sales tend to fluctuate on a quarterly basis as a result of a number of factors, including the types of systems ordered by customers, customer acceptance of newly introduced products, the timing of product orders and shipments, global economic conditions and fluctuations in foreign currency exchange rates. Our customers generally purchase our systems as capital equipment items, and their purchasing decisions may have a long lead time. Due to the relatively high list price of certain systems and 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. However, as noted above, production and delivery of our systems is generally not characterized by long lead times, and backlog is therefore generally not a material factor in our business.
At June 30, 2009 our backlog was approximately $1.6 million, a 20.0% increase from the $1.4 million of backlog at December 31, 2008, and a 47.4% increase from the $1.1 million of backlog at June 30, 2008. We believe that our level of backlog at June 30, 2009 is generally consistent with the normal operating trends in our business.
As used in this Management's Discussion and Analysis, the combined effect of changes in product mix and average selling prices, sometimes referred to as price and mix effects, 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.
Revenue from materials was also adversely impacted by lower large-frame systems sales, which are typically accompanied by significant initial materials purchases to charge up new systems and commence production, and decreased demand in the global marketplace due to the continued overall economic downturn. Revenue from materials declined by $4.5 million or 27.9% to $11.7 million for the second quarter of 2009 from $16.2 million for the 2008 quarter and represented 47.4% of consolidated revenue in the 2009 period compared to 44.3% in the 2008 period. The decrease in materials revenue was the result of the $3.2 million decrease in core and new product volume, the $0.8 million unfavorable effect of foreign currency translation, and the $0.5 million unfavorable combined effect of price and mix. Sales of integrated materials represented 30% of total materials revenue in the second quarter of 2009 compared to 35% in the first quarter of 2009 and 28% in the fourth quarter of 2008. Sales of integrated materials in the second quarter of 2009 decreased 18% compared to the second quarter of 2008.

Revenue from services decreased by $1.8 million or 20.4% to $7.1 million for the second quarter of 2009 from $8.9 million for the 2008 period and increased to 28.8% of consolidated revenue from 24.4% for the 2008 period. This overall decrease in services revenue reflects a reduction in maintenance revenue and the trailing 12-month cumulative impact of the decline in large-frame systems sales on warranty revenue.
Change in second quarter revenue by geographic region Each geographic region contributed to our lower level of revenue in the second quarter of 2009. Table 2 sets forth the change in revenue by geographic area for the second quarter of 2009 compared to the second quarter of 2008:

Table 2

(Dollars in thousands)                     U.S.                    Europe                Asia-Pacific                Totals
Revenue - 2nd quarter 2008         $ 16,055        43.8 %   $ 14,933        40.7 %   $  5,668        15.5 %   $  36,656         100 %

Change in revenue:
Volume                               (2,867 )     (17.9 )     (3,681 )     (24.7 )     (3,228 )     (57.0 )      (9,776 )     (26.7 )
Price/Mix                            (1,733 )     (10.8 )      1,205         8.1          (44 )      (0.8 )        (572 )      (1.5 )
Foreign currency translation              -           -       (1,715 )     (11.5 )        112         2.0        (1,603 )      (4.4 )

Net change                           (4,600 )     (28.7 )     (4,191 )     (28.1 )     (3,160 )     (55.8 )     (11,951 )     (32.6 )

Revenue - 2nd quarter 2009         $ 11,455        46.3 %   $ 10,742        43.5 %   $  2,508        10.2 %   $  24,705         100 %

Revenue from U.S. operations declined by $4.6 million or 28.7% to $11.5 million in 2009 from $16.1 million in the second quarter of 2008. The decrease was due to lower volume and the unfavorable combined effect of price and mix. Revenue from non-U.S. operations for the second quarter of 2009 declined by $7.4 million or 35.7% to $13.2 million from $20.6 million for the second quarter of 2008. Revenue from non-U.S. operations as a percent of total revenue was 53.7% and 56.2%, respectively, for the second quarters of 2009 and 2008. The decline in non-U.S. revenue, excluding the effect of foreign currency translation, was 27.9% in the second quarter of 2009.
Revenue from European operations declined by $4.2 million or 28.1% to $10.7 million from $14.9 million in the prior year period. This decrease was due to a $3.7 million decline in volume and the $1.7 million unfavorable impact of foreign currency translation, partially offset by a $1.2 million favorable combined effect of price and mix.
Revenue from Asia-Pacific operations declined by $3.2 million or 55.8% to $2.5 million from $5.7 million in the prior year period due primarily to the unfavorable $3.3 million combined decrease in volume, price and mix as sales were adversely affected by the previously disclosed reorganization filing of our largest Japanese customer. This decline in sales volume was partially offset by $0.1 million in favorable foreign currency translation. Gross profit and gross profit margins - second quarter Table 3 sets forth gross profit and gross profit margin for our products and services for the second quarters of 2009 and 2008:

