<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1997
--------------------------------
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act
For the transition period from to
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Commission file number 1-13400
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STRATASYS, INC.
----------------------------------------------------
(Exact Name of Small Business Issuer in Its charter)
Delaware 36-3658792
- --------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
14950 Martin Drive, Eden Prairie, Minnesota 55344
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(Address of Principal Executive Offices)
(612) 937-3000
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(Issuer's Telephone Number, Including Area Code)
Not Applicable
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes X No
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As of November 12, 1997, the Issuer had 5,718,865 shares of Common
Stock, $.01 par value, outstanding.
Transitional Small Business Disclosure Format: Yes No X
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<PAGE> 2
STRATASYS, INC.
Index
Page
Part I. Financial Information
Item 1. Financial Statements..................................................1
Balance Sheets as at September 30, 1997 and December 31, 1996.........1
Statements of Operations for the three months and
nine months ended September 30, 1997 and 1996.........................2
Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996...........................................3
Notes to Financial Statements.........................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................5
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds............................11
Item 6. Exhibits and Reports on Form 8-K.....................................11
Signatures....................................................................12
(i)
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
STRATASYS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,540,350 $ 3,964,968
Marketable Securities 4,324,077 6,572,907
Accounts receivable, less allowance for doubtful
accounts of $473,364 in 1997 and $470,000 in 1996 10,578,248 10,607,155
Inventories 5,975,709 2,648,990
Prepaid expenses 298,230 344,101
Deferred taxes 1,180,058 945,000
------------ ------------
Total current assets 24,896,672 25,083,121
------------ ------------
MACHINERY AND EQUIPMENT, less accumulated depreciation
of $1,491,374 in 1997 and $847,715 in 1996 3,440,305 2,184,165
------------ ------------
OTHER ASSETS
Deposits and other assets 236,664 75,576
Intangible assets 3,556,750 4,119,857
------------ ------------
3,793,414 4,195,433
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$ 32,130,391 $ 31,462,719
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Obligations under capitalized leases, current portion 181,945 186,415
Accounts payable and other current liabilities 2,730,866 3,622,555
Unearned maintenance revenue 1,841,002 1,082,044
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Total current liabilities 4,753,813 4,891,014
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DEFERRED TAXES 71,000 71,000
OBLIGATIONS UNDER CAPITALIZED LEASES, less current portion 157,013 94,977
------------ ------------
228,013 165,977
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STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, authorized 15,000,000
shares, issued and outstanding 5,718,865 shares
in 1997 and 5,517,309 shares in 1996 57,163 55,173
Capital in excess of par value 28,572,284 27,394,902
Accumulated deficit (1,480,882) (1,044,347)
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Total Stockholders' Equity 27,148,565 26,405,728
------------ ------------
$ 32,130,391 $ 31,462,719
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</TABLE>
See notes to financial statements.
<PAGE> 4
STRATASYS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES $ 7,345,471 $ 4,402,436 $ 19,519,332 $ 12,471,780
COST OF GOODS SOLD 2,786,163 1,497,420 6,863,028 4,276,124
------------ ------------ ------------ ------------
GROSS PROFIT 4,559,308 2,905,016 12,656,304 8,195,656
COSTS AND EXPENSES
Research and development 1,445,121 771,651 3,786,117 2,207,918
Selling, general and administrative 3,181,057 2,223,099 9,871,969 5,741,090
------------ ------------ ------------ ------------
4,626,178 2,994,750 13,658,086 7,949,008
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (66,870) (89,734) (1,001,782) 246,648
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 163,005 163,669 370,757 429,053
Interest expense (18,045) (10,088) (40,568) (28,780)
------------ ------------ ------------ ------------
144,960 153,581 330,189 400,273
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 78,090 63,847 (671,593) 646,921
INCOME TAXES (CREDIT) 27,327 -- (235,058) --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 50,763 $ 63,847 $ (436,535) $ 646,921
------------ ------------ ------------ ------------
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE
Primary $ 0.01 $ 0.01 $ (0.08) $ 0.12
------------ ------------ ------------ ------------
Fully diluted $ 0.01 $ 0.01 $ (0.08) $ 0.11
------------ ------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Primary 5,885,372 5,888,942 5,660,371 5,607,803
------------ ------------ ------------ ------------
Fully diluted 5,955,470 6,032,767 5,660,371 5,837,264
------------ ------------ ------------ ------------
</TABLE>
See notes to financial statements.
