<PAGE>
 
================================================================================



                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q
                                        

(Mark One)
[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934  FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
                                       Or
[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from    to

Commission file number: 0-20993


                                DTM CORPORATION
            (Exact name of registrant as specified in its charter)
                                        
             TEXAS                                            74-2487065
     (State or other jurisdiction of                        (I.R.S. Employer
     incorporation or organization)                        Identification No.)
    

1611 HEADWAY CIRCLE, BUILDING 2, AUSTIN, TEXAS                     78754       
    (Address of principal executive offices)                     (Zip Code)     
      

                                (512) 339-2922
             (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 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 X  No__.
                                          
As of October 31, 1998, the latest practicable date, the Registrant had
6,286,851 outstanding shares of Common Stock.



================================================================================
<PAGE>

                                    PART I 
                             FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS

                                DTM CORPORATION

          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
              (In thousands, except share and per share amounts)

<TABLE> 
<CAPTION> 
                                                       Three Months Ended                  Nine Months Ended 
                                                          September 30,                       September 30,
                                             ---------------------------------   ----------------------------------
                                                  1998              1997              1998               1997
                                             --------------    ---------------   --------------    ----------------
 <S>                                         <C>               <C>               <C>               <C>  
 Revenue:
      Products                                 $     5,063        $     2,214      $    16,624         $    15,647
      Service and support                              839                638            2,591               2,027
                                               ------------       ------------     ------------        ------------
                                                     5,902              2,852           19,215              17,674
 Cost of sales:
      Products                                       2,779              1,139           10,289               8,699
      Service and support                              602                575            1,632               1,607
                                               ------------       ------------     ------------        ------------
                                                     3,381              1,714           11,921              10,306
                                               ------------       ------------     ------------        ------------
 Gross Profit                                        2,521              1,138            7,294               7,368

 Operating expenses:
      Selling, general and administrative            2,876              2,266            8,227               8,289
      Research and development                         850              1,203            2,693               3,596
      Provision for litigation settlement                -                  -            1,700                   -
      Stock compensation (EAP)                           -                  -                -               2,927
                                               ------------       ------------     ------------        ------------
                                                     3,726              3,469           12,620              14,812
                                               ------------       ------------     ------------        ------------
 Operating loss                                     (1,205)            (2,331)          (5,326)             (7,444)

 Other income (expense):
      Gain on sale of assets                           258                                 258
      Other income                                       -                 56                6                  96
      Interest expense                                 (10)               (17)             (36)               (418)
                                               ------------       ------------     ------------        ------------
                                                       248                 39              228                (322)
                                               ------------       ------------     ------------        ------------

 Loss before income tax                               (957)            (2,292)          (5,098)             (7,766)

 Income tax (benefit) expense                            -                 29                -                (478)
                                               ------------       ------------     ------------        ------------
 Net loss                                      $      (957)       $  $ (2,321)     $    (5,098)        $    (7,288)
                                               ============       ============     ============        ============

 Net loss per common share - basic             $     (0.15)       $   $ (0.37)     $     (0.81)        $     (1.48)
                                               ============       ============     ============        ============
 Weighted-average number of shares
      outstanding                                6,286,851          6,283,082        6,286,851           4,924,685
                                               ============       ============     ============        ============
</TABLE> 

See accompanying notes.

                                       1

<PAGE>
                                DTM CORPORATION

              CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                     (In thousands, except share amounts)

<TABLE> 
<CAPTION> 

                                                                           September 30,        December 31,
                                                                              1998                  1997
                                                                         --------------         -------------
<S>                                                                      <C>                    <C>
 Assets                                                                                     
 Current assets:                                                                            
      Cash                                                               $        2,011         $       2,050
      Accounts receivable, net                                                    3,980                 4,981
      Receivable for litigation settlement                                        1,500                     -
      Inventory                                                                   4,108                 5,839
      Prepaid expenses and other                                                    303                   404
                                                                         --------------         -------------
 Total current assets                                                            11,902                13,274
 Property, net                                                                    1,675                 2,299
 Capitalized software development costs, net                                        714                   753
 Patent and license fees, net                                                       996                 1,080
 Other noncurrent assets                                                             40                   142
                                                                         --------------         -------------  
 Total assets                                                            $       15,327         $      17,548
                                                                         ==============         =============
                                                                                            
 Liabilities and shareholders' equity                                                       
 Current liabilities:                                                                       
      Accounts payable                                                   $        3,416         $       3,839
      Due to BFGoodrich                                                             907                   909
      Deferred revenues                                                           2,166                 1,604
      Accrued litigation settlement                                               3,144                     -
      Accrued expenses and other liabilities                                      1,454                 1,783
      Short-term borrowings                                                           -                   175
                                                                         --------------         -------------
 Total current liabilities                                                       11,087                 8,310
                                                                                            
 Shareholders' equity:                                                                      
      Preferred stock                                                                 -                     -
      Common stock, 6,286,851 shares outstanding                                            
         at September 30, 1998 and December 31, 1997                                  1                     1
      Additional paid-in capital                                                 50,256                50,256
      Stock options outstanding                                                   2,905                 2,905
      Accumulated deficit                                                       (48,855)              (43,757)
      Accumulated other comprehensive loss                                          (67)                 (167)
                                                                         --------------         -------------
 Total shareholders' equity                                                       4,240                 9,238
                                                                         --------------         -------------
 Total liabilities and shareholders' equity                              $       15,327         $      17,548
                                                                         ==============         =============
</TABLE> 

See accompanying notes.

                                       2
<PAGE>
                                DTM CORPORATION

          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                (In thousands)

<TABLE> 
<CAPTION>
                                                                                Nine Months Ended
                                                                                   September 30,
                                                                           ----------------------------
                                                                               1998            1997
                                                                           -------------   ------------
<S>                                                                        <C>             <C>
Operating activities:
Net loss                                                                   $    (5,098)    $   (7,288)
Adjustments to reconcile net loss to net cash provided by (used in)
      operating activities:
         Depreciation and amortization                                           1,525          1,795
         Provision for obsolescence                                                675              -
         Provision for litigation settlement - stock portion                       400              -
         Stock compensation (EAP) expense                                            -          2,927
         Gain on sale of assets                                                   (258)             -
         Changes in assets and liabilities used in operating activities:
             Accounts receivable                                                 1,001          3,811
             Inventory                                                           1,056         (3,065)
             Prepaid expenses and other current assets                             203            308
             Accounts payable                                                     (423)        (1,375)
             Due to BFGoodrich                                                      (2)           655
             Deferred revenues                                                     562            (90)
             Accrued litigation net of receivable                                1,244              -
             Accrued expenses and other current liabilities                       (329)        (1,011)
                                                                           -----------     ----------
 Net cash provided by (used in) operating activities                               556         (3,333)

 Investing activities:
 Purchases of property                                                          (1,184)          (752)
 Capitalized software development costs                                           (231)          (200)
 Patent and license expenditures                                                  (121)          (539)
 Proceeds from sale of assets                                                    1,016              -
                                                                           -----------     ----------
 Net cash used in investing activities                                            (520)        (1,491)

 Financing activities:
 Proceeds from public stock offering                                                 -         20,706
 Proceeds from short-term borrowings                                               500            371
 Repayments of short-term borrowings                                              (675)          (965)
 Proceeds from notes payable                                                         -            800
 Repayments of notes payable                                                         -        (11,840)
 Repayment of line of credit from BFGoodrich                                         -         (2,500)
                                                                           -----------     ----------
 Net cash provided by (used in) financing activities                              (175)         6,572

 Effect of foreign exchange rate changes on cash                                   100            (71)
                                                                           -----------     ----------

 Net change in cash                                                                (39)         1,677
 Cash at the beginning of the period                                             2,050            329
                                                                           ===========     ==========
 Cash at the end of the period                                             $     2,011     $    2,006
                                                                           ===========     ==========
 Noncash item:
 Conversion of BFGoodrich debt to equity                                   $         -     $    1,500
</TABLE> 

See accompanying notes

                                       3
<PAGE>
 
                                DTM CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


1.  BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of DTM
Corporation ("DTM or the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months and nine months ended September 30, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and related footnotes of the Company for the year ended
December 31, 1997 as disclosed in the Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1998.

