<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, 1998
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
For the transition period from ______________ to_________________
Commission file number 1-13400
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
(Address of Principal Executive Offices)
(612) 937-3000
(Issuer's Telephone Number, Including Area Code)
Not Applicable
(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 ___
As of November 11, 1998, the Issuer had 6,096,212 shares of Common Stock,
$.01 par value, outstanding.
Transitional Small Business Disclosure Format: Yes ___ No X
<PAGE> 2
STRATASYS, INC.
Index
Page
Part I. Financial Information
Item 1. Financial Statements ................................................ 1
Balance Sheets as at September 30,1998 and December 31, 1997 .... 1
Statements of Operations for the three months and nine months
ended September 30, 1998 and 1997 ............................... 2
Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 ..................................... 3
Notes to Financial Statements ................................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 4
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K .................................... 11
Signatures .................................................................. 12
(i)
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
STRATASYS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1997
(UNAUDITED) (AUDITED)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $12,361,203 $ 9,116,232
Marketable Securities 4,625,990 4,441,380
Accounts receivable, less allowance for doubtful
accounts of $313,305 in 1998 and $514,461 in 1997 6,794,629 11,666,054
Inventories 5,645,505 5,492,130
Prepaid expenses 742,706 226,698
Deferred taxes 1,051,000 1,051,000
---------------------------
Total current assets 31,221,033 31,993,494
---------------------------
MACHINERY AND EQUIPMENT, less
accumulated depreciation 3,585,108 3,445,265
---------------------------
OTHER ASSETS
Intangible assets 2,909,363 3,376,038
Sundry 213,634 169,633
---------------------------
3,122,997 3,545,671
---------------------------
$37,929,138 $38,984,430
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Obligations under capitalized leases, current portion 192,290 144,137
Accounts payable and other current liabilities 2,408,442 3,066,342
Unearned maintenance revenue 2,316,903 2,426,270
Income taxes payable 267,144
---------------------------
Total current liabilities 5,184,779 5,636,749
---------------------------
DEFERRED TAXES 124,000 124,000
OBLIGATIONS UNDER CAPITALIZED LEASES, less current portion 232,822 136,314
---------------------------
356,822 260,314
---------------------------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, authorized 15,000,000
shares, issued 6,096,212 shares
in 1998 and 6,079,659 shares in 1997 60,962 60,797
Capital in excess of par value 32,592,368 33,556,084
Accumulated deficit (33,387) (529,514)
Cumulative translation adjustment (6,421)
Less treasury stock, 35,400 shares in 1998 (225,985)
---------------------------
32,387,537 33,087,367
---------------------------
Total stockholders' equity $37,929,138 $38,984,430
===========================
</TABLE>
See notes to financial statements.
1
<PAGE> 4
STRATASYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1998 1997 1998 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $7,836,247 $7,345,471 $23,100,729 $19,519,332
COST OF GOODS SOLD 2,948,307 2,786,163 7,859,872 6,863,028
------------------------------- ------------------------------
GROSS PROFIT 4,887,940 4,559,308 15,240,857 12,656,304
COSTS AND EXPENSES
Research and development 1,470,715 1,445,121 4,053,744 3,786,117
Selling, general and administrative 3,507,876 3,181,057 10,873,596 9,871,969
------------------------------- ------------------------------
4,978,591 4,626,178 14,927,340 13,658,086
------------------------------- ------------------------------
OPERATING INCOME (LOSS) (90,651) (66,870) 313,517 (1,001,782)
------------------------------- ------------------------------
OTHER INCOME (EXPENSE)
Interest income 175,857 163,005 483,725 370,757
Interest expense (8,874) (18,045) (33,973) (40,568)
------------------------------- ------------------------------
166,983 144,960 449,752 330,189
------------------------------- ------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 76,332 78,090 763,269 (671,593)
INCOME TAXES (BENEFIT) 26,714 27,327 267,142 (235,058)
------------------------------- ------------------------------
NET INCOME (LOSS) $ 49,618 $ 50,763 $ 496,127 $ (436,535)
------------------------------- ------------------------------
------------------------------- ------------------------------
EARNINGS (LOSS) PER COMMON SHARE
Basic $ 0.01 $ 0.01 $ 0.08 $ (0.08)
------------------------------- ------------------------------
------------------------------- ------------------------------
Diluted $ 0.01 $ 0.01 $ 0.08 $ (0.08)
------------------------------- ------------------------------
------------------------------- ------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic 6,059,269 5,676,502 6,074,416 5,608,179
------------------------------- ------------------------------
------------------------------- ------------------------------
Diluted 6,109,275 5,885,372 6,191,682 5,660,371
------------------------------- ------------------------------
------------------------------- ------------------------------
</TABLE>
See notes to financial statements.