<PAGE> 5
STRATASYS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT 30,
------------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (436,535) $ 646,921
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Deferred taxes (235,058) --
Depreciation and amortization 653,659 319,271
Amortization of intangibles and other assets 679,530 444,793
Bad debts 100,000 --
Increase (decrease) in cash attributes to
changes in assets and liabilities
Accounts receivable (71,093) (1,933,043)
Inventory (3,326,719) (2,369,584)
Prepaid expenses 45,871 (89,443)
Other assets (51,550) --
Accounts payable and other current liabilities (891,689) 492,529
Unearned maintenance revenue 758,958 358,153
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NET CASH USED IN OPERATING ACTIVITIES (2,774,626) (2,130,403)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 2,248,830 --
Purchases of marketable securities -- (246,780)
Acquisition of machinery and equipment (1,677,610) (789,303)
Payments of deposits, net (109,538) (11,000)
Payments for intangible assets (116,423) (751,535)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES 345,259 (1,798,618)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of obligations under capitalized leases (174,623) (115,019)
Proceeds from the sale of common stock 1,179,372 3,274,895
Proceeds from notes due on common stock purchases -- 1,946,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,004,749 5,105,876
----------- -----------
NET DECREASE IN CASH (1,424,618) 1,176,855
CASH AND CASH EQUIVALENTS, beginning of period 3,964,968 4,726,056
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,540,350 $ 5,902,911
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
cash paid during the period for interest $ 22,523 $ 28,780
----------- -----------
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Machinery and equipment acquired under
capital lease obligations $ 232,189 $ 120,012
----------- -----------
Issuance of common stock in exchange for notes receivable $ -- $ 1,946,000
----------- -----------
Common Stock issued in exchange for preferred stock outstanding $ -- $ 3,794
----------- -----------
</TABLE>
See notes to financial statements.
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The financial information herein is unaudited; however, such
information reflects all adjustments (consisting of normal, recurring
adjustments) which are, in the opinion of management, necessary for a
fair statement of results for the interim period. The results of
operations for the three months ended September 30, 1997, are not
necessarily indicative of the results to be expected for the full year.
Certain financial information and footnote disclosure normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The reader is
referred to the audited financial statements and notes thereto for the
year ended December 31, 1996, filed as part of the Company's Annual
Report on Form 10-KSB for such year.
NOTE 2 -- COMMON STOCK
In the three months ended September 30, 1997, the Company
received net proceeds of approximately $18,072 from the exercise of
3,745 options at prices ranging from $1.59 to $13.06 per share.
NOTE 3--- INVENTORY
Inventories consisted of the following at September 30 and
December 31, respectively:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Finished Goods $2,963,298 $1,295,803
Work in process 2,875 264,259
Raw materials 3,009,536 1,088,928
---------- ----------
5,975,709 2,648,990
</TABLE>
NOTE 4--PRODUCTION EQUIPMENT
In the third quarter of 1997 the Company entered into capital
lease agreements for the purchase of production and R&D equipment. The
lease terms are for 12 months with minimum lease payments of
approximately $56,130 per year and for 36 months with minimum lease
payments of approximately $59,904 per year.
NOTE 5--MATERIAL COMMITMENT
The Company has signed material commitments with several
vendors for fixed delivery of selected inventory expected to be used
over the remainder of 1997 and into 1998. Theses commitments amount to
approximately $1,750,000 and contain non-cancellation clauses.
NOTE 6--OFFICE LEASE
In July 1997 the Company entered into a lease for a 2504
square foot regional sales office in Ontario, CA. The lease commenced
on September 1, 1997 with a term of 36 months and minimum lease
payments of approximately $36,058 per year.