2.  INVENTORY

Inventory consisted of the following (in thousands):

                                                    September 30,   December 31,
                                                       1998             1997
                                                    ------------   -------------

      Raw materials and purchased parts                 $ 2,790         $ 2,863
      Finished goods                                      1,717           3,101
                                                    ------------   -------------
                                                          4,507           5,964
              Reserve for obsolescence                     (399)           (125)
                                                    ------------   -------------
                                                        $ 4,108         $ 5,839
                                                    ============   =============

3.  FINANCIAL INSTRUMENTS

The Company uses forward foreign currency exchange contracts, which typically
expire within one year, to hedge payments and receipts of foreign currencies,
related to the purchase and sale of goods overseas. Realized gains and losses on
these contracts are recognized in the same period as the hedged transactions.
The Company had a foreign currency exchange contracts on hand at September 30,
1998, primarily hedging Yen revenues, totaling $433,000.

4.  CERTAIN LEASE ACTIVITY

The Company's main facility has been located in Austin, Texas since 1990 and
contains specialized leasehold improvements. A new operating lease for this
facility was executed in April 1998. An additional 20,000 square feet in an
adjacent building was added to the lease in June 1998. The new 20,000 square
foot space has been configured for manufacturing. In addition, off-site
inventory storage in the Austin area has been discontinued and the inventory has
been consolidated into the new space. The future minimum annual payments under
this lease for the approximately 50,000 square feet are $250,000 through 2000,
$275,000 from 2001 through 2003 and $312,500 from 2004 through 2006.

In August 1998, the Company sold at cost new Sinterstation Systems to a leasing
company and then leased them back under a 24-month operating lease. The Company
will use these systems for internal use in development and customer support
activities. The future minimum monthly payments under this lease are $17,040
through August 2000.

                                       4
<PAGE>

                                DTM CORPORATION
      
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
5.  COMPREHENSIVE INCOME

In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which
is effective for fiscal years beginning after December 15, 1997. Comprehensive
income includes net income and other revenues, expenses, gains, and losses that
are excluded from net income but are included as a component of total
shareholders' equity. Comprehensive loss for the three months ended September
30, 1998 and 1997 was $858,000 and $2,261,000, respectively. Comprehensive loss
for the nine months ended September 30, 1998 and 1997 was $4,998,000 and
$7,359,000, respectively. The difference between comprehensive loss and net loss
is comprised of the effect of currency translation adjustments and hedging
activity in accordance with Financial Accounting Standards Board Statement No.
52, "Foreign Currency Translation." The accumulated balance of foreign currency
and hedging activity, excluded from net loss, is presented in the Condensed
Consolidated Balance Sheets as "Accumulated other comprehensive loss."

6.  LITIGATION SETTLEMENTS

DTM has entered into a proposed settlement of the class action lawsuit. The
settlement fund of $3,000,000 is to be comprised of $2,600,000 in cash and
$400,000 of DTM common stock. On October 30, 1998, the Company placed $1.1
million of its funds and the insurance company placed $1.5 million of its funds
into a settlement escrow account.  The settlement is now subject only to final
court approval. The number of newly issued and freely tradable shares to be
issued is to be based upon the average closing price of the stock for the 15
days preceding the date of final Court approval. The date of final Court
approval is expected in January 1999. The charge to its second quarter statement
of operations in the amount of $1.7 million, consists of $3.0 million, the
proposed value of the settlement, and $200,000 in other costs, net of the
insurance recovery of $1.5 million. See also Note 7.

On September 14, 1998, DTM and one of its North America customers in entered
into an agreement to settle all ongoing litigation between them.

7.  CONTINGENCIES

In the ordinary course of business, the Company becomes involved in legal
proceedings and claims. In one such instance, the Company has initiated patent
infringement litigation in France, Germany and Italy against a competitor and
against one of that competitor's customers. The Company also initiated patent
infringement litigation in Japan against the competitor's distributor in the
Pacific Rim. In each of these cases, the Company alleges that the competitor is
selling rapid prototyping systems in Europe and Japan that make unauthorized use
of selective laser sintering technology covered by the European and Japanese
patents under which the Company has exclusive rights. The Company seeks
injunctive relief plus damages. It is anticipated that this litigation will be
pursued in conjunction with European and Japanese proceedings in which the
competitor has opposed the validity of those European and Japanese patents.
Hearings have begun in the German, French, Italian and Japanese lawsuits. It is
not possible at this time to predict the outcome of these proceedings.

DTM has been informed by this competitor that it has obtained the worldwide
right to enforce certain U.S. patents and that it may bring patent infringement
litigation against the Company in U.S. courts. It is not possible at this time
to predict the outcome of this possible action, although the Company has
conducted a review of the patents in question and believes that it is not
infringing or would have valid defenses to claims such competitor may make
regarding selective laser sintering. If such a lawsuit is filed, the Company
intends to defend itself vigorously. However, a ruling that would have the
effect of allowing the competitor to sell rapid prototyping systems in the U.S.
without a license from DTM could have a material adverse effect on the Company's
business and financial performance.

A lawsuit was filed in November 1997 against the Company whereby certain
plaintiffs claim that the Company in connection with the initial public offering
of its stock made material misstatements or

                                       5 
<PAGE>

                                DTM CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
omissions. The Company has entered into a proposed settlement of this lawsuit as
more fully discussed in Note 6.

8.  NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which is required to be adopted in years beginning
after June 15, 1999. The Statement permits early adoption as of the beginning of
any fiscal quarter after its issuance. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair market value of the derivative
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of the derivative's change in fair value will be immediately
recognized in earnings.

The Company has not yet determined what the effect of Statement of Financial
Accounting Standards No. 133 will be on its earnings and financial position and
has not yet determined the timing or method of adoption. However, the Statement
could increase volatility in earnings and comprehensive income.

                                       6
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANNALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.


BUSINESS ENVIRONMENT AND RISK FACTORS

     The following discussion and analysis should be read in conjunction with
the information set forth under the Company's Unaudited Condensed Consolidated
Financial Statements and notes thereto, as well as the section below under the
heading "Risk Factors That May Affect Future Results and Safe Harbor Statement."
The Company's future operating results may be affected by various trends and
factors, which are beyond the Company's control. These include, among other
factors, changes in general economic conditions, rapid or unexpected changes in
technologies and uncertain business conditions that affect the rapid prototyping
and rapid tooling industry. Accordingly, past results and trends should not be
used by investors to anticipate future results or trends.

     With the exception of historical information, the matters discussed below
under the heading "Results of Operations" and "Liquidity and Capital Resources"
may include forward-looking statements that involve risks and uncertainties. All
statements, trends and other information contained in this Quarterly Report on
Form 10-Q relative to markets for the Company's products and trends in revenue,
gross margin and anticipated expense levels constitute forward-looking
statements. These forward-looking statements generally can be identified by the
use of words such as "anticipate", "believe", "plan", "estimate", "expect",
"intend", "may", and "should" and other similar terminology. The Company wishes
to caution readers that a number of important factors, including those
identified in the section entitled "Risk Factors That May Affect Future Results
and Safe Harbor Statement" as well as factors discussed elsewhere in this report
and in the Company's other reports filed with the Securities and Exchange
Commission, could affect the Company's actual results and cause actual results
to differ materially from those forward-looking statements.

OVERVIEW

     DTM Corporation designs, develops, manufactures, markets and supports, on
an international basis, rapid prototyping and rapid tooling systems and related
powdered sintering materials and services. The Company's Sinterstation Systems
and powdered sintering materials are based on proprietary and patented selective
laser sintering technology. DTM was incorporated in 1987 and completed its
initial public offering ("IPO") of Common Stock in May 1997. Prior to shipment
of its first generation Sinterstation in 1992, the Company derived revenues
solely from a rapid prototyping service bureau it operated in Austin, Texas. In
1993, the Company sold its service bureau. Since 1992, DTM has shipped over 200
Sinterstation Systems worldwide.

     The Company's selective laser sintering process uses laser energy to sinter
powdered material to create solid objects that aid in the design and manufacture
of products. Customers input designs into the Sinterstation Systems in the form
of CAD drawings. The Company's Sinterstation Systems employ a combination of
software and hardware to produce functional models, patterns, injection-molding
tooling, and metal parts from a variety of powdered materials. The functional
models are used to verify a design's form and fit. The patterns can, in turn, be
used for secondary processes such as the production of non-durable molds and
investment casting. The Company's RapidTool process employs selective laser
sintering along with a furnace cycle to produce steel/copper composite mold
inserts that are used by the injection molder to produce production parts in
quantity. A variant of the RapidTool process is the production of mold inserts
in the Sinterstation System from a copper-reinforced thermoplastic-based
material system, without the need for a furnace cycle, that are used by the
injection molder to produce short-run production parts. Sinterstation Systems
also can be used in combination with the Company's RapidTool process with a
furnace cycle to produce metal parts.

