<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended June 30, 1999
OR
[ ] Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ______________ to_________________
Commission file number 1-13400
STRATASYS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
Delaware 36-3658792
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
</TABLE>
14950 Martin Drive, Eden Prairie, Minnesota 55344
(Address of Principal Executive Offices)(Zip Code)
(612) 937-3000
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the registrant: (1) 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 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 August 3, 1999, the Registrant had 6,101,961 shares of Common
Stock, $.01 par value, outstanding.
<PAGE> 2
STRATASYS, INC.
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements .......................................... 1
Balance Sheets as of June 30, 1999 and December 31, 1998 ...... 1
Statements of Operations for the six months ended June 30,
1999 and 1998 ................................................. 2
Statements of Cash Flows for the six months ended
June 30, 1999 and 1998 ........................................ 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 4. Submission of Matters to a Vote of Security Holders ........... 14
Item 6. Exhibits and Reports on Form 8-K .............................. 14
Signatures ............................................................ 15
</TABLE>
(i)
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
STRATASYS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(unaudited)
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,998,898 $ 11,243,839
Marketable Securities 719,723 4,593,910
Accounts receivable, less allowance for doubtful
accounts of $542,297 in 1999 and $395,291 in 1998 10,293,551 9,838,836
Inventories 5,119,962 5,035,588
Prepaid expenses 794,011 593,363
Deferred income taxes 243,000 243,000
------------ ------------
Total current assets 25,169,145 31,548,536
------------ ------------
MACHINERY AND EQUIPMENT, less
accumulated depreciation 3,683,108 3,601,829
------------ ------------
OTHER ASSETS
Intangible assets 3,067,533 2,788,769
Deferred income taxes 3,072,000 3,072,000
Other 139,489 179,042
------------ ------------
6,279,022 6,039,811
------------ ------------
$ 35,131,275 $ 41,190,176
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Obligations under capitalized leases, current portion 152,066 177,669
Purchased in-process research and development payable 6,464,709
Accounts payable and other current liabilities 3,417,686 3,601,570
Unearned maintenance revenue 3,485,748 2,649,824
Deferred income taxes 10,725
------------ ------------
Total current liabilities 7,066,225 12,893,772
------------ ------------
OBLIGATIONS UNDER CAPITALIZED LEASES, less current portion 117,883 193,327
------------ ------------
117,883 193,327
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, authorized 15,000,000
shares, issued 6,101,961 shares in 1999
and 6,100,524 shares in 1998 61,020 61,005
Capital in excess of par value 32,712,755 32,710,484
Accumulated deficit (3,827,614) (3,847,529)
Accumulated other comprehensive income (loss) (33,847) (38,956)
Less cost of treasury stock, 174,100 shares in 1999
and 137,300 shares in 1998 (965,147) (781,927)
------------ ------------
Total Stockholders' Equity 27,947,167 28,103,077
------------ ------------
$ 35,131,275 $ 41,190,176
============ ============
</TABLE>
See notes to financial statements.