4
<PAGE> 7
NOTE 7--SUBSEQUENT EVENT
In November 1997, the Company sold 206,897 Units consisting of
one share of the Company's Common Stock, a one-year warrant to purchase
one share of Common Stock at an exercise price of $14.50, and a
two-year warrant to purchase one share of Common Stock at an exercise
price of $14.50, to one accredited investor for a purchase price of
$14.50 per share (approximately $3,000,000 in the aggregate). The
warrants are immediately exercisable and expire on October 31, 1998,
and October 31, 1999, respectively. See Part II, Item 2, of this Report
for an additional description of such sale.
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1996.
Sales for the three months ended September 30, 1997 totaled $7,345,471
compared with sales of $4,402,436 recorded in the three months ended September
30, 1996, an increase of $2,943,035, or 66.9%. The 1997 increase over the
comparable 1996 period was largely attributable to the sales growth of the
Company's Benchtop FDM(R) 2000 and 8000 rapid prototyping systems. Both the FDM
2000 and the FDM 8000 were introduced in the first quarter of 1997. The FDM 2000
was introduced as an enhanced version of the FDM 1650 that had accounted for the
majority of the Company's 1996 growth. The FDM 8000 represents the Company's
entrance into the large modeling marketplace, offering customers the ability to
make prototypes in a 16x16x24 inch envelope. Maintenance and consumable revenue
combined increased approximately 95% in the 1997 period as compared with the
1996 period, and constitutes the most rapidly growing component of the Company's
product mix.
Third quarter 1997 results were positively impacted by the new FDM 8000
rapid prototyping system. Unlike the second quarter of 1997 when the Company was
unable to ramp up manufacturing of the FDM 8000 due to vendor supply delays,
revenues from the FDM 8000 were more than revenues from any other product during
the third quarter. The Company believes that vendor supply delays related to the
FDM 8000 that occurred in the second quarter are unlikely to be repeated in the
remainder of 1997. Sales of the FDM 1650 product continued at lower levels than
anticipated, but were partially offset by sales of the FDM 2000 that are priced
about 30% higher than the 1650. Genisys sales continued to be slow in the third
quarter of 1997, down significantly from the third quarter of 1996. The Company
has introduced into the field the technical fix for the Genisys pump plugging
condition that was largely caused by the use of contaminated modeling materials.
The plugging condition has been corrected by the filtration of all Genisys
consumable raw materials prior to fabrication into the final wafer modeling
material product. The Company is continuing to address certain other technical
issues relating to the Genisys product, and sales of the Genisys product are not
expected to resume meaningful growth until 1998.
The eastern region of the United States, benefiting from increased
productivity from new salesmen, rebounded from a weak second quarter of 1997 to
record just under 50% of total domestic sales. Internationally, sales into
Europe exceeded 50% of total international revenue, recovering from an extremely
weak second quarter in 1997. Sales in the Far East were also strong, where the
Company did not experience problems associated with the recent market volatility
in this region. The Company does not believe that it will be impacted in the
fourth quarter from such market volatility, although it can give no assurances
that revenues will not be impacted if such conditions persist. Domestic revenues
captured 62% of total revenue for three months ended September 30, 1997, down
from approximately 74% of revenue for the comparable 1996 period. However, the
1996 period benefited from Genisys system sales that were not a significant part
of the revenue mix for the three months ended September 30, 1997.
Gross margins increased by $1,654,292, or 56.9%, to $4,559,308 for the
three months ended September 30, 1997, from $2,905,016 for the three months
ended September 30, 1996. As a percentage of sales, gross margins decreased to
62.1% for the three months ended September 30, 1997, as compared with 66% for
the three months ended September 30, 1996. The Company's gross margin was
negatively impacted by an inventory adjustment of approximately $300,000,
following a mid-quarter physical inventory. The Company installed and
implemented a new computer system, including an integrated inventory module, in
the first and second quarters of 1997. Errors on the Company's product bill of
materials, unrecorded requisitions and material usage transactions, and physical
quantity adjustments accounted for the majority of the inventory write down.