2
<PAGE> 5
STRATASYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
(UNAUDITED) (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 496,127 $ (436,535)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Deferred taxes (235,058)
Depreciation and amortization 1,013,393 653,659
Amortization of intangibles and other assets 696,523 679,530
100,000
Bad debts
Increase (decrease) in cash attributable to
changes in assets and liabilities
Accounts receivable 4,871,425 (71,093)
Inventory (153,375) (3,326,719)
Prepaid expenses (516,008) 45,871
Other Assets (51,550)
Accounts payable and other current liabilities (657,900) (891,689)
Income taxes payable 267,144
Unearned maintenance revenue (109,367) 758,958
--------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5,907,962 (2,774,626)
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 2,248,830
Purchases of marketable securities (184,610)
Acquisition of machinery and equipment (884,667) (1,677,610)
Payments for deposits (44,001) (109,538)
Payments for intangible assets (229,848) (116,423)
--------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,343,126) 345,259
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of obligations under capitalized leases (123,908) (174,623)
Proceeds from the sale of common stock 36,449 1,179,372
Purchase of stock warrants (1,000,000)
Acquisition of treasury stock (225,985)
--------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,313,444) 1,004,749
EFFECT OF EXCHANGE RATE CHANGES ON CASH (6,421) --
--------------------------------
NET INCREASE (DECREASE) IN CASH 3,244,971 (1,424,618)
CASH AND CASH EQUIVALENTS, beginning of period 9,116,232 3,954,968
---------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 12,361,203 $ 2,540,350
=================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
cash paid during the period for interest $ 33,973 $ 22,523
=================================
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Machinery and equipment acquired under
capital lease obligations $ 268,569 $ 232,189
=================================
</TABLE>
See notes to financial statements.
3
<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 and nine months
ended September 30, 1998, 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, 1997, 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, 1998, the Company received net
proceeds of approximately $36,449 from the exercise of options.
Note 3--- Inventory
Inventories consist of the following at September 30 and December 31,
respectively:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Finished Goods $3,301,258 $2,318,013
Work in process 342,150 276,366
Raw materials 2,002,097 2,897,751
---------- ----------
$5,645,505 $5,492,130
</TABLE>
Note 4--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 1998
and into mid-1999. These commitments amount to approximately $1,500,000, some
of which contain non-cancellation clauses.
Note 5--Treasury stock and warrant buyback
In the three months ended September 30, 1998, the Company purchased 35,400
shares of the Company's common stock for an aggregate purchase price of
$225,985. In the three months ended September 30, 1998, the Company purchased
an aggregate of 710,090 warrants to purchase the Company's common stock for an
aggregate purchse price of $1,000,000.
4
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
Stratasys develops, manufactures, and markets a family of rapid
prototyping devices that enable engineers and designers to create physical
models, tooling and prototypes out of plastic and other materials directly from
a computer aided design ("CAD") workstation. Historically, the Company's growth
has come from sales to a number of industries, including automotive, consumer
products, electronics, medical, and aerospace. Universities, other educational
institutions, and service bureaus have also been significant markets for the
Company. The Company's current and future growth is largely dependent upon its
ability to penetrate new markets, develop new applications, and develop and
market new rapid prototyping devices that meet the needs of its current and
prospective customers. New product developments will focus on various rapid
prototyping devices, modeling materials, and software enhancements. The
Company's primary business strategy for 1998 has been focused on the expansion
of international and domestic sales of its existing family of rapid
prototyping devices while maintaining on-going development of new rapid
prototyping equipment, modeling materials, and software. Revenue growth in the
nine months ended September 30, 1998 amounted to approximately 18%. Growth
through appropriate acquisitions may also occur, but the Company can give no
assurance that any such acquisitions will be consummated.