     The Company's Sinterstation Systems are purchased by manufacturers,
universities, military and defense organizations and by service bureaus. These
service bureaus utilize rapid prototyping equipment to provide services to other
companies involved in product development. The Company distributes its products
in the United States, Canada, Western Europe and certain Pacific Rim and South
American countries. In the United States and Canada, the Company employs a
direct sales force. In Germany, DTM 

                                       7
<PAGE>
 
GmbH, a wholly owned subsidiary, distributes DTM's products. DTM GmbH is a sales
and service organization whose efforts are augmented by sales agents in France,
Italy, Portugal, Spain and Sweden. In the United Kingdom, DTM (UK) LTD., a
wholly owned subsidiary, distributes and services DTM's products. The Company
also distributes its goods and provides services in the Pacific Rim and South
America through a network of agents, including agents in Argentina, Australia,
Brazil, China, Hong Kong, India, Indonesia, Japan, Malaysia, Singapore, South
Korea and Taiwan.

     DTM's Sinterstation Systems typically include hardware, material handling
equipment, documentation, licenses for using DTM supplied software, licenses for
using DTM-supplied powdered sintering materials and installation. They can be
configured for use with a single sintering powder or for any combination of
thermoplastic, foundry sands or metal sintering powders. DTM typically offers
its Sinterstation Systems packaged with a 12-month warranty and preventive
maintenance contract, installation services, training services and an initial
supply of sintering materials. DTM offers a wide range of proprietary sintering
materials and software that optimizes their use in the Sinterstation System.

     The total value of a packaged offering is allocated among its various
components: systems and related equipment sintering materials, immediate
services and deferred services. Revenues from the sale of products are
recognized when title has transferred to the customer, when the Company's
remaining obligations are insignificant and when collection of the related
receivable is probable, which is upon shipment. The Company defers from three to
six percent of the revenues, excluding certain accessories, from each
Sinterstation System sale to cover the cost of a one-year warranty period. This
deferred amount represents the Company's estimate of the cost of providing such
warranty and preventative maintenance service and is recognized ratably as
service and support revenue over the 12-month warranty period. Upon expiration
of the 12-month warranty period discussed above, the Company offers for sale to
its customers an annual maintenance contract, the revenues from which are
recognized ratably as service and support revenue over the related support
period.

     In August 1998, DTM commenced delivery of a third generation selective
laser sintering system platform, named the Sinterstation 2500plus. Manufacture
of the previous system platforms, marketed as the Sinterstation 2000 and
Sinterstation 2500, were discontinued in July 1998. With the introduction of the
Sinterstation 2500plus, DTM has over the past year introduced a completely new
generation of platforms, sintering materials and sintering processes. The
Company believes that the increased demand for its products in the second and
third quarters of 1998 is a result of the new sintering materials that were
introduced in the previous ten months. However, there can be no assurance that
this increased demand will continue.

     The introduction of the new Sinterstation 2500plus in August of 1998 was
the culmination of a year-long project to design a system with a lower
manufactured cost that would permit the Company to be more price competitive
while improving its gross margins. Third quarter 1998 sales were a mixture of
Sinterstation 2500plus Systems and the older models at close out pricing. Until
the remaining existing small inventory of the Sinterstation 2000 Systems is
depleted, sales in the coming quarter or quarters will be a mix of the old and
new models.

     Revenues for the third quarter of 1998 were at record levels for such
period. Likewise, revenues for the first nine months of 1998 were at record
levels for such period. Overall, revenues increased by 107% for the third
quarter of 1998 and 8% for the first nine months of 1998 compared to the similar
periods of the prior year.

     The Company has been attempting to remedy the softening in North American
demand that the Company experienced in mid-1997 through the introduction of
second generation sintering materials for functional prototyping, short-run
tooling and long-run tooling applications. In the third quarter of 1998, DTM
derived 50% of its revenues from North America for the first time since 1996.

     Internationally, revenues derived from European customers were up for the
third quarter of 1998 and for the first nine months of 1998. Revenues derived
from customers in the Pacific Rim were down 22% in the third quarter of 1998 and
were down 47% for the first nine months of 1998, due to the economic conditions
in that region.

                                       8
<PAGE>
 
     To date, the Company has yet to report a profitable quarter.

     The B.F. Goodrich Company ("BFGoodrich") currently owns 3,157,190 shares of
the Company's Common Stock, representing 50.2% of the outstanding shares.
BFGoodrich has stated for many years that its interest in DTM is primarily
financial. BFGoodrich also has informed the Company that it intends to divest
its interest in the Company.

     With the expected issuance of $400,000 worth of Common Stock in the coming
months as part of the settlement of the shareholder class action suit,
BFGoodrich's ownership will drop below 50% and DTM will lose the benefit of
participation in certain of BFGoodrich's insurance programs. The Company has
plans to spend an additional $50,000 per quarter in 1999 to replace these
insurance programs.

                                       9
<PAGE>
 
RESULTS OF OPERATIONS

     The following table sets forth for the periods indicated revenues 
attributable to each of the major geographic regions from which the Company 
derives revenues, and those revenues as a percentage of total revenues:



<TABLE> 
<CAPTION> 
                                           Three Months Ended         Nine Months Ended
                                               September 30,             September 30,
                                       ------------------------    ---------------------------
                                          1998          1997          1998            1997
                                       ----------    ----------    -----------    ------------
<S>                                    <C>           <C>           <C>            <C>        
North America                            $ 3,132         $ 941        $ 9,185         $ 6,320
Europe                                     1,905           803          6,853           5,792
Pacfic Rim                                   865         1,108          3,177           5,562
                                       ----------    ----------    -----------    ------------  
  Total revenues                         $ 5,902       $ 2,852       $ 19,215        $ 17,674
                                       ==========    ==========    ===========    ============

North America                               53.0%         33.0%          47.8%           35.7%
Europe                                      32.3%         28.2%          35.7%           32.8%
Pacfic Rim                                  14.7%         38.8%          16.5%           31.5%
                                       ----------    ----------    -----------    ------------
  Total revenues                           100.0%        100.0%         100.0%          100.0%
                                       ==========    ==========    ===========    ============
</TABLE> 

     The following table sets forth for the periods indicated certain income 
statement data as a percentage of total revenues and certain cost of sales data 
as a percentage of respective product revenues and service and support revenues.


<TABLE> 
<CAPTION> 
                                               Three Months Ended              Nine Months Ended
                                                  September 30,                   September 30,
                                           ----------------------------    -----------------------------
                                               1998            1997            1998            1997
                                           ------------    ------------    -------------   -------------
<S>                                        <C>             <C>             <C>             <C> 
Revenue:
     Products                                  85.8 %          77.6 %           86.5 %          88.5 %
     Service and support                       14.2 %          22.4 %           13.5 %          11.5 %
                                           ------------    ------------    -------------   -------------    
                                              100.0 %         100.0 %          100.0 %         100.0 %
Gross Profit:
     Products margin                           45.1 %          48.6 %           38.1 %          44.4 %
     Service and support margin                28.2 %           9.9 %           37.0 %          20.7 %
                                           ------------    ------------    -------------   -------------
     Gross profit                              42.7 %          39.9 %           38.0 %          41.7 %
                                           ------------    ------------    -------------   -------------

Operating expenses:
     Selling, general and administrative       48.7 %          79.5 %           42.8 %          46.9 %
     Research and development                  14.4 %          42.2 %           14.0 %          20.3 %
     Provision for litigation settlement          -               -              8.8 %             -
     Stock compensation (EAP)                     -               -                -            16.6 %
                                           ------------    ------------    -------------   -------------
     Total                                     63.1 %         121.7 %           65.6 %          83.8 %
                                           ------------    ------------    -------------   -------------
Operating loss                                (20.4)%         (81.8)%          (27.6)%         (42.1)%

Other income (expense):
     Gain on asset sales                        4.4 %             -              1.3 %             -
     Other income                                 -             2.0 %              -             0.5 %
     Interest expense                          (0.2)%          (0.6)%           (0.2)%          (2.3)%
                                           ------------    ------------    -------------   -------------
     Total                                      4.2 %           1.4 %            1.1 %          (1.8)%
                                           ------------    ------------    -------------   -------------

Loss before income tax                        (16.2)%         (80.4)%          (26.5)%         (43.9)%

Income tax (benefit) expense                      -             1.0 %              -            (2.7)%
                                           ------------    ------------    -------------   -------------
Net loss                                      (16.2)%         (81.4)%          (26.5)%         (41.2)%
                                           ============    ============    =============   =============
</TABLE> 

                                       10
<PAGE>
 
     Revenues. Revenues increased 106.9% to $5.9 million in third quarter of
1998, compared to $2.9 million in the third quarter of 1997. This increase was
primarily attributable to improved demand in North America and Europe. Revenues
derived from customers in North America increased by approximately 233% to $3.1
million. The increase was primarily due to higher unit volumes of Sinterstation
Systems and powdered materials in the third quarter of 1998 over the third
quarter of 1997.