Also negatively impacting margins in the third quarter of 1997 were units sold
under trade-in programs that carry lower margins, and discounted demonstration
units sold to the Company's International distributors. Gross margins were
positively impacted by a favorable mix of higher
6
<PAGE> 9
gross margin FDM 8000 and 2000 systems in the third quarter of 1997 as compared
to the mix of FDM 1650 and Genisys systems sold in the third quarter of 1996.
Direct labor, up nominally over 1996 levels, still amounted to only 2.4% of
sales in the three months ended September 30, 1997, down from 2.6% in the
comparable 1996 period. Manufacturing overhead was also down in the three months
ended September 30, 1997 to 4.7% of sales from 8.3% in the three months ended
September 30, 1996, a decline of $19,483, or 5.3%. The Company believes that
gross margins will improve in the quarter ending December 31, 1997, based on
anticipated product mix shifts to units with higher unit average selling prices,
and by leveraging the fixed overhead costs on higher historical fourth quarter
revenues.
Selling, General and Administrative ("SG&A") expenses increased to
$3,181,057 for the three months ended September 30, 1997, from $2,223,099 in the
comparable 1996 period. This represents a $957,958, or 43.1% increase in SG&A
expenses for the 1997 period as compared with the 1996 period. However, SG&A
expenses as a percentage of sales declined to 43.3% in the three months ended
September 30, 1997, compared with 50.5% in the comparable 1996 period. Total
company headcount increased by 36.7% in the three months ended September 30,
1997 to approximately 164 employees and contractors, from 120 employees and
contractors in the comparable 1996 period. The sales and sales support
departments experienced significant growth as the Company continued to expand
its domestic and international sales' staffing. The Company currently has 40
domestic reseller locations for its Genisys product, combined with 22
international distributors. Selling compensation, including commissions on
higher revenue, was up significantly in the three months ended September 30,1997
compared with the comparable 1996 period. Promotional activities, including
travel, trade show attendance, and advertising associated with the FDM 2000 and
8000 product introductions also contributed to higher SG&A expenses in the three
months ended September 30, 1997 over the comparable 1996 period.
Research and Development ("R&D") expenses increased to $1,445,121 for
the three months ended September 30, 1997, from $771,651 for the three months
ended September 30, 1996, an increase of $673,470, or 87.3%. R&D expenses as a
percentage of sales increased to 19.7% of sales in the three months ended
September 30, 1997 as compared with 17.5% in the 1996 period. Increased
headcount, expenses associated with new product development and current product
enhancement accounted for much of this increase. For the three months ended
September 30, 1997, the Company capitalized $12,600 of software development
costs, in accordance with FASB 86, as compared with $144,527 that was
capitalized for the comparable 1996 period.
The Company's operating loss for the three months ended September 30,
1997 amounted to $66,870, or .9% of sales, compared with an operating loss of
$89,734, or 2.0% of sales, for the three months ended September 30, 1996. Net
interest income amounted to $144,960 for the three months ended September 30,
1997, as compared with net interest income of $153,581 for the comparable 1996
period.
The Company's net income for the three months ended September 30, 1997
amounted to $50,763, or .7% of sales. For the three months ended September 30,
1996, the Company recorded net income of $63,847, or 1.5% of sales. The earnings
per share for the three months ended September 30, 1997, amounted to $.01 on
fully diluted weighted average number of common and common equivalent shares
outstanding of 5,955,470 as compared with earnings per share of $.01 on fully
diluted weighted average number of common and common equivalent shares
outstanding of 6,032,767 for the 1996 period.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1996.
Sales for the nine months ended September 30, 1997 totaled $19,519,332
compared with sales of $12,471,780 recorded in the nine months ended September
30, 1996, an increase of $7,047,552, or 56.5%. The 1997 increase over the
comparable 1996 period was attributable to the continued sales growth of the
Company's Benchtop FDM 2000 and the FDM 8000. The Company's revenue growth has
been aided by increases to its average selling price associated with the FDM
2000 and the FDM 8000 introductions, which has been partially offset by trade-in
programs that lower average selling prices for those products. Maintenance and
consumable revenue also contributed significantly to the Company's nine-month
revenue growth, with growth of over 100% for the nine months ended September 30,
1997 compared with the comparable 1996 period.