The Company introduced one major new product, the FDM(R) Quantum, in
February 1998. The Quantum incorporates a new technology called the
MagnaDrive(TM) system. This system offers frictionless movement of its extrusion
head that floats on a bed of air while controlled through a precise
electromagnetic homing device. The Quantum offers a large-build envelope
combined with throughput improvements that offer faster model build times. The
list price of the Quantum is between $325,000 and $400,000, depending upon
various options. Sales of the Quantum contributed significantly to third quarter
and year-to-date revenues following its introduction in the first quarter of
1998. The Company has continued to market and sell the FDM(R) 8000, its other
large envelope system, at a domestic price of approximately $200,000, depending
upon various options. Continuing software, materials and hardware enhancements
to improve the performance and throughput of the Company's systems have also
been introduced in 1998.
Net sales of the Company's rapid prototyping devices, modeling materials,
and maintenance have increased each year since 1990. Management expects, but
cannot assure, that this trend will continue. The Company believes that the
rapid prototyping industry is growing at approximately 10-20% per year and that
the industry's unit growth is approximately 25% to 35% per year. The Company
believes that there is a trend toward lower priced rapid prototyping systems
capable of producing functional prototypes, and that a sizable market exists for
concept or visualization 3D printers. 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 in the
industry have not demonstrated 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 rapid
prototyping systems addressing these needs.
5
<PAGE> 8
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED WITH THE QUARTER ENDED SEPTEMBER 30,
1997
The following table sets forth certain statement of income data as a
percentage of net sales for the periods indicated. All items are included in or
derived from the Company's statements of income.
<TABLE>
<CAPTION>
For the quarter ended September 30,
1998 1997
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of Sales 37.6% 37.9%
Gross Margin 62.4% 62.1%
Selling, general, and administrative expenses 44.8% 43.3%
Research & development expense 18.8% 19.7%
Operating income (loss) (1.2%) (0.9%)
Other Income 2.1% 2.0%
Income before taxes 1.0% 1.1%
Income taxes 0.3% 0.4%
Net income 0.6% 0.7%
</TABLE>
NET SALES
Net sales for the quarter ended September 30, 1998 were $7,836,247,
compared with sales of $7,345,471 recorded for the quarter ended September 30,
1997. This represents an increase of $490,776, or 6.7%. The increase was due to
the strong sales of the FDM(R) Quantum and Genisys systems and to on-going sales
of the Company's FDM(R) Benchtop systems, refurbished systems, system upgrades,
maintenance contracts, and consumables. Consumable and maintenance revenue
continued as one of the fastest growing components of the Company's revenue mix.
Genisys revenues recorded in the quarter ended September 30, 1998 were up
sharply over the revenues recorded in the comparable quarter of 1997, due in
part to improvements to the system's reliability. The Company increased unit
sales of all rapid prototyping systems by approximately 12.0% in the third
quarter of 1998 as compared with the third quarter of 1997.
6
<PAGE> 9
Domestic sales accounted for approximately 64% of total revenue, and
increased by approximately 5% as compared to the third quarter of 1997. The
Company's central region was the Company's strongest domestic region.
International sales accounted for about 36% of total revenue, and increased by
approximately 10% over the third quarter of 1997. Japan was the strongest
international region. The Company's combined Asia-Pacific region, which is
composed of Japan, China, the Far East and India, accounted for approximately
27% of total revenue. While bookings from Japan were strong in the third quarter
of 1998, the region's economic problems negatively impacted bookings elsewhere
in the region. Revenue from the Company's European region was weak.
Historically, the Company has derived a larger percentage of its revenues from
Europe. Early indications suggest that bookings in Japan will continue to be
strong throughout the fourth quarter of 1998, but the rest of the region is
expected to remain weak. Europe is expected to recover from its third quarter
results. No assurances, however, can be given that future sales and
profitability will not be adversely impacted by the economic conditions of the
European and Asia-Pacific regions.