<PAGE> 4
STRATASYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 8,864,395 $ 8,256,810 $ 16,467,539 $ 15,264,482
COST OF GOODS SOLD 3,232,610 2,535,718 5,642,704 4,911,565
------------ ------------ ------------ ------------
GROSS PROFIT 5,631,785 5,721,092 10,824,835 10,352,917
COSTS AND EXPENSES
Research and development 1,595,012 1,307,858 3,271,943 2,583,029
Selling, general and administrative 3,816,496 3,859,845 7,731,896 7,365,720
------------ ------------ ------------ ------------
5,411,508 5,167,703 11,003,839 9,948,749
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 220,277 553,389 (179,004) 404,168
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 132,548 126,913 255,532 307,868
Interest expense (30,895) (11,476) (45,888) (25,099)
------------ ------------ ------------ ------------
101,653 115,437 209,644 282,769
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 321,930 668,826 30,640 686,937
INCOME TAXES (BENEFIT) 109,002 234,089 10,725 240,428
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 212,928 $ 434,737 $ 19,915 $ 446,509
------------ ------------ ------------ ------------
EARNINGS (LOSS) PER COMMON SHARE
Basic $ 0.04 $ 0.07 $ -- $ 0.07
------------ ------------ ------------ ------------
Diluted $ 0.04 $ 0.07 $ -- $ 0.07
------------ ------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic 5,934,488 6,084,325 5,946,890 6,082,170
============ ============ ============ ============
Diluted 5,936,333 6,172,145 5,949,682 6,173,373
============ ============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE> 5
STRATASYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1999 1998
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 19,915 $ 446,509
Adjustments to reconcile net income to net
cash used in operating activities:
Deferred taxes 10,725
Depreciation and amortization 629,591 641,469
Amortization of intangibles 417,041 470,378
Purchased in-process research and development (6,464,709)
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Accounts receivable (454,715) 2,622,282
Inventories (84,374) (1,157,844)
Prepaid expenses (200,648) (316,619)
Accounts payable and other current liabilities (183,884) (51,729)
Income taxes payable 240,428
Unearned maintenance revenue 835,924 1,622
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (5,475,134) 2,896,496
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 3,874,187
Purchases of marketable securities (184,552)
Acquisition of machinery and equipment (710,870) (767,118)
Payments for other assets (37,686)
Proceeds from other assets 39,553
Payments for intangible assets (695,805) (149,478)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,507,065 (1,138,834)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of obligations under capitalized leases (101,047) (86,278)
Proceeds from the sale of common stock 2,286 19,158
Repurchase of treasury stock (183,220)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (281,981) (67,120)
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 5,109
------------ ------------
CASH AND CASH EQUIVALENTS, beginning of period 11,243,839 9,116,232
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 7,998,898 $ 10,806,774
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
cash paid during the period for interest $ 45,888 $ 25,099
============ ============
</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 and six months ended June 30, 1999, 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, 1998, filed as part of the Company's
Annual Report on Form 10-KSB for such year.
Note 2--- Inventory
Inventories consist of the following at June 30 and December 31,
respectively:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Finished Goods $3,455,020 $3,058,539
Work in process 62,121 145,108
Raw materials 1,602,821 1,831,941
---------- ----------
$5,119,962 $5,035,588
========== ==========
</TABLE>
Note 3--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
1999. These commitments amount to approximately $2,700,000, some of which
contain non-cancellation clauses.
Note 4--Treasury stock
In the three months ended June 30, 1999, the Company purchased 7,700
shares of the Company's common stock for an aggregate purchase price of $60,949.
Note 5--Subsequent Event
In May 1999 the Company's Board of Directors authorized management to
purchase up to 1,000,000 shares of the Company's common stock under an expansion
of the Company's previously authorized stock repurchase plan. Under this
authorization, the Company in July 1999 repurchased 300,000 shares in a private
transaction for an aggregate purchase price of $1,050,000.
4
<PAGE> 7
Note 6--Comprehensive Income
Comprehensive income is as follows:
<TABLE>
<CAPTION>
For the three months ended June 30,
-----------------------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 212,928 $ 434,737
Foreign currency translation adjustments (67,111) --
--------- ---------
Comprehensive income $ 145,817 $ 434,737
========= =========
</TABLE>
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 19,915 $446,509
Foreign currency translation adjustments 5,109 --
-------- --------
Comprehensive income $ 25,014 $446,509
======== ========
</TABLE>
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company 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, and develop and market new rapid prototyping
devices and applications 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 is focusing on expanding 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. In addition, the Company expects to incur expenditures throughout 1999
for the development of the technology it purchased in December 1998. The Company
does not expect to commercialize this technology until the latter part of 1999
or early 2000. The Company can give no assurances that it will successfully
develop this technology or that it will avoid developmental delays that could
negatively impact the commercialization of this technology.
In April 1999 the Company introduced the GenisysXs(R). This
system offers enhanced performance and speed improvements over the original
Genisys(R). Shipments of the GenisysXs(R) commenced in the second
quarter of 1999.