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<PAGE> 10
Gross margins increased by $4,460,648, or 54.4%, to $12,656,304 for the
nine months ended September 30, 1997, from $8,195,656 for the nine months ended
September 30, 1996. As a percentage of sales, gross margins declined to 64.8%
for the nine months ended September 30, 1997, as compared with 65.7% for the
nine months ended September 30, 1996. The Company's gross margin was positively
impacted by the shift in product mix to the FDM 2000 and 8000, with higher
average selling prices, coupled with the strong growth of high-margin
maintenance and consumable revenues. Margins were negatively impacted by
increased manufacturing overhead costs. Increased headcount and expenses
associated with the Company's expanded manufacturing facility accounted for most
of the increase in manufacturing overhead.
Selling, General and Administrative ("SG&A") expenses increased to
$9,871,969 for the nine months ended September 30, 1997, from $5,741,090 in the
comparable 1996 period. This represents a $4,130,879, or 72.0%, increase in SG&A
expenses for the 1997 period as compared with the 1996 period. Increased SG&A
headcount, referenced above, caused compensation expense, excluding commissions,
to increase by approximately 77% in the nine months ended September 30, 1997, as
compared with the comparable 1996 period. Rent, facility related expenses,
travel, and amortization all reflected significant period over period increases.
SG&A expenses as a percentage of sales in the nine months ended September 30,
1997 and 1996 were 50.6% and 46.0%, respectively.
Research and Development ("R&D") expenses increased to $3,786,117 for
the nine months ended September 30, 1997, from $2,207,918 for the nine months
ended September 30, 1996, an increase of $1,578,199, or 71.5%. R&D expenses as a
percentage of sales increased to 19.4% of sales in the nine months ended
September 30, 1997 as compared with 17.7% in the 1996 period. On-going expenses
associated with new product development and current product enhancement
accounted for much of this increase. For the nine months ended September 30,
1997, the Company capitalized $81,714 of software development costs, in
accordance with FASB 86, as compared with $703,991 that was capitalized for the
comparable 1996 period.
The Company's operating loss for the nine months ended September 30,
1997 amounted to $1,001,782, or 5.1% of sales, compared with operating income of
$246,648, or 2.0% of sales, for the nine months ended September 30, 1996. Net
interest income amounted to $330,189 for the nine months ended September 30,
1997, as compared with net interest income of $400,273 for the comparable 1996
period.
The Company's net loss for the nine months ended September 30, 1997
amounted to $436,535, or 2.2% of sales, after the application of an income tax
credit of $235,058. For the nine months ended September 30, 1996, the Company
recorded net income of $646,921 or 5.2% of sales. The loss per share for the
nine months ended September 30, 1997, amounted to $.08 on weighted average
number of common and common equivalent shares outstanding of 5,660,371 as
compared with earnings per share of $.11 on fully diluted weighted average
number of common and common equivalent shares outstanding of 5,837,264 for the
1996 period.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for the nine months ended September 30, 1997, used
cash of $2,774,626, primarily impacted by increases to inventories of
$3,326,719, reductions of accounts payable and other current liabilities of
$891,689, and the net loss in the period of $436,535. This was offset by an
increase in unearned maintenance revenues of $758,958. Inventory was up due to
the increase to the number of product lines offered by the Company, coupled with
a build-up of finished goods inventory of the FDM 1650, 2000 ,and 8000 products
caused by lower than forecasted product sales. For the comparable 1996 period,
the Company's operating activities used $2,130,403 of cash, primarily reflecting
increases in accounts receivable of $1,933,043 and inventories of $2,369,584.