GROSS PROFIT
Gross profit amounted to $4,887,940 in the quarter ended September 30,
1998, compared with $4,559,308 in the quarter ended September 30, 1997, an
improvement of $328,632, or 7.2%. Gross profit as a percentage of sales amounted
to 62.4% in the 1998 period as compared with 62.1% in the 1997 period. The
increase in the Company's 1998 gross profit was primarily due to a reduction in
the Company's manufacturing overhead and direct labor costs. Product mix caused
the materials component of cost of sales to increase as a percentage of sales,
but the increase was relatively modest. Future product mix changes could
negatively impact the Company's ability to improve its gross margins, although
historically the Company has been able to expand its margins on higher revenue.
OPERATING EXPENSES
Selling, general and administrative ("SG&A") expense increased to
$3,507,676 for the quarter ended September 30, 1998, from $3,181,057 for the
quarter ended September 30, 1997. This represents an increase of $326,619, or
10.3%. Much of the increase was in selling compensation, as the Company
increased its sales organization for the period ending September 30, 1998 over
the comparable 1997 period.
Research and development ("R&D") expense increased to $1,470,715 for the
quarter ended September 30, 1998 from $1,445,121 for the quarter ended September
30, 1997. The increase in the 1998 period over the 1997 period amounted to
$25,594, or 1.8%. Payroll expenses and hardware materials accounted for much of
the increase to R&D expense in the 1998 period.
7
<PAGE> 10
The Company's operating loss for the quarter ended September 30, 1998
amounted to $90,651, or (1.2%) of sales, from an operating loss of $66,870, or
(.9%) of sales, for the quarter ended September 30, 1997. Whereas total revenue
increased by 6.7% in the quarter ended September 30, 1998 as compared with the
quarter ended September 30, 1997, operating expenses increased by 7.6% over the
quarter ended September 30, 1997, accounting for the increased operating loss in
the 1998 period.
OTHER INCOME
Other income and expense netted to $166,983 in the quarter ended September
30, 1998. Interest income amounted to $175,857, an increase of $12,852 compared
with 1997. This was due to a higher average balance of cash and marketable
securities. Interest expense declined by $9,171 to $8,874 in 1998 as a result of
the expiration of several higher-interest capitalized leases.
NET INCOME
Net income for the quarter ended September 30, 1998 amounted to $49,618
compared with $50,763 in the quarter ended September 30, 1997. This represents a
$.01 diluted earnings per share in both the 1998 and 1997 periods.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
The following table sets forth certain statement of income data as a
percentage of net sales for the periods indicated. All items are included in or
derived from the Company's statement of income.
<TABLE>
<CAPTION>
For the nine months ended September 30,
1998 1997
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of Sales 34.0% 35.2%
Gross Margin 66.0% 64.8%
Selling, general, and administrative expenses 47.1% 50.6%
Research & development expense 17.5% 19.4%
Operating income (loss) 1.4% (5.1%)
Other Income 1.9% 1.7%
Income (loss) before taxes 3.3% (3.4%)
Income taxes (benefit) 1.2% (1.2%)
Net income (loss) 2.1% (2.2%)
</TABLE>
8
<PAGE> 11
NET SALES
Net sales for the nine months ended September 30, 1998 were $23,100,729,
compared with net sales of $19,519,332 recorded for the nine months ended
September 30, 1997. This represents an increase of $3,581,397, or 18.3%. Sales
of the FDM(R) Quantum continued to be strong for the Company, following its
introduction in the first quarter of 1998. The Company's FDM(R) Benchtop
systems, including refurbished and upgraded systems, continued to account for
the majority of the Company's revenue in the nine months ended September 30,
1998. Gensiys, consumable and maintenance revenue increased significantly in the
nine months ended September 30, 1998 as compared with the comparable 1997
period. The Company was able to increase rapid prototyping unit sales by
approximately 23% in the nine months ended September 30, 1998 as compared with
the nine months ended September 30, 1997.
Domestic sales accounted for approximately 60% of total revenue in the nine
months ended September 30, 1998, and increased by approximately 27% as compared
to the nine months ended September 30, 1997. International sales accounted for
about 40% of total revenue and increased by approximately 7% over the nine
months ended September 30, 1997. The Asia Pacific region, including Japan, was
the strongest international region for the nine months ended September 30, 1998,
accounting for approximately 21% of the Company's revenue in the period.