Net revenue derived from sales of the Company's rapid prototyping
devices, modeling materials, and maintenance has increased each year since 1990.
Management expects, but cannot assure, that this trend will continue. The
Company believes that it shipped more rapid prototyping systems than any of its
competitors in 1998, and that it recorded the second highest revenues within the
industry in 1998. It can give no assurances, however, that this trend will
continue. The Company's operating income declined in the second quarter of 1999
as compared with the same 1998 period, in spite of 7.4% revenue growth. The
Company significantly expanded its expenditures on research and development
("R&D") for both new products and sustaining engineering. R&D as a percentage of
sales increased to 18.0% in the second quarter of 1999 as compared to 15.8% in
the same 1998 period. R&D expenses are expected to continue at approximately the
same level at least through the third quarter of 1999. Selling, General and
Administrative ("SG&A") expenses declined to 43.1% of sales in the second
quarter of 1999 as compared with 46.7% in 1998. Lower expenses in the Company's
administrative and marketing departments were largely accountable for the
declining SG&A expenses. This was partly offset by increases to the Company's
customer service and German office departments. The Company's headcount has
increased from 182 employees and contractors at the end of the second quarter of
1998 to 189 employees and contractors at the end of the comparable 1999 period,
although headcount is down from 195 employees recorded at the end of 1998. The
future profitability of the Company will be dependent upon the Company's ability
to control its operating expenses while increasing revenues. The Company does
not believe that meaningful improvements to its gross margins are achievable,
and gross margins could possibly decline in the event that significant price
competition emerges within the industry or if the Company's product mix were to
change dramatically. While the Company believes that profitability will improve
in 1999 as compared with 1998 as a result of higher sales coupled with operating
expense control, it can give no assurance that these results will be realized.
The Company believes that the rapid prototyping industry is growing
at approximately 5-10% per year. It 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 and concept-modeling needs. Certain market segments in the industry
have not demonstrated
6
<PAGE> 9
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.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1999 COMPARED WITH QUARTER ENDED JUNE 30, 1998
The following table sets forth certain statement of operations 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 quarters ended June 30,
1999 1998
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 36.5% 30.7%
Gross margin 63.5% 69.3%
Selling, general, and administrative expenses 43.1% 46.7%
Research and development expense 18.0% 15.8%
Operating income 2.5% 6.7%
Other income 1.1% 1.4%
Income before taxes 3.6% 8.1%
Income taxes 1.2% 2.8%
Net income 2.4% 5.3%
</TABLE>
NET SALES
Net sales for the quarter ended June 30, 1999 were $8,864,395, compared
with net sales of $8,256,810 for the quarter ended June 30, 1998. This
represents an increase of $607,585, or 7.4%. Sales of the FDM(R) Quantum,
FDM(R) 2000 and Genisys(R) were strong in the quarter. The Company's
FDM(R) Benchtop systems, including refurbished and upgraded systems, and
Quantum systems continued to account for a majority of the Company's revenue in
the quarter ended June 30, 1999. Consumable and maintenance revenue increased
significantly in the quarter ended June 30, 1999 as compared with the comparable
1998 period, increasing to 22.3% of total revenue. Maintenance and materials
revenues were enhanced by the larger installed base of systems, customer
satisfaction with ABS and other material selections, and increased emphasis on
the sale of maintenance contracts.
Unit shipments increased by almost 18% in the second quarter of 1999 as
compared to 1998. System sales included gross sales of all systems, including
trade-in and upgrade systems. The average selling price of the Company's systems
declined in the current quarter as compared with the 1998 comparable period, due
to increased shipments of the Genisys Xs(R) and lower-priced Benchtop
systems. The Company ended the second quarter of 1999 with an order backlog of
approximately $4,500,000 compared with an order backlog of approximately
$1,800,000 at June 30, 1998. The 1999 backlog is the highest in the Company's
history.