Net cash provided by its investing activities amounted to $345,259 in the nine
months ended September 30, 1997, including proceeds of $2,248,830 from the sale
of marketable securities, partially offset by a use of cash in the amount of
$1,677,610 for the acquisition of machinery and equipment. Net cash used in the
nine months ended September 30, 1996 for investing activities amounted to
$1,798,618, which included $789,303 for the acquisition of machinery and
equipment and $751,535 for payments for intangible assets. Net cash provided by
the Company's financing activities was $1,004,749 for the nine months ended
September 30, 1997, as compared to $5,105,876 for the nine months ended
September 30,
8
<PAGE> 11
1996. In the 1997 period, the Company received net proceeds of $1,179,372 from
the exercise of options and warrants. For the nine months ended September 30,
1996 the Company received net proceeds from the sale of common stock of
$3,274,895 and proceeds from notes due on common stock purchases of $1,946,000.
Net cash for the nine months ended September 30, 1997, decreased by $1,424,618
compared with an increase in net cash of $1,176,855 for the nine months ended
September 30, 1996.
At September 30, 1997, the Company's cash and cash equivalents and
marketable securities balances totaled $6,864,427, down from $10,537,875 at
December 31, 1996. This cash will be used by the Company for additional working
capital, for expansion of facilities, for new product development, for
acquisition of production equipment and computers, for increased selling and
marketing activities, and for potential acquisitions. Management believes that
the Company's revenue from operations, its current cash and cash equivalents
balance, and the proceeds from the sale of short-term marketable securities
should provide cash resources to finance its operations for at least 24 months.
As of September 30, 1997, the Company had net accounts receivable of
$10,578,248, down from $10,607,155 as of December 31, 1996. Collection efforts
were limited by certain extended terms granted in past quarters. Certain
receivables associated with past Genisys sales have not been collected due to
the technical issues discussed above, but the Company is confident that the
recent technical improvements to Genisys will ultimately result in the
collection of these receivables. Certain foreign receivables with the Company's
international distributors continue to be slow paying, but the Company
ultimately expects full payment of all outstanding balances. Certain foreign
distributors in the Far East have been impacted by the strong dollar and
deteriorating local currencies, which may affect their ability to pay their
outstanding balances due the Company, or the timelines of those payments.
Inventories increased to $5,975,709 from $2,648,990 at December 31, 1996. Some
of the increase is due to the inventory carrying requirements of the Company's
expanded product offerings coupled with an increase of finished goods inventory
at the end of the third quarter of 1997. In addition, Genisys inventory moved
slowly due to the technical issues that have impacted sales. Inventory levels,
while historically high, are expected to decline on traditionally high fourth
quarter revenues.
Total current assets as of September 30, 1997 were $24,896,672 compared
with total current liabilities of $4,753,813. As of December 31, 1996, the
Company's total current assets were $25,083,121 compared with current
liabilities of $4,891,014. The Company's debt is minimal, consisting primarily
of $338,958 of obligations under capital leases. Approximately $1,910,000 of
machinery and equipment was acquired in the first nine months of 1997, $232,189
of which was purchased under capitalized leases. Expenditures for capital
equipment, including tooling, are expected to be in the range of $500,000 in the
fourth quarter of 1997. As of September 30, 1997, the Company had material
commitments of approximately $1,750,000 with vendors for delivery of
inventories, some of which have been delivered. These commitments continue
through 1998. The Company has largely completed the expansion into its new
production facility that contains 59,400 square feet of combined
office/warehouse space for annual base rent of approximately $252,000, although
further leasehold improvements may be needed. The Company plans to sublease on a
monthly basis approximately 50% of this space until it is needed for production
capacity expansion.
The Company believes that the rapid prototyping industry is growing at
approximately 30-35% per year. It believes that there is a trend toward lower
priced rapid prototyping systems capable of producing functional prototypes, and
that a sizable marketplace exists for concept or visualization 3D printers
priced at around $55,000, although this market has been slow to develop. This
pricing trend should lead to growth in the more traditional functional
prototyping marketplace as companies continue to address in-house rapid
prototyping needs. Certain market segments have not demonstrated significant
pricing sensitivity. These segments are more interested in modeling envelope
size, modeling material variety, throughput, and part quality, which should
allow growth to continue for higher-priced systems addressing these needs. The
Company plans to continue to manufacture and market a line of products to
address both the lower-priced, traditional rapid prototyping market and the
growing needs of the more sophisticated, higher-priced rapid prototyping market.