The Company's European region accounted for approximately 18% of total
revenue in the nine months ended September 30, 1998. Historically the Company
has derived a larger percentage of its revenues from Europe as well as countries
other than Japan in the Asia-Pacific region. As anticipated, with the exception
of Japan, sales in the Far East were very weak. While the bookings were
comparatively strong in Japan in the nine months ended September 30, 1998, the
Company believes that bookings elsewhere in this region will continue to be weak
throughout the remainder of 1998. Europe is expected to recover from its weak
third quarter results. No assurances, however, can be given that future sales
and profitability will not be adversely impacted by the economic conditions of
these regions.
GROSS PROFIT
Gross profit amounted to $15,240,857 in the nine months ended September 30,
1998, compared with $12,656,304 in nine months ended September 30, 1997, an
improvement of $2,584,553, or 20.4%. Gross profit as a percentage of sales
amounted to 66.0% of sales in the 1998 period as compared with 64.8% in the 1997
period. The increase in the Company's 1998 gross profit was primarily due to a
significant reduction in the Company's manufacturing overhead expense, coupled
with expanding high-margin consumable revenues. Product mix resulted in an
increase to the materials component of cost of sales, but not enough to offset
the improvement derived from reduced manufacturing overhead. The 1997 period was
impacted by the introduction of two new products (the FDM(R) 2000 and 8000)
combined with the start-up costs and inefficiencies that were a result of moving
into a new manufacturing facility.
9
<PAGE> 12
OPERATING EXPENSES
SG&A expense increased to $10,873,596 for the nine months ended September
30, 1998, from $9,871,969 for the nine months ended September 30, 1997. This
represents an increase of $1,001,627, or 10.1%. An increase in salaries and
wages was the primary reason for the change as the Company expanded its sales
organization.
R&D expense increased to $4,053,744 for the nine months ended September 30,
1998 from $3,786,117 for the nine months ended September 30, 1997. The increase
in the 1998 period over the 1997 period amounted to $267,627, or 7.1%.
Compensation accounted for most of the increase to R&D expense in the 1998
period.
The Company's operating income for the nine months ended September 30, 1998
improved to $313,517, or 1.4% of sales, from an operating loss of $1,001,782, or
(5.1%) of sales, for the nine months ended September 30, 1997. Whereas total
revenue increased by 18.3% in the current nine month period as compared with the
nine months ended September 30, 1997, operating expenses increased by only 9.3%
in the comparable period, which accounts for the improvement to the Company's
operating income in the current period.
OTHER INCOME
Other income and expense netted to $449,752 in the nine months ended
September 30, 1998. Interest income amounted to $483,725, an increase of
$112,968 compared with 1997. This was due to a higher average balance of cash
and marketable securities. Interest expense decreased by $6,595 to $33,973 in
1998.
NET INCOME
Net income for the nine months ended September 30, 1998 amounted to
$496,127 compared with a net loss of $436,535 in the nine months ended September
30, 1997. This represents an $.08 diluted earnings per share in the 1998 period
compared to an $.08 loss per share in the comparable 1997 period.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for the nine months ended September 30, 1998 provided
cash of $5,907,962, primarily reflecting the Company's net income in the period
of $496,127 coupled with a decrease of $4,871,425 in the Company's accounts
receivable balance. This change resulted from strong collections and a general
tightening of credit terms. The cash provided by operations was partially offset
by increases in inventory, prepaid expenses, and payments of trade and other
current payables that amounted to $153,375, $516,008, and $657,900,
respectively. The Company used cash of $2,774,626 in its operating activities in
the nine months ended September 30, 1997, principally as a result of an increase
in inventories of $3,326,719, and a net loss of $436,535, which was partially
offset by a decrease in unearned
10
<PAGE> 13
maintenance revenue of $758,958. The Company used $1,343,126 of cash for
investing activities in the nine months ended September 30, 1998, $884,667 of
which was used in the acquisition of machinery and equipment. In the nine
months ended September 30, 1997, investing activities provided cash of
$345,259, including $2,248,830 of proceeds from the sale of marketable
securities, which was partially offset by the acquisition of machinery and
equipment that amounted to $1,677,610. The Company used $1,313,444 of cash in
its financing activities in the first nine months of 1998, principally for the
re-purchase of warrants to purchase the Company's common stock in the amount
of $1,000,000 and the acquisition of treasury stock for $225,985. In the 1997
period, the Company received $1,004,749 of net cash from its financing
activities, including $1,179,372 of proceeds from the sale of common stock.