Table 3

                                                Quarter Ended June 30,
                                            2009                       2008
                                    Gross           %          Gross           %
          (Dollars in thousands)    Profit       Revenue       Profit       Revenue
          Systems                  $  1,090          18.5 %   $  2,284          19.9 %
          Materials                   7,051          60.3        9,919          61.1
          Services                    2,689          37.8        1,402          15.7

          Total                    $ 10,830          43.8 %   $ 13,605          37.1 %

We reclassified $0.3 million of foreign exchange loss, that had previously been included in product cost of sales for the second quarter of 2008, to interest and other expense (income), net in our condensed consolidated statement of operations. This had the effect of increasing our previously reported gross profit and interest and other expense (income), net for the second quarter of 2008 by $0.3 million and of decreasing operating loss for that quarter by the same amount. It did not affect any of the other line items on our condensed consolidated statement of operations for 2008, and this management discussion and analysis reflects the results of this reclassification.

On a consolidated basis, gross profit for the second quarter of 2009 decreased by $2.8 million to $10.8 million from $13.6 million in the second quarter of 2008, primarily as a result of lower materials sales and lower large-frame systems revenue.
Consolidated gross profit margin in the second quarter of 2009 improved by 6.7 percentage points to 43.8% of revenue from 37.1% of revenue for the 2008 quarter. Countering the adverse effect of our lower revenue, the increase in gross profit margin reflected the effect of various cost savings initiatives that we pursued in 2008 and during the first two quarters of 2009, which included certain supply chain efficiencies, the movement of certain third-party logistics activities in-house, the sale of system upgrades and a reduction in field service costs.
Systems gross profit for the second quarter of 2009 decreased to $1.1 million from $2.3 million for the 2008 quarter. Gross profit margin for systems decreased by 1.4 percentage points to 18.5% of revenue from 19.9% of revenue in the 2008 quarter. The 2009 gross profit margin was adversely affected by approximately 2.1 percentage points due to the previously disclosed negative impact on margin of sales of our V-Flash® Desktop Printer and by the decline in volume discussed above resulting in the absorption of fixed costs over fewer units. Partially offsetting this decline were supply chain efficiencies and lower system refurbishment costs.
Materials gross profit for the second quarter of 2009 decreased by $2.8 million or 28.9% to $7.1 million from $9.9 million for the 2008 quarter, and gross profit margin for materials decreased by 0.8 percentage points to 60.3% of revenue from 61.1% of revenue in the 2008 quarter primarily due to the decline in sales volume of materials, which was adversely affected by the lower level of large-frame systems sales and decreased demand due to weakness in the overall global economy.
Gross profit for services for the second quarter of 2009 increased by $1.3 million or 91.8% to $2.7 million from $1.4 million for the 2008 quarter, and gross profit margin for services increased by 22.1 percentage points to 37.8% of revenue from 15.7% of revenue in the 2008 quarter. The improved gross profit was due to the combined effect of a decline in fixed costs associated with our decision to cease servicing certain legacy products, resolution of the premature failure of certain system components and reductions in field service costs initiated in 2008.
Operating expenses
As shown in Table 4, total operating expenses decreased by $4.4 million or 27.6% to $11.7 million in the second quarter of 2009 from $16.1 million in the second quarter of 2008 as our cost savings initiatives have gained traction, as evidenced by continued declines in operating expenses in each of the last seven quarters. This decrease consisted of $3.8 million in lower selling, general and administrative expenses and $0.6 million of lower research and development expenses, both of which are discussed below.