     Revenues increased 8.7% to $19.2 million in the nine months ended September
30, 1998, compared to $17.7 million in the comparable period of 1997. Revenues
derived from customers in North America increased by approximately 45.3% to $9.2
million, while revenues derived from international customers declined, primarily
in the Pacific Rim countries. The increase was primarily due to higher unit
volumes of powdered materials in the first nine months of 1998 over the first
nine months of 1997.

     Revenues in past periods may not be indicative of revenues in the future,
which may be affected by other business environment and risk factors previously
discussed, as well as other factors included elsewhere herein.

     Gross Profit.  Gross profit was $2.5 million, or 42.7% of revenue, in the
third quarter of 1998, compared to $1.1 million, or 39.9% of total revenue, in
the third quarter of 1997. The increase in gross profit primarily was due to
higher unit volumes of Sinterstation Systems and sintering materials and to an
increase in services. The increase in gross margin was primarily due to a
decreased service component in the revenue mix. In the third quarter of 1998,
service and support margins were 28.2%, compared to 9.9% in the comparable
period of 1997, primarily due to reduced travel costs of servicing certain
international customers as a result of the use of more on-site employees.

     Gross profit, before charges for inventory write-downs amounting to
$675,000, was $8.0 million, or 41.5% of total revenue, in the nine months ended
September 30, 1998, compared to $7.4 million, or 41.7% of total revenues, in the
comparable period of the prior year. The increase in gross profit primarily was
due to higher unit volumes of Sinterstation Systems and sintering materials and
to an increase in services, partially offset by lower selling prices and gross
margins on sales of Sinterstation Systems.

     Past gross margins are not necessarily indicative of future gross margins.
Currency changes, changes in mix and changes in material and labor costs, may
have an adverse effect on gross margins

     Selling, General and Administrative Expense.  Selling, general and
administrative expense was $2.9 million, or 48.7% of revenues, in the third
quarter of 1998, compared to $2.3 million, or 79.5% of revenues, in the third
quarter of 1997. This category of expense was $8.2 million, or 42.8% of
revenues, in the nine months ended September 30, 1998, compared to $8.3 million,
or 46.9% of revenues, in the comparable period of the prior year. The decrease
as a percentage of total revenues during the comparable 1998 periods primarily
was due to a proportionately higher growth in total revenues, while holding
selling, general and administrative expense relatively flat. Selling, general
and administrative expense may vary as a percentage of revenues in the future.

     Research and Development Expense. Research and development expense was
$850,000, or 14.4% of revenues, in the third quarter of 1998, compared to $1.2
million, or 42.2% of revenues, in the third quarter of 1997. This category of
expense was $2.7 million, or 14.0% of revenues, in the nine months ended
September 30, 1998, compared to $3.6 million, or 20.3% of revenues, in the
comparable period of the prior year. The higher 1997 expense levels were,
primarily, due to initial design and prototype costs associated with multiple
significant new product development projects that were commenced in 1997 and
culminated in 1998 with the introduction of several new material systems and the
new Sinterstation Model 2500plus. The Company plans to continue its commitment
to research and development at approximately the current level of spending, as
the Company believes that the markets for its products are characterized by
technological innovation for hardware, software and powdered materials. Research
and development expense may increase in absolute dollars in future periods, and
such expenditures may vary as a percentage of sales. There can be no assurance
that the Company's research and development efforts will result in commercially
successful new technology and products in the future, and those efforts may be
already affected by other factors which are beyond the Company's control.

                                       11
<PAGE>
 
     Provision For Litigation Settlement. DTM has entered into a proposed
settlement of the shareholder class action lawsuit pending against it. The
charge to its second quarter statement of operations in the amount of $1.7
million, consists of $3.0 million, the proposed value of the settlement, and
$200,000 in other costs, net of the insurance recovery of $1.5 million.

     Stock Compensation (EAP). In connection with its IPO in 1997, the Company
incurred a one-time non-cash stock compensation expense of approximately $2.9
million as a result of stock appreciation rights converting by formula into
immediately vested stock options at exercise prices below the market value of
the Common Stock. This charge was recorded in the second quarter of 1997.

     Gain on Sale of Assets. In the third quarter of 1998, the Company sold used
Sinterstation 2500 and 2000 Systems under a previously announced program to sell
systems that had been used internally for development and support activities or
under a discontinued rental program. The Company recognized a net gain of
$258,000 on those sales in the third quarter of 1998.

     Interest Expense. Net interest expense for the third quarter of 1998 was
$10,000, compared to interest expense of $17,000 for the third quarter of 1997
and $36,000 and $418,000 for the nine months ended September 30, 1998 and 1997,
respectively. The higher year earlier expense resulted from a greater
outstanding debt that was substantially repaid.

     Income Taxes. As a result of its tax sharing arrangement with BFGoodrich,
the Company was allocated an income tax benefit of $478,000 in the first and
second quarters of 1997. In May 1997 as a result of the IPO, BFGoodrich's
ownership interest fell below 80% and such benefits are no longer available to
the Company. In the fourth quarter of 1997 the Company recorded the final
accounting for this tax allocation arrangement.

     Net Loss. The Company had net losses of $957,000 and $2.3 million in the
third quarter of 1998 and 1997, respectively. This $1.3 million decrease in net
loss was primarily due to increased product revenue; gain on sale of internally
used Sinterstation systems, and reduced research and development expense.

     The Company had losses, excluding special charges, of $2.7 million and $4.8
million in the nine months ended September 30, 1998 and 1997, respectively. This
$2.1 million decrease in net loss was primarily due to increased product and
service revenue, gain on sale of internally used Sinterstation Systems, reduced
research and development expense, and flat selling, general and administrative
expense. Operating results for the first nine months of 1998 included a special
charge of $1.7 million for the estimated cost of settling the shareholder class
action litigation and $675,000 of inventory write-down relating to new product
introductions. The operating results for the first nine months of 1997 were
adversely affected by a special charge of $2.9 million arising from the
conversion of stock appreciation rights by DTM employees in connection with the
Company's IPO in May 1997. Additionally, operating results for the first nine
months of 1997 were benefited from $478,000 of tax credits allocated from the
Company's parent. The allocation of income tax benefits ended with the Company's
IPO in May 1997. Net loss, including special charges, for the first nine months
of 1998 was $5.1 million, compared to $7.3 million in the first nine months of
1997.


LIQUIDITY AND CAPITAL RESOURCES

     During the nine months ended September 30, 1998, operating activities
provided $556,000 in net cash, compared to a use of $3.3 million for such
purposes in the comparable period of the prior year. The reasons for this change
were a $2.7 million decrease in net loss, before non-cash items, and better
management of collections and inventory levels. The Company's 1997 inventory
levels and collection cycle began to swell in the second quarter of 1997, when
the Company's sales slowed as a result of a soft North American market.

     At September 30, 1998, the combined carrying values of accounts receivable
and inventory stood at $8.1 million, unchanged from the prior quarter but down
$2.7 million from the beginning of the year. This investment was offset by trade
payables, deferred revenues and other operating liabilities to result in 

                                       12
<PAGE>
 
an investment of $1.3 million in non-financial working capital at September 30,
1998, compared to $1.3 million at the beginning of the quarter and $3.1 million
at the beginning of the year. Non-financial working capital excludes cash, debt,
litigation items and all non-current items.

     At September 30, 1998, net accounts receivable represented approximately 60
days of quarter sales, a target the Company has achieved in three out of the
last four quarters. September 30, 1998 inventory levels were approximately as
forecast, a level higher than the Company would plan for its other three-
quarters, due to anticipated higher sales in the fourth quarter. At September
30, 1998, the cash cycle, which considers accounts receivable, inventory and
accounts payable, stood at approximately 79 days. This was down from 99 days at
the beginning of the year but up from 52 days at the end of the second quarter,
when inventory was at an unusually low level due to product transition.