This was offset by repayments under capitalized leases of $174,623. The net
increase in cash for the nine months ended September 30, 1998 amounted to
$3,244,971 as compared with a net decrease of $1,424,618 for the comparable
1997 period. The Company's ending cash and cash equivalents balances as of
September 30, 1998 and 1997 were $12,361,203 and $2,540,350, respectively.
At September 30, 1998, the Company's cash, cash equivalents, and marketable
securities balances totaled $16,987,193. These assets will be used by the
Company for working capital purposes, improvement to facilities, new product
development and introduction, tooling, acquisition of production equipment and
computers, increased selling and marketing activities, and appropriate
acquisitions. Management believes that the Company's revenue from operations,
its current cash and cash equivalents balances, and the proceeds from the sale
of short-term marketable securities should provide sufficient cash resources to
finance its operations for at least 12 months.
As of September 30, 1998, the Company had gross accounts receivable of
$7,107,934, less an allowance of $313,305 for returns and doubtful accounts.
Historically, the Company's bad debt expense has been minimal. However, at
September 30, 1998, large balances were concentrated with certain international
distributors. While the Company can give no assurances, it believes that most,
if not all, of the accounts receivable balances ultimately will be collected.
The Company has not experienced significant inventory adjustments, although it
can give no assurances that future inventory adjustments caused by obsolescence,
product design changes, declining sales, or other factors, will not occur.
The Company's total current assets amounted to $31,221,033 at September 30,
1998, the majority of which comprised cash, cash equivalents, marketable
securities, inventory and accounts receivable. Total current liabilities
amounted to $5,184,779. The Company's debt is minimal, consisting primarily of
payments due under capital leases. The Company estimates that it will spend
approximately $1,800,000 in 1998 for facility improvements, production and R&D
equipment, computers and integrated software, and tooling, approximately
$1,100,000 of which has already been incurred. As of September 30, 1998,
material commitments for inventory purchases from selected vendors for the
ensuing three and twelve-month periods will amount to approximately $750,000 and
$1,500,000, respectively. In July 1998 the Company announced that it had
received board approval to commence a stock buyback program of up to 300,000
shares of the Company's common stock. As of September 30, 1998, the Company had
purchased
11
<PAGE> 14
35,400 shares of its common stock for $225,985 under the stock buy-back program.
The Company anticipates continued purchases under this program. The Company also
bought 710,090 warrants to purchase its common stock for $1,000,000 in the third
quarter of 1998. No additional purchases of this nature are anticipated.
INFLATION
Management believes that inflation has not had a material effect on the
Company's operations or on its financial condition.
FOREIGN CURRENCY TRANSACTIONS
Substantially all of the Company's transactions are negotiated, invoiced,
and paid in US dollars. Fluctuations in the currency exchange rates in other
countries may therefore reduce the demand for the Company's products by
increasing the price of the Company's products in the currency of the countries
in which the products are sold.
YEAR 2000 ISSUES
The Company believes that its products are not "date-dependant" or
"date-aware", meaning they do not rely upon calendar dates for internal
operations or overall product functionality. Furthermore, the Company's
products do not pass dates onto other computers, as dates are only used for
display purposes. The Company defines Year 2000 compliance as the ability to
function properly without interruption before, during, and after January 1,
2000. The Company believes that all its products, including its propriety
software, meet this definition of Year 2000 compliance. The Company's internal
accounting and manufacturing software will be upgraded in 1998 to a version
that the vendor has represented to be Year 2000 compliant. The Company intends
to test that software during 1998 and 1999. The Company is currently working
with its vendors to determine whether they are Year 2000 compliant. The Company
may be required to change vendors that are determined not to be in compliance.