Table 4

                                                        Quarter Ended June 30,
                                                 2009                           2008
                                                          %                              %
(Dollars in thousands)                  Amount         Revenue         Amount         Revenue
Selling, general and administrative
expenses                               $   8,818            35.7 %    $  12,555            34.2 %
Research and development expenses          2,855            11.6          3,578             9.8

Total operating expenses               $  11,673            47.3 %    $  16,133            44.0 %

Selling, general and administrative expenses Selling, general and administrative expenses declined by $3.8 million to $8.8 million in the second quarter of 2009 compared to $12.6 million in the second quarter of 2008 primarily related to:
• a $1.8 million decline in compensation costs primarily due to lower staffing levels;

• $0.4 million of lower accounting fees;

• $0.3 million of lower contract labor and consultant costs;

• $0.3 million of lower travel expenses;

• $0.3 million of lower costs associated with trade shows;

• $0.2 million of lower occupancy costs; and

• $0.2 million of lower advertising expenses.

Research and development expenses
Research and development expenses decreased by $0.7 million or 20.2% to $2.9 million in the second quarter of 2009 from $3.6 million in the second quarter of 2008, principally due to a $0.8 million decrease in outside consulting services in the 2009 quarter and the reduction in costs for 2009 following the commercialization of certain of our new products previously announced in 2008.
Loss from operations
Our loss from operations for the second quarter of 2009 decreased by $1.7 million to $0.8 million from $2.5 million in the second quarter of 2008, including the effect of the second quarter 2008 reclassification discussed above. See "Gross profit and gross profit margins" above. Our reduced loss from operations in the quarter ended June 30, 2009 reflected our higher gross profit margin and our lower operating expenses, which partially offset the effect of our lower consolidated revenue.
The following table sets forth operating loss by geographic area for the second quarter of 2009 and 2008:

Table 5

                                               Quarter Ended June 30,
             (in thousands)                      2009             2008
             Income (loss) from operations
             United States                   $     (2,286 )     $ (3,510 )
             Germany                                  262            279
             Other Europe                             288            631
             Asia Pacific                             364             (3 )

             Subtotal                              (1,372 )       (2,603 )
             Inter-segment elimination                529             75

             Total                           $       (843 )     $ (2,528 )

With respect to the U.S., the changes in operating loss from 2008 to 2009 reflected the same factors relating to our consolidated operating loss that are discussed above. As most of our operations outside the U.S. are conducted through sales and marketing subsidiaries, the changes in operating income
(loss) in our operations outside the U.S. from 2008 to 2009 are affected by changes in transfer pricing. Interest and other expense (income), net Interest and other expense (income), net decreased to $0.3 million of net expense in the second quarter of 2009 from $0.5 million in the 2008 quarter, after giving effect to the reclassification of foreign currency effects discussed above. See "Gross profit and gross profit margins" above. Table 6 shows the components of the decrease:

Table 6

                                       Quarter Ended June 30,
             (in thousands)            2009             2008         Change
             Interest expense        $     162       $       261     $   (99 )
             Interest income               (10 )            (194 )       184
             Foreign currency loss          44               285        (241 )
             Other                          64               133         (69 )

             Total                   $     260       $       485     $  (225 )

The reduction in interest expense from 2008 resulted from the repayment of the outstanding industrial development bonds in January 2009, while the lower interest income was the result of our having moved our short-term investments into U.S. Treasury funds.
Provision for income taxes
We recorded a provision for income taxes of $0.2 million in the quarter ended June 30, 2009, compared to $0.3 million for the quarter ended June 30, 2008. Our provision for income taxes primarily reflects income taxes in foreign jurisdictions.
Net loss
Our net loss for the second quarter of 2009 improved to $1.3 million, compared to $3.3 million for the second quarter of 2008. The principal reasons for our lower net loss for the second quarter 2009, discussed in more detail above, were: the $1.7 million reduction in our operating loss, the $0.2 million reduction in interest and other expense (income), net, and the $0.1 million decrease in our provision for income taxes.
For the quarter ended June 30, 2009, our weighted average common shares outstanding were 22.5 million, and on a per share basis the basic and diluted loss per share for the same period was $0.06. For the quarter ended June 30, . . .