Domestic sales accounted for approximately 49% of total revenue in the
quarter ended June 30, 1999, which was below the 62% recorded in the comparable
period in 1998. In the United States, the central region recorded the most
revenue, while the eastern region was weak. Europe accounted for approximately
22% of total revenue in the second quarter of 1999, up from 21.5% of revenue in
the comparable 1998 quarter. The Company's combined Asia-Pacific region, which
comprises Japan, China, Korea, Southeast Asia and India, accounted for
approximately 24% of total revenue, up from approximately 15% attained in 1998.
Historically, the Company has derived a larger percentage of its revenues from
its domestic regions. The Company believes that 1999 sales into the Southeast
Asian countries that have been most impacted by currency and economic turbulence
will be weak. These
7
<PAGE> 10
countries include Singapore, Thailand, Indonesia, and Malaysia. Sales in the
remainder of the Asia Pacific countries are expected to remain strong in 1999,
while sales into its domestic territories are expected to improve over the
results recorded in the second quarter of 1999. No assurances, however, can be
given that future sales and profitability will not be adversely impacted by the
economic conditions of these regions, or those sales into the Company's weaker
domestic territories will improve to prior levels.
GROSS PROFIT
Gross profit declined to $5,631,785, or 63.5% of sales, in the quarter
ended June 30, 1999, compared with $5,721,092, or 69.3% of sales, in the quarter
ended June 30, 1998. This represents a decline of $89,307, or 1.6%. Gross profit
was impacted in the 1999 period by product mix as the Company shipped more
lower-margin Genisys XS(R) and refurbished Benchtop systems, by increases
to its labor and manufacturing overhead expenses, and by a write-down of its
inventory following its mid-year inventory.
OPERATING EXPENSES
SG&A expenses declined to $3,816,496 for the quarter ended June 30,
1999, from $3,859,845 for the quarter ended June 30, 1998. This represents a
decrease of $287,154, or 1.1%. Lower administration and marketing expenses
accounted for much of the reduced SG&A expenses, while expenses incurred by
Company's customer service and German office departments caused selling expenses
to expand in the 1999 period.
R&D expenses increased to $1,595,012 for the quarter ended June 30,
1999 from $1,307,858 for the quarter ended June 30, 1998. The increase in 1999
over 1998 amounted to $287,154, or 22%. Payroll related expenses, materials, and
professional services accounted for much of the increase in R&D expenses in 1999
as compared with 1998. The Company believes that R&D expenses will continue to
be high throughout 1999 as the Company proceeds with its new product development
efforts, including efforts designed to commercialize the technology that the
Company purchased in December 1998.
The Company's operating profit for the quarter ended June 30, 1999
amounted to $220,277, or 2.5% of sales, compared with an operating profit of
$553,389, or 6.7% of sales, for the quarter ended June 30, 1998.
OTHER INCOME
Other income and expense netted to $101,653 in the quarter ended June
30, 1999 compared with $115,437 in the same 1998 period. Interest income
amounted to $132,548, a slight increase over the $126,913 recorded in 1998.
Interest expense increased by $19,419 to $30,895 in the quarter ended June 30,
1999 due to the Company's higher average balance of its capitalized leases.
NET INCOME
Net income for the quarter ended June 30, 1999 amounted to $212,928
compared with net income of $434,737 in the comparable 1998 period. This
resulted in earnings per diluted common and common equivalent share of $.04,
compared with income per diluted common and common equivalent share of $.07 in
the period ended June 30, 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
The following table sets forth certain statement of operations 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.
8
<PAGE> 11
<TABLE>
<CAPTION>
For the six months ended June 30,
1999 1998
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 34.3 % 32.2%
Gross margin 65.7 % 67.8%
Selling, general, and administrative expenses 47.0% 48.3%
Research and development expense 19.9% 16.9%
Operating income (loss) (1.1%) 2.6%
Other income 1.3% 1.9%
Income before taxes .2% 4.5%
Income taxes .1% 1.6%
Net income .1% 2.9%
</TABLE>
NET SALES
Net sales for the six months ended June 30, 1999 were $16,467,539,
compared with net sales of $15,264,482 for the six months ended June 30, 1998.