The Company's customers use a variety of CAD packages and hardware platforms.
Many of these customers will be required to upgrade these CAD packages and
operating systems to new versions that are Year 2000 compliant in order to
operate their systems. Those customers and future customers that do not elect
to upgrade their systems may be unable to generate STL files and thus use or
purchase our products. This could have the potential to reduce future revenue,
although the Company believes that the overall impact on revenue will not be
material. The cost to the Company to determine its Year 2000 compliance has not
been material and has been included in its operating results. The Company does
not believe that future costs associated with this issue will be material to
its financial condition or its results of operations.
12
<PAGE> 15
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS
All statements herein that are not historical facts or that include such
words as expect, anticipate, project, estimates or believes or other similar
words are forward-looking statements deemed by the Company to be covered by and
to qualify for the safe harbor protection covered by the safe harbor protection
provided by the Private Securities Litigation Reform Act of 1995 (the "1995
Act"). Investors and prospective investors in the Company should understand that
several factors govern whether any forward-looking statement herein will be or
can be achieved. Any one of these factors could cause actual results to differ
materially from those projected herein. These forward-looking statements include
the expected increases in net sales of rapid prototyping systems and services,
the ability of the Company to maintain its gross margins on these sales, and the
plans and objectives of management to introduce new products, control expenses,
improve profitability, and consummate acquisitions. The forward-looking
statements included herein are based on current expectations that involve a
number of risks and uncertainties. These forward-looking statements are based on
assumptions, among others, that the Company will be able (1) to continue to
introduce new rapid prototyping systems acceptable to the market and improve
existing technology and software in its current product offering, including the
Genisys rapid prototyping system that has been especially affected by
technological problems, (2) to maintain its gross margins on its present
products, (3) to control its operating expenses, especially its selling, general
and administrative expenses and (4) to retain and recruit employees with the
necessary skills to produce, develop, market, and sell it products. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive, and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of those assumptions could prove inaccurate
and therefore there is and can be no assurance that the results contemplated in
any such forward-looking statement will be realized. The impact of actual
experience and business developments may cause the Company to alter its
marketing plans, capital expenditure budgets or other budgets, which may in turn
affect the Company's results of operations. Due to the factors noted above and
elsewhere in the Management's Discussion and Analysis of Financial Condition and
Results of Operations, the Company's future earnings and stock price may be
subject to significant volatility, particularly on a quarterly basis.
Additionally, the Company may not learn of revenue or earnings shortfalls until
late in a fiscal quarter, since the Company frequently receives the majority of
its orders very late in a quarter. This could result in an immediate and adverse
effect on the trading price of the Company's common stock. Past financial
performance should not be considered a reliable indicator of future performance,
and investors should not use historical trends to anticipate results or trends
in future periods.
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<PAGE> 16
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data. Schedule
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K dated September 30,1998,
reporting that it had repurchased warrants to purchase an aggregate of 710,090
shares of the Company's Common Stock from four holders for an aggregate purchase
price of $1 million.
14
<PAGE> 17
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 13, 1998
Exhibit Index
Exhibit Description
- ------- -----------
27.1 Financial Data Schedule
15
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 12,361,203
<SECURITIES> 4,625,990
<RECEIVABLES> 7,107,934
<ALLOWANCES> (313,305)
<INVENTORY> 5,645,505
<CURRENT-ASSETS> 31,221,033
<PP&E> 6,239,037
<DEPRECIATION> (2,653,929)
<TOTAL-ASSETS> 37,929,138
<CURRENT-LIABILITIES> 5,184,779
<BONDS> 0
0
0
<COMMON> 60,962
<OTHER-SE> 32,326,575
<TOTAL-LIABILITY-AND-EQUITY> 37,929,138
<SALES> 23,100,729
<TOTAL-REVENUES> 23,100,729
<CGS> 7,859,872
<TOTAL-COSTS> 14,927,340
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,973
<INCOME-PRETAX> 763,269
<INCOME-TAX> 267,142
<INCOME-CONTINUING> 496,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 496,127
<EPS-PRIMARY> 0.08
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