3D AUDIT NEARLY FINISHED QUESTIONS PROMPTED STUDY.

Byline: Naush Boghossian Staff Writer

SANTA CLARITA - 3D Systems Corp. of Valencia reported Thursday that its internal audit stemming from a discrepancy in its financial report is almost complete.

Questions over $3 million in sales counted as revenue for 2002 rather than 2003 prompted the board of director's audit committee investigation.

3D's year-end report revealed that sales totaling $3 million could not be counted as revenue during 2002, reducing the company's earnings to $31 million.

Minus the $3 million, the company failed to turn a profit last year and has defaulted on the terms of its bank loans.

The audit committee plans to discuss the reports with the company's board and with Deloitte & Touche, its auditors, in the next week. Company officials have said they expect the majority of the amount to be recognized as revenue in the first quarter of 2003.

An industry analyst said he believed the entire issue could be an accounting or bookkeeping error.

``I don't think there are any issues of unethical or illegal conduct,'' said Jay Harris, an analyst with Goldsmith & Harris, who conceded his opinion is based mainly on the company's press releases. 3D Systems officials have declined comment.

``The audit issues appear to be overwhelmingly timing issues, which I presume are revenue recognition in nature and how certain balance sheet items are amortized, Harris said.''

3D Systems could lose its listing on the Nasdaq exchange after missing the deadline to file its annual report for 2002 because of the audit, but Harris said that is doubtful.

``I think there have been cases where companies have been up to six months late and have not been delisted,'' Harris said.

Still the company was notified April 15 that its securities are subject to delisting from the Nasdaq National Market because it violated a rule that requires timely earnings reports.

Company officials have requested a hearing before the Nasdaq Listing Qualifications Panel to review the staff's decision. Under Nasdaq rules, pending a decision by that panel, 3D's common stock will continue to trade on Nasdaq.

The year so far has been a turbulent one for 3D. In February, the chief financial officer was placed on administrative leave after the company was forced to restate its earnings for the last quarter of 2002. His termination was effective Monday.

A company spokeswoman said CFO E. James Selzer's suspension was related to the revenue shortfall.

Founded in 1986, 3D Systems manufactures the equipment and materials used to create three-dimensional models from computer images. The technology is used in a range of industries to design products from cars to jewelry.