This represents an increase of $1,203,057, or 7.9%. Sales of the FDM(R)
Quantum and FDM(R) 2000 were strong in the period. The Company's
FDM(R) Benchtop systems, including refurbished and upgraded systems, and
Quantum systems continued to account for a majority of the Company's revenue in
the six months ended June 30, 1999. Consumable and maintenance revenue increased
significantly in the six months ended June 30, 1999 as compared with the 1998
period, increasing to 23.2% of total revenue. Maintenance and materials revenues
were enhanced by the larger installed base of systems, customer satisfaction
with ABS and other material selections, and increased emphasis on the sale of
maintenance contracts.
Unit shipments were flat in the six months ended June 30, 1999 as
compared with the 1998 period. The average selling price of the Company's
systems increased slightly in the six months ended June 30, 1999, as compared
with the 1998 period. This was impacted primarily by product mix. Domestic sales
accounted for approximately 49% of total revenue in the six months ended June
30, 1999, which was below the approximately 59% recorded in the comparable
period in 1998. In the United States, the central region recorded the most
revenue. Europe accounted for approximately 12% of total revenue in the six
months ended June 30, 1999, down from 16.5% of revenue in the comparable 1998
quarter. The European territory recovered from a weak first quarter in 1999 to
record improved revenues in the second quarter of 1999. The Company's combined
Asia-Pacific region, which comprises Japan, China, Korea, Southeast Asia and
India, accounted for approximately 28% of total revenue, up from approximately
16% attained in comparable 1998 period. Currency and economic turbulence in the
Company's Southeast Asian territory negatively impacted sales in the 1998
period. The Company believes that 1999 sales into the Asia Pacific countries
that have been most impacted by currency and economic turbulence will be weak.
These countries include Singapore, Thailand, Indonesia, and Malaysia. Sales in
the remainder of the Southeast Asian countries are expected to remain strong in
1999. Historically, the Company has derived a larger percentage of its revenues
from its domestic regions. Sales into its domestic territories are expected to
improve over the results recorded in the six months ended June 30, 1999. No
assurances, however, can be given that future sales and profitability will not
be adversely impacted by the economic conditions of these regions, or that sales
into the Company's domestic territories will improve to historical levels.
GROSS PROFIT
Gross profit increased to $10,824,835, or 65.7% of sales, in the six
months ended June 30, 1999, compared with $10,352,917, or 67.8% of sales, in the
six months ended June 30, 1998. This represents a increase of $471,918, or 4.6%.
Gross profit was impacted in the 1999 period by product mix, particularly in the
second quarter of 1999, by increases to its direct labor and manufacturing
overhead expenses, and by a write-down of inventory following its mid-year
inventory.
9
<PAGE> 12
OPERATING EXPENSES
SG&A expenses increased to $7,731,896 for the six months ended June 30,
1999, from $7,365,720 for the six months ended June 30, 1998. This represents an
increase of $366,176, or 5.0%. In the 1999 period, lower administration and
marketing expenses were offset by upgrade programs for the Company's
Genisys(R) and Quantum products, and by increased expenses incurred by the
Company's German office and customer service department.
R&D expenses increased to $3,271,943 for the six months ended June 30,
1999 from $2,583,029 for the comparable 1998 period. The increase in 1999 over
1998 amounted to $688,914, or 26.7%. Payroll related expenses, materials, and
professional services accounted for much of the increase in R&D expenses in 1999
as compared with 1998. The Company believes that R&D expenses will continue to
be high throughout 1999 as the Company proceeds with its new product development
efforts, including those designed to commercialize the technology that the
Company purchased in December 1998.
The Company's operating loss for the six months ended June 30, 1999
amounted to $179,004, or (1.1%) of sales, compared with an operating profit of
$404,168, or 2.6% of sales, for the six months ended June 30, 1998.