     The Company's investing activities include expenditures for patents and
licenses, capitalized software costs and furniture and equipment, principally
consisting of the Company's Sinterstation Systems built for internal use and
rental purposes. Capital expenditures for the nine months ended September 30,
1998 of $1.5 million were higher than normal due to the first quarter 1998
acquisition of $568,000 of Sinterstation 2500plus Systems for internal use in
support of the new platform and older models for support and a now discontinued
rental program. In the third quarter, the Company recognized $568,000 in
proceeds from the sale of the previously mentioned Sinterstation 2500plus
Systems to a leasing company and then leased them back under an operating lease.
The sale/leaseback transaction for the Sinterstation 2500plus Systems represents
off balance sheet financing that will be partially repaid over the next two
years. Operating expenses for the next two years are not significantly affected
by this sale/leaseback transaction. Also in the third quarter of 1998, the
Company recognized $448,000 in proceeds from the sale to customers of older
model Sinterstation Systems that had been used internally or in the rental
program. Thus after these transactions, net cash used by investing activities
was approximately $520,000 and $1.5 million in the nine months ended September
30, 1998 and 1997, respectively.

     The Company believes that capital expenditures of approximately $240,000
relating to additional Sinterstation 2500plus Systems to support the new
platform will be needed over the next three months. The Company intends to fund
this additional investment from the proceeds of sale of older model internally
used systems and lease financing. The Company continues to market its
refurbished Model 2000/2500 program and currently has a backlog of $331,000 for
fourth quarter shipment. Any income resulting from these sales will be
recognized as proceeds from sale of assets.

     In the third quarter of 1998, the Company repaid a $175,000 short-term
borrowing that had been made in the previous year in connection with a now
discontinued rental program. In the second quarter of 1998, $500,000 was
borrowed and repaid within the quarter on the credit line with Chase Bank, Texas
NA.

     The Company currently has a $2.0 million line of credit with Chase Bank,
Texas NA, with no amounts outstanding, expiring in April 1999. Borrowings under
this line of credit bear interest at prime minus 1.5%. Borrowings under this
line must be approved in advance by BFGoodrich, which has guaranteed the line of
credit. BFGoodrich has expressed a reluctance to grant such approvals, and there
can be no assurance that BFGoodrich would approve such bank loans when and if
requested by DTM. In addition BFGoodrich has expressed its intention to divest
its interest in the Company. If BFGoodrich were to divest its interest in the
Company, it is unlikely that it would subject itself to additional guarantee
exposures under the line of credit.

     The Company has begun looking at alternatives to replace the existing line
of credit that would not require the pre-approval of BFGoodrich. It is likely
that if such an arrangement can be entered into, it would bear a much higher
interest cost than the current arrangement.

     The Company has a current liability to BFGoodrich in the amount of
approximately $907,000, which arose in 1997 as the result of certain payments
made by BFGoodrich on behalf of DTM. In the nine months ended September 30,
1998, only $2,000 of this obligation was repaid. This liability is currently
non-interest bearing and is due on demand. Although BFGoodrich has not yet set a
time frame for its repayment, it could do so at any time. Additionally,
BFGoodrich could require that the liability bear interest at any time. The
Company does not have the resources to repay this debt at the current time,
except through 

                                       13
<PAGE>
 
borrowings on the credit line, which BFGoodrich must guarantee. If BFGoodrich is
successful in divesting its interest in DTM, it is likely that BFGoodrich will
demand a repayment schedule for this debt.

     Future capital requirements of the Company will depend on its growth rate,
profitability, working capital requirements, and level of investment in long-
term assets. BFGoodrich has been a significant source of debt and equity funding
in the past. BFGoodrich has indicated that it has no plans to provide future
funding to DTM.

     The Company believes that it has the financial resources needed to meet
business requirements, including capital expenditures, working capital
requirements, the debt obligations outstanding and operating lease commitments
for facilities and equipment through December 31, 1998, assuming the
availability of the bank line of credit. However, there can be no assurance that
this will be the case.

Recent Developments.

     In October 1998, the Company paid the $2.6 million cash portion of the
shareholder class action litigation accrual from available cash balances and the
$1.5 million insurance reimbursement that was received. The net amount of $1.1
million used will be reflected in net cash used or provided from fourth quarter
operating activities, but is already reflected in the above mentioned net loss,
before non-cash items, for the nine month period ended September 30, 1998.

Due to the October 1998 net payment of $1.2 million relating to the shareholder
class action settlement and the need to pay for inventory expected to be sold at
the end of the quarter, the Company did borrow $500,000 on its credit line in
early November. Additional borrowings are expected in the fourth quarter.

     See "Risk Factors that May Affect Future Results and Safe Harbor Statement
-- Future Capital Needs; Uncertainty of Additional Financing; Possibility of
Significant Dilution."

NEW ACCOUNTING STANDARD


     In June 1998, the Accounting Standards Board issued Statement of Financial
Accounting Standards Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is required to be adopted in years beginning
after June 15, 1999. The Statement permits early adoption as of the beginning of
any fiscal quarter after its issuance. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair market value of the derivative
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of the derivative's change in fair value will be immediately
recognized in earnings.

     The Company has not yet determined what the effect of Statement of
Financial Accounting Standards Statement No. 133 will be on its earnings and
financial position and has not yet determined the timing or method of adoption.
However, the Statement could increase volatility in earnings and comprehensive
income.

YEAR 2000 PLAN


     Many currently installed computer systems and software products are coded
to accept only two-digit entries in date code fields. These date code fields
will need to accept four-digit entries to distinguish 21st century dates from
20th century dates. As a result, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists concerning the potential effects associated with
such compliance.

     The Company has evaluated its Sinterstation Systems and believes that it
will have no exposures with respect to the Year 2000 issue.

                                       14
<PAGE>
 
     The Company has begun to develop a plan to upgrade or replace its
information technology to recognize the Year 2000 and begun to evaluate packaged
software solutions. The Company currently expects the project to be
substantially completed by early 1999 and to cost between $50,000 and $150,000.
This estimate includes internal costs, but excludes the costs to upgrade and
replace systems in the normal course of business. The Company does not expect
this project to have a significant effect on operations. As of September 30,
1998 approximately $10,000 has been expensed. Such expenses are being funded
through operating cash flows. In a worse case scenario, the Company believes its
information systems might not properly account for amounts due from customers or
due to suppliers at the end of 1999 and the preparation of its financial
statements may be delayed.

     The Company has performed an evaluation of its non-information systems
(imbedded technology such as microcontrollers) and does not believe that it has
significant exposures in this area.

     Based upon available information, the Company does not believe any material
exposure to significant business interruption exists as a result of Year 2000
compliance issues, or that the cost of the remedial actions will have a material
adverse effect on its business, financial condition or results of operations.
Accordingly, the Company has not adopted any formal contingency plan in the
event its Year 2000 compliance project is not completed in a timely manner.

                                       15
<PAGE>
 
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND SAFE HARBOR STATEMENT

     Investors are cautioned that this Quarterly Report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties, including the
following: (i) the Company's plans, strategies, objectives, expectations and
intentions are subject to change at any time at the discretion of management and
the Board of Directors; (ii) the Company's plans and results of operations will
be affected by the Company's ability to manage its growth and working capital;
and (iii) the Company's business is highly competitive and the entrance of new
competitors or the expansion of the operations by existing competitors in the
Company's markets could adversely affect the Company's plans and results of
operations. In addition, the Company identifies the risk factors discussed below
which may affect the Company's actual results and may cause actual results to
differ materially from those contained in forward looking statements.

LIMITED OPERATING HISTORY AND LACK OF PROFITABILITY. The Company was
incorporated in 1987, and prior to shipment of its first Sinterstation Systems
in 1992, it derived revenues solely from a rapid prototyping service bureau that
it operated in Austin, Texas. The Company has been unprofitable from its
inception; most recently recognizing net losses of approximately $7.3 million
for the year ended December 31, 1997 and $5.1 million for the nine months ended
September 30, 1998. There can be no assurance that the Company can achieve, or
if it achieves, maintain, profitability in the future.

POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ NATIONAL MARKET; LIMITED
LIQUIDITY OF TRADING MARKET.  Shares of the Company's Common Stock are quoted on
the Nasdaq National Market System ("NMS").  Nasdaq has recently promulgated new
rules that make continued listing of companies on the NMS more difficult and has
significantly increased its enforcement efforts with regard to the Nasdaq
standards for such listing.  On October 29, 1998, the Company received
correspondence from Nasdaq stating that if the Company is unable to demonstrate
compliance with the $5,000,000 market value of public float requirement for
continued listing on the NMS on or before the end of the ninety day period ended
February 1, 1999, the Company's securities will be delisted at the opening of
business on February 3, 1999.  Public float is defined for purposes of this
calculation as shares that are not held directly or indirectly by any officer or
director of the Company or any person who is the beneficial owner of more than
10 percent of the total shares outstanding. On October 29, 1998, the Company's
public float was believed to be no less than 2,973,984 shares of Common Stock
and the minimum bid price was $1.00 per share. The Company plans to seek an
appeal of any attempt by Nasdaq to delist the Company's securities. However,
there can be no assurance that such an appeal would be successful, and therefore
that the company could avoid having its securities delisted.

     In addition, Nasdaq also requires companies whose stock is included for
quotation on NMS  to maintain $4,000,000 in net tangible assets and a $1.00
minimum bid price. As of September 30, 1998, the Company had net tangible assets
of $4,240,000. Although the Company has generally maintained a minimum bid price
of $1.00 or more, including a minimum bid price of $1.00 or more during the
period covered in this Quarterly Report of Form 10-Q. During the period from
November 4, 1998 to November 10, 1998, the Common Stock had a minimum bid price
below $1.00 and on November 11, 1998, the Common Stock had a minimum bid price
of $1.00. While the Company believes it is currently in compliance with these
standards, if the Company fails to continue to satisfy these requirements the
Common Stock may be delisted from the NMS.

     If the Company is delisted from the NMS, trading, if any, in the Common
Stock would therefore either be conducted in the Nasdaq SmallCap Market, or if
the Company is not able to meet the Nasdaq SmallCap Market listing requirements,
on an over-the-counter market on an electronic bulletin board established for
securities that do not meet the NMS or Nasdaq SmallCap Market listing
requirements, or in what are commonly referred to as the "pink sheets."  If the
Company is delisted from NMS, it is unlikely it would be able to have its Common
Stock included for quotation on the Nasdaq SmallCap Market either. As a result,
an investor would find it more difficult to dispose of, or to obtain accurate
quotations of the price of, the Company's Common Stock.  In addition, if the
Company's Common Stock were removed from the NMS, the Company's Common Stock
would be subject to so-called "penny stock" rules that impose additional sales
practice and market making requirements on broker-dealers who sell and/or make a
market in such securities.  Consequently, removal from the NMS, if it were to
occur, could affect the ability or willingness of broker-dealers to sell and/or
make a market in the Company's Common Stock and the ability 

                                       16
<PAGE>
 
of purchasers of the Company's Common Stock to sell their securities in the
secondary market. Such rules may further limit the market liquidity of the
Company's Common Stock and the ability of purchasers to sell such Common Stock
in the secondary market.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING; POSSIBILITY OF
SIGNIFICANT DILUTION. While the Company currently believes that its current cash
and cash equivalents will be sufficient to meet its presently anticipated cash
needs for working capital and capital expenditure requirements through December
31, 1998, the Company's future capital requirements will depend on a number of
factors, including its profitability, growth rate, working capital requirements,
expenses associated with protection of its patents and other intellectual
property and costs of future research and development activities. Developing
technology companies such as DTM typically need large amounts of capital to fund
growth. However, the Company's cash requirements may vary materially from those
now planned as a result of unforeseen changes that could consume a significant
portion of the available resources before that time. BFGoodrich, the Company's
majority shareholder, has been a significant source of debt and equity funding
in the past. BFGoodrich has indicated to the Company that BFGoodrich has no
plans to provide future funding and in fact intends to divest its position in
the Company. If BFGoodrich is successful in divesting its position, it will
likely demand repayment of the $907,000 debt it is due and would no longer
guarantee the Company's current credit line. The Company is currently
investigating alternatives to its current credit line that would not require the
approval of BFGoodrich or any replacement major shareholder to make borrowings.

     Future operating results will depend, in part, on the Company's ability to
obtain and manage capital sufficient to finance its business. To the extent that
funds expected to be generated from the Company's operations are insufficient to
meet current or planned operating requirements or to maintain its listing on the
Nasdaq NMS, the Company will seek to obtain additional funds through bank
facilities, equity or debt financing, collaborative or other arrangements with
corporate partners and others from other sources.  Additional funding may not be
available when needed or on terms acceptable to the Company, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.  If adequate funds are not available, the Company may be
required to delay or to eliminate certain expenditures or to license third
parties the rights to commercialize technologies that the Company would
otherwise seek to develop itself.  In addition, in the event that the Company
obtains any additional funding, such financing may have a substantially dilutive
effect on the holders of the Company's securities.  See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources"

QUARTERLY FLUCTUATIONS IN OPERATING RESULTS. The Company's revenues and
operating results have varied substantially from quarter to quarter and may
continue to do so. DTM typically experiences a relatively long lead-time, often
from six to 24 months, to complete a Sinterstation System sale and has
historically experienced no backlog. Furthermore, new product introductions,
seasonality of customer buying patterns and other factors can cause fluctuations
in quarterly results. These fluctuations have and may continue to preclude the
Company from managing its operating results effectively from quarter to quarter.
Further, a majority of the sales of the Company's Sinterstation Systems occur at
the end of the quarter, often in the last weeks of the quarter. Accordingly, the
Company's ability to forecast the timing and amount of specific sales is
limited, and the deferral or loss of one or more significant sales could
materially adversely affect operating results in a particular quarter,
particularly if there are significant sales and marketing expenses associated
with the deferred or lost sales. The current 12-week manufacturing cycle of the
new Sinterstation System Model 2500plus negatively impacts the Company's ability
to control its inventories. The failure of the Company to complete a particular
Sinterstation System sale in any given quarter can have a material adverse
effect on the Company's business and financial performance for that quarter and
quarterly fluctuations could cause a material adverse effect on the price at
which the Company's Common Stock trades. The tendency for a large number of the
Company's sales made during a quarter to be completed at or near the end of the
quarter also hinders the Company's ability to predict sales, control sales
prices and enforce its standard terms.

EMERGING RAPID PROTOTYPING AND RAPID TOOLING MARKETS. The market for rapid
prototyping products and services, such as those marketed by the Company, is in
an early stage of development and includes multiple, competing technologies,
many of which are not yet fully developed. Participants in this market are
moving to address new applications, many of which may not yet be known 

                                       17
<PAGE>
 
or accepted by potential users. Rapid prototyping requires that a computer aided
design ("CAD") file describe a design. Organizations who are not using CAD are
not, generally, potential customers for rapid prototyping products and services.
Significant education of the end user in both CAD modeling and rapid prototyping
in general has in some cases been a prerequisite to product acceptance. It is
not clear at this time which one or more technologies will gain broad market
acceptance. There can be no assurance that DTM will emerge as a market leader,
or even a major market participant, as the market matures.

     The market for rapid tooling products and services, such as those marketed
by the Company, is in an even earlier stage of development than rapid
prototyping. Participants in this market, including the Company, are moving to
address new applications, many of which may not yet be known or accepted by
potential users. The companies who make tooling using traditional machining
methods have made large capital investments in traditional equipment and have
mature infrastructures for doing so. They may be highly resistant both on
financial and cultural basis to adopting new technologies. There can be no
assurance that rapid tooling technologies will evolve to the point that the
perceived value will overcome those obstacles.  There can be no assurance that
DTM will emerge as a market leader, or even a major market participant, as the
market matures.

PENDING CLASS ACTION LITIGATION. The Company is the defendant in a matter styled
as a class action that is pending in a Texas State court. A proposed $3.0
million settlement in this matter has been reached. The $2.6 million cash
portion of the settlement was placed in escrow on October 30, 1998. However,
because the settlement is subject to various additional terms and conditions,
including but not limited to Court approval, there can be no assurance that the
settlement will be finalized or, if finalized, certain investors will not opt-
out of the settlement and bring individual actions against the Company. The
plaintiffs had sought recission of the May 1997 IPO and the return to certain
shareholders the proceeds of that IPO of approximately $22.8 million, plus
interest and costs. An adverse judgment may have a material adverse effect on
the Company's business and financial performance. See Item 1. Financial
Statements -- Note 5 to Notes to Consolidated Financial Statements.