The Company believes that its 1996 unit growth rate led the rapid prototyping
industry, although it can give no assurance that this growth rate or market
acceptance of its products will continue into the future.
The Company expanded its headcount by approximately 37% in the nine
months ended September 31, 1997 as compared with the comparable 1996 period. The
Company also expanded its infrastructure to drive revenue growth. However, while
1997 revenue grew by 56.5%, operating expenses in the same period increased by
almost 72%. The Company's
9
<PAGE> 12
future profitability will be dependent upon its ability to control its operating
expenses while increasing revenues.
Except for the historical information herein, the matters discussed in
this report are forward-looking statements that involve risks and uncertainties,
including the timely development and acceptance of new products, the impact of
competitive products and pricing, improvements in competing rapid prototyping
technologies, the mix of products sold and the profit margins thereon, economic
and business conditions that may affect demand for the Company's products, the
timing of orders from, and shipments to, major customers, and other risks
detailed from time to time in the Company's SEC reports, including the report on
Form 10-KSB for the year ended December 31, 1996 and subsequent reports on Form
10-QSB for the quarters ended March 31, 1997, June 30, 1997, and September 30,
1997.
10
<PAGE> 13
PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) On November 13, 1997, the Company closed the sale of
206,897 Units consisting of one share of the Company's Common Stock, $.01 par
value ("Common Stock"), a one-year warrant to purchase one share of Common Stock
at an exercise price of $14.50 (the "One-Year Warrant"), and a two-year warrant
to purchase one share of Common Stock at an exercise price of $14.50 (the
"Two-Year Warrant"), to one accredited investor for a purchase price of $14.50
per Unit. The One-Year Warrants and the Two-Year Warrants are immediately
exercisable by the holders by cash payment of the exercise price. In connection
with the investor's subscription for such Units, the Company granted an option
expiring on November 14, 1997, to purchase up to 148,148 Additional Units having
an aggregate purchase price of $2,000,000 at a purchase price of $13.50 per
Additional Unit. Each Additional Unit will consist of one share of Common Stock,
a one-year warrant to purchase one share of Common Stock at an exercise price of
$13.50, and a two-year warrant to purchase one share of Common Stock at an
exercise price of $13.50. The Company relied upon Rule 506 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and Section 4(2) of
the Securities Act for the exemption from registration under the Securities Act
in connection with the issuance of the shares of Common Stock, One-Year
Warrants, and Two-Year Warrants constituting the Units. Shares reported as
issued and outstanding as of November 12, 1997 on the cover page of this Report
do not include the 206,897 shares issued in connection with the foregoing sale
of Units.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Selected Financial Data.
(b) Reports on Form 8-K.
None
11
<PAGE> 14
SIGNATURES
In accordance with 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.
STRATASYS, INC.
By: /s/Thomas W. Stenoien
---------------------
Thomas W. Stenoien
Chief Financial Officer
Dated: November 14, 1997
12
<PAGE> 15
Exhibit Index
Exhibit Description
27.1 Selected Financial Data
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,540,350
<SECURITIES> 4,324,077
<RECEIVABLES> 11,051,612
<ALLOWANCES> (473,364)
<INVENTORY> 5,975,709
<CURRENT-ASSETS> 24,896,672
<PP&E> 4,931,679
<DEPRECIATION> (1,491,374)
<TOTAL-ASSETS> 32,130,391
<CURRENT-LIABILITIES> 4,753,813
<BONDS> 0
0
0
<COMMON> 57,163
<OTHER-SE> 27,148,565
<TOTAL-LIABILITY-AND-EQUITY> 32,130,391
<SALES> 19,519,332
<TOTAL-REVENUES> 19,519,332
<CGS> 6,863,028
<TOTAL-COSTS> 13,658,086
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,568
<INCOME-PRETAX> (671,593)
<INCOME-TAX> (235,058)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (436,535)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
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