OTHER INCOME
Other income and expense netted to $209,644 in the six months ended
June 30, 1999 compared with $282,769 in the same 1998 period. Interest income
amounted to $255,532, a slight decrease from the $307,868 recorded in 1998.
Interest expense increased by $20,789 to $45,888 in the six months ended June
30,1999 due primarily to the Company's higher average balance of its capitalized
leases.
NET INCOME
Net income for the six months ended June 30, 1999 amounted to $19,915
compared with net income of $446,509 in the comparable 1998 period. This
resulted in earnings per diluted common and common equivalent share of $.00 for
the six months ended June 30, 1999, compared with income per diluted common and
common equivalent share of $.07 in the six-month period ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities during the six months ended June 30, 1999 used
cash of $5,475,134, primarily reflecting the payment of $6,464,709 for the
December 1998 purchase of in-process research and development, an increase in
accounts receivable and prepaid expenses of $454,715 and $200,648, respectively,
and a reduction to accounts payable and other current liabilities of $183,884.
An increase in unearned maintenance revenue of $835,924 favorably impacted cash
flows in the period. In the six months ended June 30, 1998 cash provided by
operating activities amounted to $2,896,496, primarily reflecting the reduction
to accounts receivable of $2,622,282, which was partially offset by the use of
cash due to increases in inventories and prepaid expenses of $316,619 and
$51,729, respectively. Cash provided by investing activities amounted to
$2,507,065 in the period ending June 30, 1999. The proceeds from the sale of
marketable securities resulted in a net increase in cash of $3,874,187, while
the Company used cash of $710,870 and $695,805 for the acquisition of machinery
and equipment and for payments for intangible assets, respectively. The Company
used cash of $1,138,834 in its investing activities in the comparable 1998
period, including $767,118 for the acquisition of machinery and equipment and
$149,478 for the purchase of intangible assets. In the 1999 period, the
Company's financing activities used net cash of $281,981, which included
$183,220 for the purchase of treasury stock under its stock buyback program and
$101,047 for repayments of obligations under capitalized leases. In 1998,
financing activities used net cash of $67,120, including $86,278 used for
payments under capitalized leases and net proceeds from the sale of common stock
of $19,158. The net decrease in cash for the six months ended June 30, 1999
amounted to
10
<PAGE> 13
$3,244,941 as compared with a net increase of $1,690,542 for the comparable 1998
period. The Company's ending cash and cash equivalents balances as of June 30,
1999 and 1998 were $7,998,898 and $10,806,744, respectively.
At June 30, 1999, the Company's cash, cash equivalents, and marketable
securities balances totaled $8,718,621. The remainder of these assets will be
used by the Company for working capital purposes, for improvement to facilities,
for acquisitions, for new product development and tooling, for acquisition of
production equipment and computers, for increased selling and marketing
activities, and for engineering costs required to develop and commercialize the
in-process research and development acquisition. Additionally, in May 1999 the
Company's Board of Directors authorized management to increase its stock
repurchase plan to purchase up to 1,000,000 shares of its common stock. Under
this authorization, in July 1999 the Company repurchased 300,000 shares of its
common stock for an aggregate purchase price of $1,050,000 in a private block
transaction. 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 24 months.
Except for 1998, the Company has historically been unable to finance
its growth from cash generated from operations. Furthermore, the Company's
working capital requirements may significantly increase if revenue growth slows,
if R&D expenses related to new product development accelerate, including
development of the in-process research and development that the Company recently
acquired, or if significant operating losses occur. No assurances can be given
as to the adequacy of the Company's working capital to support the Company's
operations following a period of losses. If the existing cash balances are
insufficient or if working capital requirements are greater than estimated, the
Company could be required to raise additional capital. There can be no assurance
that the Company will be able to raise additional capital or that the terms upon
which such capital will be available to the Company will be acceptable.
As of June 30, 1999, the Company had gross accounts receivable of
$10,835,848, less an allowance of $542,297 for returns and doubtful accounts.