COMPETITION. The market for rapid prototyping systems is intensely competitive.
In marketing its Sinterstation Systems, the Company experiences competition from
many sources. Certain of the Company's competitors are better known and have
greater financial, research and development, production and marketing resources
than DTM. The principal worldwide competitors are 3D Systems Corporation and
Stratasys, Inc. EOS GmbH is a significant competitor outside of North America.
Competition has increased as a result of the introduction of new products or
product enhancements by these competitors or the entry into the industry by
other companies. Industry analysts have estimated that the worldwide market for
rapid prototyping grew in 1997 by 20%. In 1997, the Company's revenues lagged
the overall industry and grew by only 4%. Increased competition has resulted in
price reductions, reduced margins and loss of market share, all of which has
materially adversely affected the Company's business and financial results and
may continue to do so.

LIMITED PRODUCT COMPANY. The Company currently offers one model of Sinterstation
Systems for sale. The sale of Sinterstation Systems comprised 65% of revenues in
the nine months ended September 30, 1998 and 66% of revenues in the years ended
December 31, 1997 and 1996, respectively. The remaining revenues were comprised
of sales of powdered sintering materials, spare parts and services to the
installed base of Sinterstation owners. Sinterstation Systems are priced at the
premium end of the range of today's rapid prototyping products and are sold on
the basis of performance and suitability to specific applications. In a downturn
or even in a soft market the Company's dependence upon a limited range of
products, as opposed to a wide range of products at different price points, has
caused the Company's financial performance to be adversely affected and may
continue to do so.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. Protection of the Company's
intellectual property is an important factor in its ability to be successful in
a highly competitive market that is subject to rapid technological changes.
However, it is expensive and consumes a significant portion of time of DTM's
officers.

     In pursuing protection for its proprietary rights in its Sinterstation
Systems, materials and related technology, the Company currently relies on a
combination of patent, copyright, trademark and trade secret rights, as well as
contractual provisions. The Company typically seeks patent protection for its
selective 

                                       18
<PAGE>
 
laser sintering technology, including, where deemed appropriate, the selective
laser sintering process, its Sinterstation Systems and the materials used in its
Sinterstation Systems. However, patent protection may not always be available.
There can be no assurance that patents will be issued under any or all of the
patent applications to which the Company has rights. In addition, the laws of
various countries in which the Company's products may be sold may not protect
the Company's products and intellectual property rights to the same extent as
the laws of the United States.

     Furthermore, the Company can give no assurance that the issued patents to
which it holds rights will be adequate to protect its interests or, if
challenged, held valid. The Company's competitors could develop non-infringing
systems, materials or technologies that are equivalent or superior to those of
the Company. Competitors currently do and also may practice technology covered
by DTM's patents or other legal or contractual protections regardless of the
fact that it is legally protected, forcing the Company to engage in costly
litigation to defend its interests. While DTM defends its intellectual property
vigorously, there can be no assurance that it will be successful in its various
litigation in many countries. If the Company were unsuccessful in enforcing its
intellectual property rights or other contractual rights in the context of
third-party offers to sell selective laser sintering systems or sintering
powders or if the Company were found to have violated state or federal antitrust
laws, the Company's future revenues might be adversely affected. For example, in
1997, a court granted a temporary summary judgment, ruling that a customer had
been given an implied personal license by DTM to one of DTM's patented sintering
materials. Although, in connection with a September 1998 agreement to settle
this case, the summary judgement was stayed. The inability of the Company to
successfully establish and defend its intellectual property rights could have a
material adverse effect on the Company's business and financial performance.

     Unrelated third parties hold many patents and pending patent applications
under which the Company is not a licensee that relate to the design and
manufacture of rapid prototyping systems and materials. If such a third party
brought infringement litigation against the Company, and if the Company was not
successful in defending such litigation or in obtaining a license, the Company's
business and financial performance could be materially adversely affected. The
Company has been threatened with such litigation by a competitor.

     Certain key intellectual property used in the selective laser sintering
process is licensed to the Company by The University of Texas System. As a
licensee, the Company's rights to practice the technology are not absolute. The
University of Texas could terminate, attempt to terminate or amend the license
if the Company could be shown to be in material default of the terms of the
license. Even if DTM has a basis for objection, defense of its rights as a
licensee could be costly and the outcome would be uncertain. Loss of significant
rights as a licensee under this license could have a material adverse effect on
the Company's business and financial performance.

MANAGEMENT OF VARYING OR NOMINAL GROWTH. DTM has experienced significant
fluctuations in its revenues since 1991. DTM experienced increases in total net
revenues from approximately $1.1 million in 1991 to approximately $25.3 million
in 1997. In the third quarter of 1997, however, revenues began to contract
overall and this contraction continued through the first quarter of 1998. In the
second quarter and third quarter of 1998, DTM began to experience growth from
prior year periods. There can be no assurance that the Company will experience
future growth or be successful in managing any future growth. Failure to manage
or enter into any future growth could have a material adverse affect on the
Company's business and financial performance.

DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a substantial
extent on a relatively few key management employees. Losing the services of one
or more key employees could have a material adverse effect on the Company's
business and financial performance. The Company's success also depends on its
ability to continue to attract highly talented technical personnel. Candidates
with appropriate training and expertise may be in short supply in the geographic
areas where the Company is attempting to recruit personnel. The Company has put
in place incentive compensation plans intended to provide motivation for
continued employment of key employees. However, the exercise prices of employee
stock options are currently above market value and, management incentive goals
have not been met for the past two years and certain sales force incentive goals
were not met last year. This has resulted in reduced incentive compensation for
Company employees. During the last half of 1997, several executive officers 

                                       19
<PAGE>
 
left the Company. The Company can give no assurance that it will be able to
retain employees or continue to attract, assimilate and retain other skilled
personnel.

DEPENDENCE ON THIRD-PARTY SUPPLIERS. The Company subcontracts for manufacture of
Sinterstation System components, powdered sintering materials and accessories
from single-source, third-party suppliers. A disruption in supply or failure of
a supplier to remain competitive in functionality or price could have a material
adverse effect on the Company's sales or reputation for timely delivery, and,
hence, on the Company's business and financial performance.

INTERNATIONAL OPERATIONS. Revenues from customers located outside the U.S.
represented 34%, 50%, 62% and 52% of the Company's total revenues in 1995, 1996,
1997 and the nine months ended September 30, 1998. The Company believes that
continued growth and profitability will require expansion of its sales in
international markets. This expansion may be costly and time-consuming and may
not generate returns for a significant period of time, if at all. Fluctuations
in exchange rates as well as interest rates have significantly affected DTM's
sales in foreign markets. In particular, a strengthening U.S. dollar has
adversely affected the price competitiveness of DTM's products and services in
the international markets.  A significant and increasing portion of
international sales are denominated in currencies other than U.S. dollars,
thereby exposing the Company to gains and losses on non-U.S. currency
transactions. The Company attempts to limit the currency exchange risk related
to sales denominated in currencies other than U.S. dollars by entering into
various hedging strategies. There can be no assurance that any such hedging
activity will be successful in avoiding exchange-related losses. There can be no
assurance that the Company's exposure to risks associated with international
operations will not continue to have a material adverse effect on its liquidity,
capital resources and results of operations. The regulatory environment,
including import/export laws, protective trade policies and currency controls of
foreign governments, also could materially adversely affect the Company's
business and financial performance.

     During the last six months of 1997 and continuing into 1998, the Pacific
Rim region has experienced unstable local economies and significant devaluation
in local currencies. Sales to customers in this region constituted approximately
17% of total revenues in the nine months ended September 30, 1998. Instabilities
may continue to worsen, which could have a material adverse effect on the
Company's results of operations.

CONTROL OF THE COMPANY. BFGoodrich currently owns approximately 50.2% of the
outstanding Common Stock. At this percentage, BFGoodrich could control elections
of the Company's Board of Directors and could control or substantially affect
the outcome of certain matters submitted to the Company's shareholders for their
vote or consent. BFGoodrich could also cause, prevent or delay a change in
control of the Company. The proposed settlement of the shareholder class action
lawsuit will result in the issuance of $400,000 worth of Company Common Stock.
If approved, this would likely result in BFGoodrich's ownership percentage
dropping slightly below 50%. Even though BFGoodrich would no longer have
absolute voting control, it would still be likely to have sufficient voting
power to control the outcome of most matters submitted to shareholders.
BFGoodrich has advised the Company that its interest in DTM is primarily
financial and that it intends to divest its interest in the Company. The Company
cannot predict the effect of a sale of a controlling interest in the Company.
However, depending on the identity of the purchaser and its reason for acquiring
control of the Company, minority shareholders could be adversely affected.