Historically, the Company's bad debt expense has been minimal. However, at June
30, 1999, large balances were concentrated with certain international
distributors. While the Company can give no assurances, it believes that most,
if not all, the accounts receivable balances will ultimately be collected.
The Company's total current assets amounted to $25,169,145 at June 30,
1999, the majority of which consisted of cash, cash equivalents, marketable
securities, inventories and accounts receivable. Total current liabilities
amounted to $7,066,225. The Company's debt is minimal, consisting primarily of
principal payments due under capital leases of $269,949. The Company estimates
that it will spend approximately $1,600,000 in 1999 for facility improvements,
production and R&D equipment, computers and integrated software, and tooling. As
of June 30, 1999, material commitments for inventory purchases from selected
vendors for the ensuing six-month period ending December 31, 1999 amount to
approximately $2,700,000.
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 countries in
which the local currency has declined in value.
11
<PAGE> 14
YEAR 2000 ISSUES
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 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's internal accounting and manufacturing
software was upgraded in 1998 to a version that the vendor has represented to be
Year 2000 compliant. The Company has been testing that software, and thus far,
the tests have indicated that it is Year 2000 compliant. 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. However, none of the Company's key vendors have identified
material Year 2000 issues, and all have represented to the Company that they are
Year 2000 compliant. 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 certain required
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.
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 develop and commercialize
the purchased in-process technology. 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 (1) will be able 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(R) rapid
prototyping system that has been especially affected by technological problems,
(2) will be able to maintain its gross margins on its present products, (3) will
be able to control its operating expenses, (4) will be able to retain and
recruit employees with the necessary skills to produce, develop, market, and
sell its products, and (5) will be able to further develop and commercialize the
purchased in-process research and development that the Company acquired in
December 1998. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive, market and
technology 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, its capital expenditure budgets,
or its engineering , selling or other budgets, which may in turn affect the
Company's results of operations or the success of its engineering efforts. 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
12
<PAGE> 15
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.
13
<PAGE> 16
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 11, 1999.
The following Directors, constituting all of the Directors of the Company, were
elected at the meeting to serve as Directors until their successors are duly
elected and qualified. The Directors elected at the Annual Meeting received the
number of votes set forth opposite their respective names:
<TABLE>
<CAPTION>
Votes Cast
---------------------------------------
For Withheld
Election Authority/Abstained
-------- -------------------
<S> <C> <C>
Scott Crump 5,569,139 107,191
Ralph E. Crump 5,600,239 76,091
Clifford H. Schwieter 5,609,434 66,896
Arnold Wasserman 5,608,109 68,221
Greg Wilson 5,609,434 66,896
Cameron Truesdel 5,562,355 113,975
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Selected Financial Data.
(b) Reports on Form 8-K.
None
14
<PAGE> 17
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.
Date: August 6, 1999 STRATASYS, INC.
By: /s/Thomas W. Stenoien
---------------------
Thomas W. Stenoien
Chief Financial Officer
(Principal Financial Officer)
15
<PAGE> 18
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
27.1 Selected Financial Data
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,998,898
<SECURITIES> 719,723
<RECEIVABLES> 10,835,848
<ALLOWANCES> (542,297)
<INVENTORY> 5,119,962
<CURRENT-ASSETS> 25,169,145
<PP&E> 7,266,880
<DEPRECIATION> (3,583,772)
<TOTAL-ASSETS> 35,131,275
<CURRENT-LIABILITIES> 7,066,225
<BONDS> 0
0
0
<COMMON> 61,020
<OTHER-SE> 27,886,147
<TOTAL-LIABILITY-AND-EQUITY> 35,131,275
<SALES> 8,864,395
<TOTAL-REVENUES> 8,864,395
<CGS> 3,232,610
<TOTAL-COSTS> 5,411,508
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,895
<INCOME-PRETAX> 321,930
<INCOME-TAX> 109,002
<INCOME-CONTINUING> 212,928
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 212,928
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