LOSS OF TAX ALLOCATION AGREEMENT AND OTHER BENEFITS FROM BFGOODRICH. As a result
of the IPO, the ownership of outstanding Common Stock by BFGoodrich decreased to
less than 80%. BFGoodrich is no longer able to include DTM's income or loss in
BFGoodrich's consolidated federal income tax return. Consequently, DTM lost the
benefit of the tax allocation agreement between DTM and BFGoodrich effective May
1997. Without the tax benefit allocated from BFGoodrich, the Company's net loss
for 1997 would have increased from approximately $7.3 million to approximately
$8.1 million. To the extent the Company incurs future losses, the resulting tax
loss carryforward would be deferred until sufficient income is generated by DTM
to utilize the carryforward.

     Historically, DTM has received certain tangible and intangible benefits
from BFGoodrich. For example, BFGoodrich currently provides DTM participation in
a group program for various types of business insurance. This arrangement is on
terms that could be considered more favorable to the Company 

                                       20
<PAGE>
 
than those that would be available to DTM in arms-length transactions with
unrelated vendors, principally because DTM is able to take advantage of cost
efficiencies experienced by BFGoodrich due to the size of its operations. DTM
will be ineligible to take part in certain BFGoodrich insurance programs once
BFGoodrich no longer owns a majority of the outstanding common stock of DTM.
Moreover, BFGoodrich has expressed an interest in divesting its ownership in
DTM. In addition, either party has the option to terminate any of such
arrangements at any time. The proposed settlement of the class action lawsuit
will, if completed as currently contemplated, cause BFGoodrich to no longer be a
majority shareholder of the outstanding common stock of DTM. Therefore, the
Company expects to lose these benefits effective with the issuance of $400,000
worth of Common Stock pursuant to the proposed settlement of the shareholder
class action lawsuit. The Company expects the replacement insurance coverage to
cost up to an additional $50,000 per quarter.

     In addition, at September 30, 1998, DTM had a current liability to
BFGoodrich in the amount of $907,000. This amount is currently non-interest
bearing and is due on demand. The balance is the result of certain payments made
by BFGoodrich on behalf of DTM in 1997. BFGoodrich could require interest on its
advance or require the advance to be repaid at any time, which it is likely to
do if it is successful in divesting its interest in the Company.

PRODUCT LIABILITY. Products as complex as those offered by the Company may
contain undetected defects or errors when first introduced or as enhancements
are released that, despite testing by the Company, are not discovered until
after the product has been installed and used by customers, which could result
in delayed market acceptance of the product or damage to the Company's
reputation and business. To date, the Company has not been materially adversely
affected by products containing defects or errors. The Company attempts to
include provisions in its agreements with customers that are designed to limit
the Company's exposure to potential liability for damages arising out of defects
or errors in the Company's products. However, the nature and extent of such
limitations tend to vary from customer to customer and it is possible that such
limitations may not be effective as a result of unfavorable judicial decisions
or laws enacted in the future. Although the Company has not experienced any
product liability suits to date, the sale and support of the Company's products
entails the risk of such claims. Any product liability claim brought against the
Company, regardless of its merit, could result in material expense to the
Company, diversion of management time and attention, and damage to the Company's
business reputation and its ability to retain existing customers or attract new
customers.

POSSIBLE ISSUANCE OF PREFERRED STOCK. The Company's Articles of Incorporation
authorize the issuance of up to 3,000,000 shares of Preferred Stock, $0.001 par
value ("Preferred Stock"), the terms of which would be determined by the Board
of Directors at the time of issuance, without further shareholder approval. The
Board of Directors would determine whether these shares would carry voting
rights, preferences in the payment of dividends, sinking fund provisions and
liquidation, redemption or conversion rights, if any. The Company has no current
plans to issue Preferred Stock. However, if such stock is issued in the future,
the rights of the holders of Common Stock could be materially adversely
affected. It is possible that the Board of Directors could grant future holders
of Preferred Stock rights that could restrict the Company's ability to merge or
sell its assets to a third party, resulting in preservation of the control of
the Company by its then current owners. The Preferred Stock provisions of the
Company's Articles of Incorporation could inhibit a third party from acquiring a
significant amount of the Common Stock, thereby delaying or preventing changes
of the management or control of the Company, and possibly materially adversely
affecting the Common Stock price as a result.

                                       21
<PAGE>
 
SHARES ELIGIBLE FOR FUTURE SALE. PROBABLE ISSUANCE OF COMMON STOCK IN CONNECTION
WITH PROPOSED SETTLEMENT OF SHAREHOLDER CLASS ACTION LITGATION. Sales of shares
of Common Stock into the market by BFGoodrich, employees exercising options or
recipients of shares to be distributed in settlement of the Company's
shareholder class action litigation could cause a decline in the price of such
stock. All shares of the Common Stock owned by BFGoodrich are freely tradeable,
subject to volume limitations of Rule 144. In addition, BFGoodrich has the right
to require the Company to register the sale of BFGoodrich's shares of Common
Stock under the Securities Act of 1933.

     DTM employees hold immediately exercisable options to purchase 553,150
shares of Common Stock under the Equity Appreciation Plan. The Company
registered the issuance and the sale of the shares of Common Stock that would be
issued upon exercise of options under the Equity Appreciation Plan on a Form S-8
Registration Statement. As a result, the Common Stock acquired by employees of
DTM upon exercise of options outstanding under the Equity Appreciation Plan will
be freely tradeable (subject to compliance with certain provisions of Rule 144,
in the case of affiliates of the Company).

     The non-cash component of the proposed settlement of the shareholder class
action is the issuance of $400,000 worth of shares of the Company's Common
Stock. The number of shares to be issued is to be based upon the average closing
price of the stock for the 15 days just prior to the date of final Court
approval. The Company has been advised that if the Court does approve the
settlement, it will likely to occur in January 1999. The Company has been
advised that such shares would be freely tradable upon issuance since
registration would not be required. Sales of Common Stock into the market by the
recipients of the settlement could cause a decline in the price of such stock.

MARKET VOLATILITY. The Company is listed for quotation of the Common Stock on
the Nasdaq National Market. Historically, the stock market has experienced
volatility that has particularly affected the market price of common stock of
technology-related companies. That volatility sometimes has been unrelated to
the operating performance of such companies.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


     Information related to quantitative and qualitative disclosures regarding
market risk is set forth in Management's Discussion and Analysis of Financial
Condition and Results of Operations and the risk factors under Item 2 above.
Such information is incorporated by reference herein.

                                       22
<PAGE>
 
                                    PART II
                               OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS.

     On October 28, 1998, definitive settlement documents were entered into with
respect to the settlement of the pending shareholder class action lawsuit styled
John H. Danielson and Thomas E. Harding v DTM Corporation, currently pending in
the District Court of Bexar County, Texas. The principal terms of the agreement
call for the establishment of a settlement fund initially consisting of $2.6
million in cash and the later addition of $400,000 worth of shares of the
Company's Common Stock. On October 28, 1998, the Company and its insurance
carrier paid the cash portion into the settlement escrow fund. The number of
shares to be issued is to be based upon the average closing price of the stock
for the 15 days just prior to the date of final Court approval. Completion of
the proposed settlement remains subject to various terms and conditions,
including, but not limited to, Court approval.

     On September 14, 1998, DTM and Midwest Composite Technologies, Inc. entered
into an agreement to settle all ongoing litigation between them.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a) Exhibits


          Exhibit 27.1  Current Financial Data Schedule for the quarter ended
          September 30, 1998

                                       23
<PAGE>
 
                                   SIGNATURES
                                        
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated:  November 13, 1998

                                DTM CORPORATION
                                (Registrant)


                                By:  /s/ John S. Murchison, III
                                     John S. Murchison, III
                                     President and Chief Executive Officer


                                By:  /s/ Geoffrey W. Kreiger
                                     Geoffrey W. Kreiger
                                     Vice President, Controller, Treasurer and
                                     Secretary
                                     (Principal Financial and
                                     Accounting Officer)

                                       24
<PAGE>
 
                               Index to Exhibits
                               -----------------
                                        
Number                  Description
------                  -----------

27.1      Financial Data Schedule for the quarter ended September 30, 1998